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A N N U A L R E P O R T — 1957




FEDERAL

RESERVE

BANK

OF

NEW

YORK

March 14, 1958
To the Member Banks in the
Second Federal Reserve District:
I am pleased to send you our forty-third
Annual Report. reviewing developments during 1957.
This was a most interesting and challenging year
for Federal Reserve policy, covering as it did the
final phase of a business boom and the beginning of
a phase of readjustment. Correspondingly, the year
was one of gradual but decisive change in the
direction of monetary policy. It was a year in which
the role of monetary policy as a major instrument
in furthering balanced economic growth, along with
reasonable price stability, was being subjected to
intensive scrutiny. The report embodies both a
factual survey and some of our thinking on these
critical policy questions.




A L F R E D HAYES
President




Federal Reserve Bank
of New York

FO R TY-TH IR D
A N N UA L R E P O R T
For the Year
Ended
December 31,1957

Second Federal Reserve District




Contents:

Page
Credit Policy at the End of a Boom 5
Stretching Out the B oom ....................... 7
The Spectre of “Creeping Inflation” .. 9
Cushioning the Downturn..................... 12
A Year of Crosscurrents..................... 14
Changing Patterns of Demand
and Output................................................ 14
Downturn in Business Activity.............. 16
Inflationary Pressures E a se.................... 17
Economic Trends in the
Second District......................................... 19
Construction at a Record R ate.............. 19
Manufacturing Output Declines............ 20
Financial Developments......................... 21
Continued Growth of Bank Credit___21
Implementation of Federal Reserve
Policies ...................................................... 24
Loanable Funds in Active Demand___29
Interest Rates and Capital Market
Developments ........................................... 34
Balance of Payments of the
United States............................................. 37
United States Receipts at New Peak ... 37
Record United States Payments............ 39
Trends in Foreign Gold and Dollar
Assets ........................................................ 40
Activity in the New York Foreign
Exchange M arket..................................... 40
Foreign Economic and Financial
Developments............................................. 41
Divergent Trends Amidst Continuing
Prosperity .................................................. 42
Continued Monetary Restraint.............. 42
Trends in International Payments and
Reserves...................................................... 45
Volume and Trend of the Bank’s
Operations.................................................. 47
Domestic Operations............................... 47
Foreign and International Operations .. 50




Page
Financial Statements............................... 51
Statement of Condition......................... 51
Earnings and Expenses ........................... 54
Changes in Membership......................... 56
Changes in Directors and Officers___57
Changes in Directors ............................... 57
Changes in Officers ................................. 58
Member of Federal Advisory Council—

1958 ............................................................ 60
List of Directors and Officers............61
CHARTS

Chart 1: Gross National Product,
Business Investment, and Industrial
Production ................................................ 15
Chart 2: Employment and
Unemployment ......................................... 15
Chart 3: Price Trends ............................. 18
Chart 4: Nonfarm Employment in the
Second District and the United States. . 19
Chart 5: Cumulative Changes
in Commercial Bank Credit
Since the End of 1954 ............................ 22
Chart 6: Commercial Bank LoanDeposit R atios ........................................... 22
Chart 7: Reserve Positions of
Member Banks ........................................... 25
Chart 8: Selected Money Market Rates. 27
Chart 9: Money Supply, Turnover, and
Velocity ...................................................... 28
Chart 10: Changes in Holdings of
Capital and Credit Instruments,
by Type of Investor ................................. 30
Chart 11: Changes in Outstanding
Volume of Capital and Credit In­
struments, by Type of Instrument......... 32
Chart 12: Yields on Newly Issued
and Outstanding Corporate Bonds......... 34
Chart 13: Market Yields on Bonds
and Common Stocks................................. 36
Chart 14: United States Transactions
with Foreign Countries ......................... 38
Chart 15: Discount Rates of Selected
Foreign Central Banks ........................... 43
Chart 16: Gold and Dollar Holdings of
Selected Foreign Countries ..................... 46




Forty-third Annual Report
Federal Reserve Bank of New York

Credit Policy at the End of a Boom
In 1957, for the third time since the end of World War II, the American economy
turned downward.

A capital goods boom of record proportions crested off,

through the first three quarters of the year, and then receded. At about the
same time, a sustained, though somewhat irregular, expansion of inventories
came to an end, as stocks of manufacturers and distributors reached, or ex­
ceeded, the needs of going sales. Both these developments, in fixed capital
and in inventories, were aggravated, too, by declines in defense orders, par­
ticularly during the summer and early autumn. And after blockage of the Suez
Canal late in 1956 had caused American exports to soar, a return toward
closer balance between our exports and our imports later in 1957 removed the
artificial stimulus that this unfortunate incident had temporarily injected.

It

was in the main these developments, coming rather closely together, that moved
the American economy as a whole downward toward the end of the year.
When the rising swing in the economy had begun, in the autumn of 1954,
consumer spending was in the lead, dominated by purchases of automobiles and
homes and financed by a rapidly expanding volume of credit. All-time records
were set in 1955 for automobile production, home building, and the growth of
private debt. By mid-1955, a policy of credit restraint had become necessary
if money creation, and the further activation of money, were not to pyramid




5

the debt structure on very fragile support, and speed the flow of spending
so much faster than the growth of real output as to destroy values and dis­
rupt the orderly functioning of the economy. These monetary and credit factors
were not then, nor were they during 1956 and on into 1957, the only sources
of inflationary danger. But it was important to check them. To do that, credit
policy had to limit the creation of money. Banks could then add to private credits
only by shifting their more liquid assets to others. Most pressing needs could,
of course, be met at the expense of this lessening of liquidity. Yet there was a
continuous pressure for caution and restraint as the liquidity positions of the
banks, and eventually of other lending and investing institutions, stretched nearer
and nearer to their elastic limits.
In 1956, as the gross national product (GNP) continued to grow, the ex­
pansion of the money supply was nominal, but there was no slackening of the
increase in its turnover. Although further additions to total debt did not reach
again the dizzy acceleration of 1955, there was still a sufficient growth in total
effective demand to accommodate, if not to cause, a general rise in prices.
Consumer prices began to rise after three years of relative stability in the
averages, and wholesale prices continued the rise that had begun in 1955, after
nearly five years of reduction or stability. But in the competition for a limited
supply of lendable funds in the money and capital markets, automobile credit
and housing credit took a smaller share than in 1955. The lead among expan­
sionary forces in the economy had been taken over, as early as mid-1955, by
business expenditures on plant, equipment, and inventory. To be sure, total
consumer expenditures continued rising, as they had in each year since the end
of the war. The same was true for the purchases of goods and services by
State and local governments.

And comparable expenditures by the Federal

Government rose a few hundred million dollars more in 1956 than they had in
1955.

But the added thrust to general economic activity seemed to come

mainly from the business investment sector. As is often the case, when resources
are being marshaled for an increase in productive capacity, the immediate effect
was to add to inflationary strains, even though the eventual result would surely
be to permit an added flow of output which could later absorb some of the
inflationary pressures originating in general demand.
This was the situation confronting the Federal Reserve as 1957 began. The
problems for credit policy in this, as in every, challenging period came at three
levels: first, in discerning promptly the facts of the changing business and credit
situation; second, in deciding what policy should be, by finding the best com­
6




promise, in the light of these facts, among the various criteria and objectives of
policy; and, third, in so using the different tools of credit control as to implement
each policy decision most effectively. What emerged is described further in later
sections of this

Annual Report. The ultimate evaluation of what was done, in

terms of visible results in the over-all performance of the economy, will have to
wait until the events of 1957 have more nearly run their course, in the months
or years that follow. Any appraisals should be conditioned, however, just as the
observations, judgments, and actions of the Federal Reserve were conditioned,
by recognition that monetary and credit policy exerts limited, and not limitless,
influence.

s t r e t c h in g o u t th e

boom .

Federal Reserve policy, like the events with

which it deals, generally evolves gradually out of what has gone before, even
though at times the visible manifestations, both of policy and of economic
processes, must take forms that appear abrupt and drastic. The beginnings of
Federal Reserve policy for dealing with a potential downturn in the economy
did not come with the dramatic lowering of discount rates from 3 Vi per cent to
3 per cent on November 15, 1957. Nor was the start to be found in the much
less conspicuous, though significant, lessening of reserve pressures which had
begun before the end of October. The real start came with the gradual imposi­
tion of restraints on the availability of bank credit that had begun during 1955.
For in checking the development of an upward credit spiral, at a time of infec­
tious exuberance in the investment spending plans of business, credit policy
was probably making its greatest possible contribution, not only toward sustain­
ing and prolonging a high level of activity but also toward limiting the dimen­
sions of any future downturn.
Much of the record of 1957, so far as credit policy was concerned, conse­
quently represented the results of the System’s appraisals, judgments, and action
in the two preceding years. To be sure, incidents like that of Suez, and its brief
implications for this country’s share in world trade, could not be anticipated.
But the pace of current and planned business investment in capital equipment
and in inventory had already reached such proportions, by 1956, that an eventual
slowing down for consolidation and reassessment could be considered inevitable.
The timing and dimensions of such a slackening were, of course, quite uncer­
tain— partly because creative innovation springs up on many sides, and often
with quite unexpected strength, in a free economy. Nonetheless, the probable




7

general pattern was sufficiently clear to keep the central bank continually alert
to the possibility that an actual downturn might be developing. Within the Sys­
tem the difficulties that had to be faced, and they were formidable, were thus
more in the nature of perception and timing, rather than in principles or tools.
One critical problem, up to the latter part of 1957, as exhilaration in busi­
ness planning sustained heavy capital expansion at the record levels of 1956
while raising aggregate inventories to new peaks, was that the cumulation of indi­
vidual projects might reach a national total much larger than the real resources
of the economy could stand. In the American economy, no central bureau decides
when that point has been reached, and no single plan marks out, with stultifying
rigidity, the share for each firm or each purpose within a determined total. The
division between consumption and investment— and the allocation of resources
among various forms of investment with a view to meeting current and pro­
spective consumption needs— is left to the working of market forces. These are
relied upon to produce, with the help of reasonably flexible costs and prices and
interest rates, a result that comes closer than the blueprints of an isolated plan­
ning staff to the consensus of preferences among all elements in the economy.
It is not the function of the central bank to substitute itself for these market
forces; to presume to reach judgments on precisely how much investment there
should be; or how it should be distributed among conflicting uses. Instead, it
watches changes at the margin— determining whether a little more, or a little less,
of the credit provided through the creation of money would, in the conditions
then prevailing, help bring about the balance needed for growth, stability, and
the assurance of an orderly determination of economic decisions in the market
place.
In practice, during a period when investment demand is already outrunning
the savings available for investment, and additional debt is already being financed
through more intensive use of the existing money supply, the central bank is
likely to find it necessary to place bank reserves under fairly continuous pressure.
Without such restraint it would be possible for the banks, when the results of
all their perhaps irreproachable individual actions were added together, to pro­
duce a total rise in created money and created credit so large as to transform a
wholesome business expansion into an explosive, speculative inflation. Or in less
extreme form, in the conditions of “over-stretch” apparent in the economy as a
whole through 1956 and on into 1957, this meant that no great amount of addi­
tional bank credit expansion could safely be superimposed on the existing total,
for further financing of the capital goods boom, or the inventory expansion, or
8




the uprush of foreign sales. To have done so in 1957, so long as the price
increases generated by the excess of active demand over actual supply in critical
areas during 1956 were still spreading throughout the economy, could not have
added materially, or soon, to the total supply of goods, but would certainly have
accelerated the already disturbing rise in prices.
That rise in prices became a particular preoccupation of credit policy during
the closing stages of the boom, when there appeared to be danger of wide
acceptance of the inevitability of progressive inflation. But what was of most
immediate significance, at the time the downturn arrived, was that credit policy
had, apparently, largely fulfilled its preparatory role. The capital goods boom
did not end in a giddy spiral of speculation, breaking finally with a sharp crash.
It simply topped off, very gradually. The level of expenditure on producers’
durable equipment, for example, was almost unchanged from the fourth quarter
of 1956 until the modest decline of the final quarter of 1957. Nor was there a
speculative building-up of inventories, leading the way to a drastic collapse.
And the temporary bulge in our exports was financed, on balance, to a large extent
by the drawing-down of foreign balances here.

There was no wild spree of

foreign buying, and no loose availability of American credit.

The reversal

in our exports was sharp because the emergency situation abroad was provi­
dentially short-lived.

While credit policy was, on the
whole, successfully restraining any tendency for credit excesses to amplify the

t h e s p e c t r e o f " c r e e p in g INFLATION” .

rather natural tendencies for capital building and inventory growth to get ahead
of themselves through overborrowing, it was also distinctly concerned over other
kinds of unstabilizing influences in the economy— those springing from the gen­
eral rise of prices that had been under way since mid-1955 at the wholesale level
and since early 1956 at the consumer level. The principal danger, particularly
in the atmosphere of exhilaration characteristic of a capital boom, lay in the
encouragement which these price developments gave to acceptance of a notion
that “creeping inflation” was inevitable. Once the business investor became con­
vinced that selling prices next year could always be moved up above present
levels, and that investment costs next year would always be higher, the funda­
mental basis for cost discipline, and for an orderly selection among alternative
investment projects by the action of market forces, would be lost. If that men­
tality were to spread, before long almost any investment project would look




9

attractive, and investment planning would degenerate into a scramble among
firms for access to savings and bank credit, while the lenders would be thrown
back upon some kind of arbitrary rationing rather than being able carefully to
appraise the comparative prospects and efficiency of competing claimants for
investment funds.
More and more through 1956 the threat of a “creeping inflation” mentality
had become so real, and the potential menace it carried for undermining the
functioning of a market economy became so great, that the phenomenon had to
be considered explicitly in determining Federal Reserve policy.

