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A N N U A L REPORT
1960

FEDERAL.

RESERVE

BANK

OF

NEW

Y OR K

March 3, 1961
To the Member Banks in the
Second Federal Reserve District:
I am pleased to send you our forty-sixth
Annual Report, reviewing economic and financial de­
velopments of 1960 in this country and abroad.
As
you know, these developments posed particularly dif­
ficult problems for monetary policy in 1960.
The
year witnessed the end of a business expansion, fol­
lowed by a sag in production and a rise in unem­
ployment.
While the decline in economic activity
was relatively mild, it was especially disturbing
in that it set in before the economy had completely
recovered from the recession of 1957-58.
Moreover,
the decline developed against the background of a
persistent deficit in the country's basic balanceof-payments position, aggravated in 1960 by a large
outflow of short-term capital.
Lest this outflow be
speeded, the changes in monetary policy clearly
indicated by domestic developments— first toward
lessened restraint and then toward outright ease—
had to be taken with a view to avoiding excessive
downward pressure on short-term rates.
It was en­
couraging to observe the growing public recognition
of the complexity of the tasks involved in dealing
simultaneously with a domestic recession and an
adverse balance of international payments, and of
the need for solutions compatible with achieving an
adequate long-term rate of economic growth without
infl ati on.




ALFRED HAYES
President




Federal Reserve Bank
of New York

FO R TY -S IX TH
ANNUAL REPORT
For the Year
Ended
December 31, 1960

Second Federal Reserve District




Contents:
Page

Business Recession in a “Key
Currency” Economy............................... 5
THE AMERICAN ECONOMY IN 1960. 11
Business Conditions:
From Expansion to R ecession......... 11
The unbalanced advance...................... 12
The slow decline...................................... 13
Credit Flows.............................................. 18
Turnabout in government borrowing. . 18
Business demands remain strong......... 21
The consumer as borrower
and lender ................................................ 21
Monetary Policy: From Restraint
to Ease....................................................... 23
Restraint is gradually relaxed during
first h a lf..................................................... 23
Outright ease emerges during
second h a lf................................................ 26
Summing up ............................................ 30
STRAINS IN THE WORLD ECONOMY. 32
The Uneven Advance of the
World Economy........................................ 33
Problems of the Primary-Producing
Countries................................................... 35
The Lag in the Adjustment of
Economic Policies Abroad.................... 37
Industrial Countries Abroad Continue
to Accumulate Gold and Dollars......... 39
Measures to Restore Balance to the
International Economy........................... 42
Continued Long-Term Problems.........44
THIS BANK’S OPERATIONS..................46
Volume and Trend of the
Bank’s Operations................................... 46
Domestic operations............................... 46
Foreign and international operations.. 48




Page

Financial Statements ................................. 50
Statement o f c o n d itio n ..............................

50

Statement o f earnings and expenses. . .

52

Changes in Membership ......................... 53
Changes in Directors and Officers,. . . 54
Changes in directors

..54

Changes in o ffic e r s

..55

M ember o f Federal Advisory
C o u n cil— 1961

..57

List of Directors and Officers .............58

CHARTS
Chart 1: Changes in Gross National
Product, Inventory Accumulation, and
Final Demand ................................... 11
Chart 2: Price Changes During 1 9 6 0 . . 15
Chart 3: Employment and
Unemployment ................................... 16
Chart 4: Manufacturing Employment
in the Second District and the
United States .....................................

17

Chart 5: Net Increases in Credit and
Equity Market Instruments ...............

19

Chart 6: Interest R a tes ....................... 20
Chart 7: Total Reserves of Member
Banks and Borrowings from Reserve
Banks .................................................. 25
Chart 8: Commercial Bank Loan Deposit R atios ....................................

26

Chart 9: Liquid Assets of the Public
as a Percentage of Gross National
Product .............................................. 27
Chart 10: Commercial Bank Loans
and Investments ................................. 29
Chart 11: Growing Economic Strength
of Industrial Countries A b roa d .......... 34
Chart 12: Business Activity and
Interest Rates ..................................... 38




Forty-sixth Annual Report
Federal Reserve Bank of New York

Business Recession in a "Key
Currency” Economy

As the American economy moved through 1960, it became increasingly evident
that the country faced a new combination of problems. The domestic business
picture paled as “high-level stagnation”, followed by an outright though mild
recession, replaced the booming expectations with which the year had opened.
At the same time, the easing of economic activity in the United States took
place against the backdrop of the most persistent large-scale balance-of-payments
deficit that this country has ever experienced. Other nations have, of course,
faced a similar mixture of problems in recent years, but the matter assumed
an additional dimension when it involved the United States and the dollar, a key
international currency. It was, therefore, essential to work toward solutions
that sacrificed neither the goals of high production and employment at home,
nor the international standing of the dollar. This simultaneous emergence of
both internal and external difficulties suggested the necessity of a new look at
the respective roles played by fiscal policy, debt management policy, and mone­
tary policy. A re-evaluation appeared vital if the United States economy was
to perform well at home, while at the same time meeting— in cooperation with
other advanced industrial countries— the need for more rapid economic growth
in less developed countries.
Although the economy advanced at a good pace in early 1960 and total
output of goods and services for the year as a whole set a new record, most of
the year was dominated by the adjustments that business and consumers were
making to the abatement of expansionary forces and to the disappearance, at least
temporarily, of inflationary psychology. By spring, it began to be realized that




5

capacity was generally ample and that all kinds of finished goods and materials
were readily available. A readjustment in inventory goals was both the major
consequence of these developments and the major factor in the sag that developed
after midyear. There was a possible paradox in the fact that the ebb of infla­
tionary expectations— with its favorable longer run implications for economic
growth without inflationary distortions and boom-and-bust patterns— contributed
in the short run to a slackening in economic activity. This slackening clearly
required vigorous action by the monetary authorities, as the economy entered
a period in which its ability to achieve satisfactory rates of growth without the
artificial stimulus of an inflationary psychology would be tested.
A heartening development in the international position of the United States
was the sharp increase in our trade surplus in 1960, largely as a consequence
of stepped-up commercial exports. Despite this improvement, however, our
over-all balance-of-payments deficit was unchanged from 1959, as a heavy out­
flow of short-term capital offset much of the gain on trade account. In part,
the better trade picture reflected domestic developments, including the construc­
tive response of American business to the increased foreign competition of
recent years, the ebb of inflationary psychology at home, and the business slack
which lessened import demand and expanded export capacity. But it also
reflected the continued boom in industrial countries abroad which, despite some
loss of vigor later in the year, continued to provide strong foreign markets for
American products.
The fact that the business cycle here was at least temporarily out of phase
with that abroad also influenced interest rates and capital movements. Thus, the
slackening of business and the emergence of monetary ease meant that interest
rates in the United States declined. On the other hand, because of the boom
abroad, interest rates there were at relatively high levels despite some decline
in the last quarter of the year. The attraction exerted by foreign money markets
was consequently great and this, as well as apprehension in some quarters over
the dollar’s international position, led to an increased outflow of short-term
capital from the United States. This outflow partly took the form of a repatria­
tion of foreign-owned dollar balances which did not increase the United States
balance-of-payments deficit but did add to official dollar holdings abroad, thus
tending to swell the demand for United States gold.
Although balance-of-payments difficulties have frequently been encountered
by one and then another of the industrial countries of the Free World in the
6




postwar years, the situation in which the United States found itself had special
dimensions. First, the sheer size of the American economy makes its prosperity
essential to the rest of the world to an extent that is not true of smaller national
economies. Second, United States military commitments and responsibilities for
aiding underdeveloped countries are large and vital, but can be met only if our
balance of payments is kept in order. Finally, the dollar is a key currency in the
international payments mechanism. Although United States gold holdings are
more than adequate, United States short-term liabilities to foreigners are also
large, not only because of the wide use of the dollar in international trade, but
also because foreign monetary authorities hold a substantial part of their inter­
national currency reserves in the form of dollars. That the dollar plays this role
as an international currency is a reflection of its prestige and of the world’s confi­
dence in the fundamental soundness of the United States economy. However,
this special position as the world’s chief banker creates heavy responsibilities.
Any failure to keep the dollar “above suspicion” could have repercussions,
not only upon the international payments mechanism, but also upon the total
economic, political, and military position of the Free World.
In simultaneously facing a domestic business recession and a continued
balance-of-payments deficit, the United States monetary authorities were con­
fronted with a basic dilemma. The easing of credit conditions in response to the
sag in domestic business tended to reduce short-term interest rates. There was
a risk that lower interest rates would accelerate short-term capital outflows to
such an extent as to weaken seriously our immediate international payments
position. Indeed, there wras an even more fundamental risk that any neglect of
the balance-of-payments problem might so adversely affect confidence in the
dollar as to result in massive capital outflows of a speculative character. Thus,
it was essential that the monetary and the fiscal authorities re-emphasize their
awareness of the need for a fundamental adjustment in the payments position
and that steps be taken to bring about this adjustment.
The risks in pursuing a national policy of monetary ease would seem to
suggest a lesson that might be applicable to all of the industrial countries of the
now closely integrated Free World economy: That traditional monetary policy
as an anti-recession weapon might be more closely circumscribed in the years
ahead, and might have to be supplemented by a more flexible and imaginative use
of fiscal policy and possibly by more subtle and more varied use of debt manage­
ment or monetary control devices. Indeed, experience in some industrial coun­
tries abroad, notably Germany, suggests that this same lesson might be appli­




7

cable to the reverse situation in which a boom with inflationary undertones exists
side by side with a large balance-of-payments surplus.
Even aside from international implications, the “mix” between fiscal and
monetary influences in the United States has been less than ideal in recent years.
For example, in 1959, a boom year in which demands upon the real resources of
the economy were mounting rapidly, an important contributing factor was the
huge Federal deficit, “left over” from the previous recession. This deficit made
it difficult for the monetary authorities to check the growth of bank credit, the
money supply, and general liquidity; at the same time, Treasury borrowing to
finance the deficit helped to drive interest rates to sharply higher levels. On
the other hand, in 1960 the sharp swing from Federal deficit to Federal surplus
reduced the demands for bank credit and slowed the growth of the money
supply and liquidity at a time when the monetary authorities were attempting
to encourage credit expansion so as to slow, and perhaps reverse, the down­
ward drift in the economy. Moreover, the seasonal and erratic swings in fiscal
and debt operations within each of these years, though smaller than in some
earlier years, continued to be a disturbing factor, since they were frequently at
odds with the underlying needs of the business situation. The inflexibility of
fiscal policy has thus tended to place a heavy burden on the monetary authorities
and has been a major factor both in the high levels reached by interest rates
in inflationary periods and in the very low rates that have sometimes charac­
terized recessions.
All of this suggests that there may be better ways of meshing our over-all
fiscal and monetary controls so as to utilize more effectively the underlying
strength of the economy. For example, a more flexible and rapid adaptation of
fiscal policy to the ups and downs of the business cycle, perhaps through more
frequent review and readjustment of tax rates and spending policies, would be
worth further exploration. If such procedures could be effectively employed,
they would not only have a direct countercyclical impact on the spending stream,
but they would also reduce the extent to which associated debt operations
interfere with credit policy. In addition, they would provide increased freedom
for the pursuit of monetary policies that took closer account of international
considerations, especially the international interest rate structure, without any
sacrifice of domestic stability. Thus, in recession periods a quicker, though
not necessarily large, easing of fiscal policy might obviate the need for a sharp
easing in monetary policy and interest rates, which could adversely affect the
balance of payments. And, in booms, a quicker tightening of fiscal policy
8




could help to limit extreme advances in interest rates and dampen disruptive
inflows of interest-sensitive funds from abroad. For broadly similar reasons, the
desirability of consumer credit controls on a stand-by basis may also deserve
renewed consideration.
As to our basic balance-of-payments deficit— that reflecting all of our inter­
national transactions other than short-term capital movements— 1960 saw a
considerable improvement, stemming, as already noted, from the increased trade
surplus. Nonetheless, the basic deficit still remains substantial. Fortunately, the
massive efforts made in the earlier years after World War II, including Marshall
Plan aid, have brought the other industrialized countries of the Free World to
a position of strength in which they can bear an increased part of the necessary
military and foreign aid expenditures abroad which loom so large in our deficit.
Indeed, as 1960 drew to a close, it was increasingly evident that these countries
were recognizing the need for a greater contribution on their part and were
beginning to take constructive action. However, the hard fact is that the
pressing needs of the less developed nations of the world, as well as growing
economic competition of the Soviet bloc in these countries, may require increased
efforts by the Free World as a whole. As a consequence, total outpayments for
such purposes by the United States may rise, rather than fall, over coming years.
The recent improvement in the United States trade balance cannot be taken
as an indication that we are well on the way to financing any such additional
burden through expanded exports. In part, the sharp rise in exports in 1960
reflected the boom in industrial countries abroad; and the slow contraction of
imports, the developing slack in the American economy. Thus, an easing of the
strong expansionary forces in Western Europe and Japan, or a renewal of strong
expansionary forces in the United States, could bring about a reduction in our
trade surplus.
No simple mechanism exists by which the competitiveness of American
goods in world markets can be quickly adjusted to yield the increased sur­
pluses that may be required in coming years. A necessary condition for success
is the maintenance of conditions within the domestic economy which will ensure
both that goods are available for export and that they are designed and priced
to meet foreign competition. Over-all price stability— with the prices of par­
ticular commodities free to move down as well as up— is thus an essential element
for a strong international trade position as well as for the avoidance of boombust patterns at home. To meet both our international obligations and the con­
tinued need for growth at home, it is also essential to maintain a high and




9

sustained level of investment, including under this rubric not only additions to
productive capital in the narrow sense, but also such vital social overhead as
schools and hospitals.

