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Federal Reserve Bank

of Cleveland

To the Banks in the
Fourth Federal Reserve District:
We are pleased to present the Annual Report of the Federal
Reserve Bank of Cleveland for 1967, and to express our appreciation to the agricultural, business, and financial community in the
Fourth District for cooperation and encouragement in helping us
fulfill our responsibilities.
The Annual Report this year focuses on major operations of the
Federal Reserve Bank of Cleveland-check

collection,

fiscal

agency, currency and coin, and data processing.
This Annual Report represents a coordinated effort by people in
various departments. The Research Department was responsible
for organizing, coordinating, and producing the Annual Report;
personnel from the operating departments provided the expertise
and basic facts.
The Report is intended to describe some of the services provided
by this Bank designed to improve the nation's financial flows and
payments mechanism-the

handling of securities, the issuance of

currency and coin, and the processing and utilization of diversified
information. We hope it will interest commercial bankers, businessmen, and the general public.
We should like to thank the officers and employees of this Bank.
Their loyal support has contributed importantly to the success of
the Bank.

~N~'O~~·~

TRENDS

IN OPERATIONS

FEDERAL

The Federal Reserve System is well known for its role
in formulating and implementing monetary policy. But,

CONTENTS

it is not so well known that the System performs many
service functions such as collecting and clearing checks,

Trends in Operations at the

furnishing currency for circulation, and acting as fiscal

agents, custodians, and depositaries for the U. S. Trea-

Check Collection Department

sury and other Government agencies. The twelve re-

Fiscal Agency Department

Federal Reserve Bank of Cleveland

Securities Department

Cash Department . .

Data Processing Department

Comparative

Statement

of Condition

gional Federal Reserve Banks and their branches all
participate in these service functions, which are necessary to foster a flow of credit and money that will promote orderly economic growth.
It will perhaps be surprising to some that the operating
or service functions either directly or indirectly affect the
formulation, implementation, and influence of monetary
policy. The speed of check collection operations, for

Comparison of Earnings and Expenses

example, determines "float," and in turn affects the re-

Joseph B. Hall

serve position of commercial banks. If the fiscal agency

Directors and Officers

Branch Directors and Officers

function does not handle Treasury funds or securities
quickly and efficiently, flows of funds at the nation's
financial institutions and in the central money market

"THE

" RESERVE BANK OF CLEVELAND
may be distorted. The role of the Reserve Banks in satisfying the public's need for currency and coin has an
effect on the nation's money supply and in turn can
have an important influence on the public's decisions
to spend or save. Finally, the high-speed transmission
of data among the Federal Reserve Banks through the
use of electronic equipment enables those responsible
for formulating monetary policy to have access to the
timely and comprehensive business and financial information that is needed to interpret recent and prospective
developments at home and abroad.
This Annual Report examines four service functions
at the Federal Reserve Bank of Cleveland-check

col-

lection, the fiscal agency function, the currency and
coin function, and data processing. Because the recent
years have been marked by tremendous gains in productivity and reduced operating costs as a result of the
increased use of automated procedures and equipment,
this Report focuses on activities during a fairly short
time period. In most cases, relevant data are presented
for the five-year period 1963 through 1967.

CHECK COLLECTION

DEPARTMENT

Billions of checks are written annually to pay for
goods and services, to purchase financial assets, for
gifts, and for various other purposes. Because of the
wide distribution and large volume of checks, some
mechanism is needed to pay and collect the funds
represented by the checks. As a service to the business
and financial community, as well as the general public,
the Federal Reserve System provides a nationwide network for clearing and collecting checks. The clearing
and collection process is the main job of the Check
Collection Department. Clearing is simply sending a
check to the bank on which it is drawn. Collection
involves deducting the amount of the check from the
account of the bank on which the check is drawn, and

reimbursing the bank that cashed the check. A special
routi ng system enables banks to settle for checks they
cash and pay with a minimum of delay.
In recent years, the keynote of banking operations
has been the automation of check processing. Since
the end of World War II, the volume of checks written
in the United States has grown at an annual rate of 5
to 6 percent. In 1957, approximately 10 billion checks
were written in the United States. By 1967, the number
had risen to approximately 19 billion, and it is estimated
that over 23 billion checks will be written in 1970, and
more than 29 billion in 1975. From 1963 through 1967,
the number of checks processed by this Bank increased
at the rate of approxi mately 6 percent a year. In 1967, the

Check Collection Department at the,three offices of the
Federal Reserve Bank of Cleveland received and forwarded for collection more than 485 million items
valued at $139 billion, It is expected that by 1985, this
Bank will be processing nearly one billion checks a year,
and it is anyone's guess what the value will be.
It is clear that the banking system would have been
literally swamped by an ever-increasing flood of checks
if sophisticated, high-speed procedures had not been
introduced into the check-handling process. As a starter,
in 1956, the American Bankers Association, in cooperation with equipment manufacturers, the printing industry, and the Federal ReserveSystem, introduced a special
type font to be printed on checks with magnetic ink.
The new system was called Magnetic Ink Character
Recognition-MICR.
When checks are printed, the
bank's number (the so-called ABA routing symbol)
and the customer's account number are printed in the
special type font on the bottom of the check. When the
check is deposited in a bank, the amount of the check
is encoded in the same type font with magnetic ink.
Checks printed and encoded with magnetic ink characters can be processed through high-speed sorting
equipment that is connected to a computer.
Preprinting of routing information has increased
steadily and in 1967, more than 98 percent of the total
of all checks drawn on Fourth District banks were preprinted with an ABA routing symbol. In addition, about
94 percent of the checks received at the three offices
of this Bank had the dollar amounts printed with
magnetic ink. A significant portion of the reduction in
check processing costs at our three offices can be
attributed to the increased dollar encoding by member
banks.
Five pilot installations of high-speed check handling
equipment were set up at various Federal Reserve
Banks in 1960 to test the performance and reliability
of various manufacturers' equipment. With the pilot a
success, the first permanent high-speed equipment was
installed in this Bank in October 1961. Additional check
sorters were installed in all three of the Bank's offices
and at yearend 1967, there were seven systems in
operation. Before this installation at the Federal Reserve
Bank of Cleveland, check processing costs averaged
about $10 per 1,000 items; by 1967, check processing
costs had been reduced to about $5 per 1,000 (see

table). Annual volume increased by about 100 million
items over the period, whi Ie costs were reduced by
more than $1 million.
Increased reliance on automated procedures has
made it possible to reduce, by attrition and transfer to
other positions, the number of employees in the Check
Collection Department. In 1963, the department employed 536 persons, while in 1967, only 303 were
needed to handle a much larger volume of checks. At
the same time, automated procedures improved productivity in the Check Collection Department to the
extent that employees were handling 998 items per
manhour in 1967, compared with only 392 items per
manhour in 1963. Putting it another way, improvements
in equipment have increased the number of checks
processed in one hour from 30,000 to an average of
over 65,000 checks per hour. At yearend 1967, approximately 95 percent of the average daily volume of 1.6
million checks dispatched from the three offices of this
Bank were processed on high-speed equipment.
In order to permit the Federal Reserve Banks and
commercial banks to take advantage of high-speed
computer facilities, the Federal ReserveSystem adopted
a new policy on September 1, 1967. This policy provides that the Federal Reserve Banks will no longer
process as cash items checks that do not have the
ABA routing symbols printed in magnetic ink. Checks
not properly coded are returned to the sending bank or
processed as noncash items, thereby delaying presentation and payment. It was necessary to put this program
in effect because of the expense of manual processing
of checks and the volume of checks now in use.
Commercial banks benefit appreciably from the M ICR
program. Checks presented to the banks for payment
by the Federal Reserve can be readily processed by
computers. Banks with access to a computer can sort
the items for a customer's account, update the account
daily, and prepare a monthly statement. Accelerated
check collection results from automated procedures
and the increased use of motor carrier facilities, making
funds available to the banks for loans and investments
much more quickly than in the past. Many checks
cashed at District commercial banks are now presented
to drawee banks in one day rather than in the two-day
period typical before automation.
Automated procedures have also reduced the large

