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FEDERAL

R E S E R V E B A N K OF NEW Y O R K

March 1, 1965
To the Member Banks in the
Second Federal Reserve District:
I am pleased to present our Annual R e p o r t ,
reviewing economic and financial developments in 1964—
the fiftieth year of this Bank's existence.
The United States economy achieved a substantial
further advance in 1964, thus extending the expansion
through the fourth consecutive year. Prices continued
to be generally stable, although at the year end there
was concern about the possible development of infla­
tionary pressures. The United States balance-of-payments
deficit, while slightly reduced, remained much too^
large, as a sharp increase in private capital outflows
offset most of the increase in the trade surplus.
Monetary policy was essentially easy. The discount rate
increase in November, following the rise in the British
bank rate, was undertaken to head off intensified
capital outflows and any possible swing of speculative
pressures toward the dollar. The sterling crisis
demonstrated both the interdependence of the inter­
national financial system and the effectiveness of
international cooperation in dealing with speculative
attacks. For the monetary and fiscal authorities,
and for the nation as a whole, the year 1965 presents
the twin challenges of achieving continued expansion
with price stability and a major reduction in the
balance-of-payments deficit. President Johnson, in his
Balance of Payments Message of February 10, has
emphasized the urgency of the payments problem and has,
at the same time, announced a broad program of
corrective measures.




ALFRED HAYES
President




Federal Reserve Bank
of New York

FIFTIETH
ANNUAL REPORT
For the Year
Ended
December 31, 1964

Second Federal Reserve District




Contents:
Page
Progress in 1964 and the
Challenge off the F u tu re ...................

Page
Changes in Membership................... ... 54

5

Business Conditions:
A Year of Achievement.....................

12

55
Changes in directors.......................... ....55
Changes in officers.............................. ....56
Member of Federal Advisory
Council— 1965 .................................. ....57

Mainsprings off Progress in 1964. . .

17

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

Price stability: growing concern late
in the year............................................

21

Monetary Policy in 1964:
Continued Support of Growth...........

23

Monetary Policy in the
Early Sixties— A Longer L o o k ..........

29

THE INTERNATIONAL
ECONOMY IN 1964...........................

32

Changes in Directors and Officers . .
THE UNITED STATES ECONOMY AND
12
FINANCIAL MARKETS IN 1964........

CHARTS

The United States Payments Balance—
33
The Problem Remains.......................

Chart 1: Gross National Product
and Industrial Production..................

13

Chart 2: Economic Progress..............

15

Chart 3: Unemployment......................

16

International Financial Cooperation—
Stiff Tests Passed Successfully . . . .
38

Chart 4: Prices ....................................

21

The Industrial Economies—
Keeping Growth on an Even Keel.. . .

41

Chart 5: The Money Supply and
Commercial Bank Time Deposits. . . .

26

The Underdeveloped World—
Modest Progress in Some Areas. . . .

44

Chart 6: The Liquidity Position of
the P u blic ............................................

27

Unfinished Business...........................

45

THIS BANK’S OPERATIONS..............

46

Chart 7: Trends in the Maturity
Structure and Levels of Interest Rates

30

Volume and Trend of the
Bank’s Operations............................. ....46

Chart 8: Major Components of the
United States Balance of Payments. .

34

Chart 9: Short-term Interest Rates
in Selected Countries..........................

36

Chart 10: Production and Prices in
Selected Countries ..............................

42

Domestic operations .......................... ....46
Foreign and international operations. 49
Financial Statements.........................

51

Statement of earnings and expenses. .
Statement of condition........................

51
52







Fiftieth Annual Report
Federal Reserve Bank of New York

P rogress in 1 9 6 4 and th e Challenge of the Future
During 1964 the United States economy showed solid progress on the domestic
front. Rapid growth in economic activity continued without significant loss of
momentum throughout the year— thus extending the sustained upswing of the
economy to a near record of almost four years. On the other hand, the United
States balance-of-payments deficit, though slightly smaller than in 1963, remained
much too large, and presented, as in other recent years, a serious problem. Mone­
tary policy, while seeking to protect the international position of the dollar, con­
tinued to provide for the growth of money and credit needed by an expanding
economy.
The tax cut enacted shortly after the year opened was without precedent
for a period when the Federal budget was in deficit, and represented a skillful
and imaginative use of fiscal policy. It was undoubtedly a key factor in the
strong performance of the domestic economy, adding substantially to after-tax
incomes and providing a psychological boost to the economy generally. It was
significant that personal consumption outlays rose almost half again as fast as
in the preceding year, that corporate profits climbed sharply, and that business in­
vestment in plant and equipment registered the largest gain since the mid-1950’s.
The tax cut was primarily designed to stimulate the economy so as to bring
about a fuller utilization of both human and physical resources. There were
also well-recognized, but by no means excessive, risks that the economy might
expand too rapidly, thus bringing about a resurgence of inflationary pressures.
These risks were worth taking.




5

In the event, the advance in economic activity was sufficiently large to bring
a significant part of the economy’s unemployed resources into active use. How­
ever, new resources were themselves growing rapidly, and tended to slow the
advance toward full utilization. Thus, while manufacturing output rose very
substantially over the year, the cumulative effects of investment in plant and
equipment led to a rise in capacity that almost kept pace with increasing output.
Similarly, although employment rose rapidly, the advance did not match the in­
crease in real output— since productivity growth, in part related to investment
in plant and equipment, was also rapid. Also, a part of the increase in em­
ployment served to provide jobs for a growing labor force, so that the effect
on pre-existing unemployment was somewhat diluted. However, by the end of
the year the over-all unemployment rate had declined to 5 per cent, significantly
below the

5Vi per cent to 5 % per cent rates that had generally prevailed from

early 1962 through early 1964. In effect, during the year, unemployment de­
clined about one half of the way back toward the 4V4 per cent rate characteristic
of the boom years of the mid-1950’s.
The inflow of new resources and the rapid increase in productivity, in con­
junction with reasonable restraint in most wage settlements and competition
from abroad, helped to prevent a run-up in prices.

Over-all price indexes

continued to show the same remarkable stability as in the previous three years.
Consumer prices increased by about the same amount in 1964 as in 1963 and
1962. And changes in the industrial wholesale price index remained negligible
despite some upward tilt at the year end. But announcements of price increases
did become more prevalent as the year progressed, thus raising questions— made
the more insistent by the outcome of wage negotiations in the auto industry—
as to whether the record of price stability could be maintained in 1965.
The maintenance of reasonable price stability has always been of importance
to the domestic economy, both because inflation creates inequitable hardships
for those who live on fixed incomes, and also because it can too easily result
in a boom accompanied by distortions, the outcome of which is likely to be
recession or even depression. To these domestic considerations have been added
in recent years the increased exposure of the United States economy to foreign
competition and the resulting need to protect and improve the position of United
States products in markets both at home and abroad. With a balance-ofpayments deficit on regular transactions ranging from $3 billion to almost $4
billion in each of the years from 1958 through 1964, the United States was—
and is— in no position to tolerate general price advances that would weaken its
6




