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will find in the following pages the

statements of condition and of earnings and expenses
of the Federal Reserve Bank of Minneapolis for 1949,
with certain comparative data for 1948.
In a letter to the stockholders, President John N.
Peyton has reviewed the year’s operations of the bank,
which reflect the developments in commercial banking,
business, and agriculture of the district.
Again this year, as in previous years, the report con­
tains a feature article on one of the services performed
by the Federal Reserve banks for the commercial banks
and the economy as a whole. This article, entitled
“M o n e y

I n a H u r r y , ” presents in picturesque language

the role played by the check collection system in the
lives of the people of our nation.
To this report I would like to add a fact that cannot
be revealed by financial statements or statistics—namely,
that we have enjoyed the wholehearted cooperation of
our member banks, without which we could not have
performed our functions as well as we have. A continu­
ation of such splendid cooperation in the future will be
met with even greater efforts on the part of the “Fed”
to render services with a high degree of dispatch and














A Y E A R AGO, many bankers and businessmen
were feeling “mighty low” over the near-term
business outlook. They looked back over three
years of great prosperity and expressed the opinion,
“At last, the postwar recession is here. Prices are
slumping, the pipelines are almost full, and most
consumers have fewer dollars to spend. W e had
better go slow on new loans and cut down on
commitments for new inventory.”
And so it came about early in 1949 that bankers
exercised greater caution in acting on loan appli­
cations, and businessmen let a considerable amount
of their inventories run out without replacement.
As a result, industrial production declined and
unemployment increased. The “I told you so”
chorus swelled.
After a while, businessmen observed that the
amount of goods being bought had not declined
very much and also that sales were being lost be­
cause of insufficient stocks in some lines. “If my
customers will buy, I ’m willing to sell—that’s what
I am in business to do,” many of them reasoned;
whereupon they began to order goods in greater
To be sure, the fairly steady, high volume of
consumer buying was not maintained without ef­
fort by businessmen. They put forth more aggres­
sive salesmanship and took advantage of, first, the
relaxation of and, later, the abandonment of fed­
eral regulations concerning the terms of such
As a result of the maintenance of a high level
of consumption expenditures, bolstered by aggres­
sive merchandising, and also a revival of con­
struction, aided and abetted by government activi­
ties in housing, business activity picked up after


Then we ran into the coal and steel strikes which
reduced business inventories once more. At the
end of the year the economy was rebounding from
the moderate setbacks of earlier months and the
effects of the steel strike.
That, as I see it, describes the business situation
in 1949 put in capsule form. The pill is not too
bitter. Whether the health of the economy will
improve as a result of having taken it remains
to be seen.
Today, bankers and businessmen are somewhat
more optimistic than they were a year ago by
reason of the satisfactory recuperative powers shown
by the economy last year. Yet, their optimism is
tempered by several considerations, such as the
growth of agricultural surpluses, the slowing down
in business investment, the possibility of a slump
in construction activities, the alarming rise in con­
sumer debt, the decline in our export trade, and
the reappearance of government deficit financing.
Merely to prove what we already know, our
statistical division has provided me with some
figures on business conditions in 1949, both on the
national and the Ninth district scale. Although
these figures are well known, it is worthwhile to
review them in order that one might better ap­
praise the present business situation.

Business Fluctuated More
in 1949 Than in 1948
That business activity, nationwide, had its ups
and downs in 1949, compared with the steady,
high level of 1948, is revealed by the following
recital of facts:
O Gross national product (the dollar value of all
goods and services produced) was estimated at

Page Three

$262.4 billion in 1948 and $258-7 billion in 1949,
a drop of 1 .5 % .
• Industrial production dropped about 5 % and
agricultural output fell 1 .4% . Construction,
however, increased 4.6% and the output of
electricity, gas, and automobiles also rose to
new high levels.
• Civilian employment decreased from 59.4 mil­
lion in 1948 to 58.7 million in 1949, a drop of
700 thousand, instead of an increase of 1 million
needed to maintain full employment of a grow­
ing labor force.
• Wholesale prices declined 6.9% , attributable
mostly to a sharp drop in wholesale farm and
food prices. Industrial prices fell least. Both
wholesale prices of farm products and prices
received by farmers fell about 12 % during 1949,
which put them 20% below the peak of Janu­
ary 1948. Prices paid by farmers declined only
2 % in 1949. Prices for farm products, as a
group, dropped below parity for the first time
since 1941.
• Consumers’ prices did not follow wholesale
prices all the way down. In November ’49, such
prices were only 2 % below the peak of the
previous year.
• Business loans of reporting city banks declined
from January through July ’49, then increased
steadily. Total loans of all commercial banks,
however, exceeded in every month of the year
the volume of the corresponding months of
1948. Automobile installment credit outstanding
at the end of ’49 had increased over 60% from
the end of the previous year.
• Consumer expenditures were remarkably stable
both in 1948 and 1949, the annual rate being
$178 to $199 billion in each year. The decline
in expenditures for nondurables was offset in
about an equal increase in expenditures for
durable goods, notably automobiles, and for
• People added to their accumulation of tangible
assets in 1949, but incurred more debt in doing
so, both mortgage debt and consumer debt.
Thus financial saving (increases in liquid as­
sets, minus increase in debt) was approximately

Page Four

zero, compared with the extremely high levels
of the war years. In fact, about two-fifths of
the nation’s spending units had no financial
savings—they spent more than their incomes.
• Gross private investment declined in ’49 from
’48, the decline in business inventories more
than offsetting an increase in new construction
and producers’ equipment. (T h e liquidation in
business inventories in the first half of the year
and then some rebuilding of inventories largely
explains, in the opinions of most observers,
the ups and downs of business activity in ’49.)
At annual rates, inventory accumulation de­
clined from $9 billion in the fourth quarter of
’48 to a liquidation of $2.4 billion in the third
quarter of ’49.
• Government (federal, state, and local) cash
receipts from the public in 1948 exceeded pay­
ments to the public by $7.2 billion. In 1949,
cash payments exceeded receipts by $3.0 billion.
On balance, the high level of consumer demand,
the shift from a cash surplus to a cash deficit on the
part of government, and the maintenance of high
levels in new construction and new producers’
durable equipment were the chief factors that
prevented the decline in business inventories from
causing a serious deterioration in general business
conditions in 1949.