It was not

enough, in trying to prevent use of the money-creating power to aggravate a
cyclical upswing, to be alert to choke off incipient credit excesses. The Federal
Reserve had a responsibility to hold the rein on money creation with a view to
offsetting in some measure the effects of the variety of factors causing prices to
rise. The objection, long familiar to central banks around the world, was of
course made that credit policy would have to use sledge-hammer blows if it were
to limit price rises during conditions of full prosperity, and that these same blows
would inevitably also disrupt or demoralize much of the rest of the economy.
This criticism was broadened in 1956 and 1957 into a widely held view that a
new kind of inflation was under way, originating in cost-push impulses which
some identified primarily with wage settlements that outran productivity gains.
This sort of inflation, it was said, could surely not be reached by monetary con­
trols; in attempting to check it, the central bank could only cause unemployment.
The year 1956 had already afforded a rather good test of those objections.
During that year it had become increasingly clear that there was in fact quite
a wide zone through which credit tightening could be gradually increased, with­
out any evidence of these supposed sledge-hammer effects. Despite whatever
elements of cost-push may have been at work in 1956, price increases were no
greater, if not less, than in most earlier periods of cyclical expansion, while em­
ployment, capacity, and output went on increasing. To be sure, price increases
were not brought abruptly to a halt. To do that probably would have required
the sledge hammer, so long as the fiscal policies of Government, the wage policies
of labor, and the price policies of business were not fully concentrated on the same
objective. What was impressive, however, was that at a time of intense strain
on resources, when general price increases of 10 or 15 per cent might not have
been at all unlikely (and some individual prices did rise by that much), the
averages rose by roughly 3 or 4 per cent. This experience certainly suggested
that there could, during a period of powerful inflationary pressures, be a grati­
10




fying, albeit imperfect, resolution of the presumed conflict between the goals of
reasonable stability in prices and over-all continuity of high employment. What
such a resolution required, so far as central bank action was concerned, was
recognition of the need for gradual, rather than drastic, action as a means of
obtaining gradual, rather than dramatic, results.
That was the kind of course pursued through much of 1957, as capital
spending remained at record levels and other economic activity moved mainly
sideways, while rising prices continued to sustain the menace of creeping infla­
tion. For more than half of the year, no conspicuous or new overt action had to
be taken by the central bank; there was simply a continuation of pressure on bank
reserves. From April through mid-October, open market operations, reinforced
by the tightening influence of member bank resort to borrowing (as liquidity
positions declined further), led to a slight edging-down in the money supply.
Meanwhile, an almost feverish capital and credit demand, pressing upon the
limited supply of savings, caused most interest rates to rise to heights that had not
been seen in the United States for twenty-five years. And in August, after market
rates of interest had for some months risen and remained far out of touch with
Federal Reserve discount rates, action was taken to confirm the System’s con­
tinuance of restraint by raising the discount rates of the various Federal Reserve
Banks from 3 per cent to

3V2 per cent. As was to be expected, when the under­

lying forces of the boom were beginning to wear out, there were differences of
view, even within the central bank, over the need for this final overt step in the
long sweep of the System’s restrictive policy. Whatever the final judgment may
be on that more or less formal confirmation of an existing state of money market
conditions, neither the mentality of creeping inflation, nor its counterpart in
price statistics, had yet begun to subside at the time this step was taken. Very
shortly, however— so soon as probably to be more of a coincidence than a conse­
quence— the inflationary psychosis did begin to disappear. And the statistics
also slackened their inflationary course. Wholesale prices, with the notable excep­
tion of those for capital goods, were mainly unchanged or lower from August
through the end of the year. Consumer prices also showed some signs of steady­
ing out in the final quarter, after allowance for exceptional weather conditions
and other seasonal influences.

In the financial markets, the prices of stocks

actually peaked out in July.
Of course, the change in prices and in price psychology came only at about the
time the economy as a whole began to move downward. There can be no dog­
matic answers as to the causal sequences running through these various events.




11

But the climate was right for a burst into running inflation at almost any time
during the expansion phase, if the additional bank credit had been there to
permit it. What happened, under Federal Reserve restraint over the two-year
period from mid-1955 to mid-1957, was that the money supply showed very
little increase, while the over-all rate of use of the money supply (its “income
velocity” ) rose about 10 per cent, and bank loans and investments (other than
holdings of Government securities, which declined) rose by 19 per cent. There
had been no strangulation of expansion; but commercial bank credit to business
had also not been the basis for a spiraling cycle of intensifying speculation before
the boom, quite naturally, slowed down.

c u s h io n in g t h e

d o w n tu rn .

All along through 1957 the crucial prob­

lems of credit policy were those of diagnosis and timing. The Federal Reserve
was, during the entire period of restraint, mindful of the cyclical patterns under­
lying the investment boom and alert to the risk of “overstaying” the need for
restraint. But there was also the risk of easing up too soon and losing control
over the underlying momentum toward bank credit inflation.
When the signs of a turn became dominant, however, the Federal Reserve
acted promptly. Just as most of the restraint during the first three quarters of
the year had been achieved by maintaining steady pressure on bank reserves, so
the first moves of relaxation emerged through week-to-week changes in the vol­
ume and availability of bank reserves.

In late October and early November

open market operations were so conducted as to permit the diminished growth
of bank credit to be reflected in reduced pressures on reserves. By mid-November,
it was decided to give all sections of the economy an unmistakable sign that
the direction of credit policy had changed. That could best be done, particularly
in the face of the large Treasury financing which was then imminent, by reducing
the discount rates of the Federal Reserve Banks. The move was made decisive by
reversing the entire

V of 1 per cent increase that had been made in August.
2

Most of the steps taken during the year, the resulting changes in the volume
of reserves, and the reactions in the credit and capital markets are summarized
in later sections of this

Report. In brief, after the policy changes of October

and November, and paralleling the appearance, day by day, of new evidence
that the economy was definitely moving downward, the reserve positions of the
member banks were moved back to a rough balance between excess reserves and
borrowings. That was the relationship at the end of the year. At the same time,
12




from late October until the usual period of seasonal complications in midDecember, interest rates dropped sharply, with many rates falling further than
in any other two-month interval during the postwar period.

While all of

these developments helped add to an electrifying air of excitement in the financial
world at the year end, it would not be until many more months had passed by
that a start could be made at a balanced appraisal of the impact of all that had
happened.
Meanwhile, abroad, the central banks of most of the free world were still
continuing, at the end of 1957, to cope with problems comparable to those that
had occupied the Federal Reserve through much of 1955, 1956, and 1957—
the need to restrict bank credit creation in economies that were trying to do
too much too fast, in relation to their real resources, their savings, and their
staying power. Some, notably Germany and Canada, had begun in 1957 to
relax credit restraints, under conditions that were only partly similar to those in
the United States. These events, too, are described later on. What may have
been most significant to central banking, and more broadly to the prospects for
reliance upon general controls in a world of clashing economic ideologies, at the
end of 1957, was that the democratic countries seemed to be learning by experi­
ence two lessons:
(1) that money and credit controls could, so long as the framework pro­
vided by Government finances was in reasonable balance, effectively
prevent the development of those credit excesses, in the closing
stages of a capital goods and inventory boom, that had in the past
so often amplified the distortions of an upswing and helped to pre­
cipitate a sudden and spiraling collapse; and
(2 ) that, in helping to resist the insidious spread of creeping inflation,
central banking need not be faced with a two-horned dilemma—
to choose between steady prices or steady employment— but that
there could be a middle way: that there was a wide zone over which
general restraint, gradually imposed, could act with reasonable force
in limiting the effects of other upward pressures on prices without
creating mass unemployment.
Whether there would be more to add to another lesson, suggested by the Ameri­
can experience of 1948-49 and 1953-54— that the central bank could help in
encouraging prompt and healthy economic recovery, after an interval of readjust­
ment and recession— would be for 1958 to tell.




13

A Year of Crosscurrents
Although business activity declined during the latter months of 1957, the year
as a whole established new records for employment and for consumer income
and spending. In addition, the year was marked by a record volume of expendi­
tures for the expansion and modernization of the nation’s productive facilities—
including not only its factories, but also its schools and highways— thus opening
the way for further economic growth in the years to come. The very fact, how­
ever, that in some sectors of the economy the rapid enlargement of industrial
capacity anticipated the growth in demand for some time ahead meant that busi­
ness capital outlays could not be sustained indefinitely at the prodigious pace
reached in early 1957. The expansion of capacity also largely removed the incen­
tive for further inventory build-ups to hedge against potential shortages or price
increases. The resulting cresting-out and later decline in business purchases,
aggravated by a fall in exports and the temporary drop in military ordering,
ultimately brought the boom to its close.

c h a n g in g p a t t e r n s o f d e m a n d a n d o u t p u t .

In 1957 the economy

was subjected to the strain of a series of pronounced shifts in the pattern of
over-all demand. At the very outset of the year, the economy had to adjust
itself to the disappearance of most of the extraordinary stimuli that had been
largely responsible for the marked upswing in late 1956. These had included
the replenishing of steel inventories in the aftermath of the steel strike, some
“scare buying” resulting from the Suez crisis, and the sharp pickup in auto
production and inventories from unusually low levels.
As these necessarily transitory demands fell off, the growth of inventories—
which in late 1956 had accelerated to an annual rate of more than five billion
dollars— ceased abruptly in the first quarter of 1957. The sales losses resulting
from reduced inventory buying were largely offset, however, by a further
expansion in other sources of demand— notably in government outlays, Federal,
State, and local, and in foreign buying of a wide variety of American merchan­
dise. In the meantime, business investment in plant and equipment as well as
consumer spending advanced somewhat in dollar volume, primarily reflecting
higher prices.
Despite the cessation of inventory accumulation, the over-all volume of
business activity remained at record levels in the opening months of the year.
14




While manufacturing output and employment declined somewhat from their
late 1956 peaks, the number of persons at work in such fields as trade, services,
and education increased markedly, and total employment and personal income
continued to expand.
The sustained expansion in employment and earnings was followed in the
spring and summer by a more pronounced advance in retail sales. Roughly coin­
ciding with the rise in consumer spending, moreover, home building began to
recover from its two-year decline.

Reflecting the improvement in consumer

demand, retail stores stopped drawing down their inventories, and this, in con­
junction with the rise in sales, permitted some increase in production and
employment in the consumer goods industries.
Largely as a result of the increased activity in a number of industries pro­
ducing for the consumer market, total business activity apparently attained its
peak in the summer (see Chart 1). Students entered the labor force at the end
of the school year in near-record numbers and secured positions rapidly, while
total nonfarm employment and personal incomes achieved all-time highs between
July and September. Because of the pronounced rise in the cost of living (parCHART 1

CHART 2

GROSS NATIONAL PRODUCT, BUSINESS
INVESTMENT, AND INDUSTRIAL PRODUCTION

EMPLOYMENT AND UNEMPLOYMENT

Adjusted for seasonal variation

Quarterly, adjusted for seasonal variation

40 ---------------------j--------------^ - ^ ^ B U S I N E S S INVESTMENT
30 ------------------------------------------------------ IN P L A N T . E Q U IP M E N T ,------------A N D IN VE N T O R IES

• T N ^ rl

t i i I i i i I i i i

Note: Dollar figures are quarterly totals expressed as annual rates;
industrial production figures are monthly indexes of physical
output. Data were obtained from the United States Department
of Commerce and the Board of Governors of the Federal Reserve
System.




Note: Data are based on “ old" definitions of employment and
unemployment, to permit comparison of current figures with those
for earlier years. Data were obtained from the United States
Bureau of the Census, the United States Bureau of Labor Statis­
tics, and the Board of Governors of the Federal Reserve System.

15

ticularly food prices) during most of the spring and summer, however, the gain
in real consumer purchasing power was confined to very modest proportions.
d o w n t u r n in b u s i n e s s a c t i v i t y .

But, even as aggregate business activ­

ity inched upward over the first eight months of the year, it became increas­
ingly evident that the boom was gradually losing momentum. The volume of
new orders for durable goods, and order backlogs for such goods, had already
started to contract early in the year.

Then, toward midyear, the order rate

tumbled sharply and the contraction in backlogs accelerated. To a significant
extent, the fall in orders reflected a Government decision, expressed in cancella­
tions of earlier orders and a “holdback” in the placing of new contracts, to curb
the rapid and unanticipated spurt in military outlays that had occurred during the
first half of the year. At about the same time, moreover, new orders placed by
private business for plant and equipment also began to decline more rapidly,
as it became apparent in one industry after another that there was no need
to go on adding so rapidly to the volume of equipment in operation or on order,
and that present capacity in many lines was more than ample to supply probable
demands for some time ahead. The decline in new orders was further aggravated
by a drop in exports from the unsustainable peak reached earlier in the year,
and by intensified efforts on the part of industrial buyers to curtail inventories
as improved supply conditions appeared to eliminate the need to carry morethan-minimum stocks.
As a consequence of the reductions in orders and order backlogs, manu­
facturers in a large number of industries— notably in the metal products sector—
were forced to cut back production and to lay off workers. From August to
the end of the year, industrial production contracted by about 6 per cent, while
manufacturing employment was reduced further by about half a million persons
and hours of work declined sharply. Output declined to some extent in virtually
all major industry groups, but the sharpest drop occurred in the production of
steel. In the aggregate, steel buyers had apparently still been adding to their
stocks earlier in the year, partly in anticipation of the July 1 price increase. At
midyear this incentive disappeared, and buyers abruptly shifted to large-scale
inventory liquidation. Steel output began to decline (on a seasonally adjusted
basis) in September and by the year end had plummeted to some 40 per cent
below its year-earlier rate.

