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FederalReserveBank of Dallas Annual Report 1970 iltt iiII i!:[ :lls*'*:i ^'*'i:.,.. -.r.1*r***ii*,*tt W This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) EconomicDevelopments inflation throughoutthe year. But there The year was one of transitionfor signsthat a letup had wereencouraging the economyof the Southwest.In this total real output And although begun. region,as in the nation, therewas a continuedwell below its full potential "powering down" from the overly and unemploymentremainedfairlY expansiveinflationarygrowth of 1968 high, therewerehopesthat this and 1969.As overalldemand moderatepausein expansionhad laid weakened,growth in output slowed. the foundationfor more stable,less And with demandpressureon resourceseasing,someslackdeveloped inflationary growth in the year ahead. in the useof resourcesand growth in National Developments incomeand employmentmoderated. Economic.Growth in the nation's National economicand financial developmentswereespeciallyimportant total spendingfor goodsand services slowedsignificantlyin 1970, increasing to the region'sperformance.As restrictivemonetaryand fiscalpolicies only about $45 billion comparedwith took firmerhold in late 1969 and early $66 billion in 1969.Moreover,all the 1970risein grossnationalproductwas 1970,the dampeningeftecton the accountedfor by price increases.Real Southwestbecamereadily apparent. output of goodsand servicesactually businessSpendingby consumers, fell 0.4 percent,marking the first yearly was increasingly men, and others declinein real GNP in more than a inhibited by the constraintof tight decade. money.And as the economyslowed, The sluggishpaceof economic plans for future spendingwere subject activity was evidentin most major to further revision.In addition, the Southwestfelt the effectsof substantial componentsof GNP. The rate of cuts in federal spending,especially outlaysfor defenseand defense-related GNP CHANGES (Seasonally Adiusted Annual Rates) purposes. of 1970 created The adjustments painful and somewhatdifficult problemsfor the Southwest.The fared unusually region,nevertheless, g6rnp31sd, well in transition certainly,with most other regionsof the country. Hardesthit were regionswith heavyconcentrationsof industries producingdurablegoods,especially consumerdurablesand defense-related items.But this type of manufacturing is lessimportant in the Southwestthan in most other regions.A sharpincrease in productionof crude petroleumin the secondhalf of the year, substantial buoyancyin constructionactivity, and 1970 1969 moderategainsin agricultural ol Commerce SOURCE:U.S. Oepartment productionalso servedto cushionthe region'seconomicadjusfrnent. The nation'stransitionto a slower but sustainablelevel of economic activity had still not beenaccomplished at year-end.The most notableexample, ofclrsl'tsftPH*R"Yt FEDERAL BANKOFDALLAS RESERVE growth in personal income declined to 7.0 percentfrom 8.7 percentin 1969, as layoffs and shorter workweeks cut deeply into the incomes of many people. A substantialincreasein Social Security benefits,a 6-percent pay raise to federal employees,and substantial gains in wages and salariesof many private workers provided substantial support to personal income, however, and with the removal of the lO-percent surtax, disposableincome actually increasedfaster than in 1969. But while consumershad more income to spend, the rate of growth in personal consumption expenditures slowed to 6.8 percent from 7.8 percent the year before. Taking an increasingly more pessimisticview of the economy and their own financial positions, consumerssharply increasedtheir rate of savings. Consumption of durable goods was especiallyweak, declining 0.7 percent in current dollars and more than 6 percent in constant dollars. This weakness reflected both the propensity for consumersto postpone purchasesof durable items in periods of economic uncertainty and the effects of a prolonged strike on auto sales. Businessesalso slowed their spending as a sharp drop in corporate profits, sluggishsales,and mounting excess capacity causedmany companiesto progressivelytrim their outlays for new plant and equipment. After increasing a substantiall2 percentin 1969, businessfixed investment expenditures increasedonly 3.3 percentin 1970. In real terms, theseexpendituresdeclined about 3 percent. With demand weakening-especially for durable goods - businessesalso reduced their rate of inventory accumulation in an effort to hold stocks in line with the sluggishgrowth in sales.Businesses increasedtheir inventoriesabout $3.6 billion during I N C O M EC , O N S U M P T I O NA,N D S A V I N G S the year. This was well belorvthe $8.-5 U n i t e d S i a l e s (Seasonally Adiusted Annual Rales) billion increasein 1969. Residentialhousingbeganto recover as substantialfunds becameavailable for mortgage lending through deposit inflows to savingsand loan associations and mutual savingsbanks.But total expenditureson residentialconstruction still dropped about 7.5 percentfor the year, after increasing5.6 percentin t969. Governmentpurchasesalso tapered off, rising only about 4 percent the smallestincreasein ten years. Expenditures by state and local governmentsrose 9 percent, only slightly lessthan the lO-percent increasein 1969. But federalpurchases declinedfor the first time since 1960. Reflecting the military cutback in southeastAsia and a general reduction in the Armed Forces,outlays for defensewere trimmed about 3 percent. With output sagging,opportunities for employment deterioratedsharply and layoffs mounted. From 3.5 percent in December 1969, the unemployment rate soared to 6.2 percent in December 1970. During that time, the number of unemployedworkers increasedmore than 2 million. About three-fifths of these had been laid off. Most of the others were women, teen-agers,and ex-Gl's who could not find jobs. Despite the weaknessin overall demand, prices continued to rise in 1970, and at disappointingly high rates. I 969 1970 SOUFCE; U.S. Depattment ol Commetce B U S I N E S SI N V E S T M E N T United States (Seasonally Adjusted Annual Rates) BillionDollars After the first quarter, however, there was somemoderationin the rise of b o t h w h o l e s a l ea n d c o n s u m e rp r i c e s . The slowingin wholesaleprices centered in foods and in crude and partially processedmaterials.Pricesof highly fabricatedcommoditiesrose unabated.The improvementat the consumer level mainly reflectedgreater stabilityin pricesof food and mortgage financing. Financial.Early in the year, monetary policy was relaxedsomewhat to provide stimulusto the economy. As the year progressed,policy makers became increasinglyconcerned about the rising unemployment rate. Nevertheless, they avoidedany sudden policy that might rekindle shift in inflationary fires and undo the progress made againstinflation in 1969. Consequently,monetary policy was cautiouslytransformedfrom one of The influenceof the easingin policy was felt most immediatelyin short-term interest rates. These rates began to drift downward early in the year and, despite short periods of backing up, continued to trend downward for the rest of the year. The decline in interest rates was aided by the slower pace of economic activity and, later in the year, by a l e s s e n i n og f i n f l a t i o n a r ye x p e c t a t i o n s . There was also a concertedeffort, particularlyby corporations,to lengthenthe maturity structureof debts.This led to substantialcorporate financing in long-term capital markets, with some of the proceedsbeing used to repay short-term debt. Heavy financing in capital markets kept long-term rates from falling until about midyear. At that point, to avert a widespreadliquidity crisisthat might have followed the bankruptcy of the nation'slargestrailroad, the Federal restraintto one of moderateexpansion. Reserve suspendedRegulation Q interest rate ceilings on large negotiable CD's maturing in less than three R E S I D E N T I AC LONSTRUCTION This action buoyed investor months. United States ( S e a s a n a l l yA d i u s t e d A n n u a l B a t e s ) optimism, and long-term interest rates Billon Dollars EXPENDITURES -34 Also aiding the downward movement of both long-term and short-term rates in the secondhalf of the year were four reductions in the prime rate (from 8 percent to 