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FEDERAL RESERVE BANK
of KANSAS CITY
FEDERAL RESERVE BANK OF KANSAS CITY
January 31, 1959
To the Member Banks of the
Tenth Federa I Reserve District :
I am pleased to send you the Annual Report of the Federal
Reserve Bank of Kansas City for 1958.
The year 1958 was marked by a sharp transition from recession to recovery. This report presents an analysis of this
swift fluctuation in the Tenth Federal Reserve District and the
Nation . A feature of the presentation is the explanation of the
relative mildness of the recessionary impact in the District in
terms of its distinctive pattern of economic life. The banking
community of the District-in common with banking throughout the Nation-responded to national financial developments
as expressed in Federal Reserve policy and in money and capital
markets . At the same time, District banks also mirrored the
relatively favorable economic environment of the region .
The operations of this bank, which reflect the influence
of economic and other events during the year, are summarized
in this report.
#;{4
H. G. Leedy
President
YEAR OF TRANSITION
In the District and the Nation
5
Regional and National Dimensions
5
A Regional Contrast
7
Contribution of Agriculture
7
Durable Goods Impact
9
More Stable Sectors
The National View
13
14
Onset of Recession
14
Prompt Recovery
16
Factors in the Quick Upturn
19
Financial D evelopments in 1958
20
Downturn and Credit Ease
20
Recovery and Reduced Credit Ease
23
BANK OPERATlONS
26
Services as Fiscal Agent
31
Member and Nonmember Banks
31
Bank Examination
32
Research
32
.
Changes in Directors and Officers
32
DIRECTORS AND OFFICERS, 1959
34
7}ear o/ :lrandilion
IN THE DISTRICT AND THE NATION
1958 was crowded with historical events in the Nation's
economy. The recession which began in the late months of 1957 proved to be
the sharpest, yet shortest, of the postwar business slumps. Accompanying this
quick swing was the unusual coincidence of several striking statistical movements during the summer. Personal income reached a record level, while the
unemployment rate mounted to peak postwar levels. A record peacetime deficit
in the Federal budget was announced. In the capital markets, too, strikingly
divergent movements were in evidence as bond prices d eclined precipitously
and stock prices attained a new record high.
THE CALENDAR FOR
The contraction of economic activity was of short duration. Gross national
product, after attaining a record rate in the third quarter of 1957, fell during
the following 6 months. In the spring quarter of 1958, this broadest of economic indicators turned upward and by the final quarter reached a new high.
The number of men and women required to produce that record value of
goods and services, however, was substantially less than had been needed
earlier and consequently unemployment remained high. Sharply rising manhour productivity and a changing pattern of output contributed to the smaller
labor requirements. In addition, all of the gain in the dollar volume of GNP
was not an expansion of real output. While prices were generally stable during
the recovery period, over-the-year advances inflated the dollar total of output.
In terms of broad components of demand, the 1957-58 fluctuation was unlike
its predecessor, the post-Korean adjustment, in several respects. National security purchases were only a minor element in the decline and subsequently
contributed to recovery-in contrast to their substantial depressing influence in
the previous cycle. On the other hand, net foreign investment, which had a sustaining influence in the 1953-54 period, fell sharply in the recent contraction
before leveling off. Finally, weakness in business demand for inventory and
durable equipment and in consumer demand for durable goods was apparent
in both periods, but assumed much larger proportions in the latest one.
Regional and National Dimensions
Yet, while the source of demand changes varied in kind and intensity, the
impact on output displayed familiar structural characteristics. Foremost of
these was the heavy concentration of reduced output in durable goods. Pro-
5
Year of Transition
duction of hard goods dropped one fifth during the downturn, while nondurable
goods output declined only about 5 per cent. Similarly, during the recovery
period, while soft goods production moved to new highs, the sharpest relative
gains were again in durables. This noticeably greater effect of the business
cycle on durable goods activities-while characteristic of the recent period as
well as the preceding adjustment-is not limited, of course, to those particular
movements. Rather it is historically typical of business fluctuations in industrial nations.
It is also characteristic of nations with vast land areas, such as our own, for
economic activity to display considerable geographical specialization. Some
regions or areas are more heavily industrialized than others. In some instances,
industrial activity is based strongly upon durable goods production. Other
areas are more basically oriented to agriculture or other extractive industries.
Some display rather extensive diversification.
The combination of these two characteristics- differential structural adjustments and regional specialization-operate to produce geographical variations
in economic performance during cyclical movements. To most individuals and
to many business firms, the regional dimension is truly an important aspect of
a business cycle. It is in local labor markets that most people seek employment and obtain their livelihood, and similarly it is in local and regional markets
that many businesses sell goods and services. Thus, national business fluctuations are brought home through their structural and geographical impacts.
To the residents of the Tenth Federal Reserve District, the business fluctuation of 1957-58 was transmitted in somewhat subdued proportions. This
fortunate development was related, in a fundamental sense, to the particular
pattern of activity in the District. Extensive specialization in manufacturing,
particularly in durable goods production, is absent. Due largely to this structural characteristic, the District was relatively immune to the effects of the
recession. Seldom, however, do such differential economic developments appear
clear and clean-cut because events in a given area respond to a broad range of
influences. Thus, in the District for example, over-all activity relies rather
strongly upon agriculture-which, through a coincidence of good weather,
Government programs, and a sustained demand for food, staged a sharp recovery during the period. Also, the level of activity in several areas is heavily
dependent upon decisions of government, such as those which relate to the
Nation's defense requirements. Nevertheless, although it is often complex, the
relationship between industrial and regional specialization provides a useful tool
for understanding the geographical impact of the recession.
Important as it is to individual economic units, however, regional analysis
must yield, at a point, to analysis of national aggregates. Policy measuresboth monetary and fiscal-most useful in attempting to control over-all activity
operate, to an important degree, through money and capital markets which are
6
Year of Transition
national in scope. It is true that some policies may have differential effects
upon different sectors of activity or regions. Therefore, intelligent dovetailing
of policy and business conditions presupposes structural and regional analysis.
At the same time, however, the policy measures are ordinarily so broad in
their effects that they cannot be tailored for, or limited to, individuals, firms,
or even regions. Accordingly, the national economic experience, outlined in
terms of aggregate indicators, must be carefully considered. Federal Reserve
policy and d evelopments in the banking system and the capital markets are to
be understood largely in the context of the experience portrayed by these indicators.
A Regional Contrast
U nderstan<ling th e Distric.;t story of lesser involvement in the 1957-58 business
cycle depends upon a familiarity with some of the characteristics of economic
life in the region. While the distinctiveness of the District's economic strncture
is apparent when compared with the national average, it is even more evident
when related to more industrialized areas. An outstanding example is found
in the states of Michigan, Ohio, and Indiana, which are located astride the
Nation's "manufacturing belt" and are the center of durable goods production.
Since the recession had its greatest impact on the d emand for and production
of durable goods, it is reasonable that regions less highly specialized in such
activities would feel the recession less keenly than areas oriented to hard goods
production. Accordingly, the impact of the recession in the District may be
traced in terms of its structural characteristics compared with those of the states
comprising the "durables center" of the Nation.
Contribution of Agriculture
For several years, following the prosperity of 1951-52, District agriculture
experienced progressively greater hardships. More recently, its fortunes have
been brighter. Prices received, after recovering materially during 1956-57, increased sharply in the early months of 1958. Although they subsequently weakened somewhat, prices received in 1958 for the year as a whole averaged
higher than in any year since 1953. But higher prices are of no advantage to
the farmer unless he is able to produce and market commodities. For District
farmers, prospects for production began to improve during 1957. The rains
returned and b egan to restore depleted surface and subsoil moisture. This gave
new vigor to growing crops, greened-up the ranges and pastures, and conditioned the ground for fall planting.
Winter wheat was planted and germinated under nearly ideal growing conditions over vast areas of the District in the fall of 1957. With the continuation
of favorable weather, the wheat harvest in 1958 yielded more than twice that
of the previous year and about half again as much as the 10-year average from
7
Year of Transition
1947 through 1956. Corn output increased by one fourth from the 1957 total
and significant production gains also were recorded for several other crops,
including soybeans, cotton, grain sorghum, barley, and hay.