Check Collection Department
Number of Employees and Expenses
1963-1967
1964

1963
Number of Employees (annual average) .
Percent of Total Bank Employees .
Total Expenses (thous. of dollars) .

1966

1965

1967

536
34%
$3,867.8

494
33%
$3,230.4

393
27%
$3,227.3

336
25%
$2,805.4

303
23%
$2,571.4

69.7
264.0

77.9
273.6

82.4
280.2

84.3
311.3

88.5
347.2

48.4

48.0

49.2

48.9

50.5

$ 367.5
3,157.9

$ 400.8
2,601.1

$ 370.2
2,522.5

$ 287.3
2,231.1

$ 239.8
2,052.6

140.8

118.5

111.4

93.7

91.9

201.6

210.0

223.2

193.3

187.1

64
423

60
386

35
309

36
259

28
235

582
321

689
375

937
489

1,384
657

1,974
831

1,422

1,677

1,899

2,092

2,114

Volume (mils. of checks)
City Checks
Country Checks.
Government Checks and Post Office
Money Orders.
Total Expenses (thous. of dollars)
City Checks
Country Checks.
Government Checks and Post Office
Money Orders.
Miscellaneous Operations,
including Noncash Collection,
Return Items, and Adjustments
Number of Employees (annual average)
City Checks
Country Checks.
Government Checks and Post Office
Money Orders.
M iscella neous Operations,
including Noncash Collection,
Return Items, and Adjustments
Items per Manhour
City Checks
Country Checks.
Government Checks and Post Office
Money Orders.
Cost per 1,000 Items
City Checks
Country Checks.
Government Checks and Post Office
Money Orders.

5.27
11.96
2.91

5.14
9.51
2.47

4.49

3.41

9.00

7.17

2.71
5.91

2.26

1.92

1.82

daily backlog of unprocessed checks at the Federal
Reserve Bank of Cleveland. These uncollected checks
represent dollars that are credited to the depositing
bank's account according to a published availability
schedule. If a backlog of checks exists, the proceeds
will not be collected within the anticipated time schedule. The three offices of this Bank have significantly
reduced the backlog of checks that used to accumulate
during periods of heavy volume. In 1967, a daily average
of only 163 checks, amounting to less than $100,000,
were being held for processing the next day, compared
with 140,000 checks in 1963, totali ng more than
$32,000,000. At one time, monthly and seasonal fluctuations in volume were almost impossible to handle
by manual processing methods. With automated equipment, fluctuations in volume are now handled with
relative ease by extra processing time on computers.
Another important development occurred in March
1966 when a new payment procedure was initiated for
checks dispatched to District banks. The new system
allows the total amount of all checks to be charged
automatically to the member bank's reserve account or
correspondent bank account.
Through the elimination of delays in transportation
of payment drafts, payment is now automatic for the
majority of District banks. These delays have been
reduced through the efforts of both the Federal Reserve
Bank and the increased use of motor carriers. In addition, increased use of air transportation to cities where
other Federal Reserve Banks are located has made overnight collection of checks possible in many of those cities.
While "automation" is a word not well defined, its
meaning is quite clear in the banking industry. As
indicated earlier, it is estimated that approximately 19
billion checks were drawn in the United States in 1967.
Without the automatic equipment available to the banking industry today, this "paper mountain" would have
required well over 100,000 additional employees and
literally millions of additional square feet of space to
house the employees and the additional old-fashioned

equipment that would have been necessary. It would
also have resulted in increased service charges by commercial banks or a serious erosion in earnings.
An alternative to the use of checks has been advanced
by the proponents of the "checkless society." Study
groups under the auspices of the American Bankers
Association, the Bank Administration Institute (formerly
NABAC), and the Federal Reserve System are now at
work investigating the possibilities of improving the
payments mechanism. For the foreseeable future, however, the collection network must be prepared to process
the mounting volume of checks. It is for this reason
that another generation of high-speed equipment will
soon be placed in operation within the Bank to provide
more efficient processing, both in terms of speed and
cost.

CHECK COLLECTION
DEPARTMENT
AVERAGE NUMBER of EMPLOYEES
1963-1967

600

1963
Averaga

for fintthrea

1964
quartan

1965

1966

1967

of 1961.

FISCAL AGENCY

DEPARTMENT

Unlike the names of other departments in the Bank,
the words "Fiscal Agency" provide little indication of
the nature of this department's di verse operations. In
very broad terms, the fiscal activities of the Federal
Government consist of receiving funds from collection
of taxes and the sale of Government securities and the
disbursing of those funds. The Federal Reserve Banks,
as fiscal agents of the Federal Government have four
general areas of responsibility: (1) issuing, redeeming,
and servicing Government obligations; (2) maintaining Treasury Tax and Loan Accounts; (3) processing
deposits of Federal taxes; and (4) verifying and destroying worn out currency. In addition, the Federal Reserve
Banks maintain the principal checking accounts of the
U. S. Treasury.

ISSUING, REDEEMING,
OF U. S. GOVERNMENT

AND SERVICING
OBLIGATIONS

All U. S. Government obligations are classified into
two groups: marketable and nonmarketable securities.
Marketable securities, which include U. S. Treasury

bonds, notes, bills, and certificates of indebtedness, are
negotiable, that is, they can be traded from one owner
to another. The principal nonmarketable securities, U. S.
savings bonds and savings notes, are not negotiable;
ownership can be transferred only under conditions
prescribed by the Treasury Department.
Typically, new issues of marketable securities are
offered when the Treasury requires funds to retire
maturing issues or when additional operating funds are
needed. The Fiscal Agency Department. using information provided by the Treasury Department, prepares and
distributes an official offering circular describing the
issue, receives applications for the issue from banks
and other prospective subscribers, collects the proceeds,
and delivers the new securities. If an issue is offered for
cash, subscribers' payments are credited in the accounts
of the Treasury Department. If an issue is offered in
exchange for a maturing issue, the Fiscal Agency
Department receives, cancels, and forwards the maturing securities to the Treasury Department.
Each issue of securities has a specified maturity date
and the Treasury will not pay any interest after that
time. In some instances, the Treasury reserves the right
to call all or any part of an issue for redemption before
maturity. When this right is exercised, the call date in
effect becomes the maturity date.
The largest portion of maturing securities are surrendered for redemption or exchange by commercial
banks, either for their own accounts or for customer
accounts. The Fiscal Agency Department processes the
matured securities as exchanges for a new issue or
makes payment to the owners by credit in the account
of a commercial bank or by a check drawn on the
Treasury Department. Retired securities are then canceled by a particular kind of perforation and forwarded
to the Treasury Department for destruction.
Some marketable Treasury securities lie dormant in
safe deposit boxes or other storage places from the time
of issuance until maturity. However, many securities
are involved in a number of different transactions that
often require the services of the Fiscal Agency Department. For example, if the owner of a $100,000 Treasury
bond wishes to sell half of his holding, the $100,000
denomination is delivered to the Fiscal Agency Department and exchanged for two $50,000 denominations.
The services of this department also are required in