District's Rate of Gain
Slowed Down in 1949
The most significant features of business and
agriculture in the Ninth district compared with
the nation as a whole are shown by the accom­
panying chart. The greatest differences may be
noted in four items—namely ( 1 ) cash farm in­
come, (2) member bank loans, ( 3) bank debits,
and (4) construction contracts awarded. The in­
crease in the second and decline in the third of
these doubtless stem from the first, while the great
increase in the fourth is attributable to big public
projects of local governments and equally big
housing projects encouraged by federal agencies.
The postwar prosperity of farmers in this district
reached its peak in late 1947 or January 1948, when
prices received by farmers for big crops of grains
and livestock were rising faster than prices paid by



PER CENT CHANGE - 1948 to 1949

-2 5

, ir












1—First 11 months. 2—Year-end figure. 3—1949 figures: 9th district based on average of 4 quarters; U. S. based on
12 months. 4—District figures for 4 states; U. S. figures for 37 eastern states.
Note: Cash farm income data from U. S. Department of Agriculture. Consumer price data from U. S. Department of
Labor. Construction contract data from F. W. Dodge Corporation.

farmers for goods and services purchased by them.
Thereafter, the trend ran in the opposite direction.
Prices received by farmers began a jerky down­
ward trend in 1948, while prices paid by farmers
continued on a rather steady upward march. The
year 1949, from the farmers’ point of view, was
characterized by sharp declines in prices received,
while prices paid levelled off, increasing slightly
for a few items and declining slightly for a few
Bank loans increased in the Ninth district at a
rate considerably greater than that for the nation,
which was negligible. It may be assumed that
much of the increased borrowing in this district
sprang from the slump in cash farm income, since
it was the country banks and not the city banks
which experienced a rise in loans outstanding.
In fact, loans of the weekly reporting city banks
in this district declined during the year, although

percentage-wise they did not fall as much as in
the weekly reporting city banks of the nation as
a whole.
Reflecting the sharp decline in cash farm in­
come, bank debits dropped. It is doubtful that
much of this decline can be attributed to a corres­
ponding reduction in purchases by farmers, since
their purchases of new agricultural implements,
new automobiles, etc., reached record levels. More
likely, the explanation is that checks drawn by
grain dealers, processors, etc., in this district in
favor of farmers declined rather sharply.
The big splurge in construction activity in this
district was the most surprising development of
the year, especially so when one remembers the
extremely pessimistic attitudes toward the building
industry entertained pretty generally in the early
months. However, when one glances at the chart
showing the tremendous increase in construction

Page Five

contracts in the Ninth district, two observations
are in order—namely ( i ) that construction con­
tracts awarded were very low in the last quarter
of ’48, and (2) that the late spurt in awards in
’49 gave us a much larger carryover into the suc­
ceeding year than was the case in ’48.
Thus in 1949 the “going” was a little tougher
for our district than for the previous three post­
war years, when we gained at a faster rate on most
standards for comparison than the rate of gain
for the nation.

Bank's Work Volume
Reflects Business Level
Nevertheless, the level of business activity for the
year was generally high, as evidenced by the con­
tinued heavy volume of work in the Federal Re­
serve Bank of Minneapolis. At the same time,
our volume figures point up some of the trends
already mentioned.
Our check collection department again had a
record-smashing year, handling 65.2 million cash
items at the head office and the Helena branch,
compared with 58.5 million in 1948. Much of this
gain may be attributed to the increased number
of government checks handled—almost 50 per cent
above the previous year—as our bank became pay­
ing agent for Treasury card checks issued at Min­
neapolis and Helena. Part of the increase was a
result of the Wisconsin par clearance law which
became effective June 20. These developments,
rather than increased business activity, probably
were responsible for i 949’s record number of checks
What is surprising is that, despite the district
increase of 11 per cent in the number of checks
handled, their dollar value, amounting to $20.8
billion, was actually less than 1948’s record $21.3
billion. As a matter of fact, excluding government
checks our 1949 figures show an increase of 6 per
cent in number of items handled and the same
percentage decrease in dollar volume. Obviously
checks in 1949 were on the average being made
for smaller amounts.
Federal Reserve currency and coin sorters also
handled more money than in any previous year—

Page Six

almost 77 million pieces of currency and nearly
92 million coins—up 25 per cent and 13 per cent
from 1948, respectively. Yet the dollar amount of
currency shipped and paid out was $36 million
below that of the previous year and, for the first
time since prior to World W ar II, the note circula­
tion of the Federal Reserve Bank of Minneapolis
was smaller on December 31 than it had been a
year previously. This bank’s Federal Reserve notes
in circulation—which comprise most of the paper
money used in the district—at the end of 1949
amounted to $612 million, as compared with $631
million a year ago.
Incidentally, counterfeit bills were more preva­
lent than ever before, more than 100 being detected
by our sorters in the last six months of the year

