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REGISTERED MAIL FEDERAL RESERVE BANK of CLEVELAND FEDERAL RESERVE BANK OF CLEVELAND, Cincinnati lind Pittsburgh, serving tlte !~: • Pittsburgh ;-., --:'.'-'·~~~·ii,> .. witlt uraJfcltesat Fourth Federal Reserve District ~ tu2f<Ytt for the year I 9 5 0 FEDERAL RESERVE OF BANK CLEVELAND January 15, 1951 To the Member Banks of the Fourth Federal Reserve District and Others: As a public service institution, we are pleased to provide this report of ouractivit1es during the past year, together with some description of the nature of our operations. Many of the functions of this bank have been in existence, with changes in emphasis from time to time, since the establishment of the Federal Reserve System in 1914. In the course of years, new responsibilities and methods have developed and this report provides a glimpse of the current stage in this continuing evolution. Although traditionally we are known as a bankers' bank, we value highly our contacts with the public. The administration of appropriate monetary and credit policy is greatly facilitated by the interchange of views and information. Our directors and staff join in an expresion of appreciation of the cooperation received not only from bankers, but also from representatives of commerce, industry, and agriculture throughout the District. Sincerely ~. C Chairman yours, o CONTENTS F ECONOMIC THE REVIEW BANK'S FISCAL SAFEKEEPING .10 DEPARTMENT COLLECTION BANK ....................................... .11-15 .. SERVICES .. ADVANCES TO MEMBER 16 ....17 BANKS OF CHECKS AND OTHER ITEMS .. .18-19 OPERATIONS ... 20-21 AND INFORMATION AND COIN ECONOMIC Pages 5-9 SERVICES AGENCY CURRENCY ....................... 1950 OF ....22-23 RESEARCH 24 EXAMINATION .25 BANK AND PUBLIC RELATIONS OFFICE 26 OF COUNSEL PERSONNEL .... DEPARTMENT BUILDING OPERATIONS AND MAINTENANCE PLANNING DEPARTMENT PRINTING MAIL AND OTHER AND EXPRESS 29 STATEMENT OF EARNINGS HISTORICAL ....32 OF CONDITION DATA AND EXPENSES BANK'S OF THE ROLE ... 33 .... 34-35 .36-37 AND DIRECTORS EMERGENCY MAP .......... 31 STATEMENT THE 29 ......... 30 OPERATIONS ACCOUNTING OFFICERS .......... 28 . DUPLICATING 27 IN THE SYSTEM ....39 CREDIT CONTROLS FEDERAL RESERVE ...38 SYSTEM ................ 40 ECONOMIC REVIEW OF 1950 Before and After June L tinental trade the major arteries of transconand travel, and representing the YING ASTRIDE heart of the steel, machinery, chemical, and rubber industries, the Fourth District has always been sensitive to changes in the nation's economic pulse. The past year was no exception. The swift march of events during the latter part of 1950 precipitated a series of nationwide economic problems whose impact was perhaps more pronounced in this highly industrialized area than in other sections of the country. The rapid intensification of those problems in recent months, however, has dimmed recollections of the expansive characteristics of the preKorean half of 1950. Although in retrospect the pace of business last spring was leisurely as compared with today's tempo, the economy in reality had reached a high plane before the outbreak of hostilities added a further sharp upward thrust. As early as the first month of 1950 personal consumption expenditures were expanded beyond the general level that had prevailed for more than a year. Supplemented by the service insurance dividend, personal incomes were reaching new heights. In the tide of private spending the accent was on consumer durable goods the buying of which in the past has always been highly cyclical in character. As early as :ay it seemed likely that automobile productio ,for example, would far exceed the previous £eoDrdfor a single year and the eventual conseences of such extraordinary demand were contemplated with more than average concern in this District, where automotive steel and other component parts loom large in the industrial pa te-rn. Moreover, the boom in virtually every type of consumer durable goods was generating a record growth in personal indebtedness which likewise had cyclical implications. At the very start of 1950, the amount of consumer instalment debt outstanding was larger than in any previous January, yet the aggregate continued to expand month after month. During the year ended June 30, before international complications had become a factor in the market, nearly $3 billion of additional instalment debt had been incurred, representing the most rapid rate of increase on record up to that time. The further sharp expansion of $1 Y4 billion in the J ulySeptember quarter was merely an accentuation of an established trend, to which the Fourth District contributed its proportionate amount or more. Another inflationary movement whose origin clearly antedates the outbreak of war is associated with the high level of housing and other construction. Six months before the Korean invasion, the construction of new houses and other dwelling units was proceeding at a pace some fifty percent in excessof what had been regarded as near-capacity volume in 1948 and 1949. That large margin over preceding years was maintained through what in any event would have been a very active building season, thereby creating an assortment of costly labor and material shortages of the type characteristic of speculative periods. Like the consumer goods boom, this form of economic activity also was accompanied by a record expansion of bank credit, institutional lending, and mortgage indebtedness. Overbuild- ing and unsound lending have a special connotation in this part of the Middle West where the construction boom of the 1920's and its aftermath reached perhaps greater extremes than in many other parts of the country. Despite an unprecedented demand for many of the important industrial products of Ohio and western Pennsylvania, wholesale prices in general were relatively stable during the early months of 1950. More specifically, however, prices of nonagricultural products, which had receded only some six percent from the 1948 peak, began to show pronounced strength many weeks before the world outlook was suddenly altered. Similarly the cost of living, which is of special significance in a highly industrialized region, started to rise in February from a point only 4;/1 percent below the all-time (1948) peak. Although both hourly and weekly earnings in manufacturing industries were the highest on record at the beginning of 1950, the resumption of the rise in living costs was being viewed before midsummer as a factor that might lead to still higher labor costs. Meanwhile industrial production for the country as a whole was gradually recovering the ground lost during the 1949 recession. Here in the Fourth District, above-capacity operations in the iron and steel industry during April and May, when some seasonal slackening usually occurs, were interpreted as evidence of boomtime conditions. Concurrently the volume of new orders received by manufacturers was establishing a succession of new record highs for the month throughout the entire first half, indicating that a competitive push for material and goods was under way before the atmosphere suddenly became surcharged with fear of war. It will also be recalled that the market valuation of shares of large industrial corporations, many of which have establishments in the Fourth District, had been rising steadily since mid-1949, and by March of the past year such prices were the highest in roughly twenty years, and by June the earning power of such investments was valued (in terms of quoted values) some 40 percent higher than a year earlier. Also contributing to pre-Korean inflationary sentiment was the trend of Federal finances. During the first half of the calendar year, which is usually the more productive half of the fiscal period, the cash receipts of the U. S. Treasury failed to match disbursements, which was taken to indicate that the second and leaner half of the year might bring a Federal deficit of significant proportions. During this same interval, many institutional investors were liquidating holdings of United States Government securities in order to meet the demand for funds converging from residential and other construction as well as from the sale of consumer goods on credit. Notwithstanding this extraordinary demand for money, interest rates were relatively low. The yield on gilt-edge bonds was only a shade above 2;/1 %, and the bank-restricted Victory 2;/1's were quoted to yield about 2Y4% early in 1950. These low rates also had some inflationary implications in so far as long-term money rates influence the capitalized value of income-producing property. In fact only two circumstances; both pertinent to industrial conditions in the Fourth District, could be regarded as being somewhat deflationary throughout the early months of 1950. One was the volume of unemployment which still contained traces of the 1949 recession, and in [ 6} the face of which an extended rise in prices was then regarded as improbable. The other somewhat dampening factor was the contraction which had occurred in expenditures for new plant and equipment. During the first quarter of 1950 such commitments had shrunk to a three-year low for the season. That picture, however, also was destined to change rapidly. Up to the time of the outbreak of war in Korea, public opinion was not profoundly impressed by the moderately inflationary situation. In fact there was considerable sentiment to the effect that the boom would perhaps soon burn itself out, in which case some dykes might be required to keep deflation rather than inflation, within bounds. The dramatic events of midyear, however, quickly obliterated any possibility that the boom would subside, and visibly accelerated the economic metabolism. Private spending, both by consumers and business, was speeded up in anticipation of civilian shortages and rising prices indicated by the drastic rearmament program. Although plans for government defense spending on a greatly enlarged scale actually added little, if any, to buying power during the autumn months of 1950, the underlying inflationary direction was clear. The upward price-wage spiral was intensified, at the same time that the regulatory machinery authorized by the Defense Production Act of 1950 was being set in motion. The remainder of this review constitutes a brief summary of Federal Reserve policy and actions in the face of this situation. Open Market Operations. In theory, open market purchases or sales of United States Government securities can be an effective means of credit control. Such transactions can bring about considerable ease or restraint in the money market. In recent years, however, the use of this type of credit control has been limited by the responsibilities of the Federal Reserve System to maintain orderly conditions in the market for United States Government securities. Notwithstanding this limitation, the Federal Reserve System through its open market operations was able to modify considerably the condition of extreme monetary ease that prevailed at the beginning of 1950. During the first several months, the accelerating demand for credit was permitted to reflect itself in a rise in short-term money rates. By April, the rate on new 91-day Treasury bills (of which $1 billion or more were reoffered at maturity each week during 1950) had been allowed to rise about Ys %. By August the 1Y4% rate was reached, and in mid-November the rate touched 1%%. The steady stiffening in short-term rates was not an accidental development but one which occurred as Federal Reserve credit was made less readily available in the face of a strong inflationary demand for funds from a great variety of private borrowers. The rise in rates on short-term Government securities not only made such securities more attractive to investors but also tended to reduce the incentive