Full text of Annual Report of the Federal Reserve Bank of Chicago : Annual Report 1968

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FEDERAL RESERVE BANK OF CHICAGO

ANNUAL REPORT 1968

To member-banks of the
Seventh Federal Reserve District
Business activity continued to increase. The performance was
marred, however, by excessive price inflation. The year saw, for
example, both one of the decade’s biggest increases in total spending
and the fastest rise in prices since the outbreak of the Korean War.
The outlook for 1969 is far from certain.
The bank’s financial statements reflect both the effects of
monetary-policy actions taken to moderate unstabilizing economic
changes and the increasing levels of business activity in the district.
Assets of the bank increased over $600 million, reaching a total
of nearly $12.8 billion. Net earnings were $417 million, compared
with $331 million in 1967. O f that, $406 million was transferred
to the Treasury.
The volume of transactions handled by the bank continued to
rise with the increase in business activity. The bank cleared and
collected 1 billion checks, received and counted 690 million pieces
of currency and over a billion coins, and performed services for
the federal government that included issuance of 29 million Savings
Bonds and processing of 3.4 million tax receipts. Services of the
discount window were used by almost 250 member-banks.
To help maintain an efficient payments mechanism and keep up
with the steadily rising workload in a labor market becoming in­
creasingly tight, the bank has continued to adopt new equipment,
procedures, and training programs. Several innovations were made
in bank operations. Changes were also made in directors and
official staff.
On behalf of the directors, officers, and staff, I thank you for
your cooperation and counsel during the year, which have helped
us provide continued high-quality service to the public through
the member-banks of the Federal Reserve System.

December 31, 1968

Prices

o f m a jo r crops lo w e r

Deposits

dollars per bushel

Industrial

rise a t a g ric u ltu ra l banks

percent, 1957-59 = 100

Government

pro du ctio n com ponents up

percent, 1957-59=100

spending h ig he r

billion dollars

% of total
3rd Q 1968

,

497

*

407

ll7 o

Higher
percent, 1 9 5 7 -5 9 = 100

billion dollars

1969

2

prices in fla te d spending

The year in review

^3usiness activity increased rapidly in
1968— in the district and the nation—
with most indicators toward year-end
suggesting continued vigor in the princi­
pal private sectors— retail trade, con­
struction, and purchases of business
equipment. The performance was mar­
red, however, by excessive price infla­
tion as demands pressed on resources,
especially manpower. There were no
clear signs that these pressures had
abated in the final months of the year,
although there were hopes that such
signs would appear early in 1969.
Total spending on goods and services
increased 9 percent in 1968, about the
same as in 1966, which had seen the
largest increase of the decade. Prices,
however, averaged 4 percent higher
than in 1967, far the largest increase
since 1951. With adjustments for price
changes, real output increased about 5
percent, twice as much as in 1967 but
less than any other year since 1963.
Given the limitations of manpower and
no-better-than-average gains in output
per manhour, the year’s advance in
physical output was near the economy’s
practical potential. Still more spending
would have been reflected almost en­
tirely in still more price increases.
W h y in flation continued
The year began with expectations
that upward pressures on prices would
ease. Unused plant capacity in basic
industries, faster growth in the labor
force, a slower rise in military outlays,
and the proposed tax surcharge were
expected to dampen price increases.
Instead, prices rose faster than in 1967,
continuing an acceleration that started
in 1963 and picked up new momentum
when U. S. forces were committed to
action in Vietnam in 1965.

Demands for additional workers
pressed the unemployment rate down
still further from the already very low
levels of 1966 and 1967, with rates for
the Seventh District going even lower
than for the nation. Nationwide, in­
creases in worker compensation nego­
tiated by major unions averaged 6
percent, compared with 5 percent in
1967, both of which were far higher
than increases in production per man­
hour. Strikes and threats of strikes in
major industries, such as motor vehi­
cles, copper, and steel, together with
rapid employee turnover and high ab­
senteeism (both of which are associated
with tight labor markets) hampered im­
provements in efficiency.
The fiscal measures adopted at mid­
year— raising taxes and reducing plan­
ned spending— had less impact on total
demand than had been expected.
Growth in money and credit was very

rapid in 1968, with both the public and
private sectors borrowing heavily to
accommodate increases in spending.
Despite ample plant facilities and
adequate supplies of most raw mate­
rials, many sellers responded to rising
costs and reduced profit margins by
raising prices. And most of the increases
were sustained in the marketplace by
strong demand.
The fe d e ra l fiscal p a ck ag e
From mid-1965 to mid-1968, federal
expenditures rose faster than private
expenditures. Defense accounted for
more than half the increase, but outlays
for nondefense purposes also rose sub­
stantially, mainly in the form of transfer
payments to individuals and grants to
state and local governments.
The rate of increase in defense out­
lays slowed starting in the third quarter
of 1968, with further increases attrib­
utable largely to higher pay for military
and civilian personnel. Procurement
was reduced, and output of military
goods began to decline. Temporarily at
least, one of the most expansionary and
inflationary forces was dampened.
The Revenue and Expenditure Con­
trol Act, passed in late June, imposed a
10-percent surcharge on corporate
profits taxes (effective January 1) and
individual income taxes (effective April
1), accelerated the payment of cor­
porate taxes, and extended certain ex­
cises scheduled to expire. These tax
measures are expected to increase fed­
eral receipts about $15 billion in the
fiscal year ending June 30, 1969. Con­
gress also directed that federal expendi­
tures be held to a total of $180 billion
for fiscal 1969. Certain categories of
expenditures were excluded, however.
Increases in outlays for Vietnam, inter­
3

est on the public debt, veterans’ benefits,
and payments from Social Security trust
funds (specifically exempted from cuts
under the act) will cause total expendi­
tures to rise several billion dollars be­
yond the legislated “ ceiling.”
Many were convinced for more than
two years before the act was passed that
fiscal as well as monetary restraints
were needed to dampen inflationary
pressures. The act provided some of this
restraint. Without this legislation, the
huge $25-billion deficit in the federal
budget for fiscal 1968 would have been
approached in fiscal 1969. As things
are now, the budget is expected to be
about in balance.
Opinions regarding the extent of the
impact of these fiscal measures on the
private economy have varied. Certainly,
the “ overkill” of inflation many feared
did not occur in the second half of 1968.
Consumers and many businesses in­
creased their expenditures substantially.
Efforts to reduce the federal deficit
are clearly contributions to economic
stabilization. Moreover, the full impact
of the more restrictive tax and expendi­
ture policies will not register until well
into 1969. Social Security tax rates were
increased in January 1969, and many
people will have additional payments to
make on their 1968 income-tax liabili­
ties because the higher withholdings
from payrolls did not begin until July,
even though the tax surcharge was
passed retroactively to April. Also, if
the rise in government expenditures
were to be effectively restrained, the
tendency of tax receipts to rise with

4

income would have a continually tight­
ening effect on private spending. After
midyear, expenditure programs will be
influenced increasingly by policies of
the new Administration and Congress.
C ap ital e x p e n d itu re s rise
Total output of machinery and equip­
ment was rising in late 1968, after more
than a year of near-stability. But new
orders were increasing even faster,
partly because of higher prices. Govern­
ment and private surveys indicated a
rise of 8 percent or more in total spend­
ing on new plant and equipment in
1969. An even larger rise in outlays of
manufacturers was indicated. In years
of rising outlays, such surveys have
tended to undershoot actual results.
About half of the expected increase
could be traced to expectations of
higher prices.
About a third of the nation’s pro­
ducer durable equipment and even
higher proportions of its motor vehicles,
farm, construction, and railroad equip­
ment, and electrical apparatus are man­
ufactured in the Seventh District.
E specially heavy concentrations o f
equipment producers are found in the
Chicago, Milwaukee, Detroit, Indian­
apolis, Peoria, and Quad-Cities areas.
Both the rising trends in orders for
producer equipment and the results of
the surveys have surprised those em­
phasizing the apparent large amount of
unused plant capacity. But much of the
existing capacity is not capable of pro­
ducing goods of required qualities at
competitive costs. Some buyers of
equipment want not only to reduce
costs, especially labor costs, but also to
reduce labor requirements because of
the problems in recruiting and keeping
adequate staffs.
Expenditures on plant and equip­
ment were about 5 percent higher in
1968 than in 1967. But because prices
rose about the same proportion, there
was little, if any, increase in physical
volume. There were large increases in
the outlays of airlines, truckers, and
public utilities. Railroads and farmers
spent substantially less than the year
before. Construction companies, mining
concerns, merchants, and most manu­
facturing industries spent about the
same amounts both years. Outlays for
most categories of equipment, including
the depressed categories of farm and

railroad equipment, are likely to in­
crease in 1969.
From 1964 to 1966, expenditures on
plant and equipment increased about 15
percent a year— about twice as fast as
spending on all goods and services. But
in 1967 and 1968, plant and equipment
expenditures rose only about half as
much as total spending.
The boom in capital expenditures in
the mid-1960s was unprecedented in
the postwar period. Coming after a
time when business fixed investment
appeared to lag badly, investment tax
credits and special rules allowing rapid
depreciation encouraged outlays on new
projects. By mid-1966, backlogs of
orders for new business equipment had
reached the point where lead times on
new orders were stretched out far be­
yond normal waiting periods. The re­
sults were rising prices, discouragement
of exports, and stimulation of imports.
Excessive demands were made on the
resources of Midwest centers specializ­
ing in the output of producer equip­
ment.
The reduced tempo of spending on
new equipment in 1967 and most of
1968 resulted in steady declines in the
backlogs of orders. Most producers
vigorously sought additional orders.
Trends in the second half of 1968 sug­
gest their efforts were successful. One
of the favorable prospects for 1969 ap­
pears to be an advance in spending on
plant and equipment about in line with
the advance in spending on all goods
and services. A return to the very rapid
growth rates of 1964-66 would suggest

Employment

o f w a g e and

sa la ry w o rke rs rose s te a d ily
million workers

70 r

I

T

1964

■

1965

1966

1967

1968

Construction activity
increased tho u gh lim ite d
b y la b o r shortage

additional pressures on an economy
already over extended.
Construction costs so ar
Outlays on new construction rose
more than 10 percent, but allowance for
higher costs brings the increase in phys­
ical terms down to only 4 or 5 percent.
Building materials were in ample sup­
ply, although some prices rose sharply.
Credit was generally available, although
at high rates of interest. Activity was
limited, however, by manpower short­
ages in most building trades.
Electricians, plumbers, carpenters,
masons, and structural-steel workers
were all in strong demand, especially in
the larger centers of the district. Labor
contracts negotiated by the building
trades called for average increases in
compensation of 7 percent or more a
year. Most of these agreements were
reached without work stoppages, but a
strike in Michigan delayed many pro­
jects in May, June, and July.
Construction contracts reported by F.
W. Dodge were at high levels through­
out the year, and they were especially
strong in the second half. Contracts for
commercial structures and apartment
buildings led other types of construc­
tion. Many federal projects were de­
layed or postponed in line with economy
programs restricting all but the most
essential projects.
A t the beginning of the year, 1.4
million housing starts were expected.