international payments position. Thus, in measuring the performance of the
economy, price stability must be given heavy weight.
In 1964, the United States balance-of-payments deficit on regular transactions
amounted to $3.0 billion, only slightly less than the $3.3 billion deficit of 1963.
The decrease was more than accounted for by a rise in the merchandise trade
surplus from $5 billion to S6'/2 billion, which in turn was attributable to a sharp
growth in exports of a wide variety of manufactured goods. The strong export
performance partly rellected the relative stability of prices in this country over
a long period—as compared with rapid increases in many industrial countries
abroad. It was also influenced by the high levels of economic activity in most
other major countries and by the increased export consciousness of United States
business. The effects of the larger export surplus, and of gains on some other
accounts, in improving the United States balance of payments were, however,
almost offset by increased capital outflows. Under the influence of the inter­
est equalization tax, the outflows associated with the flotation of foreign securi­
ties in the New York market did decline. But there was an unusually sharp
rise in bank lending to foreigners, as well as in corporate placements of short­
term funds abroad, and direct investment in foreign countries increased again.
These evolving domestic and balance-of-payments developments provided
the major part of the setting in which decisions with respect to monetary
policy were made. And the actual outcome was in turn influenced by monetary
policy.
Throughout the year monetary policy continued to be essentially easy—as
had been true in the three preceding years. Total bank credit rose by 8 per cent,
just as in 1963, and nonbank holdings of liquid assets also increased substantially.
The money supply—narrowly defined to include currency outside banks and
privately held checking deposits—rose by 4 per cent, matching the increase in
the previous year. Thus, the move to a somewhat less easy policy back in
mid-1963, signaled at that time by the rise in the discount rate to 3Vi per cent,
had little discernible effect on the actual rate of increase in bank credit, nonbank
liquidity, and the money supply. There was, however, a further shift in the
composition of bank portfolios during 1964. With business loan demands some­
what stronger, reflecting primarily the brisker pace of economic activity, banks
found it necessary to finance additional loans by reducing their holdings of
Treasury securities and by slowing their acquisitions of other securities. Despite
this shift to a more heavily loaned-up position, the willingness of banks to make
additional loans remained high.




7

Toward the end of the year, the monetary authorities were confronted with
the sterling crisis. On November 23, the British bank rate was jumped from 5
per cent to 7 per cent. Almost immediately, Federal Reserve discount rates
were raised from 3 Vi per cent to 4 per cent, and a simultaneous adjustment
was made in ceilings on time deposit interest rates. Essentially, the Federal
Reserve actions were precautionary in character and sought to head off any
possible swing of speculative pressures toward the dollar. These actions took into
account both the sizable United States payments deficit and the fact that the
British and American rate increases, in combination, might well have the effect
of improving the balance-of-payments position of both countries vis-a-vis the sur­
plus countries of Continental Europe— where interest rates had moved up during
the year. Domestically, the United States economy appeared to be strong enough
to absorb easily the resulting adjustments in market rates of interest. A t the
same time the policy of maintaining the ready availability of credit, to sustain
further expansion in economic activity, was reaffirmed.
The sterling crisis was a vivid reminder of the interdependent character of
the international financial system. It served to emphasize the sizable volume
of speculative capital flows that can develop when confidence in a key currency
begins to ebb away. The massive availability of credits under the defensive
arrangements that have been developed in recent years, and the speed with
which they can be mobilized, were also demonstrated. In this respect, short-term
credits advanced by central banks provided a flexible means of dampening dayto-day pressures. When the crisis deepened, the major industrial countries
quickly mobilized an unprecedentedly large $3 billion to back up Britain’s
determination to defend the pound sterling. At almost the same time a $1
billion drawing from the International Monetary Fund— the first involving the
General Arrangements to Borrow ratified in 1962— enabled the British to
pay off outstanding short-term credits from central banks. These actions clearly
indicated the strength and unanimity of the view that speculative attacks could
not be permitted to topple sterling and disrupt the international financial sys­
tem. The whole episode reemphasized the important role which international
credit facilities now play in supplementing “owned” international currency re­
serves— a role that will be further expanded if the proposed increase in the In­
ternational Monetary Fund quotas is adopted. Although the measures undertaken
to defend sterling against speculative attack served their immediate purpose,
Britain still had the problem of carrying through longer run adjustments that
would bring its international payments into equilibrium.
8




The dollar, to an even greater extent than the pound sterling, is a key currency,
used extensively as a vehicle in financing trade and payments and held by many
countries as a part of their international currency reserves. Thus, any threat
to sterling created a risk that speculative pressures might turn against the dollar,
particularly in the context of the cumulative record of substantial United States
balance-of-payments deficits over a seven-year period.

There was a direct

lesson in the British experience for the United States: namely, that continued
efforts to reduce the United States balance-of-payments deficit are essential.
In the light of the sterling crisis, it became more clearly recognized that no
Governmental policies, including monetary policy, could be formulated with­
out regard to the urgent problem of reducing the United States payments deficit.
In this respect, continuing Governmental efforts to economize on military ex­
penditures abroad and foreign aid (to the extent that such economies are con­
sistent with our international obligations), to encourage and strengthen the
export drive, and to maintain a vigorous but noninflationary economy at home
were all essential. As to monetary policy, the November rise in the Federal
Reserve discount rate put the world on notice that monetary policy was not so
closely bound by immediate domestic considerations as to be paralyzed in the
face of any potential external threat. Since the payments deficit was still large
as 1964 ended, and since the ready availability of bank credit to foreign
borrowers was an important contributing factor to the deficit, it was apparent
that for the period immediately ahead monetary policy might have to pay in­
creased attention to international considerations.
The rapidity with which the Federal Reserve discount rate could be changed
in response to the sterling crisis depended importantly upon the strength of the
domestic economy, itself influenced by the stimulus provided by the tax cut
early in the year. The possibility that, for balance-of-payments reasons, monetary
policy might for some period be flexible only in one direction— that is, in the
•direction of less easy credit— suggests that continued rapid growth of the do­
mestic economy may more than ever depend upon an imaginative use of other
Governmental policies.
The further extension of the relatively steady and sustained growth achieved
in the past four years will be a major challenge in 1965 and in subsequent
years. Only with substantial growth can the economy absorb into employment
a labor force that is likely to be increasing more rapidly than earlier. In
addition, the country faces the continuing problem of existing unemployment.
In many cases, retraining and better education will be vital in cutting into this




9

problem. There is also a generally recognized need, reflected in the Civil Rights
Act of 1964, for the end of discriminatory practices that in effect create arti­
ficial pockets of unemployment and poverty. However, retraining and educa­
tional programs and the end of discriminatory practices can all come to naught
if the economy grows too slowly to provide the necessary additional jobs.
The effectiveness of the 1964 tax cut illustrates one way in which fiscal
policy can provide a stimulus to economic growth. There are, of course, al­
ways risks of overstimulation. These are particularly acute in the case of fiscal
policy— since, under present procedures, over-all fiscal changes are generally
made only once a year and cannot easily be reversed if unforeseen develop­
ments occur. In this respect, the more open-minded climate of opinion on tax
policy, and on the Federal budget generally, that seems to have developed in
the last year or so may turn out to be one of the most important developments
of recent years. Hopefully, this may lead to a reexamination of present legisla­
tive procedures with a view to making fiscal policy more flexible.
The further extension of sustained growth, as well as the effort to reduce
the balance-of-payments deficit, depends importantly on the continuation of a
reasonable degree of price stability. This requires not only the avoidance of ex­
cessive stimulation from the demand side, but also the avoidance of those
cost-push pressures which arise when various groups of income recipients in­
crease their demands for income to an exorbitant extent. In pinpointing this
problem, the wage-price guideposts, first spelled out by the Council of Eco­
nomic Advisers in its January 1962 Annual Report, are playing a valuable
part in educating the public to the need to avoid wage increases that are in
excess of the over-all national average rise in productivity. They also indi­
cate why developments in the auto industry during 1964 were disturbing. Large
profits in the auto industry might have been an occasion for price reduc­
tions. Instead they contributed to wage settlements that were out of line with
the guideposts.