to sell Government securities for funds with which to make other loans and investments. [7 ] lion, effective on various dates between January 11 and February 1, 1951. That announcement was accompanied by the following statement: "This action was taken as a further step toward restraining inflationary expansion of bank credit, in accordance with the statement issued by the Board August 18, 1950, that the Board and the Federal Open Market Committee 'are prepared to use all the means at their command to restrain further expansion of bank credit consistent with the policy of maintaining orderly conditions in the government securities market.' "The volume of bank credit and the money supply have continued to increase despite previous actions by the Federal Reserve and other supervisory agencies, and efforts of individual banks to be restrictive in granting credit. Loans of member banks have increased by about 7 billion dollars since June, reflecting in part seasonal influences and in part accumulation of inventories at rising prices. This is an unprecedented rate of expansion and has contributed to an excessive rise in the money supply. Moreover with the end of usual seasonal demands for credit and currency banks will have additional funds available for lending. The purpose of the announced increase in reserve requirements is to absorb such funds and generally to reduce the ability of banks further to expand credit that would add to inflationary pressures. The increase is timed so as to absorb reserves coming into the banks from the post-holiday return flow of currency." Margin Requirements. The 50 percent margin on collateral loans, to purchase or carry listed securities, was unchanged throughout 1950. Although, as noted earlier, security prices had Discount Rates. As a means of supplementing open market policy, discount rates were increased to 1% % by all Federal Reserve banks during August. As anticipated, the influence of that step was largely psychological in character, because at no time during 1950 were member banks patronizing the discount window on a significant scale. The volume of advances made by this bank is described in greater detail on page 17 of this Report. Reserve Requirements. Although statutory authority was available throughout 1950 whereby member bank reserve requirements could have been increased by another $2~ billion, or roughly 15 percent of actual reserves maintained, no change was made in such percentage requirements during the year. Partly because of the distinctive nature of the inflationary movement, together with the necessity of restraining the consumption of essential raw materials in the manufacture of civilian goods, restrictions upon the expansion of bank credit Were largely limited to specific types of credit extension such as real estate loans and consumer instalment loans. Before the end of 1950, however, there were indications that a broader restrictive policy would need to be invoked. On December 29, the Board of Governors announced an increase in reserve requirements totaling roughly $2 bil- [8J reached the highest level in two decades by midsummer, the upward movement had not been accompanied by an appreciable amount of bank borrowing. Selective Controls. Under the terms of the Defense Production Act of 1950, enacted early in September, the Federal Reserve System was authorized to impose restrictions upon the extension of consumer credit and certain types of real estate credit. Accordingly, Regulations W and X were instituted in September and October, respectively. The manner in which these new responsibilities affected the operations of this bank is described at greater length on page 39 of this Report. Banking Developments in the Fourth District. It is difficult to establish a precise cause and effect relationship between the various System policies described above, and the concurrent changes in deposits, loans, and investments of banks in this District. After the normal seasonal decline early in 1950, net demand deposits of member banks (upon which reserve requirements are based) increased steadily from $5,783 million in April to a newall-time high of $6,366 million in December, up nearly $500 million in twelve months. On the whole, reserve city member banks persistently adhered to a policy of full investment, while legal reserves of country member banks as a group fluctuated within a range of 14 percent to 24 percent in excess of requirements. More detailed information is available with respect to the 18 weekly reporting member banks located in six leading cities of the District. At these 18 banks, adjusted demand deposits increased 9 percent during 1950, as against an expansion of only about 5 percent in the rest of the nation. Commercial loans at these banks rose very rapidly during the second half of 1950. Nevertheless by the middle of December, the amount outstanding was not any higher than in early 1949, whereas in nearly all other sections of the country the expansion had carried well into record high ground. With respect to mortgage lending, new loans exceeded payoffs almost week by week and at the end of 1950 outstanding real estate loans were up more than 20 percent for the year. Investments of the 18 weekly reporting banks declined slightly during the past year, partly as a consequence of a small reduction in marketable United States Government securities outstanding. Late in 1950, roughly 85 percent of the banks' investments were in the form of Federal obligations as against about 89 percent a year earlier. It is chiefly because of these still-substantial holdings of United States Government securities, not only in this District, but by banks and other investors everywhere, that the problem of combating inflation through restrictive credit control has far more ramifications and complications than was the case before World War II. --~-[9 ] THE BANK'S SERVICES the federal government in such activities. Services to the general public: Three forms of services to the general public may be distinguished. First, the bank supplies directly to the public a wide range of timely information on business trends, the scope of which is considerably broader than financial statistics as such. Second, the general public is the ultimate beneficiary of the specialized services rendered directly to member banks insofar as such services contribute to efficiency of banking. Third, the bank plays a part in the Federal Reserve System's general function of assuring a flexible supply of credit, geared to the needs of the community as a whole. As a part of this latter role, the administration of emergency credit controls can be considered part of a broad public service in assisting to combat inflation. Each department of the bank contributes in some way to one or more of such services. The organization chart on this page, and the descriptions of the bank's activities in the succeeding pages, provide more detail. of the central banking structure in the United States. It performs a wide variety of services to member banks of the Fourth District, to the Federal Government, and to the general public. The entire scope of these services is somewhat difficult to visualize even by those who may have day-to-day dealings with one or more of the highly specialized departments. Services to member banks: Besides the basic function of administering the underlying reserves of the banking system in the Fourth District, this bank renders numerous specific services to member banks. A few examples are clearance of checks, collection of drafts, maintenance of necessary supplies of currency and coin, safekeeping, as well as wire transfer of funds and securities. Services to the Federal Government: These include the issuance and redemption of government securities, special handling of government checks, collection of the withholding tax, and other services. The bank acts as fiscal agent for T HIS BANK IS PART ORGANIZATION CHART BOARD OF DIRECTORS Federal Reserve Bank of Cleveland PRESIDENT FIRST Cincinnati Branch BOARD OF DIRECTORS Vice President and Other Officers FUNCTIONS Accounting Bank and Public Relations Building and General Services Cash Check and Noncash Collections Credits and Loans Fiscal Agency Personnel Safekeeping VICE PRESIDENT Main Office Vice Presidents and Other Officers FUNCTIONS Accounting Bank and Public Relations Building and General Services Cash Check and Noncash Collections Credits and Loans Fiscal Agency Personnel Safekeeping Bank Examination Legal Research and Statistics [ 10] BOARD OF DIRECTORS Vice President and Other Officers FUNCTIONS Accounting Bank and Public Relations Building and General Services Cash Check and Noncash Collections Credits and Loans Fiscal Agency Personnel Safekeeping FISCAL AGENCY DEPARTMENT Personnel of Fiscal Agency Department NOTE: Much of the wartime expansion in the work load of the Fiscal Agency Department proved to be more than temporary) because of the sharp and relatively permanent increase in the number and variety of United States Government securities outstanding) especially the Series E savings bonds. Since it appears possible that a further expansion may occur as a consequence of national defense requirements) this years ANNUAL REPORTgives special prominence to the Fiscal Agency Department and its manifold operations. As of December 1) 1950 Total number of employees. ...... 292 Treasury Marketable Issues Division .. 27 New Issues .. .. .. 3 Exchanges and Transfers... 9 Redemptions 9 Coupon Payments . 6 United States Savings Bonds Division ..256 New Issues 95 Reissues............. 22 Redemptions .... 129 Safekeeping 10 Federal HE FEDERAL RESERVE BANKS their capacity in of Tas fiscal agentsthe the United States perform many duties for Federal Treasury, as well as for other instrumentalities of the government. All transactions involving public debt obligations, Treasury Tax and Loan Accounts, and federal tax receipts (withholding tax) are handled in the Fiscal Agency Department. In the Fourth District these services are available at the Cincinnati and Pittsburgh branches as well as at the head office in Cleveland. Most transactions originating at the branches are completed by them. The processing of paid and reissued United States savings bonds and federal tax receipts, however, is handled in Cleveland in order to make the most economic and effective use of special mechanical equipment. During the past year, the expenses of the Fiscal Agency Department totaled an estimated $1,248,000, representing chiefly payrolls and equipment rentals. The bank will be reimbursed by the United States Treasury, however, for nearly all of these expenditures. The Fiscal Agency Department is divided into two main divisions, the smaller one of which (in terms of manpower) handles all transactions in Treasury Department marketable issues, Treasury savings notes, and matured coupons, while the other division processes all United States saving bonds, Treasury Tax and Loan Account, and federal tax transactions. A table showing the number and distribution of personnel by class of activity is shown above. Taxes 9 TREASURY MARKETABLE ISSUES DIVISION All transactions in Treasury bills, certificates of indebtedness, notes, bonds, matured coupons and Treasury savings notes are handled in this division. Issues Copies of announcements of new offerings by the Secretary of the Treasury, together with appropriate forms and instructions, are prepared and forwarded to all banks and others concerned in the district. Employees in the Department 500 400 [ 11 ] o 1946 1947 1948 1949 1950* Exchanges and Transfers In those cases where the form of the securities and the Treasury regulations permit, owners may request the following types of exchanges or transfers prior to the maturity of the securities: (1) denominational ex ch an ges bearer securities, of (2) transfer of coupon form securities