Because of prospective credit stringen­
cies, there were fears for several months
that the nation could not reach this
total, but starts finally proved even
higher than projected, exceeding 1.5
million. Savings inflows to thrift institu­
tions, although below the high 1967
rates, held up better than expected. The
main strength in housing, however, re­
flected increases in starts of multifamily
structures financed by insurance com­
panies, pension funds, and other inves­
tors that do not make single-family
home loans in substantial volumes.
In addition to permanently situated
housing, purchases of mobile homes—
a large proportion of which are manu­
factured in Indiana and Michigan— in­
creased from a record 240,000 units in
1967 to 300,000 in 1968.
Vacancy rates were low in most of
the nation, and especially in the Seventh
District, where the Chicago area is re­
ported to have the strongest housing
market of any large center. Higher fam­
ily incomes and a rising trend in mar­
riages suggest a continued increase in
home building— assuming the avail­
ability of labor and an adequate volume
of mortgage credit. Projections for 1969
commonly foresee 1.6 to 1.7 million
permanent units and maybe 350,000
mobile homes. The 1968 Housing and
Urban Development Act, which pro­
vides for federal rent and mortgage
subsidies and a variety of other meas­
ures to increase the flow of funds into
home mortgages, may play an important
role in boosting residential construction.
Total construction is almost certain
to increase in 1969, with manpower
again probably the limiting factor. Pri­
vate residential and nonresidential
building will doubtless increase. Any
slack that might develop in the con­
struction industry would signal the acti­
vation of delayed federal, municipal,
and private projects.
Record y e a r fo r autos
Most projections at the start of 1968
indicated sales of about 9 million pas­
senger cars and about 1.6 million
trucks. But passenger-car sales reached
9.6 million, well above the expected
level and even higher than the record of
9.3 million set in 1965. Truck sales
exceeded 1.8 million, reaching a new
high by a wide margin.
Developments in the motor-vehicle

Output

o f m otor vehicles

and business e q u ip m e n t rose
w ith to ta l p ro d u ctio n *
percent, 1st quarter 1964=100

r
. 1
.1
|40 _business equipment^

V

1964

1965

1966

1967

1968

*Federal Reserve Board, index of Indus­
trial Production.

industry are of special interest to the
Midwest. About 43 percent of the na­
tion’s workers engaged in the produc­
tion of motor vehicles and parts are in
Michigan, and 13 percent are in Indi­
ana, Wisconsin, and Illinois.
Auto sales were inflated somewhat in
1968 by a carryover of demand result­
ing from strikes that cut production in
the fourth quarter of 1967. Another
factor was the increase in sales of im­
ported cars, which reached 950,000
and accounted for about 10 percent of
total sales— the largest proportion since
1959. To compete more effectively with
small European and Japanese cars, all
major U. S. producers have reported
that they are developing “ subcompact”
models, but they have not announced
introduction dates. Part of the rise in
truck sales was accounted for by con­
sumers buying vehicles for such per­
sonal uses as to carry campers.
Sales of domestically produced autos
were at all-time highs for six successive
months, May through October. Ob­
viously, strike-deferred demand and
higher imports were not the major
causes of the record auto sales. The
vigor of demand reflected rising in­
comes, the ability and willingness of
consumers to use instalment credit, and
the high priority attached to private
transportation.
In early summer, large inventories of
1968 models suggested to many ob­
servers a slow start on sales of new
5

models, but stocks were worked off
without difficulty. Prices of new cars
were raised about 3 percent in the fall,
partly because of additional safety
equipment required on new models.
Producers were watching sales
closely late in the year to keep produc­
tion schedules in line with expected
demand and maintain inventories at
desired levels. Buyer response to 1969
models appears to have been excellent,
but trends in sales have changed rapidly
in the past. Industry leaders were look­
ing forward to a good year in 1969, but
sales are not commonly expected to
reach the extremely high level of 1968.
Ste e l strik e a v e rte d
The year’s most important labor
negotiations in the Midwest were in the
steel industry. Almost 30 percent of the
nation’s steel is produced in Indiana,
Illinois, and Michigan. As in 1962 and
1965, a strike was averted by a labormanagement agreement reached shortly
before the contract termination date—
August 1. The new three-year contract
provides increases in wages and bene­
fits worth about 6 percent a year. In
broad outline, the pact is similar to
those previously negotiated in the auto,
farm equipment, and construction-ma­
chinery industries.
Steel users began accumulating addi­
tional inventories in January as a hedge
against a possible work stoppage, and
purchases of steel accelerated further in
April. By August, users had increased
their holdings to 15 million tons, from
9 million tons at the start of the year.
Part of the 1968 increase in imports of
steel was related to strike-hedge buying.
Some deliveries from abroad were de­
layed because a strike closed the St.
Lawrence Seaway in July.
Production of raw steel reached a
record annual rate of 152 million tons
in late April, when it began a gradual
decline. Shipments of finished steel
products from the mills continued to
rise, reaching a record high in July,
normally a month of reduced activity.
Reductions in inventories of steel
began in August and continued in the
months following. T o the surprise of
some industry analysts, new orders be­
gan to rise in September and production
turned upward again in October. In
November and December, orders from
most classes o f steel users were
6

strengthening and workers laid off
earlier were being recalled. The rise in
production was especially marked in the
Chicago and Detroit areas, partly be­
cause of orders from the auto industry.
The inevitable decline in steel pro­
duction after August 1 slowed general
business activity in the district, but less
than in the months following the wage
settlement of 1965. Smaller inventories

had been accumulated, and the rate of
use was higher.
More than 130 million tons of raw
steel was produced in 1968, close to the
1966 record of 134 million. Shipments
of finished steel from the mills totaled
about 91 million tons, just under the
1965 record of 93 million tons. Imports
of steel from Japan and Western Europe
exceeded 17 million tons, half again as
much as the previous high in 1967, and
accounted for about 15 percent of do­
mestic supplies. Users fabricated more
steel than in any previous year.
Steel companies tried to raise prices
after the labor agreement, but increases
were hard to maintain in a highly com­
petitive market. Prices of some types of
steel in excess supply were under down­
ward pressure. Prices of hot rolled
sheets were reduced in November, but
some of the reduction was restored in
December. Numerous adjustments were
made for other products, up and down.
The price structure for most types of
steel had clearly become unstable.
Foreign steel has been delivered to
U. S. customers in recent years at $20
to $30 a ton less than domestic steel.
Unlike imported autos, most imported
steel is equivalent to its U. S. counter­
part. American companies have pro­
tested that foreign producers are aided

Farmers7 cash receipts

fro m livestock
up in 1968, but receipts fro m crops d o w n
percent change from year ago

-

6

-------- — — ---------

---------------

---------------------------------------------------------------------------

_ Q

--------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

-10

---------------

---- --------------------------------------------------------

-12----------------------------------------------------------------------------------------------Illinois

Indiana

Iowa

Michigan

Wisconsin

Seventh District

by lower labor costs and subsidies and
that foreign steel is sold at lower prices
in the United States than in home mar­
kets. As a result, producers in this
country have pressed strongly for
quotas, tariffs, or other barriers to limit
foreign competition. There were indi­
cations late in the year that, faced with
such threats, foreign producers were
considering voluntary reductions in
their exports to the United States. I f so,
domestic steel production in 1969 is
expected to approximate the 1968 total.

Record feed-grain acreage

id le d under g ove rn m e n t p ro gram

m illion acres
4

Sm all rise fo r farm incom e
Farmers did not share fully in the
rapid rise of the economy in 1968. Pro­
ducers’ gross incomes were bolstered by
higher receipts from sales and substan­
tially larger government payments. But
production costs were also up, limiting
gains in net income to only a small rise
over the year before.
Livestock feeders generally fared
better in the district than farmers grow­
ing crops. Although more feeding
boosted meat production about 4 per­
cent, prices continued high as a result
of strong consumer demand. Cattle
prices averaged $2 a hundredweight
higher than in 1967. While prices of
hogs averaged slightly less than in 1967,
they held up better than might have
been expected in the face of the increase
in supplies. Favorable prices combined
with reduced feed costs to raise returns
of most feeders above the level for
1967 and most other years.
Dairy farmers also received higher
incomes and for much the same reasons
— higher prices (government price sup­
ports were raised early in the year) and
lower feed costs. Dairy herds continued
to decline, but at a slower rate than in
1967.
Grain producers were in much the
same situation as the year before. Rapid
expansion in grain inventories, resulting
mainly from the bumper 1967 harvest,
brought a revision in the government’s
feed-grain program that made participa­
tion more attractive. District farmers
responded by diverting a record 9.4
million acres from feed-grain produc­
tion— nearly 4 million more than the
year before.
Despite a substantial reduction in the
acreage planted to corn— the district’s
important feed grain— another year of
favorable weather and continued im­