Severe declines in output also occurred in the

machinery and many other capital goods industries as well as in military air­
craft production.
16




In contrast to the mild reductions in factory output and employment earlier
in the year, which slowed but did not halt the advance in over-all business
activity, the autumn declines led to a downturn in incomes and spending gen­
erally. Total nonfarm employment declined (see Chart 2) and unemployment
increased appreciably, in December reaching 5 per cent of the labor force on a
seasonally adjusted basis. Although total personal income declined only modestly
until late in the year, as wage rates continued to rise and unemployment and
other Government benefit payments increased sharply, retail sales turned signi­
ficantly downward. Automobile sales were temporarily sustained by the price
reductions offered during the “clean-up” period in September and October, but
then fell back as the new 1958 models were introduced at higher prices. How­
ever, Christmas sales of department and apparel stores significantly exceeded
the record-breaking year-earlier outlays, even after allowing for higher prices.
The Russian satellite launchings and reappraisal of the defense program led
to a reversal in military ordering policies before the year end, and further mod­
erate gains were recorded in outlays for home building and public construction.
But the rapid decline in business investment— in plant and equipment and espe­
cially in inventories— resulted in further declines in business activity as 1957
came to a close.

in f la t io n a r y p re s s u r e s ease.
The substantial additions to capacity
made during 1957, as many segments of the massive investment programs begun

earlier in the boom were completed, helped gradually to ease the widespread
inflationary pressures that had prevailed since mid-1955. With the demand for
industrial products leveling off and then declining while supplies increased, pro­
ducers found it more and more difficult to raise prices— although wage and other
costs continued in many cases to advance. The shift to buyers’ markets and
growth of unused capacity intensified the squeeze on profits, and contributed to
a resurgence of more aggressive competition. Nonetheless, many producers con­
tinued their attempts to pass on higher costs, apparently in some instances with­
out regard, at least initially, for the possible adverse effects upon the demand for
their products. As Chart 3 shows, prices of capital goods, in particular, rose
further— although not so rapidly as in 1956— with probably some dampening
effects on total sales.
In contrast, the decline in sensitive industrial commodity prices, which had




17

CHART 3

PRICE TRENDS
Index numbers, 1947-49 = 100

Note: Data were obtained from the United States Bureau of Labor Statistics and the Board of
Governors of the Federal Reserve System.

set in at the end of 1956 following the sharp rise during the Suez crisis, con­
tinued during most of 1957. In a number of instances, efforts were made to
raise prices in the face of declining demand, but by and large these proved
unsuccessful. Price declines were particularly frequent in the domestic markets
for commodities traded internationally, which were, of course, vulnerable to
competition from imports. Chiefly as a result of the lower prices for a number
of raw materials, there was very little change in aggregate industrial wholesale
prices over the year as a whole— a net rise of about 1 per cent in 1957 as
compared with 4 per cent in 1956.
The rise of 3 per cent in consumer prices during 1957, however, was slightly
greater than in the preceding year. The more pronounced increase chiefly re­
flected the more rapid advance in the cost of personal and other services, which
rose by over 4 per cent. While prices of manufactured (nonfood) consumer
goods also rose significantly, partly in a further adjustment to the earlier advances
at wholesale, the increase was smaller than that in food or services and was
slower than in 1956.
18




Economic Trends in the Second District
Economic developments in the Second District broadly paralleled the experience
of the country as a whole. As in the country generally, the strength in the
District’s economy came from its nonmanufacturing industries, which provide
some two thirds of the area’s employment. Employment in these industries was
at peak levels for most of the year and edged off only slightly in the closing
months (see Chart 4 ). The gains during the year centered in government, con­
struction, and in the finance, insurance, and specialized service industries.

c o n s t r u c t io n

a t a re co rd ra te .

Construction activity reached a new

high during 1957 as advances in nonresidential construction more than offset
the decline in home building. During the first half of the year construction was
spurred by the building of commercial structures and manufacturing plants.

NONFARM EMPLOYMENT IN THE SECOND DISTRICT AND THE UNITED STATES
Quarterly, adjusted for seasonal variation
T O T AL N O N F AR M E M P L O Y M E N T

M AJOR C O M PO N EN TS OF SECOND D IS T R IC T

Index numbers, 1954 = 100

N O N FAR M E M P L O Y M E N T

L-

Millions
of persons

-

5.1-

110

/ TRADE,

SERVICE
AND OTHER

REST OF COUNTRY —

/

■■
:• :
'

r

4.9
1

/

//s
y

5.0

:COND DISTRI : t

I

1

1

1

1

1

1

1

>
1.4

100
1.3

111 l 11 111 111
1954

1955




1956

1957
Note: Computed by the Federal Reserve Bank of New York from data supplied by the Depart­
ments of Labor of New York State, New Jersey, Connecticut, and the United States.

19

Although plant expenditures tapered off after midyear, the many national manu­
facturing companies that have made New York City their headquarters contrib­
uted importantly to a continued upsurge in office building. Contracts awarded
for office building in New York City increased by about 100 million dollars in
1957, compared with an increase of only about 40 million for the rest of the
country. Following a drop early in 1957, public construction activity expanded
again, paced during most of the year by work on the St. Lawrence Seaway,
and later by other projects such as highways, schools, and municipal buildings.
Home building, on the other hand, remained at a substantially lower rate than
in 1956, when it had already fallen 20 per cent below 1955. While the decline
in housing starts began to level out in the fall, this was somewhat later than in
the nation as a whole. The decline from 1956 was less severe in the New Jersey
and Connecticut areas of the District than in New York State, but even in these
areas it was greater than in the country at large.

m a n u fa c t u rin g

o u tp u t d e c lin e s .

In contrast to the high level of ac­

tivity in the nonmanufacturing industries, production declined steadily throughout
the year in both nondurable and durable goods manufacturing. The downtrend
in the output of nondurable goods industries, which had begun during 1956,
largely reflected losses in the important apparel industry where employment fell
on average some 6 per cent below last year. Toward the end of the year, the
men’s apparel industry, in particular, operated at a substantially lower rate of
capacity utilization than in 1956. In contrast, apparel employment in the rest
of the country was generally higher in 1957 than in 1956.
In the durable goods sector, the year was marked by labor disputes and
diverse trends among industries. In the first half of the year output was cut
back in several consumer durables lines, including television and appliances as
well as automobiles. Labor disputes involving large numbers of employees led
to production declines in the railroad equipment, aircraft, machinery, fabricated
metals, wood products, and cement industries. At the same time, however, con­
tinued growth in industries making instruments, photographic equipment, and
office machinery kept the decline in durable goods employment relatively small.
After midyear, downward pressures became more widespread. Cutbacks in Federal
defense orders were felt especially strongly by aircraft manufacturers, although
some firms in the industry benefited from the stepping-up of missile programs. Air­
craft layoffs occurred in various parts of the District. These cutbacks, combined
20




with contractions in primary metals and machinery output, were reflected in the
reclassification of several labor market areas at the end of the year by the
United States Department of Labor. In the Stamford-Norwalk area, which had
been designated an area of critical labor shortage in late 1956, the labor market
eased substantially.

Bridgeport and Syracuse, which had been classified as

areas of moderate labor shortage since November 1955, were moved to the
“moderate surplus” category.

Financial Developments
As indicated earlier, the greater part of 1957 was marked by a continued vigorous
demand for credit and capital funds from bank as well as nonbank sources.
This strong demand, taken in conjunction with the Federal Reserve System’s
policy of credit restraint, resulted in a further rise in interest rates. Late in the
year, as inflationary forces waned and business activity slackened, the pressures
in financial markets also eased. Borrowers’ demands became less insistent, while
Federal Reserve policy shifted away from restraint and market rates of interest
declined across a broad front.

c o n tin u e d g r o w t h o f b a n k c r e d it .

Accompanying and supporting the

high level of economic activity, bank credit expanded further in 1957. The total
rise of nearly 5 billion dollars was about as large as in 1955 and 1956, but it
was strikingly different in composition from what it had been in the earlier phases
of the business boom.
The expansion in commercial bank loans came to about 3.6 billion dollars in
1957, as against a 7.7 billion increase during 1956 and a towering 11.6 billion
rise in 1955. But the counterpart of the smaller expansion in bank loans, in the
general context of credit restriction and reduced bank liquidity, was that the banks’
investment holdings increased somewhat in 1957, whereas in 1955 and 1956
these portfolios had been trimmed sharply to make room for the very large loan
rise. As indicated in Chart 5, investment holdings edged upward, on balance,




21

CHART 5

CHART 6

CUMULATIVE CHANGES IN COMMERCIAL
BANK CREDIT SINCE THE END OF 1954

COMMERCIAL BANK LOAN-DEPOSIT RATIOS

Note: Data are end-of-quarter estimates for all commercial banks.
Total bank credit is the sum of loans (adjusted) and investments.

Note: Loan-deposit ratios are loans (adjusted) divided by total deposits less
cash items in process of collection. Data are end-of-quarter estimates.

by 1.2 billion dollars in 1957, compared with decreases of 3.4 billion in 1956
and 7.0 billion in 1955.
The slower growth in bank loans during 1957 was in part a result of credit
restraint. As Federal Reserve open market operations reduced the available
supply of bank reserves, and securities sales involved greater capital losses or
greater inroads on liquidity, restraint became increasingly effective over the first
ten months of the year. Since loan-deposit ratios were already high at the start
of the year (see Chart 6) and the demand for funds was still strong, the natural
outcome was an intensification of credit rationing and a rise in interest rates.
Average interest rates on new loans to bank customers rose about as much in
1957 as in 1956, according to the Federal Reserve’s quarterly survey.
The lesser rise of bank loans during 1957 was particularly evident in busi­
ness borrowing. Business loans had soared by 6.3 billion dollars in 1955, and
by another 5.5 billion in 1956, but rose only by 1.8 billion further in 1957. In
22




part, the slowdown reflected the restricted availability of bank funds, which
caused firms to scale down their borrowing plans. In other cases, firms found it
more expedient to borrow through bond flotations in the long-term capital market
— either repaying bank loans or using the proceeds of capital flotations as an
alternative to borrowing from the banks. Public utilities, for example, required a
great deal more external financing in 1957 than in 1956, but virtually all of
the additional funds were obtained in the long-term capital market; the net rise in
the industry’s borrowing from banks was roughly the same in the two years.
In other instances, and to an increasing extent as the year progressed, the
slower growth in business borrowing from banks was attributable to a lessening
in demand. Thus borrowing of some industries declined as capital expansion
and improvement programs reached completion and as the rise in investment
outlays leveled off. The slower rate of business inventory accumulation, which
in turn was partially attributable to the more cautious planning induced by
limited credit, also helped to dampen the expansion in bank loans during 1957.
This slackened inventory growth, already discussed in earlier sections of this

Report, was especially evident in such lines as metal and machinery production,
the same areas as those in which the sharpest change in bank loans occurred.
The outstanding volume of commercial bank mortgage loans increased by
about 600 million dollars in 1957, compared with a 1.7 billion rise in 1956 and
a 2.4 billion upsurge in 1955. As described more fully in a later section, the
reduced flow of credit into mortgages partly reflected a diversion of funds to
other uses and partly stemmed from the slackening of demand. Commercial
bank farm loans and loans for purchasing or carrying securities declined slightly
on balance during 1957, while consumer loans increased by around 1.3 billion
dollars— or the same as in 1956.
The change from net liquidation to net accumulation of investments by the
banks during 1957 as a whole was partly a result of the fact that loan-deposit
ratios had already pushed to relatively high levels in 1956. In the later months
of 1957 the less insistent demand for loans and the moderation of credit restraint
also reduced the need to sell investments in order to release reserves for loans.
At the same time, the Treasury’s net cash surplus was much smaller in 1957 than
in 1956. With the market generally not receptive to longer term issues over much
of the year, the Treasury had to issue increased amounts of shorter term securities
in 1957, and consequently had to place relatively greater reliance on the com­
mercial banks as initial underwriters and, to some extent, as ultimate holders of
new issues. A further influence tending to curb securities sales by the banks,




23

particularly on the part of those banks that had run through their shorter maturi­
ties in earlier years and were left with only longer term issues, was the larger
capital loss incurred on sales, as market yields rose. In the course of the year,
commercial bank holdings of Treasury issues declined on balance by 300 million
dollars, compared with liquidation of 3.0 billion in 1956 and 7.4 billion in 1955.
Bank holdings of other securities meanwhile increased by 1.5 billion dollars, in
contrast to a moderate decline in 1956. No doubt the remarkable rise in yields
of corporate and municipal securities over the first ten months of the year (see
Charts 12 and 13 on pages 34 and 36) played an important part in bringing
about this change.
im p le m e n t a t io n o f f e d e r a l r e s e r v e

p o lic ie s .

As indicated earlier,

System credit policies during most of 1957 were aimed primarily at the contain­
ment of inflationary forces. Through the greater part of the year member bank
reserve positions were kept under a fairly steady degree of pressure, the money
market maintained an even tone of over-all firmness, and changes in the money
supply were confined within rather narrow limits. The increase in money turn­
over, which was symptomatic of the shrinking liquidity induced by sustained
restraint since early 1955, also continued through most of 1957. Toward the
end of the year, however, as business activity and credit demands slackened
and inflationary pressures relaxed, monetary restraint was moderated.
Monetary policy was implemented primarily through the flexible use of both
open market operations and adjustments in the discount rate.