Of particular significance to the District also has been the turn upward in
livestock production. This development is related to the accumulation of feed
supplies and to favorable livestock prices. While the effects of this stimulation
are now apparent in hog and broiler production, a considerably longer period
is necessary before cattle production increases. In the initial stage, in order to
build up foundation herds, the demand for livestock for restocking rises substantially. Thus, while all cattle prices have increased during the last 2 years,
cow prices have risen relatively more than slaughter steer prices. To the cattle
range country of the District, these market developments, as well as favorable
range conditions, have been very important. Feeder steer prices increased along
with slaughter steer prices through the early months of 1958 and subsequently
held rather firm when the latter weakened somewhat.
8
Year of Transition
Both market demand factors and Government programs contributed to price,
and hence to income, developments during the year. For example, the decreased volume of livestock marketings was able to elicit a large rise in prices
because the demand for livestock and products is rather inelastic. Thus, the
advance in prices more than compensated for the drop in volume. In crops,
a large part of the increase in production was in commodities for which Government price supports had been established. Winter wheat prices, for instance, after rising during the first half of the year, declined substantially as
the bumper crop materialized and support levels were reduced. However, increased loan activity by the Commodity Credit Corporation, occasioned by the
greatly enhanced volume of wheat, set a floor on the price decline.
The net effect of these various developments augmented handsomely the flow
of income to District farmers. Cash receipts from farm marketings were approximately two fifths larger than in 1957. Nationally, receipts ran ahead of
1957 by about one tenth. This substantial improvement in the District returned
the volume of receipts to about the high levels of 1951-52. Receipts from crop
marketings in the District rose substantially, while livestock receipts increased
more moderately. Among the states, Kansas and Oklahoma had the largest increases in cash receipts from 1957-about 70 per cent and 50 per cent, respectively.
While favorable agricultural conditions were widespread across the Nation,
the gain in this region was substantially greater than in most others because it
represented recovery from drought-induced depression during preceding years.
This recovery, combined with the significant role of agriculture in the District,
contributed materially to the strength of economic activity during 1958. The
support was evident in the increased volume of goods and services flowing
through farming communities, as well as in many of the major distribution channels of the large cities of the District.
Durable Goods Impact
Over the year ended in April 1958-when the downturn reached its troughstates with employment losses substantially greater than the national average
were located, almost without exception, in the manufacturing belt. These are
states with concentrations of employment in primary and fabricated metals,
electrical and nonelectrical machinery, and transportation equipment. Other
groups of states, less specialized in hard goods or more diversified, generally
reported more favorable employment experiences than the national average.
The District is a good example of the latter group. About half of the District's manufacturing employment-and only a tenth of total nonfarm employment-is supplied by firms producing durable goods, which is considerably
less than the national proportion. On the other hand, in the states of Michigan,
Ohio, and Indiana-the "durables center"-hard goods employment accounts for
three fourths of factory employment and one third of the job total. Their de-
9
Year of Transition
Change in Nonfarm Employment
April 1957 to April 1958
11111 -~~ OR MORE
El -3.0 TO -4. 9%
~ -2.0 TO -2.9%
i;::\:l:(:i
D
-0.1 TO -L9%
+O . I OR MORE
NATIONAL AVERAGE
NOTE: Tenth Federal Reserve District outlined in heavy black.
SOURCE : U. S. Department of Labor, "The Labor Market and Employment Security," July 1958.
dines in nonfarm employment between April 1957 and April 1958 were well
above the national average and, indeed, were not exceeded in any other state.
The explanation of this uneven impact is contained largely in the relative
significance and performance of durable goods industries. In the District, durable goods employment reached a peak in the late summer of 1957 and thereafter fell for about a year, culminating in a reduction of 12 per cent. In the
"durables center," employment in hard goods production began to decline much
earlier and from the beginning of 1957 to its low point in July 1958, fell about
25 per cent. In general, the District performance seems to be associated with
the sustained level of over-all activity and with differences within the structure
of durable goods production between the District and the "durables center."
It appears, for example, that the assembly of passenger cars in the three
plants within the Kansas City Metropolitan Area weakened less during the
recession and showed greater strength in recovery than did national output
of such vehicles. This development is undoubtedly related to the much better auto sales record in District states. While new car registrations fell, the
decline was considerably less than in the Nation and in the "durables center."
10
Year of Transition
For the most part, the market territory served by the Kansas City plants conforms very well in economic characteristics with that bounded by the District.
Or, to take another example, steel production at mills in Pueblo, Colorado, and
Kansas City was better maintained than the national average during the months
of d ecline. Since the composition of output in these plants and the markets
they serve are highly dissimilar, a generalization concerning the reasons for
their better performance is inadequate because of individual circumstances.
However, rising demands associated with highway building and other construction in the region and with agricultural production and crop storage needs
probably contributed to th e orders flowing to District mills. The economic
effect of better sustained durables production in the District is well illustrated
by the Pu eblo area. Even though manufacturing employment is extremely dependent upon durable goods production, total nonfarm e mployment in the area
showed a cons istently favorable comparison with the "durabl es center" during
the entire period of the recess ion.
Moreover, the configuration of durable goods production in the District differs broadly from that in the "durables center." Auto production is not nearly
so important a component of durable goods activity, and the share of primary
and fabricated metals, machinery, and producers' durable equipment is not so
large a proportion of total manufacturing output in the District. Consequently,
since demand and output reductions struck very sharply in such industries, the
structural characteristics of durable goods production in the District also acted
to moderate the impact of the recession.
The District itself, of course, is far from homogeneous and some areas of
specialization in hard goods production felt the downturn keenly. The largest
employment decl ine in durabl es manufacturing between the summer of 1957
and the spring of 1958 occurred in Kansas , followed by Oklahoma and Colorado.
In Kansas, Wichita and Kansas City accounted for the major share of the reduction, which was centered in transportation equipment. Similarly, the Oklahoma loss was centered in Tulsa and Oklahoma City. For the most part, Tulsa
sustained the brunt of the reduction, largely in its transportation equipment
and machinery industries. The decline in the latter industry was related to
the contracted scale of oil well drilling operations and crude oil production.
In Colorado, the major decline in durable goods employment took place in
Pueblo.
In the transportation equipment group, the source of weakened employment
was predominantly in military aircraft production. Although employment fell
off in Kansas City auto plants, the major weakness in durables was centered
in Wichita and Tulsa aircraft production. The magnitude of the reduction in
the two areas may be indicated by noting that they accounted for two fifths
of the decline in District total manufacturing employment between the summer of 1957 and the spring of 1958.
11
Year of Transition
However, the changing requirements of the Nation's defense program result
in many diverse geographical impacts. Accordingly, within the District during
the last year, other areas were favored by increased orders for military hardware, an occurrence that in itself helped prevent or moderate weaknesses in
other activities. Among the major metropolitan areas so favored were Albuquerque, Denver, and Kansas City.
In summary, retrenchment in durable goods employment was by far the
major source of weakness in District manufacturing activity during the recession.
Approximately 60 per cent of the total decline in District manufacturing employment occurred in the durables category. In the "durables center," however,
the corresponding proportion was about 90 per cent.
During the summer, durable goods employment turned upward in both the
District and the "durables center." In the latter area, however, the pickup was
much more rapid and increased durable goods production supplied about 90
per cent of the gain in manufacturing employment through November 1958.
In view of the relative mildness of the downturn in District durables production,
12
Year of Transition
it does not seem unreasonable that the recovery should be less spectacular.
Moreover, the District upturn in durables was weakened by the continued d ecline in military aircraft employment at Wichita and Tulsa. Once again, a
meas ure of the significance of developments in these two areas to the District
may be noted. Excluding both areas from the District totals, durables contributed about half of the increase in manufacturing employment through November, while their inclusion reduced the proportion to about 10 per cent.
More Stable Sectors
Other than the retrenchment in durabl e goods employment, the most signifi cant decline in District manufacturing activity during the recess io11 occurred
in the food industry. This was largely seasonal and, in turn, the seasonal upturn
in food em ployment corresponded with the general recovery movement.
When District d evelopments in the nonfann nonmanufacturing sector during
the recession p eriod are compared with the Nation or the "durables center," the
conclusions are broadly similar to those resulting from the comparison of manufacturing. In general, activities such as trade, services, transportation and
public utilities, and mining are strongly influenced by the income generated
and the goods and services required by the more volatile industries in the
economy. Consequently, with income and production better maintained in the
basic industries of the District than was generally true of the Nation or the
"durables center," it is not surprising that comparisons favorable to the District
are found in other sectors of the nonfarm economy.
