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Federal Reserve Bank of Cleveland 1935 TWENTY-FIRST ANNUAL REPORT TO THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM ANNUAL REPORT of the Federal Reserve Agent of the Fourth Federal Reserve DiStrid to the Board of Governors of the Federal Reserve System Covering Operations for the Calendar Year 1935 FEDERAL RESERVE BANK OF CLEVELAND Letter of Transmittal February 29, 1936. Sirs: I have the honor to transmit to you herewith the twenty-first annual report of the Federal Reserve Bank of Cleveland, covering operations for the calendar year 1935. Respectfully, W. H. Fletcher, Acting Federal Reserve Agent. Board of Governors of the Federal Reserve System, Washington, D. C. Directors and Officers, 1936 DIRECTORS Class A Ben R. Conner, Ada, Ohio, 1936 Chess Lamberton, Franklin, Pa., 1937 Robert Wardrop, Pittsburgh, Pa., 1938 Class B J. E. Galvin, Lima, Ohio, 1936 R. P. Wright, Erie, Pa., 1937 G. D. Crabbs, Cincinnati, Ohio, 1938 Class C W. W. Knight, Toledo, Ohio, 1936 E. S. Burke, Jr., Cleveland, Ohio, 1938 OFFICERS M. J. Fleming, President E. S. Burke, Jr., Chairman of the F. J. Zurlinden, First Vice President Board and Federal Reserve Agent H. F. Strater, Vice President and W. H. Fletcher, Assistant Federal Secretary Reserve Agent W. F. Taylor, Cashier J. B. Anderson, Assistant Federal C. W. Arnold, Assistant Vice PresiReserve Agent dent Howard Evans, Assistant Federal D. B. Clouser, Assistant Cashier Reserve Agent P. A. Brown, Assistant Cashier F. V. Grayson, Auditor E. A. Carter, Assistant Cashier A. G. Foster, Assistant Cashier R. B. Hays, Assistant Cashier CINCINNATI BRANCH DIRECTORS OFFICERS W. H. Courtney B. J. Lazar, Managing Director B. H. Kroger H. N. Ott, Cashier B. J. Lazar J. J. Rowe Bruce Kennelly, Assistant Cashier S. B. Sutphin G. M. Verity R. G. Johnson, Assistant Cashier PITTSBURGH BRANCH OFFICERS DIRECTORS A. E. Braun T. C. Griggs, Managing Director T. C. Griggs G. H. Wagner, Cashier J. S. Jones H. B. McDowell F. E. Cobun, Assistant Cashier L. W. Smith H. S. Wherrett C. J. Bolthouse, Assistant Cashier Member Federal Advisory Council A. E. Braun —3— TWENTY-FIRST ANNUAL REPORT OF THE FEDERAL RESERVE BANK OF CLEVELAND A substantial gain in business activity was registered in the fourth federal reserve district in 1935 compared with that of the immediately preceding year. Because of unusual conditions existing, however, this increase in activity was not reflected in the operations of certain departments of Federal Reserve Bank of Cleveland. This was particularly true of the discount department, whose operations reached a low level comparable only to that of the formative period of the reserve system so far as the discount of eligible paper was concerned. The sustained growth of member bank reserves, reflecting further gold imports into the country, together with continued liquidation of existing loans at member banks and large Governmental expenditures for various purposes, had created an easy position both for member banks and for borrowers, with the result that the banks were able to meet what demands were made upon them for commercial or industrial credits without recourse to the facilities of Federal Reserve Bank of Cleveland. The maintenance of reserves substantially in excess of requirements would have permitted a sizable increase in credit extensions by member banks before it would have been necessary for them to utilize their borrowing power at the reserve bank. BILLS DISCOUNTED FOR MEMBERS 6000 As in the two immediately preceding years, the earning power of Federal Reserve Bank of Cleveland was derived largely from holdings of Government securities, which remained practically unchanged throughout the year at slightly under $220 millions. However, the refunding of outstanding issues at lower rates and the issuance of —5— short-term obligations at rates of interest previously unparalleled in Government financing have seriously reduced earnings of this bank. Gross earnings for the year 1935, notwithstanding that the daily average of earning assets was practically unchanged, were reduced approximately $460,000 and the average rate of earnings decreased from 1.86 per cent in 1934 to 1.65 per cent in 1935. The average rate of earnings decreased progressively throughout the year, and for the last quarter the average income on earning assets of Federal Reserve Bank of Cleveland was but slightly in excess of 1.5 per cent. During the entire year loans and discounts of member banks at Federal Reserve Bank of Cleveland amounted to less than $8 millions. But 175 applications for loans or rediscounts were approved as compared with 809 in the preceding year. Not a dollar in commercial or industrial paper or trade or bankers' acceptances was discounted directly for member banks, the bulk of borrowings constituting member bank collateral notes secured by United States Government obligations. The total volume of acceptances purchased in the open market and acquired from other Federal reserve banks was approximately $3 millions. A further measure of the inactivity of the discount department is that in the entire year 1935 only 242 separate items were handled as