TABLE I
Fiscal Agency Department
Volume and Expenses
Government Obligations and Treasury Tax and loan Accounts Activity
1963-1967

many cases involving registered securities when it is
necessary to change the registration or to exchange
registered securities into bearer securities and vice versa.
The Fiscal Agency Department also assists in completing some purchase and sale transactions involving
Treasury securities through the use of a private leased
wire arrangement maintained by the Federal Reserve
System under a procedure authorized by the Treasury
Department. These interconnecting wire services between Federal Reserve Banks and the Treasury Department make it possible, in effect, to transfer securities
between Federal Reserve offices by telegraph. For
example, if a bank in the Fourth District sells a specific
amount of a particular issue of securities for delivery to
a dealer in New York, the Federal Reserve Bank of
Cleveland will retire the securities and instruct the
Federal Reserve Bank of New York to issue the appropriate amount of the issue for delivery to the New York
dealer. The Federal Reserve Banks maintain inventories
of each issue of Treasury securities outstanding. Detailed daily and month-end reports are sent to the
Treasury Department to record all transactions affecting
the inventories of unissued securities.
As another service, the Fiscal Agency Department

verifies interest coupons detached from Government
bearer securities and deposited by commercial banks
for payment. Interest payments are made either by a
credit in the depositing bank's account or by a check
drawn on the U. S. Treasury. After the coupons have
been counted, sorted, and canceled according to
Treasury Department regulations, they are forwarded
to the Treasury. The total amount shi pped is then
charged to the Treasurer's account.
Effective January 2, 1968, the Treasury Department
authorized the issuance of marketable Government
securities to commercial bank owners in the form of
"book-entry securities," as well as the traditional definitive form. The book-entry procedure is applicable only
when the securities are to be held by the Federal
Reserve Bank for safekeeping or as certain types of
collateral. The commercial banks are given notice in
writing that the Federal Reserve Bank has recorded the
deposit of book-entry securities in its account. The
procedure provides for the conversion of book-entry
Treasury securities to definitive securities whenever a
depositor requests delivery to itself or to its agent.
The book-entry procedure is designed to reduce the
number of definitive securities required and thereby

TABLE II
Fiscal Agency Department
Volume and Expenses
Federal Income Tax and Excise Tax Function
1963-1967

Volume (thous. of receipts)
Expense (thous. of dollars) * .
Unit Cost per Receipt*
Manhours .
Receipts per Manhour
Fourth District Volume
as Percent of System .

1963

1964

1965

1966

1967

Percent
Change
1963-1967

820.5
$ 64.9
$0.079
15,400
53.3

861.4
$ 62.2
$0.072
15,474
55.7

862.1
$ 66.7
$0.077
14,923
57.8

941.7
$ 68.3
$0.072
14,852
63.4

1.142.6
$ 73.9
$0.065
12,765
90.0

+39.3%
+14.0
-17.7
-17.1
+68.8

6.8%

6.9%

6.8%

6.9%

• Excluding postage.

printing costs, as well as to increase efficiency in
handling a large volume of securities through data
processing equipment. At present, the book-entry procedure is applicable only to securities held by Federal
Reserve Banks for certain purposes, but may eventually
be extended to Treasury securities held for other purposes, and perhaps ultimately to securities other than
those of the U. S. Government.
Another innovation, effective January 1968, permits
the Federal Reserve Banks to issue Treasury securities
in registered form. Before this time, the Federal Reserve
Banks could issue only bearer-form securities. This
change should ease the work load at the Treasury
Department as well as accelerate delivery of registered
securities to owners.
Of all U. S. Government securities, the general public
is most familiar with the nonmarketable
U. S. savings
bonds and U. S. savings notes. In contrast to marketable
securities, which are issued only on specifically announced occasions, savings bonds and notes may be
issued at any time by the Federal Reserve Banks and
other issuing agents, including commercial banks, savings and loan associations, business firms, and credit
unions. In 1967, this Bank issued over 4.7 million
savings bonds and notes, a 14.5-percent increase over
the number issued in 1963. In addition, the 1,675
issuing agents serviced by this Bank issued approximately 13 million savings bonds and notes in 1967, an
increase of 11 percent over 1963. Blank savings bonds
and notes are received from the Treasury Department
by the Fiscal Agency Department, and are then distributed to the various issuing agents under rigorous
accounting controls. The proceeds from sales of savings

bonds and notes by the Federal Reserve Bank and the
issuing agents are recorded and credited in the Treasurer's account by the Fiscal Agency Department.
The redemption of savings bonds by an owner or
co-owner is usually a simple transaction; however,
redemption or exchange sometimes can be more involved if ownership status has changed. While the
Fiscal Agency Department processes most of these
transactions, some require special handling by the
Treasury Department. The largest portion of savings
bonds are redeemed at banks, savings and loan associations, and certain Government agencies authorized by
the Treasury to act as "paying agents." These paying
agents send the redeemed bonds to the Fiscal Agency
Department and are, in turn, repaid by credit or a check
drawn on the Treasurer's account.

TREASURY

TAX AND

LOAN ACCOUNTS

Treasury Tax and Loan Accounts were developed
during World War I to provide a more orderly flow of
large amounts of funds in and out of the Treasury and
to minimize the impact of the movement of these funds
on the central money market. Under this system,
Treasury funds are held as demand deposits at commercial banks qualified as special depositaries until the
funds are needed. Any commercial bank, whether or
not it is a member of the Federal Reserve System, may
be designated as a special depositary by complying
with Treasury requirements. Deposits of adequate collateral to secure depositary balances is one of the
principal requirements.
Funds are deposited with commercial banks in payment of Treasury securities and taxes, and are credited

in the Treasury Tax and Loan Accounts at the banks.
An advice of the amount credited is sent to the Federal
Reserve Bank where a similar account is maintained
for each depositary bank. As funds are needed, the
Treasury Department notifies the Federal Reserve Bank
that a portion of the balances in the Treasury Tax and
Loan Accounts is to be called for payment by the
depositary banks and credited in the Treasury account
at the Federal Reserve Bank.
At yearend 1967, approximately 725 commercial
banks in the Fourth Federal Reserve District maintained
Treasury Tax and Loan Accounts. During 1967, more
than 200,000 entries were made in these accounts,
involving deposits and withdrawals of funds and
collateral.
To illustrate the scope of the Fiscal Agency operations
in Government obligations and Treasury Tax and Loan
Accounts, comparative figures for the years 1963
through 1967 are shown in Table I. The totals include
the branch offices at Cincinnati and Pittsburgh, each
of which has a Fiscal Agency Department that services
the banks, issuing and paying agents, and the public
in its respective territory. Table I shows the percent of
the total operations in the Fourth District accounted for
by each of the three offices. In some of the operations,
branch activities exceed those at the mai n office, for
example, the Pittsburgh branch issues 57 percent of all
the savings bonds in the District.

TABLE

PROCESSING
DEPOSITS
FEDERAL TAXES

Regulations governing the withholding at the source
of some Federal taxes (including income, social security,
and excise taxes) provide that the funds be deposited
with either a commercial bank depositary or a Federal
Reserve Bank. Commercial banks may forward deposits
received by them to the Federal Reserve Bank or credit
the amounts received to their Treasury Tax and Loan
Accounts. A revised and simplified procedure,effective
January 1, 1968, was developed by the Treasury Department to make the processing of Federal tax deposits
more effective and economical.
Comparative figures for 1963 to 1967 for the Federal
Income Tax and Excise Tax function of the Fiscal
Agency Department are shown in Table II. In 1967, the
Fiscal Agency Department processed 1,142,600 depositary receipts representing $6.2 billion in taxes compared
with 820,500 receipts amounting to $4.05 billion in
1963 (see Table II). Most of this increase reflects
expansion in economic activity over the five-year period;
a smaller part resulted from revisions in the regulations
in 1966 that required more frequent deposits by some
employers, and in 1967, applied the deposit procedure
to payments of corporate income taxes.
The steady increase in the number of items handled
per manhour reflects sizable gains in productivity, which
in turn are due to increased use and improvement of