provement in farming practices pushed
yields to record highs in four states of
the district. Only in Illinois, where a
record of 100 bushels per acre was set
in 1967, did yields decline. The result
was that production for the district as
a whole was only 5 percent less than
the record in 1967.
Prices of corn averaged well below
1967 levels throughout the year. For
producers participating in the govern­
ment program, however, larger pay­
ments about offset the lower prices.
Soybean production increased, re­
flecting both larger acreage and higher
yields. Output broke the record set in
1967 by about 20 percent. Prices were
depressed much of the year, not only by
the 1968 crop but also by the huge
carryover from 1967.
Farm in vestm en ts d eclin ed
Many farmers reduced purchases of
new capital goods. Purchases of trac­
tors, the largest expenditure item, were
off about 23 percent. Purchases of com­
bines and balers, also important equip­
ment items in the Midwest, declined 13
and 12 percent, respectively.
Average land values were higher in
all states of the district. But the in­
creases over 1967 were small, appar­
ently reflecting tight credit conditions
and low crop prices. In Illinois, the na­
tion’s leading producer of corn and

soybeans, land prices declined in the
third quarter. In Iowa and Indiana, the
district’s other major grain producing
states, statewide gains in land prices
averaged less than 1 percent. The gains
were larger in Michigan and Wisconsin,
where cash grain crops are less impor­
tant. Fewer transactions in farm real
estate were reported, the slack off being
attributed to reductions in both offer­
ings and demand.
Farm cred it use la rg e r
Farmers of the Midwest continued to
make greater use of credit. A t midyear,
real-estate loans at district banks were
about 12 percent higher than a year
before. The rise was near the increases
of other recent years and surprisingly
strong in view of the further increase
in mortgage interest rates and the ap­
parent softening in the farmland market.
Because credit granted by major non­
bank lenders remained low, bankers
probably extended a greater proportion
of the district’s total farm-mortgage
credit than in 1967.
Nonreal-estate loans to farmers also
increased— reaching a level about 7
percent higher at midyear than in mid1967— but only about half as much
as in the two previous 12-month pe­
riods. The smaller increase was as­
sociated with the decline in crop acre­
age and the reduction in purchases of
7

farm machinery. Many farmers also
tried to hold down borrowings because
of their lower incomes and the higher
costs of credit. Demand for short-term
farm loans was reported to have picked
up later in the year. This probably re­
flected the sharp increase in cattle feed­
ing, a major factor affecting loan de­
mand.
More than two-thirds of the agricul­
tural bankers surveyed in late fall re­
ported funds more available than in the
previous year. Near year-end, demand
deposits at rural banks were up 5 per­
cent from a year before and time de­
posits were up about 13 percent.
B alan ce of p a ym en ts
The balance-of-payments deficit im­
proved markedly during 1968, both on
a liquidity basis and on the basis of
official transactions, with the result that
exchange pressures on the dollar were
lessened late in the year. Improvements
in the payments balance, however, may
have largely reflected the economic
problems in England, France, and West
Germany and the political develop­
ments in Czechoslovakia that precipi­
tated large flows of funds within and out
of Europe. If so, the improvement,
based on capital flows, was probably

8

temporary. The U. S. trade balance
deteriorated substantially last year, and
at year-end there was only limited basis
for expecting significant improvement
in this important component of the
overall payments balance in 1969.
In defending the dollar against the
pressures of continued payments deficits
and speculation in exchange markets,
heavy reliance was placed on the net­
work of currency swap agreements that
make specific amounts of one country’s
currency available for another to draw
on as needed. The swap network was
nearly doubled last year— the total
authorized lines rising to more than $10
billion. Federal R eserve drawings
totaled $. . . million at year-end, com­
pared with $1.8 billion a year before.
Holdings of foreign currencies rose
more than $1 billion.
Important in stopping the outflow of
gold early in the year was an agreement
reached in March with other major
central banks to maintain the existing
currency parities and abstain from buy­
ing or selling gold in private markets.
The central banks also agreed not to
sell gold to other monetary authorities
for use in replacing gold sold to the
private market. This stabilized the price
of gold used in official transactions be­

tween countries at $35 an ounce while
allowing the price in private markets to
respond to shifts in supply and demand.
Recurrent speculative movements of
funds, reflecting doubts about the vi­
ability of existing exchange relation­
ships between currencies, have their
roots in both the imbalances in interna­
tional flows of goods, services, and
capital and in political developments in
various countries. While it was neces­
sary on several occasions in 1968 to
undertake special measures to moderate
exchange pressures on the dollar, the
basic strength of the dollar depends
not on such short-run efforts but on the
long-run ability of American business
to compete effectively in world markets.
This ability, in turn, depends largely on
the trend of costs in the United States
relative to trends in other major indus­
trial countries.
B an k cre d it up s h a rp ly
Strong demands for funds came with
the rise in public and private expendi­
tures. The amount of credit commercial
banks supplied varied with their ability
and desire to obtain loanable funds.
Although expansion in total bank credit
was moderate early in the year, it was
very rapid in the second half. Total
loans and investments of member-banks
in the Seventh District rose about 11
percent— roughly the same as the
record set in 1967. Although the pat­
terns of growth shifted with the types
of credit and classes of bank, the gain
for banks in the district about matched
the gain for the nation.
District banks reported substantial
gains in all major types of earning as­
sets, but loans rose faster and govern­
ment securities slower than in 1967.
S tro n g e r loa n dem and p e rs is te d
throughout the year, especially at the
district’s largest banks. Total loans of
banks with deposits of $500 million or
more rose 11 percent in the 12 months
ended November 1— more than twice
the rise in 1967. The district’s 15 banks
in this size, located in six major M id­
west cities, account for nearly half the
deposits and more than half the earning
assets of all its member-banks.
Until late in the year, business de­
mand for loans was a small factor in
credit growth. In the year ended
October 30, commercial and industrial
loans, which make up half the total

loans at the largest banks, increased
only 6 percent, compared with 10 per­
cent in 1967 and 16 percent in 1966.
The more modest growth in business
loans reflected reduced demands by
such important users of credit as ma­
chinery producers and mining com­
panies. Loans to public utilities and
producers of primary metals increased
substantially. A ll growth in business
loans of large banks was accounted for
by term loans with original maturities
longer than one year. Such loans rose
about 20 percent at banks that report
this information and now account for
more than half their total business
loans. Term loans increased relative to
total loans in nearly all industries.
Real-estate loans increased 17 per­
cent at the largest banks and 15 percent
at those with deposits of $100 to $500
million. These increases were 50 per­
cent larger than in 1967. Both groups
of large banks also reported fairly strong
increases in loans to consumers and
nonbank financial institutions. Both
classes of loans reflected the sharp rise
in expenditures for consumer durables,
especially automobiles.
Total loans of smaller banks— those
with deposits under $ 100 million— also
rose about 11 percent, which was
slightly more than in 1967. In all five
district states, banks of this size re­
ported large gains in real-estate and
consumer loans. Nonreal-estate farm
loans increased less, however, than the
year before.
Part of the loan increase at smaller
banks reflected their growing practice of
selling surplus reserves in the federalfunds market. Such transactions are
classified as loans in the semimonthly
reports of small banks. Starting early in
the spring, the federal-funds rate aver­
aged well above yields on most other
short-term investments. High returns,
plus the liquidity of one-day maturities,
make this market a very attractive out­
let for excess funds. During a two-week
period ending in early October, average
sales of federal funds by member-banks
with deposits under $100 million were
nearly twice the sales for the same pe­
riod in 1967. Although less than half
these banks participate in the market,
federal-funds transactions accounted
for nearly 12 percent of the total rise in
their loans and represented about 3 per­
cent of their total loans outstanding.

G o v e rn m e n ts an d m unicipals
Changes in bank investments largely
reflected strong demands for credit by
federal, state, and local governments.
Treasury issues were larger than in any
other year since World War II. District
member-banks’ holdings of government
securities and government-agency issues
rose almost as much as loans. New
state and local issues set another high,
and they too were bought in large
volume.
Purchases of U. S. governments were
concentrated at the largest Chicago
banks dealing in Treasury issues. These
banks increased their holdings more
than would normally be associated with
the distribution function, however. An
important factor contributing to the
larger holdings was undoubtedly the ex­
pectation that interest rates would de­
cline after midyear and prices of se­
curities would rise. As loan demand
strengthened and interest rates rose
toward year-end, dealer-banks reduced
their portfolios of governments. Mean­
while, in contrast to a substantial rise in
1967, most nondealer-banks reported
either declines or only small increases in
holdings of governments.
Member-bank holdings of other se­

curities, mostly municipals, rose 15 per­
cent. Bank holdings of municipals con­
tinued to rise faster than either loans or
U. S. governments. Although the total
rise was roughly the same as in 1967,
the largest banks accounted for a much
larger proportion. As in the case of
governments, increased holdings of
municipals by these banks reflected
both the role of the banks as under­
writers of new issues and expectations
of rising market prices. Smaller banks
in Indiana and Iowa, however, also ac­
quired municipals faster than they had
the year before.
Time d ep o sit g ro w th m o d erated
Changes in total credit outstanding
closely paralleled changes in deposits.
The exception was the largest banks,
which have access to the capital and
Eurodollar markets. O f the district
states, Indiana, which modified its re­
strictive regulations over time-deposit
interest rates, showed the largest gains
in deposits.
In the first half of the year, the rate
of deposit growth dropped sharply from
the 1967 rate, especially at the largest
banks. However, these banks issued
large amounts of negotiable CDs in the

Mortgages

w e re the fastest g ro w in g
loan com ponent in a ll three b an k size groups

financial
institutions

* Y e a r ended O ctober for w eekly reporters and June for sm aller banks (deposits under $100
million).
X: N egligible.