compared with more than ten times that number in 1934. RESULTS OF OPERATIONS The earnings of Federal Reserve Bank of Cleveland for the year 1935 amounted to $3,674,866.22. Expenses of its three offices amounted to $2,954,883.68 which included assessments of $130,699.65 for ordinary expenses of the Board of Governors of the Federal Reserve System. This bank's share paid during the year 1935 for the cost of premises for the Board in Washington, not included in the above figure, was $94,674.51. Total additions to current net earnings were $510,364.21 which included a net profit of $488,849.55 on United States Government securities sold during the year. After providing for depreciation allowances amounting to $156,775.90 on bank premises, for payment of $8,734.30 to the Treasurer of the United States for earnings on funds advanced by the Secretary of the Treasury under section 13b of the Federal Reserve Act, and for dividends amounting to $772,126.76 accrued during the year on capital stock of this bank held by member banks, the remainder of current net earnings, $112,593.18, was carried to reserves for losses. MEMBER BANK CREDIT The total volume of credit extended by all member banks in the fourth district increased during the year slightly more than six per cent. Loan account declined in the period by a fraction of one per cent, while holdings of United States Government securities and securities guaranteed by the Government as to principal and interest increased. There was also an increase of slightly less than ten per —6— cent in securities other than Government issues held by member banks on December 31, 1935, compared with the same item at the close of the previous year. Member banks added approximately $107 millions of Government securities and securities guaranteed by the Government to their holdings during the year and on December 31 these represented 43.4 per cent of all loans and investments of these banks. Since June 1933, the month of the first call report following the banking holiday, deposits at member banks have increased 50 per cent and at the close of the year were higher than since 1931, despite the fact that the number of banks in operation is considerably fewer than at that time. Year-end figures of all member banks in the district indicate that an increase of 13.5 per cent in total deposits occurred in the year. The rise was principally in demand deposits, although time deposits increased slightly in the period. LOANS TO COMMERCE AND INDUSTRY UNDER SECTION 13b Following the enactment of section 13b of the Federal Reserve Act in June of 1934, probably because of a lack of understanding of the provisions of the law many applications were received which were wholly ineligible or where no reasonable basis could be established for an extension of credit. While the year 1935 registered an important decline in the number of applications received, the percentage of approved applications bears witness to the higher quality of such applications. There has also been an increasing interest on the part of financing institutions in making loans in participation with, or under a commitment from the reserve bank, as reflected in an increased number of applications received from banks. Efforts which were made during 1934 to bring the provisions of section 13b to the attention of every financing institution, or possible borrower under the terms of the law, were continued during the past year. The bank relations staff of this institution has repeatedly visited every bank, both member and non-member, within this district, urging them to make inquiry among their customers to determine whether loans which could properly be made under the terms of the statute were needed in their respective communities. The Industrial Advisory Committee has issued another circular in which it made known the purposes and advantages of the law, urging particularly that banks and other financing institutions avail themselves of the opportunity to increase their earning power and aid in relieving the unemployment situation without sacrificing whatever degree of liquidity they may possess. The executive secretary of the Industrial Advisory Committee attended a number of bank group meetings throughout the district and has visited the banks in the principal centers in an effort to stimulate interest in loans of this type. Appended hereto is a tabulation of applications received and approved, both by the Industrial Advisory Committee and by this — 7— bank, together with a statement of advances and commitments made by Federal Reserve Bank of Cleveland, including a statement of participations by banks and other financing institutions. Industrial Loan Applications Received and Approved No. Amount 171 59 56 Applications received in the year 1935 Applications approved by Industrial Advisory Committee Applications approved by Federal Reserve Bank of Cleveland $9,711,600 3,201,500 2,776,500 Advances and Commitments Made No. Federal Reserve Bank of Cleveland Participations by banks and financial institutions Advances Commitments 29 34 $1,256,328 1,588,572 $135,400 387,000 $1,391,728 1,975,572 Total Total 63 $2,844,900 $522,400 $3,367,300 MOVEMENT OF MEMBERSHIP There