Indeed, high and sustained investment is so essential

that more reliance may have to be placed upon flexible countercyclical policies
that work through effects on consumer spending, rather than upon policies which
work primarily through variations in investment. At the same time, the desire
for ever-higher living standards must not be permitted to degenerate into a
self-defeating process in which money claims on the economy’s real resources
are pushed up at a pace that exceeds advances in economic productivity.

10




T H E A M E R IC A N E C O N O M Y IN 1960
Business Conditions: From Expansion to Recession
The year 1960 was ushered in with great expectations, but they began to
fade before the year was very old.

The rapid advance of the year before,

interrupted at full sail by the long steel strike, was expected to pick up
where it had left off. But, as matters turned out, the splurge of activity after the
reopening of the mills late in 1959 carried with it the seeds of early exhaustion.

C H A N G E S IN G R O S S N A T IO N A L P R O D U C T , IN V E N T O R Y A C C U M U L A T IO N ,
A N D F IN A L D E M A N D . A sp eed-up in in ven to ry a c c u m u la tio n acco u n ted for
a lm o st h a lf of th e advance in G N P d u rin g th e first q u a rte r, b u t th e re afte r in ve n to rie s
w ere a drag on to ta l o u tp u t. F in a l dem and advanced th ro u g h o u t th e ye ar, but
th e increases were sm a lle r in th e second h a lf.
Billions of
dollars

I

CHANGE IN GNP

15

CHANGE IN INVENTORY
ACCUMULATION
CHANGE IN FINAL DEMAND

10

5

_

_

1 1

0
-5

First quarter

Second quarter

Third quarter

Fourth quarter

1960
CHART 1




Note: S ea sonally a d justed a nn ual rates.

11

Inventory accumulation accounted for a relatively large part of the rise in
over-all economic activity in late 1959 and early 1960. As the pace of accumu­
lation slackened, total output was robbed of much of its thrust (Chart 1). Final
demand (gross national product less the change in inventories)

advanced

appreciably through the first half. The advances were smaller in the second
half, however, as consumer spending and business spending on plant and equip­
ment leveled out.
Although the immediate concern over rising unemployment and growing
industrial slack during 1960 necessarily cast the longest shadows, there were
some bright stretches that had to be included in any final reckoning of the year’s
performance. Foreign trade grew increasingly favorable as the year progressed,
providing strong ballast in the choppy seas of short-term capital movements and
helping to sustain the demand for goods and services produced in this country.
Furthermore, the ebbing of the inflationary psychology that was so pervasive in
some earlier years had favorable implications for the performance of the economy
over the long run.

th e

u n b a la n c e d

a d v a n ce.

The imbalance in the economy’s advance

during the first half of 1960 centered in the very wide swings in inventories. This
behavior, in turn, arose out of the sixteen-week steel strike in 1959 and out of
the unusually exuberant expectations about the pace of economic advance once
the strike was settled.
Industrial production dropped sharply during the strike period and inven­
tories of many durable goods were depleted. When the mills started up again in
November, steel began to flow in heavy volume to automobile and other steelusing industries within a surprisingly short period. The rebound was so rapid,
in fact, that by January 1960 industrial production had already passed the June
1959 peak and manufacturers’ stocks had spurted to near-record levels. The
accumulation of inventories by manufacturers, and to a somewhat lesser extent
by wholesalers and retailers, nonetheless continued at a good pace through most
of the winter in preparation for the expected surge in demand. The total output
of goods and services rose by $15 billion in the first quarter (seasonally adjusted
annual rate), and almost $7 billion of this reflected a rise in the flow of goods
going into inventories.
Some slowdown from the rate at which stocks were being replenished was
inevitable, but the change-about was all the greater as the earlier optimism faded.
12




Sales simply had not come up to the mark. Furthermore, another incentive to
accumulate stocks was removed by the leveling-off in price expectations, stem­
ming partly from a growing awareness that the steel strike settlement would put
less upward pressure on the price level than had been thought earlier. The rate
of inventory accumulation thus declined, first among manufacturers and then
distributors, dampening the rise in total output in the second quarter by almost
as much as the rapid accumulation had spurred it in the first quarter.
Final demand for goods and services, by contrast, increased appreciably
throughout the first half of the year. The consumer was the principal source of
strength during these months, as outlays for personal consumption were stepped
up sharply and residential construction leveled out after declining in late 1959.
Net exports and expenditures by business for plant and equipment also rose
encouragingly. Various surveys taken in the spring, moreover, suggested that
businessmen were planning to raise their capital outlays further during the
remainder of the year. Government spending also helped to expand economic
activity, as a rise in expenditures by State and local governments more than
offset a dip in Federal defense outlays. These increases in final demand brought
total GNP to an all-time peak of $505 billion (seasonally adjusted annual rate)
in the second quarter, despite the sharp reduction in the rate of inventory
accumulation in that quarter. After adjustment for price changes, GNP was
IV2 per cent higher than at the peak of the 1955-57 expansion, although on a
per capita basis it was only 2.9 per cent higher.

d e c lin e .

Even before the summer began, the strength of final

demand began to ebb.

As cutbacks in production stemming from inventory

th e

s lo w

adjustments moderated the rise in personal income, total outlays on personal
consumption leveled off, dipping slightly in the third quarter and rising moder­
ately in the final quarter. In addition, a larger proportion of income went into
liquid-type savings, apparently in part at the expense of outlays on durable
goods.

Outlays on residential construction also declined, in contrast to other

recent periods of general business weakness, when such spending was stimulated
by easier credit conditions to serve as something of a “cushion” . It has been
widely argued that the basic demand for housing may no longer be pressing,
after fifteen years of high-volume construction. As noted below, however, the
slow penetration of credit ease to the mortgage market suggested, as of the end
of 1960, that the underlying demand for housing had yet to be fully tested.




13

The slackening in final demand after midyear, feeding back upon inventory
spending, led to widespread attempts to cut stocks. With retail sales weakening,
however, it was not possible in many instances to reduce inventories for several
months. Total stocks changed very little in the third quarter as an increase in
holdings of finished goods, partly unintended, offset a reduction in holdings of
materials and goods in process. Not until the last quarter did aggregate stocks
fall appreciably; this decline, however, had a smaller impact on GNP than the
switch from a very rapid to a less rapid accumulation earlier in the year.
Plant and equipment spending, as measured in the GNP accounts, rose only
slightly in the third quarter, barely exceeding the highest levels reached during
the previous cyclical expansion, and then sagged a bit in the final quarter.
Although such spending did not provide the stimulus promised in the surveys
taken in the spring, the cutbacks from levels anticipated earlier, reflecting dis­
appointment in sales and possibly the emerging squeeze on profits, were quite
small. With growing excess capacity in many lines, it was obvious that in 1960,
as in other recent years, a large proportion of plant and equipment outlays was
directed toward improving and modernizing equipment, thereby aiding producers
in their efforts to hold down unit costs and meet domestic and foreign competi­
tion more effectively.
There were, however, supporting influences at work which, if not strong
enough to prevent the emerging recession, nonetheless cushioned its force and
prevented a cumulative downward spiral. United States exports rose during
most of the year, as the boom abroad continued. At the same time, imports—
which had been swollen in 1959 by an unusual demand for foreign automobiles
and steel— fell off slightly. The result was a net export surplus (which in the
GNP accounts comprises exports of goods and services minus imports of
goods and services) that grew quarter by quarter throughout the year; in 1959,
by contrast, we ran an export deficit. Government spending, moreover, increased
further in the second half of the year, reflecting a rise in defense outlays, an
increase in Federal salaries which became effective at midyear, and a step-up in
State outlays for highway construction. Furthermore, Government transfer pay­
ments also rose during the second half, tempering to some extent the impact of
rising unemployment on personal income.
In response to the gradual easing of demand and the growth of excess capacity,
wholesale prices of industrial commodities softened over the year as a whole
(Chart 2). Wholesale price indexes, which are based on list prices, do not reflect
the full extent of this softening, since discounting and other methods of shading
14




P R I C E C H A N G E S D U R IN G 1960. T h e index for w ho lesale prices changed lit t le over
t h e year, w h ile th e co n su m er p rice index rose slig h tly .
WHOLESALE PRICES

CONSUMER PRICES

ALL
COMMODITIES

CONSUMER
NONFOODS

NEW
AUTOMOBILES

FOODSTUFFS
AND
FEEDSTUFFS

DURABLES
OTHER THAN
AUTOMOBILES

PRODUCERS’
EQUIPMENT

FOOD

INDUSTRIAL
INTERMEDIATE
MATERIALS

NONDURABLES
OTHER THAN
FOOD

INDUSTRIAL
CRUDE
MATERIALS

SERVICES

-6

-4

-2
Per cent

Per cent
CHART 2

list prices became increasingly common during the year. Sharp declines were
registered in prices of industrial crude materials, which in turn were reflected in
reduced prices for many intermediate materials such as construction materials.
The drop in the wholesale price index of all industrial commodities was moder­
ated, however, by higher prices of many finished goods.

At the same time,

farm products and processed foods, which are subject to their own specialized
market influences, rose in price during the year following the rather pronounced
declines beginning around mid-1958.

Reflecting these divergent price move­

ments in industrial commodities, on the one hand, and food and farm products
on the other, the wholesale index of all commodity prices was relatively unchanged
for the third straight year.
At the retail level, the average price of all items entering the consumer price
index rose by 1.6 per cent, or about the same as in 1959. Retail food prices
followed closely the pattern of wholesale food prices, while the price of services
continued its seemingly inexorable upward trend. The prices of commodities




15

other than food dropped, however, for the first time since 1954— an encourag­
ing development in view of the importance of price flexibility for the efficient
functioning of the economy. These price declines centered in durable goods, par­
ticularly automobiles and appliances, and in many instances they reflected
deliberate attempts to spur lagging sales.
The sag in demand during 1960 produced not only a decline in nonfood
prices but also a sharp rise in unemployment, which reached 4.9 million persons
or 6.8 per cent of the labor force by the year end (both figures seasonally
adjusted, see Chart 3 ). Indeed, unemployment throughout the expansion begin­
ning in m id-1958 never did fall to levels that might be judged minimal for
an efficiently functioning labor market.

Furthermore, the average duration

of unemployment rose disturbingly during the second half of 1960, as did
the proportion of jobless represented by married men with families.

There

were indications late in the year that an important aspect o f the unemployment
problem— the heavy concentration of the unemployed in certain chronically

E M P L O Y M E N T A N D U N E M P L O Y M E N T . N o n farm e m p lo y m e n t leveled off d u rin g
th e first h a lf of 1960 and th e n d eclined ste a d ily . T h e proportion of th e w o rk force
u n em p lo yed , w h ic h w as aro u n d 5 per cen t e arly in th e ye ar, reached alm o st 7 per
cen t in Decem ber.

1959

CHART 3

16



1960

N ote: S e a s o n a lly a d ju ste d .

M A N U F A C T U R IN G E M P L O Y M E N T IN T H E S E C O N D D I S T R I C T AN D T H E
U N IT E D S T A T E S . T h e fa ll in facto ry em p lo y m en t w as f u lly as rap id in th e Second
D is tric t as in th e c o u n try as a w hole in 1960, an d a “ su b sta n tia l labo r s u rp lu s”
— over 6 per cen t of th e w ork force u nem ployed— em erged in h a lf of th e m a jo r labo r
m a rk e ts in th e D is tric t.
Per cent

101
SECOND DISTRICT
100
99
98

97

UNHID STARS
96
95
94

93

Note: D e cem b er 1959=100; s e a so n a lly ad justed .

depressed areas— would soon be the focus of new legislative proposals by the
Federal Government.
Economic activity in the Second District had also bounded up after the steel
strike, although not so sharply as in the United States as a whole. The District
had not, however, been as hard hit by the strike (this is illustrated for manufac­
turing employment in Chart 4 ). As the year progressed, weakness emerged here
as elsewhere, with factory employment falling just as rapidly in the District
as in the nation, and unemployment becoming an increasingly serious problem.
At the outset of the year only two of the twelve major labor market areas
in the District had a “substantial labor surplus” (more than 6 per cent of the
work force unemployed), but by the year end the number so classified had risen
to six. Although this was a larger proportion than in the United States as a
whole, none of the major District areas were classified as having “ a substantial




17

and persistent labor surplus”, whereas the number of such chronic problem areas
had risen to 22 elsewhere in the nation.