to registered form and registered form to coupon form, (3) changes in ownership of registered bonds, and (4) wire transfer of bearer form securities involved in a sale. When transactions involve only coupon (bearer) form securities, the transactions are usually completed in a few hours. If securities are desired in registered form, a period of ten days to two weeks usually is required to complete the transaction as it is necessary to have the registration either recorded or released by the Treasury Department, Washington, D. C. Wire Transfers of Securities The service which permits the wire transfer of bearer securities involved in a sale is very popular. This makes possible the delivery in any Federal Reserve bank city (as well as nearly all reserve branch bank cities) of securities held by, or delivered to, any of the three offices of this bank. Securities may also be wired to any of our offices from other Federal Reserve bank cities. There is no charge for this service if the securities mature or have been called for payment within one year. A nominal charge is made for securities maturing beyond one year. In order to effect exchange and transfer transactions as quickly as possible it is necessary for each office of this bank to carry a supply of unissued stock of each denomination of all Treasury securities that are outstanding. Redemption of Securities Matured and called bonds are received for redemption. Bearer form bonds are paid upon receipt when maturity or call date has been reached. Registered securities are redeemed upon receipt of release of registration advice from the Treasury Department, Washington, D. C. A valuable service which commercial banks may use in forwarding matured bearer securities belonging to them or their customers is the restrictive endorsement. When maturing securities are forwarded bearing the restricted endorsement, appreciable savings in insurance and surcharge cost are made possible. Face Amount of United States Government Securities Handled by Treasury Marketable Issues Division During 1950 Issues. . Bills ..... . .... Certificates of Indebtedness ... 204,700,000 Savings Notes.. ... . 355,000,000 and Transfers. .. . . . . . . . . . . . . . .. Notes . Treasury $3,146,200,000 $1,633,800,000 Exchanges 952,700,000 Wire Transfers-Outgoing. ... -Incoming ... 2,234,200,000 Other .... 381,500,000 Redemptions . 3,256,100,000 Bills . Certificates Notes... 1,402,000,000 of Indebtedness. 1,016,700,000 .. . 301,600,000 Bonds. 329,700,000 Treasury. Savings Notes-Cash. . -Taxes... United States 4,720,500,000 2,104,800,000 Government 90,700,000 115,400,000 Coupons.... .. .. .. .. 95,900,000 Treasury Savings Notes Treasury savings notes are purchased for both investment and tax payment purposes. Reissue of the notes is possible under very limited circumstances. Denominational exchanges may also be made under certain conditions. The notes are redeemed both prior to and at maturity. Notes are presented for payment of principal and accrued interest by owners as well as by the collectors of internal revenue for deposit to the account of the Treasurer of the United States as tax revenues. [ 12 ] Payment of Matured Coupons Coupons of United States Treasury issues are paid on and after maturity. Holders of large numbers of coupons of the same payment date may anticipate payment by forwarding them to one of the offices of this bank up to ten days prior to that date, which will permit processing of the coupons and payment on the due date. SAVINGS BONDS DIVISION The second major division of the Fiscal Agency Department handles transactions in United States savings bonds which are so numerous that nearly all operations are handled on a highly mechanized basis. The present line production methods were devised by our staff in the early days of World War II when manpower was so short that complete mechanization was necessary in order to maintain satisfactory work schedules. In nearly all sections of the savings bonds division the work travels in a continuous route in units of convenient size. The work is performed in brief steps .so that each employee becomes a specialist and. IS thus able to perform his task rapidly, efficiently, and economically. In the first War Loan drive, this bank devised procedures for informing the Treasury and the State Savings Bonds Committees in this District regarding monthly sales and redemptions on a geographical basis. These procedures were sub~eque?tly prescribed by the Treasury for natl?n-wide use, and are still in operation. Smce the end of the War Loan drives many procedures have been revised and refined to the extent that processing previously required when the records were received at the Treasury Department are now unnecessary, as the required mfor~ation is supplied before leaving our bank. S~vmg~ bon~ operations fall into four major classifications: Issues, reissues, redemptions, and safekeeping. A brief resume of these activities follows. Issues During 1950 this bank received approximately 32,600 settlements from banks, savings and loan .com.f>anies,employers with payroll plans, credit unions, the Bureau of Supplies and Accounts of the Navy Department and other ' orgamzations qualified by this bank as issuing agents for Series E bonds. The settlements from '" agents covered the sale of around 5,620,000 savings bonds for a total issue price of roughly $300,500,000. The complete proof of the agents' settlements, the crediting of the sales to the Treasury, and the preparation of a consolidated list of all agents' settlements received in a day with an appropriate description of each sale, in addition to the posting of the agents' liability accounts, are accomplished by use of punches, sorters, tabulators, computers, and transfer posting equipment. With the exception of the examination of the bond stubs to determine that the bonds have been inscribed in an acceptable manner, the operation is almost completely mechanized. The efficiencywith which such transactions are handled is illustrated by the fact that the labor cost of shipping bond stock to agents, balancing agents' remittances, examining stubs, processing stubs for the Treasury Department records, and preparing statistical reports of sales, is $.012 per bond. The issuing agents sold about 58% of the Series E bonds handled through this bank during the past year. The 42% of Series E bonds not sold by agents, which were cleared through this bank, were inscribed in the Fiscal Agency Departments at our three offices from applications received from employers with payroll plans but who are not inscribing agents, from regular monthly Treasury plan purchases, and from others who send their applications to this bank. These bonds app,roximat.e a total of 2,500,000 pieces having an Issue pnce of $63,100,000. All bonds issued by this bank are inscribed by use of modern addressing equipment which makes possible the lowest cost known for this type of work. A reservoir of plates, many thousands m number, is maintained from which plates are used at regular intervals to imprint bonds for [ 13 ] repeat purchasers. From the number of requests that have been received from employers in the last four months of the year to add names to their lists of purchasers it appears that the volume of bonds inscribed will increase sharply in 1951. Many employees, whose firms became qualified issuing agents early in World War II, are still buying bonds under the payroll deduction and inscribing procedure devised at this bank. This bank is the only authorized issuing agent for Series F and G bonds in this District. All applications for these series are processed by substantially the same methods as are used for Series E bonds. The average number of bonds to be inscribed for each application for F or G bonds is about six. It is therefore more economical to cut and check one plate and produce the number of bonds required, in addition to the internal records that are needed, and then destroy the plate than it is to have each bond typewritten and checked. end of 1950 there were 1,600 such organizations in this District qualified to redeem these bonds. The agents receive a fixed fee for their services in this respect and are therefore not permitted by the Treasury to make any other charge for such service. Agents receive payment for all paid bonds transmitted on an immediate basis. The bonds are then processed to prove the correctness of the transmittal letter and the paid amounts of the bonds. All Series E bonds received from agents, as well as all bonds submitted directly to this bank for payment, are then processed by month and year of issue for each denomination of bond in order to permit the Treasury Department to make proper accounting entries on its records. The labor cost of handling bonds presented for redemption through all of the various steps that are required is just under 2 Y2 cents a bond. UNITED STATES SAVINGS BONDS HANDLED DURING 1950 Reissues Requests are constantly being received to reissue savings bonds due to the decease of the owner, co-owner or beneficiary, and for other reasons permitted by the regulations, which require the retirement and reissue of over 20,000 bonds per month. Reissue requests require a careful examination of all the facts to determine that the transaction is permitted by the regulations and that the necessary documents have been submitted. Transactions involving individuals are usually quite simple to handle, but when fiduciaries and corporations are involved many complex problems are presented. The nature of the transactions requires skilled handling in the examination stages and as soon as a request has been approved, the transaction is processed by use of line production methods. The retirement of the old bond is recorded by use of punch card methods, whereas the bonds issued in lieu of those retired are printed by use of addressing machines. Number of Bonds Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 8,206,000 Reissues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redemptions 253,800 8,820,400 Safekeeping For the Public Received Withdrawn Held . . . 59,700 79,100 491,400 For the Navy Received Withdrawn Held . . . 