was a net reduction of five in the number of licensed member banks in the fourth federal reserve district during the year and the number of member banks at the close of 1935 was 622, of which 523 were national banks and 99 were State banks. In addition, there were 647 non-member banks operating in this district on December 31, according to information received from various sources. From the banking holiday until the end of the past year 43 State banks have been admitted to membership in this district. Since the passage of the Banking Act of 1935 an effort has been made to interest State banks in membership in the Reserve banking system. In the closing months of the year conferences have been had with officers and directors of 18 State institutions. This campaign was inaugurated too late in the year for any tangible results to be shown in 1935. While but one State bank was admitted to membership in that year, a number of applications have at the present writing actually been filed or are in process of preparation. Both the Banking Acts of 1933 and 1935 have tended to make membership in the System more attractive, and a greater interest than has been observed in recent years is being evidenced by non-member institutions in the advantages which membership affords. The campaign for new members which began in late 1935 will be continued throughout the current year. There is given below a tabulation showing the changes which have occurred in membership during the year. Licensed Number of member banks, Dec. 31, 1934 Successions Reorganizations New banks New State members Liquidations Receiverships Mergers State bank withdrawals Number of member banks, Dec. 31, 1935 Unlicensed 627 3 1 5 1 5 1 2 1 622 1 1 0 FEDERAL RESERVE NOTES The volume of Federal reserve notes in actual circulation during 1935 was maintained at extremely high levels, reaching a new peak late in December, with the exception of a few weeks at the time of the banking holiday in 1933. The increase may be explained in part by the retirement of a substantial amount of national bank notes and to a degree by the necessity of maintaining larger supplies of till money on the part of banks for the purpose'of cashing'emergency relief and work relief checks. CURRENCY RECEIVED AND COUNTED DOLLARS 1250 FIGURES INDICATE MILLIONS OF PIECES I • H• 51 M9j r^ai i ' 6 i j r i57j 1926 1927 1928 1929 k 1930 I39 Ll2<] J 1931 1932 1933 r 16 j 2 1934 1935 It is noticeable, however, that in recent years, while circulation has reached its seasonal peak in December, the customary return flow of currency to the reserve bank during the following month has not materialized. Over a period of years prior to 1931 the average return flow of currency in January was somewhere in the neighborhood of $30 millions. In recent years, notwithstanding that the volume of notes in circulation has been much larger, the return flow has been smaller both actually and on a percentage basis. The accompanying table shows the peak circulation reported for December in each of the past ten years, the low point of the following January, the decline in dollars, and the decrease in percentage. Federal Reserve Note Circulation (000 omitted) High December 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 Low (following January) $235,614 227,284 230,145 202,732 203,650 330,232 289,540 293,220 314,892 362,738 $200,401 199,908 199,193 174,962 178,883 315,981 276,590 280,736 297,474 346,629 $ Decline % Decline $35,213 27,376 30,952 27,770 24,767 14,251 12,950 12,484 17,418 16,109 —14.9 —12.0 —13.4 —13.7 —12.2 —4.3 —4.5 —*.$ —5.5 —4.4 A study of the ratio of cash to total sales at department stores indicates that since 1931 there has been an increase of about 14 per cent in cash as compared with charge sales. While this would appear to indicate a change in the buying practice of the public that accounts for part of the increase in note circulation, it is —9— estimated that there is still in circulation in this district somewhere in the neighborhood of $100 millions in excess of what past experience has demonstrated to be an adequate supply of currency, even with business activity at much higher levels, and with a higher general price level. During the year 1935, counterfeits detected by the money sorting divisions of the three offices and counterfeits sent in by banks in this district for inspection and delivery to the United States Secret Service Division amounted to $12,417. This is the highest amount in any recent year and is approximately four times the amount in dollars detected in 1930. Appended hereto are statistics covering the volume of operations in the money department of this bank for the year. Total Receipts and Disbursements Receipts $ 459,065,558.88 186,733,905.79 379,508,801.77 Total. . . Disbursements $ 460,485,524.38 186,276,824.38 374,507,100.55 $1,025,308,266.44 Cleveland Cincinnati Pittsburgh $1,021,269,449.31 Currency Received and Counted Pieces 52,334,870 28,734,178 44,687,291 Total Amount $274,570,800.00 101,479,480.00 217,023,550.00 125,756,339 Cleveland Cincinnati Pittsburgh $593,073,830.00 Coin Received and Counted Cleveland . , Cincinnati Pittsburgh Pieces 47,665,346 49,539,913 35,848,895 Amount $ 4,706,496.00 5,319,976.00 2,747,271.00 Total 133,054,154 $12,773,743.00 CASH RECEIPTS AND DISBURSEMENTS DOLLARS |RECEIPTS fJJTI DISBURSEMENTS 15001000500 UllUiln 1926 1927 1934 1928 I93S CHECK COLLECTIONS The volume of checks collected through the transit department of this bank in 1935 as compared with 1934 reflects not only an improvement in business but a substantial increase in items drawn on the Treasurer of the United States. This was particularly true of the Cleveland office. While the total volume of checks handled increased at all three offices, items drawn on the Treasurer, primarily for the — 10 — reasons given below, showed a decline at both branch offices of this bank. The total number of items handled for the year increased approximately 12 millions, the amount involved increasing by more than $1,700 millions. Beginning with the employment of tens of thousands of workers in the late months of 1933 under the Civil Works program, and continuing through direct relief by State agencies, relief in all of its phases has had a very marked effect on the volume of checks handled through the check collection department of Federal Reserve Bank of Cleveland. The year 1935 was no exception, as the record number of checks handled was brought about by the receipt of even a larger number of direct or work relief checks than in either 1933 or 1934. The Ohio S tate Relief Commission maintained its account with a Columbus, Ohio bank, and while the Cleveland and Cincinnati offices received a few thousand of such checks daily, the great volume was cleared directly through the various Columbus correspondents of the receiving Ohio banks. In Pennsylvania two accounts were maintained—one in Pittsburgh and the other in Philadelphia. This resulted in a large proportion of relief checks being received by our Pittsburgh office, particularly those checks drawn on the Pittsburgh bank, the Pittsburgh office clearings showing a very marked increase during both 1934 and 1935. The West Virginia and Kentucky portions of the fourth district received relief payments issued by the commissions of these States and were drawn on their depositaries in Charleston, West Virginia, and Louisville, Kentucky, respectively, and for the most part were sent direct to those cities for payment. While these conditions remained unchanged throughout 1935 in Pennsylvania, West Virginia, and Kentucky, there were two major changes in the relief program in Ohio which affected the number and type of checks received at both the Cleveland and Cincinnati offices. On April 1, 1935, the Ohio Relief Commission was succeeded by the Federal Emergency Relief Commission. This change eliminated the checks on Columbus and resulted in the issuance of checks drawn directly on the Treasurer of the United States, with the loss of a few thousand Columbus checks daily at our Cleveland and Cincinnati CHECK DOLLARS 40 FIGURES 1926 INDICATE MILLIONS OF CHECKS 1927 COLLECTIONS I92S 1929 1930 11 — 1931 (•••0 1932 1933 1934 1935 offices, and an increase of many thousands of checks on the Treasurer of the United States. The situation was again changed in Ohio on July 20, 1935, when the payment of direct relief was taken over by Federal authorities under the provisions of the Federal Emergency Relief Appropriation Act of 1935, pending the creation of work under the Works Progress Administration. The type of check issued under this act was again changed, the checks being drawn on the Treasurer of the United States but payable only through a designated main office of a Federal reserve bank. Ohio disbursements were drawn payable through Cleveland; Pennsylvania through Philadelphia; West Virginia through Richmond, and Kentucky through St. Louis. The result was a marked dropping off of relief checks at Cleveland and Cincinnati and the payment of over a half million of the new type of checks by the Cleveland office. Of the record total of checks handled during 1935, a fair estimate of the number of checks written by State and federal agencies for work and direct relief purposes is approximately ten million items with a dollar amount of about 150 millions. Since relief has been handled by a particular type of check in Ohio, and all payments have been made by the Cleveland office, the average amount of checks paid for direct relief may be quite accurately estimated at about $13, and for work relief at approximately $22. Transit Department Check Clearings and Collections for Year 1935 Cleveland Items 6,092,868 21,327,891 1,453,389 3,414,942 3,047,650 Amounts $ 3,590,172,822.13 2,012,294,760.86 155,154,521.30 246,152,748.19 }7,114,072.02 35,336,740 436,606 $ 6,050,888,924.50 $ 53,995,425.65 Items 3,516,994 12,892,928 584,613 1,687,257 Amounts $ 1,702,186,517.47 917,240,274.78 64,115,071.59 149,013,910.04 18,681,792 356,810 $ 2,832,555,773.88 $ 23,019,030.12 on Pittsburgh banks on other banks in District No. 4 on banks in other Districts on Treasurer of the United States Items 14,049,616 19,279,452 3,961,330 1,007,808 Amounts $ 7,064,851,544.97 1,351,974,431.18 333,209,179.82 114,138,066.91 Total Items sent to Main Office 8B Cincinnati Branch 38,298,206 116,129 $ 8,864,173,222.88 $ 18,876,313.59 Items 