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FederalReserveBank
of Dallas

Annual Report
1970

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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