Number of Grain Drafts
and Bonds Shows Decline
Good evidence for the belief, expressed earlier,
that payments by farm processors were sharply
reduced in 1949 is found in the figures compiled
by our noncash collection department. In 1948 we
collected 912,000 grain drafts valued at $1,057
lion. The 1949 totals were 815,000, worth $688
million, a decrease of 1 1 per cent in number and
35 per cent in dollar value, which tells graphically
the story of what has happened to the grain farm­
er’s cash income.
Fiscal agency work continued a gradual decline,
with issues, redemptions, and exchanges of United
States government securities in 1949 off 8 per cent
in number and about 2 per cent in dollar volume
from 1948. Savings bonds sales were down almost
25 per cent in dollar volume, although the number
of bonds sold was slightly above the 1948 figure.
On the other hand, 1 1 per cent fewer savings
bonds were redeemed, but their dollar value was
almost 4 per cent greater than the previous year.
From these figures it would appear that fewer
bonds — but of larger denomination — are being
cashed, while a greater number of bonds, of smaller
denominations, are being sold.
The number of money transfers handled in our
accounting department was almost the same as

last year’s figure, with a dollar volume of $10.9
billion, 6 per cent above the 1948 record.
T he value of securities held in safekeeping for
commercial banks in the district stood at $1,429
million at year’s end, about 10 per cent more than
on December 31 a year ago—seemingly an ade­
quate justification for our elaborate protection
During the year we loaned to member banks
a total of $265 million secured by United States
government obligations. The discount rate for
loans secured by government securities or eligible
paper remained unchanged at 1 % per cent through­
out the year.

Board Regulations Altered
One factor in the money market which did show
considerable change was reserve requirements. As
business loans declined steadily from January
through July, the Board of Governors of the Fed­
eral Reserve System reduced reserve requirements
on several occasions.
The required reserve for time deposits dropped
in May from yl 2 per cent to 7 per cent; in July
to 6 per cent; and in August to 5 per cent. For
demand deposits in country banks the legal re­
quirement was reduced from 16 per cent to 12
per cent in the same three steps, and for reserve
city banks it went from 22 per cent down to 18
per cent.
In March the Board’s Regulation U was amend­
ed to reduce margin requirements from 75 per
cent to 50 per cent on loans for purchasing or car­
rying listed securities.
On June 30 the Board’s Regulation W , govern­
ing consumer installment credit, expired and Con­
gress did not renew the authority under which it
was issued.

Official Staff Changes
The total number of employees—633 at the head
office and branch at year’s end—was only 1 1 less
than at the end of 1948, but there were a number
of changes in the bank’s board of directors and
official staff.

Elected class A director of the bank, effective
January 1, 1950, was Henry E. Atwood, president
of the First National Bank of Minneapolis. He
replaces Clarence E. H ill, who was not a candidate
for re-election. Homer P. Clark of St. Paul was
re-elected as class B director.
Roger B. Shepard of St. Paul was reappointed
board chairman and Federal Reserve agent. W . D.
Cochran, Iron Mountain, Michigan, was reappoint­
ed class C director and renamed deputy chairman
by the Board of Governors.
At the Helena Branch, W . A. Denecke of Boze­
man, Montana, was named director to succeed
Malcolm Holtz, while B. M. Harris of Columbus
was reappointed to a two-year term.
Joseph Ringland, president of the Northwestern
National Bank of Minneapolis, was named to the
Federal Advisory Council for the year 1950.
Two new members were added to the Industrial
Advisory Committee. They are Albert H . Daggett
of St. Paul and Walter M. Ringer of Minneapolis.
Within the bank’s official family, Earl B. Larson
was promoted from assistant vice president to vice
president; Harold C. Core, from personnel officer
to vice president in charge of personnel; Maurice
H . Strothman, Jr., from assistant counsel to assist­
ant vice president; and Arthur R. Larson, from
assistant cashier to assistant vice president. New
officers elected during the year include Franklin
L. Parsons, associate director of research; Clayton
E. Tillander, chief examiner; and Arthur W . John­
son, Christian Ries, George Rockwell, Marcus O.
Sather, and Clement Van Nice, assistant cashiers.
For the first time in 16 years the bank’s official
family lost a member by death when Harry I.
Ziemer, vice president, died November 10. The
same month saw the passing of a former chairman
of the board and governor of the bank, William
B. Geery.
In accordance with Minnesota legislation pro­
viding for Saturday closing of banks in the Twin
Cities and Duluth, the Minneapolis head office
announced early in July that Saturdays would
henceforth be holidays. The Helena branch con­
tinues to stay open on that day.
The total of 1,286 banks in the district at the end

Page Seven

of the year was one more than the year-end total 12
months earlier. Of these, 478 were members of the
Federal Reserve System, the two following banks
having joined the System during 1949:
S t.

C lo u d N

ir s t

a t io n a l

S tate B a n k ,

B a n k , St. Cloud, Minnesota
Gilby, North Dakota

New Educational
Projects Introduced
In April our bank was host to a record 1,154
bankers at its annual Ninth district Conference;
the fourth Federal Reserve Forum in September
brought in 322 potential executives from member
banks, and on November 26 approximately 140
Ninth district bank examiners and supervisors at­
tended the annual Examiners Conference at our

of Governors in Washington, D. C.
Another new program saw our bank sending
out senior members of its own staff for a week’s
training in commercial banks. From July, when
this farming-out program began, until the end of
December, 33 of our men had had the opportunity
to see how a commercial bank operates.
A new educational film, T h e F e d e r a l R e s e r v e
and Y o u , devoted to Federal Reserve func­
tions and operations, was nearly completed at
year’s end and will be ready for public distribution
soon. This film is intended to replace our old
movie, B a c k o f B a n k s an d B u s in e s s , which has
been shown to well over a half-million persons.
B ank

In November we tried a new communications
medium when our operations were televised over
a local radio station.

Continuing the Short Course series, which we
initiated in 1948, five sessions brought 60 member
bankers into the bank for five days’ study of our
operations and the theory of central banking. More
than 200 persons have now been enrolled in this

As in the past, we attempted to keep in constant
touch with current business, banking, and agri­
cultural conditions in this section of the country
through calls on banks, attendance at bank and
business meetings, luncheon meetings at our bank,
and in other ways.