Credit Flows

The total volume of funds raised through the sale of credit and equity-market
instruments (net of repayments) fell sharply in 1960— to less than $40 billion
from $62 billion in 1959. Among borrowers, the Federal Government’s role
underwent the most dramatic turnabout, from exceptionally large borrowings in
1959 to net repayment of debt in 1960 (Chart 5). This swing had its major impact
on financial markets during the first half of the year and was one of the important
influences pulling interest rates down in this period (Chart 6).
The drop in other types of credit flows over the year, however, overstates
the easing of demand pressures in the capital markets. A large volume of funds
was raised by business, for example, through the sale of Government securities,
a process that put pressure on markets without directly influencing the supply
of outstanding credit instruments. Taking account of such securities sales, total
business demands on the capital market were considerably heavier in 1960 than
in 1959, and the absence of any appreciable letup in these demands during the
second half of the year probably explains, in good part, the general levelling-off
in interest rates during this period.
In 1959, all governmental
units together had increased their indebtedness by some $16 billion, but in 1960
the over-all increase barely exceeded $2 billion. A modest reduction in borrowing
by State and local governments reflected a decline in construction outlays and
possibly also a rise in tax receipts. The big turnabout was in Federal Govern­
ment debt operations, which swung from an $11 billion increase in debt in 1959
to a $2 billion redemption in 1960.
In the main, this big swing reflected a marked rise in Government tax
receipts, particularly in the first half of the year when personal income was
rising and when business income taxes were reflecting the high profits of 1959.
tu r n a b o u t

18




in

g o v e rn m en t

b o r r o w in g .

A small decline in Government cash outlays contributed modestly to the surplus.
In the last quarter, however, revenues fell somewhat more than seasonally while

N E T IN C R E A S E S IN C R E D I T A N D E Q U I T Y M A R K E T IN S T R U M E N T S .
The
vo lu m e of fu n d s raised on th e ca p ita l m a rk e ts w as low er in 1960 t h a n in 1959 for a ll
m a jo r borrow ing groups, w ith Fed eral G o vern m en t dem ands undergo ing th e sh arp est
re d u c tio n . A m ong len der groups, o n ly th e b a n k in g system increased th e vo lu m e of
fu n d s provided in 1960.

Billions of
dollars

B Y T Y P E O F IN S T R U M E N T
FEDERAL
OBLIGATIONS _

1957 58 59 60

Billions of
dollars

20

10

0
-5

STATE
AND LOCAL
J
OBLIGATIONS

1957 58 59 60

a

1957 58 59 60

Billions of
dollars

1957 58 59

60

1957 58 59 60

CONSUMER
CREDIT

1957 58 59 60

ALL OTHER

1957 58 59 60

B Y IS S U E R O F IN S T R U M E N T

NONFINANCIAL
BUSINESS

CONSUMER

MORTGAGES

CORPORATE
SECURITIES

1957 58 59 60

FEDERAL
GOVERNMENT J

1957 58 59 60

STATE
AND LOCAL
GOVERNMENT

1957 58 59 60

ALL OTHER

1957 58 59 60

B Y H O L D E R O F IN S T R U M E N T
NONFINANCIAL
BUSINESS

CONSUMER

30

GOVERNMENT

BANKING
.SYSTEM

ALL OTHER

20

10

0

J

.

■
■H H rai

—

^■1

-5
1957 58 59 60

CHART 5




1957 58 59 60

1957 58 59 60

1957 58 59 60

1957 58 59 60

N ote: All o th e r typ e s o f in s tru m e n t in clu d e s e c u rity c re d it, bank loans not
e ls e w h e re c la s s ifie d , and m is ce lla n e o u s o th e r loans. All o th e r h o ld e rs
in clu d e non bank fin a n c ia l in s titu tio n s and re s t o f w o rld ; all o th e r iss u e rs
inclu d e these g ro u p s p lu s c o m m e rc ia l banks.

19

I N T E R E S T R A T E S . A fte r risin g to peak levels in late 1959, m a rk e t rate s of in te re st
m oved down d u rin g th e first h a lf of 1960 an d th en leveled off or d eclin ed s lig h tly
f u rth e r in th e la tte r p art of th e year.

CHART 6

expenditures picked up. The cash deficit of $4 billion in the last quarter was
thus only slightly less than in the final quarter of 1959.
Despite its cash surplus over the year as a whole, the Treasury intermittently
put pressure on the capital market, engaging in large cash financings or major
refundings in nine o f the twelve months. Its cash borrowing of $12 billion was
less than half that o f 1959 when such borrowing was abnormally high, but the
volume of exchanges exceeded that o f any recent year, totaling almost $51
billion exclusive of regular roll-overs of three-month and six-month Treasury bills.
20




In addition to exchanging $43 billion of securities coming due during the year
(including securities held by the Federal Reserve and Government investment
accounts), the Treasury refunded in advance some $8 billion of securities
maturing at various times during 1961-69. This new technique, employed in
June and again in September, was designed to ease the Treasury’s refunding
problem over the next few years. Another change, used in a refunding in August,
was to permit anyone to subscribe to new securities offered in the exchange,
rather than restricting this right to holders of the maturing issues.
b u s in e s s d e m a n d s r e m a in s t r o n g .
In contrast to the government
sector, corporations came to the capital markets for a substantially larger quantity
of funds in 1960 than in 1959— as measured by securities offerings, bank and
mortgage loans, and net liquidation of Government securities. “Real” invest­
ment by corporations was about unchanged, as the rise in plant and equipment
spending offset a lower rate of inventory accumulation, while their internal cash
flow was substantially smaller than in the preceding year. Depreciation reserves,
to be sure, continued their upward climb, but this was more than offset by a
decline in retained profits and by heavy tax payments (based in part on the
record profits earned in 1959), which exceeded the current level of tax accruals.
In meeting these pressures, corporations raised about $8 billion (net) through
new stock and bond offerings. This was about the same amount as in 1959 but
well below the record $10V^ billion raised in this way in 1957. The amounts
raised through bank loans and mortgage loans in 1960 were somewhat lower
than in 1959, although bank borrowing increased moderately in the first half
before weakening later in the year. The rest of the financing gap was filled in the
main by liquidating Government securities. Whereas corporations in 1959 had
increased their holdings of Governments by about $4 billion, thereby helping
the Treasury to finance its large deficit, in 1960 they sold off about %2Vi billion.
Furthermore, in contrast to the usual seasonal pattern, corporations liquidated
Government securities in the second half as well as in the first half, helping to
maintain a steady pressure on securities markets.

le n d e r .
As consumers’ expendi­
tures for homes, cars, and other durables leveled off in 1960, their aggregate
demand for credit declined. The net flow of consumer credit, which had climbed

th e co n su m er a s b o rr o w e r an d




21

to record levels in 1959, gradually subsided in 1960; for the year as a whole, the
$4 billion increase was almost $2 Vi billion below that of the previous year. This
decline was in line with the fairly regular cyclical pattern of consumer credit that
emerged early in the 1950’s. Credit extensions were relatively small during the
recessions of 1953-54 and 1957-58, in some months falling below repayments.
However, the recessions apparently helped create the conditions favorable to an
upsurge of consumer credit, requiring only an upturn in general business (and
the usual shift in sentiment associated with an upturn) to set it off. The marked
expansions in consumer credit during the recovery phases reached early peaks
and then gradually subsided during the balance of the periods of business expan­
sion. The persistence of this pattern— plus the fact that the cyclical bulges in
consumer credit have tended to coincide with periods of heavy demands by the
Treasury— lead naturally to the question of whether methods might be found
for moderating these swings in order to promote greater over-all economic
stability.
The somewhat reduced level of residential construction during 1960 carried
with it a decline in the volume of mortgage borrowing by consumers. From a
record $13 billion in 1959, such borrowing fell to a still-imposing $11 billion in
1960.

To a great extent, the decline in both residential construction and in

mortgage borrowing by consumers reflected the high interest rates and tight
credit conditions that developed in the mortgage market during the latter part
of 1959. Because of the time-consuming nature of residential construction, and
the fact that long-term financing arrangements typically are made before con­
struction is started, there is an appreciable time lag between a change in mortgage
credit conditions and the impact of such change on construction and mortgage
flows.

In addition, more-than-the-usual frictions retarded the transmission of

easier credit to the mortgage market in 1960. Much of the decline in mortgage
lending during 1960 occurred at commercial banks, which were busy rebuilding
liquidity during a good part of the year. There were also smaller flows from
savings and loan associations, whose record mortgage acquisitions in 1959 had
been supported partly by heavy borrowing from the Federal Home Loan Banks
and from the Federal National Mortgage Association, whose unusually large
purchases in 1959 partly reflected operations under a special program authorized
by Congress.
Consumers are, of course, lenders as well as borrowers, channeling funds to
the credit markets directly through securities purchases and indirectly by acquir­
ing claims against financial institutions. The volume of net securities acquisitions
22




by consumers in recent years has been closely geared to interest rate movements.
Their holdings have increased much more sharply during years of rising rates,
when financial institutions have not had sufficient funds to meet all demands,
than during periods of falling or stable rates. Thus, in 1960 consumers increased
their total securities holdings by only about $2 billion, with holdings of Govern­
ments falling by $2 billion. In contrast, during the previous year, net acquisitions
exceeded $15 billion with Governments accounting for more than three fifths
of the total.
On the other hand, the volume of funds channeled by consumers to financial
institutions increased appreciably in 1960, owing principally to a sharp rise
in time deposits at commercial banks in the second half of the year.

To

some extent the stickiness of time deposit interest rates relative to market
rates on securities may have drawn funds from securities markets. In addition,
the bulge in time deposits reflects the tendency of some consumers, during a
period of declining employment opportunities and increasing economic uncer­
tainty, to add to liquid-asset holdings while postponing spending on durable
goods. In any case, the increase in the flow of consumer funds to financial institu­
tions only partly offset the decline in their securities acquisitions.

The total

volume of funds provided by consumers through both channels thus dropped by
about $9 billion, or by roughly twice the decline in total consumer borrowing.

Monetary Policy: From Restraint to Ease
The pressing concern of monetary policy in 1960 was the need to adapt promptly
to a continuously changing and generally uncertain economic situation, and to do
this within a framework of constraints that threatened to limit its scope and
effectiveness. These special constraints arose out of the sharp turnabout in the
Treasury’s fiscal and debt operations and out of the danger to the international
position of the dollar posed by short-term capital outflows.

RESTRAINT IS GRADUALLY RELAXED DURING FIRST HALF.

When 1960

began, the commercial banking system was, so to speak, at short tether: loan-




23

deposit ratios were higher than they had been since the early 1930’s, member
bank indebtedness to Federal Reserve Banks exceeded excess reserves by some
$300-500 million, and bank credit was in the process of declining much more
sharply than is usual early in the year. With economic activity sharply on the
rise and expectations generally exuberant, no immediate relaxation of restraint
was called for.

At the same time, additional tightening measures were not

required either, since the underlying strength of the advance was still a large
question mark, as the general bustle of activity reflected in some unknown degree
an unwinding from the long steel shutdown.
A sharp decline in interest rates early in the year was, in retrospect, the first
“straw in the wind”, suggesting that neither the demand for credit nor the demand
for goods and services was so strong as had been touted. Although this particular
straw had often in the past blown in the wrong direction, solid evidence had
accumulated by the end of the first quarter to suggest that the pace of advance
was slackening. The key question was, for how long? Brief hesitations during a
broad cyclical expansion are by no means unusual; in this particular case, indeed,
such a lull could have arisen from the relatively severe winter.

With many

measures of economic activity still on the rise and surveys of business and
consumer intentions indicating that optimism continued strong and buying plans
ambitious, a fresh breakout of expansionary forces could have occurred at any
time.
Nevertheless, monetary policy began, in March, to probe toward lessened
restraint. Even if an expansionary breakout had occurred, enough unused capacity
remained in the economy to absorb its impact for a time, without inflationary
consequences. Moreover, with banks relatively illiquid, there seemed little danger
of credit expansion getting out of control, even for a short time.
The relaxation of restraint was evident, first of all, in a decline in member
bank borrowings at the Reserve Banks (Chart 7 ). By May-June such borrow­
ings had been paid down to the point where they were roughly equal to excess
reserves. Other measures of bank liquidity, such as the ratio of loans to deposits,
began to reflect improvement in April at New York City banks (which had been
under the greatest pressures), but not until several months later at banks outside
New York (Chart 8 ). Total member bank reserves, which had declined appre­
ciably early in the year, began to rise in April. In early June the discount rate
was reduced from 4 per cent, where it had been since the fall of 1959, to
per cent, bringing the rate more closely into line with market rates and
reinforcing the policy of lessened restraint.
24




T O T A L R E S E R V E S O F M E M B E R B A N K S A N D B O R R O W IN G S F R O M R E S E R V E
B A N K S . T h e tra n sitio n fro m c re d it re stra in t to ease t h a t began in M a rc h w as
reflected in a progressive d eclin e in m e m b e r b a n k bo rro w in gs a t Reserve B a n k s
an d a rise in to tal reserves.
B illions of
dollars
19

18

17

16

15

Illlllllll
1959

1960

N ote: M o n th ly a verages o f d a ily fig u re s .