The District did experience a relatively large employment loss in mining.
This is due to the heavy dependence of District mining upon crude oil production, which ex perienced a sharp downturn . Even though District crude
production did not fall as much as national output, the decline was large enough
to cause District mining employment to fall 10 per cent. The impact of the
reduction in petroleum output was reflected clearly in the mining employment
losses among the District states. Kansas, New Mexico, and Oklahoma-states
in which petroleum operations are extensive-experienced by far the largest
declines.
From the foregoing analysis, the conclusion may be drawn that the District's
relative immunity to the recent recession was largely a consequence of its
structure of production. Because of the importance of the comparatively more
stable activities in the District and due to the agricultural recovery, the recession was moderate. By the same token, however, the stable elements tend to
temper expansion during prosperity. In addition, the relatively stable activities
are often, unfortunately, comparatively low sources of income.
13
Year of Transition
The National View
Certainly, the most significant economic event nationally during 1958 was
the quick turnabout in over-all activity. Total output, which began to decline
in the autumn of 1957, reached a trough in the first quarter of 1958 and in
the last half of the year rose rapidly. With the final quarter of the year, output
in real terms had approximately regained the previous record. In magnitude,
as well as sharpness, the contraction set a record for the postwar period. Total
output, measured in constant dollars, fell about 5Jt per cent, which exceeded
the declines of 2 per cent and 4 per cent in the 1948-49 and 1953-54 business
downturns.
Measured by its impact on resources also, the recession was intense. The
rate of capacity utilization in industries producing major materials fell about
one fourth, compared with a decline of less than one fifth in the previous downturn. Unemployment, as a seasonally adjusted per cent of the civilian labor
force, mounted to more than 7 per cent early in 1958 and persisted at that level
of rates for several months, the highest since prior to World War II. With the
recovery in output after the early spring, rates of capacity use mounted and
by year's end recorded substantial gains. In contrast, improvement in nonfarm
employment occurred slowly-even more so than in the two earlier postwar recoveries-and it was not until late in the year that any significant decline in the
unemployment rate was apparent.
In general, prices were firm during the cycle, a characteristic which it shares
with the previous postwar fluctuation. While prices were higher at the end of
1958 than they had been when the downturn began, most of the rise was centered among consumer items, largely food and services, rather than industrial
commodities. The recovery has advanced under conditions of generally stable
prices and has represented primarily gains in physical output.
Onset of Recession
In the months prior to the downturn in the autumn of 1957, a gradual change
in the tenor of business was apparent. While employment and income were
climbing to record highs during the summer, the expansion in real output had
already ended. Prices-it was recognized at the time-were advancing and accounting for nearly all of the rise in gross national product. Now, with information subsequently available, this key development is more clearly evident.
APPROACH OF THE DowNTURN. Growth in real GNP ceased during late 1956,
and for four quarters this aggregate measure of activity was almost stable in real
terms, although rising prices carried the current dollar total up about 3" per
cent. Final purchases-GNP less inventory changes-in terms of constant dollars
were unchanged during the first three quarters of 1957. This, in turn, contributed to inventory liquidation-a movement which is generally related to
developments in final demand.
14
Year of Transition
At the same time, the severe strain on the Nation's resources, which was characteristic of most of 1955 and 1956, moderated. Year-to-year gains in employment diminished as 1957 progressed and the proportions of the adult population
in th e lahor force-the participation rates-fell hehind those of 19.56. The length
of th e workweek decl ined. Jn capital resources also, a significant easing of
pressure was ev ident as output lagged behind capacity expansion.
CAPITAL Goons BooM ENDED. The most recent boom has often been termed
a capital goods boom. As the cycle approached its crest in 1957, more than 11
per cent of th e national output was going into business investment. Yet, a
more conservative attitude toward additional new investment already had appeared. The attit11de was related to several fa ctors- to the d evel opment of excess ca pacity in a general setting of stable real demand, to the cessation of
gains in profits as prod11dion fail ed to advance, to the weak demand for cons11mer durabl es, and to the cutba cks around mid-1957 in military procurement
of aircraft and other hard goods.
One of the initi al outward ex pressions of the growing caution was a tapering
off in the volume of new orders to capital goods producers. By the final quarter
of 1957, however, the end of the capital goods boom was altogether apparent.
Fixed business investment declined by about $1.5 billion from its third quarter
rate and the swing in inventories from accumulation to liquidation was $4.5
billion. Here too, however, rising prices masked the real trend , because fixed
investme nt, in constant dollars, did not rise after th e opening quarter of 1957.
During th e early months of 1958, the retrenchment in business outlays was
severe. Inventory liquidation in creased sharply and ex tended to trade stocks
as well as those of produ cers . The volume of fi xed investment in physical terms
dropped to as low a level as the trough in the previous recess ion and was featured by a particularly severe reduction in outlays of durabl e goods producers .
As investment outlays were reduced, business liquidity improved . A large
volume of short-term debt was retired and new borrowing was reduced. Liquidity of manufacturing corporations, measured by the ratio of current assets to
current liabilities, mounted and by the end of the second quarter in 1958 exceed ed the level for the similar period in 1955, the high of recent years.
EXPORTS DECLINED SHARPLY. Developments in U. S. foreign trade reinforced
the recent business recession, particularly through their impact on producers of
industrial materials . The Nation's merchandise exports (excluding military
grant aid), which reached a peak in the first quarter of 1957 during the Suez
crisis, d eclined during the remainder of the year and fell sharply in the opening
quarter of 1958, marking a reduction of more than one fifth. Meanwhile, U. S.
imports were maintained near the record levels of 1957.
The leveling off of economic activity in \Vestern Europe, Canada, and Japan
was largely responsible for the declines in U. S. exports. As consumption of
15
Year of Transition
industrial materials weakened in those countries, their purchases of steel, steel
scrap, copper, fuels, and cotton in the United States were reduced substantially.
Later in 1958, capital equipment exports from this country also declined, but
by a much smaller amount.
The role of exports in the more recent recession and recovery is in marked
contrast with that in the preceding cycle. During the 1953-54 decline, exports
helped to limit the recession and contributed to the recovery. In the most recent cycle, however, exports not only contributed to the decline in activity but
also failed to assist in the recovery.
Prompt Recovery
By mid-spring of 1958, the forces of recovery had gathered sufficient strength
to turn production and employment upward. Industrial output advanced nearly
12 per cent between April and November, recovering about four fifths of the
recession loss. In terms of the total output of real goods and services, about
two fifths of the loss had been made up with the third quarter. Nonfarm employment, however, responded more slowly, increasing only about 1.5 per cent,
on a seasonally adjusted basis, in the April-November period. In November,
the number employed was still about 1.7 million below the high of 1957, with
the deficit centered primarily among durable goods producers. Moderating the
expansion in employment, consistent with the enlarged volume of real goods
and services, have been a lengthening of the workweek, rapidly rising output
per man-hour, and the influence of longer-term shifts in the demand for labor.
CONSUMER MARICETS GENERALLY STRONG. Consumer purchases were maintained relatively well during the recession and were a major factor establishing
the basis for recovery. During the contraction period, expenditures declined by
only somewhat more than 2 per cent in real terms and by the third quarter had
recovered about three fifths of the loss. Weakness in consumer buying was centered primarily in the purchases of hard goods. The decline in purchases of
new autos was particularly severe, as sales early in 1958 dropped to the lowest
level for that season in 4 years. The output retrenchment which accompanied
the poor sales volume is estimated to have accounted for nearly one third of
the decline in national output between the third quarter of 1957 and the opening quarter of 1958. In the late months of the year, however, production of
1959 model autos provided a new stimulus to business activity.
Perhaps the unwillingness of consumers to purchase autos and other durables-and thereby in most cases to mortgage their future income-was related
to the absence of rising per capita disposable income, measured in constant
prices, after early 1956. Individuals may have elected to divert a larger proportion of their real dollar income to the maintenance of current consumption
standards and, accordingly, purchased fewer big-ticket durable items. Certainly, it is true that the proportion of consumer expenditures for nondurable
goods and services attained the highest levels of the past decade during the
spring and summer of 1958.