Several new educational projects were launched
in 1949, including a one-day Workshop meeting of
college instructors in money and banking and
economics, and an eight-day Central Banking Sem­
inar for a selected group of college professors.
Seventy-eight teachers from 27 schools attended the
Workshop. Eleven enrolled for the seminar, which
included a study of our own bank’s operations,
a two-day visit to the New York Federal Reserve
bank, and two days at the offices of the Board

By associating ourselves with and becoming a
part of the varied business, agricultural, and bank­
ing activities of the district, we hope to continue
as a vital and constructive force in its development.

Page Eight









O n a fall day in 1855 the steamer Globe was
plowing its way up the treacherous Minnesota river,
headed for the Redwood Indian agency. In its
cabin was 300 pounds of gold—worth $90,000—the
annual payment to the Sioux Indians for lands
they had sold to the federal government.
This was to prove an unfortunate day for the
Globe. Three miles below its destination, the
steamer ran aground on a large boulder. Seeking
to get his boat afloat, Captain Edward Bell ordered
the crew to hustle the gold and the rest of the
cargo ashore.
As the men brought the last keg of gunpowder
to land, they saw clouds of smoke from a prairie
fire which was advancing toward the pile of goods.
Despite their efforts, the shipment was destroyed
and the gunpowder exploded, but the gold was
saved when a team of horses sent from the agency
hauled it to safety.
The hazards encountered by Captain Bell were
commonplace a century ago. Transporting money
often meant a perilous trip with no guarantee of
safe delivery. How times have changed since then!
Today checks have become the chief medium
for making money payments. In fact, more than
90% of the nation’s business is settled by deposit
money. Whenever you sign your name below the
magic phrase “Pay to the order of . . . ,” the
modern and efficient machinery of check collection
starts whirring. Everyone now takes for granted
that payments can be sent by check with speed
and safety.
The myriad trade currents crisscrossing the
United States today demand a nation-wide system
of check collection—a system for sending checks
home to the banks on which they are drawn and




for transferring payments back to the banks where
the checks are deposited.
The Federal Reserve System and the nation’s
commercial banks answer this need. Through the
12 Federal Reserve banks and their 24 branches,
out-of-town checks are settled with speed, safety,
and a minimum of expense.

Member Banks May Route
Out-of-Town Checks to Fed
Let’s drop in on the National Bank of Middle­
town—a member bank located in the Ninth Fed­
eral Reserve district. Middletown is an active trade
center. Checks flow to its citizens from all parts
of the Ninth district and from the rest of the
nation as well. Some of these checks are deposited
in the National Bank.
As we look in on the National Bank, Joshua
Jones, head teller, is making up a package of outof-town checks to send to the Federal Reserve
Bank of Minneapolis for collection. If Joshua is
sending a substantial number of checks, he will
probably sort them into different groups. This is
because of the Federal Reserve “availability sched­
The National Bank of Middletown gets credit
in its reserve account—which is on deposit at the
Fed—for the checks it sends to the Minneapolis
Reserve bank for collection. It gets credit on the
same day the checks are received for those drawn
on Minneapolis and St. Paul banks and those is­
sued by the U. S. Treasurer. All other checks are
credited first to a “deferred availability” account,
and after one, two, or three days—depending on
the published time schedule of the Reserve bank—
the credit is transferred to the bank’s reserve

Page Nine

Let’s say that Joshua Jones sorts the checks he
sends to the Fed into three groups. One, a batch
of checks drawn on Tw in Cities banks, marked for
immediate credit—that is, credit on the day of
receipt by the Reserve bank. Another, a bundle of
Treasury card and paper checks, also headed for
immediate credit; and lastly a group of checks
drawn on other banks, marked for deferred credit.
If the National Bank of Middletown sends only
a small volume of out-of-town checks, Joshua might
not bother to sort. If so, the Reserve bank marks
the entire batch for deferred credit according to
its published time schedule.
Only funds in the reserve account, however, can
be counted as legal reserves or can be withdrawn.
So it is to a commercial banker’s advantage to
sort his checks and get the earliest credit available.

The Fed Collects Only
Checks on Par Banks
Besides availability schedules, there is another
important rule of the game. Whatever way Joshua
decides to sort the out-of-town checks, he must
remember that the Reserve banks collect only
checks that are remitted at par.
“Remittance at par” means a bank pays the full
face value of a check drawn on it. It does not
deduct from the written amount of the check a
fee for making payment. A nonpar bank might
pay, for instance, $99.75 on a $100 check. A par
bank remits $100 on a $100 check.
So member banks must sort out nonpar checks
from those it sends to the Fed for collection.
Sounds complicated, doesn’t it? In fact, country
member banks have found it to be just that, and
many of them send out-of-town checks to their
city correspondent banks—banks which provide
services for other banks, as well as for the general
public. In that way, country bankers need not sort
out nonpar checks or sort checks into batches of
Tw in Cities bank checks, Treasury card and paper
checks, and other classifications.
City correspondent banks which receive the
checks, however, sort them into all these clas­
sifications and send most of the par checks to the
Federal Reserve bank for collection.

Page Ten

City correspondent member banks also act as
middlemen for nonmember banks. Since the Fed’s
collection service is available only to members,
nonmembers may send their out-of-town checks
to their city correspondents, which then channel
them to the Reserve banks. 1
Thus most par checks flowing between cities
sooner or later are routed through a Federal Re­
serve bank. Checks drawn on banks in nearby
cities, however, are an exception. These are usually
sent directly to the drawee banks—that is, the
banks on which the checks are drawn.
The job of sorting and routing checks can be
a streamlined operation today, thanks to the use
of transit numbers and routing symbols—simple
codings of the names and locations of banks and
their Reserve banks printed on the faces of checks.
This coding system was developed jointly by the
American Bankers Association and the Federal
Reserve System, partners in a continuing operating
research program to improve check collection
Now back to Joshua Jones. After sorting the
out-of-town checks he is sending to the Minne­
apolis Reserve bank, he prepares a “cash letter”
to be attached to each group. “Cash letters” are
1 Nonmember banks which keep a deposit at a Reserve bank
as a clearing and collecting: balance may use the cash collection
service of the Reserve System. Such banks are called “nonmem­
ber clearing banks”.