Commercial bank credit returned to the usual pattern of seasonal expansion
in the second quarter, following a record contraction in the first quarter. The
liquidity of the public failed to increase during the second quarter, however,
largely because the shift of deposits from private to Government ownership,
resulting from the large cash surplus enjoyed by the Treasury and from new
borrowing, was only partly offset by redemption of debt held by the public. A
good part of the rise in Treasury deposits remained in that “sterilized” state;
the part used to redeem debt held by the public restored private deposits but
partly at the expense of reduced holdings of short-term Government securities.
The upshot was that the privately held money supply (demand deposits adjusted




25

plus currency outside banks) as well as the public’s holdings of Government
securities maturing within one year declined in the second quarter on a seasonally
adjusted basis. Personal-type savings (time and savings deposits at commercial
and mutual savings banks, savings and loan shares, and Savings bonds) rose
steadily, after seasonal adjustment, but not by enough to offset the fall in money
holdings and short-term Governments. Hence ratios of liquid assets to GNP all
declined over the second quarter, whether such assets are defined narrowly to
include only money supply, or money supply plus personal-type savings, or both
plus short-term Governments (Chart 9 ).

OUTRIGHT EASE EMERGES DURING SECOND HALF.

As

Spring grew into

summer, economic developments increasingly suggested that an early renewal of
the economic advance was unlikely.

Although the economy as a whole was

C O M M E R C IA L B A N K L O A N - D E P O S IT R A T IO S . T h e lessenin g of p ressures on
c o m m e rc ia l b a n k s a fte r th e first q u a rte r w as eviden t in th e declin e of loan -dep osit
ra tio s — first in New Y o rk C it y a n d th e n th ro u g h o u t th e c o u n try .

CHART 8




N ote: R atios are loans a d ju s te d to to ta l d e p o sits
less cash ite m s in p ro ce ss o f c o lle c tio n .

L I Q U ID A S S E T S O F T H E P U B L IC A S A P E R C E N T A G E O F G R O S S N A T IO N A L
P R O D U C T . T h e p u b lic ’s ho ld in g s of liq u id assets did n ot in cre a se as m u c h as G N P
d u rin g th e first h a lf of 1960, as in creases in person al-typ e savings were larg ely offset
by declines in o th e r asset categories. T h e p u b lic ’s liq u id ity im pro ved in th e second
h a lf, however, as G N P d eclin ed a n d ho ldin gs of m ost liq u id assets rose.

Note: T o ta l liq u id asse ts in c lu d e m o ne y s u p p ly , p e rso n a l-typ e sa vin g s , and G o v e rn m e n t
s e c u ritie s m a tu rin g w ith in one y e a r; d a ta are se a so n a lly a d ju ste d .

CHART 9

moving along a record high plateau, with only the barest sag perceptible, output
was clearly falling short of full utilization of industrial and human capacities.
At the same time, consumer spending was beginning to slip, unemployment to
rise, and business sentiment to grow cautious. Although there seemed to be no
signs of a tendency for contraction to feed upon itself, measures to ease credit
could nevertheless be stepped up with little risk of an inflationary upsurge.
But now a different risk, one which heretofore had been lurking in the
background of monetary policy formulation, brusquely forced itself into the
foreground.

Our balance-of-payments deficit, and the steady attrition of our

gold stock associated with the deficit, had been a matter of concern for several
years. In 1960 the “basic” deficit— that is, the deficit arising out of merchandise
and service transactions, long-term capital movements, and Government grants
and other payments abroad— was actually smaller than in 1958 or 1959. How­
ever, the decline in short-term interest rates during the first half, at a time when




27

rates abroad were high, began to stimulate short-term capital to seek out­
lets abroad, enlarging the over-all deficit and accelerating the gold outflow.
Hence monetary policy moves directed toward cushioning the effects of the
emerging recession had to be taken in the light of their probable impact on
the balance of payments, and at the risk of further encouraging capital out­
flows by driving short-term interest rates lower.
Among the actions taken by the Federal Reserve System during the second
half that promoted an easier credit environment while containing downward
pressures on short-term interest rates was the liberalization of member bank
reserve requirements. Beginning August 25, country banks were authorized to
include in their reserves vault cash in excess of 2 Vi per cent of their net demand
deposits (previously they could include vault cash in excess of 4 per cent), while
effective September 1 reserve city and central reserve city banks could count as
reserves vault cash in excess of 1 per cent of net demand deposits (instead of
2 per cent). Effective November 24, all vault cash of member banks could be
counted as reserves, while the reserve requirements against net demand deposits
of country banks, which had obtained the greatest benefit from the liberalization
of vault-cash provisions, were raised from 11 per cent to 12 per cent. More­
over, in response to legislation passed in 1959, which required the termination
of the “central reserve city” classification by 1962, the Board of Governors equal­
ized reserve requirements of central reserve city banks and reserve city banks
by reducing the reserve requirements of the former against net demand deposits
from 18 per cent to 17 Vi per cent, effective September 1, and to 16Vi per cent,
effective December 1.
These measures released, on balance, about $2 billion of reserves. Along
with open market operations, with which they were closely meshed, they
resulted in a progressive rise in member bank reserves and easing of reserve
positions. Moreover, with stock market credit running well below the levels
of 1959, the Board of Governors in late July reduced stock margin requirements
to 70 per cent from the 90 per cent level at which they had stood since October
1958.

And in August and early September the Reserve Banks reduced their

discount rates by

V per cent to 3 per cent, in a further adjustment to lower
2

market rates.
As reserves became more readily available during the second half, commercial
banks stepped up their search for loan and investment outlets; net bank credit
expansion thus continued to rise relative to earlier years. At the same time the
composition of bank credit changed sharply, reflecting altered demand conditions
28




as well as the more ready availability of reserves. The market supply of Govern­
ment securities, which had been sharply reduced during the first half, was aug­
mented by some seasonal borrowing by the Treasury in the second half.

(If

Treasury borrowing were adjusted for seasonal influences, the second half
would show debt redemption, but on a smaller scale than in the first half.)
Bank securities holdings notched upward on the occasion of each of several large
cash financings (Chart 10) and, unlike the occasions (for example, 1959) when
banks are under reserve pressure and loan demands are strong, no sizable liquida­
tions developed following the financings.
Loan demands by business, which had remained moderately strong through
the first half, weakened during the second half. In part, this reflected the weaken­
ing in business spending, but in addition some credit demands were shifted
from banks to the open market.

Interest rates on business loans, which are

often somewhat “sticky” , changed hardly at all during the first half when
market rates were dropping.

This opened a wide differential between the

C O M M E R C IA L B A N K LO A N S A N D IN V E S T M E N T S . C o m m e rcia l b a n k loan s
rose o n ly m od erately d u rin g 1960. S e c u ritie s ho ldin gs fell sh a rp ly e arly in th e year
b u t recovered la te r on , as reserve po sitio ns grew progressively easier.

J

F

M

A

M

J

J

A

S

O

N

D

J

F

M

A

M

J

J

A

S

O

N

D

CHART 10




29

cost of funds obtainable, on the one hand, by borrowing from banks and, on
the other, by selling open market paper or liquidating Government securities
holdings. Bank loan rates finally dropped in the third quarter, the prime lending
rate falling to

AVi per cent in August from the 5 per cent level that had pre­

vailed since September 1959. Cost differentials remained large enough, how­
ever, to stimulate unusually heavy sales by business of finance company paper
and Government securities. The increase in outstanding bankers’ acceptances
was also unusually large during this period, reflecting both cost advantages and
the rise in exports.
The substantial increase in bank securities holdings, along with a slackened
growth in loans, added further to bank liquidity during the second half. The
very moderate decline in loan-deposit ratios tends to understate the rise in
liquidity, since the composition of securities holdings shifted in favor of issues
maturing within one year.

Another liquidity measure— the ratio of selected

liquid assets to deposits1 rose at New York City weekly reporting banks from
—
a low of 10 per cent in March to 18 per cent in December, while at reporting
banks outside New York the increase was from a low of 8 per cent in May to
14 per cent in December.
The public’s liquidity also improved modestly in the second half. The ratio
of money supply to GNP increased slightly during the third quarter when GNP
fell, and again in the fourth quarter when the money supply rose.

When

personal-type savings are included in the liquidity measure, the improvement was
more pronounced, due in good part to an exceptionally sharp rise in commercial
bank time deposits during the second half. Nonbank holdings of United States
Government securities maturing in less than one year were lower in the second
half, however, moderating the rise in the broadest liquidity measure shown on
Chart 9.

s u m m in g

up-

How did monetary policy fare, given the constraints within

which it had to operate? The shift from a large Treasury deficit in 1959, when
private spending was expanding rapidly, to a surplus in 1960, when private
spending tapered off, placed a heavy burden on monetary policy. To contain the
expansion of the public’s liquidity during 1959, when the Treasury was adding to
the public’s holdings of liquid assets, it was necessary for the banking system
1 Vault cash, balances with domestic banks, loans to banks, loans to brokers and dealers, and Treasury issues
maturing within one year less borrowings as a percentage o f total deposits less cash items and reserves.

30




to disgorge Government securities and thus check the growth of the public’s
deposit holdings.

Similarly, to facilitate the growth of the public’s liquidity

during 1960, when the Treasury was reducing the public’s holding of liquid
assets, the banking system had to create new funds through the acquisition of
securities. Taking a broad view, the desired effects on liquidity were largely
achieved, although with some delay. However, as a result of leaning against
such heavy winds, interest rates fluctuated much more sharply than would have
been required if the swing in Treasury fiscal operations had been smaller or
if it had been better phased with the business cycle.
As suggested above, the techniques employed to ease credit were chosen
with an eye to cushioning the downward pressures on short-term interest rates
so as not to stimulate the outward flow of short-term capital. This was one
consideration (although not the only one) underlying the release of reserves
during the second half through a liberalization of reserve requirements, rather
than through open market purchases alone. On several occasions, moreover, open
market operations were conducted in short-term securities other than Treasury
bills. Rates on three-month Treasury bills, which have a pivotal role in inter­
national capital flows, for the most part fluctuated irregularly within a range of

2Vs to 2% per cent during the second half, whereas in 1958 they fell well below
1 per cent.
Yet long-term rates also were well above the levels reached during previous
periods of monetary ease. The higher level of both short-term and long-term
rates probably was due, in good part, to the lower level of liquidity of the banking
system (and perhaps the whole financial system as well) than during earlier
periods of monetary ease. And at the year end there was a source of concern
in the weakness of sectors of the economy that in the past had proved sensitive
to long-term rates.




31

STR AIN S IN TH E WORLD ECONOM Y
In many respects, the international financial position of the United States
remained strong in 1960.

At the year end the nation’s international monetary

reserves, including its gold stock and its International Monetary Fund quota,
totaled almost $22 billion, and it was a net creditor on long-term capital account
to the extent of some $28 billion. Nevertheless, strains on the United States
payments position and on the international payments mechanism, which had
been evident in earlier years, continued in 1960, as major countries adjusted
their policies only slowly to rapidly changing conditions in the world economy.
For the third consecutive year, gold flowed in substantial quantities from the
United States to Western Europe. As 1960 progressed it became increasingly
clear that such large gold outflows could not be tolerated for prolonged periods,
and toward the end of the year the United States Government announced
several new steps designed to reduce our balance-of-payments deficit.
Some of the payments strains were traceable to the slow adaptation of the
economic policies of Western Europe and Japan to their return to competitive
equality with the United States.

The United States continued to bear the

heaviest burden both of mutual defense and of aid to the primary-producing
countries. The recovery of industrial countries abroad had not been accompanied
by a commensurate rise in their grants and long-term loans. And the very modest
rise in long-term capital outflows that apparently did occur was outstripped by
the rise in their balance-of-payments surpluses on current and short-term capital
accounts.

Accordingly these countries, and particularly West Germany, con­

tinued piling up international reserves at the expense of the rest of the world.
These persistent difficulties were complicated in 1960 by lags in the adjust­
ment of the “mix” of countercyclical financial policies. Although it was widely
recognized that the rising strength of the industrial countries abroad had put the
major foreign currencies on a more nearly equal footing with the dollar, the
events of the year emphasized the urgency of a re-examination of the role of
monetary and fiscal instruments in countercyclical financial policy.

Such a

reappraisal became particularly pressing because business cycles here and abroad
were out of phase during 1960.

The United States economy slipped into a

recession and its short-term interest rates dropped rapidly. At the same time,
32




several of the major industrial countries abroad were acting to restrain infla­
tionary pressures in their booming economies. But in doing so they generally
tightened monetary, rather than fiscal, policy. Prior to the move to nonresident
convertibility by most Western European countries at the end of 1958, a signifi­
cant increase in interest rate differentials between New York and major financial
centers abroad would have had only slight international effects. But the increase
that occurred during 1960 was an important influence in the enlargement of
short-term capital outflows from the United States that offset much of the
improvement in the United States merchandise trade position.

Our over-all

balance-of-payments deficit remained as large as it had been the year before.