79,700 105,200 177,400 TREASURY TAX & LOAN DEPOSITS Amount of Deposits Amount of Withdrawals Balance December 29,1950 WITHHOLDING Total Remittances & F.I.C.A. $1,514,429,111.00 $1,515,531,471.00 $ 237,219,010.00 TAX DEPOSITS $ 908,386,356.27 Redemptions The banks, building and loan as well as savings and loan companies in this District, which have been qualified as agents to redeem Series E type bonds payable to individual owners, forward the bonds paid by them to us for reimbursement at regular intervals. At the Series F and G bonds presented for redemption require a greater amount of handling than the Series E bonds. Usually documents accompany the bonds in order to complete the assignment and it is then necessary to forward a complete description of the bond to the Chicago [ 14 ] office of the Treasury Department for release of registration before payment can be made. As these series of bonds require presentation by the first of any month in order to receive payment the first of the following month, time is not such a factor in handling as in some other savings bond operations. Safekeeping A service that is extremely popular with the public is the safekeeping of savings bonds. This service is offered at Treasury Department expense to all savings bond owners. A special arrangement with the Bureau of Supplies and Accounts of the Navy Department provides for bonds to be held in safekeeping in our vaults for all Naval personnel wherever stationed while in service. At the end of 1950 this bank was holding 492,000 pieces for individuals and 178,000 pieces for Navy personnel, representing a total of $62,000,000 maturity value of bonds. This is somewhat lower than the peak of over 512,000 pieces held for individuals on August 31, 1949, and more than 346,000 pieces held for individuals on August 31, 1945. The total maturity value of the holdings on the peak dates was approximately $65,000,000. Treasury Tax and Loan Department On January 1, 1950, the title of the War Loan Deposit Account, which had been in existence for many years, was changed to Treasury Tax and Loan Account. Incorporated banking institutions designated as depositaries may pay for purchases of certain government securities made by themselves or customers, and for the collections of Social Security and withholding taxes, by credit to this account. During 1950 securities purchased and taxes collected in the amount of $1,515,000,000 were paid by credit to the Treasury Tax and Loan Account. On December 29, 1950, banking institutions in this District had on deposit $237,000,000 for the credit of the Treasurer of the United States, subject to call. SAFEKEEPING F SERVICES MANY YEARS member banks have been using the facilities of this bank for the safekeeping of some of their securities. It is not only a matter of obtaining adequate physical protection, but many outlying banks have also found that purchases and sales of securities (generally in the New York market) can be consummated more promptly when delivery can be made, or taken, at a central location such as one of our three offices. Borrowing from this bank is likewise facilitated when the collateral is readily deliverable on short notice. Most of the securities thus held in our vaults are designated as "unpledged" (see adjoining chart) which means that this bank acts only as custodian. In many other cases, however, the securities are lodged with us pursuant to agreements between two outside parties. For example, when member banks accept funds for deposit from such public bodies as boards of education, city and village governments, and other local political subdivisions, the depositary bank is generally required by state law to post sufficient collateral to insure the safety of such deposits. On December 31, 1950, this bank held $511,128,000 (face value) of securities, owned by member banks, but pledged as security for state and local governments throughout the Fourth District. A third important type of safekeeping service is that rendered to member and nonmember banks that have been authorized by the Federal Treasury to accept withholding tax funds, social security taxes, and. other funds received from their customers, on behalf of, and for subsequent remittance to, the Treasury. Such deposits must at all times be fully covered by the placing of securities (usually United States Government obligations) in the custody of this bank. The volume of securities handled by the safekeeping staff during the course of a year far exceeds the volume on hand on any given date. For example, during 1950 approximately $8,500,000,000 of securities of various maturities and denominations were accepted for safekeeping for varying lengths of time and an almost equal aggregate was released in accordance with instructions from respective owners. This entailed not only the handling and verification of these securities at the time of receipt, or release, but also the clipping of coupons and the mechanics of exchange or redemption at maturity. Buying and Selling of Securities: In addition to the safekeeping service for member banks OR this bank will place orders for the purchase or sale of bearer form securities of the United States or its agencies, and other securities in bearer form (not including stocks) regularly handled by established dealers. During 1950 sales aggregating $97,581,000 and purchases of $67,019,000 were made for member banks. SECURITIES (000 omitted) [ 16 ] HELD IN SAFEKEEPING I o PLEDGED FOR SAFEKEEPING 1947 1948 ONLY 1949 1950 ADVANCES TO MEMBER BANKS O functions as well as oldest of this bank is that of making credit available to member banks, when and if needed, on the strength of appropriate collateral. In the earlier years of the Federal Reserve System such credit was obtained by member banks chiefly by presenting commercial or agricultural paper for rediscount. In more recent times, however, and especially during the past decade when nearly every member bank's portfolio has contained some U. S. Government securities, advances to member banks have taken the form of collateral loans, secured by obligations of the Federal Government, usually of a short-term variety. Many of these borrowings are negotiated for a period of only five days or less, especially in the case of city banks, as shown in the chart. Others run to as much as 90 days, the maximum statutory limit. During the year 1950, indebtedness of member banks at no time exceeded $52,940,000 and NE OF THE MOST IMPORTANT Advances to Members Banks, 1950 City Banks Country Banks the daily average for the year was $9,800,000, or approximately the same volume as in several preceding years. This bank is also empowered to lend to industry for working capital purposes (Section 13-b), under certain prescribed conditions, one of which is that the desired funds are not obtainable from a commercial bank. As of December 29, 1950, the amount of 13-b loans and commitments outstanding was $535,000 or $460,000 less than a year earlier. A feature of the past year was the reinaugur ation on September 27 of Regulation V, whereby this bank is authorized to guarantee, on behalf of the armed services and several other Departments of the Federal Government, loans made by banks to enterprises which are engaged in production deemed essential for national defense, and which are unable to obtain financing from conventional sources. By December 29, 1950, this bank had received seven applications totaling $26,900,000 from member banks on behalf of such borrowers. The experience gained in administering the so-called "V" and "T" loan program during and immediately after World War II has been helpful in carrying out this new. responsibility. ADVANCES TO MEMBER BANKS, 1950 Aggregate for the Year Number of Loan. Average Size of Loan 386 237 58 6a1 $2,828,964 889,989 152,793 $1,926,240 340 151 17 508 $3,111,029 1,296,358 338,235 $2;478,839 46 86 41 173 $ 744,130 176,483 75,902 $ 303,581 ALL BANKS 1·5 days $1,091,980,000 6· 15 days 210,927,500 Over 15 days 8,862,000 Total $1,311,769,500 CITY BANKS 1 ·5 days $1,057,750,000 6·15 days 195,750,000 Over 15 days 5,750,000 Total $1,259,250,000 COUNTRY BANKS 1 ·5 days $ 6·15 days Over 15 days Total $ Chart based an 11· manthsdata.) [ 17 ] 34,230,000 15,177,500 3,122,000 52,519,500 CHECK COLLECTIONS with the other Federal Reserve Ibanks and branches this bank acts as clearing agent for the routing of checks and settlement NASSOCIATION of accounts, as among the commercial banks of the country. This activity is integrated with operations of local clearing house associations. During 1950 the total number of checks handled increased 3 percent, as compared with the previous year. In terms of dollar value of checks handled the overall increase was 13 percent. The gain was in city and country checks, whereas a decline from the previous year was registered in the number of government checks handled during the year. The peak month for check collections during 1950 was March, when a large volume of veterans' insurance refunds was added to the usual March load of incometax business. About 500 employees are required to handle TRAVELS the volume of check collection. Besides the regular day and night shifts, it has been found necessary to operate a special "twilight" shift on a full-time basis, as well as a shorter evening shift employing part-time services of students of local business colleges. The past year constituted the first full year of 100%-proof machine method of handling checks in Cleveland and Cincinnati. The gain in efficiency was especially marked in the handling of country checks. In addition to the clearing of checks, the bank performs a collection service with respect to a wide variety of noncash items, such as drafts, notes, securities, and coupons. Both types of collection services, check and noncash, are open to member banks and to nonmember clearing banks throughout the continental United States. OF A TYPICAL CHECK This check Is included bank. check in an air mail shipFederal Reserve menllo Cleveland for Credil. Bank of BaSion for credil. [ 18 J CHECK COLLECTIONS, 1950 Total 42,700,000 140,300,000 33,400,000 Cleveland 14,800,000 56,700,000 21,900,000 Cincinnati 7,600,000 41,600,000 5,200,000 Pittsburgh 20,300,000 42,000,000 6,300,000 216,400,000 93,400,000 54,400,000 68,600,000 Value of Checks Handled Checks on City Banks* . . . . . . . . . . . . . . . .. $30,240,000,000 Checks on Country Banks**............ 27,810,000,000 Government Checks. . . . . . . . . . . . . . . . . . . 4,220,000,000 $11,150,000,000 13,720,000,000 2,570,000,000 $ 6,570,000,000 7,620,000,000 730,000,000 $12,520,000,000 6,470,000,000 920,000,000 ~7,41.0,000,000 $14,920,000,000 $19,910,000,000 Number of Checks Handled Checks on City Banks* .................... Checks on Country Banks ** ................ Government Checks ....................... Total ............................. Total. $62,270,000,000 *Payable by banks located in Cleveland, Cincinnati, or Pittsburgh. **Payable by par banks located in continental U. S. outside of the three named cities. (Either payor or payee located in Fourth District.) COLLECTION OF NONCASH ITEMS, 1950 (Drafts, notes, bills, bonds, coupons, etc.) Total ................. tPayable 863,600 350,800 $197,700,000 157,200,000 $ 64,900,000 80,100,000 $ 88,200,000 48,700,000 $44,600,000 28,400,000 $354,900,000 $145,000,000 $136,900,000 $73,000,000 by banks, business concerns or individuals located in Cleveland, Cincinnati, :j:Payable by par banks, business concerns or individuals or payee located in Fourth District.) NUMBER CHECKS Pittsburgh 143,400 43,500 Cleveland 127,500 223,300 Total ................. Value of Items Handled City Items] .................. Country Items] .............. Cincinnati 144,800 181,100 Total 415,700 447,900 Number of Items Handled City Items] .................. Country Items] .............. located in continental OF HANDLED [ 19] 325,900 - 186,900 or Pittsburgh. United States outside the three named cities. (Either payor CURRENCY AND COIN OPERATIONS HE FEDERAL RESERVEBANKSare the mediwhich the public's demand for hand-to-hand currency (as distinguished from deposit credit) is met. The reserve banks are also the points to which surplus currency or coin gravitates after it has been spent, and where unfit money is taken out of circulation and replaced (if necessary) by new bills or coins. The direction of the flow into, or out of, this bank fluctuates not only from season to season, but also within the limits of a calendar month, presumably because paydays tend to cluster around specific dates and are not evenly distributed over the entire month. In fact, even within a typical week, the demand for currency is apt to be the heaviest in the first day or two, while the return flow tends to occur in the latter part. This bank receives a constant flow of currency and coin from several sources shown in a chart on the adjoining page. Of the $2,345,253,458 received during 1950 nearly 63 percent was deposited by banks and United States Government agencies such as Post Offices, Internal Revenue Offices and others, who in turn had received it from the public. Retail stores, places of entertainment, and gasoline service stations, as well as railway and public utility companies, are only a few of the channels through which a steady stream of currency is received and returned to the banking system. Of such returned currency (and coin) more than one-third was unfit for further circulation, and was replaced as needed. This proportion of unfit money was essentially in accord with normal expectations. Another 