63/qpercent) and two reductions in the discount rate (from 6 percentto 5rZ percent). The decline in market rates of interest - in conjunction with a January increasein maximum interest rates that most types of depositary financial institutions could pay - psds yields on the deposits and sharesof financialinstitutionsmore attractive relative to yields on market instruments. As a result of this and the rise in the personal savingsrate, inflows of funds to these institutions, particularly banks, began to improve earlv in the vear. It was not until after U N E M P L O Y M E NR TA T E United States ( S e a s o n a l lA y djusted) P e r c e n to t C i v i l i a n Labor Force -LV - O,U - C.U - 4.0 - 3.0 began to edge downward. GOVERNMENP T URCHASES ( s e a s o n a l l YA d i u s t e d A n n u a l R a t e s ) Bition Dotars - 125 1969 S O U B C F : U . S . D e 7 a t t m e n ta l L a b a l STATE AND LOCAL - 115 - 110 I 19 6 9 19 7 0 - 105 S O U , Q C E :U . S . D e p a r t m e n to l C o m m e r c e - 100 -95 I 19 7 0 19 6 9 S O U F C E : U . S . D e p a r t m e n to l C o m m e r c e midyear, however, when the Board of Governors suspendedinterest rate ceilings on short-term CD's, that inflows of funds to banks besan to pick up substantially. Most large banks made immediate use of CD's as a source of funds. The amount of CD's outstanding at these banks doubled in the second half of the year, reaching more than $26 billion by year-end. And with accessto the CD market reestablished,banks began to reduce their borrowings from nondeposit sources,particularly from the Eurodollar and commercial paper markets. This move away from the use of nondeposit sourcesof funds - and repayment of Eurodollar borrowings. The rapid repayment of such borrowing had been aggravatingthe nation's balance-of-paymentsdeficit. With the substantialincreasein flows of funds to banks after midyear, banks began relaxing their lending terms and conditions. Banks had been tightening up on such terms and conditions in 1969 and early 1970. They had raised lending rates, compensatingbalance requirements,and standardsof credit worthiness.They had also reduced the maturity of term loans and conducted stricter reviews of their customers' credit lines, especiallythose customers new to the bank or from out of town. As the inflow of funds was renewed toward increaseduse of deposit sources in the secondhalf, however, these - was aided in late summer by two trends began to reverseand bank credit changesin Regulation D. In August, grew more rapidly. Credit increasedat the Board of Governors imposed a an annual rate of slightly more than 10 5-percent reserverequirement on funds percent in the secondhalf of 1970, obtained by member banks through the compared with about 4.5 percent in issuanceof commercial paper by their the first half. affiliates.At the same time, the Board Despite more favorable lending reduced from 6 percent to 5 percent the terms and conditions at banks. loan reservesthat member banks must hold demand remained weak. Moreover, the against time depositsin excessof liquidity positions of banks had been $5 million. seriously weakenedduring the long Later in the year, however, the period of monetary restraint. In light of Board raised from 10 percent to 20 thesecircumstances,banks used more percent the reservesrequired from than 70 percent of their inflow of funds member banks against Eurodollar after midyear to purchasesecurities. borrowings that exceed amounts that These included short-term securities banks are allowed as a reserve-free acquired to rebuild liquidity positions base.This action was taken to slow and long-term securitiesacquired to take advantageof the relatively high yields available. Banks, however, were not the only financial institutions to experiencean increasein the availability of funds in the secondhalf of 1970. Flows of funds into savingsand loan associationsand mutual savingsbanks also increasedin responseto falling money market rates and the high rate of personal savings. Consequently,these institutions were able to channel more funds into the mortgage market, easing pressures there somewhat. Equity markets, too, shared in the revival. For example, the Dow Jones industrial price index rose fairly steadily from the low of 631 reached in the spring. By year-end, it had advancedto about 840, more than offsetting the decline in the early part of the year. PRICECHANGES United States (Annual Rates ot lncrcase) '| 969 1970 SOURCEj U.S. Depattment ot Labol C A P I T A LM A R K E TR A T E S PercentPer Annum - 10 STATE AND LOCAL G O V E R N M E NBTO N D S ( B O N DB U Y E R ) M O N E YS T O C KC H A N G E S United States (AnnualRate of lnc(ease) PercentPer Annum -8 19 6 9 19 7 0 S O U F C E ;B o a r d o l G a v e r n o r s ,F e d e t a l , g e s e r v eS y s t e m M E M B E RB A N K D E P O S I T S United States B i l l i o nD o l a r s - 320 310 19 6 9 I 970 S O U , 4 C EB ; o a r d a l G o v e r n o r c ,F e d e r a lR e s e t v e S y s t e m M O N E YM A R K E TR A T E S P e r c e n tP e r A n n u m 290 _10 30 LARGE CERTIFICATES OF OEPOSIT \ \J 20 t0 I 970 S O U R C E :B a a r d o l G a v e t n a r s ,F e d e t a l R e s e r v eS y s t e m I 19 6 9 19 7 0 S O U B C E :B o a t d o l G o v e r n o r s ,F e d e r a l, g e s e r v eS y s t e m taperedoff substantiallyas the high cost of feedersand capital checkedthe spreadof feedlots. Still, whcn comparedwith the nation as a whole. the Southwestfared reasonablywell, mainly becausethe industriesexhibitingthe greatest weaknessnationallyplay a less important role in the economy of the Southwest.Manufacturersof durable goods,espcciallyconsumerdurables items, were and defense-related particulariyhard hit by the slowdown. But where such goodsaccountfor almost half the nation'stotal industrial production,they accountfor lessthan a fourth of the industrial output in the Southwest. Moreover, in the secondhalf of the year, productionin the Southwest, especiallyin Texas and Louisiana,was spurredby a sharp increasein the productionof crude oil. A shortageof tankers to transport foreign oil increasedthe prices of petroleum imports and stimulateddemandfor domesticcrude. In responseto these \/ I 969 Regional Developments Economic. Growth in the economy of the Southwestslowedin 1970 as businessmenand consumersrevised their spendingplans downward in responseto tight credit conditionsand uncertainprospectsfor the future. Growth in new plant construction,for example,slowedmarkedly as many companies- faced with sluggishsales and dwindling profits - postponed their plans for expansion.And growth in cattle feeding- an industry that had added significantly to the region's overall production in recent years - NONDEPOSITFUNDSAT MEMBERBANKS UnitedStales BillionDollars COMMERCIALBANK CREDITCHANGES UnitsdStates (Annual Rate ol lnaeasel 1969 1970 FederclResetveSystem SOURCE:Board ol Govetnorc, 1969 1970 SOUBCE:Boad ol Govetnots,Federal ResetveSystem SAVINGSFLOWSTO SAVINGS AND LOAN ASSOCIATIONS AND MUTUAL SAVINGSBANKS United States (Annual Rate ot lnctease) Percent Per Annum 1969 1970 FedetalResetveSystem SOURCE: Boardol Governorc, developments,agenciesregulatingoil production in Texasand Louisiana pushedoil allowablesin thosestates to recordhighs. The result was a rise in the region's industrial productionin the fall - a rise that stoodin sharpcontrastto the suddendrop in national production broughton by a strikeat a major automobilemanufacturer.Although the auto strike had someimpact on industrial output in the Southwest,the strengthin crude oil productionmore than offsetthe weaknessin durable goodsmanufacturing. For the year as a whole,industrial productionin Texasroseabout 3 percent.That was only slightly less than the S-percentgain in 1969 and considerablybetter than the national average.Nationwide,productionfell almost 3 percent. Agriculture, anotherkey sectorin the region'seconomy,alsocontributed to its strengthoverall. With generally favorableweather,crop production roseabout 1.4 percent,after dropping more than 12 percentin 1969. Although productionof winter wheat declined,therewere increasesin the output of cotton, rice, sorghumgrain, and most minor crops. Livestockproduction,which has beenthe major sourceof strengthin regionalagriculturefor severalyears, continuedto expandbut at a somewhat slowerrate. The declinein the rate of