The Uneven Advance of the World Economy
Some of 1960’s problems were rooted in trends that stretched back over many
years. Part of the trouble was traceable to the lag in the economic growth of
most primary producers behind the industrial countries. Because of this lag,
economic aid continued on a large scale. Despite the rapidly rising economic
strength of other major industrial countries, the bulk of this aid was still being
supplied by the United States and thereby contributed to this country’s pay­
ments problem. The efforts of the primary producers to catch up to the indus­
trial world also resulted in chronic reserve losses by these countries to Western
Europe, thus putting a further strain on the world’s payments mechanism.
Among the primary-producing countries there was increased awareness that,
far from catching up with the industrial countries, they were as a group still
falling behind. To be sure, the economic growth of these countries had probably
never been faster than during the decade ended in 1960. Their aggregate gross
national product in these years seems to have been increasing at an average
annual rate of around 3 per cent. But their population was rising so rapidly
that income per capita improved only slightly and in some cases not at all.
In pulling even further ahead of the primary producers, some of the industrial
countries were moving at a more rapid pace than others. Industrial countries that
had been prostrated by World War II advanced especially rapidly. Income per
capita in the United States remained substantially higher in absolute terms, but




33

G R O W IN G E C O N O M IC S T R E N G T H O F IN D U S T R IA L C O U N T R I E S A B R O A D .
In co m e per c a p ita in 1960 w as s till risin g fa ste r in o th e r in d u stria l co u n trie s th a n in
th e U n ite d S ta te s, a lth o u g h its absolu te level rem ain e d h ig h e st h ere. S im ila r ly ,
these c o u n trie s w ere g a in in g gold a n d foreign exchang e, w h ile th e U n ite d S ta te s
a n d th e p rim a ry pro ducers w ere losin g reserves.

CHART 1
1

Note: L a te st d a ta p a r tia lly e s tim a te d (1960 p er c a p ita in co m e d a ta fo r Japan
n o t a va ila b le ). O ffic ia l g old and fo re ig n e xchange: fo r W est G erm any
(except 1 9 5 0 -5 1 ) and th e U n ite d K in g d om , th e d ata re p re se n t o n ly gold
and c o n v e rtib le c u rre n c y h o ld in g s ; fo r o th e r c o n tin e n ta l W estern
E uropean c o u n trie s , th e d a ta e xclu d e w h e re ve r p o s sib le th e c o u n trie s ’
n e t E uropean P aym en ts U nion d e b to r o r c re d ito r p o s itio n s .

the disparity between it and other major industrial countries was significantly
smaller in 1960 than it had been ten years earlier (see Chart 11).
These diverse trends in growth were paralleled in the changing patterns of
trade during the decade. The value of total world trade rose rapidly, but the
expansion was largely in the flows between industrial countries. Indeed, exports
of primary producers increased by only about one third over the decade, while
the Free World total almost doubled. The largest portion of the Free World’s
expanding trade accrued to the industrial countries that had grown most rapidly,
the share of West Germany and Japan in total manufactured exports of the Free
World having increased particularly sharply. On the other hand, Britain’s portion
of manufactured exports steadily declined; the share of the United States also
34




tended to move downward, although the decline was not so steep as Britain’s,
and in 1960 it turned upward.
Changes in official holdings of gold and foreign exchange followed a roughly
corresponding course. Those of continental Western Europe and Japan, at $23
billion equivalent at the end of 1960, were almost three and a half times higher
than they had been a decade earlier, with West Germany alone accounting for 40
per cent of the total increase.

Over the same period, Britain’s international

reserves remained roughly unchanged as did those of the primary producers.
United States gold reserves had declined by $5 billion to $17.8 billion, the entire
drop having occurred in 1958-60.

Problems of the Primary-Producing Countries
While the primary producers generally were lagging in economic growth, there
were wide differences among them. There were some whose income per capita
last year was relatively high but whose growth had been slowed by the maladjust­
ments associated with inflation. Others had, by a judicious allocation of their
resources, achieved a growth rate comparable to that of the older industrial
countries. Still others, despite substantial foreign aid, had not expanded even
so fast as their populations.
Whatever the differences, the primary producers have shared common aspira­
tions and many common problems. The idea that poverty, ignorance, disease,
and early death are not inevitable, and an appreciation— sometimes quite exag­
gerated— of the economic advances that can be achieved through modern indus­
trial and agricultural techniques, came to many of them only in the last ten or
twenty years. These ideas stimulated attempts to do in a few short decades what
many of the industrial countries took a century or more to accomplish.
What has been called “the revolution of rising expectations” in the primaryproducing countries ran against numerous obstacles. Food producers discovered,
as have American farmers, that, as minimum needs begin to be satisfied, food
consumption per capita rises less rapidly than income per capita.

As an

individual’s income rises, he spends a larger proportion on other goods and
services. Likewise, producers of industrial raw materials found that demand for




35

their products tended to increase less rapidly than industrial production, because
manufacturers became more efficient in the use of fuel and in the recovery of
scrap metals, because synthetics were developed to take the place of rubber and
some other materials, and because major manufacturing countries experienced
a shift from industries in which the utilization of imported raw materials
was relatively high to those in which it was relatively low.

Weakness in the

demand for primary products also reflected adjustment difficulties in the indus­
trial countries which, all too frequently, resorted to tariffs, quotas, and other
restrictive devices in an attempt to prevent the “disruption” of existing domestic
markets. To be sure, the effects of these various obstacles were partly offset by
the general and sometimes rapid expansion of the industrial countries which
buoyed up the prices of several primary products during the decade. Neverthe­
less, the average prices that the primary producers received for their exports
tended to decline while the prices they paid for their imports rose until mid-195 7
and thereafter declined more slowly than their export prices.
The primary producers’ difficulties stemmed, not only from their relations
with the industrial countries, but also from domestic problems. Many of them
still had not done so much as they might like to create a political and social
environment that would encourage workers to acquire industrial skills, take new
jobs, and move to new homes; that would stimulate domestic savings and attract
foreign capital; and that would reward the innovator and entrepreneur. At the
same time, education and health services were often sorely neglected, and not
enough was being done to give broad groups of the population a stake in economic
progress. Moreover, political pressures at times forced the modification of develop­
ment programs in ways that actually slowed economic growth. Impressive but
uneconomic plants were erected as symbols of national power. New plants were
located so as to give each region of a country its “fair share” of industry. The
result at times was that, though there may have been more equality or greater
regional fairness, there was also less economic growth. It is difficult under the
best of conditions to find exactly the appropriate mixture of equity and efficiency,
and nations just breaking free of age-old inertia are likely to find it doubly
difficult.
The difficulties experienced by many of the primary producers in their
attempts to accelerate growth eased the way for Communist influence. Some of
the primary producers’ leaders seemed impressed by the rapid transformation of
Russia from a backward, mainly agricultural, country into a major industrial and
political power and by current efforts along similar lines in other Communist
36




countries. For their part, the Soviet authorities seem to have concluded some
years ago that they could extend their influence in vital primary-producing
areas and have increasingly employed bilateral trade and payments agreements,
grants in aid, long-term credits, technical assistance, and trade fairs for this
purpose. While trade with the Soviet bloc remained a very small part of the
Free World total, the bloc’s share of the exports of several important primary
producers increased sharply between 1953 and 1960. The bloc’s economic aid
to primary producers has also been increasing steadily. Although actual economic
aid outlays were still relatively small, its commitments are estimated to have
totaled more than $900 million equivalent in 1959 and the trend appeared to
be rising sharply during 1960.

The Lag in the Adjustment of
Economic Policies Abroad
The economic policies of the industrial countries abroad responded only slowly
to the strengthening of their economies and to the lag in the growth of the
primary producers.
In economic aid and mutual defense, the United States was still carrying a
share of the burden that may well have been appropriate for the aftermath of
World War II but that had become increasingly anachronistic as the earlier diffi­
culties of the industrial countries abroad faded into the past. Although the need
for increased economic aid to the primary producers was widely recognized,
about three fifths of the total was still coming from the United States during the
late fifties, and the proportion from several of the major industrial countries
hardly seemed commensurate with their rising economic strength.

Likewise,

other major industrial countries were allocating to defense only one-third to
three-quarters as much relative to their total output as was the United States.
Beyond this, the foreign exchange gains of some of them were substantially
increased by the outlays of United States troops within their borders.
In other respects also the economic policies of the industrial countries abroad
were more appropriate to the conditions of earlier years than to the radically
changed world economy of 1960. In some, special incentives adopted a decade




37

or more ago, when there was a desperate need to expand exports, were still
operative. For example, West Germany and other European countries, too, were
still giving exporters tax rebates that enabled them to price exports below the
price listed in the domestic market. While most of Western Europe’s discrimina­
tory controls over dollar imports had been lifted, many of its quantitative restric­
tions on various important United States agricultural products remained in force.
Even where quantitative controls had been removed, Western European industries
were often protected by tariffs that were substantially higher than the corre­
sponding ones imposed by the United States. Moreover, most Western European
countries still maintained ceilings on foreign exchange allowances for tourists
which often placed severe limitations on travel in the United States. Foreign
capital issues— which are not subject to special controls in the United States—
still required official approval in many European countries.
Lags in the response of the industrial countries abroad were not confined to
their long-term economic policies but extended to countercyclical policies as
well.

True, there was widespread recognition that the rising strength of the

B U S IN E S S A C T I V I T Y A N D I N T E R E S T R A T E S . W ith th e U n ite d S ta te s slip p in g
in to a recession a n d W estern E u ro p e a n d J a p a n s till exp an d in g , w ide in te re st rate
d iffere n tia ls appeared a m o ng th e m a jo r in te rn a tio n a l fin a n cia l ce n te rs.

SHORT-TERM INTEREST RATES

INDUSTRIAL PRODUCTION
Seasonally adjusted; 1953=100
170
EUROPEAN
f
COMMON MARKET f
160

—

—

CHART 12

38




130

.20

industrial countries had been reflected in increased confidence in their currencies,
and had facilitated the concerted Western European move to nonresident conver­
tibility at the end of 1958, and that the virtual elimination of differences among
the major currencies on account of relative short-term risks had put several of
these currencies on a more nearly equal footing with the dollar. It was recognized
that these changes had led to a closer interdependence among major financial
markets and that movements of short-term capital were responding far more
readily and in larger volume to interest rate differentials between these markets.
What was not widely realized, at least until the latter part of 1960, was that the
increased sensitivity of short-term funds to such differentials called for a reassess­
ment of monetary and fiscal instruments as countercyclical weapons.
Questions about the ways in which fiscal and monetary policy should be
coordinated became particularly pressing during 1960, when the United States
economy was slipping into recession and United States short-term interest rates
reached substantially lower levels than in 1959, while at the same time several
of the major industrial countries abroad were acting to restrain their booming
economies (see Chart 12). In so acting, however, a tightening of fiscal policy
was the exception rather than the rule. In Britain, a reimposition of instalment
credit controls in April lifted some of the burden from traditional monetary
tools, but in that country, in West Germany, and in much of the rest of
Western Europe, heavy reliance in restraining the boom was placed on sharply
increased interest rates, at least until the latter part of the year.

Industrial Countries Abroad Continue to
Accumulate Gold and Dollars
These economic policies were reflected during 1960 in the continued rapid
accumulation of gold and foreign exchange by industrial countries abroad. In
Western Europe these reserve gains continued despite that area’s economic
upswing, the apparent increase of its aid to the primary producers, and the
elimination during 1959 and early 1960 of most of its quantitative controls
over nonagricultural imports. Western Europe’s imports reached a postwar high
in 1960, about one-fifth above a year earlier. Its purchases from primary pro­




39

ducers moved up, but payments on this account were far more than offset by
the counterflow of investment income, receipts for merchandise exports and
services, and in some cases flight capital from primary producers. Even with
the apparent enlargement of its aid outlays, Western Europe’s current-account
surplus was only partly financed by its loans and grants, and the primary pro­
ducers had to meet the resulting deficit by transferring to Western Europe dollars
gained in transactions with the United States and borrowed from international
organizations and by drawing down their slender reserves of gold and foreign
exchange.
While much of Western Europe’s reserve gains thus came from the primary
producers, another substantial part derived from direct transactions with the
United States. To be sure, United States exports to Western Europe were half
again as large in 1960 as they had been the year before while its imports were
about the same, with the consequence that the United States merchandise trade
surplus with Western Europe exceeded $2 billion, compared with only $0.1
billion in 1959. Moreover, increases in United States net payments to Western
Europe on account of tourist travel were approximately offset by increased
United States net receipts from investment income and decreased military pay­
ments. Although United States direct investments in the growing markets of
Western Europe increased significantly, our balance-of-payments deficit on cur­
rent and long-term capital account with that area was reduced to about half
that of a year before.
But the rise of short-term interest rates in Western Europe, together with
their decline in the United States, played a major part in inducing a movement of
short-term capital that appears to have left the United States over-all balance-ofpayments deficit with Western Europe almost as large in 1960 as it had been the
year before. As United States monetary conditions eased, United States funds
available for short-term investment increased and some of these were placed in
relatively high-yielding European assets. For similar reasons, Europeans repatri­
ated some funds that had been invested in the United States in earlier years, and
some international trade financing was shifted to the United States market. The
short-term capital outflow was aggravated, moreover, by some concern about the
future of the dollar that was also manifested in a short-lived speculative flurry
on the London gold market in late October and early November.
This change in the United States short-term capital account with Western
Europe obscured the major improvement that occurred elsewhere in the United
States balance of payments during 1960. Not only were its exports to Western
40




Europe substantially higher but those to Japan were up 44 per cent and to the
primary producers 9 per cent. Total United States merchandise exports were
thus pushed to a level $3.2 billion higher in 1960 than a year earlier. Since
imports declined somewhat, our 1960 merchandise trade surplus was no less
than $3.7 billion larger than in 1959.