8 percent represents notes of this bank which, in the course of inter-district trade and travel, had found their way to the other eleven Federal Reserve Banks and which by law must be returned to the originating, or debtor, bank. The balance of $674,441,200 needed roughly to match the outflow during 1950, represents new bills or coins which were put into circulation, chiefly to replace unfit money, but also Tum through INCOMING l Fir OUTGOING [ 20 ] partly in response to the public's demand (as manifested through banks) for additional handto-hand cash. Some of this new paper money was deposited at this bank by the United States Treasury, either in the form of silver certificates or United States notes whose history actually dates back to the Civil War. The balance was made up of new notes issued by this bank, in denominations of $5 or more, and which required the transfer of an equivalent amount of this bank's assets to the Federal Reserve Agent to be held by him as collateral while the notes are outstanding. The out flow of currency likewise takes place through the commercial banking system. Owing mostly to the economic importance of the three largest cities of the District, and partly to the intermediary role played by the large metropolitan banks, nearly one-half of the currency flowing back into circulation is paid out in these three trading areas. Banks outside Cleveland, Cincinnati and Pittsburgh also handle a substantial quantity of paper money and coin in the aggregate. Shipping charges to and from member banks are absorbed by this bank. Wrapped coin service (as distinguished from loose coin) which has been available since J anuary 1948 at a nominal charge to the receiving bank, continued to grow in popularity during 1950. The cost of sorting and verifying, packaging and mailing this vast volume of currency and coin, not to mention the constant replacement of unfit with new notes, is a considerable element of expense in our operations. During 1950 this cost is estimated at $900,000 or 12 percent of total bank expense. As indicated in the balance sheet on page 32 of this Report, the amount of this bank's notes in actual circulation, and therefore subject to routine wear and tear, as of December 29, 1950, was approximately $2,112,367,000 or 3 percent more than a year earlier. This $2 billionodd of our notes is estimated to constitute about 85 % of all money in circulation in this District. The initial cost of printing and engraving these outstanding notes, together with the charges for shipping the notes from Washington is estimated at $1,700,000. Currency and Coin operations during 1950 Currency and Coin on hand December 30, 1949 Receipts during 1950: From Public (chiefly via banks) Fit Unfit $1,480,753,158 . $960,706,520 520,046,638 From Treasury (Silver Certificates, U. S. Notes and coin) . From Other F. R. Banks * . From F. R. Agent (new notes) . Total Incoming 173,481,200 190,059,100 500,960,000 $2,345,253,458 . Payments during 1950: To Banks in Cleveland, Cincinnati and Pittsburgh . To All Other Banks . To Other F. R. Banks ** . To Treasury (unfit) for Redemption. Total Outgoing $120,285,404 $ 779,812,576 899,691,852 146,578,700 520,046,638 2,346,129,766 . Net Decrease during 1950 . Currency and Coin on hand December 29, 1950 *Notes originally issued by this bank. **Notes originally issued by the other eleven F. R. Banks. [ 21 ] 876,308 $119,409,096 ECONOMIC T RESEARCH AND INFORMATION of the Research Department and branch offices either for internal use, or m rethe Library during 1950 was carried forward sponse to outside queries. All of the various newspaper releases and along the traditional functional lines. Our responsibility to the Board of Governors other publications, illustrated on the adjoining involved, as for many years in the past, the as- _ pagec.experienced an increase in active circulation during 1950. The most popular medium sembling and processing of detailed data on judging from the size and growth of the mailing banking conditions and department store trade, and of forwarding our findings to the Board at list, is "Business Trends", the script for the Saturday radio program, which was launched in weekly and monthly intervals. The Research DeOctober 1948. partment also was called upon by the Board of The staff of the Research Department filled a Governors to make regional studies in connection with consumer credit, both before and after the large number of speaking engagements during reinstitution of Regulation W. Until inaugura1950, mostly with organizations not connected tion of Regulation X, and the establishment of a with this bank, but also in the course of meetspecial staff to administer it, the Research Deings arranged by the Bank and Public Relations partment was also asked to make analyses of department and Bank Examination. certain aspects of real estate credit and the conThe work of the Library, with a staff of ten, struction industry in this District. continued to expand during 1950, not only beThe officers and employees of this bank have cause of the constant increase in the amount of continued to make increasing use of the research reference material received, catalogued, and staff and library during the past year. Although circulated, but also because of the growing use the physical facilities are for the most part of its facilities by the public. A typical day's located at the main office, our staff handled quota of research questions received by phone, many requests for information from the two letter, or in person, is depicted herewith. HE WORK SAMPLES OF NEWS BULLETINS I,'" .I" I.,., .. ),.11. '_'7'" N •••• paper•• _. li.,., e"m~be~r~14~.~19~SO~~~~t.,r.;;;;;__ --:='0-:':: Bi.NX • - DEBITS. _ tciol!liii1l9SO ~~'!::==== Do 1~'"OYCber lJ, 19S0 October by bank debita to der' - __ ~ __'~'_~t~,~~.~h~~~h~w:.~.~e:.~t':b:1:i':h~.~dJd~ur!W~c~~~ District Federal Fo DEPARTMENT STORE SALES Federal Reserve Re s e a r ct» Yew'P'per3, December 8 Bank Department of Cleveland Date D .' neserve 'n, H./ ••,.. A" Rp'''lrrlt -'-. - :-:-~; . '.'~!.""~., N -CIlANG~ IN Dec. 7, 1950 -"ber B an k • 20.11 .... £ D 0 ('partlrlent 22, 19So COl SUIER INSrAU1EN 25 FOUrth D1 t • r1ct - 7.0,1 c1t1el. TCREDIT__ lleltbor Cleveland Do I. 0C70seR ~o. 19So ~ N~.21 19$0 Tnt.AI HearcJoverWGAR each SaturcJayat 9:15 A.M. _., SATUROA DfCfMIa Y. [ 23 ] p. ".so BANK EXAMINATION IDepartment of the Bank Examination to examine the State member banks in the Fourth District at least once annually by a field investigation staff, consisting of examiners and assistant examiners working under the direction of a chief examiner. Typewritten reports are made of these examinations and copies of the reports are made available to the banks examined. With few exceptions these examinations or investigations are conducted jointly with representatives of the banking departments of the several states in the district; and the Federal Reserve Bank of Cleveland wishes to take this opportunity to acknowledge the fine cooperation with which the other banking agencies have collaborated in the various joint examination undertakings. In its division of analysis and review the Department functions the condition statements and reports of earnings and dividends submitted by the State member banks; and through that division the Department is continuously engaged in developing factual information relative to bank T IS THE TREND POLICY Of CAPITAL RATIOS operations. This factual analysis is enhanced by the fact that we are provided with copies of the condition statements and reports of earnings and dividends submitted by the National banks to the office of the Comptroller of the Currency as well as with copies of the reports of examination of National banks made by examiners for that office. The types of information developed cover a wide range, the principal one being the statement of member bank operating ratios, published annually, which permits banks to compare their operations with others of relatively the same size in the District. FOURTH DISTRICT BANKS as of June 30, 1950 Number National Banks. . . . . . . . . . . .. State Member Banks. . . . . . .. State Nonmember Banks. . . .. ALL $7,116,543,000 3,833,293,000 2,014,435,000 1,125 Total Of Total Assets 464 232 429 $12,964,271,000 MEMBER BANKS 0/0 50 10 Ratio of Capital to Total Assets 1 , 40 •••••••• I 30 8 6 ), 20 4 Ratio of Capital to Assets Other Than Cash and U. S. Gov't Sec. 10 2 o o 1947 1949 1948 [ 24 ] 1950 BANK T AND PUBLIC RELATIONS GENERAL OBJECTIVES of the bank and public relations program of this bank are: 1. To render the best possible service to the banks in the Fourth Federal Reserve District; 2. To keep in close and continuous contact with bankers so as to maintain a cordial, harmonious and practical working relationship with the banks in this District; 3. To present helpful and practical information to bankers, businessmen, and to the public, and to encourage the exchange of facts and ideas between bankers and others with representatives of this bank. Typical examples of bank and public relations activities during 1950 were as follows: In order to maintain contact with the 1,121 banks in the Fourth District, two scheduled visits were made during 1950 to each bank by an officer or field representative. The policy of cooperation with local or regional clearing house associations and county HE banker groups through Banker Conference Meetings was continued throughout the past year. During 1950 approximately 1,400 bank officers and directors from 420 banks attended 16 such conferences. Another feature of the bank and public relations program is "Bankers' Day at the Federal" when groups of 30 to 50 officers and employees of banks from a wide geographical area of the District are taken on a tour through the bank to get a first-hand view of our operations. A series of 26 such "Bankers' Days" were held during 1950. In addition to these sponsored tours, approximately 4,700 visitors toured the three offices during the past year. The movie, "A Day at Federal Reserve Bank of Cleveland," produced by the officers and employees of this bank, was completed in July 1950. Since that time, there have been 423 showings of the movie to 32,709 people. These and other bank and public relations activities were an integral part of our operations as the regional bank and a service institution in the Fourth Federal Reserve District. [ 25 J OFFICE OF COUNSEL HE TthreeOFFICEOF COUNSELconsists of Counsel, attorneys, and a secretary. Minutes of meetings of Board of Directors, Managing, and Discount Committees. Insurance policies and bonds. During 1950, which was the third year of its existence as a part of the bank's organizational structure, the Office of Counsel rendered considerable legal services in connection with the issuance of Regulation X dealing with residential real estate credit. In addition, the reinstatement of consumer credit controls under Regulation W involved the preparation of many legal opinions concerning this subject. Legal matters normally handled by the Office of Counsel include the following: 3. Correspondence and conferences with representatives of member banks. 4. Issuing opinions concerning Federal Statutes, state banking laws, rulings and regulations of the Board of Governors and operating letters of this bank. 5. Analyzing and determining the effect upon the bank's operations of all existing and proposed legislation in banking and other fields. 1. Conferences with and advice to officers and department managers concerning legal problems arising in their respective operating departments and which relate to internal and external activities. 6. Reviewing legal aspects involved in establishment of branches by member banks. 