increaseto 3.0 percentfrom 5.9 percentin 1969mainly reflectedthe slowdownin growth of cattle feeding. With productionincreasing,farmers and ranchersin the Southwestreceived higher grossincomes.Productioncosts roseroughly the sameamount, however,holding net incometo about the samelevel asin 1969. Constructionactivitywasalsoquite The total buoyantin the Southwest. valueof constructioncontractawards rosenearly 14 percent.By contrast, the year-to-yearincreasein 1969 amountedto only 1.6percent. Nonbuilding constructionwas especiallystrong,rising more than 22 percentafter a declineof 10.7percent in 1969.Nonresidential construction increasedabout 11 percent,or slightly fasterthan in 1969.And even residentialconstructionwas stronger than a year before,increasingabout 10 percentcomparedwith a gain of 4.3 percentin 1969. Apartment building providedmost of the stimulusfor residential construction.and reconstructionin the CorpusChristi areaafter Hurricane Celia boostedconstructionoverall. Although industrial output continued to expand,employmentopportunities in the Southwestwere fairly weak. Much of this weaknessresultedfrom the gainsin productionbeingin capital-intensiveindustries.But part of it was due to companiestrying to relievesomeof the strongwage-cost pressureson proflts by trimming payrolls. Total nonfarm wageand salary employmentpeakedin February and declinedsteadilyfor the next four months,reachinga trough in June. Payroll employmentbeganto edge back upward after midyearbut at year-endwas still well below the high reachedduring the previouswinter. The greatestweaknesses were in industries, as layoffs defense-related occurredin both the aerospaceand electronicsindustries. As the demandfor labor slackened, unemploymentbecamea growing problem. Rising almostcontinuously throughoutthe year, the averagerate of unemploymentfor the region reached5.0 percentby year-endpointshigherthan a 1.6 percentage vear earlier. There were wide differencesin unemploymentrateswithin this fivestateregion,however.Both Texas and Arizona startedthe year with unemployment ratesof 2.8 percent. By year-end,the rate had climbed to 4.5 percentin Texasand 4.6 percentin ratein Arizona.The unemployment Oklahomastayedcloseto the five-state averagethroughoutthe year. But in Louisianaand New Mexico, the jobless rateswere alreadyabout 5 percentat the start of the year and by December they had reachednearly 7 percent. While most economicsectorsshowed greaterstrengthin the Southwestthan in the nation, this was not the case with retail trade.As employment opportunitiesdeterioratedand unemploymentrose,retail purchases slowed.Departmentstore salesshowed an averagegain of only 3 percent. Adjusted for price increases,the physicalvolume of goodssold in thesestoresprobablydeclined. F inancial.Financial developments in the Southwestroughly paralleled thosein the nation. The supplyof lendablefunds at bankswas quite limited early in the year. Fundsbecame more availableasthe year progressed, however,particularly after interest rate ceilingson short-termCD's were suspendedat midyear.But with moderateloan demand,banksin the regionfollowed thoseelsewherein the nation in reducingtheir prime lending ratesand in usinga relativelylarge INDUSTRIALPRODUCTIONIN TEXAS AGRICULTURALPRODUCTION Five Southw€8tern Statss Percent Change 1970 partly estimaled SOUflCES: U.S. Depattment of Agriculturc Fedenl Resetva Bank ot Dallas Percent Change amount of their funds in rebuildins liquidity positions. Part of the decline in depositsthat plaguedbanks early in the year resulted from the loss of time and savings deposits,particularlyCD's. But as monetary policy easedand short-term interest rates declined somewhat in the spring, time depositsbegan to flow into regional banks. Country banks received most of the inflow at first. Because customersof country banks are often less sensitiveto changesin interest rates than customersof city banks, the small decline in market rates was enough to allow country banks to attract some funds. But with many customers of city banks continuing to take advantageof the still relatively attractive yields availableon market instruments, this decline in market rates was not enough to causeany perceptible inflow of funds to these banks. A f t e r t h e m i d y e a rs u s p e n s i o inn Regulation Q ceilings on short-term CD's. however.the increasein time D E P A R T M E NS T T O R ES A L E S and savingsdepositsat city banks far Eleventh Federal ReserveDistrict exceededthe increaseat country banks. ELEVENTH DISTRICT City banks moved quickly into money marketsand obtainedmore than $900 DALLAS million in additionalfunds through the sale of CD's in the secondhalf of EL PASO the year. Inflows of demand depositsalso HOUSTON beganto pick up later in the year in SAN responseto the easingof monetary ANTONIO -; ,j +i +j +6 p o l i c y a n d t h c d e c l i n ei n i n t e r e s tr a t e s . Percent Change, But inflows of demand dcposits,which 1970 From 1969 are iargelyoutsidethe control of banks, were somewhatlarger at country banks T I M EA N D S A V I N G SD E P O S I T S A T M E M B E RB A N K S than at city banks. EleventhFederal ReserveDistrict ( A s o t L a s t W e d n e s d a yo f M a n t h ) As total deposit inflows improved, B ion Dollars banks becamelessreliant on nondeposit sourcesof funds. When depositswere scarcein 1969 and early 1970, banks in the Southwestsoughtand acquired substantialamountsof funds from nondepositsources. One of the main nondepositsources of funds was the Eurodollar market. V A L U EO F C O N S T R U C T I O C NO N T R A C T S E M P L O Y M E NATN D U N E M P L O Y M E N T F i v s S o u t h w e s t € r nS t a t e s Five Southwestern States (Seasonally Adjusted) Million Workers 1969 FROM 1968 ,oro,-| 6.4 RESERVE CITY BANKS A? BUILDING "a",oa"r,^aI NONRESIDENTIALI BUILDING 6.2 I - NONBUILDING CONSTRUCTION -2o -to o 6.1 I P e r c e n to f C i v i l i a nL a b o r F o r c e I +10 +2b +30 5.D Percent Change SOURCE: F. W. Dodge, McGraw-Hill, lnc 4.5 a< 2-5 19 6 9 19 7 0 S O U B C E S : S t a t e e m p l a y m e n ta g e n c i e s F e d e r a l R e s e r v eB a n k o f D a l l a s BeforeAugust 1969,no bank in the EleventhFederalReserveDistrict had a foreign branch.But beforethe end of 1969,threebrancheshad beenopened overseas,and six more were openedin 1970.Borrowingsby thesebanksin the Eurodollarmarketincreasedsharply in late 1969 and continuedhigh until aftermid-I970. But by year-end1970, regionalbank liabilities to foreign brancheshad fallen to about a fourth of the levelreachedin the early part of the year. Banks in the District did not borrow foreign funds only through their branches,however.They borrowedan evenlarger volume of funds directly from foreign banksor through brokers. Funds obtainedfrom suchsources reacheda high of about$150 million in early 1970but dwindledto a very low levelby year-end. The scarcityof depositfundsin 1969 andearly 1970alsocausedbanksin the Southwestto increasetheir borrowings DEMAND DEPOSITSAT MEMBERBANKS Eleventh Federal Reserue Oistrict lAs ot Last wednesday ot Month) Birion ooilars from domesticsources.Borrowingat the FederalReserveBank'sdiscount windowreachedabout$125 million earlyin the year,althoughsuch borrowing quickly droppedthereafter. No bank, in fact, borrowed at the window in December.Net bank borrowing in the Federalfunds market was alsolargeearlyin the year and then graduallysubsidedin the ensuing months. In addition to thesefairly conventionaldomesticsources,banks alsomadeuseof the commercialpaper market, acquiringfunds through their holding companies,affiliates,and subsidiaries. At mid-l969, when statisticson suchborrowingswerefirst gathered,there was only one bank in the District obtainingfunds in this manner.But at one point in 1970, eight bankswere borrowingfairly regularlyin the commercialpaper market. The issuanceof bank-related commercialpaper washeaviest,of course,in late 1969and in early 1970. Borrowingsreachedabout$380million in early spring,but they fell sharply after midyear,dropping to lessthan $30 million. As might be expected,nearly all of the borrowingby banksin the Eurodollar, commercialpaper,or Federal fundsmarketsor at the discount window was done by city banks. They were the banks hit hardest by depositlossesin 1969 and early 1970.But evenwith fundsfrom these sources,the flow of total