STEP 1-John Brown sends his check for $10, drawn
on the Smithville State Bank, to Mary Jones in
STEP 2—Mary Jones deposits the check in the
National Bank of Middletown, where her account
is credited $10.
STEP 3—The National Bank of Middletown sends the
check to the Federal Reserve bank.
STEP 4—The Federal Reserve bank sends the check
to the Smithville State Bank, where John Brown's
checking account is charged $10.
STEP 5 —The Smithville State Bank authorizes the
Reserve bank to charge its reserve account $10.
STEP 6 —The Federal Reserve bank credits the reserve
account of the National Bank of Middletown, com­
pleting the transaction.


Page Eleven

itemized lists of the outgoing checks. Usually the
“letter” is prepared on an adding machine, with
the amounts of the checks listed and totals rung up.
Commercial banks may keep more detailed
records for their own files. Some have special equip­
ment to photograph checks. Others record the
banks on which the checks are drawn and the last
W ith the checks sorted and cash letters attached,
Joshua Jones mails the package to the Minneapolis

Speed Is Essential
in Processing Checks
T he first job of the Federal Reserve bank is to
get its mail as fast as possible. The faster checks
are received the sooner the wheels of collection
start turning, and the sooner banks get the money
behind a check. In the final analysis, a check is
little more than a slip of paper until the money
has been transferred from the drawer’s bank to
the bank where the check was deposited.
T h e city is still asleep when the Fed of Minne­
apolis starts to work on its incoming mail. At
5:00 a.m. Herman, the Fed’s mail car driver, makes
his first trip to the postoffice and the express station
to pick up mail addressed to the Federal Reserve
Bank of Minneapolis. For the next eight hours,
he delivers mail to the Reserve bank as fast as it
arrives in the city.
Herman is not the only member of the Fed
family who sees the sun come up. A crew! of five
workers are at their stations in the check collection
department to receive his first mail delivery. By
7:45 a.m., when the full staff of the department
reports for work, the early morning’s mail is ready
to be processed.
It is a typical day in a typical week. A flood of
200,000 or more checks is going through the check
collection department. Two hundred thousand
checks—pile them one on top of the other and
they will reach as high as a seven-story building.
You can hear the clackity-clack of adding ma­
chines, tabulators, and sorting gadgets. If you take
time to count, you will find that almost 200 persons
work in the check collection department. At any

Page Twelve

moment you may hear a call for attention come
over a loudspeaker as one of the department super­
visors uses the public address system to make a
general announcement.

Incoming Checks Go to One
of Four Department Divisions
The check collection department occupies almost
the entire second floor of the Minneapolis Fed.
The department is divided into four sections.
The country check division handles all incoming
checks except U. S. Treasury checks and checks
drawn on banks in Minneapolis and St. Paul.
The Tw in Cities clearing section takes care of
checks drawn on banks in Minneapolis and St.
Another division processes U. S. Treasury checks
—mostly card checks, but also some paper checks.
The last section is for return items—checks which
must be returned to the sending bank for one
reason or another.
Now let’s follow the journey of the checks sent
to the Reserve bank by Joshua Jones. First stop is
the mail desk of the Minneapolis Reserve bank.
Every business day of the year your Fed gets
more mail than Santa Claus at Christmas time.
Checks come in from the member banks in the
district. (In the Ninth Federal Reserve district,
Montana member banks may send their out-oftown checks to the Helena branch of the Reserve
bank. Member banks in the remainder of the
district—Minnesota, North Dakota, South Dakota,
Upper Peninsula of Michigan, and northwestern
Wisconsin—may clear and collect checks through
the head office of the Fed.)
Checks also come in from other Federal Reserve
banks. Here is how this works: The Federal Re­
serve Bank of Chicago receives checks for collection
from member banks in its district—the Seventh
Federal Reserve district. Many of these checks—
probably numbering in the thousands each day—
are drawn on par banks in the Ninth district. The
Reserve bank of Chicago bundles all the Ninth
district checks together and sends them to the
Federal Reserve Bank of Minneapolis. Here they
are speeded on their way to the drawee banks.

Checks also come into the Minneapolis Fed
from “direct sending” banks. These are commer­
cial banks in other districts which regularly receive
a big volume of checks drawn on Ninth district
banks. As a time-saver, these banks are authorized
to send checks directly to the Fed of Minneapolis,
bypassing their own Reserve bank.
Finally, the U. S. Treasury sends checks it re­
ceives—tax payments, insurance premiums, etc.—
to the Reserve banks.
So the checks and cash letters from Middletown
join the snowfall of items for clearings and col­
lection which descend on the Federal Reserve Bank
of Minneapolis.

