Full text of Annual Report of the Federal Reserve Bank of Dallas : Annual Report to the Board of Directors (1949)

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Federal Reserve Bank
of Dallas
Annual Report
to the
Board of Directors
I

•
Submitted by

R. R. GILBERT, President
February 16, 19 50

CONFIDENTIAL

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

Federal Reserve Bank
of Dallas
Annual Report
to the
Board of Directors

•
Submitted by

R. R. GILBERT, President
February 16, 19 50

CONFIDENTIAL

CONTENTS
Page

Review of Developments in 1949.................. ............ ............
Weekly R~po:ting Member Banks- Eleventh Federal Reserve D1stnct .... ................. ...... .... .......................................
Weekly Reporting Member Banks- United States ... .........
Treasury Financing ......................... .................................. .....
Government Securities Market.. ............. ....... ..... ...................
Member Bank Reserves and Related Factors. ......... .......... ..
Internal Operations ............... ..... .................................. ........ ..
Research Activities ...................... ........... .. .. .. .. .... .. .. .... .. .. .. .
Bank and Public Relations Activities................................
Legal Activities ..................................................................
Auditing Activities ............ ........ ................ ....... .......... .. .. ...
Personnel Activities ............. .... .............. ...........................
Retirement System ................... . ............. ... ......... .......... .....
Bank Examinations ... .. ... .. .. ... ... ... .. ... .. ... .. .. .... .. ... ..... ... .. ... .. .
Regulation of Consumer Instalment Credit................ ..... .
Bank Failures .... ...... ............................. .... ........ ........ ......... ..
Membership in the Federal Reserve System ....................
Changes in Capital Stock............................ .. ......................
Nonmember Banks ............. ... ... .............................. ...........
Par Banks ......... ...................... .................................... ... ......
New Bank Organizations ....................................................
Federal Reserve Note Circulation ........ ............................
Deposits of Member Banks ................................................
Member Bank Reserve Balances ........................................
Federal Reserve Credit ......................................................
Cash Department Operations................... .......... ...............
Check Collections ................................... .............. .............
Check Routing Symbol Program.. ....................................
Fiscal Agency Operations.... ... ...........................................
Custodian Activities .......... ......... ......... ....... .. ...... ............ ...
Cuisine Service .... ... ...... ... ......... .......... .... ............... ......... ...
Federal Reserve Bank Budget.. ..........................................

1

6
9
11
14

17
20
20
23
26
26
27
31
32
34
34
35
36
36
37
37
38
39
40
41

43
46
48
49

51
52
53

REVIEW OF DEVELOPMENTS IN 1949
Business and industrial developments in the United States
and the Eleventh Federal Reserve District followed a generally similar pattern during 1949 as the first sustained postwar
period of economic readjustment extended from January into
August and then was succeeded by 4 months of recovery, with
most major indexes ending the year at very favorable levels.
The readjustment of 1949 did not appear suddenly, for it
was foreshadowed by events of the last quarter of 1948. Viewing developments retrospectively, it appears that major factors underlying the readjustment included the "catching up"
of production with demand for virtually all types of goods,
the attempt on the part of businessmen to prevent-and in
many cases to correct-the development of unbalanced and
excessive inventories, the return of more intensive competition in the sale of goods, and the unfavorable effect upon the
purchasing power of the general public resulting from the
substantial price increases of the preceding year.
In general, certain facts stand out significantly in connection with the events of 1949. The readjustment was gradual
and on the whole very moderate, although at times sharp
declines occurred, particularly in industrial production and
in employment in localized areas outside of this District.
Businessmen and manufacturers observed more restrictive
policies than consumers, a condition which was reflected in
much sharper declines in industrial production and business
inventories and purchases than in consumer expenditures.
Businessmen and industrialists, while observing cautiously
prudent policies, also exhibited a notable degree of economic
understanding as efforts were made successfully to avoid large
cutbacks in production, substantial wage reductions, and
major layoffs of employees. Finally, the entire economy
showed notable underlying strength as declines in activity
were resisted strongly and, during the last quarter of the
year, were reversed. Whether this first postwar readjustment
has been completed is an unanswered question, but it is a
fact that its impact during I 949 was weathered with remarkable success and a minimum of unfavorable results.

1

Total production of the Nation's industrial system declined
steadily and sharply during the first 7 months of the year, the
decline extending from 191 percent of the 1935-39 average
in January to 161 percent in July. The reduction in production was most evident in the case of durable goods, as virtually
all types of these products were produced in declining volume
with the exception of automobiles. However, during the last
5 months of the year, as business purchasers returned to the
market in increasing numbers to replenish stocks of goods
which had been contracted too sharply, production rose, the
recovery being interrupted only during October when major
labor difficulties in the steel and coal industries occurred. By
the end of the year the index of industrial production had
reached 178 per cent of the prewar base, while the monthly
average during the year was 175 percent as contrasted with
192 percent during 1948.
A natural accompaniment to the decline which occurred
in industrial production was an increase in unemployment
and a lower level of employment during most of the months
of 1949 than prevailed during the corresponding months of
the preceding year. Although unemployment increased and
the normal annual increment to the labor force was not fully
absorbed, at no time during the year did unemployment
become a national problem. Maximum unemployment for
the year- approximately 4,100,000- was reached in July,
partly due to widespread vacations in industry; during the
last 5 months of the year, however, a gradual decline in unemployment occurred as business and industrial activity
showed revival. In December, unemployment was approximately 3,500,000, as compared with somewhat less than
2,000,000 in the same month of 1948.
Wholesale prices and the cost of living continued to move
downward moderately during the year in response to the
much more competitive business situation and the adequate
supply of virtually all types of goods. The decline in wholesale prices during 1949 amounted to about 5.7 percent but
was approximately 11 percent from the postwar peak reached
in August 1948. The decline in the cost of living was somewhat more moderate, amounting to approximately 2 percent
during 1949 and about 4 percent from the postwar peak also

2

reached in mid-August of the preceding year. In general,
largest declines were reported for farm products sold at wholesale and for apparel and housefurnishings sold at the retail
level. The decline in food prices at retail was very moderate.
Likewise indicating the moderateness of the decline in
economic activity which occurred during the year, personal
income payments to individuals moved downward only about
2.8 percent, as income payments at the end of the year on an
annual basis were running at about $210,000,000,000 in contrast with approximately $216,000,000,000 in January 1949.
Consumers maintained their expenditures at a more or less
constant level during 1949, the amount being estimated on
an annual basis at about $178,000,000,000. That sum is less
than a half billion dollars under the amount reported for
the preceding year. In addition to the strength supplied to
the economy by the strong, more or less constant level of
consumer expenditures, a high level of expenditures for new
plant and equipment estimated in 1949 at almost $18,000,000,000 and new construction of about $1,600,000,000
monthly average during the year were strong supporting
factors.
In the Eleventh District perhaps the most important developments in economic activity occurred in connection with
petroleum and agriculture. Other developments of interest
included a high level of construction activity, a new record
in nonagricultural employment, and generally favorable conditions in retail trade, accompanied by an improvement in
the inventory situation and by a growth in the use of consumer credit. These various sources of income to the people
of the Southwest combined to produce total income payments to individuals in the five states in this District of perhaps $15,300,000,000, approximately the amount reported
for 1948.
During 1949 adjustment of the production of crude petroleum to consumer demand was met largely by reducing
allowable production, particularly in Texas. Consequently,
stocks of crude oil and major petroleum products fluctuated
within a very narrow range, in contrast with developments
during the preceding year when inventory accumulation had

8

occurred. Moreover, the price of crude oil in the District
remained stable during the year, largely due to the adjustment of production to market requirements.
Petroleum production in this District during 1949 totaled
approximately 831,000,000 barrels, or about 150,000,000 barrels less than the amount produced during 1948. Since the
total production for the United States declined from approximately 2,000,000,000 barrels during 1948 to 1,825,000,000
barrels in 1949, it is evident that the brunt of the cutback
in production was borne by producers in the Eleventh District. Crude oil runs to stills in the District also declined
during 1949, amounting to about 583,000,000 barrels as
compared with 632,000,000 barrels in the preceding year.
Again, as was the case with regard to production, virtually
the entire decline in petroleum refining occurred in this
District.
As a result of unusually favorable weather conditions,
large acreages, and improvements in cultural practices, agriculture in the District produced a record volume of crops.
Production of cotton-the most valuable crop produced in
the District-amounted to 7,925,000 bales, or more than
3,000,000 bales in excess of production in the preceding year.
Other crops produced in larger volume than in 1948 included
corn, wheat, oats, and sorghum grains. On the other hand,
rice, peanuts, citrus fruits, and pecans were among the important crops showing lower production.
Reflecting the unusually favorable volume of production,
most of which moved to markets or into government loans at
favorable prices, cash receipts from farm marketings in the
states in the Eleventh District equaled or possibly even exceeded slightly the $3,400,000,000 reported in 1948. On the
whole, however, it is reported that the 1949 agricultural production was relatively expensive, due to high farm wages and
other costs. Consequently, although figures are not avaliable,
the net income to the farmers of the area probably was not
as favorable as might be indicated by gross receipts.
Livestock. producers of the area also experienced a very
good year in 1949. Favorable range and pasture conditions,

4

good quality of stock, adequate feed supplies at somewhat
lower prices, and relatively favorable livestock prices throughout the year contributed to the profitable developments. The
volume of livestock marketed in the area in 1949 was considerably less than during the preceding year. For instance,
combined receipts of ·cattle and hogs at the Fort Worth and
San Antonio markets were down 21 percent each, while calf
receipts were off 31 percent and 42 percent fewer sheep and
lambs reached these markets. It is estimated that the value
of livestock production in the five states in the District during 1949 may have approximated $1,600,000,000.
During the first half of 1949 construction activity declined
rather sharply, in conformance with the general decline in
business activity that accompanied the economic readjustments of that period. Subsequently, however, construction
activity recovered to a very high level, with the consequence
that for the year as a whole the value of construction contracts
awarded in the District amounted to about $757,000,000, or
only about $25,000,000 less than the amount reported in the
preceding year. Residential construction awards during 1949
approximated $300,000,000 in the District and exceeded the
amount of the previous year, while all other types of construction ran under the 1948 total. During the last half of
the year the high level of construction was largely the result
of strong activity in the residential field financed by adequate
supplies of mortgage money under F. H. A. and veteran loans.
Year-end strength of construction activity appears likely to
provide strong momentum for the industry well into 1950.
Nonagricultural employment in the District reached a
new peak in December 1949 at a level about 2 percent higher
than the comparable month in 1948. Following a substantial
decline in nonagricultural employment in January and February of 1949-largely seasonal in character-employment
moved upward during most of the remaining months. Manufacturing employment ended 1949 fractionally higher than a
year earlier, while gains were reported also in government,
trade, and other business enterprises. Only construction employment was off from the level of the preceding year.
Department store sales in the District declined moderately
m 1949 for the first time in 16 years. The dollar volume of

5

sales at department stores in the District was about 5 percent
less than in the peak year of 1948 but, nevertheless, exceeded
by about 3 percent the volume of sales reported in 1947.
The decline in department store sales in the District was
approximately the same as reflected in national figures. The
trend of sales at department stores followed rather closely
the trend of general business activity and was marked by a
gradual, moderate decline during the first 7 months of the
year, followed by a rather sharp recovery during the last
quarter. Sales for the year culminated in a record dollar
volume in December, a development that is quite impressive
when it is considered that prices had undergone some decline.
An outstanding development in department store trade
during 1949 was the substantial expansion in instalment sales,
particularly during the last half of the year following the
expiration of Regulation W. Most terms of credit were notably diluted as lower down-payment requirements were established and longer pay-out periods were permitted. During the year a slowing down in collections developed, although
it did not reach serious proportions; at the same time, an
increase in outstanding instalment accounts occurred, largely
reflecting the slower collections and the easier credit terms
being offered. At the end of the year instalment accounts
outstanding at stores in this District were 24 percent higher
than a year earlier, a larger increase than the 19 percent rise
in instalment accounts outstanding in department stores of
the Nation.