9

summer and early fall, when market
rates were lower. Their net gain for the
year was about the same in dollar
amount as the year before.
Many banks also promoted the sale
of smaller deposit certificates. A new
device to attract personal savings was
the 90-day notice “ golden passbook”
account. Interest up to 5 percent can be
paid on these accounts. Most banks re­
quire a minimum opening balance of at
least $1,000. That way, they can both
attract new savings and retain funds of
regular passbook savers looking for
higher yields. A t weekly reporting
banks with total deposits of $100 mil­
lion or more, passbook savings declined
about $300 million during the year
while “ other” time deposits (excluding
negotiable CD s) increased more than
$1.2 billion.
Total time deposits of member-banks
in the district rose 11 percent, compared
with 17 percent in 1967. Although
time deposits continued to be the major
source of bank funds, demand balances
rose almost 6 percent— one of the
largest gains on record.
More than three-fourths of the de­
posit growth of member-banks in the
past five years— whether banks were
large or small— has been in time de­
posits. During that time the composition
of bank assets has shifted toward
longer-term assets, especially real-estate
loans and municipal securities. Loandeposit ratios have also risen, reducing
bank liquidity. The trend reflects both
the feeling of reduced need for liquidity
and shifts into assets with higher yields.
M o n e ta ry po licy— aim s, actions
The year opened with monetary
authorities facing an inflationary situa­
tion in which rising prices threatened
not only domestic economic stability
but also the position of the dollar as a
world currency.
Given the already high level of inter­
est rates and apprehension over a pos­
sible repetition of the credit squeeze of
1966, it was hoped that the surtax pro­
posed by the President in mid-1967
would be adopted early in 1968 and
relieve monetary policy of some of the
burden of providing needed restraint.
Pending fiscal action, the Federal R e­
serve took a number of restrictive steps.
Effective in January, reserve require­
ments on demand deposits of more than
10

$5 million were increased half a percent
— from 16.5 to 17 percent at reserve
city banks and from 12 to 12.5 percent
at country banks. This action, an­
nounced just before the turn of the
year, was the first increase in required
reserves on demand deposits since early
1951. More than $500 million of
member-bank reserves were absorbed
initially, but the impact on the ability
of banks to extend credit was moder­
ated through open-market operations.
In March, the Federal Reserve dis­
count rate was raised from 4.5 to 5
percent. And in April, it was raised to
5.5 percent. The earlier increase was
prompted in part by large outflows of
gold associated with speculation that
the gold price might be raised. The
further increase in April followed a
Federal Open Market Committee de­
cision to move, in view of the continued
acceleration in economic activity and
upward pressures on prices, toward
firmer money-market conditions.
Concurrent with the second boost
in discount rates, Regulation Q was
amended to raise the maximum interest

Interest rates

percent per annum

rate on large CDs with maturities of 60
days or more from a flat 5.5 percent to
a scale ranging up to 6.25 percent on
certificates with maturities of 180 days
or more. With market rates on compet­
ing money-market instruments rising to
new highs, ceiling rates on CDs with
longer maturities were lifted to avoid
large runoffs to other investments.
Also in March, margin requirements
on listed stocks were extended to cover
lenders other than banks, brokers, and
dealers. And in June, margins for all
lenders were raised from 70 to 80
percent. Requirements for convertible
bonds, which had been imposed only
shortly before, were boosted from 50 to
60 percent.
The system’s open-market opera­
tions, provided only a moderate increase
in reserves to support deposit and credit
expansion in the first half of the year.
From late November 1967 until mid1968, total reserves of all memberbanks, adjusted fo r effects o f the
changes in reserve requirements, grew
at an annual rate of less than 4 percent.
That was faster than during the period

reach n ew highs in a ll sectors

of restraint in 1966 but well below the
very rapid increases made during most
of 1967. Between November and June,
the annual rate of growth in bank credit
slowed to less than 7 percent, compared
with 11 percent during that period a
year before.
As in 1966, the overall availability
of bank credit was closely related to the
rate at which major banks acquired
funds through the issuance of CDs.
When yields on securities available in
the market move up to the Regulation Q
ceilings, CDs tend to run off. Despite
the April increase in rate ceilings, the
growth of time deposits slowed in the
first half to an annual rate of 5 percent,
compared with 16 percent in 1967.
The money supply— demand de­
posits and currency held by the public
— continued to rise rapidly, partly be­
cause the Treasury reduced its deposits
at commercial banks. Currency in­
creased 40 percent faster than the year
before.
With the adoption of restrictive fiscal
measures in June, a slower rise in both
economic activity and credit demands

percent

was widely expected. Partly as a result
of these expectations, interest rates de­
clined. To bring Federal Reserve dis­
count rates more into line with the
market, they were reduced in late
August from 5.5 to 5.25 percent. Openmarket operations were also aimed at
“ accommodating the tendency toward
somewhat less firm conditions in the
money market.”
Credit demands remained strong,
however, and bank loans and invest­
ments rose sharply. Commercial bank
credit rose in the third quarter at an
annual rate of almost 20 percent—
faster than in any other quarter since
early 1958. Some of the increase prob­
ably represented “ reintermediation” —
an increase in the banks’ share of total
credit extended— as the large banks
were able to bid successfully for CD
money.
Meantime, the decine in interest rates
was reversed. In recognition of both the
higher market rates and the need for
increased restraint, Federal Reserve
discount rates were restored to the 5V2percent level after mid-December. Be­

fore year-end, rates offered on all CD
maturities were again at Regulation Q
ceilings and outstandings were declining.
In te re st ra te p a tte rn s
A t year-end, most interest rates were
at new highs in the experience of today’s
generation. Temporary downswings in
rates during the year were attributed
mainly to expectations of slowing credit
demands and to the accommodation of
monetary policy to fiscal action and
Treasury financing needs. Upswings
were associated with underlying strength
in the demand for funds.
Yields on short-term securities rose
relative to those on long-terms, exceed­
ing them in some markets. Early in the
year, the cost to banks of borrowing in
the federal-funds or Eurodollar markets
moved well above yields on short-term
securities and remained so during the
May-to-August period of declining
rates. The persistence of this pattern re­
flected expected capital gains on sales
of securities associated with the ex­
pectation of further declines in yields.
The basic interest rate major banks

percent

11

charge prime business customers was
changed four times— from 6 to 6.5 per­
cent in April, to 6.25 percent at most
banks in September, back to 6.5 percent
in early December, and to an all-time
high of 6.75 percent later in the month.
In long-term markets, changing
spreads were related to special factors
affecting the supply and demand for
funds and securities. The municipal
market had to cope with the largest
volume of new issues on record. The
volume of municipals was further swol­
len by sales of industrial revenue bonds
before year-end, when issues larger
than $1 million would lose their taxexempt status. Fewer new securities
were issued in the corporate market
than in 1967, partly because of in­
creased use of industrial revenue bonds
and the commercial-paper market. As
in other years, new issues of long-term
governments were again barred by the
4.25-percent statutory coupon ceiling.
Residential mortgage rates rose
sharply in the first half of the year and
more slowly in the second. Despite high
interest rates, the flow of funds into
mortgages was well maintained, partly

Assets and deposits

o f the d istrict m em ber banks
rose a t a pace s im ila r to 1967, b u t d iffe re d
m a rk e d ly fo r some groups o f banks
Gross
loans

1967

U. S. government
securities

1968

1968

1967

Total
deposits

1968

1967

1968

(p e rce n t ch a n g e in tw e lve m onths e n d e d O c to b e r)

A ll m e m b e r b a n k s

+ 13

9

|

+ 15

+ 15

+ 19

+ 22

i

+ 10

+ 19

+ 13

+

5

+ 24

+

4

+ 30

+ 11

+

7

+

0

+ 18

+ 7
+ 14

+ 10

+ 10

+

9

O v e r 500

+

5

+ 11

1 0 0 -5 0 0

+ 14

+ 10

A ll o th e r

+ 10

+ 12

+

C h ic a g o

+

9

+

7

+ 11

+ 30

+

5

+ 19

+ 10

+

D e tro it

+

8

+ 17

+ 38

+

9

+ 18

+ 18

+ 12

+ 12

+ 11

+

+ 11

+

8

By siz e

5

By a r e a
M a jo r c itie s
4

M ilw a u k e e

+

2

+

8

+ 51

+

1

+

4

+

6

+

9

+

In d ia n a p o lis

+

2

+ 20

+ 15

+ 18

+

6

+ 19

+

6

+ 17

D es M o in e s

+ 11

+ 10

+

6

6

3

0

+ 68

-1 3

+ 16

+

7

9

O th e r a re a s
Illin o is

+ 10

+ 10

+

—

1

+ 23

+ 16

+ 10

+

M ic h ig a n

+ 12

+ 14

+ 10

-

3

+ 19

+ 11

+ 12

+ 11

W is c o n s in

+ 10

+ 14

+

5

-

1

+ 30

+

+ 12

+ 10

In d ia n a

+

+ 12

+

5

+

1

+ 19

+ 21

+

7

+ 16

Io w a

+ 12

+

+

6

+

9

+ 16

+ 23

+ 11

+ 11

5

7

as a result of liberalization of usury laws
in several states. Heavy commitments
by major morgtage lenders at year-end
and sluggish savings flows into inter­
mediaries suggested no near-term de­
cline in home financing charges.
Interest rates will be influenced— in
1969 as in 1968— by credit needs of
private and public borrowers as well as
by monetary policy. Despite expected
reduction in federal demands for credit,
the many factors influencing other
credit needs make the future course of
interest rates uncertain.
U nsolved p ro blem s fo r 1 9 6 9
In the fourth quarter, a resurgence
in retail trade, a sharp increase in orders
to manufacturers of durable goods,
further tightening of the labor market,
and continued price increases all showed
the economy retained strong momen­
tum. As the year drew to a close, many
observers were projecting these trends
into 1969, expecting continuation of the
tight labor market and little, if any,
moderation of price inflation.
12

1967

O ther
securities

8

The seeming failures of fiscal restraint
in 1968 cannot be taken as evidence
that higher taxes do not tend to reduce
private spending or that curtailment of
public spending does not release re­
sources to meet other needs. The re­
straints imposed in June were intended
to dampen excessive exuberance, not
cause a decline in total business activity.
The restraining influence of the fiscal
package simply was not adequate in the
face of the increases in nonfederal
spending and borrowing.
Price inflation to the extent experi­
enced in 1968 has not been accepted by
the public or its leaders in business,
labor, and government as either desir­
able or necessary for economic growth
and high employment, and it clearly is
an important source of the weakness in
the U. S. balance of international pay­
ments. A matter of high priority in the
new year, therefore, must be a search
for better tools and methods of eco­
nomic management. The answer may be
partly found in a more effective com­
bination of monetary and fiscal policy.