Many Operations Involved
in Collection of Country Items
From the mail desk, country checks are sent to
their division. Here clerks “prove” the cash letters
against the checks—making sure the totals on the
adding machine lists sent in by the bankers jibe
with the total amounts of the checks.
Now the checks and their cash letters part com­
pany. The cash letters are routed to the account­
ing department of the Minneapolis Reserve bank,
where the sending banks are given credit in their
deferred availability accounts. Checks sent in by
the U. S. Treasurer are credited to Uncle Sam’s
account at the Reserve bank.
And the checks—they are completely reshuffled!
In a matter of a few hours the checks are sorted
into piles according to the banks on which they
are drawn. The next step is preparing outgoing
cash letters—listings of the checks the Fed is send­
ing to each bank for collection.
For its own records, the Minneapolis Reserve
bank keeps a complete description of every coun­
try check it sends out. This sounds like a big job,
but with Recordak photographic equipment it takes
only a flip of the wrist. Drop a check into the slot
—click—and its front and back are recorded on
microfilm. At the same time the check is stamped
with an F R B endorsement. Then the Reserve bank
mails its outgoing checks and cash letters to the
drawee banks.
Next the drawee banks pay for the checks. Most

banks remit to their Reserve bank by writing
checks on their accounts in city correspondent
banks. Or member banks may authorize the Fed
to deduct the sum from their reserve accounts.
The final step is the transfer of credit from send­
ing banks’ deferred availability accounts to their
reserve accounts. The Fed transfers credit accord­
ing to its published time schedule rather than when
payment for the checks is received. Thus many
times credit is transferred while checks are still
in the process of collection. In effect, the Fed makes
a noninterest-bearing loan to the sending bank.
Among bankers this is called absorbing “float”.
Let’s pull the threads of our story together. W hat
happens when John Brown of Smithville writes
a check to Mary Jones of Middletown? The jour­
ney the check takes is shown in the pictograph
on page n . When you send a check out of town
to someone located in your Federal Reserve district,
it makes a trip similar to this one.
What happens if John Brown and Mary Jones
live in different Federal Reserve districts — say
Smithville is in the Seventh district and Middle­
town is in the Ninth? Then two Federal Reserve
banks get into the picture.
The Federal Reserve Bank of Minneapolis sends
checks drawn on Seventh district par banks to the
Federal Reserve Bank of Chicago. Th e Chicago
Fed sends John Brown’s check to the Smithville
State Bank, which remits back to the Chicago
Reserve bank. Now the Fed of Chicago must pay
the Reserve bank of Minneapolis, where the reserve
account of the National Bank of Middletown will
be credited.
Enter the Interdistrict Settlement Fund — that
ingenious arrangement for transferring money
between Federal Reserve banks. 2 The Interdistrict
Settlement Fund consists of gold certificates owned
by the 12 Federal Reserve banks. T he Reserve
bank of Chicago instructs the Fund managers to
reduce its share of the Fund and add to the share
belonging to the Reserve bank of Minneapolis.
So we have completed the cycle of country check
2 The story of the Interdistrict Settlement Fund was told in
the 1948 Annual Report of the Federal Reserve Bank of Minne­

Page Thirteen

Checks on Twin Cities Banks
Are Sent to Clearinghouse
About one out of every six checks that come into
the Federal Reserve Bank of Minneapolis has
been drawn on a bank located in either St. Paul
or Minneapolis. These checks are routed to the
Tw in Cities clearing department. First stop—In­
ternational Business Machine equipment. In one
operation incoming cash letters are proved for
accuracy, and checks are endorsed, sorted, and
listed by drawee banks. The use of IBM machines
has cut in half the time it would take to do these
jobs by hand.
Next, the cash letters are routed to the accounting
department, where the sending banks are given
immediate credit in their reserve accounts. Or if
the checks are payable to Uncle Sam, the account
of the U. S. Treasurer is credited.
One thing we don’t see in the city clearing
section is Recordak machines. Since Twin Cities
checks are picked up by messengers of the drawee
banks, it isn’t necessary for the Fed to keep a
record—other than the tape listing—of its outgoing
city checks.
Checks processed in the clearing section are then
routed to the Tw in Cities clearing house. Here
the thousands of checks drawn on Minneapolis
banks and deposited in St. Paul banks, and vice
versa, are cleared each day, along with the checks
from the Fed’s clearing section.
T h e Tw in Cities clearinghouse session is a matter-of-fact ritual which takes place at 10:30 a.m.
in a corner of the second floor of the Minneapolis
Reserve bank. As much as $50 millions in checks
may be cleared in less than 10 minutes.
It is now 10:26 a.m. Bill, the elevator operator,
has barred his doors to the regular traffic. His car
is reserved for messengers bringing in checks in
black suitcases from Minneapolis and St. Paul
Messengers from seven banks and a representa­
tive of the Minneapolis Reserve bank attend the
clearinghouse sessions. The seven banks clear for
their branches and affiliates as well as for them­
selves and, all together, 42 Twin Cities banks are

P age Fourteen

represented. Messengers must be prompt or the
banks they represent will be fined; and they must
be accurate, for there is also a penalty for errors.
At 10:30 sharp the clearing process begins. Mes­
sengers from Minneapolis banks have brought
checks drawn on St. Paul banks. The messengers
from St. Paul banks have brought checks drawn
on Minneapolis banks. And the representative of
the Reserve bank brings the checks processed in
the Tw in Cities clearing section. The exchange
begins. Soon the piles of checks will be in the
hands of the banks on which they are drawn.
Each bank messenger records the total amount
of checks he brings to the clearing house. After
the exchange, the same messenger totals the checks
he receives. The difference between the two —
amount brought and amount received — is the
balance to be paid.
If a bank brings more checks (dollar-wise) than
it receives, its reserve account will be credited for
the balance. If a bank receives more checks than
it brings, its reserve account will be charged for
the balance.
Checks both drawn on and deposited in Minne­
apolis banks are cleared through the Minneapolis
clearinghouse, while checks drawn on and de­
posited in St. Paul banks are cleared through the
St. Paul clearinghouse. These clearinghouses oper­
ate independently of the Federal Reserve bank.