WEEKLY REPORTING MEMBER BANKS
ELEVENTH FEDERAL RESERVE DISTRICT
During 1949 principal asset and liability accounts of the
weekly reporting member banks in this District and also in
the United States showed a close responsiveness to changes in
business trends and central banking policies. Until midsummer, total loans, as well as commercial, industrial, and agricultural loans, declined steadily and somewhat more than
probably can be ascribed entirely to seasonal forces. During
roughly the same period a similar although somewhat more
moderate decline occurred in total deposits, adjusted demand
6

deposits, and interbank deposits. These contractive trends,
however, were reversed with the improvement in economic
activity, and a steady increase during the last several months
of the year raised the totals of these rnajor banking items
above levels which were reported at the end of the preceding
year. Most significant changes in holdings of United States
Government securities coincided closely with reductions in
reserve requirements, as banks promptly invested a substantial par of the released funds in short-term Government
securities.
Total loans of these selected banks in larger cities of the
District increased about $51,000,000 during the year, a substantially smaller increase than the $114,000,000 expansion
that occurred during 1948 but, nevertheless, significant in
view of the contrasting economic conditions and anticipations which prevailed during the two periods. It will be
recalled that during most of 1948 the problem was generally
considered to be one of restraining strong inflationary pressures, while during most of the months of 1949 the problem
was to prevent an unwarranted, severe deflationary movement. Between January 1, and August 17, 1949, total loans
declined by $129,000,000; during the remainder of the year,
however, successive weekly increases added about $180,000,000 of loans, thus offsetting the previous 7V2 months'
decline and raising the total volume outstanding to $1,190,000,000 on December 28, 1949. Commercial, industrial, and
agricultural loans accounted for most of the change in total
loans, declining during the first 7 months of the year by
$130,000,000 and then rising during the remaining months
by $169,000,000 to reach a total of $838,453,000 at the end
of the year, an increase of about $39,000,000 during the 12month period. More or less minor increases in "all other"
loans, real estate loans, and loans to banks, partially offset
by a decrease in loans to brokers, accounted for the remainder
of the increase in total loans.
Aggregate deposits of the weekly reporting member banks
rose by $150,000,000 during 1949. Although this increase is
substantially larger than the increase of $95,000,000 which
was experienced during 1948, it loses some of its significance
since approximately $85,000,000 of the increase in 1949 was

7

due to an expansion of interbank deposits. Adjusted demand
deposits, comprising principally deposits of individuals, partnerships, and corporations, increased only $21,000,000 during
1949, as contrasted with an increase of $146,000,000 in the
preceding year. Increases of $30,000,000 and $14,000,000 in
time deposits and United States Government deposits, respectively, were approximately equal to increases of the preceding year.
As previously noted, the trend of ad justed demand deposits during 1949 was similar to the trend of loans, with the
first 6 month of the year showing a decline, followed by a
steady substantial increase during the late summer and fourth
quarter of the year. On December 28, 1949, adjusted demand
deposits of the weekly reporting banks amounted to $2,019,000,000.
Holdings of Government securities in the portfolios of
these member banks increased by $141,000,000 during 1949.
Banks sold short-term Governments in substantial amounts
during the first 3 months of the year to relieve temporary
pressure on reserves resulting from a sharp seasonal decline
in deposits primarily associated with tax payments. However,
reductions in reserve requirements beginning in May and
recurring at intervals into September tended to place the
banks in a very liquid position and were followed promptly
by increases in holdings of Governments, especially shortterm issues.
During the year the reporting banks in the District reduced
their holdings of Government bonds by about $48,000,000,
while adding to their portfolios $80,000,000 of Treasury
bills, $100,000,000 of certificates of indebtedness, and $9,000,000 of Treasury notes. Holdings of Government bonds
increased steadily from early in the year to mid-September,
the increase amounting to approximately $42,000,000; subsequent decreases during the last quarter of the year were
accounted for largely by the refunding operations of September 15 and December 15. Changes in investment in Treasury
notes by the weekly reporting member banks also reflected
the refunding operations in these issues which occurred on
January 1 and December 15. The increase in holdings of

8

bills and certificates shows the attempt of the banks to maintain a fully, invested position during a period characterized
by economic uncertainty, slack loan demand, and easy money
market conditions fostered by central banking policy.
The amounts of principal assets and liabilities of the weekly
reporting member banks in the District and the percentage
change during 1949 in each item for the District and the
United States are shown in tabular form below:
(Amounts in millions of dollars)

Eleventh FedeTal Reserve District
Dec. 28, Dec. 29,
Net
19~9
19~8
Chan1e

Deposits-total (•) .. ................................$3,213 $3.063
Demand deposits-adjusted ............. . 2,019
1,998
Time deposits ... ........................... ...... 447
417
United States Government deposits
50
36
Interbank deposits ....... ... .......... .......... 697
612
Loans ............................................. ............... 1,190
1,139
Investments ... .......... ............... .......... .......... 1,353
1,203
United States Government securities 1.223
1,082
Other securities ....... ............................. 130
121
Balances with correspondents.................. 345
300
(•) Excluding cash items in process of collection.

$+ 150
+ 21
+ 30
14
+ 85
+ 51
+150
+141
+ 9
+ 45

+

PeTcentage change
Eleventh
United
District
Slates

+ 4.9

+ 1.1
+ 7.2
+38.9
+13.9
4.5
+12.5
1!1.0
+ 7.4
+15.0

+
+

+ 2.0

+ 1.0
+ 2.1
+53 .5
+ 0.2
- 2.3
+14.4
1!1.6
+20.3
+ 1.8

+

WEEKLY REPORTING MEMBER BANKS
UNITED STATES
Major classes of deposits and investments in Government
securities and other securities of the weekly reporting member banks in leading cities in the United States increased in
amount between December 29, 1948, and December 28, 1949.
On the other hand, total loans of these banks declined during the period, the contraction being accounted for principally by a shrinkage of more than 10 percent in loans for
commercial, industrial, and agricultural purposes.
During the first quarter of the year total deposits of the
weekly reporting banks declined by about $3,180,000,000,
reflecting declines of $2,885,000,000 in adjusted demand deposits and $1,246,000,000 in interbank deposits, offset in part
by an increase of more than $800,000,000 in Government
deposits and a minor increase in time deposits. The decline
in total deposits and the pressure upon reserves during this
period in 1949, however, were considerably less than occurred
9

during the comparable period in 1948 when total deposits
contracted by $4,570,000,000. In both periods Treasury receipts substantially exceeded expenditures, but during the
first 3 months of 1949 Treasury retirement of securities held
by the Federal Reserve banks was negligible as compared
with relatively large-scale operations of this type during the
same quarter in the preceding year. Member banks met the
loss of deposits through March 30, 1949, by reducing their
cash and balances with' other banks and their investments in
short-term Government securities.
Beginning in mid-April and continuing throughout the
remainder of the year the rna jor categories of deposits rose
gradually and on December 28, 1949, were slightly higher
than on the comparable date in 1948. Total deposits increased
during the 12-month period by $1,531,000,000 or 2 percent;
adjusted demand deposits rose by $465,000,000-approximately 1 percent; time deposits increased $316,000,000 or
about 2.1 per cent; and interbank deposits showed an advance
of less than 1 percent. While time deposits showed a steady
increase throughout the year and United States Government
deposits fluctuated rather sharply, adjusted demand deposits
and interbank deposits-after declining substantially between
January 1 and March 30- remained comparatively stable
until the last 3 months of the year when a strong seasonal
advance occurred.
The trend of total loans of the reporting member banks
in the Nation conformed rather closely to the trend of business activity, showing an almost unbroken decline until midJuly. As business conditions improved during the latter part
of the year, the demand for bank credit-especially for commercial, industrial, and agricultural purposes-strengthened
considerably, with the consequence that most of the shrinkage which occurred earlier in the year was offset in the later
months. On December 28, total loans of these banks amounted
to $25,217,000,000 as compared with $25,812,000,000 on
the comparable date in 1948, or a decline of about 2.3 percent. Commercial, industrial, and agricultural loans at the
end of 1949 amounted to $13,904,000,000, or approximately
$1,657,000,000 less than the amount reported a year earlier.
The substantial decline in commercial, industrial, and agri10

cultural loans, was offset to some extent by moderate increases in real estate loans, "all other" loans, loans to banks,
and loans to brokers and dealers in securities. The decline
in loans during 1949 was not due to unusually restrictive
measures on the part of commercial banks or to a lack of loanable funds but merely reflected the reduced demand for credit
resulting from the more restrictive and cautious business practices which were observed during 1949.
After the first quarter of the year, when reporting member
banks reduced their holdings of United States Government
securities to meet the moderate pressure upon reserves that
prevailed during February and March, investments in Governments by these banks showed a steady increase. Although
the increase in Government bonds reported by these banks
for the 12.- month period was comparatively insignificant,
banks did increase their investments in these long-term issues steadily until mid-December. At that time the refunding operations reduced holdings of Government bonds but
caused an approximately corresponding increase in holdings
of Treasury notes. Holdings of Treasury bills, while fluctuating from time to time as a result of factors influencing reserves, increased by more than $740,000,000 during the year,
while investments in certificates of indebtedness showed an
advance of about $2,114,000,000. On December 28, 1949,
total United States Government securities held by the reporting member banks was $37,473,000,000, or $4,486,000,000
more than the amount reported a year earlier. This substantial increase in Government securities testifies strongly to the
comparatively easy money market conditions and the high
degree of bank liquidity that were characteristic of most of
1949.