lendablefunds to city bankswaslessthan to country banks.Whenthe CD marketbecame accessibleagainat midyear,city banks activelymadeuseof this sourceand the flow of lendablefunds to these bankssoonequaledthat to country banks. As a result,growthin creditwas somewhatdifterent at city and country banksduring 1970.Total loansand graduallyincreasedat investments country banksthroughoutthe first half of the year but remainedalmost unchangedat city banks- where funds weremore limited. After midyear,however,creditat both types of banksbeganto rise rapidly. The ratesof rise were aboutequal,reflecting heavyuseof the CD market bY citY banks,on the one hand, and larger inflows of other depositsto country banks.on the other. Despitedifferencesin sourcesof funds, the allocationof funds among variouskinds of assetswas remarkably similar at both typesof banks.Loan demandsat both city and country banks were fairly subduedthroughoutmost of the year, largely becauseof the reducedlevel of economicactivity' Loans outstandingat both typesof banksrosefasterin the secondhalf, however,particularly toward year-end. This improvementprobably reflected largely the greateravailability and lower cost of bank credit. F O R E I G NB O R R O W I N G S B Y M E M B E RB A N K S Elevsnth Foderal R€serve Dlstrict (/qs ot Last wednesday ol Month) Million Doilars BANK-RELATEDCOMMERCIALPAPER Eleventh Fsdsral Res€rve District Memb€r Banks (As of Last Wednesday ol Month) LOANS AND INVESTMENTS A T M E M B E RB A N K S MEMBERBANK LOANS Eleventh Fsd€ralReserve District (Aso/ Lastwednesday ot Month) Eleventh Federal Reservo District (As ot Last Wednesday of Month) Billion0ollars 1970 The inflow of funds to bankseasily surpassed the volumeneededto satisfy loan demand,however,giving city and country banksan opportunity to rebuild their liquidity positionswhich had beensubstantially eroded in 1969and early 1970.Althoughmost of the reductionin securityholdings during 1969 and early 1970 reflected liquidation of U.S. Government securities,banksrebuilt their holdings of thesesecuritiesonly moderately. On balance,mostof the buildupin bank holdingsof securities in 1970 stemmedfrom net acquisitionsof attractivelypriced municipal issues. Moreover, as liquidity positions improved,an increasingproportion of theseacquisitionswas in longer-term municipals- principally to take advantageof the relativelyhigh yields availableon theseissues. M E M B E RB A N K S E C U R I T I E S Elsventh Fsderal Rsserve District (As ot Last Wednesday ot Month) Billion Dollars Reserve Bank Developments The ability of the Bank to attract and hold competent staff improved markedly last year. Persistenttightness in regional employment markets tended to easethroughout 1970, and with the change,employee separationsslowed significantly. The rate of employee turnover for the year was 22 percent, or sharply below the level of 34 percent which held in 1969. Easier conditions in employment markets and reduced separationsenabled the Bank to build its staff to the approximate level desired. Total staff at the Bank's four offices, including all officers and permanent employees,was expanded nearly 9 percent last year. Most of the expansion was accountedfor by increasedsecurity measures,expanded efforts in the researchand data-processingfunctions, and further increasesin the volume of checks,currency, food stamps, and Government securitiesprocessedby the Bank. At year-end,there were 1,113 officers and permanent employeesat the four offices. Structural adjustmentsand regular merit and promotional advancesled to sharp increasesin averagesalaries actually paid last year. Results of the Bank's annual salary survey conducted early in the year indicated that salaries paid for comparable jobs in Dallas, Major improvements were also made in nonsalary benefitslast year. The retirement program was changed to a noncontributory plan. Group life and suryivors' insurance programs were revised.And health, disability, and death benefitswere improved. Under the new insurance program, more protection was made available to employeesduring the years when family needsand responsibilitiesare greatest.Effective January 1, a thrift plan was established,with more than 72 percent of the staff electing to participate. And a travel-accident insuranceprogram was establishedto provide protection for staff members traveling on Bank business. For severalyears, the Bank has been committed to a policy of equal opportunity in all phasesof employment and employee relations. In the past few years, however, positive action has been taken, resulting in substantial increasesin minority employment at all four Bank offices. Last year, the level of minority employment rose 20 percent. As a result, minority employment accountedfor 23 percent of the Bank's total employment at year-end, compared with 20 percent ayear earlier. The dispersalof minorities among departmentsand into higherlevel jobs also improved. El Paso. Houston. and San Antonio had risen substantiallysince a similar survey a year earlier. Acting partly on the basis of these results, the Board of Directors authorized a special salary review that resulted in averagesalary increasesof about 5 percent for most employees,effective June 1. Increasesin averagesalariesand expansion in the total staft gave rise to a substantialadvance in the annual payroll rate of the Bank. By December 31,1970, the annual salaryrate had reached the level of $8,062,000, uP sharply from $6,872,000at the end of 1969. l1 The Bank continuesits participation Communicafiep5 in the NationalAllianceof BusinessData Processing men'sprogrnmfor the employmentof Two computerconversionprograms hard-coreunemployedand, in coopera- wereinitiatedlastyearto expandthe tion with publicschoolsystems, recruits Bank'scommunications and dataseveralvocationalofhceeducation processing capabilities.One program studentseveryyear from high schools involvesconversionof the modeof with large representations of minority communications, for certaininternal groups.Other sourcesof minority purposes,from an automaticteletypeapplicantsincludethe Urban League writer switchingsystemto a new and the OpportunitiesIndustrialization computercommunications system.The Center,a federallyfinancedorganiza- otherinvolvesa major redesignof the tion training the disadvantaged. computersystemusedfor accounting Efforts of employeesat selfand researchpurposes.By increasing improvementwere further encouraged the speedand efficiencyof operations, during l97O by enlargement of the theseconversionswill allow improveBank's educationaland training ment in serviceto commercialbanks program.Under the new program, and the generalpublic. which supplements AmericanInstitute The new communicationssystem of Banking offeringswith collegeand links all 36 officesof the Federal technicalcoursesand special Reservebanksand branches,the supervisoryand management courses, Boardof Governors,and the Treasury 71 employees attendedcoursesfinanced Department.The systemis already wholly or in part by the Bank. On-the- carrying administrativemessages for all job training is alsoofferedas further offices.It is alsohandlingtransfersof encouragement to ambitiousemployees. funds and Treasurysecuritiesto all A broaderfeatureof the Bank's theseofficesexceptthe FederalReserve work in personnelwas a careful Bank of New York. And that bank is reworkingof Bank organization.The due to switch transfersof funds and Boardof Directorsand seniormanage- securitiesto the new systemduring the ment collaboratedin the development firsthalf of 1971. of a new organizational The transmission structure,the of economicand first phaseof which wasimplementedat otherdatais beingtested,and indithe start of.1971.Fundamentalto this new structureare a more direct chain of command,a more limited spanof control,and further downwarddelegation of responsibility.In eftect,the Bank will be trying to streamlineits organizationto make surethat authority and responsibilityare more directly placed. There were two official retirements during 1970.Roy E. Bohne,senior vice presidentand cashier,retired after 32 yearswith the Bank, and Herman B. Hudson,assistantgeneralauditor, retired after 45 vears. cations are that sometime before mid197l, data now being mailed or transmitted on regular low-speed terminals and lines can be switched to the new high-speedequipment. The