(It may be noted that almost $300

million of this improvement in our trade balance was attributable to increased
shipments of surplus agricultural commodities under United States aid programs.
Such shipments, which accounted for an estimated $1.2 billion of the $19.6
billion export total in 1960, are predominantly on a grant basis or paid for in
the local currencies of the recipient countries.)

However, the moderate rise in

our deficit on “invisible” , government, and long-term capital account, together
with the substantially enlarged outflow of short-term capital, left the 1960
balance-of-payments deficit at $3.8 billion, matching the record deficit of 1959.
The counterpart of the over-all deficits run by the United States and by the
primary producers was the large balance-of-payments surplus of Western Europe
and Japan. Western Europe’s surplus with other countries may have totaled
more than $3.5 billion, about one half of the total being accounted for by West
Germany alone. Although West Germany’s imports moved up sharply during
the year, the resulting increase in its payments was more than offset by a rise in
exports, a decline in long-term capital outflows, and a heavy inflow of short­
term capital. This inflow, in turn, mainly reflected a shift favorable to Germany
of the leads and lags in commercial payments as well as increased German bor­
rowing abroad, apparently for domestic financing purposes. Large-scale short­
term capital flows, both from the United States and from continental Western
Europe, were also particularly significant for Britain, more than offsetting a
widening deficit on current and long-term capital account.

For Japan, too,

continued heavy short-term capital receipts more than offset the decline in its
current-account surplus.
Western Europe and Japan utilized a relatively small part of their balance-ofpayments surpluses with other countries to repay outstanding obligations, and to
extend new loans, to international organizations. Over $500 million was trans­
ferred to the International Monetary Fund to meet quota increases and to repay
drawings that had been made in previous years, the bulk of these repay­
ments having been made by Britain and France. Some $140 million of the pay­
ments to the IMF involved transfers of gold especially purchased for the purpose
from the United States, but these purchases were more than offset by a $300
million gold sale by the IMF to the United States in December 1960. As pay­




41

ments to international organizations by the industrial countries abroad and
by the United States were only partly offset by transfers to the primary producers,
the international organizations’ total gold and liquid dollar holdings rose $1
billion in 1960, about one third of the rise in 1959 when member countries made
large payments in connection with the increases in their IMF quotas.
By far the largest part of the industrial countries’ balance-of-payments sur­
plus with other countries was settled through increases in their holdings of
both liquid dollars and gold. Liquid dollar holdings of the industrial countries
rose $1.4 billion in 1960, with Japan, Britain, and West Germany accounting
for more than the total increase. Some other countries reduced their holdings,
especially in the latter half of 1960, partly because of questions about the
future of the dollar. The industrial countries’ surplus was also partly settled
in sterling, continental Western European balances of which increased $686
million equivalent during the nine months ended September 1960.

The rest

was settled in gold. For this purpose, an estimated $1.3 billion became avail­
able during the year from new production abroad and from Soviet sales, the
United States sold $2.0 billion to foreign central banks and governments, and
official holdings of the primary producers declined $0.2 billion. Of the $3.5
billion in gold that thus became available during 1960, $0.3 billion was trans­
ferred by foreign countries to international organizations, $2.2 billion was added
to the official holdings of the industrial countries, and the remainder seems to
have “disappeared” into industrial uses and private hoards. As only a small part
of the United States gold sales to foreign countries was offset by United States
purchases from other quarters (mainly from the IM F ), the United States gold
stock declined $1.7 billion during the year as against a $1.1 billion decline in
1959 (including the $344 million gold payment to the IMF in connection with
the United States quota increase).

Measures to Restore Balance to
the International Economy
The acceleration of both the short-term capital outflow and United States gold
losses during the summer and autumn of 1960 prompted the United States
42




Government to take new measures to reduce the country’s balance-of-payments
deficit.

President Eisenhower on November 16 directed the Secretary of

Defense to cut the number of dependents abroad of United States military
and civilian personnel, to reduce Department of Defense purchases overseas
by “a very substantial amount” , and to prohibit the sale of foreign goods in
post exchanges. He directed the International Cooperation Administration to
“place primary emphasis” in its activities on the purchase of United States
goods and services and to place a ceiling on its purchases abroad.

The

Development Loan Fund, which had already switched in October 1959 from
a policy of world-wide procurement to a policy of placing “primary emphasis”
on purchases in the United States, was directed to “vigorously pursue” its new
policy. The President also directed the Department of Agriculture to “make an
increased effort to insure” that disposals of agricultural products under United
States aid programs did not cut into commercial exports. In addition, he directed
all Government agencies to cut their foreign purchases, the number of personnel
stationed abroad, and foreign travel by such personnel as far as possible. (After
the new administration took office in January 1961, President Kennedy an­
nounced a number of additional steps that strongly reinforced the earlier
measures. While the order to reduce the number of military dependents abroad
was rescinded, the Secretary of Defense was directed to achieve equivalent dollar
savings through other means.)
Similarly, a number of steps were taken abroad during 1960 to relieve the
payments strains. In some cases, as in France and Japan, central bank discount
rates were reduced primarily to facilitate domestic economic expansion. But in
Britain and West Germany, interest rates were cut with a view to reducing the
pull of their financial markets on foreign short-term funds. Moreover, the cuts
were made despite the continuing deficit in Britain’s balance of payments on
current and long-term capital account and despite persisting domestic inflationary
pressures in Germany. West Germany also took special measures in an attempt
to curb both the influx of foreign-owned funds and German borrowing abroad.
At the year end, moreover, the German authorities had taken the first steps
toward the establishment of a development loan fund under which as much
as $800 million equivalent of German capital might be made available for
foreign-aid programs.




43

Continued Long-Term Problems
Although these various measures were in the right direction, it was clear that
much remained to be done to improve the economic balance among the indus­
trial countries. Because its international financial position was so strong, the
United States had been able to act promptly to cushion the impact of its
recession. It had deliberately acted to let the strains in its balance of payments
be largely absorbed by its ample gold stock, which even after the $5 billion
losses of 1958-60 was still equivalent to more than two fifths of the Free World’s
official gold holdings. But, if it was plain that the United States financial strength
had thus benefited the whole world, it was equally plain that such gold losses
could not be allowed to continue and that the elimination of the difficulties
underlying these losses was a task in which the leading industrial countries
abroad would— in their own interests— need to lend a hand.
Much of this task could, of course, be dealt with only by the United States.
United States foreign economic policies, adopted when this country was aiding
in Western Europe’s postwar recovery, clearly needed reappraisal in the light of
the very different economic conditions of the 1960’s. There was some question,
for example, whether the various Federal tax incentives that stimulate United
States long-term investment abroad were still appropriate, to the extent that they
related to investments in industrialized areas. Moreover, while the urgent needs
of the primary producers might require more economic aid, not only from the
United States but also from Europe, there was also a need to make sure that every
aid dollar bought as much genuine economic development as possible. Equally
important was the implementation of the United States Government’s export
drive through better information about market opportunities abroad, through
more precise tailoring of exports to foreign requirements, and through more
comprehensive facilities abroad for servicing complex United States machinery.
Furthermore, the United States needed to re-examine its domestic economy, to
uncover areas in which inadequate credit facilities, technological lags, restrictive
practices, or mere inertia were holding back the expansion of its exports. Greater
incentives could be offered for accelerating the rise of industrial productivity at
home, thus further strengthening the United States international position.
Beyond this, the United States and other major industrial countries, too,
needed to ask new questions about their countercyclical policies. Earlier such
44




questions had centered on the difficulties that had been caused for monetary
control and debt management by policies that placed the main burden of resisting
inflation on monetary, rather than on fiscal, instruments. In 1960, these questions
were made more pressing by the large flows of short-term funds between the
major international financial centers. Whereas fiscal measures to reduce infla­
tionary pressures could be expected to have widespread effects both on the
inflating country’s domestic economy and on all of its foreign trading partners,
the 1960 experience made it amply clear that, if a major country with a welldeveloped money market and a currency regarded as sound raised interest rates
sharply, much of the immediate adjustment would be shifted abroad, largely
to other international financial centers where volatile short-term funds were held.
While it was recognized that such short-term capital movements often played a
useful role in the international payments mechanism, it was equally clear that
in other circumstances they added to existing strains.
There was also need for the industrial countries to find new ways to gear
their economic policies to accelerate growth without inflation. There were urgent
domestic needs that still remained unsatisfied. Moreover, the Soviet economic
system, while providing its people with a per capita income far below that of the
other major industrial countries, was widely believed to be narrowing the gap
and was thus gaining prestige among the primary producers.

And, perhaps

most importantly, an increase in the industrial countries’ growth rate was prob­
ably the most effective way in which the West could encourage economic develop­
ment among the primary producers.
At the same time, it was clear that, unless growth in the industrial countries
and in the primary producers was along mutually complementary lines, both
would suffer major economic losses. In devoting their scarce resources to the
symbols of political and economic power rather than to the humdrum industries
that provide its substance, some primary producers were missing an opportunity
to build a solid foundation for social and economic progress and were slow­
ing the rise in their real per capita wealth. In keeping restraints on imports
from the primary producers, the industrial countries were perhaps avoiding diffi­
cult internal adjustments, but they were also depriving themselves of the oppor­
tunity to put the resources that would be released by these imports to more
productive uses.

In effect, the industrial countries were depriving themselves

of the economic benefits of their investment in, and aid to, the primary producers.
Insofar as aid had to be substituted for trade, they were thus prolonging the
period during which they would have to carry the burden of foreign assistance.




45

TH IS BANK’S OPERATIONS
Volume and Trend of the Bank’s Operations
d o m e s t ic

o p e r a t io n s .

The volume of the Bank’s activities in transferring

funds on behalf of the public and as agent of the Treasury continued on the whole
to grow in 1960, but at a slower rate than in the year before.
During 1960 this Bank processed 591 million checks, amounting to $334
billion (excluding United States Government checks). This represented an in­
crease over 1959 of 3.4 per cent in the number of items handled but a decrease of
15 per cent in the dollar volume. The decline

iy dollar volume resulted chiefly

from a change, instituted in November 1959, in the procedures for effecting
transfers of funds among New York City banks.

Under the new arrange­

ments some payments, principally involving securities transactions, that formerly
were made by drawing checks on this Bank, are now effected through the Bank’s
wire transfer facilities. In consequence, the dollar volume of checks drawn on
this Bank declined by 39 per cent in 1960, compared with 1959. In contrast,
the dollar volume of checks processed, other than those drawn on this Bank,
increased during 1960 by $5 billion to $233 billion. This increase, however,
was only half as large as the comparable increase between 1958 and 1959. The
number of checks handled was not affected to any significant extent by the above
changes in procedures.
The drop in the dollar volume of checks drawn on this Bank was more than
offset by an impressive rise in the use of the wire transfer facilities. The dollar
volume of wire transfers, other than Treasury transfers and Reserve Bank inter­
district settlements, totaled $966 billion, an increase of 41 per cent over 1959.
The number of transfers was 20 per cent higher in 1960 than in 1959.
During 1960 steps were taken in preparation for further improvement in the
efficiency and speed of the check collection functions of this Bank. Such measures
seemed imperative in the face of the steadily growing volume of checks processed
by the Bank— over the last ten years the number of checks handled at this Bank
has grown at an annual rate of about 4.5 per cent. In late 1960 the Federal
Reserve System initiated a pilot program, with five Federal Reserve Banks par­
ticipating, to test various makes of high-speed electronic check collection equip46




S O M E M EA S U R E S O F T H E V O L U M E O F O P E R A TIO N S O F
T H E FED ER A L R ESERVE B A N K O F N EW Y O R K (Including Buffalo Branch)
1960

N um ber of p ie c e s hand led ★

Discounts and ad van ces..................................................................... ......................... 1,688
1,288,094,000
Currency received and counted .....................................................
Coin received ........................ ...............................................................
2,159,025,000
Gold bars and bags of gold coin h a n d le d ...................................
310,000

3,221
1.270.092.000
2.227.233.000
374.000

Checks handled:
United States Government c h e c k s .............................................
All o t h e r .............................................................................................

57,954,000
590,628,000

Postal money orders h a n d le d ...........................................................

37,931,000

56.391.000
570,981,000
39.664.000

Collection items handled:
United States Government coupons p a i d ................................
Credits for direct sendings of collection it e m s ...................
All other .............................................................................................