Clearly, it would have been in the public interest if large

profits had resulted in price reductions rather than in excessive wage increases
that build higher costs into the entire price structure. The spread of such a wage
pattern to industries with less favorable profit positions could unhinge prices,
and weaken— or eliminate— the contribution that price stability has been making
both to domestic growth and to the reduction of our balance-of-payments deficit.
In the coming year the flexible adaptation of domestic and international policy
measures to current and prospective developments, many still at best only dimly
discernible, will again be necessary.
10




While the goals of national economic

policy— maximum sustainable economic growth, a reasonable degree of price
stability, and the defense of the dollar— remain the same from year to year, the
actual measures adopted must be designed to meet specific situations.
The year 1965 and those beyond present both a challenge and an oppor­
tunity. The role of flexible and imaginative public policies in helping to bring
about the sustained economic advance of recent years certainly suggests that
opportunities for further improvement in economic performance should not be
underestimated. Such an improvement must include real progress on the balanceof-payments front. In meeting these problems, monetary policy will have an im­
portant contribution to make, as it did during 1964.




U

THE UNITED STATE S ECONOM Y AND
FINANCIAL M AR KETS IN 1 9 6 4
B usiness Conditions: A Y ear of A chievem ent
From the very beginning 1964 gave promise of being a banner year for the
domestic economy. Strong confidence in the outlook for the economy had be­
come increasingly widespread among consumers, businessmen, and economic
analysts as the economy built up increased forward momentum in the latter months
of 1963. The prevailing degree of optimism was further reinforced by the con­
tinued absence of significant imbalances, favorable prospects for a tax cut, and the
continuity of administration provided by President Johnson following President
Kennedy’s assassination. Uncertainties over the precise timing of, and response
to, the tax cut and worries about whether much further push could be forth­
coming from spending for automobiles and residential construction after their
strong performances in 1963 dampened little of this enthusiasm. Moreover, ex­
cept for some initial (and probably unwarranted) disappointment on the part
of those who expected an immediate surge in consumer spending subsequent to
the early March reduction in the Federal withholding rate from 18 per cent to
14 per cent, this over-all tone of confidence continued throughout the year. In­
deed, unfavorable news from South Vietnam, the usual unsettlements of a Presi­
dential campaign, and the November crisis in the pound sterling had little impact
on business expectations or performance. Increased concern, however, was
being voiced toward the year end over the possibility of a renewal of wage and
price inflation following the large wage settlement in the automobile industry and
selective increases in steel prices.
The degree to which the economy in 1964 actually made good on its promis­
ing beginning is reflected in the fact that gross national product (G N P )— the
total output of goods and services— amounted to $623 billion during the year,
a gain of $39 billion over 1963. While a part of this increase in the market
value of total output reflected a rising level of prices, the growth in real output
was still substantial (see Chart 1 ). In the first three quarters of the year GNP
valued at 1954 prices grew at an annual rate of 4.7 per cent and, though strikes
in the automobile industry greatly affected figures for total output in October
12




G R O S S N A T IO N A L P R O D U C T A N D IN D U S T R IA L PR O D U C TIO N .
B o th o f th e se
m e a s u r e s o f e c o n o m ic a c t iv it y s h o w e d s t e a d y a nd s iz a b le g a in s in t h e f ir s t
t h r e e q u a r t e r s o f 1 9 6 4 , b u t t h e a u t o m o b ile s t r ik e s t e m p o r a r ily d e p r e s s e d o u t ­
p u t in th e fo u r t h q u a r t e r o f t h e y e a r . F o llo w in g : t h e s e s t r ik e s , in d u s t r ia l p r o ­
d u c tio n r e b o u n d e d to a r e c o r d h ig h le v e l.

G N P is e x p re s s e d at a n n u a l ra te s an d in d u s t r ia l p r o d u c tio n is
e x p re s s e d a s p e rc e n ta g e s o f th e 1 9 5 7 - 5 9 a v e ra g e . D ata are
CHART 1

s e a s o n a lly a d ju s te d .

and November, strength in other sectors enabled the economy to post still an­
other gain in the final quarter of the year. Reflecting the general vigor of the
economy, the automobile industry, despite the strikes, finally surpassed the pre­
vious record for total car and truck production set back in 1955, and steel ingot
production reached a record tonnage 16 per cent above the year before.
Econom ic expansion over the first nine months of the year— whether meas­
ured by GNP or industrial production— was remarkably steady. GNP, valued
at current prices and expressed at annual rates, advanced by $10 billion in each
of the first three quarters, and the index of industrial production showed unusually




13

steady growth at an annual rate of 7.3 per cent. The automobile stoppages,
which began in the final week of September, had a minor effect on total in­
dustrial production that month, but cut sharply into October output and were
still being reflected in the November production total. By December, however,
the automobile industry was back in full operation, and the production index
rose to a record level closely in line with the growth trend of the pre-strike
months.
The continued growth of the economy in 1964 carried real GNP to a level
fully one-fifth above the cyclical trough in the first quarter of 1961. The up­
ward pace of the current cyclical expansion has matched or bettered that of
the two preceding business upswings over the comparable periods of duration.
And yet— because the present expansion has remained so orderly, broadly based,
and generally free from destabilizing speculative excess— it has gone beyond the
length of the two earlier upswings and has resulted in a far larger over-all gain
in output (see Chart 2 ). Incomes have likewise increased more in the current
expansion than in the preceding two. Indeed, total disposable personal income
(adjusted for price increases) has risen since early 1961 by almost 20 per cent,
or more than double the increase during the previous expansion. With a major
boost from the tax cut, real per capita disposable personal income rose by almost
5 per cent in 1964, which brought the total increase since early 1961 to 13 per
cent and the annual average rate of gain to 3.3 per cent.
Over the long run, of course, rising incomes and standards of living must
ultimately spring from increases in output per worker.

Substantial gains in

productivity have indeed been a major source of the rapid increases in real per
capita income in the current expansion. Real GNP per person employed has
since early 1961 grown at an average annual rate of 3.5 per cent, significantly
above the average yearly growth in the two preceding expansions. Moreover,
productivity continued to advance at a relatively rapid pace in 1964, contrary
to the pattern of previous postwar expansions when productivity gains slowed
markedly after the early years of the recovery.
While rising productivity is essential for domestic growth and for the improve­
ment of our competitive position in world markets, it may of course also retard
growth in employment. Part of the nation’s continuing unemployment problem
over the past several years undoubtedly is related to the unusually fast improve­
ments in productivity coupled with large increases in the labor force. It should
be emphasized, however, that even with rapid productivity gains unemploy­
ment becomes less of a problem if aggregate demand is increasing rapidly. In

14




E C O N O M IC P R O G R E S S . L a r g e ly b e c a u s e o f th e e x c e p tio n a l le n g th of th e c u r ­
re n t e x p a n sio n , m o st m e a s u r e s of g ro w th h a v e r e g is t e r e d g r e a t e r o v e r- a ll
a d v a n c e s th an w a s th e c a s e in th e tw o p re v io u s c y c lic a l r is e s . R a p id g a in s in
p r o d u c tiv ity d u rin g t h is b u s in e s s a d v a n ce , h o w e v e r, h a v e te n d e d to m o d e ra te th e
g a in s in em p lo y m e n t d e s p ite th e s u b s ta n tia l g ro w th o f g r o s s n a tio n a l p ro d u ct.
PERCENTAGE INCREASE IN:
Per cent

CHART2

P ro d u ctivity is m easured by dividing GNP in 1954 do lla rs by
total em ploym ent. Percentages shown are increases from
troughs ingeneral business a c tivity ,1954-111 and 1958-11, to the
follow ing business-cycle peaks, and from thetrough in 1961-1
to 1964-IV. All data are seasonally adjusted.