TREASURY FINANCING
The total interest-bearing debt of the Government increased
during 1949 by $4,440,000,000 as the growth of nonmarketable public issues and special issues more than offset a reduction in the marketable debt. On December 31, 1949, marketable public issues of Government securities amounted to
$155,123,000,000, as compared with a total of $157,482,000,000 reported a year earlier. This reduction of $2,359,000,000

11

in marketable public debt resulted from the retirement of
$6,682,000,000 of Treasury bonds callable during the year
and a partially offsetting increase of $4,323,000,000 in outstanding bills, certificates, and notes. Nonmarketable public
issues increased by $4,617,000,000 as the outstanding amount
of United States savings bonds increased $1,656,000,000 and
the amount of Treasury tax and savings notes increased
$3,038,000,000, with minor decreases reported for other nonmarketable issues; in addition, special issues rose by $2,182,000,000. As a result of these changes, the total interest-bearing debt outstanding on December 31, 1949, was $255,019,000,000, as compared with $250,579,000,000 on December 31,
1948.
Certificates of indebtedness, Treasury notes, and Treasury
bonds maturing or callable during 1949 amounted to $36,746,000,000, of which $34,309,000,000 was refunded and
$2,437,000,000 was retired by cash. All securities, other than
Treasury bills, maturing or callable through August were
refunded into 1~-percent 12-month certificates of indebtedness; a 2-percent bond issue callable in September and a 1~­
percent certificate issue maturing in October were refunded
into 1Ys-percent 12-month certificates; while certificates and
bonds maturing or called for redemption in mid-December
were refunded into an issue of 1Ys-percent 4~ -year notes.
Cash retirement of maturing certificates during the year
represented largely transactions arising from the decisions of
investors who preferred to withhold their funds from the market or to place them in other types of investments. This situation contrasted with that which prevailed during 1948 when
the amount of cash retirement of Government securities was
largely governed by decisions of the monetary and credit
authorities.
During 1949 so-called voluntary cash retirement by the
Treasury of securities held by the Federal Reserve banks
amounted only to $488,000,000, as compared with $2,580,000,000 during 1948. This change in policy with respect to cash
retirement of the public debt was brought about primarily
by the Treasury's transition to a deficit budgetary position;
12

however, the change in economic conditions during 1949 from
inflationary pressures to problems of readjustment also probably would have limited substantial retirement of securities
owned by the central banking system, even if the funds had
been available to the Treasury.
Weekly offerings of Treasury bills about equaled maturities during the year. During the first 5 months a reduction in
five weekly offerings resulted in the retirement of almost
$700,000,000 of bills, and in August and the first half of
September offerings exceeded maturities by almost $800,000,000. The reduction in offerings in the early months of the
year came when the Treasury's cash balance, relatively speaking, was still large and before the deflationary tendencies of
economic readjustment had become very marked. Later in
midsummer, however, the Treasury faced a need for additional funds and resorted to the bill market to meet that need.
As a consequence of these developments, the amount of
Treasury bills outstanding increased from $12,224,000,000 on
December 31, 1948, to $12,319,000,000 at the end of December 1949, an increase of $95,000,000 as compared with a decrease during 1948 of about $2,913,000,000.
Rate policy of the Treasury with respect to short-term issues
involved only two changes of significance during the year.
Refunding issues of certificates of indebtedness were offered
on a 12-month 1 ~-percent basis until September 15 and
October 1, when 1 Ys-percent issues were offered. Later in the
year, when business conditions reflected substantial strength
and recovery from the midsummer lows of business activity
had proceeded to a considerable extent, short term rates firmed
slightly as a 1¥a-percent 4~ -year note was offered refunding
investors.
The computed annual interest rate on the total marketable public debt showed very little change during the year,
rising from 1.979 percent on December 31, 1948, to 1.984
percent late in 1949.
Sales of savings bonds in the United States amounted to
$5,833,000,000 during the year, while redemptions totaled
$5,101,000,000. Thus, net sales in 1949 were only $732,000,000 as compared with $2,151,000,000 in the preceding
13

year. The lower volume of net sales was due largely to a substantial decline in sales of Series F and Series G bonds, resulting from the decision of the Treasury not to make these issues
available for purchase by institutional investors during the
Opportunity Drive in 1949, as contrasted with the policy followed during the comparable drive in 1948; sales of Series
E bonds during the year declined by $16,000,000, while redemptions of the Series A-E issues declined by $18,000,000.
In this District, sales of savings bonds rose fractionally during
the year and totaled $206,611,000, while redemptions declined
by approximately $20,000,000 to $215,078,000. In the District, sales of Series E bonds during 1949 exceeded redemptions of that particular series by about $1,000,000, a very favorable record when all circumstances are considered.
On December 30, 1949, the Treasury's cash balance in its
General Fund was $4,679,000,000, as compared with a balance
of $4,208,000,000 on the corresponding day in 1948.

GOVERNMENT SECURITIES MARKET
Among the factors which influenced developments in the
Government securities market during 1949 were changes in
central banking policies such as those relating to member
bank reserve requirements and to operations in the Government securities market by the Federal Open Market Committee, Treasury financing and fiscal policies, and the relative
strength of demand by different classes of investors. It will be
recalled that during 1948 the supply of securities was large
relative to market demand, and the Open Market Committee
made substantial purchases. In 1949 such downward pressure
upon the market was generally absent; instead, the demand
for Government securities of all classes was relatively strong
and prices rose-at times sharply.
The most significant and far-reaching development of the
year was the policy statement released on June 28 by the
Federal Open Market Committee, after consultation with the
Treasury. The statement announced that, with a view to
increasing the supply of funds available in the market to meet
14

the needs of commerce, business, and agriculture, it would be
the policy of the Committee to direct purchases, sales, and
exchanges of Government securities by the Federal Reserve
banks with primary regard to the general business and credit
situation. The statement added, however, that the policy of
maintaining orderly conditions in the Government securities
market and the confidence of investors in Government bonds
would be continued.
Immediately following this statement, the System withdrew
from active participation in the market and, as natural forces
were permitted to dominate the market, prices of Government securities rose sharply. Later, toward the end of July
the System re-entered the short-term market in a stabilizing
operation, as an increasingly strong market demand for bills
threatened the development of disorderly conditions. During the remainder of the year System operations in the market influenced the trend and range of yields of bills and certificates. System intervention in the Government bond market, however, was very infrequent during the last 6 months
of 1949, involving only a few sales in very minor amounts
during the fourth quarter of the year.
The average discount rate on weekly offerings of Treasury
bills fluctuated within a narrow range-1.14 7 percent and
1.163 percent-during the first 6 months of the year. In fact,
only during April, when money market conditions were very
easy as a result of substantial net Treasury expenditures, did
yields move sharply. During that month, when banks were
large purchasers of bills, yields moved downward from approximately the upper to the lower limit of the range noted above.
During the other 5 months of the period yields were very
steady, as evidenced by monthly averages deviating only
0.007 percent at the extreme.
Following the policy announcement of the Federal Open
Market Committee on June 28, however, the average discount
rate on bills declined sharply, moving downward from 1.158
percent for the offering of June 30 to 0.923 percent on July
14. At that time, as the downward pressure on yields appeared
to be gaining strength, the System intervened in the market
and the trend of yields pointed gradually upward through

15

mid-December. During the last 2 weeks of the year yields on
Treasury bills declined to 1.087 percent, a rate more apprqpriate in relation to the I Ys-percent certificate rate which
the Treasury announced in connection with the January I,
1950, refunding.
Average yields on 9-12-month certificates of indebtedness,
while conforming closely to the rates established on new offerings of certificates, fluctuated in line with bill rates during
most of the year. In the first 6 months average yielas moved
moderately downward from a monthly average of 1.22 percent in January to 1.20 percent in June. Following a sharp
decline in July which reduced the average yield for that
month to 1.04 percent, the trend turned upward and advanced
steadily to reach an average in December of 1.10 percent.
Long-term Government bonds were in strong demand
throughout the year, although between January 1 and June
30 prices rose only slightly. During this period price advances
were held in check by sales from the System account, the
Government bond holdings of the System showing a decline
from December 29, 1948, to June 29, 1949, of approximately
$3,221,000,000 as the System sold securities in support of the
"price pegging" policy then in effect. During the last half
of the year, however, when the sale of bonds from the System
account was held to a minimum in accordance with the revised policy of the Open Market Committee, prices of longterm Government issues advanced sharply, rising from an
average of 101.72 in June to 104.36 in December. In terms of
yields, the decline during the year extended from 2.43 percent on January 3 to 2.18 percent on December 30. With
the exception of the sharp increase that occurred during July
immediately following the System's policy announcement,
the advance in the price of bonds during the year was gradual, although persistent.
Closely reflecting the influence of prices and yields of
longer-term Government bonds, the prices of high-grade
corporate issues followed a very similar trend, as yields declined from 2.76 percent on January 3 to 2.54 percent on
December 30. The similarity of trend is evidenced by the
fact that yields of the longer-term Governments declined by
16

25 basis points during the year, while yields of high-grade
corporates eased downward by 22 basis points.
Changes between December 29, 1948, and December 30,
1949, in prices of specific Government securities included the
following. The longest-term restricted 2Y2-percent bonds of
December 67-72 were quoted on December 29, 1948, at a bid
price of 100 17/32 and on December 30, 1949, at 103 27/ 32.
The bank-eligible 2Y2s of September 67-72 showed a price
increase iuring the period from 101 29/32 to 105 31/ 32,
while the 2s of December 52-54 advanced from 101 11/ 32 to
102 3/32. On December 29, 1948, the longest Treasury bill
maturity was quoted on a 1.17 discount basis, but by the end
of 1949 the quotation had declined to a 1.09 basis. The most
distant certificate was quoted at the beginning of the period
at 1.24 percent and at the end of 1949 at 1.12 percent.
During the past year the continuing problem confronting
the System with regard to operations and influence in the
Government securities market was quite different than that
which was characteristic of 1948. During 1948 the support
program of the System was tested as large amounts of Government bonds were offered in the market, partly by insurance companies and other nonbanking investors who were
attempting to shift their investments into non-government
issues and partly by banks which sold Government securities
in substantial amounts to meet the increases in reserve requirements which were effected during that year. In 1949,
however, the problem became one not of supporting prices
but of restraining prices, as banks and nonbanking investors
exerted a strong demand for virtually all types of Government
issues. The change in business conditions, accompanied by
a decline in business capital expenditures and in bank loans,
together with the successive reductions in reserve requirements, placed investors in funds which they in turn placed in
the Government securities market, resulting in more or less
steady upward pressure on prices.
MEMBER BANK RESERVES AND RELATED FACTORS
The net effect of changes in factors which influenced member bank reserves during 1949 was a reduction in member

17

bank reserve balances amounting to $3,939,000,000. Reserve
requirements of member banks were reduced on several occasions during the year and, consequently, estimated required
reserves declined by $3,749,000,000. Since banks tended to
maintain a rather fully invested position, estimated excess
reserves showed a decline of about $190,000,000 during the
year.
Principal factors which tended to increase member bank
reserve balances were additions to the monetary gold stock,
a decline in money in circulation, and a decline in Treasury
deposits with Reserve banks. The Nation's gold stock increased during the year by $191,000,000, a small increase,
however, when compared with the $1,482,000,000 increase
of the preceding year. The return flow of currency from circulation which developed during 1948 continued through
1949, with the result that the amount outstanding at the end
of the year showed a decrease of $560,000,000. Reflecting the
increase in Treasury expenditures over receipts that characterized 1949, Treasury deposits with the Reserve banks declined by about $296,000,000.
The most important factor influencing member bank reserves, however, was the substantial decrease of $4,734,000,000
in the volume of Reserve bank credit, accounted for almost
entirely by a reduction in Reserve banks' holdings of United
States Government securities.
The amount of Reserve bank credit outstanding during
the year was influenced primarily by the change in central
banking policy that was initiated during the first and second
quarters of the year to conform to conditions arising out of
the economic readjustment that gained moderate headway as
the year progressed. Several reductions in reserve requirements between May and September reduced required reserves
substantially and released reserve funds for other use by member banks. Since the effective demand for loans during the
period of readjustment was not strong, comparatively speaking, banks invested the funds released by the reduction in
reserve requirements in Government securities, a fact that
is reflected by the increase in holdings of Government securities of all member banks amounting to $4,818,000,000.
18