Regulatory changes

T„.

board of governors made a
number of important changes in Federal
Reserve regulations in 1968 and pro­
posed others for further consideration
in 1969.
T o help reduce pressure on the dollar
built up from the accumulation of dollarbalances abroad, the board revised the
guidelines for restraint of foreign credit.
Issued January 1, these revisions low­
ered the ceiling on the amount of foreign
credit extended by banks. The board
also directed banks to reduce outstand­
ing loans to West Europe and directed
other financial institutions to repatriate
liquid funds, reduce their holdings of
certain foreign assets, and stop all new
loans and investments in West Europe
not essential for financing U. S. exports.
The initial goal— an inflow of more
than $500 million in 1968— was ex­
ceeded by a comfortable margin. The
program is to be continued essentially
unchanged in 1969.
In March, the board broadened Fed­
eral Reserve regulation of stock-market
credit. Two regulations— Regulation T,
which limits the credit brokers and
dealers can extend on registered securi­
ties, and Regulation U, which limits the
credit banks can extend for the pur­
chase or carrying of such securities—
were amended to include debt securities
convertible into registered stock. The
initial margin requirement was set at 50
percent. A t the same time, the board
issued Regulation G, which extends
margin regulation to include lenders
other than banks, brokers, and dealers
with significant amounts of loans on
covered securities.
A July amendment to the Securities
Exchange Act authorized the board to
regulate credit on securities traded over
the counter. This power had not yet

been exercised at year-end.
As directed by Congress, the board
published in October for public com­
ment a proposed new Regulation Z to
implement the Truth in Lending Act.
This act, signed into law May 29 and
scheduled to become effective July 1,
1969, applies to retailers and financial
institutions extending or arranging for
the extension of consumer credit. In
general, the law specifies disclosures
that creditors must make regarding
finance charges and annual percentage
rates, customer cancellation rights on
some types of credit arrangements, and
standards for advertising credit terms.
The proposed regulation, which incor­
porates provisions of the law, is in­
tended as a complete handbook on
“ truth in lending.” Although the regula­
tion is issued by the Federal Reserve, its
enforcement will be carried out by nine
federal agencies, each with its own
jurisdiction. The Federal Reserve will
enforce the regulation at member-banks
chartered by the states.
Further changes in statutes affecting
the board’s authority to regulate the
interest paid on deposits resulted in
changes in Regulation Q, which imple­
ments that authority. The maximum
interest rates member-banks can pay
on certain types of time deposits were
raised in April, and several technical
amendments and statements were issued
during the year clarifying Regulation
Q. A statement issued in June spelled
out the limitations on deposit transac­
tions on which member-banks can pay
as much as 5-percent interest. The state­
ment reaffirms the underlying principle
that the 5-percent rate can be paid only
on funds that cannot be withdrawn in
less than 90 days.
In September, Congress extended for

another year the board’s authority to
prescribe different rate limitations for
different classes of deposits. Any rea­
sonable basis can be used in determining
the limits to be prescribed. A t the same
time, the board and other supervisory
agencies were given authority to regulate
all aspects of interest payments on time
deposits, including bank advertising.
The same legislation (Public Law
90-505) made permanent the board’s
authority to set reserve requirements on
time deposits of member-banks between
3 and 10 percent. This authority is im­
plemented by Regulation D. Through­
out the year, reserve requirements for
savings deposits and other time deposits
up to $5 million were 3 percent. For
time deposits over that, reserves of 6
percent were required.
Also published in September were
technical amendments to Regulation D.
These amendments, making changes in
the method of reserve accounting, were
intended to accomplish two purposes.
One was to make reserve management
easier for banks both by reducing uncer­
tainties about the amount of reserves
required and by allowing banks more
flexibility in meeting their requirements.
The other was to improve the function­
ing of the money market by reducing
the sharp day-to-day variations in the
availability of funds. The amendment
(1 ) established a one-week reserve
computation period for country banks,
the same as that already applied to re­
serve city banks, ( 2 ) shifted the base
for determination of required reserves
to deposit averages two weeks earlier,
( 3 ) specified the vault cash used in
satisfying requirements was the amount
held two weeks earlier, and (4 ) per­
mitted either excesses or deficiencies up
to 2 percent of required reserves to be
13

carried over into the next period.
A preliminary version of Regulation
P, implementing the Bank Protection
Act of 1968 with respect to state
member-banks and reserve banks and
branches, was published in November
for public comment. The regulation will
set minimum standards for security
devices and procedures to discourage
crime against financial institutions and
assist in apprehension of criminals.
Under a new authorization from
Congress (also Public Law 90-505), the
board amended Regulation A, govern­
ing advances and discounts by Federal
Reserve banks. The amendment made
all obligations eligible for purchase by
Federal Reserve banks acceptable as
collateral. These include federal-agency
securities and other obligations carrying
full guarantees of principal and interest
by the United States or a federal agency.
Some of the major agency obligations
this amendment made eligible as col­

lateral for advances are Federal Inter­
mediate Credit Bank debentures, Fed­
eral Home Loan Bank notes and bonds,
Federal Land Bank bonds, Federal N a­
tional Mortgage Association notes and
guaranteed participation certificates,
Export-Import Bank notes and guaran­
teed participation certificates, notes
fully guaranteed by the Small Business
Administration, and Federal Housing
Administration debentures. In addition,
the Federal Reserve System continued
to recommend legislation permitting
Federal Reserve banks to make ad­
vances to member-banks on any col­
lateral acceptable to the reserve banks.
Also published last year was the re­
port of a Federal Reserve System com­
mittee, proposing changes in discount
policies to encourage more use of Fed­
eral Reserve lending facilities. It re­
affirmed, however, the general principle
that the discount window is intended
primarily to serve the needs of member-

banks for short-term reserve adjust­
ments.
Major recommendations were (1 )
that every soundly operated memberbank be given a “ basic borrowing priv­
ilege” up to a certain amount and for a
certain proportion of its reserve periods,
(2 ) that banks with heavy seasonal
bulges in their needs for funds be al­
lowed to use the discount window in
meeting such needs, (3 ) that other
short-term credit not covered under the
basic or seasonal arrangements continue
to be available to member-banks, sub­
ject to the same kind of administration
procedures as now applied, and (4 )
that the discount rate be more flexible
and more closely aligned with other
market rates than had been the case.
The report was published with a view
to obtaining comments from memberbanks and other interested groups. In
the Seventh District, representatives of
member-banks were invited to a series
of meetings with Federal Reserve staff
members to discuss the proposals. Im­
plementation of the proposals would
not require legislation.
The board announced several changes
in its interpretations of banking laws.
Among the most important, from the
standpoint of bank management, were
changes from earlier views regarding
the authority of banks to establish
“ operations subsidiaries” and “ loan pro­
duction offices.” After reexamining the
purposes and legislative history of the
statutes prohibiting a member-bank
from purchasing “ for its own account of
any shares of stock of any corporations”
— except as specifically permitted or as
comprised within the concept of inci­
dental powers necessary to carry on the
banking business— the board ruled that
the incidental-power clause permits a
bank to organize its operations any way
it chooses. A wholly-owned subsidiary
engaged in activities the bank itself is
authorized to perform and in the loca­
tion authorized was judged simply an
alternative organizational arrangement
to departments. Likewise, the board
ruled that, as far as federal law is con­
cerned, an office performing only serv­
ice functions, such as soliciting loans
or assembling credit information, is not
a branch and can be established and
operated anywhere in the United States.

14

The bank’s operations

ew and improved techniques are
constantly sought to help cope with the
expanding volume of transactions the
bank performs in servicing the pay­
ments mechanism. Further progress
was made during the year in automat­
ing the bank’s service functions. Tech­
nological innovations with vast impli­
cations for the future were adopted,
and efforts were intensified to further
improve the training and productivity
of employees.
An ever-present challenge is the
prompt clearing and collection of the
steadily expanding volume of checks
received from commercial banks and
other Federal Reserve banks. These av­
eraged nearly 3.4 million a day last year
— nearly 7 percent more than in 1967.

Check processing equipment has
been changed as technological advances
made faster handling possible. Since the
bank first pilot tested high-speed equip­
ment in 1961, the annual volume of
checks has increased more than 60 per­
cent. The bank and its Detroit branch
processed more than a billion items last
year. Magnetic ink encoding, a necessity
for high-speed processing, is now nearly
universal.
Installation of “ third-generation”
check-processing equipment was begun
in 1968, and full conversion to the new
system will be completed in 1969. New
techniques made possible by improve­
ments in computers and auxiliary equip­
ment have allowed the bank to maintain
fast, accurate service despite increasing

Over a billion checks w e re processed in 1968

pressures from a heavy workload and a
tight labor market. As long as checks
continue to flourish as a means of pay­
ment, still better systems will be needed
for handling them.
Operations of the Cash Department
reflected the continued rapid increase in
currency in circulation. The shortages
of coin that were widespread a few
years ago have been largely overcome.
The Kennedy half-dollar, however,
still does not circulate as an effective
medium of exchange. Last year, 27
million of these coins were distributed
to banks in the district but they “ disap­
peared” from circulation almost im­
mediately.
Another step was added to the coin
handling function— the separation of
dimes and quarters with silver content
for return to the Treasury, where the
silver is recovered and used to replenish
dwindling stocks. The old silver coins
are replaced with new clad coins.
“ Book-entry” procedures have been
adopted for Treasury securities held in
custody. The technique is expected to
save considerable time, space, and man­
power. It will gradually be extended to
other activities where it is applicable.
As fiscal agent for the United States, the
bank is authorized to issue book-entry
Treasury securities by making entries
on its records when Treasury securities
are deposited as collateral for advances
to member-banks, as collateral for tax
and loan accounts or deposits of public
money, or for the sole account of a
member-bank instead of safekeeping of
definitive Treasury securities.
Also in its capacity as fiscal agent for
the United States, the bank issued and
redeemed a near-record dollar-volume
of marketable U. S. securities last year.
Reflected in the high level of activity
15

More than two-thirds o f a b illio n pieces o f cu rren cy
w e re re ce iv e d an d co unted , a n d w e ll o v e r a b illio n coins

were both the large increase in total
U. S. debt during the calendar year and
the larger refinancing operations stem­
ming from shorter average maturities.
Nevertheless, marketable securities ac­
counted for only a small part of the total
number of U. S. securities the bank
handled. Nearly 29 million U. S. Sav­
ings Bonds were issued through issuing
agents and about 19 million were re­
deemed.
Computer applications have also
brought improvements in the efficiency
of other bank operations. Maintenance
of the reserve accounts of memberbanks has been automated in recent
years, allowing complete statements to
be sent to banks having such accounts
at the close of every business day.
Entries in tax and loan accounts of all
Treasury depositaries in the district are
also automated. With the adoption of
the new “ lagged” method of reserve
accounting, required reserves are calcu­
lated and the information sent to each
member-bank before the opening of the
reserve period for which they apply.
This is followed at the end of the period
with a statement summarizing the
member-bank’s reserve position and

OPERATIONS
Number of items
1967
1968

Value
1967

1968

(thousands)

(millions)
Clearing and collection

$

$

3 0 9 ,8 9 0

9 2 7 ,6 3 1

8 6 3 ,1 7 7

G o v e rn m e n t c h e c k s * .................................