4,742,000
391,000
13,545,000

4.045.000
369.000
12.508.000

Issues, redemptions, exchanges by fiscal agency departments:
United States Savings b o n d s .....................................................
All other United States o b lig atio n s...........................................
Obligations of the International Bank for Reconstruction
and D evelopm ent.............................................................................

27,583,000
6,732,000
122,000

Safekeeping of securities:
Pieces received and delivered ...................................................
Coupons detached ...........................................................................

7,865,000
4,336,000

Wire transfers of f u n d s t ...................................................................

676,000

28.716.000
6.440.000
249.000
8.480.000
3.746.000
564.000

A m o unts handled

Discounts and ad van ces.....................................................................
Currency received and c o u n te d .....................................................
Coin received ........................................................................................
Gold bars and bags of gold coin h a n d le d ...................................
Checks handled:
United States Government c h e c k s ..............................................
All o t h e r .............................................................................................
Postal money orders h a n d le d ...........................................................
Collection items handled:
United States Government coupons p a id ................................
Credits for direct sendings of collection it e m s ...................
All o t h e r .............................................................................................
Issues, redemptions, exchanges by fiscal agency departments:
United States Savings bonds .....................................................
All other United States o b lig atio n s...........................................
Obligations of the International Bank for Reconstruction
and Development ...........................................................................
Safekeeping of securities:
Par value pieces received and d e liv e re d ................................
Wire transfers of f u n d s t ...................................................................

$

7,719,159,000
8,616,079,000
245,012,000
4,151,034,000

$ 24,013,712,000
8.428.367.000
236.324.000
4.989.551.000

20,444,567,000
333,861,097,000
674,977,000

20,261,470,000
394.316.782.000
688.790.000

2,667,200,000
632,883,000
2,128,543,000
1,831,371,000
441,854,563,000
396,083,000
619,822,036,000
966,307,954,000

2.058.555.000
704.297.000
1.914.776.000
2.198.387.000
452.875.309.000
703.840.000
619.894.323.000
685.024.466.000

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




47

ment. This Bank is testing a Stored Reference Computer supplied by FerrantiPackard Electric Limited, Toronto, Canada, and a Sorter Unit supplied by the
National Cash Register Company and Pitney-Bowes, Inc. Tests with live work
were begun on November 21, 1960 and will be continued for approximately
six months to determine the performance capability and operational feasibility
of the equipment.

The advisory services of the Stanford Research Institute

of Menlo Park, California, are being utilized to assist the Bank in making this
determination.
The number of pieces of all Government obligations, other than United
States Savings bonds, processed by this Bank in 1960 was about 6,700,000, a
rise of nearly 5 per cent over 1959. This rise was due mainly to a substantial
increase in the number of retirements of Treasury bonds and bills, reflecting the
advance refundings of bonds in June and September and substantial maturities
of special and tax anticipation issues of Treasury bills, floated for cash during
1959.

Moreover, a significant portion of the retired securities were of small

denominations. The dollar volume of securities processed, in contrast to the
number of pieces, declined $11 billion to $442 billion (or by about 2 per cent),
reflecting a decline in the Treasury’s financing activities during 1960 as compared
with 1959. Similarly, the dollar volume of issues, redemptions, and exchanges
of United States Savings bonds processed by this Bank in 1960 declined by
17 per cent to $1.8 billion, a low for the period since World War II.

The

number of Savings bonds handled dropped 4 per cent from 1959 and was 10
per cent below the postwar high established in 1957.
Lending activities of this Bank contracted sharply during 1960, as the
Federal Reserve System’s actions to ease the availability of credit reduced the
member banks’ need to borrow at the “discount window” . For the year as a
whole, the dollar volume of advances to member banks dropped to $7.7 billion
from $24 billion in 1959, a reduction of 68 per cent. While the number of
advances declined by one half, the number of banks accommodated decreased by
only 9 per cent, as 272 member banks borrowed at least once during the year.

f o r e ig n

an d

in t e r n a t io n a l o p e r a t io n s .

Gold and dollar assets

held for foreign and international account increased $4.4 billion during the year
to establish an all-time peak of $23.7 billion at the close.
As in 1959, the United States balance-of-payments deficit was reflected in a
significant and substantial rise in assets held for foreign account by this Bank
48




on behalf of all Federal Reserve Banks. The aggregate rose by $3.3 billion to a
new high of $16.7 billion, the increase comparing with a rise of $1.3 billion in
the previous year.

With the exception of dollar deposits, which declined by

$128 million to $217 million, each type of asset registered a substantial increase;
gold earmarked for foreign account rose by nearly $2 billion to a total of $10
billion, United States Government securities were up $1.2 billion to $5.7 billion,
and miscellaneous securities increased by $185 million to $755 million.
The accounts of the international organizations, in which the other Federal
Reserve Banks do not participate, also showed large gains; holdings therein
increased by $1.1 billion to a new high of $7.1 billion at the year end. This
expansion was largely the result of repayments in gold and dollars to the Inter­
national Monetary Fund and, to a lesser extent, of gold payments in fulfilment
of the increased quotas of its member countries.

Subscription payments to

the newly established Inter-American Development Bank and the International
Development Association were also contributing factors.
The Bank continued its established policy of making credits available against
gold collateral to foreign monetary authorities to assist them in meeting seasonal
and other temporary dollar demands. The volume of loans on gold during 1960
was moderate. New arrangements were made with foreign monetary authorities
aggregating $152 million but not all of them were drawn against. With a few
exceptions, the loans made during 1960 were repaid within the year; as a result,
only $8 million of such loans was outstanding at the year end.
In addition to the new accounts for the international organizations, already
mentioned, accounts were opened during the year for the central banks of The
Sudan, Nigeria, Ruanda-Urundi, and Morocco.




49

Financial Statements
S T A T E M E N T O F C O N D ITIO N

(In thousands of dollars)

DEC. 3 1 , 1 9 6 0

Gold certificate account

DEC. 3 1 f 1 9 5 9

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

3,819,405

4,685,959

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

254,584

213,326

Federal Reserve notes of other B a n k s ........................................................

118,167

90,056

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

58,805

54,975

Total cash

4,250,961

5,044,316

Discounts and ad van ces...................................................................................

2,480

202,780

Acceptances..........................................................................................................

73,597

75,341

United States Government s e c u ritie s ...........................................................

7,130,744

6,737,161

Total loans and securities

7,206,821

7,015,282

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

4

4

Cash items in process of c o lle c tio n ...........................................................

1,456,311

1,280,699

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

9,386

9,858

All o t h e r ................................................................................................................

51,860

65,067

Total other assets

1,517,561

1,355,628

Total Assets

1 2 ,9 7 5 f3 4 3

1 3 ,4 1 5 ,2 2 6

Other assets:
Due from foreign banks ★

Bank premises

★

A fter deducting p a rticip atio n s of o ther Federal Reserve Banks am oun ting to
about $ 1 1 ,0 0 0 in both 1959 and 1960.

50




S T A T E M E N T O F C O N D ITIO N

(In thousands of dollars)

Liabilities

d e c. 31, i9 6 0

d e c. 3 1 ,19S»

6,662,953

6,646,973

Member bank reserve accounts ...................................................................
United States Treasurer — general a c c o u n t.............................................
Foreign ★ ...............................................................................................................
Other .....................................................................................................................

4,581,510
72,160
64,206
396,898

5,092,824
65,278
94,228
367,074

Total deposits

5,114,774

5,619,404

Deferred availability cash it e m s ...................................................................
All other ................................................................................................................

844,369
9,593

808,203
7,452

Total other liabilities

853,962

815,655

Total Liabilities

1 2 ,6 3 1 ,6 8 9

1 3 ,0 8 2 ,0 3 2

Capital paid in ..................................................................................................
Surplus ..................................................................................................................
Other capital a c co u n ts.....................................................................................

114,551
229,103
0

110,452
220,905
1,837

Total Capital Accounts

3 4 3 ,6 5 4

3 3 3 ,1 9 4

Total Liabilities and Capital Accounts

1 2 ,9 7 5 ,3 4 3

1 3 ,4 1 5 ,2 2 6

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

64,376

22,750

Ratio of gold certificate reserves to deposit and Federal Reserve
note liabilities co m b in e d .............................................................................

34.6%

39.9%

★ A fte r deducting p a rtic ip a tio n s of o ther Federal Reserve Banks am oun ting to

1 5 3 ,0 1 0

2 5 0 ,5 6 0

t A fte r deducting pa rtic ip a tio n s of o ther Federal Reserve Banks am ounting to

1 6 6 ,0 2 3

5 9 ,2 5 6

Federal Reserve notes .....................................................................................
Deposits:

Other liabilities:

Capital Accounts




51

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 1960 A N D 1959

(In thousands of dollars)
1960

1959

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

277,093

224,372

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

30,752

29,008

Current net earnings

246,341

195,364

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

607

Transferred from reserve for contingencies ( n e t ) ...................................

1,838

All o t h e r ................................................................................................................

26

Additions to current net earnings:

Total additions

2,471

Deductions from current net ea rn in g s ........................................................

6

Net additions .....................................................................................................

2,465

Net earnings available fo r distribution

2 4 8 ,8 0 6

Dividends paid

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

6,802

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

233,806

Transferred to s u rp lu s .....................................................................................

8,198

48
20,969
1
21,018

288
20,730
2 1 6 ,0 9 4

6,547
227,544
— 17,997

Surplus Account

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

220,905

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

8,198
229,103

238,902
0
238,902

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

0

1 7 ,9 9 7 *

Surplus - end of year

2 2 9 ,1 0 3

2 2 0 ,9 0 5

★

P aym ent to U nited S tates Treasury re p resenting surplus in excess of 100 per cen t of subscribed c a p ita l stock
as o f th e close o f Decem ber 3 1, 1 959.

52




Changes in Membership
During 1960 the total number of commercial banks in this District that are
members of the Federal Reserve System declined from 507 to 491. The net
decrease of 16 banks was the result of mergers of 18 member banks with other
banks and the admission of two State banks to membership. The 491 banks
constitute 86 per cent of all national banks, State banks, and trust companies
in this District and hold 96 per cent of the total assets of all such institutions
in this District.

N UM BER O F OPERATIN G M EM BER AND NONM EM BER BAN KS IN
SECO N D F ED ER A L R E S E R V E D IS T R IC T AT TH E Y EA R END
(Exclusive o f savings banks, p riva te bankers, and ind ustrial banks)

DECEMBER 3 1 , 1 9 6 0

Members

Type of Bank

National banks ★

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

State banks and
trust companies ...................
Total *
★

DECEMBER 3 1 , 1 9 5 9

Non­
members

Per cent
members

Members

Non­
members

Per cent
members

336

0

100

349

0

100

155
—

81
—

65
—

158
—

82
—

66
—

491

81

86

507

82

86

Includes one national bank located in th e V irgin Islands.

CH AN GES IN F ED ER A L R E S E R V E M EM B ER SH IP IN
SECO N D D IS T R IC T DURING 1 96 0

Total membership a t the beginning of the y e a r.............................................................................................

507

Increases:

State banks admitted

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

2

Member banks combined with other m e m b e rs ................................................................................................

18

Total membership at the year end

491

Decreases:




53

Changes in Directors and Officers
c h a n g e s in

d ir e c t o r s .

In May 1960, member banks in Group 1 elected

B. Earl Puckett, Chairman of the Board of Allied Stores Corporation, New
York, N. Y ., a Class B director of the Federal Reserve Bank of New York for
the unexpired portion of the term ending December 31, 1961. He succeeded
Philip D. Reed, former Chairman of the Board of General Electric Company,
New York, N. Y ., who had resigned as a Class B director and was appointed
a Class C director for the three-year term beginning January 1, 1960, and desig­
nated Chairman of the Board of Directors and Federal R eserve A gent for the
year 1960.
In December 1960, member banks in Group 3 elected A. Leonard Mott,
President of The First National Bank of Moravia, Moravia, N. Y ., a Class A
director for a term of three years beginning January 1, 1961. Mr. Mott suc­
ceeded Cyrus M. Higley, President and Trust Officer of The Chenango County
National Bank and Trust Company of Norwich, Norwich, N. Y ., whose term
expired December 31, 1960.
At the same time, member banks in Group 3 re-elected Augustus C. Long,
Chairman of the Board of Directors of Texaco Inc., New York, N. Y ., a
Class B director for the three-year term beginning January 1, 1961.
In December 1960, the Board of Governors of the Federal Reserve System
redesignated Philip D. Reed as Chairman of the Board of Directors and Federal
R eserve Agent for the year 1961.