Except for occasional short periods of some reserve pressure,
member bank reserve positions were comparatively easy, with
excess reserves fluctuating generally between $800,000,000
and $1,000,000,000. Moreover, the ease that prevailed in the
banking system actually was somewhat greater than is reflected by excess reserves because banks had, in a sense, improved their liquidity by investing funds released from required reserves in Government securities which could be
converted into loanable funds promptly as demand might
develop.
SUPPLY AND USE OF MEMBER BANK RESERVE FUNDS
(In millions of dollars)
December 28, December 29,
1949
1948

Chtmges
that
added to
reserves

Changes
that
reduced
reserve~

Reserve bank credit ..... ... ..... ....... ..... .... ....... $19,379
Monetary gold stock ....... ................... ........ 24,427
Treasury and national bank currency. ... 4,598
Money in circulation ............................... . 27,765
Treasury cash .. ............ ....... .. .................... .. . 1,314
Treasury deposits with Reserve banks..
987
Nonmember deposits ........................... ..... 1,280
Other Federal Reserve accounts........... ...
759

$24,113
24,236
4,585
28,325
1,329
1,283
1,106
653

$+191
13
-560
- 15
-296

Total ....................................................... .
Member bank reserve balances held ...... $16,299
Estimated required reserves .. .................. .. 15,439
Estimated excess reserves..........................
860

$20,238
19,188
1,050

$ 1,075
$ 5,014
$-3,939
-3,749
- 190

$-4,734

+

+

+

174
106

As the Federal Reserve System supplied Government securities to the market to meet the demand of investors, its
holdings were reduced from $23,333,000,000 at the end of
1948 to $18,884,000,000 at the end of 1949, a reduction of
$4,449,000,000. Approximately 85 percent of the System's
decline in holdings of Government securities resulted from a
reduction in investment in Treasury bonds from $10,977,000,000 to $7,218,000,000. Moderate reductions occurred
with respect to holdings of Treasury bills and Treasury notes,
while a slight increase was reported in the System's holdings
of certificates of indebtedness. As a result, the composition
of the System's Government securities portfolio changed somewhat, with short-term issues comprising a larger proportion
of the total than had been the case a year earlier. The System's holdings of bills, certificates, and notes comprised almost
62 percent of its portfolio at the end of 1949, as contrasted
with about 53 percent at the end of 1948. Furthermore,

19

holdings of bank-eligible bonds declined from slightly more
than 17 percent to approximately 12Y2 percent of the Government securities portfolio during the period, with only a
very small amount of the bank-eligible securities being of
comparatively long maturities.
HOLDINGS OF GOVERNMENT SECURITIES BY THE
FEDERAL RESERVE SYSTEM
(Amounts in millions of dollars)
Type of security

Dtc. Jl,
l!J-#!J

Treasury bills ............... ............. $ 4,829
Certificates of indebtedness.... 6,275
Treasury notes ............ ............
562
Treasury bonds ...... .................. (7,218)
Bank-eligible ..................... ... 2,M9
Restricted ........ ................ ...... 4,869
Total ........................... .. ...$18,884

Percent
of total

Dec. JJ,
19#8

Percent
of total

25.6
!!1.2

$5.487
6,o78
791
(10,977)
! .986
6,991
$2Mllll

2!.5
26.0

!.0
(!18.2)
12.4
25.8
100.0

!1.4
(47.1)
17.2
29.9
100.0

Net
chanlle

$-

658
197
- 229
(-!1,759)
-1,6!17
-2,122

+

$-4.449

Early in the year, especially during February and March,
Treasury transactions tended to place some pressure upon
bank reserves as receipts exceeded expenditures. Moreover,
during the first week in January and from mid-March to midApril, the Treasury reduced weekly offerings of Treasury
bills by a total of $700,000,000. During the last three quarters of the year however, an excess of expenditures over
receipts added to member bank reserves and contributed to
the comparatively easy reserve positions which prevailed during most of the period. In addition, in August and September the Treasury increased its weekly offerings of bills by
$800,000,000 during a 6-week period.

INTERNAL OPERATIONS
RESEARCH ACTIVITIES

Activities of the Research Department continued to revolve
around four major fields: economic analysis, collection and
appraisal of statistical data, bank and public relations, and
publication and dissemination of assembled data and research
studies. Although there were no basic changes in the research
program during the year, a few new projects were undertaken
which tended to broaden somewhat the existing program. In
addition, the demands upon the Department by the research

20

staff of the Board of Governors, by banks of the District, and
by businessmen and the public increased noticeably. Staff
vacancies in the Department were filled satisfactorily, and
efforts to improve the efficiency and independence of thought
and action of staff members were stressed. At the end of the
year the Department was fully staffed in terms of the present
and foreseeable program, with the exception of a few nonprofessional positions.
Typical of the economic analyses released through the
Department's publications were studies of the natural gas
industry, dairying, retail credit, the business aspects of farming, the foreign trade of Texas, banking under conditions of
economic readjustment, and the impact of acreage restrictions
upon Texas agriculture. In addition, three rather extensive
regional economic analyses covering 41 Texas counties were
published during the year.
An innovation introduced on. an experimental basis was
the preparation, jointly with specialists of Texas A. & M.
College, of pertinent agricultural material relating to the
production of such agricultural commodities as cotton, poultry, dairying, and eggs. Over 28,000 of these single-page "suggestion sheets" were distributed upon request to 34 banks in
a 16-county area, for distribution to the farm customers of
those banks.
Statistical work of the Department included maintaining
the basic, continuing series relating to department store stocks,
sales, and inventories; collections; bank debits; weekly and
monthly banking data; and numerous other important economic indicators. In addition, recurring studies such as those
relating to member bank operating ratios, ownership of
demand deposits, and call report data were made. As a result
of internal organizational changes and certain reassignments
of duties and responsibilities, the efficiency of the Statistical
Section of the Department was raised considerably.
The first revision since 1940 of the mailing list for the
Monthly Business Review was made in February and inactive
names were deleted. As a result, the circulation of the publication declined from 3,423 in December 1948 to 3,057 in
21

December 1949. The special articles which are featured in
each issue of the Review continued to be very favorably
received. Reprints of several articles were necessary to meet
specific requests of banks and businesses desiring to make
a secondary distribution, while certain articles were republished in full in such national and regional publications as the ·
Commercial and Financial Chronicle, Burroughs Clearing
House, and The Cattleman.
During the year the circulation of the Agricultural News
Letter increased from 2,475 to 2,721. Several banks requested
numerous additional copies of this publication for distribution
to their farmer customers, while requests for copies for use
in G. I. vocational agricultural classes are common.
A new publication, Economic Bulletin, was initiated during
the year, and two issues were released to a restricted, semiconfidential mailing list. The Bulletins issued during 1949
presented a study of international petroleum movements and
the domestic petroleum market and an analysis of the Brannan
Farm Program. Other studies will be released through this
publication from time to time.
Several hundred copies of regional economic studies of the
Brenham-Gonzales, Wichita Falls, and Childress areas of
Texas were distributed on a selective basis to banking and
business leaders. These booklets also supplied the basic economic material for the bankers' forums held during the year
by the bank.
Bank and public relations activities of the Department
included the preparation and presentation of the bank's
weekly radio broadcast, "Your Southwest Business Review,"
approximately 37 speaking engagements to banking, business,
and professional groups, supplying specific information in
response to a very large number of requests from bankers,
businessmen, students, and the general public, attending bank
and other professional group meetings, and, in general,
attempting to work in close cooperation with those having
responsibility for the bank and public relations function.

22

BANK AND PUBLIC RELATIONS ACTIVITIES

The major objectives of the regular bank and public relations program were largely achieved during the year. All of
the principal activities initiated during recent years were
continued and broadened, with some new activities being
instituted. The following summary outlines briefly the principal activities during 1949:
Bank officers and representatives made 848 visits to member
banks and 161 visits to nonmember banks. This achievement
compares with 682 visits to member banks and 181 visits to
nonmember banks during the year 1948. About 99 percent
of the member banks in the District were visited as compared
with only 90 per cent in the preceding year.
Officers and senior staff members of the bank addressed
52 meetings of banking, civic, trade, agricultural, and educational organizations, at which attendance approximated 5,515.
The bank was also represented at 150 meetings sponsored
by similar organizations at which attendance approximated
50,085.
A total of 1,306 individuals, consisting of 368 students, 556
bankers, 382 businessmen and others, visited this bank and
its branches.
The bank sponsored four Bankers' Forums which were held
in Brenham, Gonzales, Wichita Falls, and Childress, Texas.
The area covered by these forums, comprising 41 counties,
included 84 member banks and 55 nonmember banks. The
favorable comments and responsive participation by bankers
are indicative of the value and effectiveness of these forum
meetings.
This bank, in cooperation with the Louisiana Bankers
Association and the Louisiana State University, sponsored
Farm Clinics at Winnsboro, and Arcadia, Louisiana, with
about 100 persons in attendance at each clinic. The response
was so favorable that the bank is planning to cooperate with
the two Louisiana organizations in sponsoring at least two such
clinics during 1950.
In June 1949 the bank made available to member banks
of the District for display purposes two sets of an exhibit of
paper currency of the United States from Colonial days to
23

the present time. Preference in the use of the exhibit is given
to those banks which display it on occasions such as bank
anniversary celebrations and the openings of new or
remodeled banking quarters. During the year, 74 requests
for the exhibit were received, 37 of which were filled. One
set of the exhibit was displayed in the Hall of State in Dallas
during the 1949 State Fair of Texas, where it was viewed by
some 200,000 persons. The comments received from member
banks which have displayed the exhibit have been most
gratifying.
The presentation of the bank's weekly radio program,
"Your Southwest Business Review," over Station WFAA-820
was continued throughout 1949. The program was placed
on a stronger station and was given a more favorable broadcasting hour. The program is gaining steadily in popularity
and frequent favorable comments about it are received.
On May 27, 1949, the bank sponsored its fourth annual
forum for bank supervisory authorities in the Eleventh
Federal Reserve District, including about 90 members of
their staffs. A dinner was given in the evening, attended by
the special guests and officers and certain staff members of the
bank.
On February 10 the bank sponsored a dinner meeting in
Dallas honoring Chairman Thomas B. McCabe of the Board
of Governors, attended by directors of the bank and its
branches and a group of prominent bankers and businessmen
of Dallas. On March 31, 1949, the bank sponsored a dinner
meeting honoring Governor M. S. Szymczak of the Board of
Governors, attended by directors of the bank and leading
bankers in Dallas and Fort Worth. On April 14, 1949, the
bank was host at a dinner meeting in El Paso on the occasion
of the joint meeting of the boards of directors of the bank
and of the El Paso Branch, the attendance including a representative group of senior bankers and leading businessmen
of El Paso. On October 17, 1949, a dinner was given by the
bank honoring Governor Lawrence Clayton of the Board of
Governors which was attended by the bank's directors and
leading Dallas bankers. On October 18, 1949, the bank sponsored a dinner meeting on the occasion of a meeting of the
24

System Committee on Current Business Developments which
was attended by a small group of Dallas businessmen and
bankers who cooperate regularly with this bank in reporting
business and banking statistics. The bank also held a dinner
on December 8, 1949, on the occasion of the annual joint
meeting of the boards of directors of the bank and its three
branches. This dinner was attended by approximately 115
guests, comprised of a representative group of leading businessmen and senior bankers in Dallas and the directors of
this bank and its branches. Mr. Norris E. Dodd, DirectorGeneral of the Food and Agriculture Organization of the
United Nations was the principal speaker.
During the year the bank made a wide distribution of its
regular and special publications to colleges and universities
and to businessmen and bankers. Of special interest and
importance was the distribution of this bank's reply to the
questionnaire addressed to the Presidents of Federal Reserve
banks by the Subcommittee on Monetary, Credit, and Fiscal
Policies of the Congressional Joint Committee on the
Economic Report.
The bank received extensive favorable publicity during
the year covering various activities. Newspaper publicity
included coverage of speeches made by officers and senior staff
members of the bank; a number of articles by officers and
staff members appeared in various financial periodicals. News
items also appeared covering the admission of new member
banks, additions o.f nonmember banks to the par list, bank
conferences participated in by this bank, visits of System
officials, appointments or election of members of the boards
of directors of the bank and branches, and changes in official
staff. In addition, a special series of five articles relating to the
currency and coin operations of this bank, prepared by the
Business News Editor of the newspaper after consultation
with members of this bank's staff, appeared in the Dallas
Morning News during October 1949. Through the courtesy
of the News, mats covering this series of special articles were
made available through this bank to commercial banks or
newspapers desiring to reproduce them.