Open market

operations were used actively through the year to adjust reserves to policy
objectives, with frequent reliance upon repurchase agreements with Government
securities dealers as a useful adjunct to outright transactions. Coordinated use
of outright transactions and repurchase agreements successfully maintained a
steady degree of tightness in the money market during the first ten months of
1957, while guarding at all times against the development of severe pressures
that might have resulted in interference with the orderly functioning of the market.
The effective rate for Federal funds thus remained at or close to the discount rate
on almost every business day, and an atmosphere of restraint continuously
pervaded the central money market during this period. Similarly, in the last
two months of 1957, outright open market operations and repurchase agree­
ments were used in combination to supply seasonal reserve needs and, simul­
taneously, to relax gradually the money market pressures that had been main­
tained through the year to that point.
24




With bank reserves held in check by open market operations, many indi­
vidual member banks found it necessary to turn to the “ discount windows” of
their Reserve Banks to supplement other means of providing for day-by-day
unanticipated needs for reserve funds. On two occasions during the year, in
August and in November, discount rates were changed at all Reserve Banks:
they were raised from 3 to

3V2 per cent during August, primarily as an adjust­

ment to higher market interest rates, and lowered to 3 per cent in November as
policy shifted to meet the change in business conditions.
The year began with a substantial but temporary easing in member bank
reserve positions, primarily as the result of extraordinarily heavy return flows
of currency from circulation, more-than-seasonal declines in required reserves,
and an unexpectedly low level of Treasury balances at the Reserve Banks. The
decline in currency in circulation was the most important of these elements
during January, amounting to a record 1.4 billion dollars between December 26
and January 30. In an effort to offset this sharp increase in reserves, sales and
redemptions of Treasury bills from the System Account, in addition to with­
drawals of repurchase agreements, absorbed a total of 1.5 billion dollars of

CHART 7

RESERVE POSITIONS OF MEMBER BANKS
Monthly averages of daily figures
Billions of
dollars
19.5

19.0

18.5




BO RR OW IN GS FR OM

reserves over the five weeks ended January 30. Despite the record size of these
open market operations, member banks held free reserves during most of
January (see Chart 7 ).
Net System sales continued through February in order to offset reserve gains
stemming from other sources, particularly float and Treasury operations. By
early February, System Account holdings of Treasury bills had been reduced
to a point where it became necessary to sell short-term certificates and notes
for a brief period in order to absorb reserves. By the end of February weekly
average net borrowed reserves had returned to about 200 million dollars and
by mid-March to 400 million dollars. Short-term money market rates tended
downward slightly during the early part of the year, with the average issuing
rate on three-month Treasury bills falling from about 3V4 per cent early in
January to about 3 per cent in March and to slightly below that in mid-May.
For the most part, weekly average net borrowed reserves held within a
range of roughly 400-600 million dollars from mid-March through mid-October,
although short-run influences resulted in temporary swings to as high as 700
million or as low as about 100 million. Member bank borrowings from the
Reserve Banks fluctuated around the 1 billion dollar level during this same
period, consisting throughout of a changing composition of borrowing banks—
with administration of the “discount window” aimed as usual at avoiding con­
tinuous or excessive borrowing by any individual member bank.
The increase in the discount rate to 3 Vi per cent in August followed an
upward movement in short-term money rates during the preceding three months
(see Chart 8 ). Treasury bill yields, for example, rose from slightly below 3 per
cent in mid-May to about

33 per cent by late July, and the bid rate on 90-day
/s

bankers’ acceptances rose from 3V4 per cent in April to 3 Vi per cent during
July. On August 6 and 7 the principal commercial banks in New York City and
other money centers raised their lending rates to prime borrowers from 4 to 4Vi
per cent, the first change in the prime rate since August 1956. Rates on bankers’
acceptances and commercial paper also rose further on August 7— by V4 per cent

Vs per cent, respectively. On August 8 four Reserve Banks adjusted to the
upward realignment in money market rates by announcing a Vi per cent increase
and

in their discount rates, and the other Reserve Banks followed suit during
the ensuing two weeks; the Federal Reserve Bank of New York, recognizing
that in existing circumstances it was impracticable to permit the continuation of a
Vi per cent differential between its discount rate and those of the other Reserve
Banks, advanced its discount rate to 3Vi per cent on August 22. These changes
26




CHART 8

SELECTED MONEY MARKET RATES

in discount rates, the first since August 1956, were primarily a technical and
passive adjustment to higher market interest rates, thus contrasting with the
somewhat more active role played by the series of rate changes that had been
made in 1955 and 1956.
Credit policy shifted in the direction of a relaxation of credit restraint toward
the end of October, with open market operations conducted in such a way as
gradually to reduce the pressures on member bank reserve positions.

And

effective November 15 the Federal Reserve Banks of New York, Richmond,
Atlanta, and St. Louis moved their discount rates back to the 3 per cent
level in force before the rate increase in August.

The eight other Reserve

Banks made similar changes in their discount rates over the ensuing two and a
half weeks. Average net borrowed reserves declined from almost 500 million
dollars during the first half of October to about 25 million dollars in the last
half of December, and member bank borrowing from the Reserve Banks fell
from close to 1 billion dollars to about 750 million over the same period. System
holdings of Government securities increased by just over 1 billion dollars between




27

October 23 and the end of December, including both outright purchases and
acquisitions under repurchase agreements. The average issuing rate for regular
Treasury bills declined to a low for 1957 of 2.752 per cent in the last auction of
the year, held on December 30, after having reached a post-1933 high of
3.660 per cent on October 14.
Over the complete year, total member bank reserve balances declined by
100 million dollars as compared with a 300 million dollar rise during 1956.
On a seasonally adjusted basis the money supply (demand deposits adjusted plus
currency outside banks) decreased by 1.5 billion dollars or 1.1 per cent during
the year, while in 1956 it had increased 1.2 billion dollars or slightly less than

CHART 9

MONEY SUPPLY, TURNOVER, AND VELOCITY

Note: Money supply is end-of-quarter data, seasonally adjusted. Turnover of demand deposits is
quarterly average of seasonally adjusted monthly data at annual rates. Income velocity is equal
to gross national product (annual rate for each quarter) divided by average money supply for
that quarter, both seasonally adjusted. Data for the last quarter of 1957 are estimates.

28




1 per cent (see Chart 9 ). However, time and savings deposits at commercial
banks increased by 5.3 billion dollars during 1957, more than twice as much as
the 2.2 billion dollar increase in the previous year, evidently reflecting the higher
interest rates on such deposits adopted by many commercial banks during 1957.
On the other hand, time deposits at mutual savings banks increased somewhat
less than in 1956, rising by 1.7 billion dollars in 1957 as compared with 1.9
billion the previous year.
With the money supply held in check and demands for credit strong, interest
rates rose during much of the year, as mentioned above, and cash balances were
used more intensively. The income velocity of money— GNP divided by the
money supply— increased from an annual rate of 3.17 in the fourth quarter
of 1956 to 3.25 in the third quarter of 1957, before declining— for the first time
since mid-1954— to 3.24 in the last quarter. The seasonally adjusted rate of
demand deposit turnover in 343 reporting centers outside New York City also
rose, from an annual rate of 24.2 times per year in the fourth quarter of 1956
to 25.9 in the third quarter of 1957, before falling to 25.0 in the final quarter
of the year. Although the increases in income velocity and deposit turnover
through the first three quarters of 1957 were measures of further tighten­
ing in the liquidity position of the nonbank public, signifying a lower ratio of
cash assets to GNP and a further economizing on cash balances, other liquidity
measures remained rather steady over this period. Time deposits in commercial
and savings banks increased more than twice as fast as GNP between the end of
December 1956 and the end of September 1957, while nonbank holdings of
Treasury securities remained about unchanged; on balance, the ratio between
nonbank liquid asset holdings (money, time deposits, and Governments) and
GNP remained fairly stable through the first three quarters of 1957.

In the

fourth quarter, all measures indicated an increase in nonbank liquidity positions,
as GNP declined proportionally more than nonbank holdings of money, while
average holdings of time deposits and Government securities actually increased.

lo a n a b le

f u n d s in a c t i v e

dem and.

In the nation’s financial markets

the dominant influence during most of 1957 was the insistent pressure of bor­
rowers’ demands for funds. With many borrowers and lenders in a tightened
liquidity position, competition for the limited supply of loanable funds was
intensified, as the volume of public offerings in the securities markets rose
sharply and as direct loans from institutional lenders were sought with greater




29

urgency. Through the working of the market— in which most borrowers can
approach alternative sources and most lenders are free to choose among alterna­
tive uses of their funds— the forces of demand and supply produced a sub­
stantial redirection of financial flows between 1956 and 1957. Proportionately
more funds in 1957 were drawn into the securities markets, for lending to
corporations and State and local governments, and proportionately less went into
mortgage investments and bank loans to business firms. Total net private debt
rose by 21 billion dollars in 1957, which was significantly below the increase in
the previous year and less than half that of 1955.
Responding to the pull of demand, the cost of borrowed money in the fall
of the year reached the highest levels since the thirties. As in 1956, the increased
cost was a natural result, and the differences among rates a necessary condition,
of the market’s rationing process for distributing available funds among borrowers
in a period when total borrowing demand exceeded the total supply of funds
available from lenders at existing rates.

The trend of borrowing costs was

sharply reversed, however, near the close of 1957, as the business situation
softened and the policy of credit restraint was moderated. By the end of 1957,
market yields on high-grade bonds generally were lower than a year earlier. The

CHANGES IN HOLDINGS OF CAPITAL AND CREDIT INSTRUMENTS
BY TYPE OF INVESTOR
Billions of
dollars

10

5

0

-5
Note: Holdings include corporate, municipal, and Federal securities, mortgages, and bank loans.
“ Other nonbank financial institutions” comprise mutual savings banks; fire, marine, and casualty
insurance companies; corporate pension funds and savings and loan associations. "All other
investors" comprise State and local governments, Federal agencies, foreign investors, indi­
viduals, and others. Estimated by the Federal Reserve Bank of New York from various sources

30




job of high and rising interest rates, as part of the free market process of
spacing out the bunching of capital demand and thereby helping to avoid a
sudden steep rise and later precipitate fall in capital spending, had for the time
been completed.
As shown in Chart 10, life insurance companies experienced a reduced rate
of asset growth in 1957 for the second year in succession. The growth of funds
(chiefly death benefits and dividends) left in the companies’ custody has slack­
ened in recent years; in addition, there has been a gradual shift away from forms of
insurance which involve the accumulation of large cash reserves. Other nonbank
financial institutions (including mutual savings banks) as a group acquired about
the same volume of capital and credit instruments as in 1956. Among the latter
institutions, the increase for mutual savings banks was smaller than in 1956,
while savings and loan associations maintained their previous year’s growth
rate and nonlife insurance companies and corporate pension funds grew more
rapidly in 1957. Nonfinancial corporations, which reduced their securities hold­
ings (chiefly Governments) by almost 5 billion dollars in 1956, effected only a
small additional liquidation in 1957. The banking system and the “other investor”
group were somewhat less important as suppliers of capital and credit than
in 1956.
The major developments on the demand side of the markets for loanable
funds in 1957 are summarized in Chart 11. Nonfinancial corporations obtained
about 10 billion dollars (net) through the sale of debt and equity instruments,
about one-fourth more than in 1956 and a new record for any calendar year.
This heavy volume of corporate securities flotations, which exerted a major
influence on the trend of interest rates during the year, reflected in part the
increase in plant and equipment outlays from 1956 to 1957. Another important
factor, however, was the inability of corporations, because of low ratios of liquid
assets to current liabilities, to continue raising needed funds through sales of
Federal Government securities at the same high rate as in 1956. The stepped-up
rate of corporate borrowing through securities offerings was accompanied by a
sharp reduction in their net borrowing from banks in 1957, although the tightened
liquidity position of corporations caused temporary resort to bank borrowing on
a large scale in order to meet Federal income tax payments.
In addition to the increased corporate demand for funds in the capital market,
there was a sharp rise in securities offerings by State and local governments. Such
offerings, totaling 6.8 billion dollars (exclusive of refundings and Federal Gov­
ernment loans) in 1957, were practically as large as the record set in 1954 when




31

CHART 11

CHANGES IN OUTSTANDING VOLUME OF CAPITAL AND CREDIT INSTRUMENTS
BY TYPE OF INSTRUMENT
Billions of
dollars

15

10

5

0

1955

1956

1957

1955

1956

1957

1955

1956

1957

1955

1956

1957

1955

1956

1957

Note: Estimated by the Federal Reserve Bank of New York from various sources.

there was an exceptionally heavy concentration of toll-road financing.

After

retirements and other adjustments, the net increase in State and local securities
outstanding in 1957 is estimated to have exceeded that in any previous year.
Among the major purposes of State and local borrowing, school construction
absorbed the bulk of the increase from 1956 to 1957.
The Federal Government, which had a calendar-year cash surplus of almost
2 billion dollars, retired publicly held debt over the year as a whole, but both
the surplus and the amount of debt retired were less than in 1956. Approxi­
mately 20 billion dollars of direct Treasury obligations (other than the replace­
ment of maturing bill issues) was sold for cash during 1957 and an additional
2 billion dollars was raised through the sale of agency issues.

Even larger

amounts of debt were repaid, however, so that, on balance, the Federal Gov­
ernment continued as a net supplier of funds in the market. Part of the proceeds
32




of agency issues, which are outside the debt ceiling, was used to redeem agency
borrowing from the Treasury, thus helping the Treasury to meet its cash needs
during the latter part of the year when the public debt rose almost to the statutory
ceiling of 275 billion dollars.
Mortgage borrowers, while still comprising the largest group of claimants
in the capital market, absorbed only about 12 billion dollars of loanable funds
in 1957, as against almost 15 billion in 1956 and more than 16 billion in 1955.
The slower growth of mortgage indebtedness in 1957 reflected some diversion of
funds to other borrowers who were able to outbid mortgage borrowers in the
capital market, partly because of interest rate restrictions on Federally under­
written mortgages and home buyers’ sensitivity to more restrictive lending terms.
The combination of higher borrowing costs, lessened credit availability, and
possibly some easing in the demand for new housing contributed to a small
decline in the value of residential building in 1957 as well as to reduced activity
in the market for existing homes, although, as noted earlier, the rate of housing
starts showed some improvement after the spring of the year.
Various Federal actions were taken, mostly during the second half of the
year, to soften the impact of credit restraint on home building. The maximum
allowable interest rate on mortgages insured by the Federal Housing Administra­
tion was raised from 5 per cent to

5Va per cent, the minimum permissible down­

payments on these mortgages were reduced, and standards relating to the mini­
mum income requirements of home buyers were liberalized. On the other hand,
mortgage discount controls introduced at the time of the increase in the FHA
interest rate tended to have a deterrent effect on mortgage lending. Moreover,
the maximum rate on mortgages guaranteed by the Veterans Administration
remained unchanged at

AV2 per cent, a rate which had not been competitively

attractive for sometime.
Consumer credit increased by 2.9 billion dollars in 1957, which is a smaller
rise than in 1956 and less than half the record increase of 6.4 billion dollars in
1955. The rise of somewhat less than 3 billion dollars in 1957 was confined
largely to automobile credit and personal instalment loans. About 1.8 billion
dollars of the 1957 increase in total consumer credit represented instalment and
single-payment loans by banks to consumers. Most of the remainder reflected
the lending operations of sales and consumer finance companies— which in turn
borrowed both from banks and through securities flotations.
Customer stock market credit— measured by the sum of customers’ net debit
balances and securities loans by banks to borrowers other than brokers and




33

dealers— remained relatively steady until the second half of 1957 when it turned
downward. The amount outstanding at the end of December was 3.6 billion
dollars (exclusive of customer credit extended against Government securities),
compared with 4.0 billion a year earlier and about 3.8 billion dollars in April
1955, when the last increase in stock market margin requirements— from 60
per cent to 70 per cent— occurred.