1964, for example, the strong rise in economic activity, stimulated by the tax
cut and facilitated by monetary policy, resulted in an increase of almost 1.8 mil­
lion in the number of Americans gainfully employed. This increase in jobs was
sufficient to absorb all the growth in the labor force that occurred during the
year, as well as to bring about a significant reduction in the excessively high level
of unemployment (see Chart 3 ). As a result, unemployment in 1964 averaged less
than 4 million persons for the first time in four years, and the average unemploy­
ment rate in the fourth quarter of the year fell to 5.0 per cent for the first time
since 1957. The unemployment rate among married men was reduced to a sevenyear low, and the rate among teen-agers remained about constant despite the




15

rapid growth in the number of young people in the labor force. Moreover, with
the new job opportunities well distributed across the country, the number of
major areas in the Labor Department’s category of “ substantial unemployment”
fell to twenty-nine by the end of 1964 from thirty-eight a year earlier.
But, in spite of these more favorable trends in employment and unemploy­
ment, there remains the challenge of creating new jobs for the substantial number
of workers who are still out of work or who may be idled by future changes in
technology, and for the large and increasing number of young people who enter
the work force every day. With rapid changes in industrial technology, a greater

U N EM PLO YM ENT.
T o t a l u n e m p lo y m e n t d e c lin e d in 1 9 6 4 , b u t r e m a in e d h ig h
b y h is t o r ic a l s ta n d a r d s . T e e n - a g e u n e m p lo y m e n t c o n t in u e d t o b e p a r t ic u la r ly
s e r io u s , b u t j o b le s s n e s s a m o n g m a rr ie d m e n w a s r e d u c e d to a s e v e n - y e a r lo w .

1957

1958

1959

1960

1961

19 62

19 6 3

19 6 4

A ll d a ta are q u a rte rly a v e ra g e s o f s e a so n a lly adjusted

CHART3




m o n th ly fig u re s . S h a d e d are a s den ote pe rio d s of
re cessio n .

effort will be required to encourage both general education and suitable job train­
ing and retraining so that employees will be able to fill the jobs that do open up.
And yet, progress along these lines will not suffice unless it is accompanied by
rapid and balanced growth of job opportunities for all those appropriately
trained.

M ainsprings o f P rogress in 1 9 6 4

The Federal tax cut, which was designed in important part to stimulate consumer
spending, appears to have been largely successful in achieving that objective.
Consumers provided the major forward thrust to economic activity in 1964:
the increase in their expenditures accounted for almost three fourths of the rise
in GNP.
As expected in many quarters, there was some delay before consumers ad­
justed their spending habits to the higher level of take-home pay that began in
early March. Consumption spending rose markedly in the first quarter of the year,
probably in anticipation of the tax reduction. But spending lagged the rise of
disposable income as the cut became fully effective in the second quarter, and
consumer savings rose sharply. The moderate slowing at that time in the growth
of outstanding instalment credit indicated that consumers initially used some of
the tax cut both to reduce their debts and to buy more items for cash. Also, sub­
stantial additions to liquid assets were apparently made, as is suggested by the
growth of savings deposits in the face of a very large ($1.2 billion) public com­
mon stock issue by the American Telephone and Telegraph Company. But by
the third quarter of the year consumers had brought their spending into a more
normal alignment with income. The savings-income ratio returned to a level close
to that prevailing in 1963, and consumers began once again to make fairly exten­
sive use of instalment credit. Personal saving did rise again to an unusually high
rate in the fourth quarter of the year, but apparently this reflected largely the
strike-caused shortage of new automobiles. Indications thus are that consumers
adjusted their spending to the cut in personal taxes rather quickly, which was
gratifying, but the very fact that the adjustment may well have been in good part
completed by the end of 1964 raised some doubts that the tax cut would, by itself,




17

have much further effect in stimulating consumption spending.
Spending on new plant and equipment facilities also provided a strong stimulus
to economic activity in 1964. Businesses in virtually all major industry groups
modernized existing facilities and added new capacity in response to generally
rising sales and profits. Though surveys of business plans taken in late 1963 had
pointed to only a moderate increase in capital spending, the steadily improving
business outlook induced upward revisions in these plans, and by the final
quarter of 1964 plant and equipment spending was running at a rate 13 per
cent higher than in the closing quarter of 1963. Capital expenditures in the
automobile, steel, and capital goods producing industries were particularly large,
reflecting strong— and in some cases record— demand and profits in these
sectors.
Expansion and modernization of industrial capacity took place in 1964 on a
substantial scale, despite the fact that utilization of existing capacity was
pressing on practical limits in only a few areas. Some key industries did
appear to be operating near the normal limits of their capacity in the latter
part of the year— notably, aluminum, textiles, automobiles, heavy equipment,
and some segments of the steel industry. Yet, a McGraw-Hill survey indicated
that manufacturers in September were on average still operating at only 86 per
cent of capacity, and other similar measures suggested much the same conclu­
sion. This was 6 percentage points below what manufacturers have termed their
preferred rate, and only slightly higher than the rate of capacity utilization a year
earlier when sales were running much lower. Although there were some indi­
cations that capacity utilization increased somewhat toward the year end, the
additions to manufacturing facilities in the past year were sufficient to main­
tain a substantial margin of unutilized capacity in many industries and to pre­
vent bottlenecks from developing in others.
The continued existence of some excess capacity in manufacturing may well
have played an important role in minimizing destabilizing factors in the fourth
year of the economic advance. Ample capacity helped to maintain short delivery
times on new orders and to foster keenly competitive pricing. Thus, speculative
inventory buying was again largely absent, and additions to business inventories
were moderate and smaller than in 1963— despite stockpiling of steel late in
1964 as a precaution against a possible industry strike in the spring of 1965.
Net inventory accumulation in manufacturing amounted to only $2.6 billion,
with the result that the ratio of inventories to sales for manufacturers as a group
declined further to near-record lows.
18




The substantial rise in profits and in depreciation allowances permitted cor­
porations and other businesses to finance their increased capital expenditures
with relatively modest recourse to outside financing. Bond financing, in par­
ticular, was unusually moderate given the substantial rise in fixed investment.
Gross new bond issues (placed both publicly and privately) by nonfinancial cor­
porations— the group responsible for most capital spending— actually fell 8 per
cent short of 1963. Furthermore, although the total volume of funds raised
through new stock issues advanced markedly from the low volume of the
previous year, the rise was due almost entirely to the large issue marketed in
the spring by the American Telephone and Telegraph Company and can, there­
fore, hardly be considered as reflecting a widespread rise in the demand for
outside equity capital.
As against these relatively unchanged demands in the corporate securities
markets, bank borrowing by business increased substantially. Total commer­
cial and industrial loans advanced by almost 11 per cent. This was still a mod­
erate rate of increase by comparison with some earlier periods of rapid business
expansion, such as 1955 and 1956; yet it represented a significant change from
the three prior years of the current expansion when the increases had been on
the order of 4 per cent to 9 per cent. Part of the rise this year reflected greater
bank lending to foreign businesses, but domestic loan demand also strengthened.
Term borrowing continued at a high level, which suggested that businesses were
using much of these funds to finance longer term working capital needs and to
provide transitional financing of increased capital expenditures. Their decision
to use bank credit to satisfy much of these needs, rather than to tap the long­
term capital markets, may have reflected anticipations that internally generated
funds would continue to grow rapidly and help provide for repayment of these
bank loans.
The increases in consumer and business spending were far more than sufficient
to offset some decline that developed in residential construction activity during
1964. Signs of weakness in this sector of the construction industry had become
visible early in the year when housing starts dropped, and by the spring months
outlays for residential construction began to recede. The downturn in residential
building activity continued throughout the remainder of the year, and in the
fourth quarter outlays were 7 per cent below the peak first-quarter level. How­
ever, construction industry analysts remained optimistic, as the continued ad­
vance in other construction helped to ameliorate the effects of the decline in
residential building. Moreover, some of the leading indicators of housing con­