2. Drafting or examining for legal approval the following: Applications for membership in the Federal Reserve System. Applications of National banks to exercise fiduciary powers. All documents evidencing changes in corporate status of state member banks. Operating and c i r cuI a r letters issued by this bank. Contracts, leases. purchase orders, and 7. Participating in negotiation and preparing of necessary documents in connection with 13b and V loans. The law library used by the attorneys consists of approximately 2,000 volumes which include not only the laws and court decisions of the four states in the Fourth District but also books on specialized subjects and Federal statutes and cases. An effort has been made to have the several lawyers in the Office of Counsel generally familiar with all phases of the legal work performed making for well-rounded individual experience and efficient legal service to the bank. [ 26 ] PERSONNEL F THE POINT OF VIEW of the Personnel Department, the past year falls into two distinct phases. During the earlier months, activity was of a routine character. With a combined personnel of around 1,630, separations during the first five months of the year totaled only 100, for which only 62 replacements were required and were obtained without difficulty. That turnover rate was low in comparison with several preceding years. Employment of high school girl graduates from the January and June classes was very encouraging. The moment the Korean situation broke, however, the entire outlook changed very rapidly. It became difficult to secure likely candidates for vacancies. The separations, which had been 100 in the first five months, jumped to 273 in the next six-month period, from June to November. This loss was partly offset by the accession of about 40 business school students who are employed in a five-hour twilight shift. ROM Number of full-time employees at year end 2000 1900 1800 ••••••••• ........••..... ......••••.. 1700 1600 1500 1400 FISCAL -... ~GENCY 1300 12(10 CHECK COLLECTION 1100 1000 ••••• 900 800 MA NTENANCE 700 ~ND During the first eleven months as a whole there was a reduction of 11 employees. However, the re-establishment of consumer credit controls (Regulation W) and Regulation V loan operations and the establishment of a new department to handle real estate credit (Regulation X) required the services of 34 employees, so there was actually a reduction in the operating departments of 45 employees. Very few of the terminations have been caused directly by the increase in the armed forces. Most of the individuals left to take jobs in defense plants in order to obtain more lucrative salaries. The present labor markets in Cleveland, Cincinnati, and Pittsburgh are extremely short of clerical workers, particularly those possessing typing, shorthand, and accounting skills. The 219 employees, representing nearly 140/0 of our personnel, who have been in the bank's employ for 25 years or longer, constitute a highly experienced nucleus of workers around which it should not be difficult to maintain a very efficient organization. The personnel services of the bank are administered by a personnel department at each of the three offices. These departments, in addition to performing the usual activities of recruiting, hiring, transferring, promoting, counseling and terminating services, preparing and maintaining complete records of employment including earnings, also operate the personnel classification plan (job evaluation) , education, training, welfare and recreational programs. The medical department, restaurant facilities, and publication of an excellent employees' monthly paper also are under Personnel Department supervision. PROTECTION Number of Full-Time Employeel, December 1, 1950 (Ooes not include officers) 600 500 Department 400 19 OTHER DEPARTMENT Total Cleveland Cincinnati Plttlburgh Check Collection • Fiscal Agency ••• Maintenance & Protectian ....• 19 Others •..•.• 200 100 397 276 180 168 88 34 129 74 290 647 178 356 47 125 65 166 Total. ....... 300 1610 882 294 434 o 1947 1948 1949 1950 [ 27 ] BUILDING OPERATIONS AND MAINTENANCE F a postwar program of general rehabilitation, modernization, and renovation has been in progress at each of the three bank buildings. Old and inferior lighting equipment has been replaced by the modern fluorescent type, and throughout the buildings new floor coverings have been laid. These replacements together with an extensive renovating, redecorating, and soundproofing program have greatly improved working conditions in the three buildings. In the Cleveland building the old metal frame casement windows on the tenth floor, where the cafeteria and recreational facilities are located, have been replaced by large thermopane windows. The building also has been cleaned and tuck-pointed during the past year. With respect to electrical installations, the original electrical risers have been split and altered so that, in the event the demand for power should exceed the capacity of the buildings's own DC power plant, outside power (AC) could be used for lighting. At Cincinnati the bank has taken occupancy of two additional floors since purchasing the building in 1947. Cafeteria facilities have been installed for the first time in the Cincinnati property as well as in the Pittsburgh office. At the latter, new Diesel equipment has been installed capable of taking care of 30 percent of the building's power requirements in the event of a local power failure. Other major improvements are under consideration or under way in the building at Cleveland. The replacement of all hot water lines, which are more than 25 years old, is now in progress. Modernization of the freight and eight passenger elevators has been started and is scheduled for completion during 1953. Rehabilitation of the power plant is progressing step by step. Also under active consideration is the replacement of the original boilers and engines and the addition of refrigeration equipment adequate for the entire building. Recently it became OR THE PAST SEVERAL YEARS [ 28 ] necessary to discontinue air conditioning of one of the two floors for which such facilities had been provided. A gradual but significant increase in the use of heat-creating equipment, such as IBM proof machines, Recordak, and endorsing machines, called for more air-conditioning than the existing installation could supply, and so the service had to be suspended pending an increase in capacity. Ordinarily such a suspension could be regarded as temporary, but in view of the probable requirements of national defense, this bank is postponing all modernizing programs of substantial nature, in conformity with the curtailment of construction in general. PLANNING T HE PLANNING DEPARTMENT,which was formed in 1946, makes careful surveys of operational techniques in the various departments, with the aim of discovering and suggesting changes in procedures which will result in significant economies in manpower requirements or in material expense as well as in improved performance. In the five years of its existence, the Planning Department has received 235 assignments ranging from minor rearrangements of office equipment, to others which led to the installation of completely new and mechanized systems. During 1950 nine major surveys were completed, of which four had been inaugurated in the preceding year. One of these assignments involved a survey of all of the some 2500 forms in active use at our three offices. The findings of this survey have led to the launching of a forms-control program which has already re- sulted in substantial improvements in design in a number of cases. Owing to the wide variety of forms involved, however, it is not expected that this project will be carried to completion during 1951. The staff of five, including a junior officer, is located at the main office, but its activities extend to the two branches as well. In addition to the survey function described above, the department edits and arranges for the printing of all circulating and operating letters through which this bank announces, for example, the terms of a new Treasury offering, a change in official personnel, or the terms of a Regulation such as "W" or "X". During 1950 more than 90 different mailings of this stype were sent out, some only to member banks, and some to as many as 40,000 names, as in the case of some of the recent regulations in which there is wide public interest and responsibility. DUPLICATING WING TOTHE LARGE amount of printing and duplicating material that is required by the routine operations of this bank, it has been found economical to handle as much as possible of this task by utilizing the bank's own employees and equipment. Except for such types as forms for tabulating equipment, which require hairline registration, and certain other work requiring unusual quality, all printing, mimeographing, multigraphing, hectographing, and photostating is done in the Duplicating Department. This practice is not only less expensive, but the O other element of convenience is likewise an important consideration. Most of the work of printing or reproducing of forms, which is the major duplicating requirement, is done at the main office which operates nine pieces of duplicating equipment. The duplicating activities at the main office during 1950 consisted of approximately 5,100 jobs involving 10,600,000 impressions. Some of these jobs require only a few reproductions, while others called for 100,000 or more copies. An adequate variety of grades and weights of paper is carried in stock. [ 29 ] MAIL AND EXPRESS express handling the bank's Dcharges incurred in the postal and around mail and express shipments amounted to URING THE PAST YEAR, $930,000 exclusive of the salaries of Mail Department employees. Nearly half of that sum represents postage and express costs involved in the shipments of currency to and from member banks, and another 12% reflects the postage on new Federal Reserve notes received from the Bureau of Printing and Engraving, together with the cost of returning fit notes of other Federal Reserve banks. Since shipments of this kind (as well as of bearer securities) require elaborate safeguards and entail surcharges, the postal expense per package is much greater than on routine firstclass mail. Shipments by express are similarly expensive. Nearly all of the remaining 35-40%, as indicated on the subjoined chart, covers what may be described as "ordinary" mail or express, the bulk of which consists of checks. Each month during 1950 around 9,500,000 checks were mailed to country banks throughout the Fourth Expenditures for Postage and Expressage 1946 Ordinary Outgoing for Postage and 1947 1948 1950* --- 288,928 341,728 214,161 82,981 248,378 140,565 297,293 136,429 297,142 388,943 433,722 57,247 39,065 1,533 67,722 33,327 1,424 98,472 22,694 2,486 97,845 102,473 123,652 37,779 1,423 25,751 277 27,666 782 39,202 26,028 28,448 Currency and Coin Shipments to and from Member Banks Postage ................. Expressage ............... Other Currency Shipments New F .R. Currencyfrom Wash. Fit Notes to other F. R. Banks Unfit Notes to Washington. Securities Fiscal Agency Securities ... Other Securities .......... Total. months actual, December $664,844 $806,372 $927,550 estimated. Expressage (000 omlHed) 1946 1948 $201 ,345 $236,923 $306,310 . . . . . .. 29,310 52,005 35,418 230,655 ·Eleven Expenditures Mail. Checks. 