25

LEGAL ACTIVITIES

The bank was served with process in two cases during
1949. The bank has no real interest in the litigation since the
suits were for the purpose of clearing titles to real estate.
The bank had previously held foreclosed mortgages and had
sold the properties applying the proceeds on personal judgments rendered in the foreclosure proceedings. The deficiency
judgments which remained outstanding were never renewed
and both are barred by limitations. In view of these facts, and
since the only service upon the bank was by mail and publication, it was deemed advisable in each case not to subject
the bank to the jurisdiction of the court by filing an answer.
In June 1949, the Valley State Bank, San Juan, Texas, a
noninsured bank, closed its doors, and was taken over by the
Banking Commissioner of Texas. At that time, this bank held
three drafts of the closed bank which had been issued by it
in payment of two cash letters and one noncash collection
letter. These drafts were dishonored by the drawee bank, the
reason given for nonpayment being that the Valley State
Bank was closed. In accordance with the usual procedure,
and under authority furnished by some of the endorsers,
Counsel prepared claims on behalf of such endorsers and submitted them to the Banking Commissioner of Texas. At the
close of 1949, the Banking Commissioner had not taken
action.
In addition to these activities, Counsel's office furnished
general service such as rendering written and oral opinions,
preparing summaries and analyses with reference to proposed
and new legislation, and analyzing, preparing, and approving
contracts, leases, and insurance policies. Applications for membership in the Federal Reserve System and related matters
such as amendments to charters of member banks have come to
the attention of Counsel and opinions have been rendered in
connection with the legal aspects.
AUDITING ACTIVITIES

The Auditing Department maintained throughout the year
the audit frequency schedule as adopted by the Conference
of Auditors of the Federal Reserve banks and approved by the

26

Audit Review Committee of the Board of Directors of this
bank. During the year, the Audit Review Committee held
three meetings for the purpose of reviewing audit reports
and discussing audit procedures with the General Auditor.
Throughout the year, the General Auditor consulted frequently with the officers of the bank regarding changes in
accounting procedures and new accounting methods. The
examining staff of the Board of Governors made a regular
examination of this bank and its branches during the month
of November 1949.
PERSONNEL ACTIVITIES

During 1949 close attention was given to the maintenance
of the bank's Job Classification and Salary Administration
Plan. In carrying out that responsibility, special efforts were
made to keep job descriptions, specifications, evaluation, and
grading on a current basis. During the year, reviews of previous analyses were begun and for that purpose current descriptions of duties performed were obtained from employees
and department managers. The special committee of officers
and employees charged with the responsibility of evaluating
jobs held fifteen meetings during the year and reviewed 197
jobs.
In the fall of 1948, the Personnel Department conducted a
comprehensive survey of community salary rates in cities in
which the bank's offices are located. After a thorough study
of the results of that survey, the Board of Directors, with the
approval of the Board of Governors of the Federal Reserve
System, established during January 1949 two new scales of
minimum and maximum salaries. One scale provided for an
increase of approximately 5 percent in the salary structure,
applicable to the Head Office and to the El Paso and San
Antonio Branches. The salary structure at the Houston
Branch was raised approximately 10 percent, inasmuch as the
survey had revealed a considerably higher community salary
rate there than that existing in the other cities. The management of this bank then conducted a general review of employee salaries at each of the four offices and salary adjustments were authorized for 806 employees in the aggregate
amount of $122,516 on an annual basis, effective April 1,
1949. This adjustment represented an increase of 5.7 percent
27

in the total employee pay roll. In addition to this general
increase, merit salary adjustments were made during the year
for 103 employees in the aggregate amount of $13,644, and
salary increases in connection with promotions were given to
187 employees in the aggregate amount of $26,825 on an
annual basis.
Largely as a result of the change in salary structure, which
raised maximum, as well as minimum salaries, and of promotions to jobs of a higher grade, the number of employees
on December 31, 1949, with salaries in excess of their respective grade maximum had been reduced to 15 from 49
at the end of 1948. The rate at which officers and employees
at all offices were being compensated on an annual basis
amounted to $2,532,000 on December 31, 1949, or approximately $130,000 higher than a year earlier. This represented
an average annual salary rate of $2,501 at the end of 1949
as compared with $2,340 at the close of 1948.
The personnel of the bank showed greater stability in 1949
than in any year since the beginning of the war. From the
accompanying chart, it will be noted that while employment
averaged slightly higher in 1949 than in 1948, the monthNUMBER OF EMPLOYEES, BY MONTH,I944 -1949
FEDERAL RESERVE BANK OF DALLAS

28

to-month fluctuations were relatively small. At the end of
1949, the personnel of the bank and its branches, including
officers and temporary employees, totaled 951 as compared
with 954 at the end of December 1948. This stability in the
number of employees and the better employment conditions
in the area have made possible the adoption of higher standards in the selection of new employees and have resulted in
greater efficiency and more productivity by the bank's staff.
The improved operating efficiency is indicated by the fact
that virtually all departments of the bank handled an increasing volume of work during the year without any over-all
increase in the number of employees and with a sharp reduction in overtime payments. These factors, together with the
higher salary structure, contributed toward the sharp reduction in employee turnover during the year, the combined
rate of turnover having been reduced to 25 percent from 38
percent in 1948. While each office showed a very substantial
decline in the rate of turnover, the largest decrease occurred
at the Houston Branch, although its rate of 33 percent was
still the highest for any of the four offices.
On December 31, 1949, approximately 90 percent of the
bank's personnel was enrolled under the Blue Cross Insurance
Plan for hospitalization and medical and surgical services,
under which the bank pays two-thirds of the cost of the coverage. During the year, premiums paid by the bank and by
the officers and employees totaled $33,097, while the Blue
Cross organization paid $16,100 for hospital, medical and
surgical services rendered to officers, employees, and certain
of their dependents.
For several years, the bank has limited its annual medical
examinations of officers and employees to those 40 years of
age or over. During 1949, this service was expanded to provide for an examination of officers and employees under 40
years of age at least every three years.
For the third consecutive year, the bank held on November
16-the anniversary date of its establishment-annual dinner
meetings in the Head Office and branch cities at which service emblems were presented to eight members of the staff
who had completed 25 years of continuous service since the
29

annual dinners in 1948. These additions brought to 108
the number of active officers and employees who had completed 25 years or more of continuous service.
Employees continued during 1949 to avail themselves of the
counseling service at the Head Office which affords them an
opportunity to discuss their personal problems privately and
confidentially with designated counselors on the staff of the
Personnel Department.
Effective September 12, 1949, the four offices of the bank
began to operate on a 40-hour, five-day work week basis.
Under that program, some departments are closed on Saturday, some operate on Saturday with a skeleton force, while
others maintain full operations with employees in those departments being given a day off on a rotating basis. Under the
plan, service to member banks and to the general public is
not curtailed.
During 1949, the bank continued its executive training program. Four officers and senior staff members attended the
A.B.A. Graduate School of Banking at Rutgers University,
three entered the Central States School of Banking at the
University of Wisconsin, and seven attended the Annual
Bankers Conference sponsored jointly by the Texas Bankers
Association and the University of Texas. During the summer, the bank again employed several young college students
who expect to make a career of banking after graduation.
Six recent college graduates were employed under a longrange training program, whereby each is to receive training
and experience in various departments on a rotating basis.
The officers continued the program of holding monthly dinner meetings at which an officer presents a paper on an economic subject of current interest or relating to Federal Reserve System practices and policies, which is followed by a
round-table discussion participated in by all officers.
The following changes in the bank's official staff occurred
during 1949: Mr. R. 0. Webb, Assistant Cashier, passed
away in June, and the vacancy thus created was filled by the
election of Mr. T. W. Plant as an Assistant Cashier. Mr. Plant
was serving as Manager of the Fiscal Agency Department at
the time of his election. Mr. A. C. Michaelis, an Assistant
Cashier, resigned in September.

30

RETIREMENT SYSTEM

The rules and regulations of the Retirement System were
amended effective May 6, 1949, to provide increased benefits
as outlined below:
The final average salary used as a basis for calculating
normal pension benefits was changed to the best consecutive five-year average from the best consecutive ten-year
average.
The basis for calculating service pension benefits payable for each of the last 20 years of service was changed to
one percent of final average salary on a straight life basis
from three-quarters percent on a cash refund basis.
The minimum normal service pension benefit was increased to $32 per annum on a straight life basis from $24
per annum on a cash refund basis.
The limitation of $6,000 on the maximum normal pension was removed and the regular retirement allowance
was limited to a maximum of 75 percent of final average
salary.
The maximum lump-sum death benefit (exclusive of
the member's own accumulated contributions) payable
on death in active service was increased to $25,000 from
$15,000. (The death benefit is an amount equivalent to
the salary paid to the deceased during the preceding
twelve months.)
This bank paid to the Retirement System $73,224 to cover
the accrued liability by reason of the increased benefits and
its current rate of contribution was increased to l 0.52 percent
from 10.08 percent of annual salary to cover the future
cost of the increased benefits.
This bank also paid to the Retirement System the sum of
$41,205 to provide 35 previously retired members the same
retirement allowance that they would have received if they
had retired under the rules as amended.
During the calendar year 1949, two retirements were
effected and one death claim was paid, bringing the total
31

number of retirements and of death claims paid to 70 and
32 respectively since March 1, 1934, when the Retirement
System was established. At the end of 1949, 39 former officers
and employees were receiving retirement allowances and 6
had arranged for payments covering their retirement allowances to commence at later dates.
BANK EXAMINATIONS

The expanded program of analysis and review of examination reports, which was inaugurated during 1948, has proved
very beneficial in the administration of the examination
function. The information developed has given a better insight into the operating policies of member banks, revealed
the strength and weaknesses of individual institutions, and
in many instances has made possible the detection and correction of unfavorable trends before serious problems developed.
Likewise, the analyses have brought to light trends toward an
over-loaned condition before the information became available
in published reports. In consequence, the examiners have
been better prepared to review intelligently the conditions
obtaining at individual banks and have been able to pass on
to the management helpful suggestions for dealing with specific problems which may be new to a particular bank but
common to many other institution~.
During 1949, the demand for consumer loans, real estate
loans secured by residential properties, and agricultural loans
was very heavy. Loans to farmers incident to the growing
and harvesting of crops were especially heavy, and due to the
large production which was sold at satisfactory prices, seasonal liquidation was very favorable except in isolated areas
where yields were poor. In view of the effect that acreage
restrictions and marketing quotas may have upon farm income, particularly if prices should decline further, bankers
generally have indicated that credit policies with respect to
crop and livestock loans will be more conservative and selective in 1950 than in 1949. In line with this situation, this
bank has held informal discussions with a few banks, which
became over-extended in 1949, with a view to suggesting a
realignment of loan and credit policies in the light of existing and prospective conditions in the areas which they serve.