16
Year of Transition
17
Year of Transition
In addition to the well-sustained demand by individuals for nondurable
goods and services, it is worth noting that business and government demand
for these items was quite steady. Since the aggregate of these combined demands for nondurable goods and services constitutes approximately two thirds
of GNP, their importance in sustaining over-all activity-in the most recent cycle
as well as in its postwar predecessors-is clear.
The rise in demand for new homes also played a key role in the recovery.
Private nonfarm housing starts, after seasonal adjustment, spurted upward in
the spring of 1958 and in November reached the highest level in 3~~ years. The
general easing in the mortgage market, beginning late in 1957, and greater
assistance to home buyers through Federal Government programs appear to
have been primarily responsible for the advance, since Government-backed
homebuilding rose sharply. At the same time, the volume of conventionally financed new construction remained steady.
GOVERNMENT PURCHASES R1sE. A rising volume of government contracts and
purchases contributed to an expanding market for goods and services during
the recent cycle. The cut in national security programs, which occurred in mid1957, was reversed and contract awards for military procurement began to rise
before the end of the year. By the first quarter of 1958, the reduction had been
more than made up and awards continued to rise in the succeeding quarter.
Subsequently-about mid-1958-defense purchases began to increase as production and delivery schedules reflected the increased volume of orders. As a part
of its anti-recession program, the Federal Government accelerated placement
of supply orders and public works construction, which-along with increases in
the farm program and other activities-contributed to the advance in purchases
for civilian functions.
Yet, the major increase in government spending during the recession came at
the state and local levels. A rising volume of construction expenditures for
highways, which reflected the accelerated activity on interstate Federal-aid
roads, and for schools and other community facilities contributed materially to
the gain. Moreover, the number of employees working for state and local government units continued to advance.
INVESTMENT DECLINES TAPERED. Largely because of the sustainment in overall activity provided by these stabilizing and expanding elements of final demand, the drag originating in the business investment sector diminished. In
the spring quarter, the decline in plant and equipment outlays tapered off and
the rate of inventory withdrawal slackened. After midyear, the trend toward
moderation continued. At the same time, the volume of U. S. exports stabilized.
As business inventories were brought into closer harmony with orders and
sales, which again began to rise in the spring, the need for further liquidation
decreased. This development had a decidedly favorable influence on industrial
production. In the late months of 1958, inventory movements were largely offsetting. It is notable that durables inventories, where the runoff had been larg-
18
Year of Transition
est in the first part of the year, stabilized. Thus, although production and sales
continued to rise, decisions to rebuild stocks were not predominant. Similarly,
busin ess fix ed investment stabilized during the last half year and anticipations
pointed to some recovery in 19.59.
Factors in the Quick Upturn
Transition from contraction to recovery is an intricate process. It is worked
out through time and is probably only imperfectly understood at a point so
close to its unfolding. Yet, while the still-unanswered qu estions posed by a
fluctuation so sharp and hrief will continue to command investigation, some of
the hroad elements seem evid ent.
SUSTAINED INCOJ\-IE. The we ll -maintain ed rate ·of aggregate consumer buying
was directly rf'lated to the s11stained flow of personal incom e. After-tax personal
income, with seasonal adjustment, fell just slightly more than 1 per cent from
its peak in the third quarter of 1957 and by the third quarter of 1958 had more
than recovered its loss. At the same time, however, the current consumption
needs of many families, particularly in areas b earing the brunt of the recession,
were met by drawing upon savings and other financial reserves. Among those
whose incomes were relatively unaffected by the recession, the volume of savings apparently held up well.
Several influences helped to sustain personal income during the period of
d eclining activity and employment. Wage rates and salaries in industry continued to advance at a rather steady pace and Federal Government salaries
were adjusted upward at midyear. Farm income improved and corporate cash
divid end payments to individuals were maintained despite the sharp redu ction
in sales and profits.
Probably most important, however, in bolstering persona l income during the
months of sliding and low level activity were Government transfer payments.
They expa nded with the larger flow of unemployment benefits and higher payments under social security programs. Between August 1957 and the bottom
of the recession in April 1958, rising transfer payments offset half of the nearly
$9 billion decline, at seasonally adjusted annual rates, in wage and salary payments.
Of at least equal significance to the new highs in personal income recorded
during the third quarter of 1958 was the substantial gain in total disposable
income in real terms. The advance was the largest since 1955. During the
1956-57 boom, the ability of consumers to purchase larger quantities of goods
and services was gradually, but severely, circumscribed by rising tax payments
and prices. At its high in the third quarter of 1957, seasonally adjusted total
personal income was about 9 per cent above the level in the beginning quarter
of 1956, whereas the advance in real disposable income was only about 3 per
cent. Accordingly, the margin between the rapidly rising total of current dollar
19
Year of Transition
personal income and disposable income measured in constant dollars broadened
sharply during the period. Following the contraction in over-all activity, real
disposable personal income averaged little different from the level in early 1956.
Subsequently, as income expanded in a setting of relatively stable prices, real
income increased and in the third quarter of 1958 approached the peak of mid1957. Thus, a constriction upon expanding consumer purchases of goods and
services-in real rather than money terms-was being eliminated. The gain in
real income on a per capita basis, however, was just sufficient to return this
significant measure of economic welfare to its level of mid-1955.
ROLE OF GovERNMENT. Actions of government, at all levels, were basic to the
recovery. The expansion in total government demands for goods and services,
the income-sustaining influence of transfer payments, and the stimulation to
residential housing through Federal financing aids have been noted. Still, the
picture of the government impact on the national economy may he rounded out
considerably by viewing its aggregate fiscal program.
The relationship between changes in purchases and transfer payments and
in revenues in the national income accounts for government may be used for
this purpose. Expansion of total government expenditures during the recession
was accompanied by a declining volume of revenues. Tax receipts from individuals and business declined along with the reduced level of employment, income, and profits. As a consequence of these changes, the government position,
in terms of the national income and product accounts, shifted from a surplus
in the third quarter of 1957 to a deficit, which became increasingly large
through the spring quarter of 1958. With the subsequent expansion of activity
and tax receipts, the magnitude of the deficit was reduced somewhat. In a
sense, the shift to a deficit position is a measure of the net contribution by governm~nt to the flow of national income, although it does not take into account
the differential effects of changes in the various types of expenditures and
revenues.
Financial Developments in 1958
Financial developments during the year may be viewed as both direct and
indirect responses to alterations in business activity that displayed an almost
complete cycle. Thus, the year affords an opportunity to trace changes in credit
policy and developments in banking and capital markets under diverse economic
circumstances. During the first half of the year, credit policy and financial markets were related to declining economic activity, while in the last half they
reflected the renewal of economic growth.
Downturn and Credit Ease
Poucy ACTIONS. During the closing months of 1957 and the first half of 1958,
the emphasis of monetary policy was shifted from restraint of inflation to fos-
20
Year of Transition
tering ease in credit markets. Discount rates were reduced from 3~ per cent to
3 per cent by a number of Reserve Banks on November 15, 1957, and, after a
succession of additional reductions, to U per cent at all banks by May 9, 1958.
The reserve positions of banks were eased, both by open-market operations and
by reductions of legal reserve requirements. The reductions, occurring between
February 27 and April 24, reduced requirements by approximately $1.5 billion.
Fed eral Reserve purchases of securities supplied about $1.1 billion in additional
reserves to the banking system. Large amounts of reserves were absorbed by
a striking outflow of gold, a reduction of float, and repayment of borrowing by
member banks at the Federal Reserve. Nevertheless, the more ample reserve
position permitted banks to expand their investments and d eposits markedly,
with a resulting gain in bank liquidity and in the cash balances held by the
public.
FINANCIAL RESPONSES. The response in financi al markets to the recession and
credit ease was widespread. Symptomatic of the more ample credit supplies
was the movement of interest rates. Treasury bill rates fell spectacularly from
a high of 3.66 per cent in October 1957 to 0.635 per cent in May 1958. A less
extreme, but substantial, decline occurred in rates on longer-term instruments.
Yields on long-term Treasury securities moved from a high of about 3~ per cent
in October 1957, to lows of just over 3 per cent in April of last year. Rates on
state and local and corporate securities also fell .