1949 ·Oecember District for final collection and payment. Another .2,000,000 checks (approximate) were 1950* sent each month to payor banks throughout the rest of the United States. est. This latter class of checks is dispatched almost entirely via air express or air mail, to the Federal Reserve bank or branch serving the respective banks on which the sorted checks are drawn. In this and other cases where the volume warrants, shipments are made in crash-proof bags. The air-express pouches flown to New York City each night average about 75 pounds. The volume of conventional business mail has not been unusual during 1950 but the advent of Regulations V, W, X, (discussed elsewhere in this Report) gave rise to a considerable expansion of special purpose mailings. Vendors and lenders in every part of the District had to be supplied with material relevant to the administration and observance of these Regulations. As for many years in the past, our Mail Department continues to serve as a substation of the Cleveland Post Office and is therefore permitted, among other things, to sort outgoing mail according to train schedules, and to collect mail directly from trains. Prompt delivery is facilitated by virtue of these procedures. [ 30 ] ACCOUNTING as in every year since D the founding of this bank, the Accounting URING THE PAST YEAR, Department carried out the function of analyzing member bank reserve balances in order to ascertain whether such balances conformed to minimum legal reserve requirements as established from time to time by the Board of Governors of the Federal Reserve System. Each of the 26 reserve city member bank accounts is analyzed at seven day intervals, and the remaining 667 "country" member bank accounts are examined on a semi-monthly basis. During 1950 the daily average of reserve balances, carried by all 693 member banks combined, is estimated to have been approximately $1,185,000,000, or roughly $72,000,000 in excess of legal requirements. Such requirements, unchanged percentagewise throughout 1950*, were computed as follows: an almost infinite number of transactions on behalf of the Federal Treasury, ranging on a given day all the way from the smallest government check that is paid out of the Treasury's account, to a many-million-dollar transfer of funds or a major Treasury refinancing operation. It is estimated that during 1950 the total debits and credits to the Treasury's account totaled in the neighborhood of $18,500,000,000. A detailed transcript, analogous in principle to the monthly statement received by a depositor from .his bank, is prepared each working day and forwarded to the Treasury. This is a comparatively lengthy document, carries both debits and credits together with supporting vouchers, and serves not only as an authentic statement of the Treasury's balance at this bank as of the specified date but also as an aid in summarizing and reconciling the activity in one of the largest Large banks in Cleveland, Cincinnati, Pittsburgh, Columbus and Toledo ' All Other Banks A sum equal to: A sum equal to: 18% of Net Demand Deposits plus 5% of Time Deposits plus Member banks are provided each business day with a statement of their reserve position. In addition to the basic (although not the most time consuming) function of observing reserve balances, the Accounting Department is also responsible for administering the "deferred availability items" in accordance with the established time schedule of credit availability which determines the amount of credit that becomes available to member banks day by day. This delayed credit averaged around $205,000,000 during 1950, and may be compared (in the balance sheet on page 32 of this Report) with the counterpart asset described as "uncollected items", which on the average was around $40,000,000 larger than the aggregate of deferred availability items. The Accounting Department likewise handles 12% of Net Demand Deposits 5% of Time Deposits single deposit-liability accounts on this bank's books. Another important function executed by this department is that of cost accounting, or "expense accounting" as it is more commonly known within the bank. Punch card equipment is now used extensively to tabulate the many classifications of expenses for comparative purposes, and to provide a factual basis for the preparation of departmental budgets, as well as the entire bank budget. The Accounting Department is also in charge of the stockholders' ledger. During the past year 315 member banks purchased additional stock in this bank to the amount of $2,569,500, either as new members, or because their own capital and surplus accounts had been enlarged. • The increases in reserve requirements announced by the Board of Governors on December 29 are not effective until early 1951. [ 31 ] COMPARATIVE DECEMBER STATEMENT 29, 1950 and OF CONDITION DECEMBER 30, 1949 ASSETS Gold certifica tes Redemption fund for Federal Dec. 29, 1950 Dec. 30, 1949 Reserve notes . . $1,476,814,243 67,288,483 $1,539,111,108 59,126,739 TOTAL GOLD CERTIFICATE RESERVES . 1,544,102,726 1,598,237,847 . 22,754,336 21,343,444 1,566,857,062 1,619,581,291 Other cash TOTAL CASH ..........•....................... Discounts and advances Industrial loans U. S. Government securities: Bills Certifica tes Notes Bonds TOTAL U. . . 149,214 150 . . . . 6,849,000 750 115,311,000 216,370,000 1,161,131,000 428,263,000 445,406,000 578,791,000 51,852,000 665,696,000 . 1,921,075,000 1,741,745,000 . 1,921,224,364 1,748,594,750 . . . . 11,177,000 457,756,953 4,793,961 11,249,340 10,825,000 267,302,201 4,935,667 9,252,016 S. GOVERNMENT SECURITIES TOTAL LOANS AND SECURITIES Federal Reserve notes of other banks Checks and other cash items in process of collection Bank premises Other assets $3,973,058,680 $3,660,490,925 . $2,112,367,140 $2,050,079,320 . . . . 1,323,910,224 81,647,730 80,780,700 14,158,900 1,185,987,074 66,722,465 69,975,200 9,161,664 . 1,500,497,554 1,331,846,403 TOTAL ASSETS......................•.......... LIABILITIES Federal Reserve notes Deposits: Member bank-reserve U. S. Treasurer-general Foreign Other deposits account. account. TOTAL DEPOSITS Deferred availability Other liabilities items . . TOTAL LIABILITIES CAPITAL 278,952,556 504,159 201,506,111 978,602 3,892,321,409 3,584,410,436 22,001,400 48,014,194 1,005,665 9,716,012 . 19,431,900 45,956,798 1,005,665 9,686,126 ACCOUNTS Capital paid in Surplus (Section 7) Surplus (Section 13b) Other capital accounts . . . . TOTAL LIABILITIES AND CAPITAL ACCOUNTS Con tingen t lia bility on acceptances purchased Commitments to make industrial loans for foreign corresponden [ 32 } . ts . $3,973,058,680 $ $ 1,969,894 457,500 $3,660,490,925 $ $ 966,768 886,019 COMPARISON OF EARNINGS AND EXPENSES FOR THE YEARS 1950 AND 1949 1950 Current earnings Current expenses . . $29,331,256 7,186,175 18,336,686 22,145,081 . 3,471,928 22,857 2,961,697 107,433 . 3,494,785 3,069,130 13,001 404,108 . 3,481,784 31,791 18,516,075 2,665,022 3,760,963 17,903,138 . . CURRENT NET EARNINGS 25,692,094 7,355,408 . ',' $ 1949 3,270,604 1,213,208 3,146,002 1,156,754 2,057,396 $ 1,989,248 ADDITIONS TO CURRENT NET EARNINGS: Profits on sales of U. S. Government securities (net) All other.. . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ADDITIONS DEDUCTIONS FROM CURRENT NET EARNINGS . Net additions Transferred to reserves for contingencies Paid U. S. Treasury (interest on outstanding F. R. notes) . . Net earnings after reserves and payments to U. S. Treasury Dividends paid Transferred to surplus (Section 7) . [33 ] STATEMENT OF EARNINGS EXPENSES AND SINCE THE BANK'S OPENING, NOVEMBER 16, 1914 CURRENT DEDUCTIONS NET CURRENT NET TO FROM EARNINGS EARNINGS YEAR ADDITIONS CURRENT EXPENSES EARNINGS CURRENT NET CURRENT 1914-15 .......... 1916 ............. 1917 ............. 1918 ............. 1919 ............. 1920 ............. $ 113,815 452,129 1,367,216 5,226,864 7,800,829 $ 169,589 150,224 55,774* $ 358,078 906,401 1,342,617 NET EARNINGS EARNINGS $ $ $ 8,097 255,456 184,667 364,427 301,905 1,009,138 4,320,463 6,458,212 (See disposition next page) 55,774* 293,808 753,682 4,135,796 6,093,785 14,458,619 2,329,155 12,129,464 63,246 372,679 1921 1922 1923 1924 ............. ............. ............. ............. 9,390,863 4,994,282 4,655,090 3,770,689 2,871,012 2,461,266 2,550,659 2,664,850 6,519,851 2,533,016 2,104,431 1,105,839 125,071 48,889 11,951 39,997 360,539 313,217 1,195,161 1,618,989 1925 1926 1927 1928 1929 ............. ............. ............. ............. ............. 4,013,456 4,517,884 4,197,836 6,250,553 6,986,580 2,599,629 2,531,746 2,610,474 2,596,814 2,785,979 1,413,827 1,986,138 1,587,362 3,653,739 4,200,601 333,802 10,549 2,138 3,193 175 537,053 335,925 481,310 476,217 1930 ............. 1931. ............ 2,649,497 2,623,842 2,583,904 2,915,300 2,946,569 935,705 414,241 1932 ............. 1933 ............. 1934 ............. 3,585,202 3,038,083 5,128,554 4,705,091 4,137,556 378,496 268,941 323,120 138,477 1935 ............. 1936 ............. 1937 ............. 1938 ............. 1939 ............. 3,674,866 3,537,159 3,986,619 3,490,621 3,845,841 2,954,884 2,923,092 2,770,245 2,797,658 2,860,488 719,982 614,067 1,216,374 692,963 985,353 838,948 457,512 1940 ............. 1941.. ........... 4,405,454 4,123,894 4,975,032 6,750,584 9,643,754 2,910,118 3,360,435 3,606,964 4,192,397 4,594,525 1,495,336 763,459 1,368,068 2,558,187 5,049,229 1,339,571 132,323 336,129 3,523,320 330,542 ............. ............. ............. ............. ............. 13,289,224 13,873,579 15,189,482 29,265,175 29,331,256 4,436,638 4,982,573 6,277,763 6,757,536 7,186,175 8,852,586 8,891,006 8,911,719 22,507,639 22,145,081 406,086 184,973 255,381 596,085 3,069,130 123,057 332,370 255,483 4,016,649 4,165,071 9,135,615 8,743,609 8,911,617 19,087,075 21,049,140 1950 ............. 25,692,094 7,335,408 18,336,686 3,494,785 44,792 21,786,679 1942 ............. 1943 ............. 1944 ............. 1945 1946 1947 1948 1949 2,544,650 1,789,791 1,190,987 ·Contra Entry [ 34 J 769,651 510,364 560,189 239,497 495,334 530,424 604,637 996,514 1,196,585 917,941 449,485 455,350 374,810 482,285 11,820,031 6,284,383 2,268,688 921,221 473,153* 1,210,576 1,660,762 1,108,190 3,180,715 3,705,442 783,777 78,545 1,871,256 731,683 1,042,697 546,201 780,861 718,906 1,081,061 1,049,626 896,664 913,600 12,443* 387,729 899,733 401,924 1,921,307 908,225 1,316,468 5,181,774 4,977,847 STATEMENT OF NET OF DISPOSITION EARNINGS BY YEARS, SINCE NOVEMBER 16, 1914 NET EARNINGS (See detail previous page) YEAR 1914-15 .... 1916 ....... 1917 ....... 1918 ....... 1919 ....... $ TRANSFERRED TO SURPLUS DIVIDENDS PAID 55,774* $ 293,808 753,682 4,135,796 6,093,785 SECTION 7 $ PAID SECTION 13b FRANCHISE TAX $ 143,237 716,168 716,107 556,785 U. S. TREASURY INTEREST ON SECTION F. R. NOTES OUTSTANDING 13b $ $ OTHER TRANSFERS $ $ $ 3,552,000 5,537,000 1920 1921 1922 1923 1924 ....... ....... ....... ....... ....... 11,820,031 6,284,383 2,268,688 921,221 473,153* 604,194 660,228 692,436 725,626 756,152 11,215,837 2,329,442 861,264 195,595 1,229,305* 1925 1926 1927 1928 1929 ....... ....... ....... ....... ....... 1,210,576 1,660,762 1,108,190 3,180,715 3,705,442 778,811 808,505 832,583 856,843 910,007 431,765 852,257 275,607 2,323,872 2,795,435 1930 1931 1932 1933 1934 ....... ....... ....... ....... ....... 783,777 78,545 1,871,256 731,683 1,042,697 952,934 936,513 858,427 789,058 769,096 169,157* 857,968* 180,083 57,375* 281,757 1935, ...... 1936, ..... , 1937, ... , .. 1938 ....... 1939 ....... 780,861 718,906 1,081,061 1,049,626 896,664 772,127 752,931 773,118 799,145 823,216 48,456* 294,467 250,254 73,738 1940, ...... 1941 .. , .... 1942 .. , .... 1943 ....... 1944 .. , .... 1,921,307 908,225 1,316,468 5,181,774 4,977,847 842,330 869,942 888,550 922,163 967,056 1,063,869 22,825 421,070 4,259,012 4,010,790 15,108 15,458 6,848 599 9,135,615 8,743,609 8,911,617 19,087,075 21,049,140 1,025,112 1,094,157 1,123,392 1,138,865 1,156,754 8,103,326 7,648,581 779,013 1,794,840 1,989,248 7,177 872 21,786,679 1,213,208 2,057,396 1945 1946 1947 1948 1949 .. , .. ' , .. ' .... ....... ....... ..... ,. 1950 ....... 