III

Fiscal Agency Department
Volume and Expenses
Currency Verification

and Destruction Function

1963-1967
1963
Volume (mils. of pieces)
Expense (thous. of dollars)
Unit Cost per 1,000 Items.
Manhours .
Items per Manhour
Fourth District Volume
as Percent of System
Percent Distribution
of District Volume
Cleveland
Cincinnati
Pittsburgh

52.8
$13.1
$0.25
3,367
15,683

1964
54.4
$12.4
$0.23
2,958
18,400

1965

1966

1967

Percent
Change
1963-1967

49.7
$12.8
$0.26
3,136
15,860

66.9
$15.3
$0.23
3,176
21,091

102.6
$24.4
$0.24
5,148
20,122

+94.3%
+86.2
- 4.0
+52.9
+28.3

5.0%

5.3%

8.4%

4.4%

5.0%

43.6%
24.2
32.2

43.1 %
26.6
30.3

41.4%
29.9
28.7

46.0%
28.4
25.6

49.7%
23.2
27.1

SECURITIES

Securities Department
Safekeeping Activity
Main Office
1948-1967

Period

Total Dollar
Total
Total Deposit
Value of
Pieces
and
Securities Held
of
Withdrawal
(billions)
Transactions Securities

1948-1952

20,000

139,600

$1,895.4

1953-1957

30,900

243,500

2,084.9

1958-1962

34,400

317,300

2,401.1

1963-1967

34,000

333,500

2,672.7

automated procedures that provide more efficient processing. Figures for the Cincinnati and Pittsburgh
branches are not shown separately in Table II because
all tax deposits for the entire Fourth District are processed at the main office.

VERIFYING AND DESTROYING
WORN OUT CURRENCY
Before 1953, all worn currency was sent to the
Treasury Department in Washington, D. C., for destruction. In that year, the Treasury authorized and established procedures that permitted the Federal Reserve
Banks to destroy silver certificates and U. S. Notes.
Subsequent Congressional action extended this authority to Federal Reserve Notes.
Currency is sorted in the Cash Department to determine if it is fit for further circulation or if it is worn out
and should be destroyed. Worn currency is perforated
with a number of distinctive holes and then delivered
to the Fiscal Agency Department. After verification by
the Fiscal Agency Department according to Treasury
Department regulations, the worn currency is burned.
As shown in Table III, with the exception of 1965,
the volume of currency verified and destroyed increased
each year, from 52.8 million pieces in 1963 to 102.6
million pieces in 1967. Although part of the increase
can be attributed to more currency in circulation in line
with the needs of an expanding economy, most of the
growth resulted from the Federal Reserve Banks' increased participation in the destruction procedure beginning in 1966.

DEPARTMENT

The Securities Department provides a safekeeping
service to member banks and, in some instances, other
holders of specified securities. This service is offered
primarily to accommodate commercial banks where
protective facilities may be inadequate, or where securities are pledged for various purposes. Although securities
are held in safekeeping for member banks for a variety
of purposes, securities held for nonmember banks are
restricted largely to those pledged to departments,
agencies, or officials of the U. S. Government, for
example, collateral for Treasury Tax and Loan Accounts.
Securities are received and releasedonly on authorized
instructions. The safekeeping service includes coupon
clipping and presenting matured or called securities for
payment. There is no charge for the safekeeping service,
except for telephone, telegraph, and shipping charges.
As a further service to member banks, the Securities
Department upon authorized instructions places orders
for the purchase or sale of marketable securities with
recognized dealers. If no dealer is specified, orders are
placed on a "best-price" basis to produce the most
favorable result for the member bank, by obtaining
competitive bids or offers from several dealers.
The book-entry procedure inaugurated by the Treasury
Department will expand the use of automated procedures that began in the Securities Department about
15 years ago, when some manual operations were
adapted to data processing equipment. Under procedures now being developed, securities transactions will
be further automated.
Because of the wide variety of services each Federal
Reserve office is asked to perform, Securities Department activity is not measured in terms of productivity
and unit cost; consequently, there are no comprehensive
figures available for the System.
A review of this Bank's records from 1948 to 1967
clearly shows the marked increase in the volume of our
operations. Annual averages for each five-year period
from 1948 to 1967 are shown in the table. During the
period, the number of deposits and withdrawals increased 76 percent and the number of pieces of securities handled increased 155 percent. Over the same
period, the total dollar value of securities held in safekeeping increased to nearly $2.7 billion, or 37 percent
more than in the 1948-1952 period. The growth of
safekeeping activities since 1948 can be attributed
largely to the marked increase in the volume of government and corporate securities outstanding.

CASH DEPARTMENT
One of the responsibilities of a Federal Reserve Bank
is to provide a means through which currency and coin
are moved into and out of circulation. This responsibility
is carried out by the bank's Cash Department, which
supplies currency and coin to commercial banks to
meet the needs of the public. The Cash Department of
the Federal Reserve Bank of Cleveland serves approximately 1,200 banking offices in the Fourth District. The
department not only supplies currency and coin as
ordered by District banks, but also receives deposits of
currency and coin that are in excess of the banks' needs
or are unfit for further circulation. As an additional service, the Cash Department receives canceled food
stamps from District banks. The activities of the department also include currency sorting and counting, coin
sorting and counting, coin wrapping, and verification
and destruction of food stamp coupons,

CURRENCY
All supplies of new currency are obtained from the
Treasury Department. Federal Reserve Notes, which
account for almost all of the currency presently being
issued, are printed by the Bureau of Engraving and
Printing in amounts based on annual estimates made by
the Federal Reserve Banks. Notes are consigned to the
Federal Reserve Agent at each Federal Reserve Bank

(the Federal Reserve Agent is also Chairman of the
Board of Directors) and are held in the joint custody of
the agent and the bank until "issued" to the Reserve
Bank for its inventory. When applying to the agent for
an issue of notes, the bank tenders collateral equal to
the face amount of the notes.
The only other currency presently being issued consists of U. S. Notes, a form of "Treasury currency" first
authorized in 1862. Approximately $323 million of such
notes are outstanding, backed by a gold reserve of
$156 million. U. S. Notes circulate along with Federal
Reserve Notes until they become unfit, at which time
they are sorted separately for destruction.
When currency is returned from circulation, it is
counted and sorted by skilled operators who examine
each piece and feed the bills into a counting machine.
An experienced sorter processes more than 32,000 bills
a day. Incoming $1 notes appearing to be in good condition can sometimes be processed on high-speed
equipment that counts the bills about three times faster
than the regular sorting and counting operation. Counterfeits, foreign bills, types of currency in process of
retirement, and mutilated and unfit notes are separated
from the fit money. Fit money is then packaged and held
in the bank's vaults for future circulation.
Currency that is unfit for circulation is canceled in
the Cash Department. If it is a type that the Federal
Reserve Bank is authorized to destroy (all Treasury
currency and $1 through $100 Federal Reserve Notes),
it is turned over to the bank's Fiscal Agency Department
to be destroyed according to procedures set forth by
the Treasury Department. Currency that cannot be
destroyed at the Reserve Bank is cut in half lengthwise.
The lower halves are sent to the Treasury Department
for verification and destruction, and the upper halves
are turned over to the Fiscal Agency Department for
verification and destruction.
The volume of currency sorted and counted in this
Bank's Cash Department increased from 260 million
pieces in 1963 to 299 million in 1967 (see Table I). The
growth in the dollar volume of payments and receipts
is shown in Table II. Annual payments to District banks
rose in each year from 1963 through 1967, increasing
from $2.1 billion in 1963 to $2.6 billion in 1967. Annual
receipts of currency also increased, from $1.8 billion in
1963 to $2.2 billion in 1967.