19

struction showed signs of stabilizing toward the year end. Many observers
voiced confidence that housing demand would soon catch up with the moderate
amount of overbuilding— especially in apartment houses— that had occasioned
the weakening in housing starts. This view found additional support from
trends in the mortgage market where terms and credit availability remained
favorable to both builders and ultimate buyers of residential property. Indeed,
the heavy deposit flows this past year into savings institutions and commercial
banks again resulted in aggressive competition among these lenders for mortgage
investments, and while interest rates and other mortgage terms remained un­
changed on average, some scattered rate reductions occurred late in the year,
especially in the Northeast. The construction industry also found cause for
optimism in the impending sharp jump over the coming years in the marriage­
able age group, resulting from the high postwar birth rate.
The Federal Government’s most significant contribution to the economic ad­
vance of 1964 was undoubtedly the tax cut. This cut, undertaken in the face of
an existing deficit, represented a new departure in fiscal policy, and was judged
more likely to achieve an eventual budget balance at a satisfactory employment
level and growth rate than any of a number of possible alternatives. Economic
developments, as they unfolded during the year, suggested that this judgment
was likely to prove correct and that further tax cuts— such as the reduction now
proposed for excise levies— might well provide the marginal stimulus, should it
be needed, to carry the economy through a fifth consecutive year of expansion.
Meanwhile, Federal Government expenditures on goods and services were again
kept under close control. Their $0.4 billion advance exerted little economic
push in 1964, and some cutbacks in defense spending fell with considerable im­
pact on a few industries and regions. The aerospace industry on the West Coast
was particularly hard hit.
The long-term rise in the spending of state and local governments continued
during the year just ended. Their purchases rose by $4.7 billion, or 7.8 per
cent, during the year. The faster growth of state and local spending than that
of the Federal Government has been a striking feature of the public sector in
recent years. The demand for schools, hospitals, water supplies, and many other
facilities traditionally supplied by these local governments has grown with the
population boom. Meanwhile, the tax revenues of these governmental entities
have continued to fall short of spending. The appropriate method of financing
public activities at the non-Federal level in the face of this shift in the type of gov­
ernmental services demanded has become one of the nation’s pressing problems.
20




P R I C E S T A B I L I T Y : G R O W I N G C O N C E R N L A T E IN T H E Y E A R .

In terms o f

over-the-year changes in the broader price indexes, the price record in 1964
was one of a general continuation o f the reasonable stability that had charac­
terized the preceding six years. Prices paid by consumers at retail actually rose
slightly less than in the previous year, while advances in industrial whole­
sale prices did little more than to extend the slight uptrend that commenced
in early 1963

(see Chart 4 ). A sharp upward movement did occur, how­

ever, in the prices of some industrial raw materials.

This trend reflected

both the worldwide increase in the raw materials consumption of industrial
countries

and some supply

difficulties— including political disturbances— in

primary-producing countries, especially those that produce nonferrous metals

PR IC ES .
B o t h c o n s u m e r and in d u s t r ia l w h o le s a le p r ic e s r e m a in e d r e a s o n a b ly
s t a b le d u r in g 1 9 6 4 . T o w a r d t h e y e a r e n d , h o w e v e r, s p e c if i c p r ic e c h a n g e s
t h r o u g h o u t t h e e c o n o m y t e n d e d to b e m o re f r e q u e n t ly o n t h e u p s id e .

CHART 4




1957-59=100 fo r each index.

21

such as copper, lead, and tin. But supply conditions in these markets were
showing some improvement toward the year end, and prices were tending to
recede somewhat.
A major factor contributing to the general stability of finished goods prices
this year was the large further gains in productivity mentioned earlier. In manu­
facturing, for instance, output per man-hour increased by more than 4 per cent
during 1964, exceeding the gain in money wages and fringe benefits paid to
manufacturing employees. Consequently, labor costs per unit of output declined
over the year as massive injections of new and highly efficient capital equipment
helped to advance worker productivity.
Despite the still generally favorable trends in the indexes of prices and wages
in 1964 as a whole, developments in the final months of the year brought con­
cern about whether stability could be maintained in the future. To be sure,
occasional price declines and cancellation of announced increases continued to
underscore the presence of strong competition in many markets— e.g., prices
of electronic computers and color television sets fell, and higher quotes on
aluminum siding were rescinded. But the business news seemed to be increas­
ingly filled with reports of actual price increases and rumors of more in the
offing. The steel industry continued to raise prices on a selective basis and, in
December, advanced the quotation on galvanized sheet by 2 to 3 per cent. Prices
of aluminum ingots and some fabricated products were upped in November, and
as the new year began sulfuric acid— the most widely used industrial chemical—
increased in cost.
The developing concern over future price stability was given additional im­
petus by the large wage settlement in the automobile industry. This settlement,
reflecting the union’s desire to capture what it considered to be a fair portion
of the industry’s high profits, substantially exceeded the Administration’s wage
guideposts and raised fears that rising labor costs would also contribute to in­
flationary tendencies. Though the automobile companies absorbed the higher
labor costs without raising their prices, it was generally recognized that a spread­
ing of this wage pattern to other, less profitable, industries would put consider­
able upward pressure on prices. And by the year’s end, many observers felt that
the chances of such a spreading, at least to the steel industry, had been enhanced
as a result of the selective steel price increases announced in the final weeks of
the year.
But, despite the several unfavorable developments during the year, it was
far from clear that the economy had broken out of the pattern of reasonable
22




price stability. The continued large increases in productivity, a persisting high
rate of unemployment, considerable excess capacity in industry, and import
competition all remained strong forces tending to restrain inflationary price
and wage decisions. Nonetheless, it seemed apparent at the year end that
upward price pressures had become stronger than heretofore and that devel­
opments on this front would require careful watching in the months ahead. It
is thus to be hoped that pleas for continued restraint in wage and price deci­
sions on the part of unions and managements will not go unheeded, so that
the balance that has characterized the growth of economic activity over the past
several years will not come to an end. More rapid increases in wages and prices
could endanger the chances for further extension of the current business up­
swing and hinder efforts to reduce the nation’s balance-of-payments deficit.

M onetary Policy in 1 9 6 4 :
Continued Support o f Growth

Monetary policy in 1964 continued to encourage domestic economic growth.
The policy framework, to be sure, did undergo a change of emphasis late in the
summer as the Federal Reserve began to supply reserves somewhat more reluc­
tantly, and again in late November as defensive measures were taken immedi­
ately following the rise in the British bank rate. Both these moves, however, were
motivated predominantly by the need to preserve the international position of
the dollar, and credit to domestic borrowers remained readily available. Thus,
the Federal Reserve System in 1964, as in the previous years of the current
business expansion, facilitated a high rate of growth in bank credit and the
money supply, and the banking system continued to play a key role in promot­
ing the smooth flow of record amounts of funds through the financial markets.
The basic posture of policy for much of 1964 was actually established in
July of 1963 when the Federal Reserve Banks increased the discount rate from
3 percent to V A percent and when the Board of Governors revised Regulation Q
to increase to 4 per cent the maximum rate of interest that member banks could
pay on time deposits (including negotiable certificates of deposit) with maturi­
ties from ninety days to one year. From that time on, also, new reserves were