2 2 ,5 6 9

2 1 ,8 8 8

9 6 ,5 0 4

9 6 ,4 8 9

O th e r i t e m s ........................................................

987

729

1 ,8 3 7

1,841

C o m m e rcia l b a n k c h e c k s .......................

3 3 0 ,8 9 8

Currency and coin
C u rre n c y re c e iv e d a n d c o u n te d . . .

$

C o in re c e iv e d a n d c o u n t e d .................

$

4 ,5 6 5

6 8 9 ,1 0 6

6 7 0 ,3 3 7

114

142

1 ,0 4 0 ,4 9 8

1 ,2 4 3 ,7 9 6

1 ,30 8

1,271

2 7 7 ,1 5 0

2 7 9 ,1 3 1

370

4 ,7 5 9

U n fit c u rre n cy w ith d ra w n
fro m

c irc u la tio n

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

Safekeeping of securities
D e fin itiv e s e c u ritie s * *

$

$

S e cu ritie s re c e iv e d

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

10 ,5 41

304

S e cu ritie s re le a s e d

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

8 ,6 1 5

9 ,3 5 7

399

30 0

C o upo n s d e tach ed

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

160

29 0

3 ,0 0 7

3 ,0 9 0

In s a fe k e e p in g on D ecem ber 31 .

4 ,7 7 4

9 ,3 0 4

1 ,5 0 0

1 ,5 9 5

4 ,0 8 5

Bo o k-entry T re a s u ry s e c u r it ie s * * *

$

S e cu ritie s d e p o sited

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

1 7 ,0 2 4

—

17

—

S e cu ritie s w ith d ra w n

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

1 1 ,94 3

—

13

—

O n d e p o sit on D ecem b er 31 . . .

5,08 1

—

Discount and credit
To tal lo a n s m a d e d u rin g the y e a r .

$

1 4 ,5 1 5

$

135

D a ily a v e ra g e o u t s t a n d in g .................

6 ,5 8 3
51

t

(1 9 8 ) t

1,551

13

u

$ 1 ,3 1 1,161

$ 1 ,0 7 7 ,5 6 3

910

82 4

$

$

439

39 3

(2 4 4 )

N u m b e r o f b a n k s a c c o m m o d a te d . .

Investment
P u rch ases a n d sa le s o f
se cu ritie s fo r m e m b e r b a n k s . . .

$

1 ,3 2 4

$

Transfer of funds
Funds tra n sfe rre d

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

Services to the U. S. Treasury
M a rk e ta b le se cu ritie s
Issued

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

1 3 ,9 6 2

1 3 ,4 3 4

S e rv ic e d :
S e cu ritie s re c e iv e d

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

1 8 ,7 9 5

1 4 ,9 4 5

25 3

23 2

S e cu ritie s d e l iv e r e d .......................

2 3 ,5 9 7

2 0 ,6 7 7

792

634

1 7 ,9 9 6

1 8 ,5 1 7

94 3

86 6

1 ,40 2

1 ,3 1 3

2 8 ,7 7 3

2 6 ,7 5 6

R edeem ed

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

S a v in g s bonds a n d s a v in g s notes
Issued

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

S e rv ic e d :
Bonds re c e iv e d fo r re issu e . . .

140

161

700

730

Bonds d e liv e re d on re issu e . .

140

161

795

827

Bonds d e liv e re d on re p la c e m e n t

8

7

95

75

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

1 ,2 2 4

1 ,1 2 0

1 8 ,7 8 4

1 7 ,6 8 9

F e d e ra l ta x receip ts p ro c e ss e d . . . .

1 9 ,8 7 5

1 4 ,8 3 3

3 ,4 3 1

2 ,5 8 0

R edeem ed

‘ Includes postal money orders.

fActual number.

“ Includes collateral custodies.
‘ “ Transactions previously handled through definitive securities.

17

More than 900,000 tra n s fe rs o f fu n d s w e re m ad e fo r m e m b e r-b an k s

Powerfiles w e r e in s ta lle d in 1 9 6 8 to sp eed h a n d lin g
o f se cu ritie s held in cu sto d y fo r m em b er-b an k s

carryover allowances. Both services
make reserve accounting easier for
member-banks.
Not yet operational but with great
potential for the future is an electronic
system for transferring bank deposits
and financial data. Last year, the Fed­
eral Reserve System contracted for the
key segment of a computerized network
designed to speed up the movement of
money, securities, and statistics between
Federal Reserve banks. The contract
calls for a central communications
switch to be installed at Culpeper, V ir­
ginia. The new installation, due to be
operational in late 1969 or early 1970,
will replace the leased-wire network
now in use.
The new equipment will be compat­
ible with computer facilities being de­
veloped for the use of commercial
banks and may eventually be linked to
them. With teletype equipment, the
Federal Reserve System handled a daily
average of 9,000 money transfers last
year. With the new equipment, it can
transfer funds and other data far faster.
18

Mechanization h a s e ase d the b u rd en o f m o vin g la rg e v o lu m e s o f coin

Over 2 7 7 million pieces
o f u n fit c u rre n cy w e re
w ith d ra w n fro m circ u la tio n

The equipment will also operate with
much greater capacity, both accommo­
dating expected increases in transac­
tions and allowing for gradual lifting of
restrictions on use now imposed by
the limitations in capacity of teletype
equipment.
Automation requires the develop­
ment of special skills and knowledge.
Additional emphasis has been placed on
employee-training programs as part of
the bank’s effort to keep up with the de­
mand for its financial services. Some
800 employees participated in at least
one in-bank training program last year,

and plans call for development of
several new training programs in 1969.
Videotape capability will be acquired as
an aid in broadening the training efforts.
Even with increasing mechanization,
the tight labor market incident to the
high level of economic activity has
limited the bank’s ability to acquire
needed staff. It is adapting its employ­
ment program to aid in upgrading the
skills of people previously not qualified
for employment. The results are ex­
pected both to contribute to a better
community and to tap a potential source
of needed manpower.
19

Financial statements

S T A T E ME N T OF C O N D I T I O N

December 31, 1967

December 31, 1968

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

$ 1 ,4 9 1 ,1 1 1 ,5 1 2

3 2 8 ,2 4 9 ,2 3 7

—

$ 2 ,0 0 6 ,8 1 4 ,4 4 0

$ 1 ,4 9 1 ,1 1 1 ,5 1 2

F e d e ra l R e se rv e notes o f o th er b a n k s .......................

5 3 ,5 3 7 ,0 0 0

5 8 ,0 1 1 ,0 0 0

O th e r cash

6 6 ,7 0 9 ,2 1 3

2 6 ,9 6 6 ,9 7 5

Assets
G o ld c e rtific a te a c c o u n t............................................................ . .
R ed em p tio n fu n d fo r F e d e ra l R e se rve n o te s. . .
To tal go ld c e rtific a te r e s e r v e s .............................. . .

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

D iscounts a n d a d v a n c e s :
Se cu red b y U. S. g o v e rn m e n t s e c u rit ie s ............. . .
O th e r

$

8 ,8 2 3 ,0 0 0

$

1 5 ,0 0 0 ,0 0 0

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

To tal d isco u nts a n d a d v a n c e s .............................. . .

4 9 ,3 3 0 ,0 0 0

$

8 ,8 2 3 ,0 0 0

$

6 4 ,3 3 0 ,0 0 0

7 ,8 1 7 ,2 8 2 ,0 0 0

8 ,6 9 8 ,3 1 5 ,0 0 0

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

$ 8 ,7 6 2 ,6 4 5 ,0 0 0

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

2 ,0 2 7 ,7 2 1 ,5 5 4

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

1 8 ,4 0 1 ,6 9 5

1 7 ,3 0 7 ,9 4 4

O th e r a s s e t s ......................................................................................

2 8 0 ,9 3 2 ,5 4 5

3 7 7 ,1 4 7 ,3 1 7

Total a s s e t s ............................................................................ . . $ 1 2 ,1 5 1 ,9 4 4 ,5 5 4

$ 1 2 ,7 6 0 ,9 1 1 ,2 9 2

U. S. g o v e rn m e n t s e c u r it ie s ..................................................
To tal lo a n s a n d s e c u r i t i e s .................................... . .
C a sh item s in pro cess o f c o lle c tio n ..............................
B a n k p re m ise s

Liabilities
............................................................ . .

$ 7 ,4 0 8 ,0 0 2 ,4 0 3

$ 8 ,0 7 6 ,1 6 0 ,9 8 2

M e m b e r b a n k r e s e r v e s ..................................................... . .