Despite the substantial increase in the volume of
currency processed, the number of people needed for
the counting and sorting operation declined. In 1963,
there were 49 employees involved in this work, compared with 46 in 1967. Total expenses of the function
declined by 3 percent between 1963 and 1967. In
addition, the number of items processed per manhour
rose from 3,053 in 1963 to 3,782 in 1967 and the cost
per 1,000 items declined from $1.07 to $0.90. These
improvements reflect both the simplification of sorting
procedures for $5 and $10 notes and more efficient
operations.

COIN
New coins are received from the U. S. Mints at
Philadelphia and Denver. The dollar amount of the coin
is credited to the Treasurer's account at each bank and
the coins are stored until ordered by commercial banks
to meet the needs of the public. Coins in circulation
that are in excess of the needs of the public are returned
by commercial banks to the Federal Reserve Banks.
Returned coins are counted and sorted to remove
foreign coins, slugs, and worn or mutilated U. S. coins.
The sorting operation is performed by employees who
visually examine the coin as it is fed through an automatic counting machine. The usable (fit) coin is then
bagged or wrapped and stored until ordered by District
banks. More than 95 percent of coin paid out is wrapped
by automatic machines that accept loose coin and
produce as many as 10,000 rolls in a day.
The dollar volume of payments and receipts at the
three offices of this Bank is shown in Table II. Reduced
volume in 1964, 1965, and 1966 reflects the coin
shortage in those years. In 1966, payments by this
Bank accounted for 11.6 percent of total payments by
all Federal Reserve Banks, and receipts for 12.3 percent
of the total. A more vivid picture of the task involved in
handling coin can be seen by considering the number
of pieces rather than dollar volume: 1,975 million coins
were paid into circulation in 1967, and 1,597 million
were received in deposits from District banks.
The volume of coin counted and sorted rose from
1,178 million pieces in 1963 to 1,424 million pieces in
1967, and was processed by a staff averaging 11 persons during 1967, compared with 14 persons in 1963.

More importantly, total expense of the function was
smaller in 1967, and the number of items processed per
manhour was substantially higher (see Table I).
The volume of coin wrapped increased from 1,457
million pieces in 1963 to 1,916 million pieces in 1967.
The average number of employees in the function rose
from 20 in 1963 to 26 in 1967, a slightly smaller percent
increase than in the case of volume (see Table I).

FOOD STAMP COUPONS
Under an agreement with the Secretary of Agriculture,
the Federal Reserve Banks receive canceled food stamp
coupons from banks, pay for them by crediting the
forwarding banks and charging the general account of
the Treasurer of the United States, and destroy the paid
coupons. The Reserve Banks are reimbursed for the
cost of destruction, audits, and special examinations,

TABLE I
Cash Department
Number of Employees and Expenses
1963-1967

Number of Employees (annual average)
Percent of Total Bank Employees .
Total Expenses (thous, of dollars) .

1966

1965

1964

1963

1967

155
9.9%
$1,963.5

139
9.2%
$1,843.8

139
9.6%
$2,013.5

157
11.5%
$2,245.2

187
14.0%
$2,534.6

260.2
1,177.5
1,457.1
16.4

260.9
459.0
853.4
20.7

264.7
391.6
1,022.8
29.4

276.9
1,023.7
1,625.4
40.8

298.9
1,423.5
1,915.7
57.5

$ 278.4
77.6
254.5
11.5

$ 283.3
38.1
172.5
14.2

$ 292.4
26.4
190.3
17.6

$ 279.5
54.0
303.4
23.9

$ 269.0
70.4
357.2
27.0

49
14
20
2

49
6
13
3

50
4
14
3

46
8
22
4

46
11
26
5

3,053
48,212

3,150
41,248

2,940
51,442

3,279
61,748

3,782
64,477

Volume (mils. of pieces)
Currency Sorting and Counting.
Coin Sorting and Counting
Coin Wrapping .
Verification of Food Stamp Coupons.
Total Expenses (thous. of dollars)
Currency Sorting and Counting.
Coin Sorting and Counting
Coin Wrapping .
Verification of Food Stamp Coupons.
Number of Employees (annual average)
Currency Sorting and Counting.
Coin Sorting and Counting
Coin Wrapping .
Verification of Food Stamp Coupons.
Items per Manhour
Currency Sorting and Counting.
Coin Sorting and Counting
Cost per 1,000 Items
Currency Sorting and Counting.
Coin Sorting and Counting

1.07
0.07

1.09
0.08

1.10
0.07

1.01
0.05

0.90
0.05

but not for the receiving, verifying, and paying operations. In late 1967, the food stamp program was in
operation in 93 of the 168 counties in the Fourth
District, and canceled coupons were being received
from approximately 400 commercial banking offices. In
1967, the three offices of this Bank processed nearly
58 million coupons, approximately 18 percent of the
total processed by all Federal Reserve Banks; this compared with 16.4 million coupons in 1963. The number
of employees required to verify incoming coupons in
1967 averaged only 5, compared with an average of 2
for a much smaller volume in 1963 (see Table I).

MAJOR

CHANGES,

1963-1967

Currency. During the last five years there was a
change in the type of $1 bills in circulation-from
Treasury to Federal Reserve currency. At the beginning
of 1963, the only type of $1 bills being issued and
actually circulating were silver certificates. Legislation
enacted in that year authorized the issue of Federal
Reserve Notes in the $1 denomination and the Federal
Reserve Banks began paying the $1 notes into circulation. Retirement of silver certificates began in late 1964.
The retirement process involved sorting all silver certificates received from circulation and destroying them in

TABLE II
Cash Department
Payments and Receipts of Currency

and Coin

1963-1967
(millions of dollars)
1963

1964

1965

1966

1967

Payments to Banks
Cleveland
Cincinnati
Pittsburgh

$ 826
523
797

$ 842
551
881

$ 853
593
929

$ 928
617
966

Total ...

$2,146

$2,274

$2,375

$2,510

$ 974
674
984
-$2,632

$ 675
489
643

$ 703
524
703

$ 792
569
790

$ 849
597
797

$1,808

$1,930

$ 720
541
745
--$2,006

$2,151

$2,243

Currency

---

Receipts from Banks
Cleveland
Cincinnati
Pittsburgh
Total ...
Coin
Payments to Banks
Cleveland
Cincinnati
Pittsburgh
Total ...
Receipts from Banks
Cleveland
Cincinnati
Pittsburgh
Total ...

69
44
37

36
29
15

27
23
26

$ 150

62
41
31

25
22
6

8
11
3

$ 134

NOTE: Details may not add to totals because of rounding.