92,316,738 Amounts Items Items Items Items Items on on on on on Cleveland banks other banks in District No. 4 banks in other Districts Treasurer of the United States U. S. Treasurer payable at F. R. B., Cleveland. Total Items sent to Cincinnati 85 Pittsburgh Branches Cincinnati Items Items Items Items on on on on Cincinnati banks other banks in District No. 4 banks in other Districts Treasurer of the United States Total Items sent to Main Office 6B Pittsburgh Branch Pittsburgh Items Items Items Items Recapitulation Total number of items handled Total amount of items handled Items and amounts handled by both offices and branches and not duplicated in above figures — 12 — 909,545 $17,747,617,921.26 $ 95,890,769.36 NON-GASH COLLECTIONS In 1935—398,039 items amounting to $504,773,157.79 were handled through the non-cash collection department of this bank and its branches. The number and amounts of items handled at the main office and branches at Cincinnati and Pittsburgh are as follows: Number 331,012 33,314 33,713 Main Office Cincinnati Branch Pittsburgh Branch Amounts $316,115,207.60 99,928,752.93 88,729,197.26 On items handled through the three offices, collecting banks made collection charges on 41,158 items, aggregating $12,195,743.74, at a rate of .118 of one per cent. Member banks sent direct to other Federal reserve banks and branches for collection 73,079 items aggregating $72,594,587.34. NON-CASH COLLECTIONS FISCAL AGENCY OPERATIONS Government financing operations during 1935 consisted of seventy-five series of Treasury bills, six series of notes and nine series of bonds. Allotments thereon in this district were as follows: January 2 January 9 January 16 January 23 January 30 February 6 February 13 February 20 February 27 February 27 March 6 March 6 March 13 March 13 March 15 March 15 March 20 March 20 March 27 March 27 April 3 April 10 April 17 April 22 April 22 One hundred eighty-two day bills One hundred eighty-two day bills One hundred eighty-two day bills One hundred eighty-two day bills One hundred eighty-two day bills One hundred eighty-two day bills One hundred eighty-two day bills One hundred eighty-two day bills One hundred eighty-two day bills Two hundred seventy-three day bills One hundred eighty-two day bills Two hundred seventy-three day bills One hundred eighty-two day bills Two hundred seventy-three day bills Twenty-five year 2 V% % bonds Five year 1% % notes One hundred eighty-two day bills Two hundred seventy-three day bills One hundred eighty-two day bills Two hundred seventy-two day bills Two hundred seventy-two day bills Two hundred seventy-three day bills Two hundred seventy-three day bills Twenty-five year 2 % % bonds Five year \y%% notes — 13 — $ 000 000 3,050,000 000 000 000 000 000 1,000,000 000 500,000 000 163,000 000 105,287,200 14,485,900 950,000 000 000 000 000 000 400,000 74,224,950 63,206,150 April 24 May 1 May 9 May 15 May 22 May 22 May 29 May 29 June 3 June 5 June 5 June 12 June 12 June 15 June 19 June 19 June 26 June 26 July 1 July 3 July 3 July 10 July 10 July 15 July 17 July 22 July 24 July 31 August 5 August 7 August 14 August 19 August 21 August 28 September 4 September 11 September 16 September 16 September 18 September 25 October 2 October 2 October 9 October 9 October 16 October 16 October 23 October 23 October 30 October 30 November 6 November 6 November 13 November 13 November 20 November 20 November 27 November 27 December 4 December 11 December 16 December 16 December 18 December 24 December 31 Two hundred seventy-three day bills Two hundred seventy-three day bills Two hundred seventy-three day bills Two hundred seventy-two day bills One hundred thirty-three day bills Two hundred seventy-three day bills One hundred thirty-three day bills Two hundred seventy-three day bills Fourteen year 3% bonds One hundred thirty-three day bills Two hundred seventy-three day bills One hundred thirty-three day bills Two hundred seventy-three day bills Five year 1 H% notes One hundred thirty-three day bills Two hundred seventy-three day bills One hundred thirty-three day bills Two hundred seventy-three day bills Fourteen year 3% bonds One hundred thirty-three day bills Two hundred seventy-three day bills One hundred thirty-three day bills Two hundred seventy-three day bills Four year \%% notes Two hundred seventy-three day bills Twenty-five year 2% % bonds Two hundred seventy-three day bills Two hundred seventy-three day bills Twenty-five year 2% % bonds Two hundred seventy-three day bills Two hundred seventy-three day bills Twenty-five year 2]/s % bonds Two hundred seventy-three day bills Two hundred seventy-three day bills Two hundred seventy-three day bills Two hundred seventy-three day bills Twelve year 2% % bonds Three and one-half year 1 Yi% notes Two hundred seventy-three day bills Two hundred seventy-three day bills One hundred sixty-six day bills Two hundred seventy-three day bills One hundred fifty-nine day bills Two hundred seventy-three day bills One hundred fifty-two day bills Two hundred seventy-three day bills One hundred forty-five day bills Two hundred seventy-three day bills One hundred thirty-eight day bills Two hundred seventy-three day bills One hundred thirty-one day bills