23

supplied to the banking system a little more reluctandy than before, with the
result that net free reserves averaged in the neighborhood of $100 million as
excess reserves declined and member banks found it necessary to resort to more
frequent borrowing from the Federal Reserve Banks. The money and credit
markets quickly adjusted to the mid-1963 shift in monetary policy.
As the year 1964 opened, the Treasury conducted an advance refunding in
an atmosphere of general confidence in the tenability of existing rate levels.
Around mid-February, however, market participants became more cautious,
feeling that the passage of the Federal income tax cut and a possible rise in the
British bank rate (which materialized on February 27) might lead to a shift in
monetary policy away from ease. Expectations of tighter credit conditions began
to weaken following the tax cut, however, as it became apparent that earlier fears
of a possible “overheating” of the economy had not been justified. The con­
tinued orderly advance of the economy, it was soon realized, was unlikely to re­
sult in either sharply increased credit demands or further major credit policy
moves. Interest rates on intermediate and longer maturities receded through
April and May, and market conditions remained generally unchanged there­
after until the late summer when the Federal Reserve shifted its policy stance
slightly with a view to stiffening domestic short-term rates. The System allowed
average free reserves to decline slightly and a firmer tone to develop in the
money market. The ample flow of savings into the long-term markets prevented
any spillover of this modest move into the capital market, where funds continued
to be readily available to borrowers.
In November, the System found itself confronted with the need to take fur­
ther action as the sterling crisis forced the Bank of England to raise its discount
rate from 5 per cent to 7 per cent. Faced with the distinct possibility that higher
interest rates abroad might further intensify the already large capital outflows
from the United States, and with the additional possibility that speculative
pressures against the pound might shift to the dollar, the System acted to in­
crease domestic money market rates. On November 23, the day of the rise in
the British bank rate, this Federal Reserve Bank and four others announced in­
creases in their discount rates from 3lA per cent to 4 per cent, and the seven
remaining Federal Reserve Banks completed similar action by November 30.
The Board of Governors also took steps, through revisions in Regulation Q, to
permit greater commercial bank competition in the international and domestic
markets for time and savings deposits. On time deposits of thirty- to ninety-day
maturity, the maximum interest rate payable by member banks was increased
24




from 1 per cent to 4 per cent— a very sharp change which reflected the special
need to permit banks to compete internationally in this important segment of the
money market. Other deposit rate changes permitted through the revision in
Regulation Q included an increase from 4 per cent to AVi per cent in the maxi­
mum rate payable on time deposits (including certificates of deposit) of longer
than ninety-day maturity, and an increase from 3 Vi per cent to 4 per cent in the
maximum rate payable on savings deposits left with banks for less than one year.
Because of strong credit demand and the firm money market atmosphere thus
created, the System in 1964 had somewhat less need than in the years just pre­
ceding to be concerned about the immediate impact of its day-to-day operations
on short-term interest rates. Only during a few intervals were System actions
and Treasury debt management operations specifically directed at shoring up
short-term rates for balance-of-payments reasons. A portion of the year’s reserve
needs, as in the preceding years, was supplied through net purchases of Treas­
ury coupon securities, including a few occasions when it was desired to mini­
mize the impact of reserve injections on Treasury bill rates. Late in the year,
after the rise in the discount rate to 4 per cent, the System made repurchase
agreements with Government securities dealers at rates below the discount rate
for the first time since March 1962. This action served to help counter seasonal
pressures on rates.
The continued large flow of savings into commercial banks and the ready
availability of reserves was reflected in a further substantial expansion of bank
credit. Total commercial bank credit— including both loans and investments—
expanded by an estimated $20.2 billion in 1964. This increase amounted to 8
per cent, equaling the average gains that occurred in the first three years of this
business expansion.
As a counterpart to the past year’s rapid bank credit expansion, commercial
bank demand and time deposits rose sharply, and the money supply1 increased
sizably (see Chart 5). The rise in the money supply of 4 per cent matched the
1963 increase. On the other hand, bank time deposit growth, while amounting
to nearly 13 per cent, was less than that of the three previous years. The slowingdown in what nevertheless remained a high rate of growth of time deposits may

l The money supply is defined to include demand deposits at commercial banks other than those of

the United States Treasury (and certain other net adjustments) plus currency held by the nonbank
public.




25

TH E M O N EY S U P P L Y A N D C O M M E R C IA L B A N K TIM E D EPO S ITS .
Each of
t h e s e fin a n c ia l s e r ie s c o n t in u e d to g r o w in 1 9 6 4 . W h ile tim e d e p o s it g r o w th
s lo w e d , c o m p a r e d w ith t h e v e r y r a p id a d v a n c e o f t h e tw o p r e v io u s y e a r s , t h e
m o n e y s u p p ly e x p a n d e d a t a b o u t t h e s a m e r a te a s in 1 9 6 3 .

III
1963
CHART 5

1962

1963

1964

All data are seasonally adjusted.

have reflected in part a temporary deterioration in the competitiveness o f com ­
mercial banks in the wake o f rate increases at other savings institutions early
in the year. Time deposit growth accelerated in the last quarter of the year.
The broader trends in the components of bank loans and investments in 1964
included a net decrease in the holdings of United States Government securities,
a decline in purchases o f “ other securities” (mostly obligations o f state and local
governments), and an acceleration of the growth of many categories o f loans,
including business loans. The growth of business loans, at an estimated 11
per cent, was somewhat more rapid than in any previous year o f the current
26




expansion, although it fell far short of the years 1955-56 when the rise averaged
20 per cent.
The net effect of these bank portfolio changes was to reduce somewhat the

T H E LIQ U ID ITY PO S ITIO N O F T H E P U B L IC .
M e a s u r e d r e la t iv e t o a g g r e g a t e
e c o n o m ic a c t iv it y , t h e p u b lic ’ s liq u id it y p o s it io n r e m a in e d g e n e r a lly u n c h a n g e d
o v e r th e y e a r s a v e f o r an in c r e a s e in th e fo u r t h q u a r t e r w h e n t h e a u t o m o b ile
s t r ik e s lim it e d t h e a d v a n c e o f g r o s s n a tio n a l p r o d u c t . W it h th e e x c e p t io n o f th e
r a t io o f t h e m o n e y s u p p ly t o G N P , w h ic h h a s b e e n t r e n d in g do w n w a rd f o r a lo n g
t im e , t h e s e liq u id it y m e a s u r e s r e m a in e d n o t onEy a b o v e th e le v e ls a t t h e 19 6 1
r e c e s s io n t ro u g h , b u t a ls o w e ll a b o v e th e le v e ls a t th e p e a k o f e c o n o m ic a c t iv it y
in th e p r e c e d in g b u s in e s s c y c le .

The money supply-dem and deposits and currency in the hands of the nonbank public--and
the money supply plus time deposits at com m ercial banks are quarterly averages of daily
figures. Total liq u id a sse ts held o utsid e the banking system .w h ich in c lu d e the money
supply, tim e deposits, sa ving s d e p o sits and shares, and United States Governm ent
sa v in g s bonds and m arketable se c u ritie s due in le ss than one year, are averages of the
fig u re s for the la st W ednesday of the month p receding, and of the three m onths in each
CHART 6




quarter. All data are se a so n a lly adjusted. Shaded areas d e n o te p e rio d s o f recession.