32

The readjustment in business during 1949, even though
it was mild, resulted in some deterioration in the quality of
bank loans. The number of banks showing assets criticized
adversely increased during the year. and the amount of assets
of substandard quality expanded moderately both in dollar
amount and as a percentage of total loans.
This bank's examiners, during 1949, continued to stress
the need for adequate credit files, appropriate loan diversification, selectivity of credit extensions, and effective collection policies. In addition, they gave close attention to loan
administration and servicing, since deterioration in the quality of loans during a period of business readjustment often
occurs where such loans are improperly supervised and serviced. Experience has shown that close contacts with borrowers' affairs, including interim operating and balance sheet
statements, where necessary, materially aid in detecting possible adverse changes in paying ability.
During the year, the examining staff participated in 166
examinations, or 3 fewer than in 1948. The following table
summarizes the operations of the department during the two
years:
Independent
examinations
19-19
1948

State member banks....................... ........ .......................
State bank applications for membership.. .. .......... ....
Separate trust departments...... .. .................. .. .. .. ..........
Applications to organize national banks........ ..... .. ...
Applications of national banks for trust powers....

]oint e"ominotions
with state or other
federal o~rencies
1949
1948

5
1
0
0
2

4
!I
1
0
0

140

Total....... .. ..... ... ............. ... ...... .. ... ... .. .......... ........... 8

8

140

2

8

12

0

10
!I
0

158

161

4

The rapid accumulation of wealth in the District during
recent years, the increase in the number of large individual
estates, and the high rates of estate and inheritance taxes have
been the principal factors prompting several commercial
banks, some of which are located in smaller towns, to give
consideration to the opening of trust departments. During
the year, some of these banks have discussed with the officers
of this bank the matter of filing applications for permission
to engage in fiduciary activities. During the year, three banks
were granted trust powers, but other institutions have either
deferred making application or have requested that the ap33

plications be held in abeyance pending further developments,
such as recruiting or training personnel suitable to handle the
responsibilities in this highly complex and specialized field.
In processing applications for consideration by the Board of
Governors, this bank takes into consideration such factors as
the applicant's history and management, its capital structure,
its earnings record, the background and training of its proposed trust officer, trust investment committee and legal counsel, and the applicant's potential volume of business in the
trust field.
The bank's officers and staff continued to maintain, during
1949, close and highly satisfactory relations with federal and
state supervisory authorities in this District.
REGULATION OF CONSUMER INSTALMENT CREDIT

The Congressional authority under which the Board of
Governors reissued, on September 20, 1948, Regulation W
covering the control of consumer instalment credit, expired
on June 30, 1949. Accordingly, the regulation was terminated
automatically on that date. During the effective period of
the regulation this bank, through the use of field investigators
and various media of publicity, pursued an enforcement program which was designed to disseminate information about
the regulation and to detect cases of willful violation. On the
whole, this bank received excellent cooperation from registrants and its investigations revealed a high level of compliance with the provisions of the regulation. It is felt that the
educational approach which the bank pursued in its enforcement program contributed in a considerable measure to its
general effectiveness.
BANK FAILURES

After seven consecutive years in which there were no bank
failures in this District, two suspensions occurred in 1949.
Both institutions were noninsured, nonmember institutions
and one of them was an unincorporated bank. In the United
States, the suspension of four noninsured, nonmember banks
occurred, including the two in this District.
34

MEMBERSHIP IN THE FEDERAL RESERVE SYSTEM

In this District the following state and national banks, four
of which were newly organized institutions, were admitted
to membership in the Federal Reserve System during 1949:
N ame of bank

Location

Deposits
December JI, 1949

First National Bank of Hobbs .......... Hobbs, New Mexico ..$ 1,371,000
First National Bank of Edna............Edna, Texas ................ 1,120,000
The First State Bank ..... ................... ..Hawkins, Texas ..........
840,000
Citizens State Bank & Trust
Company .. ......................................... Kilgore, Texas ............ 2,078,000
First National Bank of McAllen ......McAllen, Texas .......... 10,766,000
First National Bank of Monahans ....Monahans, Texas........ 1,534,000

Since one of the national banks listed above was a conversion from a state bank member and since two banks which
entered voluntary liquidation in 1948 surrendered their
stock in 1949, the number of member banks in this District
showed a net increase of only three as compared with a net
gain of six in 1948. On December 31, 1949, membership in
the District totaled 623 banks, consisting of 477 national
banks and 146 state banks.
In this District only two state banks were admitted to
membership in 1949 and one of them was a newly organized
institution. There were 23 state banks admitted to membership throughout the country, with the Atlanta and San Francisco Districts accounting for 10 admissions or 43 percent of
the total. There were three districts in which no state banks
were admitted to membership.
The number of applications received from state banks for
membership in the Federal Reserve System declined noticeably in 1949 from that in other recent years. In some cases
the diminishing interest in membership apparently stemmed
from legislative proposals for changes in legal reserve requirements of member banks, since several nonmember state banks
have expressed an intention of deferring consideration of
membership until some decision has been made with respect
to member bank reserve requirements. There are other state
banks, however, which apparently recognize the direct benefits of membership, and are giving the matter active consideration. Because of this situation, it seems probable that ad35

ditions to state bank membership in this District during 1950
will be more numerous than in 1949.
During 1949 the status of the 381 nonmember commercial
banks in the District was reviewed to determine their eligibility for membership in the Federal Reserve System. Only
88 of them are ineligible for membership because of insufficient capital, although 77 banks which do not now remit at
par for checks drawn on themselves would be required to do
so if they should be admitted to membership.
CHANGES IN CAPITAL STOCK

The paid-in capital stock of this bank reached an all-time
peak of $8,455,300 on December 31, 1949, the increase during the year of $602,950 exceeding that in 1948 by $54,350.
Most of the increase-$579,550-resulted from an increase
in the capital and surplus accounts of 335 member banks.
Five banks in the District, which were admitted to membership during 1949, also purchased capital stock of this bank
in the amount of $26,700. Cancellations of capital stock of
this bank during the year resulted from the voluntary liquidation of two former member banks which held 66 shares
valued at $3,300.
NONMEMBER BANKS

The following six nonmember state banks representing
five primary organizations and one conversion from an industrial bank began operation in the District during 1949:
Name of Bank

Location

Sterlington Bank .......................................... ......... ..... Sterlington, Louisiana
Citizens State Bank .... ...... ..... ....... ......... ........... ......... .Corpus Christi, Texas
West Side State Bank .... ............................ ........ ............ San Antonio, Texas
San Juan State Bank ..... ........ ........ .... .. .......... ... .. ...... .. ....... ... San Juan, Texas
Citizens State Bank ......... ......... .... ............................... .. ......... Sweeny, Texas
First State Bank ............ ..... .. ..... .... ............. .............. ...... ............ ... Van, Texas

These additions were partially offset by the suspension of
two banks and the admission of one nonmember state bank
to membership in the Federal Reserve System. Therefore, on
December 31, 1949, the number of nonmember banks in the
District totaled 399, or only three more than at the end of
1948.
36

PAR BANKS

On December 31, 1949, there were 913 active commercial
banks in the District remitting at par for checks drawn on
themselves, representing an increase of 8 banks during the
year. While one former par bank failed during the year, all
except one of the newly organized banks agreed to remit at
par. Consequently, at the end of the year the number of
nonpar banks remained at 109, comprising 57 banks in
Texas, 50 banks in Louisiana, and 2 banks in Oklahoma.
NEW BANK ORGANIZATIONS

The number of newly organized banks in the Distric~. continued to decline in 1949 from the high point of 32 reached
in 1947. This downward trend, which was also apparent
throughout the country, is attributed to the influence of two
factors-the lessening need for new banking facilities, and
the higher standards fixed by supervisory authorities for the
chartering of new institutions. Of the 9 banks organized in
the District during 1949, only 1 was located in a community
where banking facilities did not exist. This contrasts with the
situation in 1947 when about 50 percent of the new banks
were organized to provide facilities for communities without
a banking institution. The organization of 27 new banks in
outlying sections of Reserve cities since 1940, slowed considerably, with only one such new bank being organized in 1949.
The remaining 7 banks organized in 1949 were for the purpose of providing additional facilities for communities already
having at least one bank. Since the need for additional banking facilities is often difficult to establish, supervisory authorities are exercising greater caution in granting charters for
new institutions in those localities.
In the United States, new organizations totaled 72 institutions in 1949, as compared with 80 banks in 1948 and a peak
for recent years of 144 in 1946. The Atlanta, San Francisco,
and Chicago Federal Reserve Districts were the leaders in new
organizations with 15, 12, and 11 banks, respectively, and
accounted for 55 percent of the total organizations in the country during 1949. This District, which ranked second in 1948,
dropped to fourth place in 1949.
37

FEDERAL RESERVE NOTE CIRCULATION

The circulation of this bank's Federal Reserve notes, which
had shown an almost uninterrupted rise during the war
period, reverted to the prewar seasonal pattern shortly after
the close of the war. Throughout the postwar period, the
relatively stable level of circulation and the definite seasonal
pattern have been in evidence. These movements, as well as
the significant deviations from the seasonal pattern, are re'vealed in the accompanying chart. The first major deviation
FEDERAL RESERVE NOTE CIRCULATION
F£0ERAL RESERVE BANK OF DALLAS

MILLIONS OF DOLLARS

MILLIONS OF DOLLARS

70 0

700

!949

650

~..::.:::::
1.----- ...-·--·
I
I

650

1948

~
60 0 ......

. . . ..-...._....L --=::::~-............- ·- ·-'-

1

•

I - ·- ·- ·f"

I

- ·- - - -

-- ····7.!_:. •••••• .! .....•• ~··-··,~·--:.......... 600
...L-7
1946

1947
!!50

50

500

0

4!50

40 c

. 0

400
~H.

FEB.

MAR.

APR.

MAY

JUN.

JUL.

AUG.

SEP.

OCT.

NOV.

DEC.