IN T E R E S T R A T ES AND CA PITA L M A RKET D EV ELO PM EN TS.

Prices and

yields in the securities markets experienced wide swings during 1957. Under the
impact of the record volume of new issues, bond yields rose rapidly during the
spring and summer months and then moved along a high plateau until mid-

C H A R T 12

Y IE L D S ON NEW LY IS S U ED A ND O U TS T A N D IN G C O R P O R A TE BO ND S

Note: Yields on outstanding issues are monthly averages of daily figures. New issue yields are
weighted averages of reoffering yields during each month in which Aaa and Baa issues were
offered. Data are from Moody’s Investors Service.

34




October. Following the reduction in Federal Reserve discount rates, bond prices
rose dramatically as investors hastened to commit their funds before the high
yields disappeared. In the stock market, prices in the second half of 1957 experi­
enced the sharpest decline in many years, after establishing highs in July that
were just under the peak levels of 1956.
Notwithstanding the great strains upon the underwriting community and the
new issue market during much of the year, there were only brief intervals of
congestion in the distribution of new securities issues, and none became seriously
disturbing. Apart from paying higher interest rates, borrowers offered various
other concessions to attract funds, such as added protection against early calls
and potentially valuable stock conversion privileges and stock purchase warrants.
Due to the active competition for long-term funds, yield differentials between
new issues and comparable outstanding securities were considerably wider dur­
ing most of 1957 than in 1956, particularly for higher grade issues (see Chart 12).
In the opening months of 1957 long-term interest rates turned downward,
following the sharp advance in 1956 (see Chart 13).

The strengthening of

investor demand was particularly evident in the Government and municipal
sectors of the market, and reflected a brief wave of uncertainty over the economic
outlook, the usual January reinvestment demand supplemented this time by the
proceeds of large Savings bond redemptions, a temporary easing of bank reserve
positions, and an apparent market belief that this easing represented a deliberate
relaxation of credit policy.
The first quarter of 1957, when 5.3 billion dollars of corporate and municipal
securities were floated, was the busiest three months in the new issues market
in many years.

The bulk of the new securities was quickly absorbed into

investors’ portfolios, and not until the end of the quarter were there signs of
an increasing backlog of undistributed issues. The appearance of such signs,
however, together with a build-up of the calendar of scheduled offerings, caused
some investors to postpone their purchases in anticipation of price concessions
on undistributed bonds and more attractive yields on forthcoming issues. This
change in investor psychology was influenced by a renewal of business optimism
and a growing expectation of tighter market conditions.
Starting in April, long-term interest rates moved steadily higher, reaching
a plateau near the end of the summer. Although there were occasional periods
of moderate congestion in the market, they were of shorter duration than in
1956. The continued large volume of new offerings during the summer months,
when there often is a lull in the new issues market, met with a good reception.




35

CHART 13

MARKET YIELDS ON BONDS AND COMMON STOCKS

______

y

^

COMMON STOCKS

* * * * *

, * * *

*r

*

^ CORPORATE Aaa

iP—

.......... h

_

STATE S GOVERNMENT

^/

a

--------- '
E AND LOCAL Aaa --------------—

TERM

V
i j ].. 1 1 1 i l l
1953

i .i

i i 1 i i 1 i i 1 i i

i i 1 i i 1 i i 1 i <

I I 1 11 11 1 111

1954

1955

1956

l I 1 l i I i i 1 i i
1957

Note: Monthly averages of daily or weekly figures. United States Government bond yields are
“ old series” . Common stock yields are Moody’s composite series on 200 common stocks. Data
are from the Board of Governors of the Federal Reserve System and Moody's Investors Service.

Reports of declining production and sales after Labor Day, while contributing
to a further weakening of prices in the stock market, were temporarily out­
weighed in their effect on bond yields by other factors such as the heavy volume
of offerings and the continued evidence of monetary restraint. Yields on United
States Government bonds generally moved along a plateau until mid-October.
In the case of corporate bonds, the rising backlog of unsold issues generally
helped to keep yields up through the first half of November, despite the down­
trend in business activity. The response of the markets to the reduction in dis­
count rates was immediate and sharp: underwriters were able to sell out remain­
ing securities in syndicate accounts overnight, in many instances after an appre­
ciable price markup, and during the remainder of the year bond markets were
characterized by considerable strength.
By the end of 1957, Moody’s index of yields on outstanding high-grade State
and local issues was about 2.84 per cent, as against the year’s high of 3.45 per
36


/


cent in August and 3.05 per cent at the end of 1956. The downward adjustment
in Government bond yields, while compressed within a shorter period, was com­
parably sharp; for example, the 3 per cent bonds of 1995 declined in yield from
3.63 per cent in October to 3.21 per cent at the end of December, while the
IVi per cent bonds of September 1967-72 declined in yield from 3.79 per cent
to 3.08 per cent. Although market yields on corporate Aaa bonds followed a
similar pattern after the discount rate change, lower grade corporate yields
lingered close to peak levels for a few more weeks and ended the year only
moderately below those levels.
After scoring a modest gain in the first half of 1957, the stock market de­
clined under substantial selling pressure in the second half. The yield advantage
of stocks over bonds, which had narrowed substantially during 1956, gradually
turned in favor of even high-grade corporate bonds by the middle of 1957.
The sharp sell-off after mid-July was influenced not only by this factor, however,
but also by the disappointing trend of corporate profits, a shift toward a more
conservative valuation of growth stocks, and a gradual deterioration of the
near-term business outlook. At the year end, stock prices were about 20 per cent
below their summer peak and at the lowest level since June 1955.

Balance of Payments of the United States
As indicated in earlier sections of this Report, a record export boom, accom­
panied by only a slight rise in imports, provided one of the stronger expansive
forces in the economy until midsummer. But the unusually large foreign pur­
chases of dollar goods, together with speculative capital flows, were also respon­
sible for the fact that foreign countries for the first time since 1951-52 suffered
losses of gold and dollar assets as a result of their transactions with this country.

u n it e d
s t a t e s
r e c e ip t s a t n e w
p e a k .
In 1957 United States receipts
from exports (excluding military aid) and the inflow of foreign capital again




37

rose to a new high (see Chart 14). Merchandise exports set the pace with an
advance to 19.3 billion dollars, 12 per cent above the previous record set in
1956. Receipts from services kept abreast, as both transportation earnings and
income on investments rose. Merchandise exports were particularly large in the
first half when the influence of the still vigorous expansion of the world economy
was reinforced by exceptionally high wheat and cotton sales and by heavy petro­
leum shipments following the closure of the Suez Canal. During the second half,
exports dropped back toward more sustainable levels as these special factors lost
force, as the boom in Canada and in some other areas subsided, and as a number
of countries were compelled to adopt various measures to halt serious reserve
drains. For the year as a whole, buoyant export sales gave a significant fillip to
production in a number of lines. Exports of coal, iron and steel mill products,
and industrial machinery were among the chief beneficiaries of continued expan­
sion abroad. Agricultural exports— not quite one fourth of total shipments— kept
abreast of the general export rise, aided by special Government programs. Sales

C H A R T 14

UNITED STATES TRANSACTIONS WITH FOREIGN COUNTRIES
At annual rates; not seasonally adjusted
Billions of

Note: United States payments are those on account of imports, investment abroad, and gifts.
Receipts are those from exports, long-term foreign investment in the United States, and "errors
and omissions". Data are from the United States Department of Commerce and exclude trans­
actions with international institutions.

38




to Western Europe, the largest foreign market for United States products,
expanded vigorously as did exports to Latin America and Asia. Shipments to
Canada were about the same as in 1956.
Long-term foreign investment in business enterprise domiciled in this country
was slightly below the 0.5 billion dollars recorded in 1956. More notable was
the sharp rise in unspecified receipts reflected in the “errors and omissions” item
in the balance of payments— a development believed to result principally from
short-term capital inflows set off by international political and financial stresses.
This speculative movement, which contributed substantially to the pressure on
foreign gold and dollar reserves, showed signs of abating in the fourth quarter.

r e c o r d
u n it e d
s t a t e s
p a y m e n t s . United States payments for imports,
investments, and foreign aid climbed to new heights for the fourth successive
year. New investment abroad amounted to 3.9 billion dollars and exceeded
even the 1956 showing as a result of the very large flow in the first half of 1957.
Private direct investment, responsible for half of the total, was up sharply espe­
cially in Latin America as a result of the leasing of new oil concessions in
Venezuela by United States firms. Canadian flotations in the New York capital
market were substantial until midsummer. Capital outflows through other forms
of private long-term investment— bank lending and the purchase of outstanding
foreign securities— were maintained near the previous year’s moderate rate.
Short-term credit continued to rise with the growth of trade, but at a somewhat
slower rate than in 1956. United States Government lending was markedly
higher than in 1956, chiefly because of greater activity under official programs
for disposing of surplus agricultural commodities and Britain’s drawing against
its Export-Import Bank loan.
Merchandise imports were only slightly higher than in 1956. The dollar
intake of foodstuffs, one fourth of total imports, was off slightly with the volume
of coffee and cocoa imports dropping. The value of crude material and semi­
manufactured imports, almost half of the total, remained steady; the further rise
in petroleum and iron ore imports was offset by a decline in the inflow of rubber,
sawmill products, and nonferrous metals as prices eased and uncertainties over
the business outlook everywhere increased. However, foreign finished manufac­
tures, chiefly from Europe, continued to enjoy growing United States markets,
with steel products, automobiles, and industrial machinery recording substantial




39

increases. Service payments to foreigners continued to rise slowly, while military
expenditures abroad and Government foreign-aid outlays were also up a little.

As a result of their
transactions with the United States, foreign countries (excluding international
institutions) lost about 600 million dollars in gold and dollar assets, in sharp
contrast to gains of 1-2 billion dollars annually in previous years. These losses
were accompanied by heavy drafts on the International Monetary Fund, amount­
ing to some 900 million dollars. Chiefly as a consequence of such borrowing
and of gold sales to the United States Treasury in the amount of 170 million
dollars, foreign countries as a whole were able to add several hundred million
dollars to their holdings of short-term dollar assets and United States Govern­
ment bonds and notes. Foreign countries maintained their position as an im­
portant factor in the Treasury securities market, holding about 4 billion dollars
of short-term securities at the year’s end. Total foreign deposits also remained
near the year-previous level; holdings of bankers’ acceptances were up sharply,
however, reflecting in part the larger supply arising from the increased popularity
of acceptances in the financing of foreign and domestic trade.

TRENDS IN FOREIGN GOLD AND DOLLAR ASSETS.

Sterling
and the Canadian dollar continued to be the focal point of foreign exchange
market activity in 1957. American-account sterling opened the year at $2.78 %
but advanced to $2.80 Vs following the appointment of Prime Minister Macmillan
in January. Partly reflecting uncertainties over Middle East conditions and the
threat of labor troubles, the rate declined to around $2.78 Vs in March. Although
by May the quotation had recovered to $2.19V2, seasonal pressures, Middle East
tensions, and rumors of a revaluation of European currencies after midyear
pushed the rate down to $2.78
in August, at which level it was held by exten­
sive official support. The increase in the British bank rate on September 19
contributed to a subsequent recovery which, aided by the waning of seasonal
demands for dollars in London, by short covering, and by increased commercial
demand for sterling, raised the quotation to $2.8 iy 16 by the year end.
Reflecting the strong pressure against sterling, the discounts on three and six
months’ deliveries widened from 1]/^G and 1710 cents, respectively, in March to
/
4V4 and 6 % G cents in September, the widest spreads since 1951; these subse­
ACTIVITY IN THE NEW YORK FOREIGN EXCHANGE MARKET.

40




quently narrowed. The rate for transferable sterling advanced almost steadily
from $2.7505 in January to a high of $2.7925 in December.
The Canadian dollar rate rose under the influence of strong American and
European investment demand from $1.031% 6 in January to an all-time high of
$1.061% 4 in August. Thereafter, a withdrawal of European investment funds,
together with a decrease in the demand for Canadian dollars caused by the
decline in new offerings of Canadian securities in the United States, depressed
the rate to a low of $1.01%6, and at the close of the year the rate stood at

1 01 %

$ .

.

On August 12, the French franc rate in the New York market shifted from
$0.0028 % 6 (about 350 francs = U. S. $1) to $0.0023 % (about 420 francs
= U. S. $1) following a revision of the French foreign exchange structure. The
German “ capital” mark rose sharply during August to $0.2456 on strong invest­
ment demand after having been quoted below the “ official” rate of $0.2380 for
the first seven months of 1957. As demand tapered off and rumors of revaluation
were denied officially, the rate eased to close the year at $0.2375.