Two hundred seventy-three day bills One hundred twenty-four day bills Two hundred seventy-three day bills One hundred seventeen day bills Two hundred seventy-three day bills One hundred ten day bills Two hundred seventy-three day bills Two hundred seventy-three day bills Two hundred seventy-three day bills Twelve year 2%% bonds Five year 1 Yi% notes Two hundred seventy-three day bills Two hundred seventy-four day bills Two hundred seventy-four day bills $ 000 000 000 000 250,000 000 1,260,000 5,000 5,243,000 000 200,000 000 000 11,621,000 000 000 000 000 1,010,000 47,000 000 000 000 27,666,000 50,000 1,167,000 000 200,000 2,110,000 3,000,000 000 2,420,000 375,000 000 000 2,000,000 51,985,300 37,435,550 000 200,000 1,000,000 300,000 68,000 200,000 130,000 227,000 000 200,000 600,000 200,000 270,000 000 136,000 000 1,073,000 000 8,140,000 000 360,000 000 22,919,350 36,424,700 000 000 000 Government securities delivered on allotment numbered 270,231 pieces. Government securities received for exchange of denomination or form (within the issue) consisted of 31,635 pieces in coupon form and 6,090 pieces in registered form, aggregating $199,094,950, including $154,301,800 received for transfer by wire. Wire transfers of Government securities from other districts to this district aggregated $91,717,850; from this district to other districts, $154,301,800. — 14 — Government coupons redeemed totaled 1,914,675, aggregating $45,479,386.61. Government obligations presented for redemption and in exchange for new issues numbered 105,080 in registered form and 500,062 in coupon form and aggregated $476,112,430 face amount. Treasury Savings certificates, War Savings stamps and Thrift stamps presented for redemption numbered 661 and aggregated $1,165.25. United States Savings bonds presented for redemption numbered 1,192 and aggregated $216,862.50. Semi-Government financing operations conducted through the Federal reserve banks consisted of four series of bonds. Allotments, thereon in this district were as follows: May 1 June 1 July 1 September 3 Twenty year Z)4,% Federal Farm Loan Consolidated bonds.... Four year \Yi% Home Owners' Loan Corporation bonds Twenty year 3% Federal Farm Loan Consolidated bonds Four year 1 H% Federal Farm Mortgage Corporation bonds. . . $15,431,200 9,199,050 35,407,700 2,290,000 The number of pieces delivered on allotment was 25,894. Home Owners' Loan Corporation bonds received for exchange of denomination or form (within the issue) consisted of 45,568 pieces in coupon form and eight pieces in registered form and aggregated $47,357,675 face amount. Home Owners' Loan Corporation bonds presented for redemption numbered 24,999 and aggregated $14,534,800 face amount. Home Owners' Loan Corporation coupons redeemed totaled 628,834 aggregating $5,941,734.09. Federal Farm Mortgage Corporation bonds received for exchange of denomination or form (within the issue) consisted of 9,866 pieces in coupon form and 88 pieces in registered form and aggregated $5,667,700 face amount. Federal Farm Mortgage Corporation coupons redeemed totaled 93,106 aggregating $1,074,125.74. Federal Farm Loan bonds received for exchange of denomination or form (within the issue) consisted of 1,640 pieces in coupon form and 53 pieces in registered form and aggregated $2,855,300 face amount. Federal Farm Loan bonds presented for redemption and in exchange for new issues numbered 36,187 and aggregated $48,285,020 face amount. Federal Intermediate Credit Bank Debentures presented for redemption numbered 83 and aggregated $1,880,000 face amount. Federal Farm Loan coupons redeemed totaled 255,629 aggregating $7,556,657.82. — 15 — TRANSFERS OF FUNDS BILLIONS OF DOLLARS - FIGURES INDICATE THOUSANDS Or TRANSFERS 12 10 8- H i 6 4_ .2 - I s9 [ 1 1926 _ m _• Era ^ F^ P^ F^ lO'J T ' l S j f 1271 r 1271 1927 1929 1928 1930 w 117 J 1931 ^ LJ 1932 Fl Fl PI 1933 1934 - 1935 PERSONNEL In the annual election of directors by member banks of Group 1, Robert Wardrop of Pittsburgh, Pennsylvania, and George D. Crabbs of Cincinnati, Ohio, were re-elected Class A and Class B directors respectively, for three-year terms ending December 31, 1938. Mr. Arthur E. Braun, President of The Farmers Deposit National Bank, Pittsburgh, Pennsylvania, was redesignated member of the Federal Advisory Council to represent the fourth district for the year 1936. The board of directors of the Cleveland reserve bank on December 6, 1935 appointed John J. Rowe of Cincinnati, Ohio, and Harry B. McDowell of Sharon, Pennsylvania, as directors of the Cincinnati and Pittsburgh branches respectively, for three-year terms ending December 31,1938. Messrs. Rowe and McDowell succeeded Messrs. Thomas J. Davis and Richard Coulter. On December 3, 1935 the Board of Governors of the Federal Reserve System reappointed Edmund S. Burke, Jr., of Cleveland, Ohio, as Class C director for a three-year term ending December 31, 1938 and designated him as acting chairman for the period January first to February 29, 1936. Mr. William H. Fletcher, who in late 1934 was appointed acting Federal reserve agent, continued to serve in that capacity throughout the year 1935. The board of directors of this bank reappointed Messrs. Benedict J. Lazar and Thomas C. Griggs as managing directors of Cincinnati and Pittsburgh branches respectively, for the year 1936. Numerous changes were made in the official staff throughout the year. Effective January 4, 1935, Herman F. Strater, cashier, was elected deputy governor and retained his title of cashier. Messrs. William F. Taylor and Clarence W. Arnold, assistant cashiers, were elected assistant deputy governors. On January 22 the board of directors announced the appointment of Matthew J. Fleming as governor of this bank effective January 19, 1935, to fill the vacancy created by the death of Elvadore R. Fancher, who had been governor of the bank since its organization. 