27

liquidity of commercial bank assets. With loans increasing more rapidly than
investments, the average loan-deposit ratio for all commercial banks climbed to
59.5 per cent at the end of 1964 from 57.3 per cent a year earlier. The need
for bank liquidity, however, may also have undergone some decline as time and
savings deposits, which are less volatile than demand deposits, again accounted
for a high proportion of the total deposit increase. Time and savings deposits
amounted to 42.4 per cent of bank deposit liabilities at the end of 1964, sig­
nificantly above the end-of-1963 level of 40.6 per cent.
The growth of deposits and other financial claims associated with the ample
flow of credit to corporations and individuals through the banking system and
financial intermediaries provided large additions to the liquidity of the nonfinancial sector. Nevertheless, because of the continued strong business advance,
there was little further increase in the public’s broadly measured liquidity posi­
tion in relation to economic activity. The liquidity of the nonbank public can,
of course, be measured in various ways, and no single measure is the right one
for all purposes. But, after allowing for the fourth-quarter disturbance caused
by the automobile strikes, it appears that all the principal liquidity ratios sta­
bilized over the year (see Chart 6). Thus, the ratio of the money supply to
GNP continued to decline slightly over the first half of 1964 but remained
roughly unchanged thereafter as the money supply grew more rapidly. Among the
broader measures of the nonbank public’s liquidity, the ratio of the money supply
plus bank time deposits to GNP edged up only very slightly during 1964 and that
of total liquid assets to GNP remained virtually unchanged until the fourth quar­
ter. (Total liquid assets are defined to include, along with the money supply
and commercial bank time deposits, holdings of mutual savings bank deposits,
savings and loan shares, savings bonds, and marketable United States Govern­
ment securities maturing within one year.) This leveling-off in the principal
liquidity ratios reflected a significant change from earlier years of this expan­
sion when broadly measured liquidity grew rapidly, but the 1964 trends con­
trasted even more sharply with later years of earlier expansions when the broader
liquidity ratios declined.

28




M onetary Policy in the Early S ix tie s—
A Longer Look

Monetary policy problems and actions in 1964 were basically similar to those
of other recent years. What has been required of policy throughout has been
an effective contribution to the financing of the economic expansion together
with the achievement of a more competitive structure of money market rates
internationally. Essentially, this has involved the gradual elevation since late 1960
of short-term interest rates— as similar rates in foreign financial centers rose—
while encouraging the flow of funds into the domestic long-term markets. It may
therefore be worthwhile to take a longer look at policy since the beginning of the
expansion and to attempt a tentative if only partial evaluation of its effectiveness.
The efforts to shore up short-term rates have included some System purchases
of Treasury coupon issues. But these purchases since the first half of 1961 have
probably made only a relatively modest, although useful, contribution to the
achievement of System objectives. Treasury debt management policies have also
been helpful.
Among other System moves, the raising of the Federal Reserve discount rates
in July 1963 and in November 1964 has been of fundamental importance in
achieving the desired objectives, as has been the gradual and slight turn from
supplying reserves very freely. Meanwhile, increases in the maximum interest
rates payable on commercial bank time deposits have allowed the commercial
banking system to pay interest on time deposits at rates in line with other,
including international, short-term rates. Such deposits, including negotiable
certificates of deposit, have in effect become another money market instrument,
competing for— and absorbing large amounts of— short-term funds. This devel­
opment, in turn, has been a key factor in sustaining short-term rates.
At the same time, the unprecedentedly large inflow of time and savings de­
posits at higher rates that has accompanied the raising of the ceilings on time de­
posit rates has led commercial banks to seek out more remunerative loans and
investments to protect their profit margins. The sharp rise in bank lending to
foreigners has been one of the less favorable consequences of this search for
profitable outlets for funds. On the other hand, the banks have also purchased
large amounts of mortgages and of state and municipal securities. This has
helped channel record amounts of domestic savings into areas where the ready
availability of funds at favorable rates can make a substantial contribution to
spending on goods and services.




29

T R E N D S IN T H E M A T U R I T Y S T R U C T U R E A N D L E V E L S O F I N T E R E S T R A T E S .
S in c e t h e f ir s t h a lf o f 1 9 6 3 , in t e r e s t r a t e s h a v e in c r e a s e d c o n s id e r a b ly in t h e
m o n e y m a rk e t, b u t lit t le o r n o t a t a ll in th e lo n g e r te r m a re a . R a te s o n lo n g ­
t e r m U n it e d S t a t e s G o v e r n m e n t a nd c o r p o r a t e s e c u r it ie s h a v e m o v e d up s lig h t ly ,
b u t r a t e s o n m o r t g a g e s h a v e h e ld v ir t u a lly c o n s t a n t . M o r e o v e r , y ie ld s o n s t a t e
and lo c a l g o v e r n m e n t o b lig a t io n s h a v e r e m a in e d s t e a d y s in c e m id - 1 9 6 3 a n d ,
lik e y ie ld s o n m o r t g a g e s , re m a in b e lo w t h e ir le v e ls a t t h e b e g in n in g o f t h e
c u r r e n t e x p a n s io n .

CH ART7

30




T h e y ie ld -v e rsu s-m a tu rity c u rv e s w e re d e v e lo p e d a tth is B ank
by draw ing sm ooth lin e s th ro u g h th e sc a tte r o f a ctu al m arket
y ie ld so n Un ited S ta te s G o v e rn m e n to b lig a tio n s on the da te s
show n. The tim e s e rie s p anel show s m o n th ly average
m a r k e tr a te s fo r a lls e rie s .

The effects of monetary and debt management policies aimed at lifting short­
term interest rates without correspondingly increasing long-term rates are re­
flected in the behavior of the term structure of interest rates on United States
Government obligations following the policy changes in July 1963 and again in
the late summer and November of 1964 (see Chart 7). The effect of the July
1963 policy actions may be measured by the change in the interest rate relation­
ships from early May 1963 to July 1964. During this period, ninety-day bill
rates increased by roughly 58 basis points while rates on long-term United States
Government securities moved up by only about 15 basis points. The policy ac­
tions of the last half of 1964 were associated with a further 38 basis-point rise
in short-term rates from July 1. 1964 to the end of December, but with virtually
no change in long-term rates.
The narrowing of the spread between short-term and long-term interest rates
on United States Government securities, moreover, may understate the flatten­
ing of the yield curve for interc'U rates in general, as a substantial increase in the
supply of long-term Treasury bonds, brought about by advance refunding opera­
tions, has tended to push their yields up. Thus, Government bond yields have
not been representative of most other long-term rates, which have either held
stable or increased considerably less. Indeed, rates on high-grade corporate bonds
remained virtually unchanged between early 1961 and late 1964 (see Chart 7 ).
Moreover, rates on state and municipal securities actually moved down slightly,
as did mortgage rates, reflecting in part greater bank participation in these
markets. In contrast, sharp rises in long-term rates took place during the busi­
ness expansions of the 1950 s,
In summary, financial developments during the current expansion suggest
that Federal Reserve policy has successfully promoted greater tirmness in the
money markets without interfering with favorable borrowing conditions in the
longer term credit markets, which have basically been generated by a growing
volume of savings It has thus been possible for monetary policy to contribute,
to some extent, toward the solution of the balance-of-payments problem while ac­
tively continuing to foster economic growth. Clearly, however, there are limits
to this process, given both the relationship between short-term and long-term
rates that has developed and the fact that ready credit availability has contributed
to sizable capital outflows.




31

THE INTERNATIONAL ECONOM Y IN 1 9 6 4

The year 1964 was one of progress for the world economy, mixed with ample
reminders of the numerous challenges at hand. The stability of the international
monetary system was put to severe tests, and these tests were met. The United
States balance-of-payments deficit remained too large. Moreover, advance to­
ward self-sustaining growth in the less developed countries was still difficult to
achieve despite more progress in some cases than in other recent years.
Drastic external adjustments were required in some countries. The United
Kingdom took stern action late in the year to deal with a serious crisis. With
the help of massive credits made available by central banks, the United States
Government, and international agencies, the attack on sterling was halted and
Britain was thus given time to solve its underlying payments problems. Similarly,
international cooperation helped stop a speculative attack on the Italian lira
early in the year. Both cases demonstrated the determination and ability of major
countries to defend the international monetary system.
Existing financial arrangements among nations were further developed during
the year. In particular, the International Monetary Fund (IMF) was put to un­
precedented use by major industrial countries. In the meantime, the whole in­
ternational monetary mechanism was undergoing searching scrutiny to assess its
present status and to weigh its future needs.
Economic activity in the developed nations advanced further, with many
countries reaching record levels of production, income, employment, and trade.
In a number of cases the pace of growth proved again incompatible with price
stability, and restraining measures were required. Many underdeveloped coun­
tries also were able to show modest economic progress; in several cases, this
improvement stemmed from effective adjustments of policy to the requirements
of growth with stability. Some recent economic developments in the Communist
part of the world— such as increased East-West trade and greater attention to
consumers’ needs within the Soviet bloc— may turn out to be of long-lasting
importance, although they are not specifically covered in this Report.
32