The Fed Is Paying Agent
for Uncle Sam's Checks
Uncle Sam keeps his checking account in the
12 Federal Reserve banks. Checks payable to the
U. S. Treasurer are credited to these accounts;
checks payable by the Treasurer are charged
against them.
In the collection of Treasury checks the Fed
is Uncle Sam’s “Man Friday”. The Reserve banks
do the work of sorting, tabulating, and accounting
for checks signed by the U. S. Treasurer.
When Uncle Sam writes a check, he designates
one of the Reserve banks as paying agent. Or in
some cases—as with the Veteran’s National Service
life insurance dividend—the checks may be pay­


able through any of the country’s 12 Federal Re­
serve banks.

government checks have the new IBM look, but
some paper checks are still used.

In 1943, U. S. Treasury checks got the “new
look”. Up to that time when a veteran received
a check from the government, or a taxpayer got
a refund, he received a paper check. It looked
pretty much like the checks that banks supply to
their customers. In 1943 the Treasury began using
“card” checks for its large scale disbursing oper­

Now let’s go back to that package of checks
sent to the Minneapolis Reserve bank by the N a­
tional bank of Middletown. The checks drawn
on the U. S. Treasurer are routed to the Treasury
card check and paper check divisions. In short
order the cash letter is on its way to the account­
ing department to be credited to the National
Bank’s reserve account.

Card checks are punched with little holes, each
hole representing a coding of information on the
face of the check. These cards are sorted and tabu­
lated by International Business Machine equip­
ment at an incredible speed. IBM machines in the
Minneapolis Fed sort up to 400 Treasury card
checks a minute. They tabulate a complete record
and total the amounts of 300 checks a minute. Most

Let’s see what happens to the checks. First
there is the card check division. Here checks are
sorted on IBM machines according to the paying
Federal Reserve banks. Checks payable through
other Reserve banks are shipped to the paying bank.
Checks payable through the Federal Reserve Bank

Concluded on Page 20

Page Fifteen




Earnings from:
Discounted Bills ..........................................
United States Government Securities............................
Industrial Advances ........................................................
All Other .........................................................................
Total Current Earnings ..............






$ 9,246,428

$ 2,284,048

$ 2,119,004

Assessment for Expenses of Board of Governors. . .



Federal Reserve Currency:
Original Cost ....................................
Cost of Redemption ..........................



Net Operating Expenses......................

$ 2,481,109

$ 6,940,328



$ 2,306,100

$ 7,697,921

Total Current Expenses . . . .
Current Earnings


Additions to Current Net Earnings:
Profit on Sales of U. S. Government Securities. .
All Other ...............................................................

Total .


Deductions from Current Net Earnings:
Reserve for Registered Mail Losses..............................
All Other .........................................................................
Total .....................................................................
Net Additions to Current Net Earnings. .


Net Earnings ...........................................................................
Dividends Paid .......................................................................
Paid to U. S. Treasury (Interest on outstanding
Federal Reserve Notes) ..............................................
Paid to U. S. Treasury (Section 13b)..................................
Transferred to Reserves for Contingencies..........................
Transferred to Surplus (Section 13b)..................................
Transferred to Surplus (Section 7 ) ......................................












$ 8,514,627
$ 272,831

$ 7,108,440
$ 262,776



Surplus Account (Section 7)
Balance at Close of Previous Year..........................................
Transferred from Profits of Year..........................................



Balance at Close of Year......................................



Surplus Account (Section 13b)
Balance at Close of Previous Year..........................................
Transferred to Surplus (Section 13b)..................................

$ 1,072,621

Balance at Close of Year......................................

Page Sixteen

$ 1,072,621
$ 1,072,621

$ 1,072,621



Dec. 31,1949

Dec. 31,1948

$ 424,248,428

$ 470,419,210

$ 446,586,581

$ 493,554,728

Other Cash



Bills Discounted . . . .
Industrial Advances





Total U. S. Government Securities. .

$ 611,351,000

$ 714,191,000

Total Bills and Securities .

$ 613,216,392

$ 719,119,125





$ 612,216,965

$ 631,348,825



Total Deposits . . .
Deferred Availability Items .
Other Liabilities ....................

$ 455,665,549

$ 599,518,415

Total Liabilities .



Gold Certificates on Hand and Due from
U. S. Treasury ....................
Redemption Fund—F. R. Notes........
Total Gold Certificate Reserve. .

U. S. Government Securities:
Notes .......................................
Certificates of Indebtedness .
Bills ..................................................


Due from Foreign Banks..........
F. R. Notes of Other F. R. Banks
Uncollected Items
Bank Premises
Other Assets
Total Assets .

Federal Reserve Notes in Actual Circulation. .
Member Bank—Reserve Accounts . .
U. S. Treasurer—General Account .
Foreign ........................................
Other Deposits ................

Capital Paid i n ..........
Surplus (Section 7) . . .
Surplus (Section 13b) . . . .
Other Capital Accounts................................................
Total Liabilities and Capital Accounts..







Page Seventeen

R o g e r B. S h e p a rd
Chairman of the Board and Federal Reserve Agent

W. D. C o c h r a n
Deputy Chairman
E. A twood
R ay C. L ange
President, First National Bank
President, Chippewa Canning Company
Minneapolis, Minnesota
Chippewa Falls, Wisconsin
W a l t e r H . M c L eod
C. W. B urges
President, Missoula Mercantile Co.
Vice President and Cashier,
Security National Bank
Missoula, Montana
Edgeley, North Dakota
I R . M c K n ig h t
Chairman of the Board,
H o m e r P. C la rk
The Pierre National Bank
Honorary Chairman, West Publishing Co.
Pierre, South Dakota
St. Paul, Minnesota
P a u l E. M il l e r
Director, Agricultural Extension Division
University of Minnesota,
Minneapolis, Minnesota


en ry

First Vice President

Jo h n N . P e y to n ,
O l i v e r S. P o w e l l ,

H a r o ld C . C o re ,

Vice President in Charge of

Assistant Vice President
Assigned to Helena Branch
A r t h u r W . Jo h n s o n , Assistant Cashier
A r t h u r R . L a r s o n , Assistant Vice President
Collection (or) Non-Cash Collection
Currency & Coin
Securities Safekeeping
M i l f o r d E. L y s e n , Operating Research Officer
A l b e r t W . M i l l s , Vice President and Cashier
General and Internal Operations
W i l l i a m E. P e t e r s o n , Assistant Cashier
O ti s R . P r e s t o n , Vice President
Public Services
G e o r g e M . R o c k w e l l , Assistant Cashier
Discount and Credit
M a r c u s O . S a t h e r , Assistant Cashier
Check Collection
M a u r i c e H. S tr o t h m a n , J r ., Assistant Vice
Discount and Credit