changeover will be particularly helpful in speeding the transmissionof statistical data to the Board of Governors. There is also the possibility that the high-speed terminals might eventually be used in check-clearingoperations. Based on projected increasesin the traffic this system will need to carry, it is expected to meet all requirements for the handling of administrative messages,transfers of funds and Treasury securities,and data transmissionfor five years before a higher-capacity system is needed. Changes in the accounting-research computer system will allow the Bank to switch the system shared by these two functions from a batch-oriented arrangementto an online managementinformation system using a combined accounting-research data bank. Working with an outside consultant, the Bank's own computer conversion committee has made considerable progress toward the changeover. A number of key computer programs were redesigned last year, and the basic configuration of the new systemhas begun to take shape. The management-informationsystem will be a totally integrated control system, with digital input and output characteristics providing random and sequential accessto accounting, research, statistical, and other quantifiable data. The flexibility of the system will provide the Bank with the latest information from all departments for use in managementdecisions. Much of the data generatedwithin the Bank can be used for a number of purposes.The new data bank will further increasethe usefulnessof these data, however, by speedingreports to management.The integration of operational and researchdata. therefore. will provide the Bank with the nucleus of a practical management-information systemcomplementing other planning and control systems. The systemwill provide management a wide variety of operational, accounting, statistical,budgetary, and control reports, periodically or on demand. Eventually, data-collection terminals in the various departrnentsof the Bank will allow data to be gathered directly from the originators. These terminals will also increasethe speedof response to requestsfor information. A central computer will manipulate the data, and high-speed printers will produce statements,ledgers, and reports. The researchfunction at the Reserve banks and Board of Governors has undergone rapid expansion in recent years. Becauseresearchis vital to the essentialprocessesof central banking, continued emphasisand an increased commitment of resourcesare likely to be given to this activity in the future. During the past two years, sPecial attention has been given to the needs of the researchfunction of this Bank. Beginning about mid-1968, firm plans Spaceon the sixth floor of the building formerly occupied by the regional staff of the Federal Deposit Insurance Corporation was modified and refurbished early last year for occupancy by the researchlibrary. Upon relocation of the library to these new quarters, the vacated spaceon the seventhfloor was adapted for use by the statistical and publications and information groups. New construction on the seventhfloor also provided additional private and semiprivate office spacesfor profes- sional staff was virtually completed last year. Additions made during 1969-70 raised the economist stafi to a total of 14 persons at the end of last year, compared with only five personsat the sional staff. Three special projects drew rather heavily upon ResearchDepartment resourceslast year: redesignof the Bank's monthly BusinessReview, development of the Bank's new Annual Report, and the Bank-wide computer conversion program. All of these required substantialeffort on the part of the professionaland technical staff. end of 1968. Over the same two-year period, a net addition of nine other personswas made, comprised mainly of semiprofessionaland supporting The first issueof the redesigned BusinessReview was published in January 1971. Significantchangesincluded a new cover design,a new format for staff. Employment in the department reacheda total of 50 personson D e c e m b e 3r 1, 1 9 7 0 . A somewhat more formalized administrative structure for the departrnent was initiated last year, and additional physical spacewas occupied. Both of these needs stemmed principally from charts and tables, different typeface and columnar makeup, and a choice of new paper stock and ink color. were made to increasethe economist and supporting staff of the Research Departnent, and vigorous recruiting efforts were launched later that year. The planned expansion of the profes- expansion in the staff. Administrative changesincluded the designationor creation of five functional groups within the department. These groups are comprised of Personnel whose principal functions relate to administration, economic research, collection and processingof statistical data, publications and information, and the library. Three senior members of the economist staff were assigned certain administrative responsibilities involving direct supervisionof research projects, and one of the three was designatedto assistin the administration of departmental personnel and budset matters. Virtually all of the artistic and editorial competencerequired for the redesign of this publication was provided by departmental personnel. Development of the Bank's new Annual Report was coordinated in the ResearchDepartment. Staff of the department worked closely with senior managementand others of the Bank in developing overall content and format. Specialattentionwas given last year to the requirementsof the Research Deparfinentfor data-processing services. As a major userof statistical data, the departrnentrequiresready accessto a wide rangeof current and historicalinformation and the facility for applyingrathersophisticated computationaltechniques to thesedata. Therefore,definitionand implementation of researchneedsweighed rather heavily in the Bank's overall computerconversioneffort. Professionaland technicalstaff of the departmentparticipatedactively with othersin the Bank in this conversion undertaking.The capability of the departrnentto utilize the Bank's expandeddata-processing facilities more extensivelyand effectivelywas greatlyincreasedlast year by addition to the researchstaff of a professional econometricianand two programmers. A major portion of the departrnent's total activitiesduring 1970was comprisedof regularlyrecurringassignments.Economistsresearchedand wrote the 15 articlespublishedin the w Business Review. Three of these reflected studies that are of special interest to the region: industrial development on the Mexican border, growth of the plastics industry in the Southwest, and electric utilities in Texas. The departrnent developed a large number of research reports and memoranda for use by directors, senior management, and others in the Bank. Chart shows covering current economic and financial developments were prepared from time to time and presented on the occasion of meetings of the Board of Directors and seminarsheld for District commercial bankers. As usual, the departrnent provided a large volume of regional statistical data to the Board of Governors and made special surveys and tabulations as requestedby the Board. With an expanded professional staff in the Research Depar8nent, efforts were made last year to bring economist talent to bear increasinglyin two areas. First, with respect to bank merger and bank holding company cases,steps were taken to train and allocate additional economist personnelfor this activity. With the Bank's total caseload expected to increase, research eftorts required in the assessmentof market, competitive, and other factors are also expected to increase.Second,economists were encouragedlast year to devote a greater measureof their total research attention and effort to the critically important problems involved in the formulation, execution, and appraisal of monetary policy. It should also be noted that a number of departmental economistscompleted researchlast year the results of which were published, or are scheduledto be published, in professionaleconomic journals. The public service and information activities of the Research Department grew further last year. With an expanded staff of economists, the departrnent handled a large number of public speaking assignmentsinvolving contact with