Most of the bank reserves provided by the Fed eral Reserve System during
the first half of 1958 were used to expand bank investments. Commercial banks
added $6.4 billion of Treasury securities and $2.l billion of other securities to
their portfolios. These additions were accompanied by a growth of commercial
bank deposits, and the seasonally adjusted money supply (demand deposits adjusted and currency outside banks) plus time deposits increased $7.7 billion in
the 6-month period. As a consequence, the liquidity positions of both banks
and the public improved. The bank gain was evident in a declining loan-deposit
ratio and that of the public in the additions to liquid asset holdings.
Total deposits of all member banks increased from $164.2 billion in January
to $171.8 billion in June, on an average daily basis. In the District, the increase
was from $7.6 billion to $7.7 billion. Time and savings deposits at commercial
banks rose almost twice as rapidly as in the first half of 1957. The growth reflected large increases in time deposits of corporations, state and local governments, and foreign banks, as well as of individuals. Rates of return on these
deposits were generally maintained, while yields on marketable securities declined.
Although bank loans remained virtually stable, the total concealed important
offsetting movements. Business and consumer loans at all commercial banksreflecting reduced business activity as well as seasonal changes-declined $1.9
billion during the first 6 months of 1958. Somewhat more than offsetting the
21
Year of Transition
reduction, however, were increased demands for security, real-estate, and farm
loans. An interesting contrast, consistent with the earlier analysis of the District, may be noted between District and national loan experiences during the
first half of the year. Business loans at weekly reporting member banks in the
District appeared to follow a seasonal pattern, remaining slightly above the
levels in the first half of 1957. In the Nation, on the other hand, a strong cyclical decline was dominant.
CAPITAL MARKETS AND BANK INVESTMENT. One of the striking developments
in the capital market was the extraordinarily large volume of new securities
issued. Despite reduced investment in new plant and equipment and in inventories, corporate security offerings declined only 13 per cent from the first half
of 1957. Also, during the first half of 1958, the Treasury endeavored to lengthen
the maturity of the outstanding debt. In financing operations during February
and June, the Treasury issued $15.6 billion of bonds maturing in over 5 years.
In contrast, only $1.3 billion of bonds in that maturity range were issued in all
of 1957. Finally, the long-term debt of state and local governments mounted
rapidly during the first part of the year as these units, responding to low interest rates, obtained more funds for their many construction projects.
Despite the large volume of securities absorbed by the capital markets, the
supply of funds for the residential mortgage market expanded. With prospects
for a reduced supply of corporate and municipal securities later in the year, institutional investors began to increase their commitments to the mortgage market. And since rates on Government-backed mortgages declined only slightly,
they were more attractive than alternative investments to invt s~ors such as insurance companies, mutual savings banks, and savings and loan associations.
The increase in homebuilding was largely a response to the enlarged flow of
funds from these sources as well as from Federal assistance programs.
The rising pressure of these long-term demands for credit tempered the decline in long-term rates early in . 1958. Bond yields, however, remained very
low, and even fell slightly more in the succeeding months. The continued
strength in bond prices was due to the large increase in funds which became
available through the commercial banking system and to the anticipation of
continued business decline and further credit relaxation.
Commercial banks acquired a major share of long-term Treasury and municipal issues in the first 6 months of 1958. Of an increase amounting to $14.6
billion in outstanding Treasury securities with more than 5 years to maturity,
commercial banks accounted for $8.3 billion. Their holdings of other securities
-which are primarily st~.te and local government bonds-increased by $2.2 billion, while new municipal issues amounted to about $4.5 billion. In addition,
banks extended a large amount of credit to individuals and institutions for security purchases.
During the period also, purchases by individuals and groups seeking capital
gains rose substantially. The volume of temporary purchases apparently reached
22
Year of Transition
a peak in the June refunding by the Treasury and was centered upon the 2% per
cent bond of 1965. The vast scale of buying in anticipation of capital gains laid
the groundwork for a sharp reversal in long-term rates.
Recovery and Reduced Credit Ease
Poucy MovEs. As indications of economic recovery began to appear in the
early summer, the objectives of monetary policy were redefined to recognize the
new strength a ppearing in the economy. The emerging expansive forces, coupled with the high degree of liquidity already existing at midyear, warranted
a retreat from policies of active ease.
Beginning with four Reserve Banks in August, the discount rate was advanced
from rn per cent to 2 p er cent. Later, starting with some h anks in October, the
discount rate was increased to 2~ per cent. Open-market operations reduced
considerably the level of free reserves-excess reserves less borrowings of member banks. Member bank free reserves reached their p eak for the year in July
during the Federal Reserve's support of the Treasury debt operations. Subsequently, they declined and fell below $100 million in the first weeks of Sep-
23
Year of Transition
tember. Except for occasional irregularities resulting from technical factors, free
reserves remained in a narrow range until late November and December when
they became negative. Also, during the second half of the year, a move was
made to restrict the use of stock market credit by raising margin requirements
from 50 per cent to 70 per cent on August 5 and to 90 per cent on October 16.
FINANCIAL RESPONSES. Again in the second half of 1958, changes in interest
rates were particularly sharp. Yields on long-term Treasury securities rose from
about 3.14 per cent in May to about 3.76 per cent in October. Following a
gradual decline in October and November, rates began to rise in early December as market expectations of a long-term bond offering in the Treasury's January 1959 financing strengthened. In the money market, Treasury bill rates
advanced from % per cent in late May to about 2% per cent late in the year.
Another indication of the change in Federal Reserve policy was contained
in the movement of the money supply. Following the rapid growth during the
first half of the year and a substantial further rise in July, the expansion in the
money supply slowed to a pace not far above seasonal requirements. The increase for the year, however, in the seasonally adjusted money supply, was more
than $5 billion, an annual growth rate of 4 per' cent. The expansion was the
largest in absolute as well as relative terms since 1951.
The rapid expansion in time deposits at commercial banks, which began late
in 1957 and accelerated in the first part of 1958, also slackened during the last
half of the year. Among District member banks, the movement was generally
similar to that in the Nation. Time deposits increased rapidly during early 1958
and slowed appreciably after August. In part, the developments in time accounts may be explained in terms of changes in interest rates on alternative
assets. Whereas the increase in time deposits early in the year was probably
related to low market rates, the later slowdown in deposit accumulation reflected the rise in security yields.
With the slower pace of monetary expansion in the last half of the year, the
security holdings of banks expanded at a more moderate pace than in the first
6 months. As a consequence, an increased share of new Treasury issues
found its way into the hands of nonbank investors. Thus, commercial banks
acquired only about a third of the increase in Federal obligations held outside
. the Federal sector from July through November.
LOANS AND DEPOSITS AT DrsTRICT BANKS. Business loans, as indicated earlier,
were maintained very well in the District during the recession, in contrast to
the experience in the Nati.o n as a whole. This contrast continued in the last half
of the year, although in a more moderate form. Nationally, business loans rose
seasonally, but failed to reflect expanding business activity. In the District, on
the other hand, business loans rose somewhat more than seasonally. Among the
most interesting loan developments in the District was the sharp rise in farm
loans. The advance reflected not only increased farm loans guaranteed by the
24
Year of Transition
Commodity Credit Corporation, but also increased loans for purchasing and feeding cattle and for farm machinery. Real-estate loans reflected the expansion of
residential building in both the District and Nation, while consumer loans were
stronger in the District than in the Nation relative to 1957.
The prosperity of District agriculture in 1958 was mirrored in the deposits
of banks serving farm communities. Country bank deposits, for example, grew
more rapidly than those of reserve city banks. However, the contrast is even
sharper when a sample of banks serving primarily rural customers-rather than
a mixture of rural and urban activities-is related to reserve city banks. It is
also interesting, and not unexpected, to note that the largest relative deposit
growth occurred in the hanks located in wheat-producing areas. Rural banks
serving grazing areas primarily, on the other hand, did not exp erience as much
relative deposit growth as those serving grain-producing areas. This was probably due to extensive cattle herd rebuilding in the former areas.
CAPITAL MARKETS IN THE SECOND HALF OF 1958. Two d evelopments dominated capital markets in the latter part of the year. One was the rapid decline
in bond prices; the other, the swift advance in the prices of stocks. In addition,
the demand for long-term funds was substantially reduced.
Stock prices trended upward throughout 1958, with the advance somewhat
faster in the last half. Late in the summer, they set a new record and average
yields were well below the yield on high-grade bonds. Stock market credit continued to advance, despite increases in margin requirements.