Foreign Economic and Financial Developments
Most countries of the free world experienced another year of prosperity in 1957.
Although in the industrial countries the rate of growth slackened somewhat, the
underlying vitality and resiliency of their economies were generally maintained.
Output also expanded in the primary-producing countries, and development of
resources proceeded at a high rate. However, in both industrial and primaryproducing countries demand continued for most of the year to outpace resources,
thus generating pressures on prices and balances of payments. Among countries
that encountered particularly severe strains were France, Japan, and Brazil.
Great Britain sustained heavy reserve losses during the third quarter, despite a
surplus in current payments throughout the year; these losses resulted from specu­
lative outflows of funds, which in turn reflected market fears of continuing price
and wage inflation in Britain as well as doubts about the maintenance of the exist­
ing European exchange rate structure. To curb inflationary pressures, many coun­
tries reinforced monetary and other restraints, and toward the year end the




41

upward trend in prices was slowed or even reversed and payments positions
showed some improvement.

DIVERGENT TRENDS AM IDST CONTINUING PROSPERITY.

In W estern

Europe, the rise in investment in plant and equipment, which had been the
main prop of the boom since 1953, continued generally into 1957. Later in the
year, however, some moderate declines in business spending occurred, which
were only partially offset by further increases in consumer outlays. As the year
passed, industrial production in many countries expanded less rapidly; in some,
output actually declined somewhat. Prices rose without exception in all Western
Europe through mid-1957, in most countries at an annual rate of over 3 per cent
and in Britain at close to 5 per cent; in the latter part of the year, the price
advances subsided almost everywhere but continued in France.
In Canada, private investment, which had been the most active factor in
economic expansion, began to slacken in mid-1957. Industrial production, in
fact, reached its peak as early as February, and by the year end had dropped
by over 5 per cent. Wholesale prices, which had risen noticeably between mid1955 and the end of 1956, leveled off during the first half of 1957 and began
to fall in the third quarter. In Japan, output continued to increase rapidly
throughout the first seven months of the year, largely in response to sustained
investment, but receded somewhat thereafter.
The output of primary commodities also increased in 1957, in part because
of newly developed sources of supply. As production tended to exceed world
demand, commodity prices weakened; this in turn adversely affected both the
export earnings and the fiscal positions of most primary-producing countries.
Since many of these continued to rely heavily on bank credit to finance their
economic development outlays, inflationary pressures persisted and balance-ofpayments difficulties were further aggravated. However, certain countries in
Latin America, including Bolivia, Chile, and Colombia, made notable efforts
to stabilize their economies. In India, external payments difficulties led the
authorities to reduce deficit spending under the Second Five-Year Plan.

m onetary
r e s t r a i n t . To curb inflationary pressures and to
ease their external payments difficulties, many foreign countries in 1957 rein­
forced the policies of monetary and credit restraint to which they had turned in
c o n t in u e d

42




1955-56. The most vivid signs of such world-wide restraint were the numerous
discount rate increases (see Chart 15). Discount rates were raised in eight Euro­
pean countries— twice in France and the Netherlands, and once in Belgium,
Ireland, Spain, Sweden, Switzerland, and the United Kingdom. In the latter coun­
try, the rate, at 7 per cent, reached the highest level since 1921; in Switzerland, the
increase was the first change since 1936. Differential or progressive discount
rate structures were tightened in several countries, including Finland, France,
Japan, Chile, and Cuba. In Germany, it is true, the discount rate was reduced
twice last year, but this action largely reflected very special circumstances, as
noted below. The Bank of Canada continued its policy, adopted in November
1956, of letting its discount rate fluctuate with— but V per cent above— the
a
average weekly Treasury bill tender rate. Both rates generally rose until August
and declined thereafter.
Other monetary policy instruments were also frequently called into play.
Substantial open market sales were conducted in Germany. Commercial bank

C H A R T 15

1955




1956

1957

Note: Beginning November 1, 1956, the Canadian discount rate has been set each Thursday at
Va per cent above the week’s average tender rate for Treasury bills; the rate shown is as of the
last Thursday of each month.

43

reserve requirements were tightened, as in Germany, Colombia, and Peru, and
raised or lowered, according to circumstances, as in the Netherlands and New
Zealand. These general or quantitative restraints were supplemented in a number
of countries by over-all credit ceilings, “ directives” to financial institutions, and
selective controls over particular credit sectors. Consumer credit restrictions
were thus imposed or tightened in Belgium, France, and Norway, and priordeposit requirements on imports were applied or increased in a number of coun­
tries, notably in Latin America.
Policies of monetary restraint were associated in most countries with efforts
to stimulate the flow of savings by allowing higher rates on various forms of
savings deposits and savings-type bonds or by introducing special incentives.
In some important countries, moreover, the governments increasingly supported
monetary restraint by cutbacks in public expenditures and increases in taxation.
Finally, the greater reliance on monetary policy led the authorities in some
countries, notably in Belgium, to broaden existing money market arrangements.
The continued application of monetary restraint, in the context of increased
demands for loan funds, led in many foreign countries to a marked rise in interest
rates, at times to record levels. In Western Europe, particularly large increases
in short-term yields on government securities took place in the Netherlands and
the United Kingdom; in the latter country, some long-term rates reached the
highest levels since the early twenties. With the substantial rise in the cost of
credit in a number of countries and the reduction in credit availability, loans to
business and consumers tended to level off or even to fall, as in the United
Kingdom. In some countries, this shift in the trend of bank loans was a major
factor retarding the rise in the money supply. As investment and consumption
spending declined, the growth in demand was kept more closely in line with
physical capabilities, and the drain on international reserves in several countries
was halted or even reversed.
Credit restraint, which in many countries was pursued more vigorously in
1957 than at any other time since the war, thus appeared to have contributed
significantly to the restoration of a workable internal and external balance over
the year. Monetary policy alone could not, of course, carry the entire burden
of economic adjustment. As the year drew to a close, however, fiscal and wage
restraints in some of the principal trading nations seemed to have been better
coordinated with monetary policy than heretofore. If these severe restraints
proved generally acceptable, it was because of the increasing realization of the
dangers of unrestricted expansion in aggregate demand. At the same time, how­
44




ever, there was continuing awareness that when a further increase in demand
for goods could again be safely allowed, monetary policy would be used to
support and encourage such an expansion.

The strains in
the balances of payments of many countries that had reappeared in late 1955
and in 1956 continued through most of 1957, reaching a climax in Western
Europe during the summer. As a result, foreign countries had greater recourse
to the International Monetary Fund during 1957 than in any previous year,
drawing about 900 million dollars net. These drawings made possible an increase
of about 700 million dollars in total foreign gold and dollar holdings, despite the
reserve losses to the United States noted previously. During the preceding three
years, such increases had averaged 2 billion dollars.
The gold and dollar position of individual countries was, of course, affected
not only by transfers of reserves to the United States but also by such transfers
among themselves. In Western Europe, Germany’s gold and dollar holdings rose
by 770 million dollars (see Chart 16), partly because of the country’s continued
trade surplus and partly because of a speculative inflow of funds. This inflow,
which was particularly marked during the summer, largely reflected expectations
that the value of the German mark would be raised in terms of other European
currencies. From October on, however, the German payments surplus declined,
mainly as a result of an abatement of the speculative inflow. Austria and Italy
also had sizable gold and dollar gains during the year. On the other hand,
several Western European countries that were in deficit on both current and
capital account lost reserves. France lost particularly large amounts, its pay­
ments difficulties being a compound of excessive internal demand, the direct
and indirect foreign exchange cost of the Algerian campaign, and a speculative
outflow of capital. At the turn of the year, however, France’s external position
showed signs of improvement.
Unlike most other countries that lost reserves, the United Kingdom continued
to have an international current-account surplus, globally as well as with the
United States. Moreover, the current-account deficit of the overseas sterling
countries with the United States was more than offset by receipts of dollars on
capital account. The overseas sterling countries ran sizable trade deficits with
nonsterling countries, but the major factor behind the severe reserve losses
sustained by the United Kingdom during the third quarter of 1957 was the

TRENDS IN INTERNATIONAL PAYMENTS AND RESERVES.




45

C H A R T 16

GOLD AND DOLLAR HOLDINGS OF SELECTED FOREIGN COUNTRIES
Billions of
dollars
GERMANY
(FEDE RAL REPUBLIC)

-

4
J KINGDOM
__________

3
CANADA

---- -

2

FRANCE

(

1

L _________

___________

JAPAN

j :

1

1

1

1952

1

1

1953

1

1

1

1954

1

1

1

1955

i

1

1

1956

1

1957

Note: Holdings include official gold reserves and official and private dollar holdings (primarily
bank deposits, United States Government securities, and bankers' acceptances). For France, the
gold holdings of the Exchange Stabilization Fund are not included. End-of-quarter data are used
throughout

speculative outflow of funds from sterling into dollars and, to an even larger
extent, into German marks, as noted earlier. Following the rise in the Bank of
England’s discount rate in September and other measures indicating Britain’s
determination to defend the pound, sterling strengthened considerably and Britain
recovered some of the reserves lost earlier. These reserve losses and the more
recent gains have again underscored the major impact that short-term capital
movements can have on an international currency like sterling.
Canada’s gold and United States dollar holdings rose moderately. The state
of the Canadian balance of payments vis-a-vis the United States is, however,
reflected not only in gold and dollar reserves but also in the fluctuations in the
United States-Canadian dollar exchange rate; the latter, after rising to over U. S.
$1.06 in August, gradually fell to less than $1.02 at the year end as the inflow
into Canada of capital from the United States was greatly reduced during the
second half of the year. In Latin America, Venezuela added greatly to its gold
and dollar holdings, but most other countries (particularly Argentina and Brazil)
46




sustained losses. Many Asian countries, notably Japan and the Philippines, also
lost dollar reserves.
In view of their balance-of-payments difficulties, a few countries retreated last
year from their earlier level of foreign trade and payments liberalization; thus,
France and India tightened direct controls over trade, and Belgium, the Nether­
lands, and the United Kingdom their controls over capital movements. On the
other hand, some countries, notably Germany, Italy, and Sweden, further relaxed
their controls. Six Continental Western European nations ratified the Common
Market Treaty, providing for the progressive elimination of all tariffs among the
participants and the establishment of a common tariff toward other countries,
while the United Kingdom and other countries in Western Europe continued to
consider a limited form of association with the “ common market” countries.
From time to time during 1957, concern was expressed abroad over the
re-emergence of a “ dollar gap” . Yet United States outpayments, in fact, were
larger in 1957 than in any previous year. While a number of countries suffered
serious balance-of-payments difficulties, these difficulties arose in their over-all
external position, and not with the United States alone. This suggests mal­
adjustments linked largely to internal inflationary pressures, which gave rise to
heavy import demand and undermined confidence in national currencies. By
the close of 1957, however, many countries had made determined efforts to
bridle inflation and were approaching a more balanced external position.

Volume and Trend of the Bank’s Operations
The volume of operations in most departments of
the Bank showed some increase in 1957 over the previous year, reflecting
generally higher levels of business activity, higher prices, and a more extensive
use of available funds.
During 1957 this Bank processed 534 million bank checks amounting to
389 billion dollars. This represented an increase of 3.6 per cent in dollar volume,
which fell short, however, of the increase of 11.9 per cent in 1956. Thus, for the
year as a whole, the rate of growth in the dollar volume of bank check collec­
tion slowed down appreciably; moreover, in the final quarter of the year the
d o m e s t ic

o p e r a t io n s




.

47

expansion came to at least a temporary halt as business activity slackened.
In spite of the larger volume of bank checks processed, the average level of
float at this Bank in 1957 was slightly lower than in 1956, and the monthly fluc­
tuations in the amount of float outstanding were somewhat smaller. These
reductions were made possible, in part, by increased employment, more over­
time work, and greater productivity in the Check Department.
Contrary to the continuous upward trend in bank check collection figures,
the dollar volume and the number of United States Government checks handled
declined by 11 and 7 per cent, respectively, during 1957. This was largely be­
cause, as a result of a change in procedure, Government checks which were
formerly drawn payable through this Bank and were sent to it for collection by
the other Federal Reserve Banks were made payable through the Treasury in
Washington and are now sent directly to it by the Reserve Banks.
The dollar volume of wire and mail transfers made through the facilities
of this Bank, other than Treasury transfers and Reserve Bank interdistrict settle­
ments, rose more rapidly in 1957 than in 1956 and totaled 471 billion for the
year. This total was nearly twice as large as it was as recently as 1952. The
1957 figure reflected an increase of 13 per cent over 1956, compared with a 9
per cent rise from 1955 to 1956. The number of transfers of funds in 1957 was
also substantially higher than in 1956. The increase in the volume of transfers
apparently reflected a more intensive use of the nation’s money supply and of
the Federal funds market. Due to improved equipment and changes in pro­
cedures, the Wire Transfer Division was able to handle the increased volume
with only a negligible expansion in operating costs.
The more extensive use of available funds appears also to be reflected in
the volume of currency counted. The dollar amount of currency received and
counted at this Bank increased by 2.8 per cent in 1957 and 5.4 per cent in 1956.
In contrast, the average level of currency circulating outside banks for the
country as a whole rose by only 1.3 per cent in 1957, and 1.4 per cent in 1956.
The volume of currency shipments received by this Bank from banks in the
District has increased steadily throughout the postwar period. The 8 billion
dollars of currency received and counted in 1957 was, for example, approximately
40 per cent higher than the comparable amount ten years earlier.
In contrast to the upward trend in currency shipments, the volume of coin
received at this Bank has remained relatively stable over the past decade. The
volume of gold handled by this Bank in 1957 was 2.7 billion dollars, compared
with 2.2 billion in 1956 and 968 million in 1955.
48




SOME MEASURES O F T H E V O LU M E OF OPER ATIO NS OF T H E
FED ERAL RESERVE BANK OF NEW Y O R K (Including B
uffalo B
ranch)
Num ber of pieces handled *

Discounts and advances ..........................................................
Currency received and counted ..............................................
Coin received............................................................................
Gold bars and bags of gold coin handled..............................
Checks handled:
United States Government checks ......................................
All other ..............................................................................
Postal money orders handled ................................................
Collection items handled:
United States Government coupons p a id ............................
Credits for direct sendings of collection items ..............
All other ..............................................................................
Issues, redemptions, exchanges by fiscal agency departments:
United States Savings bonds ..............................................
All other United States obligations....................................
Obligations of the International Bank for Reconstruction and
Development ........................................................................
Safekeeping of securities:
Pieces received and delivered ............................................
Coupons detached ..............................................................
Transfers of fundst ..................................................................