educational, civic, professional, governmental, business, and banking groups within the region. In the spring, the Bank sponsored its eighth Central Banking Seminar for 30 teachers of money and banking from District colleges and universities, and the deparfinental staff was heavily involved in the planning and execution of this continuing biennial program. The department serviced a large number of public requests for statistical data and other information pertaining to a wide range of economic and financial topics. At the end of 1970, regular mailings of the Business Review totaled around 9,500 copies, a gain of about 12percent from the year-earlier level. In addition to regular mailings, almost 10,400 copies of this publication were supplied in responseto special requests. Regular mailings of the Farm and Ranch Bulletin rose to 6,800 copies at the year-end, up somewhatmore than 1 percent for the year. The department continued to supply copies of its Regional Economic Facls (published in 1967) on request.Distribution of other publications included 900 copies of various topical booklets published by other Reserve banks and ngarly 1,800 copies of The Federal Reserve System - pllvpesss and Functions published by the Board of Governors. Regulations A significantpart of the Bank's regulationsfunction was assignedto a new deparfrnentearly last year. Formation of the new RegulationsDepartment reflectsa substantialincreasein the Bank's activity in this areaof responsibility.There are two principal reasonsfor the increase.First, Congress has broadenedthe regulatoryresponsibilitiesof the FederalReserveSystem significantlyin recentyears.Second, the businessand financialcommunity in the Southwesthasbecomeincreasingly sophisticated. A notableexampleof the additional responsibilitiesCongresshas assigned to the FederalReserveSystemis the 1968Truth in LendingAct. This act directedthe Systemto draft implementing regulationsaffectingalmostevery businessextendingconsumercredit. More recently,Congressgavethe Systemsupervisoryauthority over the nation'ssome1,200 one-bankholding companies. Other recentenactments- to cite only a few - have expandedthe System'smargin requirementsinto over-the-countersecuritiestrading, directedthe Systemto write regulations regardingthe issuanceof unsolicited credit cards,and authorizedthe System to regulatememberbank advertising relatingto paymentof intereston deposits.Each of thesenew delegations of authority has requireda commifrnent of time and personnelat the Board of Governorsand the FederalReserve banks. As businessand financialactivity has becomemore sophisticatedin the Southwest,the Bank has beenbrought into fieldsof regulationthat had not beena major concernin this part of the countrybefore.Prior to August 1969, for example,no bank in the Eleventh District had any overseasbranches. And before1968,no bank in the District had investnentsin overseas banksor any other direct investnent in internationalbanking.Sincethen, banksin the District have openednine overseasbranches,two have acquired stock in London banks,and four have investedin Edge Act corporations (federallycharteredcorporationsorganized to engagein foreign banking and finance).All theseactivitieshavecome within the regulatoryjurisdiction of the FederalReserveSystem. A similar situationhas occurred regardingbank holding companies.The FederalReserveSystemhas had supervisory jurisdiction over multibank holding companiessince 1956,but therewas limited activity in this form of bank ownershipin the Southwest until recently.At the closeof 1.969,for example,therewere only four registeredmultibank holding companies headquarteredin the EleventhDistrict. Three of thesewere in Texas.All three had beenbrought under the Bank Holding CompanyAct with the enactment of legislation, and none of the threehad specificallyappliedto become bank holding companies.The fourth holding company,in New Mexico, was the resultof a 1969 application approvedby the Board of Governors. Last year, however,saw the filing of the first applicationto form a new multibank holding companyin Texas and the first four applicationsto expand existingbank holding companiesin the EleventhDistrict - three from New Mexico and one from Texas.The new bank holding companyin Texas was approvedby the Board of Governorson October22, 1970,and went into operationon December10. All four applicationsto acquirenew banks were approved. Concurrent with the growth of interestin multibankholdingcompanies, the nationwidetrend toward the formation of one-bankholding companies was also seenin the District. At the closeof 1970, Congressenactedthe Bank Holding CompanyAct Amendmentsof 1970. sometimesreferredto as the one-bankholding company legislation.Theseamendmentsbrought one-bankholding companiesunder the supervisoryjurisdiction of the Federal ReserveSystemalongwith multibank holding companies.At that time, there were roughly 100 one-bankholding companiesin the District. Facedwith existingand potential increasesin regulatoryactivity, managementof the Bank felt that a Regulations Departmentwould ofier two First, it would centralize advantages. much of the Bank's regulatorywork in one group. Second,by allowingthis group to concentrateon regulations,the Bank would be provideda higher level of expertisein this complexarea. Although new to the Bank, this arrangementis not a uniquesolution. At leasttwo other FederalReserve bankshave taken the samegeneral approach,forming regulationsdepartmentsstaffedby examinationand legal personnel.To someextent,the Board of Governorshas alsotaken the same approachin handlingmargin regulations and truth-inJendingmatters. The new deparfrnentwas charged initially with the administrationof sevenFederalReserveregulationsG, T, and U (marginrequirements), K and M (internationalbanking activities), Q (intereston deposits),and Z (truth in lending).Near the end of the year, an eighth regulation,Y (bank holdingcompanies),was added. The department'sday-to-dayactivities are varied. One of its functionsis the processing- in closecooperation with the staft of the Board of Governon - of varioustypesof applications that must be made under Federal Reserveregulations.Theseinclude applicationsto becomea holding company and for an existingbank holding companyto acquireadditional subsidiaries.Also, various applications in internationalbankingmust be processed,suchas applicationsfor a memberbank to establishan overseas branchor purchasethe stockof a foreign bank. A typical applicationinvolvespreliminary conferenceswith the applicant; considerationof banking,competitive, financial,and other factors (a task calling for closework with the Examination,Legal, and Research deparfinents);and the preparation of a full report and recommendationto the Board of Governors. The eight regulationsadministered through the departmentimposea numberof reporting and registration requirementson banksand other firms. Under RegulationG, for instance, lendersof securitycredit other than banks and broker-dealersmust register with the Board of Governorsand file periodic reports.Bank holding companiesmust also file annualreports, which the new departrnentreviewsto determinethe company'scurrent financial position and whetherits operations are still in accordwith the law. The deparnnent works closely with the Bank's Examination Deparunent and the other two federal bank supervisory agencies- the Comptroller of the Currency and FDIC - in connection with violations of Federal Reserve regulations uncovered during ordinary bank examinations.Inspection programs are also required outside banking. The Regulations Departrnent As with other of the Bank's activities, the regulationsfield is seldomstatic. Almost every sessionof Congress changesthe regulatoryresponsibilities of the FederalReserveSystem- sometimesradically. As the nation's regulatorystructurebecomesmore complex- and experiencesuggests this is the long-termtrend - the FederalReserveSystem'sregulatory role is very likely to becomeincreasperforms some of these inspections, ingly complexand diverse.Through the and the Examination Department pernew RegulationsDepartment,the Bank forms others. This year, for example, lendersof security credit were inspected expectsto keep pacewith these developmentsand to meet its responfor the first time for compliance with sibilitiesin this area. Regulation G. The