The rapid decline in bond prices after midyear came amidst a lightening volume of new marketings of long-term issues. The recovery in business and the
increasing restraint of monetary policy altered the attractiveness of holding
fixed -income securities, and a strong belief by many investor groups in a revival
in profits caused shifts from bonds into stocks. A fundamental factor in the
weakness of bond prices was the liquidation of large speculative holdings which
had been built up in the first half of the year when security issuances were unusually high. The expectations motivating these speculative developments became seriously questionable as business conditions began to improve, and the
level of yields had to rise sharply to encourage increased ownership by permanent investors.
The pressures resulting from the spectacular volume of long-term securities
during the first part of 1958 were substantially moderated later in the year.
The volume of state and local government issues declined and their rates moved
downward from a high in September. The volume of corporate securities also
was reduced as interest rates rose and as corporate liquidity improved. In the
residential mortgage market, conditions tightened relative to new commitments
as rates on alternative investments again increased. Construction activity and
mortgage debt, however, advanced as building proceed ed against a large b acklog of commitments.
25
THE
YEAR 1958 saw a continuation of growth in activities of the bank. Gross
earnings were $31,982,000, off $1,478,000 from the record-high earnings of
$33,460,000 in 1957, primarily because of a lower level of member bank borrowings combined with reductions in the discount rate, and also a lower yield on
only a slightly higher total of securities held in the System Open Market Account.
Expenses and other deductions from earnings amounted to $6,992,000, leaving
net earnings for the year of $24,990,000.
Statutory dividends paid to member banks totaled $862,000, an addition of
$21,000 was made to reserves for contingencies, $21,696,000 was paid to the
United States Treasury as interest on Federal Reserve notes, and remaining net
earnings of $2,411,000 were transferred to surplus account.
Reserve balances of Tenth Federal Reserve District member banks were $818
million on December 31, 1958, an increase of $14 million since the end of 1957.
Average daily reserve balances in the year were $867 million, compared with
$872 million in 1957, or a decrease of $5 million. Required reserves averaged
$811 million in 1958, a decrease of $11 million from the preceding year. The
average daily excess of $56 million was $6 million more than in 1957. All of the
decline in reserve balances and most of the reduction in required reserves
occurred among reserve city banks.
The comparative stability of required reserves in relation to the preceding
year was the product of two offsetting developments. Reserve requirements on
the net demand d eposits of reserve city banks were reduced by the Board of
Governors from 18 per cent to 17~ per cent on February 27, to 17 per cent on
March 20, and then to 16~ per cent on April 24. The requirements on net demand
deposits of country ba nks were lowered from 12 per cent to Im per cent on
March 1, and to 11 per cent on April 1. The reserves released from requirements
were employed by banks in the District in expanding loans and investments.
This .process was accompanied by an increase in deposits, particularly in time
and savings accounts, and total required reserves were restored to levels close
to those of the previous year.
Federal Reserve notes , .of this bank outstanding as of December 31, 1958,
after adjustment for notes on hand and forwarded for redemption, totaled
$1,101,081,490,. an increase of $23.7 million from the preceding year end. The
increase was comparable to the expansions of $24 million in both 1955 and 1956,
but considerably above the rise of $2 million in 1957, which occurred when the
seasonal expansion in the autumn was less than usual. The alltime peak in
26
Bank Operations
circulation of 10-J notes was registered on December 23, 1958, with a total of
$1,106,546,890, exceeding the previous peak of $1 ,090,672,755 established on
December 15, 1955.
Borrowing at the Reserve Bank by District member ba nks fell sharply in
volume in 1958. Daily average borrowing was $27 million-less than half the
$58 million average in 1957. Discounts and advances averaged less than $20
million daily in the first three quarters of the year owing to reserves made
available by seasonal loan retirements, rapid deposit growth, and System
actions in reducing reserve requirements. In the fourth quarter, however, this
figure climbed to $51 million daily as reserves b ecame less readily avail ahle in
step with th e reversal of monetary poli cy and expansion of loan dema:1d. The
discount rate was reduced in three steps between the beginning of the year and
the end of April. The rate was lowered from 3 per cent to 2~; per cent on January
24, to 2J~ per cent on March 14, and to rn per cent on April 25. As national
monetary policy shifted later in the year from ease to moderate restrictiveness,
the discount rate was advanced to 2 per cent on August 29 and then to 2Jf per
cent on November 4.
The growth in volume and amount of checks processed continued in 1958 and
new records were again established. Nearly 185 million clearing house and
country checks, including return items, were handled during the year, representing an aggregate value in excess of $60 billion. This refl ects an increase of 11
million in number and $4 billion in amount over the previous year.
Noncash collection items handl ed also increased to 738,000 in number from
705,000 in 1957, an increase of 5 per cent. The valu e of noncash items handl ed
increased to $324 million from $26.5 million the previous year, refl ecting a
22 per cent increase.
Incoming and outgoing transfers of funds numbered 159,000 and a mounted to
$63.8 billion, representing an increase over the previous year of 2,000, or 1 per
cent, in number, and $5.3 billion, or 9 per cent, in amount.
Securities held in safekeeping for member banks aggregated $2.8 billion, up
$233 million from the previous year end. The number of custody accounts
decreased from 1,755 in 1957 to 1,713. The number of transactions in custody
accounts declined mod erately from 462,000 in 1957 to 438,000 in 1958, but a
substantial decrease of $7 billion was refl ected in valu e of securities deposited
and withdrawn. The lower level of member bank borrowings accounted for the
bulk of the decrease in transactions in the custody accounts.
Money D epartment activities varied only slightly from 1957. Heceipts and
payments of currency numbered 403 million pieces a nd amounted to $2.2 billion,
reflecting a decrease of 2 per cent in number of pieces with a contrasting slight
increase in aggregate value. Coin receipts and payments, on the other hand,
were higher, numbering 806 million pieces totaling $72 million - up 54 million
pieces and $6 million in amount over the preceding year.
27
Dec. 31, .1957
Cash reserves:
Gold certificates ....•..•.•.•..........••....•........•.... $
Other cash ...............•..•..................•............
Discounts and advances ·····-·······························
U.S. Government securities:
Bills ·······················-···-········-·············-·····
Certificates ..................................................
Notes ·························-·····················-···-···
Bonds ..........................................................
'
Total U. S. Government securities ........ $
Total loons and securities ...................• $
Due from foreign banks ........••..••....••.•••.......•....••
Federal Reserve notes of other banks .•.•. , ......•....
Uncollected items ··················-···········-········-···Bonk. premises ···············-···-·······-----·-·
Other assets ·····-··-·······-··-·--·-···-···-·-
Total Assets
791,871,662
14,661 ,659
19,206, 100
$
885,067,043
12,491,928
7,098,500
96,056,000
796,026,000
122,396,000
106,015,000
42,228,000
855,809,000
1, 120,493,000
1, 139,699, 100
566
11,317,500
254,994,838
4,799, 175
7, 130,018
1,018,325,000
1,025,423,500
552
10,162,000
238,904,425
4,902,749
9,493,310
2,224,474,518
$2, 186,445,507
120,288,000
LIABILITIES
Federal Reserve notes .........•.........•.......•.•........... $
Deposits:
Member bank-reserve ocounts .......•.........•
U. S. Treosurer--generol account ............... .
Foreign .......................................................•
Other deposits ..............................................
Total Deposits ...................................... $
Deferred availability items .................................•
Other liabilities •......................•.....•...•.•.............•.
1,101,081,490
$
804, 111,093
41,689,989
12,958,000
3,435,509
817 '7 30,084
38,270,898
9, 165,000
3,278,497
868,444,479
1,077,384,660
$
862, 194,591
200,589,795
848,054
195,229,561
479,677
Total Liabilities ................................$2, l 70, 963,818
$2, 135,288,489
CAPITAL ACCOUNTS
· Capitol pold in ··················-············--·-···-····-··$
Surplus (Section 71 ···-········-···-···-·············-····
Surplus (Section 13bl
Raerve for contingencies ···--··-·-··-···-···
5,727,958
Total Liabilities and
Capital Accounts •..•••.....••.••........ $2,224,474,518
$2, 186,445,507
···---r··-·--··-···-·······-
18
$
13,780,700
30,532,901
1, 137,044
5,706,373
14,847,850
32,934,892
Year 1958
Current Earnings
Year 1957
Discounts and advances ............................•.$
Industrial odvances (commitments) ........... .