1986

1957

3,106
1,255,818,000
1,772,812,000
198,000

3,453
1,207,083,000
1,731,964,000
142,000

60,349,000
534,285,000
48,290,000

65,048,000
510,638,000r
50,715,000

3,889,000
396,000
10,584,000

3,956,000
382,000
9,203,000

30,724,000
5,077,000

29,585,000
3,887,000

212,000

61,000

7,091,000
2,583,000
467,000

4,740,000
2,429,000
422,000

Amounts handled

Discounts and advances .......................................................... $ 29,410,688,000
Currency received and counted ..............................................
8,045,632,000
Coin received ...........................................................................
219,900,000
Gold bars and bags of gold coin handled..............................
2,725,867,000
Checks handled:
18,443,732,000
United States Government checks ....................................
All other ..............................................................................
389,354,518,000
802,303,000
Postal money orders handled ................................................
Collection items handled:
1,685,790,000
United States Government coupons paid ..........................
805,408,000
Credits for direct sendings of collection ite m s ................
2,009,581,000
All other ........................................................................ ..
Issues, redemptions, exchanges by fiscal agency departments:
3,059,125,000
United States Savings bonds ..............................................
396,504,969,000
All other United States obligations ..................................
Obligations of the International Bank for Reconstruction and
291,821,000
Development ........................................................................
Safekeeping of securities:
574,124,044,000
Par value pieces received and delivered ..........................
471,063,822,000
Transfers of fu n d s t..................................................................

$ 25,345,725,000
7,822,909,000^
212,400,000 ‘
2,172,311,000
20,746,793,000
375,848,239,OOOr
835,182,000
1,306,052,000
852,262,000
1,606,846,000
2,625,051,000
343,051,230,000
195,485,000
473,527,789,000
415,149,394,000

★Two or more checks, coupons, etc., handled as a single item are counted as one “ piece” .
f Includes wire and mail transfers; excludes Treasury transfers and Reserve Bank interdistrict settlements,
r Revised.




A substantial expansion in the Treasury’s refunding and financing operations,
as well as the high level of activity in the Government securities market during
1957, influenced the volume of the Bank’s fiscal agency operations. Issues,
redemptions, and exchanges of United States Savings bonds during 1957
amounted to 3.1 billion dollars, 16.5 per cent more than during 1956. The
comparable increase in 1956 was only 4.3 per cent. The dollar volume of all
other Government securities processed by this Bank in 1957 was 397 billion
dollars representing 5 million pieces, and the yearly rise in the dollar volume in
1957 was 15.6 per cent as compared with 1.5 per cent in 1956. The number
and the dollar amount of securities received and delivered in conjunction with
safekeeping operations rose sharply, by 50 and 21 per cent, respectively. The
volume of coupons detached and entered for collection— the by-product of the
safekeeping of securities— rose 6.3 per cent in number and 55.6 per cent in
dollar volume in 1957.
The tight credit conditions which prevailed during most of the year caused
the total volume of advances to member banks to increase from 25.3 billion
dollars in 1956 to 29.4 billion in 1957. However, the number of advances was
reduced by 10 per cent, from 3,453 in 1956 to 3,106 in 1957. Also, the number
of banks accommodated by advances in 1957 was slightly lower than that in 1956.
Over the year as a whole, a substantially increased volume of work was
carried out by a slightly larger number of employees. The average number of
employees on the staff was 2.6 per cent more than in 1956, while the rate of
turnover was below that in 1956.

f o r e ig n
a n d
i n t e r n a t i o n a l o p e r a t i o n s . Gold and dollar assets held
for foreign account by this Bank on behalf of all Federal Reserve Banks
remained during the year close to the peak of nearly 10 billion dollars reached
in December 1956, after four years of virtually uninterrupted rise. At the end
of 1957 they stood at 9,926 million dollars, compared with 9,961 million at
the end of 1956. Of the total, 5,488 million was in the form of earmarked gold,
3,729 million was represented by United States Government securities, 356
million by deposits, and 353 million by miscellaneous securities, including
bankers’ acceptances. Earmarked gold declined 156 million dollars and Govern­
ment securities 127 million, while miscellaneous securities rose 214 million and
deposits 34 million. Gold and dollar assets held for “ international account” ,
i.e., the International Bank, International Finance Corporation, and International

50




Monetary Fund, which are not included above, registered a relatively substantial
net decline of 670 million as was to be expected from the heavy drawings by
foreign countries on the IMF’s resources in 1957.
During the year there developed a slightly larger demand for loans on gold.
Arrangements were in effect for five borrowers at various periods during the
year. They amounted to 61.5 million dollars but advances made under these
arrangements, in which all Federal Reserve Banks participated, did not exceed
41.5 million, and at the year end only one loan, in the amount of 5.0 million, was
outstanding. Loans on gold, and commitments for such loans, are made to foreign
monetary authorities to assist them in meeting seasonal and other dollar shortages
of a temporary nature.
General accounts were opened for the three recently organized central banks
of Nepal, Surinam, and Israel, and for the central banks of Haiti and Curasao,
both of which had heretofore maintained gold custody accounts. The account
of De Surinaamsche Bank, which formerly had performed the duties of a central
bank for Surinam, was closed.
The Bank continued to certify rates of exchange of foreign currencies for
use by the Bureau of Customs in the assessment and collection of duties on
imports.
As fiscal agent, it continued the administration of the blocking regulations
affecting both assets held in the United States by Communist China and North
Korea and their nationals, and transactions with those countries, and of regula­
tions affecting assets of the Government of Egypt and the Suez Canal Company.
A total of 3,758 applications was filed pursuant to both regulations.

Financial Statements
s t a t e m e n t
o f c o n d i t i o n . At the end of 1957 the Bank had total assets
of 13.6 billion dollars, of which 5.9 billion consisted of cash or gold certificates
and 6.5 billion of Government securities. The Bank’s principal liabilities were
6.5 billion of Federal Reserve notes and 6.0 billion of deposits.




51

S T A T E M E N T OF C O N D ITIO N
(In thousands of dollars)

Assets

DEC. 3 1 , 1 9 5 7

DEC. 3 1 , 1 9 5 6

Gold certificates ..................................................................................

5,522,298

5,402,485

Redemption fund for Federal Reserve n o te s ......................................

182,497

198,738

Federal Reserve notes of other Banks ..............................................

95,948

53,311

Other cash ..........................................................................................

66,423

61,629

5,867,166

5,716,163

4,695

8,550

........................................................................................

65,689

68,763

United States Government securities..................................................

6,451,005

6,498,803

Total loans and securities

6,521,389

6,576,116

Due from foreign banks*.....................................................................

4

6

Uncollected items ..............................................................................

1,173,568

1,039,318

Bank prem ises......................................................................................

10,664

9,397

All other ..............................................................................................

55,343

62,064

Total other assets

1,239,579

1,110,785

Total Assets

1 3 ,6 2 8 ,1 3 4

1 3 ,4 0 3 ,0 6 4

Total cash
Discounts and advances ......................................................................
Acceptances

Other assets:

★After deducting participation of other Federal Reserve Banks amounting to

52




11

16

S T A T E M E N T OF C O N D ITIO N
(In thousands of dollars)

L ia b ilitie s

DEC. 3 1 , 1 9 S 7

Federal Reserve notes ........................................................................

DEC. 3 1 , 1 9 M

6,500,863

6,414,299

5,716,993
68,735
111,163
150,962

5,540,767
56,548
110,925
269,748

Total deposits

6,047,853

5,977,988

Deferred availability cash items ........................................................
All other ..............................................................................................

717,765
5,368

672,671
6,060

Total other liabilities

723,133

678,731

Total Liabilities

1 3 ,2 7 1 ,8 4 9

1 3 ,071 ,018

102,215
223,963
7,319
22,788

93,991
208,002
7,319
22,734

Total Capital Accounts

3 5 6 ,2 8 5

3 3 2 ,0 4 6

Total Liabilities and Capital Accounts

1 3 ,6 2 8 ,1 3 4

13 ,4 0 3 ,0 6 4

Contingent liability on acceptances purchased for foreign
correspondentst ..............................................................................

21,398

14,498

Ratio of gold certificate reserves to deposit and Federal Reserve note
liabilities combined..........................................................................

45.5%

45.2%

* After deducting participation of other Federal Reserve Banks amounting to

245,179

211,344

t After deducting participation of other Federal Reserve Banks amounting to

54,716

35,557

Deposits:
Member bank — reserve accounts ....................................................
United States Treasurer — general account......................................
Foreign* ...............................................................................................
Other ....................................................................................................

Other liabilities:

Capital Accounts

Capital paid in ....................................................................................
Surplus (Section 7) ............................................................................
Surplus (Section 13b) ..........................................................................
Other capital accounts ......................................................................




53

For the year as a whole, total assets rose by 1.7 per cent, or 225 million.
The increase in assets was approximately equally distributed between cash hold­
ings and uncollected cash items; loans and investments declined moderately.
Among cash holdings the largest increase was in total holdings of gold certificates,
which at the end of 1957 were 104 million dollars higher than a year earlier.
For the System as a whole gold certificate holdings rose 815 million dollars, but
this Bank’s share of the increase was substantially less than proportionate due
to the net unfavorable balance of this Bank in the Interdistrict Settlement Fund.
In 1956 there had been a net inflow of funds to the Second District from other
parts of the country, but this flow was reversed in 1957. The 134 million dollar
increase in uncollected cash items was largely attributable to the steadily growing
dollar volume of checks processed by this Bank.
The total Government securities holdings of this Bank declined by only
48 million dollars, as a 214 million dollar increase in the amount of securities
held by the Bank under repurchase agreements largely offset its share of an
891 million reduction in the System Account’s outright holdings. Bankers’ accept­
ances held by the Bank decreased about 3 million dollars over the year.
Discounts and advances (including foreign loans on gold) outstanding de­
clined by 3.9 million dollars to a level of 4.7 million on December 31, 1957,
the lowest year-end figure since 1951. This decline did not, however, indicate
a less extensive member bank use of Reserve Bank borrowing facilities during
1957. On the contrary, the dollar volume of such borrowing was, as already
noted, larger during 1957 than 1956.
Total liabilities of this Bank increased by 201 million dollars during 1957.
This increment was divided among Federal Reserve notes (87 million), deposits
(70 million), and deferred availability cash items (45 million). Federal Reserve
notes of this Bank outstanding rose by 87 million dollars to 6,501 million on
December 31, a new high for a year end. The expansion of this Bank’s outstand­
ing notes contrasted with a decline of 27 million in the total notes outstanding
of the other eleven Federal Reserve Banks and reflected a continued net exporta­
tion of the notes of this Bank to other Districts. Total capital accounts increased
7.3 per cent, or 24 million dollars, to 356 million dollars.

e a r n in g s a n d
e x p e n s e s . Total current earnings of this Bank in 1957 rose
42 million dollars, or 28 per cent, to an all-time high of 194 million dollars.
Almost all of the increase was accounted for by a rise in the amount of interest

54




S T A T E M E N T O F E A R N IN G S A N D E X P E N S ES FOR
T H E C A LEN D A R Y E A R S 1957 A N D 1956 (In thousands of dollars)

1957

1956

Total current earnings ........................................................................

194,070

151,769

Net expenses.........................................................................................

26,667

24,544

Current net earnings

167,403

127,225

Profit on sales of United States Government securities (n e t)..........

41

65

Reimbursement for Fiscal Agency expenses incurred in prior years

129

0

All other ..............................................................................................

44

14

214

79

Retirement System (adjustment for revised benefits)......................

2,115

0

Reserves for contingencies ................................................................

55

56

All other ..............................................................................................

0

3

Additions to current net earnings.*

Total additions
Deductions from current net earnings:

Total deductions
Net additions or deductions (— ) ..........................................................
Net earnings before payments to United States Treasury

2,170

59

— 1,956

20

1 6 5,44 7

1 2 7 ,2 4 5

Paid United States Treasury (interest on Federal Reserve notes)___

143,648

109,580

Dividends paid ....................................................................................

5,838

5,490

Transferred to surplus (Section 7) ....................................................

15,961

12,175

Surplus— beginning of year ................................................................

208,002

195,827

Transferred from net earnings for y e a r ..............................................

15,961

12,175

2 2 3 ,9 6 3

2 0 8 ,0 0 2

su r p l u s account




(Section 7):

Surplus - end of year

55

earned on this Bank’s share of the Government obligations held by the System
Open Market Account. However, earnings on discounts and advances rose by
1.1 million dollars, and on Government securities held under repurchase agree­
ments by 1.2 million dollars.
Net expenses of this Bank increased by 2.1 million dollars, or 8.6 per cent.
Nearly all expense items showed some advance over the previous year’s figures
but the major portion of the over-all expense increase represented higher salary
and wage payments ($1,026,000) and a higher assessment for the expenses of
the Board of Governors ($586,000). Earnings were further reduced by the
payment of 2.1 million dollars to the Retirement System of the Federal Reserve
Banks to cover accrued liabilities resulting from the retroactive provisions of a
more liberal retirement program which was adopted during the year.
Net earnings, after all adjustments, amounted to 165 million dollars. Of
this total nearly 6 million dollars was paid to member banks as the statutory
6 per cent dividend payment. Ninety per cent of the remainder, or 144 million,
was paid to the Treasury as an interest charge levied by the Board of Governors
under Section 16 of the Federal Reserve Act on Federal Reserve notes not
secured by gold certificates. The remaining 10 per cent, or 16 million, was
added to the Bank’s surplus account.