District's two Edge Act corporations were also inspected for the first time. One of the deparfinent's most important functions is simply to serve as the regional expert on the various regulations it supervises. Questions about these regulations arise frequently and are referred to the Regulations Deparfinent by banks, businessmen, and attorneys. In addition, the department provides close liaison with regional offices of other agenciescharged with the enforcement of Federal Reserve regulations. such as the New Orleans Regional Office of the Federal Trade Commission (truth in lending) and the Regional Administrator of National Banks (Regulations Q, U, and Z). The department can often answer inquiries on the basis of previous Board of Governors' decisions.If a novel question arises, it can refer the matter to the Board in Washington for an opinion. In that case,the Regulations Department works closely with the staff of the Board of Governors to make sure the question is fully and fairly presented to the Board. Guardsat poststhroughoutthe Bank can make immediatecontactwith the brancheshasbeensteadilystrengthcontrol room by either telephoneor enedin recentyears.In line with a tamperproofalarms.The control room continuingreviewof its securityneeds can alwaysreachguard posts,individuand procedures,the Bank has enlarged, ally or collectively,through special phones. reorganized,and generallyupgraded its guard force, modifiedentrancesto Teller stationsand other places prevent forced entry, wheremoneyand securitiesare handled buildingsto installedexterior lighting, adoptednew are equippedwith holdup alarms weapons,and initiated an intensive connectedto the control room by elecprogram guards. for training tronically supervisedcircuits that Last year, installationof a new elec- cannotbe broken without triggeringthe alarm. A similarly protectedcircuit tronic securitysystemwascompleted connectsthe control room with an at the Dallas office and work on a alarm in the Dallas police station,and similar systemwas startedat the HoustonBranch.Plansfor sucha specialphonesgive the sergeantdirect systemat the SanAntonio Branch were connectionswith the police and fire almostcompleted,and similar plansfor departments,the FBI, and Secret the El PasoBranch were started. Service.Fire alarmsare within a few feet of nearly everyemployee,and a The nervecenterof this systemis a panel in the control room indicatesthe bulletproof control room from which location of any fire alarm set oft in the duty sergeantsupervisesthe guard the building. force and, if necessary,could take almostcompletechargeof the building's security.Working at a consoleof electronicdisplaysand switches,he has continuouscontrol of all entrances to the building and instantcontactwith areaswherevaluablesare handledincludingBank trucks movingvaluables on the streets. Closed-circuittelevision,for example, givesthe sergeanta clear view of all entrancesto the building, and through remote-controldevicesat the console, he can closeand lock outsidedoors. Also by television,he monitors security areaswheretellersdeal with commercial bank messengers and armoredtruck drivers and locationswhere trucks are loadedand unloaded.And after hours.he monitorscertain doors within the building. Protection Protectionof theBankandits New night-watchmanreporting stationsare arrangedso that guards touring the Bank after hours haveto go into every area.Theseguardscan contactthe sergeantimmediatelyby portableradio. A displaypanelin the control room reportsa guard'sprogress as he makeshis roundsfrom station to stationaccordingto a prearranged schedulethat is changedoften. The systemis built to continue functioningdespiteany outsideinterference.Not only is the control room bulletproof and the net of alarms tamperproof,but the systemis equipped with emergencypower sourcesthat would allow the sergeantto continue his operationsevenif outsideelectrical serviceswere interrupted. In conjunctionwith its useof modern protectionproceduresand equipment, the Bank exercisesstrict control over visitors to the building. This program of visitor control is observedat all four offices.Inasmuchas officersand employeesregularlywear identification badgeswhen on Bank premises,visitors are alsoprovidedwith a temPorary identificationbadgewhen admittedto the building. Job applicantsand certain other visitors are permitted access only to specifiedareas. Branch Highlights The three branchesof the Federal ReserveBank of Dallas,locatedin Houston,SanAntonio, and El Paso, moved basicallyin tandemwith the Head Office as System-wideprojects in operations,research,and regulations impactedon their staff and official efforts.Meanwhile,local developments createdspecialsituationsat eachof the branches. Increasedwork loadsrequiredadditional staffingin variousdeparfinents, and changesin commercialbank handlingof transit itemsbrought renewedeffortsto meet checkprocessing on a timely and reducedfloat basis. Not all theseobjectiveswere reached, especiallyin periodswhen transportation was interrupted,as in the caseof SanAntonio clearingsof checksafter Hurricane Celia struck the Corpus Christi area.Additional problemswith routine mailingsof checksbrought new emphasison courierdeliveries,and therewassomeexpansionof the courierserviceduring 1970. The brancheswere heavily involved in preparationsfor securityconstruction. In the caseof Houston.a contract was signedand constructionstarted. Plansfor similar work at SanAntonio were developed,and beginningefforts were undertakenat El Paso. Personnelturnover declinedsharply at all officesof the FederalReserve Bank of Dallas,though at markedly differing rates.The Houston Branch had the most difficulty in reducing turnover sincethe labor situationin that large industrial city did not ease as quickly or to the sameextent asin the other cities. AII branchesmade significantprogressin hiring minorities and exceeded the 1970goalof at leasta lO-percentincreasein such employment.All officesmadeprogress toward the proportionateemployment Board of Directors. El Paso Branch Left to Right: Allan B, Bowman, C. J. Kelly, Archie B. Scott, Gordon W. Foster (Chairman for 1970), Fredric W. Reed, Joseph M. Ray, Sam D. Young, Ir., and Joe B. Sisler. of minorities againstthe ratio of such minoritiesto total population. Each branch continuedto study its internal organizationas a part of the whole reorganizationanalysisof District offices.While Head Office reorganizationstudieswere completed and partially implementedby the end of the year, the branch studieswill continueinto 1971for possible implementationthis year.As the Bank's work shiftsmore toward research. examination, regulation, and other staff functions, there will need to be continuing eftorts to modernize the organizational structure of the Head Office and branches. The emphasis on communications and computer conversion at the Dallas office was reflected at the branches with the installation of terminals for communications. Although the conversion of computer proceduresand equipment focused on the Head Office in 1970, analysisof branch terminal accessto the main computer will be given greater attention in 1971. Also, basic studies of check processingby more sophisticatedcomputers will be undertaken at all offices. The three branchescontinued their participation in the setting of Bankwide goals and targets.For each selected goal or target, the branches provided responsesand generally accomplishedthe changesdesired. Board of Directors, Houston Branch Left to Right: A. G. McNeese,Jr., Henry B. ClaY, John E. Whitmore, Geo. T. Morse, Jr. (Chairmanfor 1970and 1971), J. L. Cook, R. M. Buckley,W.G.Thornell, and M. SteeleWright, Jr. Board of Directors, San Antonio Branch Left to Right: Lloyd M. Knowlton, Ray M. Keck, Jr., Tom C. Frost, Jr., Francis B. May (Chairman for 1970), Carl H. Moore, W. A. Belcher,W. O. Roberson, and JamesT. Denton. Jr. Directors Federal Reserve Bank of Dallas El Paso Branch Chas.F. Jones JosephM. Ray (Chairman ond Federal ReserveAgent), Vice Chainnan of the Board, Huntble Oil & Refining Company, Houston, Texas (Chairman), H. Y. Benedict Prolessor of Political Science, The University of Texas at El Paso. El Paso. Texas Allan B. Bowman Philip G. Hoffman (D eputy Chairman), President, University ol Houston, Houston, Texas J. V. Kelly President,The PeoplesNational Bank of