United States Government securities ............
All other ...........................•.•.......................
607,851.21
2,620.99
31,338,904.50
25,014 .81
$
1,854,824.61
8,695.06
31,508,276.48
27,289.01
$
31,974,391.51
$
33,399,085.16
Net operating expenses ...............................•$
Assessment for expenses of
Board of Governors ............................ ..
Federal Reserve currencyOrlginal cost, including shipping charges
Cost of redemption,
including shipping chorges ........ .
6,593,067 .69
$
6,029,645.22
Current Expenses
228, 100.00
288,200.00
139,549.07
337,922.59
31,218.83
27,261.90
6,991,935.59
Current Net Earnings ......................$24,982,455.92
$
6,683,029.71
$26,716,055.45
Additions to Cunent
Net Eamings
Net profit on soles of United States
Government securities .......................... $
Reimbursement for Fiscal Agency
expenses incurred in prior years ........... .
Other .........................................................•
6,663 .93
$
7, 176.67
52,223.09
998.30
810.28
$
7,474.21
$
60,398 .06
Transferred to reserves for contingencies......$
Retirement System
(adjustment for revised benefits) ........
Other ..........................................................
21,478 .57
$
18,221.17
$
2 1,513 .75
Deductions from
Current Net Earnings
452,488.00
693 .76
35. 18
Net Earnings ................................... ,$24,968,416.38
$
471,402.93
$26,305,050.58
Di1tributian of Net Earnings
Dividends paid ........••........•...•.........•.•...•.....$
Paid United States Treasury (Interest on
outstanding Federal Reserve notes I......
Transferred to surplus ·······-························
861,731.26
$
807,519.91
21,696,020.08
2,410,665 .04
22,947,783.65
2,549,747.02
$24,968,416.38
$26,305,050.58
PIECES HANDLED
Discounts and advances
Currency received ................................................................
Currency paid out ............................................................... .
Coin received ..................................................................... .
Coin paid out ..................................................•..................•
Checks:
United States Government ............................................
All other (including return items) .........•....................
Collection items .................................................................•
Safekeeping of securities:
Pieces received and delivered ..................................... .
Coupons detached and collected ................................ .
Purchase and sole of securities for account of others .........,
Transfers of funds ............................................................. .
Operations performed as Fiscal Agent of the
United States Government:
,
Securities received and deliveredUnited States savings bonds ..............•.............•.••
Other Government securities ...........•••..••.•........•.•
United States currency redeemed ·············-················
Government security-coupons redeemed ...•••....•.........•.••
Federal tax depository receipts ........•.....................•.•...
Postal money orders ......................•............................. .
Postmasters' deposits .....................................•............
Incoming and outgoing moil:
Registered moil ........................................................... .
Ordinary moil ·····; ························································
1958
1957
2
201,773
201 ,009
403,552
402,552
3
206,765
205,944
378,392
374,076
24, 108
184,886
738
31,670
174,311
705
438
534
3
159
462
490
3
157
8,755
422
48,642
556
508
19,165
242
9,118
403
52,997
551
485
20,393
296
227
4,586
216
4,676
$ 3,396, i96
1, 117,446
1, 115,959
36,281
36,029
$ 9,041,445
8,094,825
60,799,070
323,600
9, 166;639
57,084,442
264,782
21,273,924
53,792
431,499
63,794,306
28,348, 128
48,451
457,650
58,561,396
847,515
12,577,767
66,663
97,822
1,502,43 7
316,600
343,560
913,650
11, 162, 155
72,044
87,796
1,457,667
337,501
374,585
AMOUNTS HANDLED (in thousands)
Discounts ond advances ..................................................... .
Currency received .............................................................. .
Currency po id out ............................................................... .
Coin received ..................................................................... .
Coin paid out .....................................................................•
Checks: ·
United States Government ........................................... .
All other !including return items) ............................ .
Collection items ..................................................................
Safekeeping of securities:
Securities received and delivered .................................•
Coupons detached and collected ....................... ,......... .
Purchase and sole of securities for account of others ........ .
Transfers of funds ............................................................... .
Operations performed as Fiscal Agent of the
United States Government:
Securities received and deliveredUnited States savings bonds .............................. .
Other Government securities .........................•.....
United States currency redeemed .....•........................•
Government security coupons redeemed ..•••.................•
Federal tax depository receipts ....•......•.................•••..•.
Posto I m0ney orders •...........•........•......•••......••..........••.
Postmasters' deposits ·······················-························
30
1,113,041
1, 109,058
33,030
33,007
Bank Operations
Services as Fiscal Agent
In addition to the regular weekly offering of Treasury bills, 15 new issues of
marketable securities were offered in 1958. Eight of the issues were in exchange
for called and maturing securities. Out of a total of $55 billion of securities
eligibl e for exchange, $50 billion were exchanged . The rema ining seven issues
were for cash from which the Treasury obtained approximately $17 billion. In
this District, $951 million of new securities were issu ed on exchanges and $647
million were issued for cash payment. On e offering of Fed eral National Mortgage Association notes was handled .
The average rates at which tend ers to the weekly offerings of Treasury hills
were acccpte<l re fl ected th e changing monetary con ditions. The rate ranged
from a low of 0.635 per cent for the May 2~J offering to a high of 2.87 per cent
in D ecember. ln comparison, only three offerings in 1957 had an average acceptance price of less than 3 per cent and the hi ghest rate, in October 1957, was
3.66 per cent. Approximately $2.4 billion in Treasury bills was allotted in this
District as compared to $2.7 billion in 1957. The Treasury revised the bill
program in D ecember. The regular 91-day bill is to b e continued, and in addition, a I82-day bill is being offered, thus creating both a 13- and 26-week cycle
of bill offerings.
Sales of United States savings bonds in the District total ed $352 million, representing an increase of approximately $4 1 million, or 13 per cent, over 1957.
Rede mptions of savings bonds amounted to $409 million compared with $519
million in rn.57. The last of the large World War JI Series F and G bond offerings matmcd in HJ57. Effective January 1, sav ings bonds w ere reopened to
purchase hy others than individ11als, and hl'ginning in September hold ers of
maturin g Series F and G bond s were permitted to reinvest the proceed s in new
bonds in excess of th e limitation on holdings placed on original investment.
The bank continu ed to perform other services as Fiscal Agent for the Government. These include : verification and destruction of unfit United States
ci.trrency; guarantee of Regulation V loans for d efense production purposes;
process ing payments on RFC pool loans; receipt and accounting for d eposits of
F ed eral taxes under the depositary receipt system; receipt of surplus d eposits
from postmasters ; process ing postal money orders ; and handling of drafts and
making disbursements for the Commodity Credit Corporation.
Member and Nonmember Banks
T enth District member banks numbered 750 at year end, including 617
national banks and 133 state chartered banks. No change was reflected in the
number of member banks from the close of 1957. Three new national banks
opened for business during the year. Two national banks were absorbed by two
other national banks, one state member bank converted to a national bank, and
31
Bank Operations
another state member bank consolidated with a national bank under the charter
of the national bank.
Nonmember banks in the District numbered 1,014 at the end of the year, and
all but six were on the par list. Eight banks commenced business during the
year, three banks were absorbed by national banks, and two were absorbed by
other nonmember banks. One bank was closed by state banking authorities.
These changes resulted in a net increase of two in number of nonmember banks
as compared with the previous year end.
Bank Examination
One hundred thirty-one of the 135 state member banks located in the Tenth
District at the beginning of 1958 were examined during the year by our examiners. Of the four banks not examined, one converted to a national bank during
the year and the remaining three are scheduled to be examined early in 1959.
Eighty-three examinations were conducted independently by our examiners and
49 examinations, including one special examination, were made jointly with
representatives from state banking departments.
Research
As the year progressed, fast-moving events in the economy of the Nation and
the District required continued analysis and interpretation. Through various
studies and projects, the Research Department endeavored to keep the officers
and directors of this bank informed of these movements, as well as to make
regional information available to the Board of Governors. Staff members served
on a number of System projects during the year.
Information dealing with monetary and economic developments was made
available to the public, also, through publications, speeches, and forums. The
bank's Monthly Review continued to be the principal medium of information,
as articles of economic interest were printed throughout the year. Various
other publications, statistical reports, and press releases also were issued.