3,294,713 714,988 832,746 8,156* 8,734 14,431 13,476 227 290* 1,461 * 7,010,673 16,153,370 17,903,138 18,516,075 'Contra Entry ADJUSTMENTS -14,146,864(1a) 14,146,864(lb) 1,015,572(2) -6,120,844(3) 7,043,820(4) NOTES: l(a) l(b) 2 3 4 Purchase of Federal Deposit Insurance Corporation Stock in 1934. Transfer to Treasury of Proceeds of Redemption of FDIC Stock in 1947. Payments received from Treasury, relative to Section l Ib loans in 1934-5. Transferred from Surplus to Reserves for Contingencies. Transferred from Reserves for Contingencies to Surplus (Section 7). [ 35 ] BALANCE TO PROFIT & Loss 55,774* 150,571 37,514 132,311 * D R I c E T o s R A N DIRECTORS as of January 1, 1951 GEORGE C. BRAINARD (Chairman) President, Addressograph-Multigraph Corporation, Cleveland, Ohio JOHN C. VIRDEN (Deputy Chairman) Chairman of the Board, John C. Virden Company, Cleveland, Ohio JOHN D. BAINER, President EDWARD C. DOLL, President The Merchants National Bank and Lovell Manufacturing Company Trust Company of Meadville Erie, Pennsylvania Meadville, Pennsylvania LA WRENCE N. MURRAY, President JOEL M. BOWLBY, Chairman of the Board Mellon National Bank & Trust Company The Eagle-Picher Company Pittsburgh, Pennsylvania Cincinnati, Ohio LEO L. RUMMELL, Dean BEN R. CONNER, President College of Agriculture The First National Bank of Ada The Ohio State University Ada, Ohio Columbus, Ohio CHARLES J. STILWELL, President The Warner & Swasey Company, Cleveland, Ohio OFFICERS RAY M. GIDNEY, President WILLIAM H. FLETCHER, First Vice President ROGER R. CLOUSE, Vice President WILBUR D. FULTON, Vice President JOHN W. KOSSIN, Vice President ALFRED H. LANING, Vice President and Cashier MAR TIN MORRISON, Vice President PAUL C. STETZELBERGER, Vice President DONALD S. THOMPSON, Vice President HAROLD E. J. SMITH, Assistant Vice President CHARLES J. BOLTHOUSE, Assistant Cashier MEMBER OF FEDERAL PHILLIP B. DIDHAM, Assistant Cashier GEORGE H. EMDE, Assistant Cashier JAMES R. LOWE, Assistant Cashier JOSEPH M. MILLER, Assistant Cashier GEORGE R. ROSS, Assistant Cashier WILBUR T. BLAIR, Counsel and Secretary HARMEN B. FLINKERS, Assistant Secretary HUGH M. BOYD, Chief Examiner CARL F. EHNINGER, Auditor MERLE HOSTETLER, Manager, Research Department ADVISORY COUNCIL (from Fourth District) SIDNEY B. CONGDON, President The National City Bank of Cleveland, Cleveland, Ohio INDUSTRIAL ADVISORY COMMITTEE HERMAN R. NEFF (Chairman) President, The George S. Rider Company-Engineers, SAM W. EMERSON, President The Sam W. Emerson Company Cleveland, Ohio C. F. HOOD, Executive Vice PresidentOperations United States Steel Company Pittsburgh, Pennsylvania [ 36 ] Cleveland, Ohio H. P. LADDS, President The National Screw and Manufacturing Company Cleveland, Ohio JOHN C. VIRDEN, Chairman of the Board John C. Virden Company Cleveland, Ohio D o F F I c E R s DIRECTORS ERNEST H. HAHNE (Chairman) President, Miami University Oxford, Ohio HENRY C. BESUDEN, Farmer Winchester, Kentucky JOSEPH B. HALL, President The Kroger Company Cincinnati, Ohio L. M. CAMPBELL, President Second National Bank Ashland, Kentucky STERLING B. CRAMER, First Vice President The Fifth Third Union Trust Company Cincinnati, Ohio GRANVILLE R. LOHNES, Treasurer National Cash Register Company Dayton, Ohio SPEARS TURLEY, Vice President and Trust Officer State Bank and Trust Company of Richmond, Kentucky Richmond, Kentucky OFFICERS WILBUR D. FULTON, HENRY N. OTT, Cashier Vice President RICHARD PHIL J. GEERS, Assistant CLYDE HARRELL, G.JOHNSON, Assistant Cashier Assistant Cashier Cashier DIRECTORS A. H. BURCHFIELD (Chairman) President and General Manager, Joseph Horne Co. Pittsburgh, Pennsylvania JOHN BARCLAY, JR., President Barclay-Westmoreland Trust Company Greensburg, Pennsylvania HUGO E. LAUPP, President Wheeling Dollar Savings and Trust Company Wheeling, West Virginia LAURENCE S. BELL, Executive Vice President The Union National Bank of Pittsburgh Pittsburgh, Pennsylvania HENRY A. ROEMER JR., President Sharon Steel Corporation Sharon, Pennsylvania MONTFORT JONES, Professor of Finance The University of Pittsburgh Pittsburgh, Pennsylvania SIDNEY A. SWENSRUD, Gulf Oil Corporation Pittsburgh, Pennsylvania President OFFICERS JOHN W. KOSSIN, Vice President ARTHUR G. FOSTER, Cashier W. HUNTER NOLTE, Assistant Cashier JOHN R. PRICE, Assistant Cashier JOHN A. SCHMIDT, Assistant Cashier ROY J. STEINBRINK, Assistant Cashier [ 37 ] THE BANK AS PART OF THE FEDERAL RESERVE SYSTEM T HIS BANK and its stockholder member banks in the Fourth District make up part of the Federal Reserve System. The bank's activities described elsewhere in these pages are broadly parallel to those of the other eleven Reserve Banks. Such operations, particularly where aspects of overall credit policies are involved, are supervised by the Board of Governors of the Federal Reserve System, located in Washington. The Board of Governors is composed of seven members, each appointed by the President and confirmed by the Senate for a term of fourteen years. The Board of Governors exercises powers prescribed by the Federal Reserve Act, as amended, and by related legislation. Standing in an advisory relation to the Board of Governors is the Federal Advisory Council which is composed of one member from each Federal Reserve district selected annually by the board of directors of each Federal Reserve Bank. Open Market Operations. One of the most important activities of this bank which is linked in an intimate way with those of the System as a whole is its open market operations. In buying and selling government securities, both longterm and short-term, the timing and volume of such transactions are arranged with a view to the credit stabilization objectives of the System as a whole. Such operations are carried out under the direct guidance of the Federal Open Market Committee, which is composed of all of the members of the Board of Governors and the presidents of five out of the twelve Federal Reserve Banks. (This bank will be represented on the Federal Open Market Committee during the year beginning March 1951.) Open market transactions for the account of this bank, as well as for other Federal Reserve Banks, are executed by the Federal Reserve Bank of New York, as agent. This bank's participation in the System Open Market Account amounted on December 29, 1950, to $1,921,000,000 par value of securities representing 9.27 percent of the total System Open Market portfolio. This figure is comparable with an amount of $1,742,000,000 par value of securities held on December 30, 1949, an increase of $179,000,000. Other System-Wide Activities. Administration within the District of the regulations issued by the Board of Governors of the Federal Reserve System is an important part of the System-wide activities in which this bank participates. As a consequence of the serious inflationary problems accompanying the rearmament program launched in the second half of 1950, additional administrative burdens were placed upon the bank in respect to emergency credit controls (described in greater detail on the opposite page). Another phase of activity where the work of this bank is closely meshed with that of the other Reserve Banks and the Board of Governors is the statistical program. In this connection the Board of Governors is the primary collector on a nation-wide scale of a number of important statistical series on business and financial activities; examples are consumer credit, banking, and department store statistics. In order to supply necessary data to the Board of Governors this bank collects a considerable quantity of information directly from respondents in the District. Finally, a particular device for knitting together the activities of the twelve Federal Reserve Banks is found in the Presidents' Conference, which is a regular but informal meeting of the presidents of the twelve Federal Reserve Banks for purposes of making recommendations with respect to system policy, administration, and operation. [38 ] EMERGENCY CREDIT CONTROLS war in Korea, F and as accompanying the toofthe inflationary a direct response problems rearmament proOLLOWING THE OUTBREAK gram, the Federal Reserve System including this bank received new responsibilities in the field of emergency credit controls. Pursuant to the terms of the Defense Production Act of 1950, the Board of Governors established new instalment credit controls through the reissuance of Regulation W, effective September 18, and also announced restrictions on the extension of credit for residential construction through the issuance of Regulation X, effective October 12. Both regulations were designed to assist in the channeling of manpower and material toward the defense effort, as well as to relieve inflationary pressures on the price structure. The administration of these two emergency regulations within the Fourth District became the responsibility of this bank. Regulation W Regulation W applies to instalment sales or instalment loans, specifying minimum downpayment and maximum maturities for listed groups of commodities such as autos, household furniture and household appliances. Instalment credit for home repairs or improvements is also covered. The initial terms were somewhat tighter than those which had been widely offered in business practice during the months just prior to the regulation, but were more liberal than those in force during most of the previous ex~ perience with Regulation W during World War II and during a considerable part of the postwar period. On October 16 after the extent of the inflationary pressures growing out of the defense program had become more evident, Regulation W was amended so as to provide substantially more restrictive terms. Immediately upon the issuance of Regulation W, that portion of the bank's personnel which had had previous experience with the regulation was reactivated, and a separate department of Consumer Credit was established, with a yearend staff of 31 including field investigators operating from the Cleveland, Cincinnati, and Pittsburgh offices. Registration statements, as required by the regulation, were received from approximately 17,000 individuals or firms located within the Fourth District and doing instalment business subject to the regulation. The statistical data provided by the registration statements were subsequently tabulated and analyzed in order to provide information needed by the Board of Governors to serve as benchmarks for the Board's regularly issued consumer-credit statistics. By late 1950 it was apparent that Regulation W was having some restraining effect on consumer demand in the directions intended. Regulation X Regulation X applies to banks and other financial institutions or individuals who are engaged in the business of making real estate loans. It establishes terms governing maturities and maximum loan values in the extension of credit for residential construction. Companion restrictions were imposed at the same time by the Federal Housing Administration and the Veterans Administration. The restraints were designed to reduce building from the 1950 level of approximately 1,400,000 units down to a level of between 800,000 and 850,000 units per year. The tasks required in the administration of Regulation W were in many respects entirely new to this bank's operations. A small emergency staff was recruited by borrowing from regular operating departments. A series of conferences were held with representatives of the various types of financial institutions whose activities are affected by the regulation. Valuable assistance to the bank in meeting regulatory problems has also been rendered by an Advisory Committee on Residential Real Estate Credit for the Cleveland area, as well as by similar committees for the Cincinnati and Pittsburgh areas. Because of the large backlog of plans for residential housing in existence at the start of the regulation, and also because the late autumn is normally slack in respect to building starts, it has been difficult to evaluate accurately the effects of Regulation X in its early phases. Statutory authority both for Regulation W and Regulation X, unless extended, will expire June 30, 1951. [ 39 ] ...J -c ~ LLI o LLI u.. [40 ]