---

67
51
44

78
63
60

$ 162

$ 201

---

48
38
30

$ 117

66
52
44

$ 161

Chart

PAYMENTS
the manner prescribed for unfit Treasury currency. By
the end of 1967, the volume of $1 Federal Reserve
Notes in circulation exceeded the number of $1 silver
certificates that had been in circulation when the process began. Although a substantial number of silver
certificates remained outstanding, few were actually
circulating. They were believed to be in the hands of
collectors or persons who were holding them for future
redemption in silver bullion. In June 1967, Congress
enacted legislation that limited to one year the time
within which silver certificates could be redeemed for
silver. In July, the Treasury Department discontinued
the sale of silver from its stock to the public for the
monetary value of $1.29 an ounce. Within a week, the
cash market price rose above $1.80 per ounce. Later
in the year, it reached a high of $2.17. This development
enhanced the value of silver certificates and resulted in
their almost complete disappearance from circulation.
Coin. Two significant developments affecting United
States coi nage occurred during 1962 -1967 - the coi n
shortage and the transition from silver to clad or
"sandwich" coins.
The effects of the shortage on the return flow of coin
to this Bank and on the payments made into circulation
month by month are shown in Chart 1. The low point
in receipts was November 1964, when the return flow
of all denominations averaged about 0.6 million pieces
per working day, compared with average receipts of
approximately 5.7 million pieces per working day during
1962. Payments reached a low point of 1.8 million
pieces a day in July 1964, compared with an average of
6.8 million pieces per day during 1962. The extent of
recovery from the shortage is shown by the fact that
both receipts and payments in 1967 were greater than
in 1962 or any intervening year. The recovery can also
be seen from the high inventory levels reached in 1966
and 1967 (see Chart 2).
The coin shortage was most severe and prolonged
for dimes, quarters, and halves. Recovery for dimes and
quarters was not complete until the effect of the large
quantities of newly minted clad coins was fully felt in
1966. Half-dollars have not yet come back into general
circulation although approximately 895 million have
been made since early 1964, almost two-thirds of the
total number minted in the period from 1793 through
1963. The continued shortage of half-dollars has been

and

RECEIPTS of COIN

Average
Daily Number
All Denominations
1962-1967
MiliionJ
12

of Pieces

.01 pieces

SHIPMENTS

1964

Chart

MONTHLY

BANKS

1965

NUMBER

of DA YS SUPPLY of COIN

Based on Average
All Denominations
1962-1967
Number
100

Daily

Payments

in 1962

and

on HAND
1963

of days
END OF MONTH

1962

1963

1964

1965

1966

1967

TABLE III
Mint Coin Production by Calendar Years
1960-1967
(millions of pieces)
1960

1961

2,169
250
272

2,510
306
306

Quarters .

Halves.

Cents
Nickels.
Dimes.

Total

1962
-2,402

1963

1964
--

381
411

2,531
456
548

3,384
797
811

124

167

213

382

202

2,811

3,276

3,409

1965
-3,064
2,016
1,315
(1,308)*
(7)t
1,338
(878)*
(461 )t
186

#
3,840

5,576

7,920

1966

1967

3,680
287
3,191
(168) *
(3,023)t
2,180
(5)*
(2,174)t
212
(42)*
(170)t
9,549

3,049
107
2,244t

1,524t

295t
7,219

* 90
t

percent silver.
Clad-cupro
nickel.
Clad-40
percent silver.
Clad half-dollars struck at Denver Mint on December 30, 1965, included in 1966 totals.

attributed to the special memorial value of the Kennedy
half and to the silver content of the coin in a period
when the public was becoming aware of the growing
scarcity of silver. The clad half-dollars minted pursuant
to the Coinage Act of 1965 still contained some silver
(40 percent) and were not readily distinguishable in
general appearance from the 90 percent silver Kennedy
halves dated 1964.
The coin shortage was overcome in time by the
tremendous production efforts of the Bureau of the
Mint. The increased output is shown in Table III. Total
production in 1966 was 2~ times as large as in 1963
and almost 3~ times as large as in 1960.
The coin situation in this period was complicated by
the increasing demand for silver and rapid depletion of
the stock held by the Treasury Department. The steppedup production of dimes, quarters, and halves in 1964

and 1965, and the extensive sales of silver to the public,
so reduced the Treasury's supply that it became urgent
to find some substitute metal for subsidiary coinage.
Following intensive study, the Treasury Department
recommended the clad quarters and dimes composed
of an inner core of pure copper and outer layer of an
alloy of 75 percent copper and 25 percent nickel. The
new half-dollar is composed of a core of 79 percent
copper and 21 percent silver and outer layers of 20
percent copper and 80 percent silver. The Coinage Act
passed in August 1965 authorized the use of the new
coins. By December 1965, more than 45 million clad
quarters had been received by the three offices of this
Bank to be paid into circulation-the equivalent of 3
coins for each man, woman, and child in the Fourth
District. Payment of the new dimes and half-dollars
was initiated in March 1966.

DATA PROCESSING

DEPARTMENT

Computer processing of data is an integral part of
every major function of the Bank and the role of the
computer is growing steadily as new techniques having
favorable effects on analytical procedures and operating
costs are uncovered and put into practice. The main
role of the Data Processing Department is to provide
service to Research and the operating departments. The
magnetic tape computer purchased in 1962 is the heart
of the data processing service and approximately 50
persons are needed to coordinate its operation. Data
processing personnel perform several tasks, including
the designing of computing procedures, translating the
procedures into a language understood by the computer, and punching data on cards to be fed into the
computer. The computer's memory units, magnetic
tapes, and printers are used to manipulate, store, and
present data in a useful and usable form.
Close coordination of the tasks performed by the
personnel of the Data Processing Department is necessary to insure that computed results meet the desires
and needs of other departments. Coordination is accomplished through proposals, suggestions, and recommendations made by either the department involved or
data processing personnel on the design and adoption
of new procedures and new equipment uses. The final
decision on implementing new procedures and further
utilizing the computer is vested with the department
served.

DEMAND

FOR COMPUTER SERVICES

The increased demand for computer time since 1962
is one indicator of Data Processing's contribution to
Bank operations. In 1962, the Data Processing Department required one shift of personnel and the computer
was used less than eight hours per day (see Chart 1).
By 1963, the utilization rate climbed above eight hours
and overtime was being logged by the computer operators. Data processing became a full two shift operation
to accommodate increased work loads in 1965 and

Chart

COMPUTER

UTILIZATION

1962-1967

1st SHIFT

2nd SHIFT

3rd SHIFT

00
8.0
o

1962

1963

196.4

1965

1966

1967*

*Oa •• not include

introduction

of weekend

utilization.

NOTE: Machine
time. only ond doe. not include maintenance.
Utilization
ba.ed
on peak month of the year.

began operating around the clock in 1966. Demand
for computer time was so high in 1967 that new applications and changes in procedures and techniques were
limited to the computer time available on weekends.

COMPUTER

USERS

IN THE BANK

The largest user of the data processing computer is
the Fiscal Agency Department, followed by Check and
Noncash Collections, and Research. Usage by these
three areas accounts for 75 percent of the computer
time charged to all users (see Chart 2). The amount of
computer time does not measure the complexity of the
many different computations performed for the respective departments, and it is in no way a measure of the
importance of particular operations within the overall
operations of the bank. Activities involving daily processing of a large volume of similar types of data often
require more computer time and less sophisticated
techniques than those used for administration and
supervision, accounting, payroll, and bank examination.
The Fiscal Agency Department primarily uses the
computer to process withheld tax receipts for the
Treasury Department and to print savings bonds as an
issuing agent of the Bureau of the Public Debt. Computer time required to process more than one million
Federal tax receipts in 1967 totaled 580 hours, while
the time required to print nearly two million bonds for
the same period was 955 hours. Before using the computer for withheld Federal taxes, the processing cost
per item at this Bank was relatively high compared with
other Reserve Banks. Since this operation was converted to the computer, this Bank has had one of the
lowest per item costs for withheld tax operations in the
Federal Reserve System.
Similarly, the number of savings bonds printed per
manhour increased nearly 65 percent after conversion
to the computer and the unit cost dropped from 6.7
cents in 1964 to 5.1 cents in 1967 -again one of the
lowest per item costs of all the Federal Reserve Banks.
Automation of certain aspects of the noncash collection activity, such as preparation of advices and shipping

orders to collect maturing coupons and bonds and the
paper work associated with presenting checks and
drafts for collection that cannot be processed through
high-speed check sorting equipment, has also had a
favorable impact on costs. Before the computer was
used in this area, the per item cost was 10.4 cents, with
33 items processed per manhour, compared to a per
item cost last year of 8.0 cents, with 54 items processed
per manhour.
Some of the more interesting uses of the computer
have originated in the research activities of the bank,
and demand for computer time by the Research Department has grown rapidly. Since 1962, utilization of the
Bank's computer as a tool in economic research has
increased 12-fold, and future growth may even surpass
past experience.
The Research Department is responsible for reviewing
a continuous stream of data covering economic activity
in the Fourth District and the United States. These data
are a reservoir of information that the research staff can

Chart

draw upon to evaluate and predict regional and national
economic developments. Using an assortment of processing and statistical techniques, the Research Department, through the computer, is able to collect, collate,
adjust, analyze, and restructure the stream of data
referred to above.
In addition to interpreting current data, the research
staff conducts longer term studies designed to improve
understanding of how the economy and the monetary
system work. Recently completed studies include an
analysis of cost factors versus demand forces in the
behavior of prices, an evaluation of the stabilization
aspects of fiscal actions of the Federal, state, and local
governments, and an attempt to predict statistically the
future course of defense spending from data on obligational authority, etc. Some research projects fall in a
category that might be called "pure" research. These
projects often utilize models of economic behavior that
can be solved on the computer and involve a number
of complicated statistical and mathematical techniques.