16 — Effective February 16, 1935, Herman F. Strater relinquished his title as cashier and William F. Taylor, assistant deputy governor, was appointed cashier to fill the vacancy. Mr. Reuben B. Hays, formerly executive secretary of the Industrial Advisory Committee, was appointed assistant cashier. Effective March 1, 1935, Benedict J. Lazar, formerly cashier of the Cincinnati branch, was appointed managing director thereof to succeed Clifford F. McCombs, retired. To fill the vacancy created by Mr. Lazar's promotion, Henry N. Ott, formerly assistant cashier, was appointed cashier and Ralph G. Johnson was appointed assistant cashier. On January 16, George H. Wagner, formerly assistant cashier at the main office, assumed his duties as cashier of the Pittsburgh branch. GENERAL BUSINESS CONDITIONS Business in this district was better in 1935 than in any of the four preceding years and in the case of some industries the rate of production at the close of the calendar period was higher than since 1929, with a few lines reporting all-time records. This latter group included industries which, because of their newness, enjoyed expanding markets, but shoe production and consumption of wool in the year attained new high levels. In the first half of the year the course of business was slightly downward, but the seasonal contraction of summer months failed to develop and business indexes, which make allowance for this tendency, started to advance and continued upward at an accelerating rate to the end of the year. At that time the production index compiled by the Board of Governors of the Federal Reserve System was 104 per cent of the 1923-25 monthly average, higher than since April, 1930 and a gain of 18 points from the summer level. While the improvement in the last half of 1935 was quite general the advance was more attributable to the change effected in the automobile industry than to any other single one. The introduction of new models occurred two months earlier than usual and this necessitated the production of parts and materials about that much ahead of the customary time. This was of great importance to this district because many local plants rely on the automobile industry for the bulk of their sales. In 1935 nearly 25 per cent of all steel made was used in automobile production; 77 per cent of all plate glass, 75 per cent of rubber, 22 per cent of the copper, 33 per cent of the nickel and 16 per cent of the aluminum used in this country went into automobiles or parts made in the year. The Board's index reached a peak in December which was not maintained in early 1936, but the average for the entire year was 90 per cent of the base period, compared with 79, the average for 1934, and 64 in 1932, the low year of the depression. While the recovery has thus been nearly 50 per cent, the upward movement — 17 — has been irregular and has consisted of a series of sharp increases followed by rather pronounced declines. The advance in 1933, stimulated by the reopening of banks, the low level of stocks of some commodities at that time, and the prospect of higher prices, was widespread and rapid. The Board's index advanced 41 points in four months, but since it was partly of speculative character the improvement was not sustained, a drop of 28 points occurring in the next four months. The upswing in early 1934, reflecting primarily output of steel and automobiles, also proved of short duration, but it was followed by a third upward movement starting in the fall of that year which was of a more general character. It therefore was largely maintained and relatively little fluctuation in the composite index was shown in the first half of 1935. This, however, was followed by the latest advance, which carried the index to the recent December peak. Of marked importance among the developments in 1935 was the decided increase in demand for durable goods, which had declined most during the depression. The index of durable goods production was 77 per cent of the 1923-25 monthly average compared with 56 in 1934, a gain of 35 per cent, and an average of 33 per cent in the year 1932. At the same time output of non-durable goods increased four per cent. The improvement in employment and payrolls was partly accounted for by the rise in the durable goods industries in 1935. So far as the fourth district was concerned, gains in this section from 1934 in many cases exceeded the average for the entire country. The accompanying table shows the comparison with the preceding year of certain business indicators more or less important to this district. Indicators of Fourth District Activity (000 omitted) Fourth District Unless Otherwise Specified Year 1935 Year 1934 Automobile Production—U. S.