$ 2 ,9 1 8 ,9 2 9 ,1 9 0

$ 2 ,9 8 8 ,6 9 0 ,3 4 8

1 0 7 ,5 1 4 ,2 8 6

5 4 9 ,3 1 6

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

2 0 ,3 0 0 ,0 0 0

3 2 ,1 2 0 ,0 0 0

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

3 0 ,6 4 7 ,6 9 7

39 ,1 1 0 ,0 3 4

$ 3 ,0 7 7 ,3 9 1 ,1 7 3

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

1 ,4 4 5 ,5 5 6 ,4 1 7

1 ,3 7 3 ,1 0 3 ,1 15

F e d e ra l R e se rv e notes
D ep o sits:

U. S. T re a s u re r—g e n e ra l a c c o u n t ..........................
Fo reig n
O th e r

To tal d e p o s i t s ...................................................................... . .
D e fe rre d a v a ila b ilit y cash i t e m s .................................
O th e r lia b ilit ie s

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

4 6 ,2 7 4 ,9 6 1

6 4 ,6 9 5 ,4 9 7

Total lia b ilit ie s .................................................. . . $1 1 ,9 7 7 ,2 2 4 ,9 5 4

$ 1 2 ,5 7 4 ,4 2 9 ,2 9 2

Capital accounts
C a p ita l p a id in

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

8 7 ,3 5 9 ,8 0 0

9 3 ,2 4 1 ,0 0 0

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

8 7 ,3 5 9 ,8 0 0

9 3 ,2 4 1 ,0 0 0

Total liabilities and capital accounts . . . . . . $ 1 2 ,1 5 1 ,9 4 4 ,5 5 4

$ 1 2 ,7 6 0 ,9 1 1 ,2 9 2

S u rp lu s

C o n tin g e n t lia b ilit y on ac c e p ta n c e s p u rch ased
fo r fo re ig n c o r r e s p o n d e n t s ........................................... . .
20

$

2 2 ,6 9 2 ,5 0 0

$

1 6 ,4 6 8 ,8 0 0

(C e n t r a l banking is concerned pri­
marily with monetary control, a sound
banking system, and an efficient pay­
ments mechanism. Growth and profits
are strictly incidental. Nevertheless,
earnings, derived largely from interest
on U. S. government securities held in
the Federal Reserve System’s openmarket account, are sizable. Income not
needed to cover expenses of the Federal
Reserve banks and the board of gover­
nors, payment to member-banks of the
6-percent statutory dividend on paid-in
stock, and a small addition to surplus,
is turned over to the Treasury.
Financial statements of the Federal
Reserve banks reflect both the effects
of monetary-policy actions and regional
differences in the activity and growth of
member-banks and their customers.
Total footings of this bank (its home
office and Detroit branch) were almost
$12.8 billion on December 31, 1968—
up $600 million for the year. On the
liability side, most of the increase re­
flects additions to Federal Reserve notes
outstanding in response to public de­
mand for currency.
Member-bank deposits (reserves) on
December 31 were only moderately
higher than a year before. Effects of de­
posit growth and the increase in reserve
requirements last January were partly
offset by the shift to lagged reserve
accounting. Under the new reserve­
accounting system, seasonally high endof-year deposit volume does not affect
required reserves until two weeks later.
The system’s gold certificates de­
clined nearly $2 billion in 1968, mostly
before the decision reached jointly with
foreign central banks in March to stop
supplying gold to the London market.
The Federal Reserve purchased govern-

S TATEMENT OF E A R N I N G S A N D E X P E N S E S

ments to offset the contractive effects
o f the gold drain on bank reserves and
domestic credit conditions. Meanwhile,
Congress acted to make the entire gold
stock available to support the dollar in
exchange markets by removing the goldcertificate reserve requirements against
Federal Reserve notes.
Later in the year, increases in hold­
ings of foreign currencies, reflecting use
of the swap lines with foreign central
banks, increased funds available to the
market— funds that were partly ab­
sorbed by the Federal Reserve’s sales of
securities. On balance, government se­
curities in the system’s open-market
account rose only $3.5 billion, com­
pared with $5.0 billion in 1967. Federal
Reserve banks share in the open-market
account and in the system’s holdings of
foreign currency in proportion to their
total assets.
Loans to member banks were, as
usual, small on the final day of the year,
but, overall, use of the discount window
was greater in 1968 than in 1967, al­
though less than in 1966. Out of a total
of 974 member-banks in the district,
244 borrowed from the bank at some
time during the year. That was roughly
50 more than last year. On the average
day, outstanding discounts and ad­
vances were $135 million, compared
with $51 million in 1967.
Higher earnings of Federal Reserve
banks in 1968 than in 1967 reflected
both higher levels of earning assets and
higher average interest and discount
rates. This bank’s share o f interest
earned on Treasury securities in the
open-market account was $431 million,
up from $356 million in 1967. Earnings
turned over to the Treasury amounted
to $406 million.

C u rre n t e a rn in g s :

1968

1967

D iscounts a n d a d v a n c e s .........................................................................

$

2 ,2 6 0 ,3 9 3

$

7 ,0 8 9 ,1 2 7

3 5 6 ,2 4 8 ,9 3 1

4 3 1 ,0 4 1 ,0 6 6

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

3 ,6 5 9 ,4 9 6

1 1 ,1 7 2 ,5 2 7

A ll o t h e r ................................................................................................................

8 9 ,1 1 2

8 9 ,4 0 8

$ 3 6 2 ,2 5 7 ,9 3 2

$ 4 4 9 ,3 9 2 ,1 2 8

O p e ra tin g e x p e n s e s ...................................................................................

$ 3 1 ,2 0 3 ,3 1 1

$ 3 2 ,9 4 6 ,6 8 0

F e d e ra l R ese rve c u r r e n c y ......................................................................

3 ,2 6 7 ,7 7 7

2 ,8 9 8 ,1 0 6

U. S. g o v e rn m e n t s e c u rit ie s ..................................................................
Fo reig n c u rre n cie s

To tal cu rre n t e a r n i n g s ......................................................................

C u rre n t e xp e n se s:

A sse ssm e n t fo r e xp e n se s o f B o a rd o f G o v e r n o r s ................

1 ,5 6 2 ,6 0 0

2 ,0 7 8 ,4 0 0

T o t a l ....................................................................................................................

$ 3 6 ,0 3 3 ,6 8 8

$ 3 7 ,9 2 3 ,1 8 6

Less re im b u rse m e n t fo r c e rta in
fis c a l a g e n c y a n d o th er e x p e n s e s ........................................

4 ,0 0 3 ,9 4 2

4 ,1 6 3 ,6 8 4

C u rre n t net e x p e n s e s ...............................................................................

$ 3 2 ,0 2 9 ,7 4 6

$ 3 3 ,7 5 9 ,5 0 2

C u rre n t net e a rn in g s

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

$ 4 1 5 ,6 3 2 ,6 2 6

$

$

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

A d d itio n s to c u rre n t net e a rn in g s :
P ro fit on sa le s o f U. S. g o v e rn m e n t se cu ritie s ( net ) . . . .
A ll

o th er

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

To tal a d d i t i o n s .........................................................................................

1 26,1 48

1 ,2 5 5 ,8 3 1

2 4 3 ,4 9 8
$

3 6 9 ,6 4 6

1 3 2 ,3 4 0

$

1 ,3 8 8 ,1 7 1

D eductions fro m c u rre n t net e a rn in g s :
Loss on s a le s o f U. S. g o v e rn m e n t se cu ritie s (net) . . . .

$—

A ll o t h e r ................................................................................................................
To tal d e d u c t io n s ......................................................................................

$
6 ,2 4 0

2 ,8 9 6
$

2 ,8 9 6

$

6 ,2 4 0

$

3 6 6 ,7 5 0

$

1 ,3 8 1 ,9 3 1

N et d ed uctio n s fro m (—) or a d d itio n s
to c u rre n t net e a r n i n g s ......................................................................
N et e a rn in g s b e fo re p a ym e n ts
to U. S. T r e a s u r y ......................................................................................

D ivid e n d s

p a id

$ 3 3 0 ,5 9 4 ,9 3 6

$ 4 1 7 ,0 1 4 ,5 5 7

5 ,1 0 4 ,1 9 8

5 ,4 6 2 ,7 6 2

3 2 0 ,7 4 8 ,0 3 8

4 0 5 ,6 7 0 ,5 9 5

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

P a ym en ts to U. S. T re a s u ry
(in te re st on F e d e ra l R ese rve n o te s)...........................................
T ra n s fe rre d to su rp lu s ...................................................................................

$

4 ,7 4 2 ,7 0 0

$

5 ,8 8 1 ,2 0 0

Surplus account
S u rp lu s, J a n u a r y 1 ............................................................................................
T ra n s fe rre d to su rp lu s—a s a b o v e ........................................................
S u rp lu s, D ecem b er 31

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

$ 8 2 ,6 1 7 ,1 0 0

$ 8 7 ,3 5 9 ,8 0 0

4 ,7 4 2 ,7 0 0

5 ,8 8 1 ,2 0 0

$ 8 7 ,3 5 9 ,8 0 0

$ 9 3 ,2 4 1 ,0 0 0
21

Directors
FRANKLIN J. LUNDING
C h a irm a n o f the Fin a n c e C o m m ittee
J e w e l C o m p a n ie s , Inc.
M elro se P a rk , Illin o is
Chairm an a n d F e d e ra l R e se rve A g en t

WILLIAM H. DAVIDSON, P re sid e n t
H a rle y -D a v id so n M otor C o.

The C itiz e n s First N a tio n a l
B a n k o f Storm Lak e

M ilw a u k e e , W isco n sin

Storm L a k e , Io w a

EMERSON G. HIGDON, P re sid e n t
The M a y ta g C o m p a n y

ELVIS J. STAHR, P re sid e n t
In d ia n a U n iv e rs ity
B lo o m in g to n , In d ia n a

N e w to n , Io w a

D eputy Chairm an

MELVIN C. LOCKARD, P re sid e n t
The First N a tio n a l B a n k

JOSEPH O. WAYMIRE
V ic e P re sid e n t, Fin a n c e
Eli L illy a n d C o m p a n y

M atto o n , Illin o is

In d ia n a p o lis , In d ia n a

KENNETH V. ZWIENER

HOWARD M. PACKARD
C h a irm a n o f the Fin a n ce C o m m ittee

DETROIT

HARRY W. SCHALLER, P re sid e n t

C h a irm a n o f the B o ard

S. C . Jo h n so n & Son, Inc.

H a rris T ru st a n d S a v in g s B a n k

R a c in e , W isco n sin

C h ic a g o , Illin o is

BRANCH
MAX P. HEAVENRICH, JR., Presid en
H e a v e n ric h B ro s. & C o m p a n y
S a g in a w , M ich ig a n
Chairm an

JOHN H. FRENCH, JR., P re sid e n t
C ity N a tio n a l B a n k of D etro it
D e tro it, M ich ig a n

S e cu rity First B a n k & T ru st Co.