0

occurred in the fall of 1946 when the circulation of Federal
Reserve notes showed relatively little increase due to the fact
that an acceleration in the return flow of currency from circulation was sufficient to about offset the increase in demand,
which was smaller than usual at that season. This accelerated
return flow of currency persisted throughout the early months
of 1947 causing circulation to drop in May to the lowest level
in the postwar period. The sharp upward movement of currency in circulation in August and September of that year
reflected the heavy demand for currency in connection with
the redemption of the Armed Forces Leave Bonds. In 1949
circulation followed the usual seasonal pattern during most of
the year. The decline of $34,900,000 during the first five
38

months of the year carried the total to the year's low point of
$589,000,000, or only $2,000,000 above the low point during
the preceding year. From the end of May through October,
the fluctuation in circulation followed closely that in 1948,
but in November there was a sharp rise with the total reaching a new all-time peak at $650,600,000 early in December.
This sharp rise was occasioned by the heavy demand for
currency in connection with the harvesting of the record cotton crop, particularly in west and northwest Texas. The
return flow of currency from circulation during December
was about the same as is usual in that month, but it occurred
throughout the month rather than being concentrated during
the last week of the month.
The net increase of $16,600,000 in currency in circulation
during the year occurred chiefly in bills of the $5, $10, and
$20 denominations, with about half of the total being in the
$20 denomination. These are the denominations which are
used most frequently in trade transactions and in making pay
roll settlements. In denominations of $50 and above, which
are associated with large commercial transactions and currency hoarding, moderate decreases occurred in the circulation of most denominations.
DEPOSITS OF MEMBER BANKS

The aggregate deposits of member banks in this District
increased for the third successive year, reaching an all-time
peak during December. In that month, the average of deposits
amounted to $6,260,000,000, or $238,000,000 higher than in
December 1948. The increase apparently occurred in all sections of the District and was distributed among banks in all
deposit size groups. During the year some growth took place
in interbank deposits, as well as in deposits of individuals,
partnerships, and corporations. The increase of $53,000,000
in time deposits, constituting about one-fifth of the year's
gain in total deposits, was at approximately the same rate as
in other recent years.
The decline in deposits, which usually occurs during the
first part of the year, was more pronounced than usual in 1949.
Ordinarily, the seasonal decline results chiefly from withdrawals of funds for the payment of income taxes and for
settlement of adverse trade balances with other sections of
39

the country. In 1949 the greater-than-usual seasonal decline
in deposits occurred partly because of the substantial decline
in loans and investments, and partly because country banks
drew heavily upon their balances with correspondents to
restore their reserve balances with the Federal Reserve bank,
which had been reduced in meeting customer withdrawals
for the above noted purposes. On the other hand, the net
expansion in deposits during the latter half of the year was
the largest for any similar postwar period. This rapid recovery
of deposits is attributable to the unusually sharp advance in
member bank loans and investments, the unusually large
receipts from the record volume of agricultural production,
and a substantial increase in interbank balances. Moreover,
activity in some industries, especially the petroleum and lumber industries, which had experienced substantial contraction
in the first half of the year, rose substantially during the latter
half of 1949.
MEMBER BANK RESERVE BALANCES

The outstanding feature of the movement in the reserve
balances of member banks in the District during 1949, as
revealed in the accompanying chart, was the sharp and perMEMBER BANK RESERVE BALANCES,
REQUIRED RESERVES AND EXCESS RESERVES
ELEVENTH FEDERAL RESERVE DISTRICT

40

sistent downward trend from the peak level reached in the
closing month of 1948. The low point of the year was reached
in September when the average of such balances amounted
to only $753,000,000 a decrease of $217,000,000 from the
average in the preceding December. While there was a marked
rise in reserve balances during the fourth quarter, the average
for December 1949, amounting to $811,000,000, was $160,000,000 smaller than in December 1948. The decline in
reserve balances during the earlier months of the year was
occasioned by the decrease in required reserves resulting
chiefly from the net decrease in customer deposits at member
banks. The decrease in reserve balances between April and
September was made possible in large part by three successive
reductions in reserve requirements which became effective
early in May, at the end of June, and in August. In the aggregate, these reductions in reserve requirements amounted to
4 percentage points on demand deposits of member banks
and 2V2 percentage points on time deposits of member banks.
In the fourth quarter banks tended to utilize idle funds to
build up their balances with correspondents. Because of the
growth in such balances, as well as in cash items in process of
collection, the net demand deposits of member banks on which
required reserves are computed, rose at a slower rate than gross
deposits. During 1949 excess reserves of member banks with
the Federal Reserve Bank fluctuated widely but the average
for the year as a whole was only moderately higher than in
1948. In December excess reserves averaged about $104,000,000, which was not only the highest for any month since mid1946 but also $16,000,000 higher than in the closing month of
1948.
FEDERAL RESERVE CREDIT

The moderate readjustment in business and industry, the
decline in loans of member banks during the early part of the
year, and Federal Reserve policy, which was directed toward
easier money and credit conditions during much of 1949,
had a significant effect upon the credit operations of this bank.
Because of the generally easier reserve positions of member
banks, only 16 of these banks borrowed from this bank during
1949 as compared with 28 in 1948. While borrowings by member banks, which totaled $154,054,000 in 1949, were only
41

moderately below the total of $180,376,000 for the preceding
year, the average time that the loans were outstanding was
shorter. This is indicated by the fact that total borrowings
declined only 14 percent, while the amount of interest earned
on loans declined 26 percent. Nearly all of the borrowings in
1949, as in 1948, represented advances to member banks on
their own notes secured by United States Government obligations. The borrowings of 5 country member banks were for
the purpose of meeting the seasonal demand for credit in their
respective communities, and in the case of 3 of them, represented the rediscount of customers' notes in the amount of
$216,000. The other II banks borrowed for short periods for
the purpose of adjusting their reserve positions.
In the operation of the Federal Reserve check clearing and
collection system, a Federal Reserve bank usually extends
without interest a certain amount of unsecured, involuntary
credit (known as "float") to member banks. The credit, or
"float," arises out of the fact that the Federal Reserve bank
gives the depositing bank credit for checks in the process of
collection, a specified number of days after the checks are
received at the Federal Reserve bank, even though some of
the checks may not have been actually collected. The size
of the "float" is determined largely by the extent to which
the average deferred availability schedule is shorter than the
average collection period, as well as by irregular mail and
express service. During 1949, the daily average "float" of this
bank amounted to $9,754,000 as compared with $12,095,000
in 1948, although the peak for a particular day amounted to
$49,424,000 in 1949 as against $22,514,000 in 1948. The
reduction in daily average "float" during 1949 was due
partly to the smaller dollar volume of items handled, but the
more important factor was the constant study by this bank
of mail and express schedules and the systematic reduction
of average collection time through increased use of air mail
and air express.
Reflecting the strong demand from both bank and nonbank
investors for United States Government securities, the holding
of such securities in the Federal Open Market Account averaged 9 percent lower in 1949 than in 1948, but this bank's
average participation in the Account, which amounted to
42

$846,000,000, declined 13 percent. The bank's smaller participation relative to other Federal Reserve banks was due to the
fact that this bank was allotted a smaller percentage participation during 1949 than in 1948. The percentage of total
System holdings allotted to each Federal Reserve bank is based
upon its estimated requirements for expenses and dividends
in relation to the System total.
The funds derived by member banks from the net increase
in customer deposits, as well as those which became available
to the banks through successive reductions in member bank
reserve requirements, were invested to a considerable extent
in Government securities. Moreover, the change in relative
yields on various types of Government securities induced substantial portfolio readjustments at member banks. As a consequence of these factors this bank handled, during 1949, a
total of 3,518 transactions involving the purchase or sale of
Government securities for 323 member banks in the amount
of $1,059,000,000. This sum represented an increase of $429,000,000, or about 70 percent, over the amount handled in
1948.
CASH DEPARTMENT OPERATIONS

The volume of operations in each function performed in
the Cash Department increased during 1949. One of the most
essential operations is that of supplying currency and coin
to the commercial banks, which in turn, pay the money to
and receive it from the public in accordance with the demand.
In consequence, the requirements of the public determine
indirectly the flow of currency out of and into this bank. The
commercial banks order money from this bank from time to
time to meet the estimated public demands, and when the
volume of money received from the public exceeds the
demand, the accumulated supply is shipped to this bank. The
flow of money has two important characteristics. One is that
the bulk of money shipments is likely to be made in relatively
small amounts to, and paid into circulation by, the commercial
banks in towns outside the principal centers. Then a large
proportion of the money paid out in the rural areas flows to
43

the trade centers where it accumulates at member banks which
ship it in relatively large amounts to this bank. This accounts
for the fact that the number of out-going shipments is usually
two or three times the number of incoming shipments, even
though the amount returned to this bank may be approximately the same as that paid out. The other characteristic
is the seasonal factor in the flow of money. During the early
months of the year, when agricultural activity is at a low
ebb and there is a tendency for business and industrial operations to slow down, large amounts of money are deposited in
member banks, which return it to this bank for retirement.
As a result, the amount of incoming shipments during that
period exceeds outgoing shipments by a substantial amount.
From May to November, the amount of money which this
bank ships to commercial banks exceeds substantially the
amount it receives from them. In December, the heavy
demand for money usually continues until the Christmas
holiday, but the return flow from circulation in the final
week of the month is so large that the amount of incoming
shipments for the entire month usually exceeds substantially
the amount of outgoing shipments. Despite these marked
seasonal trends in the demand for money, there is a constant
and substantial flow out of and into this bank throughout
the year. The aggregate number of shipments is likely to reach
a low point in January or February and a peak in September
or October. The low point in the amount of money handled
by this bank is also reached in January or February, but
reaches its peak in December. The accompanying chart reveals
the relatively small number of incoming shipments as compared with the number of outgoing shipments, as well as the
marked seasonal variation in the two types of shipments.
During 1949, there were 106,077 incoming and outgoing
shipments of currency and coin in the amount of $1,372,000,000, representing increases over 1948 of 405 in the number of shipments and of $86,000,000 in amount. The number
of pieces of currency received and counted totaled 128,880,000, valued at $691,000,000 representing increases over 1948
of 9,520,000 in number and $16,181,000 in amount. The
number of coins received and counted totaled 214,292,000
with a value of $16,652,000. These figures indicate increases

44

SHIPMENTS OF MONEY TO AND FROM COMMERCIAL BANKS
FEDERAL RESERVE BANK OF OA!-LAS
HUNDREDS

120

o~--~~~--~--~--~~~--~--~--~--~--~--o
1947'
1948 ,.
) 1949 '

over 1948 of 19,668,000 in number and of $1,550,000 in
amount. These data indicate an increased demand for coin
of the larger denominations and for currency of the smaller
denominations. A significant development during the year was
a noticeable increase in the number of counterfeit bills in
circulation, principally in the $5, $10, and $20 denominations.
The currency sorters of this bank were successful in detecting
a large number of them when they were received at the bank.
The number of telegraphic transfers of funds made at the
request of, or received for the account of, member banks
totaled 80,337 in the aggregate amount of $20,167,000,000,
representing increases over 1948 of 879 in number and $2,165,000,000 in amount.
On December 31, 1949, this bank was holding for member
banks and others, securities amounting to $945,000,000, an
increase of $111,000,000 over the amount held a year earlier.
This increase resulted chiefly from the heavy purchases of
Government securities by member banks as reserve requirements were reduced. Reflecting the increase in custody activities, this bank clipped 130,900 interest coupons from securities

45

held in custody, an increase of 18,200 over the total in 1948.
The number of United States Government coupons paid
during 1949 totaled 375,800 as compared with 350,000 in the
preVIOUS year.
The arrangement for transporting currency and coin to and
from member banks in Fort Worth, Texas, by armored motor
truck service, which was instituted in 1948 as an economy
measure, continued to operate satisfactorily in 1949 and
resulted in a saving for the year of approximately $13,000.
There was no relief during the year from the difficulties
experienced in furnishing adequate amounts of currency and
coin to member banks in the South Plains Area of Texas
because of the limitations imposed by postal authorities on
the amount of money that can be transported over star mail
routes on any one day. Due to the exceptionally heavy demand
for currency and coin needed to finance the harvesting of the
large crops produced in that area in 1949, the bank arranged
for convoy service in shipping money to certain member
banks during the fourth quarter of 1949 at a cost of $1,112.
The increase in interstate express rates, which became
effective September 9, 1949, increased substantially the cost
of transporting currency and coin to this bank from member
banks in Arizona, New Mexico, Louisiana, and Oklahoma.
CHECK COLLECTIONS