—number 4,010 2,779 Cement Production—Ohio, Pa., W. Va (barrels) 7,304 7,356 Construction Contracts Awarded—Total $181,868 $148,516 " " " —Residential $ 46,336 $ 19,843 Coal Production—Ohio, W. Pa., E. Ky (tons) 143,008 142,378 Coal Shipments—Lake Erie Ports (tons) 35,837 35,971 Debits to Individual Accounts—25 cities $23,5 ,000 $20,341,000 Department Store Sales—49 Stores $204,591 $194,510 Electric Power Production—Ohio, Pa., Ky. (thous. K.W.H.) 15,645 14,045 Foundry Equipment—Index of New Orders 103.3 60.5 Glass Container Production—U. S. (Thous. of Gross) 38,783 35,799 Glass Plate Production—U. S (Thous. of Sq. Ft.) 179,817 91,339 Machine Tools—Index of New Orders 86.4 + 46.3 Petroleum Production—Ohio, Pa., Ky (barrels) 25,242 23,589 Pig Iron Production—U. S (tons) 21,043 15,978 Shoe Production (pairs) X Steel Ingot Production—U. S (tons) 33,426 25,262 t Tire Production—U. S (casings) 49,362 47,233 Iron Ore Receipts—Lake Erie Ports (tons) 20,007 15,573 * Ave. annual index- actual tConfidential — 18 % change 1935 from 1934 +44.3 —0.7 + 22.5 + 133.5 +0 4 —0.4 + 15.6 +5.2 + 11.4 + 70.7 +8.3 +96.9 +86.6 +7.0 +31.7 + 17.1 +32.3 +4.5 + 28.5 Some idea as to the amount of recovery which occurred in 1935 is obtained from debits to other than bank accounts at banks in 25 cities of the district. These were 15.7 per cent larger in the year than in 1934 and the dollar volume was greater than since 1931. These figures are affected by price changes, but wholesale prices averaged less than five per cent higher than in 1934 and retail prices were up only slightly more than that. Iron and steel production, the district's basic industry, was 32 per cent greater in 1935 than in 1934 for the entire country; but excluding Pittsburgh, local centers operated at much better than national average rates throughout the year. At Cleveland-Lorain the rate for the year was 63.8 per cent, according to Steel; at Youngstown it was 54.6, Wheeling 77.3, and Pittsburgh 39.0 per cent, compared with 48.6 per cent of capacity for the entire country. The automobile industry was largely responsible for this situation, local parts, accessory, and fabricating plants operated at quite satisfactory rates throughout the year. Because two sets of new models were introduced in the year, activity at these plants held up very well in the late summer months when it customarily declines. The construction industry showed some improvement in the year even though the dollar value of contracts awarded was still small in contrast with pre-depression periods. Total building in this district was 22 per cent greater than in 1934 and had a value of$182,000,000. Construction of public works and utilities was about one-third less in the year than in 1934, but residential building showed marked improvement. With contracts valued at $46,300,000 this type of work was 134 per cent ahead of the previous year, but residential construction in this section in the eight years, 1923-30, averaged $193,600,000 a year. Retail trade, judging by sales of various reporting lines, was better than in 1934. Gains were shown in all sections of the district and department stores sales were 5.2 per cent larger at reporting stores than in the preceding year. Furniture store sales showed a similar increase and chain dry goods and grocery sales were up 9.4 and 4.1 per cent, respectively. All reporting lines of wholesale trade showed increases ranging from 3 to 10 per cent. Collections at reporting stores improved in the year and a relatively greater share of total sales at department stores represented cash purchases than in the preceding 12 months. Agricultural conditions throughout the district improved materially in 1935. Production of principal crops was greater than in the relatively poor year of 1934, but compared with the ten-year average harvest of major crops, gains were shown only for wheat, corn, and potatoes. The AAA production-control program affected the acreage planted to some crops in this area, particularly tobacco, but with farm prices 20 per cent higher than in 1934 and better than in any other recent year, together with the AAA benefit payments, gross income of farmers in this section was much larger than in any year — 19 — since 1932. In Ohio, gross income (not including benefit payments) amounted to $247,003,000, according to the Department of Agriculture. Payment for various restriction programs was $15,210,000 in the state, and combined receipts were 25 per cent larger than in 1934 and 68 per cent greater than in 1932, the recent low year. In Kentucky even larger gains were evident, but in Pennsylvania and West Virginia, although smaller increases than those given for Ohio were shown, they, nevertheless, exceeded the national average. Annual statements of various business concerns, which have been appearing, bear witness to the fact that operations in practically every line in 1935 were more satisfactory than in recent years. 20 —
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