D e tro it, M ich ig a n

G ra n d H a v e n , M ich ig a n

GEORGE L. WHYEL, P re sid e n t

The D etro it B a n k a n d T ru st C o m p a n y

G e n e se e M e rch a n ts B a n k & Trust Co.

D e tro it, M ich ig a n

F lin t, M ich ig a n

FEDERAL

ADVISORY

COUNCIL

DAVID M. KENNEDY
C h a irm a n o f the B o ard
C o n tin e n ta l Illin o is N a tio n a l B a n k a n d T ru st C o m p a n y
C h ic a g o , Illin o is

22

B. P. SHERWOOD, JR., P re sid e n t

Fe d e ral-M o g u l C o rp o ra tio n

RAYMOND T. PERRING, C h a irm a n o f the B o ard

OF

G e n e ra l P a rtn e r
S e id m a n & S e id m a n , C .P .A .
G ra n d R a p id s, M ich ig a n

GUY S. PEPPIATT, C h a irm a n o f the B o a rd

MEMBER

L. WILLIAM SEIDMAN

Officers
L

HUGH J. HELMER

CHARLES J. SCANLON
J?

ERNEST T. BAUGHMAN, V ic e P resid en t

First V ic e P re sid e n t

WARD J. LARSON, V ic e P re sid e n t,
G e n e ra l C o u n se l, a n d S e c re ta ry

CARL E. BIERBAUER, C a s h ie r
RICHARD A. MOFFATT, V ic e P re sid e n t
DANIEL M. DOYLE, V ic e P resid en t

JAMES R. MORRISON, V ic e P resid en t

JOHN J. ENDRES, G e n e ra l A u d ito r

HARRY S. SCHULTZ, V ic e P resid en t

ELBERT O. FULTS, V ic e P resid en t

BRUCE L. SMYTH, V ic e P re sid e n t

ARTHUR M. GUSTAVSON, V ic e P resid en t

RUSSEL A. SWANEY, V ic e P re sid e n t

LAURENCE H. JONES, V ic e P resid en t

JACK P. THOMPSON, V ic e P resid en t

HARRIS C. BUELL, JR., C h ie f E x a m in e r

MRS. DOROTHY M. NICHOLS, S e n io r Econom ist

GEORGE W. CLOOS, S e n io r Econom ist

RAYMOND M. SCHEIDER, A s sista n t V ic e P re sid e n t

LE ROY A. DAVIS, A s sista n t V ice P re sid e n t

KARL A. SCHELD, A s s is ta n t V ic e P re sid e n t

FRED A. DONS, A s s is ta n t G e n e ra l A u d ito r
VICTOR A. HANSEN, A s s is ta n t V ic e P re sid e n t
EDWARD A. HEATH, A s s is ta n t V ic e P re sid e n t
a n d A s s is ta n t S e c re ta ry

ROBERT E. SORG, A s s is ta n t V ic e P re sid e n t
JOSEPH J. SRP, A s s is ta n t V ic e P resid en t
LYNN A. STILES, S e n io r Econom ist
EUGENE J. WAGNER, A s s is ta n t V ic e P re sid e n t

GEORGE G. KAUFMAN, S e n io r Eco nom ist

ALLEN G. WOLKEY, A s sista n t V ic e P resid en t

ARNOLD J. ANSCHUTZ, A s sista n t C a s h ie r

WILLIAM J. HOCTER, A d m in is tra tiv e A s sista n t

MISS BUDDIE J. BELFORD, A s sista n t C a s h ie r

ERICH K. KROLL, A s s is ta n t C a s h ie r

JOHN J. CAPOUCH, A s s is ta n t C a s h ie r
RUDOLPH W. DYBECK, A s sista n t C a s h ie r
FRANCIS C. EDLER, A s sista n t C a sh ie r

DAVID R. STARIN, A s s is ta n t C a s h ie r

ADOLPH J. STOJETZ, A s sista n t C a s h ie r

WILLIAM H. GRAM, A s s is ta n t C ounsel
a n d A s s is ta n t S e c re ta ry

DETROIT

CARL C. WELKE, A s sista n t C a s h ie r

BRANCH
RUSSEL A. SWANEY, V ic e P re sid e n t
GORDON W. LAMPHERE, A s sista n t V ic e P re sid e n t
a n d A s sista n t G e n e ra l C ounsel

WILLIAM C. CONRAD, A s sista n t C a s h ie r

LOUIS J. PUROL, A s sista n t C a s h ie r
RAYMOND A. REAME, A s s is ta n t C a s h ie r
RONALD L. ZILE, A s s is ta n t C a s h ie r

23

Appointments, elections, and retirements

The following appointments and
elections were announced in 1968.
F e d e ra l A d v iso ry Council
Donald M. Graham, chairman of the
board of Continental Illinois National
Bank and Trust Company of Chicago,
was appointed member of the Federal
Advisory Council from the Seventh
Federal Reserve District for 1969. He
succeeds David M. Kennedy, designated
Secretary of the Treasury.
D irectors
Franklin J. Lunding, chairman of the
finance committee of Jewel Companies,
Melrose Park, Illinois, was redesignated
chairman of the Board and Federal
Reserve Agent for 1969.
Emerson G. Higdon, president and
treasurer of the Maytag Company,
Newton, Iowa, was appointed deputy
chairman, succeeding Elvis J. Stahr,
former president of Indiana University,
Bloomington. Stahr’s term as director
expired.
Three directors were selected to fill
expiring terms on the bank’s board:
Joseph O. Waymire, vice president,
finance, Eli Lilly and Company, Indian­
apolis; Floyd F. Whitmore, president of
Okey-Vernon National Bank of Corn­
ing, Iowa, and William H. Franklin,
president of Caterpillar Tractor Com­
pany, Peoria. Waymire was reelected to
his second term. Whitmore was elected
to succeed Harry W. Schaller, president
of Citizens First National Bank, Storm
Lake, Iowa, who retired after serving
two terms. Franklin was appointed by
the board of governors to succeed Stahr,
who retired after one term to become
president of the National Audubon
Society, New York.
A t the Detroit branch, B. P. Sher­
wood, president of the Security First
Bank and Trust Company, Grand
Haven, Michigan, was appointed to his
second term, and Peter B. Clark, presi­
dent and publisher of the Detroit News,
was appointed to succeed Guy B. Peppiatt, chairman of the board of FederalMogul Corporation, Detroit. Sherwood
was appointed by the Chicago board.
24

Clark was appointed by the board of
governors. Max P. Heavenrich, Jr.,
president and general manager of Hea­
venrich Brothers & Company, Saginaw,
Michigan, was reelected chairman of
the Detroit branch.
O ffice rs
Ward J. Larson, assistant general
counsel and assistant secretary, was
promoted to vice president, general
counsel, and secretary. James R. M or­
rison, chief examiner, was promoted to
vice president in charge of the Bank
Examination Department, and Elbert
O. Fults, assistant vice president, was
promoted to vice president.
Harris C. Buell, Jr. was promoted to
chief examiner, and William H. Gram
was appointed assistant counsel and
assistant secretary. Buell was formerly
assistant chief examiner, and Gram was
an attorney in the Legal Department.
Eugene J. Wagner and Allen G.
Wolkey, both assistant cashiers, were
promoted to assistant vice presidents.
David R. Starin, a senior auditor, was
appointed assistant cashier.
In addition, four vice presidents were
promoted to senior vice president, effec­
tive January 1, 1969. Seven other of­
ficers were also promoted at the start of
the new year, five new officers were ap­
pointed, and several titles were changed.
Promoted to senior vice president:
Ernest T. Baughman was promoted to
senior vice president and director of
research. Also promoted to senior vice
president were Laurence H. Jones, head
of Building and General Services; Harry
S. Schultz, head of Collections; and
Russel A. Swaney, in charge of the
Detroit branch.
Karl A. Scheld was promoted to vice
president and assistant director of re­
search; Lynn A . Stiles and George W.
Cloos were both promoted to vice presi­
dent and economist; and Gordon W.
Lamphere was promoted to vice presi­
dent and assistant general counsel at the
Detroit branch. Also promoted to vice
president were Le Roy A. Davis, Ed­
ward A. Heath, and Joseph J. Srp.
In addition, Carl E. Bierbauer, for­

merly cashier, was redesignated vice
president and control officer.
Employees promoted to assistant
vice president are Robert C. Johnson,
who has been manager of the Control
Department; Joseph G. Kvasnicka, an
economist in the Research Department;
W illiam T. N ew port and W illiam
Rooney, both systems engineers in the
Planning Department; and Hilbert G.
Swanson, chief of the Credit Depart­
ment, assigned to the Loan Department.
Others with title changes: William J.
Hocter, administrative assistant redes­
ignated assistant vice president and as­
sistant secretary, and George G. Kauf­
man and Mrs. Dorothy M. Nichols,
both appointed assistant vice presidents
and economists.
In addition, all assistant cashiers were
redesignated assistant vice presidents,
the title of assistant cashier being dis­
continued.
R etirem en ts
Five officers retired: Carl Weiskopf,
assistant chief examiner (March 1 );
Harold J. Newman, vice president
(A p ril 1 ); William O. Hume, assistant
vice president (M ay 1 ); and Paul C.
Hodge, vice president, general counsel,
and secretary, and Leland M. Ross,
vice president (both December 1).
Weiskopf had been with the bank more
than 41 years; Newman, Hume, and
Hodge more than 34; and Ross more
than 27.
Seven employees retired after more
than 45 years of service:
Rose J. Buettner
Treeda B. Toner
John Haenle
Henry Volka
Kermit O. Heika
Vera B. Whitman
Frank Lukasch
Eighteen other
after more than 25
Roy P. Anderson
Edward Bencivenga
Kornelis Bos
Clara D. Byberg
Irene Clancy
Elsie C. Hawksley
Clarence J. Larson
Samuel Martin
Eugenia Miller

employees retired
years’ service:
Elizabeth F. Patmy
Daniel A. Pedersen
David R. Sangster
Louis F. Schmeidl
Violet I. Suder
Julia Vranek
Agnes H. Wagstaff
Selma B. Walker
Irene B. Wallis

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