Changes in Membership
During 1957 the total number of commercial banks in this District that are
members of the Federal Reserve System declined from 587 to 560. The net
decrease of 27 banks was the result of 29 mergers of member banks and the
organization and admission to membership of one new national bank and one
new State bank. The 560 banks constitute 86 per cent of all national banks and
State banks in this District, and hold 96 per cent of the total assets of all such
institutions in this District.
56




N U M B ER OF O PERA TIN G M EM B E R AND NONM EM B ER BANKS IN
SECOND FEDERAL RESERVE D IS T R IC T A T T H E YEAR END

(Exclusive of savings banks, private bankers, and industrial banks)

DECEMBER 3 1 , 1 9 5 7

DECEMBER 3 1 , 1 9 5 6

Members

Non­
members

National banks ___ ............
State banks and
trust companies . ............

386

0

100

405

0

100

174

90

66

182

94

66

Total

560

90

86

587

94

86

Type of Bank

Per cent
members

Members

Non­
members

Per cent
members

CHANGES IN FEDERAL RESERVE M E M B E R SH IP IN
SECOND D IS T R IC T D U R IN G 1 9 5 7
Total membership at the beginning of the y e a r ..........................................................................................

587

Increases:

State bank admitted .............................................................................................................................
National bank admitted ........................................................................................................................

1
1

Decreases:

Member banks combined with other members ..................................................................................
Member banks combined with nonmembers............................................................................................
Total membership at the year end

23
6
560

Changes in Directors and Officers
c h a n g e s
in
d ir e c t o r s .
In May 1957, member banks in Group 3 elected
Augustus C. Long, Chairman of the Board of Directors of The Texas Company,
New York, N. Y., a Class B director of this Bank to hold office for the then
unexpired term ending December 31, 1957. Mr. Long succeeded John E.
Bierwirth, President of the National Distillers and Chemical Corporation, New




57

York, N. Y., who had resigned as a Class B director to accept appointment as
a Class C director and designation as Chairman of the Board of Directors and
Federal Reserve Agent. In November, Mr. Long was re-elected a Class B director
by member banks in Group 3 for a three-year term beginning January 1, 1958.
Also in November 1957, member banks in Group 3 elected Cyrus M. Higley,
President and Trust Officer of The Chenango County National Bank and Trust
Company of Norwich, Norwich, N. Y., a Class A director for a term of three
years beginning January 1, 1958. Mr. Higley succeeds Ferd. I. Collins, President
and Trust Officer of the Bound Brook Trust Company, Bound Brook, N. J.,
whose term expired December 31, 1957.
In December 1957, the Board of Governors of the Federal Reserve System
redesignated Mr. Bierwirth as Chairman of the Board of Directors and Federal
Reserve Agent, for the year 1958. At the same time, Forrest F. Hill, Vice
President of the Ford Foundation, New York, N. Y., was reappointed by
the Board of Governors as a Class C director for a three-year term beginning
January 1, 1958. Dr. Hill was also reappointed Deputy Chairman for the
year 1958.
At the Buffalo Branch of the Federal Reserve Bank of New York, in Decem­
ber 1957, Ralph F. Peo, Chairman and President of Houdaille Industries, Inc.,
Buffalo, N. Y., was designated by the Board of Directors of this Bank as Chairman
of the Board of Directors of the Buffalo Branch for the year 1958. At the same
time, the Board of Directors of this Bank appointed E. Perry Spink, President
of the Liberty Bank of Buffalo, Buffalo, N. Y., a director of the Buffalo Branch
for a three-year term beginning January 1, 1958. Mr. Spink succeeds Charles
H. Diefendorf, Chairman of the Executive Committee of The Marine Trust
Company of Western New York, Buffalo, N. Y., whose term expired December
31, 1957. Also in December 1957, the Board of Governors of the Federal
Reserve System appointed Daniel M. Dalrymple, fruit grower, Pomona Fruit
Farms, Appleton, N. Y., a director of the Buffalo Branch for a term of three
years beginning January 1, 1958. Mr. Dalrymple succeeds Clayton G. White,
dairy farmer of Stow, N. Y., whose second successive term expired December
31, 1957.

Thomas O. Waage, Secretary, returned to the Bank
on April 1, 1957, after a four-month leave of absence to serve as Staff Director
to the New York State Joint Legislative Committee to Revise the Banking Law.
c h a n g e s

58




in

o f f ic e r s

.

On January 16, 1958, Mr. Waage was appointed Assistant Vice President and
assigned to the Cash function.
Arthur Phelan, Vice President assigned to Loans and Credits, and Govern­
ment Bond and Safekeeping of Securities, retired August 31, 1957, upon reach­
ing retirement age. Mr. Phelan had completed thirty-seven years of service with
the Bank and had been an officer since 1932.
Harold A. Bilby, Vice President formerly assigned to Personnel, was assigned
to Loans and Credits, and Government Bond and Safekeeping of Securities,
effective August 1, 1957.
Walter H. Rozell, Jr., formerly Assistant Vice President, was appointed Vice
President, effective August 1, 1957, continuing in the Personnel function.
Everett B. Post, formerly Chief of the Personnel Relations Division, Per­
sonnel Department, was appointed Manager and assigned to the Personnel
Department, effective August 1, 1957.
Charles A. Coombs, formerly Manager of the Research Department, was
appointed Assistant Vice President and assigned to Research and Statistical,
effective January 1, 1958.
Frederick L. Smedley, formerly Manager of the Personnel Department, was
appointed Assistant Vice President and assigned to the Personnel function,
effective January 1, 1958.
Paul R. Fitchen, Assistant Vice President, resigned from the Bank, effective
January 14, 1958. Mr. Fitchen, who had been with the Bank since 1934 and
an officer since 1945, became associated with The New York Clearing House
Association, on January 15, 1958, as Executive Vice President.
William H. Braun, Jr., formerly Assistant Counsel and Assistant Secretary,
was appointed Secretary, effective January 16, 1958, continuing as Assistant
Counsel.
Carl H. Madden was appointed Assistant Secretary, effective January 16,
1958. Mr. Madden continues as Manager of the Public Information Department.
William A. Heinl, formerly Manager of the Savings Bond Department, was
assigned Manager of the Security Custody Department, effective January 16,
1958.
Kenneth E. Small, formerly Manager of the Security Custody Department,
was assigned Manager of the Savings Bond Department, effective January 16,
1958.




59

Robert W. Stone, formerly Chief of the Personnel Relations Division, Per­
sonnel Department, was appointed Manager and assigned to the Securities De­
partment, effective January 16, 1958.

m e m b e r o f f e d e r a l a d v is o r y c o u n c il—
1958 . The Board of Direc­
tors of this Bank selected Adrian M. Massie to serve during 1958, for a third
successive year, as the member of the Federal Advisory Council representing the
Second Federal Reserve District. Mr. Massie is Chairman of the Board of The
New York Trust Company, New York, N. Y.

60




Directors of the Federal Reserve Bank of New York
Term expires Dec. 31

D IRECTORS

C.

Class Group

1958

A

1

C h a r l e s W . B i t z e r ..................................................................................................................................................... 1 959
President, City T ru st Com pany, Bridgeport, Connecticut

A

2

A

3

B

1

B

2

B

3

H ow ard
S h e p e r d ....................................................................................................................................................................
Chairm an o f the B o ard , T h e F irs t N ation al City B an k o f New Y o rk , New Y o rk , N . Y .

M.

C yrus
H i g l e y ..........................................................................................................................................................................
President and T ru st Officer, T h e Chenango County N ation al B an k
and T ru st Com pany o f N orw ich, N orw ich, N . Y .

1960

C l a r e n c e F r a n c i s .......................................................................................................................................................
D irecto r, G eneral Foo d s C orporation, New Y o rk , N . Y .

P.

L a n s in g
S h i e l d ..........................................................................................................................................................
President, T h e G rand U nion Com pany, E a st Paterson , N . J .
A u g u s t u s C . L o n g ........................................................................................, ............................................................
Chairm an, B o ard o f D irecto rs, T h e T exas Com pany, N ew Y o rk , N . Y .

Chairman, and Federal Reserve A gen t .....................................

..1959

C

Deputy Chairman ...............................................................................

E.

..1960

C

..1958

C

J ohn
B ie r w ir t h ,
President, N ational D istillers and C hem ical Corporation, New Y o rk , N . Y .
F o r r e st F . H il l ,
V ice President, T he Ford Foundation, New Y o rk , N . Y .

F r a n z S c h n e i d e r ..........................................................................................................................................................
C onsultant, Newmont M ining C orporation, New Y o rk , N . Y .

DIRECTORS — BUFFALO BRANCH

Chairman .............................................................................................................. 1958

F.

R a lph
P eo,
C hairm an and President, H oudaille Industries, In c ., Buffalo, N . Y .

L e l a n d B . B r y a n ............................................................................................................................................................................
President, F irst N ational B an k and Trust Company o f Corning, Corning, N . Y .

1958

W.

1958

J ohn
R e m i n g t o n ...............................................................................................................................................................
President, L incoln R ochester Trust Com pany, R ochester, N . Y .

1959

V e r n o n A l e x a n d e r .................................................................................................................................................................
President, T h e N ational B an k o f G eneva, G eneva, N . Y .

E.

1959

R aym ond
O l s o n ....................................................................................................................................................................
President, T aylor Instrum ent Com panies, R ochester, N . Y .

M.

D a n ie l
D a l r y m p l e ............................................................................................................................................................
Fru it grower, Pom ona F ru it Farm s, Appleton, N . Y .

E.

1960
1960

P e r r y S p i n k ...............................................................................................................................................................................
President, Liberty Ban k o f Buffalo, Buffalo, N . Y .

M EM B ER OF FEDERAL ADVISO R Y C O UNCIL — 1958
A d r ia n M . M a s s i e .......................................................................................................................................................................
Chairm an o f the Board , T h e New Y o rk T rust Com pany, New Y o rk , N . Y .




1958

61

Officers of the Federal Reserve Bank of New York

President
First Vice President
H
A. B
, Vice President
R
V. R
, Vice President
J
E
, Vice President
R
G. R
, Vice President
M
A. H
, Vice President
W
H. R
, J ., Vice President
H
H. K
, Vice President
T
G. T
, Vice President and
H
V. R
, Vice President and
General Counsel
Economic Adviser
V
W
, Vice President
R
B. W
, Vice President
J
J. C
, Assistant General Counsel
A
A. M
I
, J ., Assistant Vice President
C
A. C
, Assistant Vice President
S
S. M
, J ., Assistant Vice President
H
D. C
, Assistant Vice President
L
E. Q
, Assistant
F
T. D , Assistant Vice President
Vice President
N
P. D
, Assistant Vice President
H
L. S
, Assistant Vice President
J
J. L
, Assistant Vice President
F
L. S
, Assistant Vice President
T
O. W
, Assistant Vice President
A

W

arold

ohn

il l ia m

lfr ed

H ayes,

F . T r e ib e r ,

il b y

obert

arcus

erbert
arold

oosa

obert

xter

ouse

a r r is

alter

im b a l l

odd

ozell

oelse

a l e n t in e

e g in a l d

ohn

harles

larke

ngus

rosse

orman

ohn

a v is

eorge

r

owan

a in e s

arvy

l if t o n

ordon

dward

uy

il l ia m

ohn

e in l

ensen

eter

ang

arl

adden

il l i a m

arple

erbert

uether

onald

anford

r e d e r ic k

raun

il e s

D

62




onald

r

r

uackenbush

orace

a r k in

m edley

aage

Senior Economist
W
H. B
, J .,
Secretary, and Assistant Counsel
H
C
,
Assistant Counsel
T
C. G
,
Manager, Securities Department
G
G
,
Senior Economist
C
R. G
,
Assistant Counsel
E
G. G
,
Assistant Counsel
W
A. H
,
Manager, Security Custody Department
J
P. J
,
Manager, Accounting Department
P
P. L
,
Manager, Foreign Department
C
H. M
,
Manager, Public Information Department,
and Assistant Secretary
W
E. M
,
Manager, Credit and Discount Department
H
A. M
,
Manager, Building Operating Department
D
C. N
,
Manager, Planning Department
il f o r d

arsh

aw rence

a v is

A r t h u r I. B l o o m f i e l d ,

a r d in g

ac n n e s

pencer

homas

il l ia m

il l is

il t s e

oombs

oward

e l ix

r

ie b o u t

A rthur H . N oa,

Manager, Service Department
O ’K
, J .,
Assistant Counsel
W
F. P
,
Manager, Government Bond and
Safekeeping Department
F
E. P
,
Manager, Cash Department
F
W. P
, J .,
Manager, Bank Examinations Department
J
F. P
,
Chief Examiner
E
B. P
,
Manager, Personnel Department
C
R. P
,
Manager, Collection Department
T
J. R
,
Foreign Exchange Officer
W
S. R
,
Manager, Cash Custody Department
K
E. S
,
Manager, Savings Bond Department
G
C. S
,
Manager, Check Department
R
W. S
,
Manager, Securities Department
A. C
W
,
Manager, Bank Relations Department
, General Auditor

G

J. C a m e r o n

regory

eefe

il l ia m

alm er

r a n k l in

red

eterson

id e r it

ohn

r

r

ie r c e

verett

ost

harles

r ic h e r

homas

alter

enneth

oche

ush m ore

m all

eorge

m it h

obert

tone

h ester

alton

O FFICER S -

BUFFALO BRANCH

essel,

Vice President
Assistant Vice President

M

Assistant Cashier

In sl e y B. Sm it h ,

G

eorge

J. D

oll,

Cashier

H arold M . W

G

M. M

onroe

yers,

erald

H. G

reene,

Assistant Cashier

IN D U S T R IA L A D VISO R Y C O M M IT T E E
W

G.

Vice Chairman

A rthur
N elson,
Chairman of the Board,
A . G. Nelson Paper Company, Inc.,
New York, N . Y .




Chairman

H . Po uch ,
Chairman of the Board,
Concrete Steel Company,
New York, N. Y .

il l ia m

J.

E dward
N oble,
Chairman of the Finance Committee,
American Broadcasting-Paramount Theatres, Inc.,
New York, N . Y .

63




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