At the same time, James DeCamp Wise,

Chairman of the Board of Bigelow-Sanford Carpet Company, Inc., New York,
N. Y ., was appointed Deputy Chairman of the Board of Directors for the year
1961. The Board of Governors also appointed Everett N. Case, President of
Colgate University, Hamilton, N. Y., a Class C director for the three-year term
beginning January 1, 1961. Mr. Case succeeded Forrest F. Hill, Vice President
of The Ford Foundation, New York, N. Y ., whose term expired December 31,
1960. Mr. Hill had served as Deputy Chairman of the Board of Directors and
as a Class C director since January 1, 1955.
At the Buffalo Branch of the Federal Reserve Bank of New York, in
December 1960, Thomas E. LaMont, farmer of Albion, Orleans County, N. Y .,
was reappointed by the Board of Governors of the Federal Reserve System a
director of the Buffalo Branch for the three-year term beginning January 1,
1961. Also in December 1960, the Board of Directors of the Federal Reserve
Bank of New York redesignated Whitworth Ferguson, President of Ferguson
54




Electric Construction Co., Inc., Buffalo, N. Y ., as

Chairman of the Board of

Directors of the Buffalo Branch for the year 1961. At the same time, the Board
of Directors of this Bank appointed Francis A. Smith, President of The Marine
Trust Company of Western New York, Buffalo, N. Y ., a director of the Branch
for the three-year term beginning January 1, 1961.

Mr. Smith succeeded

E. Perry Spink, President of the Liberty Bank of Buffalo, Buffalo, N. Y ., whose
term expired December 31, 1960. On February 2, 1961, the Board of Direc­
tors appointed Anson F. Sherman, President of The Citizens Central Bank,
Arcade, N. Y ., a director of the Buffalo Branch for the unexpired portion of
the term ending December 31, 1961. Mr. Sherman succeeded Denton A. Fuller,
who resigned from the Branch Board on January 12, 1961; Mr. Fuller, formerly
President of The Citizens National Bank of Wellsville, Wellsville, N. Y ., is now
President of the Liberty Trust Company, Cumberland, Maryland.
c h a n g e s in

o f f ic e r s .

Since February 1960, four officers terminated their

service with the Bank:
Carl H. Madden, Manager of the Public Information Department, resigned,
effective July 1, 1960, to become Dean of the College of Business Administra­
tion at Lehigh University.
John J. Larkin, Assistant Vice President, assigned to the Open Market
Operations and Treasury Issues function, resigned, effective October 19, 1960,
to become Vice President of The First National City Bank of New York.
Tilford C. Gaines, Assistant Vice President, assigned to the Research and
Statistics function, resigned, effective January 4, 1961, to become Vice President
of the First National Bank of Chicago.
Robert V. Roosa, Vice President, assigned to the Research and Statistics
function, was appointed Under Secretary of the Treasury for Monetary Affairs,
effective January 31, 1961. His service with the Bank terminated that day.
The following additional changes in official staff have taken place since
February 1960.
Merlyn N. Trued, formerly a Chief of the Foreign Research Division,
Research Department, was appointed Manager, effective May 23, 1960, and
assigned to the Public Information Department. He had been on leave since
November 1958, serving as economic and financial adviser to the Industrial
Development Center of Vietnam under an International Cooperation Adminis­
tration contract. Mr. Trued was assigned Manager of the Foreign Department,
effective October 14, 1960.




55

Clifton R. Gordon resigned as Assistant Counsel on May 31, 1960 to
become Director of this Bank’s Relocation Office in Ithaca, N. Y .
Robert L. Cooper, formerly Special Assistant in the Securities Department,
was appointed Manager, effective October 14, 1960, and assigned to the Securi­
ties Department.
Paul Meek, formerly Chief of the Public Information Division, Public
Information Department, was appointed Manager, effective October 14, 1960,
and assigned to the Public Information Department.
Thomas M. Timlen, Jr., Assistant Counsel, was appointed also Assistant
Secretary, effective October 14, 1960, the appointment of Robert W . Stone,
Manager of the Securities Department, as Assistant Secretary being terminated
on the same date.
John P. Jensen, formerly Manager of the Government Bond and Safekeeping
Department, was appointed Assistant Vice President, effective January 5, 1961,
and assigned to the Cash and Collections function with responsibility for the
Cash, Cash Custody, and Collection Departments.
Robert G. Link, formerly Manager of the Research Department, was
appointed Assistant Vice President, effective January 5, 1961, and assigned to
the Research and Statistics function.
Robert J. Crowley, formerly an Attorney in the Legal Department, was
appointed Assistant Counsel, effective January 5, 1961.
Harold W . Lewis, formerly Chief of the Government Bond Division, Govern­
ment Bond and Safekeeping Department, was appointed Manager, effective
January 5, 1961, and assigned to the Security Custody Department.
Frank W. Schiff, formerly Senior Economist, was appointed Manager, effec­
tive January 5, 1961, and assigned to the Research Department.
John T. Keane, formerly Special Representative at the Buffalo Branch, was
appointed Assistant Cashier of the Branch, effective January 5, 1961.
Norman P. Davis, Assistant Vice President, formerly assigned to the Foreign
function, was assigned to Administrative Services, effective January 6, 1961,
with responsibility for the Accounting Department, in which the planning for
the installation of electronic data-processing equipment will be carried on.
Thomas O. Waage, Assistant Vice President, formerly assigned to the Cash
and Collections function, was assigned to the Foreign function, effective January
6, 1961.

56




Martin W. Bergin, Manager, formerly assigned to the Security Custody
Department, was assigned to the Savings Bond Department, effective January
6, 1961.
Donald C. Niles, Manager, formerly assigned to the Planning Department,
was assigned to the Accounting Department, effective January 6, 1961.
Everett B. Post, Manager, formerly assigned to the Accounting Department,
was assigned to the Planning Department, effective January 6, 1961.
Kenneth E. Small, Manager, formerly assigned to the Savings Bond Depart­
ment, was assigned to the Government Bond and Safekeeping Department,
effective January 6, 1961.
Peter Fousek, formerly Chief of the Foreign Research Division, Research
Department, was appointed Senior Economist, effective January 21, 1961, and
assigned to the Research and Statistics function. Mr. Fousek had been on leave
of absence since September 1960 to serve on the staff of the President’s Council
of Economic Advisers.

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 i l —1 9 6 1 .

The Board of Direc­

tors of this Bank selected George A. Murphy to serve during 1961 as the
member of the Federal Advisory Council representing the Second Federal
Reserve District. Mr. Murphy is Chairman of the Board of Irving Trust Com­
pany, New York, N. Y . He succeeded John J. McCloy, former Chairman of
the Board of The Chase Manhattan Bank, New York, N. Y ., who had served
as a member of the Council for the past two years.




57

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

D IR E C T O R S

Class Group

H e n r y C. A l e x a n d e r ............................................................................................................................................ 1961
Chairman o f the Board, M organ Guaranty Trust Company o f New Y ork, New Y ork, N. Y.

A

1

C e sar J. B e r t h e a u .................................................................................................................................................... 1962
'
Chairman o f the Board, Peoples Trust Company o f Bergen County, Hackensack, N. J.

A

2

A. L e o n a r d M o t t .......................................................................................................................................................1963
President, The First National Bank o f M oravia, M oravia, N. Y .

A

3

B . E a r l P u c k e t t ....................................................................................................................................................... 1961
Chairman o f the Board, Allied Stores Corporation, New Y ork, N. Y .

B

1

K e n n e t h H . H a n n a n .............................................................................................................................................. 1962
Executive V ice President, Union Carbide Corporation, New York, N. Y .

B

2

A u g u s t u s C. L o n g .................................................................................................................................................... 1963
Chairman, Board o f Directors, Texaco Inc., New York, N. Y .

B

3

P h il ip D. R e e d , Chairman, and Federal Reserve A g e n t .....................................................1962
Form er Chairman o f the Board, General Electric Company, New Y ork, N. Y.

C

Ja m e s D e C a m p W is e , Deputy Chairman ............................................................................... 1961
Chairman o f the Board, Bigelow-Sanford Carpet Company, Inc., New Y ork, N. Y .

C

E v e r e t t N. C a s e .......................................................................................................................................................
President, Colgate University, Hamilton, N . Y .

D IR E C T O R S — B U FF A LO

1963

BRANCH

W h i t w o r t h F e r g u s o n , Chairman .............................................................................................1961
President, Ferguson Electric Construction C o., Inc., Buffalo, N. Y .
J o h n W . R e m i n g t o n ................................................................................................................................................. 1961
President, Lincoln Rochester Trust Company, Rochester, N. Y .
A n s o n F . S h e r m a n .................................................................................................................................................... 1961
President, The Citizens Central Bank, A rcade, N. Y .
H o w a r d N. D o n o v a n .............................................................................................................................................. 1962
President, Bank o f Jamestown, Jamestown, N. Y.
R a y m o n d E. O l s o n .................................................................................................................................................... 1962
President, Taylor Instrument Companies, Rochester, N. Y.
T h o m a s E. L a M o n t ................................................................................................................................................. 1963
Farmer, A lbion, Orleans County, N. Y .
F r a n c is A . S m i t h ........................................................................................................................................................ 1963
President, The Marine Trust Company o f Western New Y ork, Buffalo, N. Y .

M EM BER

O F F E D E R A L A D V IS O R Y C O U N C IL — 1 9 6 1

G e o r g e A. M u r p h y ................................................................................................................................................. 1961
Chairman o f the Board, Irving Trust Company, New Y ork, N. Y.

58




C

Officers of the Federal Reserve Bank of New York
A
W

il l ia m

lfred

H a r o l d A . B i l b y , Vice President
C h a r l e s A . C o o m b s , Vice President
H o w a r d D. C r o s s e , Vice President
M a r c u s A . H a r r is , Vice President
H e r b e r t H . K i m b a l l , Vice President

Jo h n J. C l a r k e ,

President
First Vice President

H ayes,

F . T r e ib e r ,

R o b e r t G . R o u s e , Vice President
W a l t e r H . R o z e l l , Jr ., Vice President
H o r a c e L. S a n f o r d , Vice President
T odd G . T i e b o u t , Vice President and

General Counsel

Assistant General Counsel

E dward

G. Guy, Assistant General Counsel

F e l i x T . D a v is , Assistant Vice President
N o r m a n P. D a v is , Assistant Vice President
G e o r g e G a r v y , Adviser
Jo h n P. Je n s e n , Assistant Vice President
P e t e r P. L a n g , Adviser
R o b e r t G . L i n k , Assistant Vice President
T h o m a s O. W a a g e ,

nt Vice President

M

Jo h n F . P ie r c e ,

a r t in

A n g u s A . M a c I n n e s , Jr ., Assistant Vice President
S p e n c e r S. M a r s h , Jr ., Assistant Vice President
F r e d W . P id e r it , Jr ., Assistant Vice President
L a w r en c e E. Q u ack enbush ,
F r e d e r ic k L . S m e d l e y ,

W . B e r g in ,

E v e r e tt B. Po st ,

H . B r a u n , Jr .,

il l ia m

Manager, Planning Department

Secretary, and Assistant Counsel

C h a r l e s R . P r ic h e r ,

R obert L. C ooper ,

Manager, Personnel Department

Manager, Securities Department

Jo h n P. R i n g e n ,

R o b e r t J. C r o w l e y ,

Manager, Bank Examinations Department

Assistant Counsel

T h o m a s J. R o c h e ,

Peter F o u sek ,

Manager, Foreign Department

Senior Economist
A

lan

W

R. H o lm e s,

Manager, Research Department
T h o m as C . Slo an e,

H arold W . L e w is ,

Manager, Security Custody Department
E. M a r p l e ,
Manager, Credit and Discount Department

il l ia m

M

a d e l in e

H. M

cW h in n e y ,

D

onald

A

rthur

A. M

il l ia m

Manager, Securities Department
Manager, Bank Relations Department

oa,

T h o m a s M . T i m l e n , Jr .,

Assistant Counsel, and Assistant Secretary

F . Pa l m e r ,

M

Manager, Cash Custody Department
F r a n k l in E. P e t e r s o n ,
Manager, Cash Department




J. S t a n t o n ,

l o y s iu s

R obert C . T h o m a n ,

Manager, Service Department
W

C . Sm it h ,

R o b e r t W . St o n e ,

il e s ,

Manager, Accounting Department
H. N

eorge

Manager, Check Mechanization Department

uether,

Manager, Building Operating Department
C. N

Manager, Government Bond and Safekeeping
Department
A

Manager, Public Information Department
erbert

E. Sm a l l ,

enneth

Manager, Check Department

eek,

H

Assistant Counsel
K

G

Manager, Market Statistics Department
Pa u l M

S. R u s h m o r e ,

F r a n k W . Sc h if f ,

lopstock,

Manager, Research Department
W

alter

Manager, Collection Department

Manager, Securities Department
F red H . K

Assistant Vice President

Chief Examiner

Manager, Savings Bond Department
W

Assistant

Vice President

D

onald

K

arl

erlyn

N . T rued,

Manager, Foreign Department
R obert Y

oung,

Jr .,

Assistant Counsel
General Auditor
Assistant General Auditor

J. C a m e r o n ,

L . E ge,

59

O FF IC E R S — B U F F A L O B R A N C H

In s l e y B . Sm i t h ,
H arold M . W
G

eorge

J. D

oll,

G

erald

H. G

Cashier

reene,

60




Assistant Cashier

essel,

Vice President

Assistant Vice President
Jo h n T . K e a n e ,
M. M

onroe

M

Assistant Cashier

yers,

Assistant Cashier




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