For the seventeenth consecutive year, the number of
checks and drafts received by this bank for collection increased
further during 1949, when 115,800,000 items were handled.
This number represented an increase of 4 percent over the
number handled in the preceding year. The value of checks
and drafts handled during 1949, which aggregated $36,524,000,000, decreased by 3 percent from that in 1948, after
having increased steadily for the ten preceding years. The
record day in 1949 occurred on November 12, when 618,000
items were handled, but this number was 114,000 less than
the all-time record established on November 8, 1946. The
46

CHECKS AND COLLECTION DRAFTS HANDLED, 1930-1949
FEDERAL RESERVE BANK OF DALLAS
OII .LIONO OF OOLLAR«

MIL LIONS Of' ITEMS

f<:u

[120

IOO~~ NUMBER OF ITEMS HANDLED

-------4ll---t31--J;fl--li~-1IOO

~ AMOUNT OF ITEMS HANDLED

An~---------------=~~~~~~~~80

20

"

19,394,000 United States Treasury checks handled by this
bank during 1949 represented an increase of 10 percent
over the total in 1948. One factor in the increase was the
substantial increase in the personnel at various military
establishments in the Nation, and another, probably the more
important, was the exceptionally large number of income tax
refund checks issued in 1949 as a result of the reduction in
income tax rates which became effective in 1948.
The number of dishonored checks returned by drawee
banks to this bank in 1949 showed an increase of 12 percent
over the total in 1948, but the amount involved decreased
by 7 percent. The substantial increase in the number of
unpaid items reflects a trend throughout the country.
Further progress was made during 1949 in the use of air
mail and air express to expedite the collection of checks
and drafts. This bank is now using air transportation to
forward cash letters to 52 banks in the Head Office territory
and to all other Federal Reserve banks and branches where
studies have revealed that the use of air transportation will
permit the collection of checks one or two days earlier than if
forwarded by rail. During 1949, the practice was adopted

47

whereby the member banks located in the Federal Reserve
bank or branch cities would consolidate shipments of checks
to other Federal Reserve banks and branches with those
forwarded by this bank and its branches in order to expedite
the sending and presentation of the checks. This has also
been beneficial to the member banks because this bank has
absorbed the cost of transportation of the shipments.
Under the provisions of Regulation J as amended by the
Board of Governors, effective January I, 1949, any check
which a Federal Reserve bank presents to the drawee bank
for payment and for which remittance is made by the drawee
bank on the day it receives the check, may be returned for
credit or refund at any time prior to midnight of the drawee's
next business day. This permits a bank to remit for checks
on the day of receipt and then to post them the following day.
This has tended to speed up settlement for cash letters as banks
which formerly received cash letters late in the day were
unable to post the items and remit for them the same day.
While the law permitting this practice has been in effect in
Texas since 1943, the revision of Regulation J extends the
privilege to banks in all other states included in the District.
Under an agreement with the Federal Reserve Bank of
Atlanta, this bank revised its bulletin on the collection of cash
items so as to permit deferred credit of not more than two
business days for items drawn on all points in Louisiana when
they are deposited with the Head Office of the Federal Reserve
Bank of Dallas or are forwarded direct to the New Orleans
Branch of the Federal Reserve Bank of Atlan~a.
CHECK ROUTING SYMBOL PROGRAM

The program, instituted in 1945, of having a routing
symbol placed on the checks of all par remitting banks made
slower progress during 1949 than in any of the preceding
three years. The symbol, constituting a series of numbers,
readily identifies the Federal Reserve bank or branch at
which checks of a given bank are receivable for collection.
When the use of the routing symbol becomes general, the
sorting and routing of checks by both commercial banks and
Federal Reserve banks will be simplified greatly, thereby
increasing the efficiency and speed of collecting out-of-town
48

checks. Virtually all of the par remitting banks in this District
now have many checks in circulation bearing the routing
symbol in the approved location.
The progress during 1949 was relatively slow, partly because
the program has now reached the stage where appreciable
gains percentagewise in relatively short periods are very difficult. Another major impediment to rapid progress is the
action of business concerns, unfamiliar with the program, in
having their checks printed without the symbols. A survey
as of December 1, 1949 showed that 71 percent of the checks
in circulation drawn on par banks in this District carried
the routing symbol of the drawee bank in the approved
location. This represents an increase of only 2 percentage
points during the year which compares with a gain of 13
percentage points in 1948. Despite the small gain in 1949 this
District ranks fourth among Federal Reserve districts and is
4 percentage points above the national average. The percentage for the country as of December 1, 1949 was 67 percent as compared with 58 percent on December 1, 1948.
Throughout the past year the program was encouraged
through correspondence and personal contacts with banks,
printers, and others concerned. The banks and printers generally have shown a fine spirit of cooperation and are rendering valuable assistance in promoting the program.
FISCAL AGENCY OPERATIONS

The volume of public debt and withheld tax transactions
continued during 1949 at approximately the same level as
in 1948. A further improvement in procedure, and thus in
operating results, made possible a reduction of 15 percent
in the working force handling fiscal agency activities at the
Head Office and branches. Except for the weekly offerings
of Treasury bills, there were no issues of marketable Government securities offered for cash during the year. Reflecting
the higher average yields on Treasury bills and the easier
reserve positions of member banks, allotments of Treasury
bills in this District amounted to $690,000,000, as compared
with $437,000,000 during 1948. An average of 74 tenders were
received weekly during 1949, as compared with 68 tenders
weekly during 1948.
49

Sales of Treasury tax and savings notes, amounting to
$36,206,000 during 1949, were $10,000,000 lower than in
1948. Redemptions were also down about the same amount
and aggregated $54,618,000.
Sales of savings bonds in the District during the year
totaled $202,000,000, or 7 percent less than in 1948, but
redemptions of $215,000,000 were down 10 percent. The
agents qualified to issue Series E Savings Bonds, numbering
1,222 on December 31, 1949, accounted for 97 percent of
such bonds processed through this bank. The agents qualified to redeem savings bonds of Series A toE, which numbered
1,012 on December 31, accounted for 95 percent of this year's
redemptions of such bonds. During the year, there were increases of 8 in the number of issuing agents and of 11 in the
number of paying agents.
At the end of the year, 71 0 banks were qualified as war
loan depositaries, and 598 as withheld tax depositaries,
reflecting a slight increase over the year in each type of
depositary.
During 1949, 22,320 Armed Forces Leave Bonds were
redeemed in the aggregate amount of $5 ,566,000. These
redemptions were only one-third of those during the previous
year with respect to both the number of bonds and the
redemption value.
Other principal activities pertaining to Government securities during 1949 included:
Allotting $676,000,000 certificates of indebtedness
and $77,000,000 Treasury notes on exchange subscriptions. These operations compare with $608,000,000 certificates of indebtedness and $85,000,000
Treasury notes allotted on exchange subscriptions
during 1948.
Redeeming marketable Government securities in
the amount of $1,351,000,000, an increase of $137,000,000 over the total in the preceding year.
On December 31, 1949, this bank held 121,071
savings bonds for individuals with a maturity value
50

of $13,284,000, representing decreases from December 31, 1948 of 11,000 in the number of bonds and
of $500,000 in maturity value.
An important development during the year was the issuance
of Treasury Department regulations, effective November 14,
1949, permitting the use of restrictive endorsements on called
or maturing United States Government securities to render
them non-negotiable before shipment to the Federal Reserve
banks. This procedure, which was developed after careful
study by the President's Conference Committee on Fiscal
Agency Operations, and considerable negotiation with the
Treasury Department, should be quite advantageous to banks
and to their customers using it, because of the distinct savings
that can be effected in transportation and insurance charges
on shipments of securities. Moreover, in the event of loss,
theft, or destruction of restrictively endorsed securities, relief
may be obtained as in the case of registered securities. While
the volume of securities handled under this procedure to
date has been nominal, the amount will undoubtedly increase
as banks become more familiar with it.
As a measure of economy and coordination of work, the
RFC-CCC Department on July 15, 1949, was merged with
and became a part of the Fiscal Agency Department of the
Head Office.
CUSTODIAN ACTIVITIES

The principal transactions handled for the Reconstruction
Finance Corporation consisted of servicing bonds, debentures,
and preferred stocks owned by the Corporation, making disbursements of and collecting funds for the account of its loan
agencies, and holding in safekeeping all primary and collateral
documents on loans serviced by such agencies. During 1949,
this bank collected approximately $53,000,000 and disbursed
$139,000,000 for the Corporation. At the end of the year, the
value of primary and collateral documents held in safekeeping for the account of R.F.C. loan agencies totaled $412,000,000. The safekeeping program was quite active during the
year since the Corporation purchased a large number of
51

housing loans on which the documents were forwarded to this
bank as custodian, and later large numbers of releases were
made to. the Corporation because of sales to various insurance
compames.
The activities for the Commodity Credit Corporation,
which increased sharply during 1949, included the processing
of 460,000 producers' notes in the amount of $124,000,000,
covering 861 ,000 bales of cotton placed in the 1948 and 1949
Government loan programs. In addition, warehouse receipts
covering 113,000 bales of cotton securing notes in the amount
of $16,000,000 were received from one of the Cotton Cooperative Marketing Associations. During the year, 230,000 notes
secured by 439,000 bales of cotton were released to producers
or equity purchasers, who paid notes in the amount of
$66,000,000, and 214,000 bales of cotton were moved from
one warehouse to another. Also, 93,000 notes amounting to
$35,000,000, secured by 220,000 bales of cotton, were released
to the Commodity Credit Corporation for pooling. This bank
disbursed to lending agencies and cooperative marketing associations, in connection with the cotton loan programs, approximately $95,000,000 in cash and $107,000,000 in certificates of
interest. It also disbursed $191,000,000 to lending agents
in connection with Government loan programs involving
other agricultural commodities, chiefly wool, wheat, peanuts,
and potatoes.
CUISINE SERVICE

The bank's dining room and snack bar continued to operate
efficiently and to provide satisfactory service during 1949,
and as a result, a further reduction in the net cost of operation
was effected. During 1949, total operating expenses of the
dining room and the snack bar amounted to $93,962 and total
receipts amounted to $65,060. These figures represented
increases over the respective totals for 1948 of $6,028 in
expenses and $10,012 in total receipts. Consequently, the
bank absorbed only $28,902, or 31 percent, of the total cost
of operation during 1949, as compared with $32,886, or 37
percent, during 1948. The number of sales transactions in
1949 showed an increase of 19 percent over that for 1948.

52

FEDERAL RESERVE BANK BUDGET

This bank submitted to the Board of Governors separate
budgets for the Head Office and its branches at El Paso,
Houston, and San Antonio for the calendar year 1949, after
approval of the Board of Directors. In line with the established
budgetary procedure, the officers responsible for supervision
of the several functions have kept in close touch with the
actual cost of the various operations in relation to the budget
estimates. After making allowance for factors which could not
be anticipated at the time the budgets were being prepared
in the late summer of 1948, especially the increased salary cost
which resulted largely from the change in the salary structure
which became effective April I, 1949, the actual expenses
incurred at the several offices were reasonably well in line with
the budget estimates. A special report concerning expenses
in 1949 in comparison with the budget estimates for that year
will be furnished the directors at an early date.