MONTHL Y DISTRIBUTION

of COMPUTER

TIME In 1967

By Department

Hours

100

150

200

FISCAL AGENCY
CHECK and NONCASH

COLLECTION

RESEARCH
ACCOUNTING
PLANNING

l1li1

SECURITIES
ALL OTHER

Hours

I
0

100

150

200

The knowledge gained through such research sharpens
analysis of current developments, improves short-term
projections of economic activity, and promotes better
understanding of the workings of the economy.

NEW COMPUTER

INSTALLED

Our data processing computer is literally bursting at
the seams from the volume of work being handled.
Replacement with a computer of greater capacity and
flexibility was the only solution to meet the Bank's data
processing needs. Consequently, in 1967, the Board of
Directors of the Bank approved the acquisition of a new
computer system. Delivery of a portion of the new
equipment took place in January 1968, and the remaining equipment is expected to be installed in 1969.
The decision to install a new computer system was
accompanied by a change in philosophy on computer
processing at the Federal Reserve Bank of Cleveland.
Rather than installing a computer system only to handle
growing requirements for data processing services in
Research and operating departments, it was felt that
the new system should handle check processing requirements as well. The reasons underlying the change
to a one-computer system include greater flexibility in
the use of both equipment and personnel, one computer
programming language rather than several, and elimination of a number of small, limited capacity computers
with a consequent reduction in personnel. In addition,
it is believed that installation of an advanced computer
system will enable the Bank to benefit from the development of advanced computer processing concepts and
techniques.
The new computer will accommodate equipment now
being developed that will enable the computer to

transmit and receive data directly over telephone lines
and circuits. Substantial cost savings in the area of data
communications are expected to result when this equipment is available.
Pressuresfor using the computer within the Bank will
grow when handling costs associated with preparation
of data for computer processing can be effectively
displaced by new, reliable, lower cost data communications terminals. In addition to handling data communications requirements within the Bank, it is anticipated
that the new computer will playa prominent role in
speeding communications throughout the Federal Reserve System.

NEW DATA COMMUNICATIONS
WIRE TRANSFERS OF FUNDS

FOR

Data communications is not a new area for Federal
Reserve Banks. Collectively, the Reserve Banks operate
a communications network that annually speeds the
transfer of billions of dollars across the country for
commercial banks. The switching center, which links
together the communications equipment at each of the
Reserve Banks, is located at the Federal Reserve Bank
of Richmond.
What is new and uncertain is the use of high-speed
electronic machines at sending and receiving stations
in place of slow-speed teletypewriter equipment. Considerable technical knowledge and operati ng experience
are needed before computers and associated terminal
equipment can be installed and used to communicate
speedily and accurately from one Federal Reserve office
to another.
The Federal Reserve Bank of Cleveland has been
cognizant of the need within the Federal ReserveSystem

Chart

HIGH SPEED TRANSMISSION
~

.......•....•...

....-

°r,_o

PROJECT

".',.... .

.-.-.-.-

•...

;

-'-.

;

..... .......
<,

_._,_.-.-r-,.:_._._.

CINCINNATI

'r- _.-._._._.-.
I.

.. _._.,

;

.-.~}
.....

"7 ._ .-.-.-._

~.....
..,._._

-. ;._.
\._.
I

.~-'

/ ...,
._.-'_:-

,.-.-._.-.'7~'
.1-.J.-.-.-.....
.••..
._.-._

i-'-'-'-'r' '-':,

i
i

••••. .1

l-·_·-,
I

,,"
"'.

.•••

for experience with high-speed data communications.
The Bank is attempting to close the knowledge gap by
participating with three other Federal Reserve Banks
in the operation of a separate communications network
for wire transfers of funds that bypasses the present
teletype network, and which improves the wire transfer
service to commercial banks in the Fourth District (see
Chart 3). High speed transmitting and receiving terminal
equipment is being used in this experiment. At this time,
preparation of data for transmission over high-speed
terminals continues to be a manual operation. The
Cincinnati and Pittsburgh branch offices are actively
engaged in this project and have the distinction of
being the first branches to handle wire transfers of
funds by instant telecommunication.

Automation has served as the catalyst for successfully
achieving lower operating costs and increased productivity per dollar spent for wages and salaries, but
only a portion of these gains can be attributed directly
to the computer. Management's attention to the design
and implementation of more efficient operating procedures for the work force has made an important contribution in several departments, including those where
automation has been most pronounced. Regardless of
how the various factors are weighted and credited, the
fact that the unit costs have dropped generally throughout our operations is gratifying, especially in a period of
sharply rising salaries and wages, and during a period
when industry in general has been plagued by rising
unit costs.

COMPARATIVE

STATEMENT OF CONDITION

ASSETS

Dec. 31, 1967

Dec. 31, 1966

$ 765,949,467

$ 831,084,455

Redemption Fund for Federal Reserve Notes

155,584,714

155,1 56,139

Total Gold Certificate Reserves.

921,534,181

986,240,594

Federal Reserve Notes of Other Banks

64,876,776

98,460,309

Other Cash . . . . . . .

48,188,824

49,855,792

Gold Certificate Account.

Discounts and Advances.

500,000

U. S. Government Securities:
Bills ...

1,220,706,000

Certificates
Notes

-0963,072,000

-0-

355,004,000

. .

2,056,860,000

1,738,048,000

Bonds . .

465,076,000

505,763,000

Total U. S. Government Securities.

3,742,642,000

3,561,887,000

Total Loans and Securities.

3,743,142,000

3,561,887,000

740,247,276
4,799,415

722,999,562

Cash Items in Process of Collection
. .

169,534,321

4,945,683
106,099,492

Total Assets

$5,692,322,793

$5,530,488,432

$3,404,389,597

$3,315,615,159

Bank Premises.
Other Assets

LIABILITIES
Federal Reserve Notes.
Deposits:
Member Bank-Reserve

Accounts

1,448,512,687

1,457,964,023

U. S. Treasurer-General

Account

66,320,161
12,600,000

556,311
14,400,000

13,658,388

13,321,479

1,541,091,236

1,486,241,813

617,152,276
21,920,484

607,918,429

$5,584,553,593

$5,428,230,932

53,884,600

51,128,750

53,884,600
$5,692,322,793

51,128,750
$5,530,488,432

Foreign.

. . . .

Other Deposits
Total Deposits
Deferred Availability
Other Liabilities

Cash Items .

. .

Total Liabilities.

18,455,531

CAPITAL ACCOU NTS
Capital Paid In.
Surplus

. . . . . . .

Total Liabilities and Capital Accounts
Contingent Liability on Acceptances Purchased
for Foreign Correspondents.
. . . . . . .