Page Eighteen

W . G ro th ,

Vice President
Assigned to Helena Branch
W a l t e r H . T u r n e r , Assistant Cashier
General and Internal Operations
C l e m e n t V a n N i c e , Assistant Cashier
Public Services
R o b e rt E . T o w le ,

O r t h e n W . O h n s ta d ,


H a r o l d G. M c C o n n e l l , Vice
C l a y t o n E . T i l l a n d e r , Chief



B. L a r s o n , Vice President
Government Securities
C h r i s t i a n R ie s, Assistant Cashier
Government Securities
W i l l i a m E . P e t e r s o n , Assistant Cashier
Custodian for Governmental Agencies
E a rl


Vice President, Counsel,
and Secretary

S ig u rd U e l a n d ,

J. M a r v in P e t e r s o n , Director of
F r a n k l i n L . P a rs o n s , Associate


Director of

J a m es A .

M c C ain

President, Montana University
Missoula, Montana

il l ia m

A . D en eck e



Livestock Rancher
Bozeman, Montana

J acobs

President, First National Bank
Missoula, Montana

B. M. H arris
President, The Yellowstone Banks
Columbus and Laurel, Montana


D . M ac H

a f f ie

Helena, Montana

R. E.


o w le,

Vice President


W . G roth ,

Assistant Vice President

J oseph F. R ingland
President, Northwestern National Bank
Minneapolis, Minnesota



V. W ood
President, Minneapolis Electric Steel Casting Co.
Minneapolis, Minnesota
S h eld o n

M. B ush
The Cleveland-Cliffs Iron Company
Negaunee, Michigan

L. M il l e r
President, Miller Broom Company
La Cros,se, Wisconsin

J oh n

A lbert

A. H . D aggett
President, National Battery Company
St. Paul, Minnesota


a l te r M. R inger
President, Foley Manufacturing Company
Minneapolis, Minnesota

Page Nineteen

Continued from Page 15
of Minneapolis are passed along to the “paying
The paying section has two big jobs. One, to
notify the accounting department how much to
charge the U. S. Treasurer’s account. The other,
to ship the collected checks to the U. S. Treasury
department in Washington, D. C.
The paying section also takes care of “stop pay­
ment” orders on Treasury card checks. Maybe a
Treasury check was reported lost or stolen, or
a G. I. complained that he didn’t receive his month­
ly subsistence allowance. The Treasury stops pay­
ment on checks if it suspects that they have fallen
into wrong hands. Every day the Reserve bank
double-searches its records for checks on which
stop payment orders have been received.
Paper checks are payable through any Federal
Reserve bank, so the Minneapolis Fed collects all
the Treasury paper checks it receives.
The first step is to sort the checks by symbol.
Government offices which are authorized to issue
Treasury paper checks are given a symbol number.
The paycheck a postmaster in Minneapolis re­
ceived the first of this month had the symbol num­
ber 48-502. And Chief Rain-in-the-Sky on an Indian
reservation in North Dakota receives a check from
the government with the symbol number 89-189.
After the paper checks are sorted by their sym­
bols, they are listed and totaled. Then in one
operation the checks are photographed and en­
dorsed. Finally, the accounting department is no­
tified of the charge to be made to the Treasurer’s
account and the checks are shipped to the Treas­
ury department, Washington, D. C.

Return Items — Checks That
Don't Make the Grade
And now for the last leg of our journey through
check collections—the return items division. Here
checks which are ineligible for collection by the
Reserve banks are sent back to the sending com­
mercial banks or Reserve bank.

Page Twenty

Return items may be dishonored checks which
have been returned by drawee banks for various
reasons—not sufficient funds, payment stopped,
not properly endorsed, etc. They may also be checks
drawn on nonpar banks, or noncash items—grain
drafts or bills of lading—which do not belong
in the check collection department.
Return items represent unpaid checks—checks
for which sending banks have already received
credit. So, in the accounting department of the
Minneapolis Reserve bank, return items are de­
ducted from the reserve accounts of the sending
banks. Or if the checks come from a bank outside
the district, the sending Federal Reserve bank is
charged through the Interdistrict Settlement Fund.

Checks Are Barometer
of Business Conditions
How’s business? One way to tell is to watch
the volume of check collections and clearings.
When business is good, more and bigger checks
flow through the check collection department.
When business is sluggish, the volume of work
falls off.
Let’s look at the chart on page 15 , which shows
the number and value of checks collected and
cleared through the Federal Reserve Bank of Min­
neapolis and the Helena Branch from 1929 to date.
From the depression of the early Thirties to the
prosperity of the postwar period, check collections
skyrocketed as business expanded. The number
of checks processed in the head office and the
branch in these two decades tripled and their
dollar value multiplied ten-fold. Clearly, this evi­
dences a mushrooming economy.
The Federal Reserve banks gear their check
collection machinery to the requirements of the
economy. Transferring money payments rapidly,
that machinery today is running at full throttle
as it reflects the premium placed on speed and
convenience by the tempo of our times.
Payments in gold shipped by river steamer lend
color to history, but today, an eventful century
later, there is romance in checks—because their
use truly means “money in a hurry.”

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102