Belton, Belton, Texas Murray Kyger Chairman ol the Board, The First National Bank ol Fort Worth, Fort Worth. Texas John Lawrence Chairman of the Board, Dresser Industries, lnc., Dallas, Texas Carl D. Newton Chairman ol the Board, Fox-Stanley Photo Products, Inc., San Antonio, Texas John E. Whitmore Chairman of the Board, Texas Contmerce Bonk Nationol Association. Houston, Texas M. SteeleWright, Jr. Chairnan ol the Board, TexasFarm ProductsCompany, President and General Manager, Banner Mining Company, Tucson, Arizona Nacogdoches, Texas C. J. Kelly San Antonio Branch President,The First National Bank ol Midland, Midland, Texas W. A. Belcher Herbert M. Schwartz President,Popular Dry Goods Co., Inc,, El Paso, Texas Archie B. Scott President,The Security State Bank of Pecos, Texas Ioe B. Sisler President, The Clovis National Bank, Clovis, New Mexico (Chairman), Veterinarianand Rancher, Brackettville,Texas James T. Denton, Jr. Chairman ol the Board and Chiel Executive Officer, Corpus Christi Bank and Trust, Corpus Christi, Texas Tom C. Frost, Jr. President, The Frost National Bank ol San Antonio, San Antonio, Texas Houston Branch Ray M. Keck, Jr. President, Union National Bank ol Laredo, Laredo, Texas A. W. Riter, Jr. Pre.rident,The PeoplesNational Bank of Tyler, Tyler, Texas Geo. T. Morse, Jr. (Chairman), Vice Chairman of the Board and Chiel OperatingOfficer, Peden Industries, lnc., Houston, Texas Irving A. Mathews President,Frost Bros., Inc., San Antonio, Texas Hugh F. Steen President, El Paso Natural Gas Company, El Paso, Texas R. M. Buckley Pr esident and D irector, Eastex I ncorporated, Silsbee, T exas C. A. Tatum, Jr. President and Chiel Executive Officer, Texas Utilities Company, Dallas, Texas Henry B. Clay President, First Bank & Trust, Bryan, Texas Francis B. May Professor of Business Statisticsand. Consulting Statistician to the Bureau ol BusinessResearch, The University ol Texas, Austin, Texas W. O. Roberson President.First National Bank at B row nsville, B row nsville, T exas Kline McGee Chairman ol the Board and Chiel Executive Officer,SouthernNational Bank ol Houston, Houston, Texas Federal Advisory Council Member W. G. Thornell Chairman ol the Board and President, The First National Bank of Port Arthur. Port Arthur, Texas John E. Gray Chairman of the Board and Chief Executive Officer, First Security National Bank ol Beaumont, Beaumont, Texas Board of Directors. Federal Reserve Bank of Dallas Left to Right: J. V. Kelly, A. W. Riter, Jr., Murray Kyger, Philip G. Hoffman, Arthur F. Burns (Chairman, Board of Governors), Carl J. Thomsen (Chairman for 1970), Chas. F. Jones (Deputy Chairman for 1970), Carl D. Newton, Hugh F. Steen, and C. A. Tatum, Jr. Officers FederalReserveBank of Dallas P. E. Coldwell, EI Paso Branch President Arthur H. Lang, GeneralAuditor Fredric W. Reed, VicePresidentin Charge T. W. Plant, First VicePresident GeorgeF. Rudy, GeneralCounsel Forrest E. Coleman, Cashier Robert H. Boykin, GeorgeC. Cochran,III, Senior Vice President and Secretary of the Board Assistant Vice President, Assistant Counsel, and Assistant Secretary of the Board ThomasH. Robertson, AssistantCashier James L. Cauthen, Senior Vice President and Controller Richard D. Ingram, AssistantVice President J. L. Cook, Senior Vice President Harry E. Robinson,Jr., AssistantVicePresident Tony J. Salvaggio, Senior Vice President and Cashier T. E. Spreng, AssistantVicePresident Leon W. Cowan, Vice President E. A. Thaxton,Jr., AssistantVicePresident Ralph T. Green, Vice President JamesO. Russell, Chiel Examiner Carl H. Moore, Vice President SidneyJ. Alexander,Jr., AssistantCashier James A, Parker, Vice President Carroll D. Blake, Bank RelationsOfficer W. M. Pritchett, Vice President JesseD. Sanders, AssistantCashier Fredric W. Reed, Vice President Robert Smith, III, Public Inlormation Officerand AssistantSecretaryol the Board Thomas R. Sullivan, Vice President C. L. Vick, AssistantCashier E. W. Vorlop, VicePresident Robert A. Brown, A ssistantGeneral A uditor Houston Branch J. L. Cook, SeniorVicePresidentin Charge RascoR. Story, Cashier J. Z. Rowe, AssistantVicePresident John N. Ainsworth, AssistantCashier R. J. Schoenhoff, AssistantCashier San Antonio Branch Carl H. Moore, VicePresidentin Charge FrederickJ. Schmid, Cashier ThomasC. Cole, AssistantCashier Robert W. Schultz, AssistantCashier 2l FederalReserveBank of Dallas Volume of Operations Head Office and Branches Combined Amount Handled Number of PiecesHandledr 1970 Discounts and advances .... 452 Currencyreceivedand counted 225,5661981 Coin receivedand counted2. . . 522,4551921 1969 1969 1970 4,157,321,490 905 215,890,481 465,080,660 218611657r4l2 35,692,703 12,412,349 420,288,521 L1A03,777,595 11,941,019,564 348,999,806 320,886,305 1,637,600,100 57,946,178 $ 1,583,493,100 47,833,97r Checks handled: U.S. Government checks 39,335,538 Postal money orders 12,611,075 All otherg 448,L74r773 185,117,568,750 140,684,720,248 140,9041670 126,56r,075 295,0571995 280,091,107 14,9E4A76,388 15,147,789,720 629,512r7721594 471,632,91.1,806 Collection items handled: U.S. Governmentcouponspaid . . . . . . All other fssues,redemptions,and exchanges of U.S. Governmentsecurities. . Transfersof funds Food stampsredeemed 359,388 757,422 11,485,780 4471665 46,134,152 t Packaged items handled as a single item are counted as one piece. 'Excludes coins handled in separating operation. 8Exclusive of checks drawn on the F.R. Banks. 325,197 718,234 1r,831,772 404,830 It,982,934 70,077,5L6 1.6,138,91.7 Statement of Condition FederalReserveBank of Dallas ASSETS Dec.31, 1970 Goldcertificateaccount Specialdrawing rights certificateaccount... .. FederalReservenotesof other Banks Other cash Discountsand advances .......$ !98,627,816 14,000,000 40,393r552 14,152,818 Dec.31,1969 $ 323,829,293 28,808,75'0 9,355,710 17,350,000 U.S. Governmentsecurities: Bills 11176,026,000 957,783,000 Certificates Notes Bonds 1,505,374,000 133,176,000 1,350,352,000 150,402,000 2181415761000 2,458,537,000 Total U.S. Governmentsecurities Totalloansandsecurities.... Cash items in processof collection Bankpremises... Other assets TOTAL ASSETS .... 2 1 8 1 4 1 5 7 6 1 0 0 0 2,475,887,0O0 874364,484 7,912,871 39,0821005 .$4,003,109,546 713,590,280 9,24t,229 130,812,359 $3,689,514,620 LIABILITIES FederalReservenotesin actualcirculation.. . .g119451564140l $1,746,649,895 Deposits: Member bank - reseryeaccounts U.S. Treasurer- generalaccount Foreign Other Totaldeposits... Deferredavailabilitvcashitems Other liabilities TOTALLIABILITIES .... 1,257,292,413 t,222,308,849 81.,124,900 56,943,345 7,000,000 7,410,000 14,676,966 13,485,313 113351912r724 r,324,329,06I 617A87,202 25,855,519 ....3,924,819,846 5t9,426,8A6 24,409,458 3,6t4,915,220 CAPITAL ACCOI.INTS Capitalpaid in Surplus TOTAL CAPITAL ACCOT.]NTS TOTAL LIABILITIES AND CAPITAL ACCOUNTS. 39,1441850 39,144,E50 37,349,700 37,349,700 78,289,700 74,699,400 M,003,109,546 $3,689,514,620 23 Earningsand Expenses FederalReserveBank of Dallas Discountsandadvances.... U.S. Governmentsecurities. . . Foreign currencies All other TOTAL CURRENT EARNINGS 1969 1970 CURRENT EARNINGS ..........$ 2,263,362 1631444rL45 2r732,476 57,764 168497,747 $ 3,116,739 t34,495,990 g 6,941,53 70,455 I44,624,722 CURRENT EXPENSES Current operatingexpenses Assessmentfor expensesof Board of Governors . . . . Federal Reservecurrency: Original cost,including shippingcharges Cost of redemption,including shippingcharges Total . Lessreimbursementfor certain fiscal agencyand other expenses NET EXPENSES . !516301521 1,186,300 13,322,637 852,600 1,138,809 26,771 1 , 1 9 3 , 15 1 20,695 15,389,433 17,982,401 1,024,945 960,534 16,957,456 14,428,999 151,540,291 130,195,923 PROFIT AND LOSS Current net earnings Additions to current net earnings: Profit on salesof U.S. Governmentsecurities(net) All other Total additions . . 363,538 213,433 342,92r 576,97I 342,92I Deductionsfrom current net earnings: Loss on salesof U.S. Governmentsecurities(net) All other Total deductions . Netadditions.... Net earningsbefore dividendsand paymentsto U.S. Treasury Dividends paid . Paymentsto U.S.Treasury(intereston F.R. notes) Transferredto surplus Surplus,January1 . .. . Surplus,December31 . .. 27,496 255,237 4,304 27,496 259,541. 549,475 152,089,766 2,3041631 147,989,985 1,795,L50 37,349,700 .$ 39,1441850 83,380 130,279,203 2,205,326 126,499,927 1,593,950 35,765,750 $ 37,349,700