14,085,000

17,262,000

COMPARISON

OF EARNINGS

AND EXPENSES
1967
$169,185,295
16,334,774
152,850,521

1966
$153,521,823
16,195,696
137,326,127

59,194
128,800
13,288
201,282

-0118,844
26,284
145,128

-0685
685

203,594
37,924
241,518

200,597
-0-

-096,390

Net Earnings before Payments to U. S. Treasury

$153,051,118

$137,229,737

Dividends Paid . . . . . . . . . . . . .

$ 3,130,507
147,164,761
2,755,850
$153,051,118

$ 3,027,907
132,810,630
1,391,200
$137,229,737

Total Current Earnings
Net Expenses.

. . . .

Current Net Earnings.
Additions to Current Net Earnings:
Profit on Sales of
U. S. Government Securities (Net).
. . . .
Profit on Foreign Exchange Transactions (Net) .
All Other.

. . . . . . . . . . .

Total Additions

. . . . . . . . . . .

Deductions from Current Net Earnings:
Loss on Sales of U. S. Government Securities (Net) .
All Other.

. . . . .

Total Deductions.
Net Additions.
Net Deductions.

. . . .
. . .

Payments to U. S. Treasury (Interest on F. R. Notes) .
Transferred to Surplus
Total

At the end of 1967, Mr. Joseph B. Hall completed 18 years of
service to the Federal Reserve Bank of Cleveland. During this
period, Mr. Hall was a director at the Cincinnati branch and a
director and Chairman of the Board of Directors at the main
office of the Federal Reserve Bank of Cleveland. Mr. Hall has the
JOSEPH

B. HALL

CHAIRMAN
OF THE BOARD
1962-1967

distinction of being the only director in the Bank's 53-year history
to have served on the branch board and main office board on
three different occasions.
During his many years of service to the Bank, Mr. Hall made
significant contributions

to the management of the Bank and

demonstrated his leadership on numerous occasions.
In addition to his untiring work for the Federal Reserve Bank
of Cleveland, Mr. Hall held several important positions at The
Kroger Co. He was elected vice president in charge of manufacturing operations and director in 1941; vice president, treasurer,
and director in 1943; executive vice president and director in 1944;
president in 1946; and Chairman of the Board in 1962. He retired
as Chairman of the Board of The Kroger Co. on December 31,
1964, under the retirement provisions of his company, but continues as a director.
Mr. Hall is also active in many civic activities and is a member
of the board of directors of several important companies, including Armco Steel Corporation, Cincinnati & Suburban Bell Telephone Company, Goodyear Tire & Rubber Company, Tenneco
Company, and U. S. Plywood-Champion

Papers, Inc.

Mr. Hall's enthusiasm and dedication have been a source of
inspiration to the Federal Reserve Bank of Cleveland and to the
Federal Reserve System.

As of March 1, 1968

FEDERAL RESERVE BANK OF CLEVELAND
DIRECTORS
Chairman
ALBERT G. CLAY, President
Clay Tobacco

Company,

Mt. Sterling,

Kentucky

Deputy Chairman
LOGAN T. JOHNSTON, Chairman of the Board
Armco

Steel Corporation,

WALTER K. BAILEY

Director and Former Chairman of the Board
The Warner & Swasey Company
Cleveland, Ohio

JOHN L. GUSHMAN
President and Chief Executive Officer
Anchor

Hocking

Glass Corporation
Lancaster, Ohio

RICHARD R. HOLLINGTON
President
The Ohio Bank and Savings Company
Findlay, Ohio

Middletown,

Ohio

J. WARD KEENER
Chairman of the Board and Chief Executive Officer
The B. F. Goodrich
Akron, Ohio

Company

R. STANLEY LAING

President

The National Cash Register Company
Dayton, Ohio

EVERETT D. REESE

Director and Former Chairman of the Board
The City National
Columbus, Ohio

Bank & Trust Company

of Columbus

SEWARD D. SCHOOLER
President

Coshocton National Bank
Coshocton, Ohio

Member, Federal Advisory Council
JOHN A. MAYER

Chairman of the Board and Chief Executive Officer
Mellon

National Bank and Trust Company
Pittsburgh, Pennsylvania

OFFICERS
W. BRADDOCK HICKMAN
President

WALTER H. MacDONALD
First Vice President

GEORGE E. BOOTH, JR.
Vice President and Cashier

PAUL BREIDENBACH

Vice President and General Counsel

ROGER R. CLOUSE

Vice President and Secretary

ELMER F. FRICEK
Vice President

CLYDE HARRELL
Vice President

WILLIAM

H. HENDRICKS
Vice President

JOHN J. HOY
Vice President

HARRY W. HUNING

Vice President

FRED S. KELLY
Vice President

FRED O. KIEL
Vice President

MAURICE MANN

Vice President and General Economist

CLIFFORD G. MILLER
Vice President

ELFER B. MILLER

General Auditor

R. JOSEPH GINNANE

Assistant

Vice President

ROBERT G. HOOVER

Assistant

Vice President

LESTER M. SELBY
Assistant

Vice President and Assistant Secretary

H. MILTON PUGH

Chief Examiner

OSCAR H. BEACH, JR.

Assistant Cashier

ANNE J. ERSTE

Assistant Cashier

THOMAS E. ORMISTON, JR.

Assistant

Cashier

ROBERT E. SHOWALTER

Assistant Cashier

DAVID J. WEITZEL

Assistant

Cashier

HAROLD J. SWART

Assistant

General Auditor

As of March 1, 1968

CINCINNATI

BRANCH

DIRECTORS
Chairman
GRAHAM E. MARX, President
The G. A. Gray Company,

ORIN E. ATKINS
Ashland

The Second National

President
Oil & Refining Company
Ashland, Kentucky

and General Manager
Cincinnati, Ohio

JOHN W. HUMPHREY
Chairman of the Board
The Philip Carey Manufacturing
Cincinnati, Ohio

ROBERT J. BARTH

FLETCHER E. NYCE

President
The First National Bank
Dayton, Ohio

President
The Central Trust Company
Cincinnati, Ohio

JACOB H. GRAVES

JOHN N. STAUFFER

President
Bank and Trust Company of Lexington
Lexington, Kentucky

President
Wittenberg
Springfield,

Company

University
Ohio

OFFICERS
FRED O. KIEL
Vice President

ROBERT D. DUGGAN
Cashier

DONALD G. BENJAMIN
Assistant

Cashier

JOSEPH W. CROWLEY
Assistant

Cashier

HOWARD E. TAYLOR
Assistant

PITTSBURGH

Cashier

BRANCH

DIRECTORS
Chairman
F. L. BYROM,

President and Chief Executive Officer
Koppers Company, Inc., Pittsburgh, Pennsylvania

CHARLES M. BEEGHLY
Chairman

of the Board and Chief Executive Officer
Jones and Laughlin Steel Corporation
Pittsburgh, Pennsylvania

GEORGE SCULL COOK
President
Somerset Trust Company
Somerset, Pennsylvania

ROBERT C. HAZLETT
President
Wheeling
Wheeling,

Dollar Savings
West Virginia

& Trust Co.

LAWRENCE E. WALKLEY
President
Westinghouse
Air Brake Company
Pittsburgh, Pennsylvania

THOMAS L. WENTLING
President
First National Bank of Westmoreland
Greensburg, Pennsylvania

OFFICERS
CLYDE HARRELL
Vice President

JAMES H. CAMPBELL
Cashier

CHARLES E. HOUPT
Assistant
Assistant

PAUL H. DORN
Assistant

Vice President

J. ROBERT AUFDERHEIDE
Cashier

Cashier

fourth federal reserve district

Full text of Annual Report of the Federal Reserve Bank of Cleveland : 1967 Annual Report

FRASER