During the course of the year, staff members made numerous speeches before
bank groups, college and university audiences, farm and business meetings, and
various other audiences. In the fall, a series of four economic forums were conducted in Wyoming in cooperation with the Wyoming Bankers Association.
Changes in Directors and Officers
Director Appointments
There were no changes in the Board of Directors at the Head Office in 1958.
Five directors were appointed at the branches for 2-year terms beginning January l, 1959, to replace directors who had served three terms and were therefore
ineligible for reappointment.
32
Bank Operations
The Board of Governors of the Federal Reserve System appointed Don H.
Dennis, ca ttle rancher, Grady, Oklahoma, to succeed Phil H . Lowery of Loco,
Oklahoma, as Oklahoma City Branch director; and Homer A. Scott, Vice President, and District Manager, Sheridan District, Pe ter Kiewit Sons' Company.
Sheridan, Wyoming, to succeed Manville Kendrick of Sheridan, on th e Omaha
Branch Board of Directors.
The Head Office Board of Directors appointed J. H. Bloedorn, President, The
Farmers State Bank of Fort Morgan , Colorado, and Cale W. Carson, Presid ent,
First National Bank in Albuquerque, New Mex ico, as directors of the Denver
Branch to succeed Ralph S. Newcomer o~ Boulder, Colorado, and Arthur Johnson
of Raton , New Mexico, respectively. John F. Davis, Prl'sid ent, The First National
Bunk of Omaha, Nebraska, was a ppointed hy th e I lead Office Board of Directors
to succeed William N. Mitten of Fremont, Nebraska , as a director of the
Omaha Branch.
Officer Appointments
At its meeting of D ecember 12, 1957, the H ead Office Board of Directors
appointed George H. Clay, an executive of Trans World Airlines, Incorpora ted,
as Vice President, General Counsel, and Secretary of the bank, effective February 1, 1958. At its meeting of January 9, 1958, the H ead Office Board of
Directors made the following changes in officia l positions at the Head Office :
E . U. Sherman, Assistant Vice President, e ngaged in bank and public relations
work, was promoted to Vice Pres id en t.
Wilbur T. Billington, l11d11strial Economist, D . H. Cawthorne, Financial Economist, and Hay J. Doll , Agricultural Economist, all members of th e Hesearch Department staff, were promoted to offi cial status, retain ing th eir respecti ve titles.
On July 11, 1958, the Head Office Board of Directors appointed Homer F.
Krebs as Assistant Cashi er at the Denver Branch, to succeed Hubert G. Du ck,
who died June 8, 1958, following a long illness. Mr. Krebs was made assis tan t
department head of the Check Collection D epartment on June 15, 1949, but for
some time prior to his appointment as Assistant Cashier he had b een engaged in
special projects for the branch.
33
DIRECTORS
RAYMOND W. HALL, Counsel
Gage, Hfilix, Moore & Park, Attomeys
Kansas City, Missouri
Chairman of the Board and Federal Reserve Agent
JoE W. SuCRES'l', President
State Journal Company
Lincoln, Nebraska
Deputy Chairman
IC. S. ADAMS, Chairman of the Board
Philips Petroleum Company
Bartlesville, Oklahoma
W. S. KENNEDY, President and
Chairman of the Board
The First National Bank of
Junction City
Junction City, ICansu
W. L BVNTEN, Pieddent
Goodland State Bank
Goodland, Kansas.
HAaou> KotnrnlB, Cbairmin ol the Bou
The Colorado National Bank of Denv~
E. M. DoDDs, Ch$irman of the Board
United States Cold Storage Corporation
Kansas City, Missouri ,
Denver, Colorado
MAX A. MILLER, Livestock Rancher
Omaha, Nebraska
OLIVER S. WIJ.UIAM, President
Oklahoma State University
Stillwater, Oklahoma
OFFICERS
HENRY
H. G. l.EEDY, President
0. KOPPANG, First Vice President
D. W. WooLLEY, Vice Prealdent
GEORGE H. CLAY, Vice President,
General Coumel, and Secretary
CLARENCE W. Tow, Vice President
JoHN T; BoYSEN, Vice Pres. and Caahler
J. S. HANDFORD, Vice Pf'fllldnl
E. u. SBBBMAN, Vice Pruldent
~· A. DBBvs, Vice preifdsnt•
R. L MATHES. Vice PrufMnt•
CllCIL PucnlT, Vice PrMdefll•
C. A. CRAVENS. Am. Va Pf'fllldnl
JOIBPll R. EltAHI. Aid. Vice ,,_....,.,
(. ) AllfgnetJ to Branch
F. H. LABsoN, Am. Vice Preddent
J. T. WHITE, Aaat. Vice President
J.C. CRAIG, Asst. Cashier
GEORGE C. RANlaN, Asst. Cashier
JoHN W. SNIDER, A&9f. Caahler
Rommr E. TBoMAS, Allt. Caahler
WILLA1U> EowABDS, Dlreclor of PeraonneJ
C. L BoLI.INGER, General Auditor
L F. MILLS, Chief Emmlner
D.R. CAW'l'llORNB. Financial Economlat
RAY J. Dou.. Agricultural Economld
WD.BVB T. Bu.t..INaroN,
Indulrfol Economld
MEMBER OF FEDERAL ADVISORY COUNCIL
R. CROSBY KEMPER, Chairman of the Board
The City National Bank & Trust Company of Kansas City
Kansas City, Missouri
MEMBERS OF INDUSTRIAL ADVISORY COMMITTEE
THOMAS McNALLY, Chairman of the Board
McNally-Pittsburg Manufacturing
Corporation
Pittsburg, Kansas
MASON L. THOMPSON, President
Standard Steel Works
North Kansas City, Missouri
HAROLD F. SILVER, President
Silver Engineering Works, Inc.
Denver, Colorado
ALBERT R. WATERS, President
Carter-Waters Corporation
Kansas City, Missouri
WILLIAM N. DERAMUS, President
Kansas City Southern Railway Company
Kansas City, Missouri
DENVER BRANCH
DIRECTORS
AKSEL NIELSEN, President
The Title Guaranty Company
Denver, Colorado
Chairman
J. H. BLOEDORN, President
The Farmers State Bank of Fort Morgan
Fort Morgan, Colorado
CALE W. CARSON, President
First National Bank in Albuquerque
Albuquerque, New Mexico
STEWART CosGRIFF, Chairman of the Board
and Chief Executive Officer
Denver United States National Bank
Denver, Colorado
RAY REYNOLDS, Cattle Feeder and Farmer
Longmont, Colorado
OFFICERS
CECIL PucKETT, Vice President
H. L. STEMPEL, Cashier
J. R. ZAHOUREK, Assistant Cashier
HoMER F. KREBs, Assistant Cashier
35
OKLAHOMA CITY BRANCH
DIRECTORS
DAVIS D. BovAIRD, President
The Bovaird Supply Company
Tulsa, Oklahoma
Chairman
DoN H. DENNIS, Cattle Rancher
Grady, Oklahoma
C. L. PRIDDY, President
The National Bank of McAlester
McAlester, Oklahoma
R. Ons McCLINTOCK, Chairman
of the Board
The First National Bank and Trust
Company of Tulsa
Tulsa, Oklahoma
CHARLES P. STUART, Chairman of the
Board and President
The Fidelity National Bank and Trust
Company of Oklahoma City
Oklahoma City, Oklahoma
OFFICERS
R. L. MATHES, Vice President
F. W . ALEXANDER, Cashier
F. R. FRITZ, Assistant Cashier
E. P. FARLEY, Assistant Cashier
OMAHA BRANCH
DIRECTORS
JAMES L. PAXTON, JR., President
Paxton-Mitchell Company
Omaha, Nebraska
Chairman
C. WHEATON BATTEY, President
The Continental National Bank
of Lincoln
Lincoln, Nebraska
GEORGE J. FORBES, Chairman of the
Board and President
Bank of Laramie
Laramie, Wyoming
JoHN F. DAvis, President
The First National Bank of Omaha
Omaha, Nebraska
HOMER A. ScoTT, Vice President, and
District Manager, Sheridan District,
. Peter Kiewit Sons' Company
Sheridan, Wyoming
OFFICERS
P.A. DEBUS, Vice President
H. W. l'Rrrz, Cashier
W. P. DoRAN, Assistant Cashier
WALTER L. PLEISS, Assistant Cashier
36