The United S ta te s P aym ents Balance —
The Problem Rem ains

The 1964 United States balance-of-payments deficit continued to be large at
$3.0 billion, as against $3.3 billion in 1963, and it was clear that major efforts
would still be needed to bring about the required external balance.2 The sub­
stantial improvement which began in mid-1963 continued only into early 1964;
thereafter the deficit widened again, especially in the fourth quarter (see Chart
8), as enlarged capital outflows reduced the effect on the over-all deficit of the
progress achieved in several other important balance-of-payments sectors.
An improvement of about $2 billion in the current account was one of the
bright spots of the past year. A part of this better performance can be traced to
such items as rising earnings on earlier direct investments abroad; repatriations
of these earnings apparently passed the $3.5 billion mark in 1964. The main
factor, however, was a larger merchandise trade surplus which rose by $1.5 bil­
lion to $6.5 billion. (As in 1963, about $2.8 billion of our exports represented
shipments under Government aid programs.) The increase in commercial ex­
ports was substantial and outpaced the rise in imports, although imports grew
at a more rapid rate than GNP in 1964.
The broadly based expansion of exports has indeed been one of the encourag­
ing developments of the 1960’s. Capital goods exports have shown an impres­
sive rise, particularly to the major European countries and to our two largest cus­
tomers— Canada and Japan. Exports of industrial materials and manufactured
consumer goods have also advanced, although not so sharply. Agricultural ex-

2 In the official accounts presented by the Department of Commerce, three distinct over-all balances

are presented. The deficit on regular transactions (as noted above at $3.0 billion in 1964 and $3.3
billion in 1963) includes “above the line” all foreign transactions of United States residents plus all
transactions arising from the regular foreign activities of the United States Government, notably
foreign aid and military expenditures. This definition provides the broadest measure of the over-all
balance-of-payments problem and is the one used in the discussion in this Report. In recent years,
the United States Government has negotiated with other industrial nations a series of special trans­
actions, such as debt and military prepayments and sales of nonmarketable Treasury debt obliga­
tions, which effectively help finance the deficit on regular transactions. Two alternative measures of
the deficit—which include some or all of these Government transactions “above the line” as inflows
of foreign capital—are also presented in the official accounts. These two measures are estimates of
the change in the United States liquidity position after allowing for all or part of the specially nego­
tiated transactions; they differ from one another in their treatment of those Treasury borrowings
from foreign institutions that the holder can convert into cash at relatively short notice. Since special
transactions were smaller in 1964 than in 1963, the deficit on regular and all special transactions was
$2.4 billion in 1964 as against $1.9 billion the year before. The deficit on regular and all special
transactions except convertible, nonmarketable Treasury bonds was $2.8 billion in 1964 and $2.6
billion in 1963.




33

M A JO R C O M P O N E N T S O F T H E U N IT ED S T A T E S B A L A N C E O F P A Y M E N T S .
T h e U n it e d S t a t e s b a la n c e on r e g u la r t r a n s a c t io n s s h o w e d a s lig h t im p r o v e ­
m e n t in 1 9 6 4 o v e r th e p r e v io u s y e a r . T h is r e f le c t e d a la r g e r t r a d e s u r p lu s — as
e x p o r t s in c r e a s e d s h a r p ly — a nd a r e d u c t io n in G o v e r n m e n t e x p e n d it u r e s a b ro a d .
T h e s e im p r o v e m e n t s , h o w e v e r, w e r e a lm o s t e n t ir e ly o f f s e t b y in c r e a s e d p r iv a t e
c a p it a l o u tflo w s .

irm frn z n a s
-2

J l l LU1i |U I IUHJJI
8 1/ ■
___ 1

I

■
|

1961

CHART 8

34




1962

1963

YEARLY
DEFICIT

H

1964

The balance of paym ents on regular tra n s a c tio n s shown here excludes United
States G overnm ent receipts a rising from sales of s p e c ia l T re a su ry o b lig ations
and from sp e cially negotiated debt and m ilita ry prepaym ents. Q uarterly data
are at se a so na lly adjusted annual rates.

ports, while still growing in absolute terms, have declined in relative importance,
especially shipments to the European countries where barriers against agricul­
tural imports have limited the opportunities for expanding export sales. An in­
creased share of total United States exports now goes to the rapidly growing
industrial nations. The countries of the European Economic Community (EEC)
and Japan together have recently accounted for over one fourth of total United
States exports, as against about one fifth of exports in the late 1950’s. Countries
of the Western Hemisphere, which were the destination of nearly half of United
States exports in the late 1950’s, now take only slightly more than one third.
Although the advance in United States exports in considerable part reflects a
high level of business activity and rising income levels abroad, it is also virtually
certain that the competitive position of American producers has gradually im­
proved. While wage increases in many key competitor countries have clearly
outstripped productivity gains in recent years, this has not been the case in the
United States. Partly for this reason, the United States has had relatively
stable prices in recent years, particularly in comparison with other industrial
countries. Moreover, American businessmen have become somewhat more
export conscious, and therefore more alert to sales opportunities abroad. Gov­
ernment and trade association export drives, as well as improved export financing
facilities, have been of considerable help.
The net outflow of private long-term capital from the United States increased
in 1964. Term loans to foreigners by United States banks, which had already
risen considerably in 1963, registered another substantial increase after mid1964. (The interest equalization tax on purchases of certain foreign securities
was not applied to such lending in 1964, although the President had been given
the authority to extend the tax to bank loans of more than one year.) The vol­
ume of new foreign issues placed in the New York market dwindled following
the proposal of the interest equalization tax in July 1963 and remained low for
much of 1964. With the enactment of the tax in September 1964, however, the
market for new issues exempt from the tax quickly became very active, with
Canadian borrowers accounting for the bulk of such issues. New direct invest­
ments reached their highest level since 1957; as in other recent years, Western
Europe, especially the Common Market countries, was the major recipient of
such investments.
Recorded short-term outflows were also larger during 1964. A notable re­
duction in such outflows had followed the July 1963 measures, when (along
with the interest equalization tax proposal) increases in Federal Reserve dis­




35

count rates and Regulation Q ceilings took place. By early 1964, however, com ­
mercial bank credits to foreigners had taken an upward turn. Europe, Latin
America, and Japan obtained substantial credits, and increased outflows into
deposits with Canadian banks also developed at various times during the year.
The Federal Reserve moves in the late summer and in November, and subse­
quent moderate increases in money market rates here, were of course closely
related to the problem of short-term outflows. Comparable rates had moved up­
ward in a number of foreign countries during the year (see Chart 9 ).

S H O R T -T E R M I N T E R E S T R A T E S IN S E L E C T E D C O U N T R IE S .

S h o rt-te rm rates

in m o s t le a d in g c o u n t r ie s r o s e c o n s id e r a b ly , a s m o n e ta r y p o lic y w a s u s e d to
c o u n t e r in fla tio n a r y p r e s s u r e s . U n it e d S t a t e s s h o r t - t e r m in t e r e s t r a t e s w e re
s t e a d y u n til la t e N o v e m b e r , w h e n t h e y r o s e m o d e r a t e ly a f t e r th e F e d e r a l
R e s e r v e a c t e d t o p r e v e n t an in c r e a s e d o u tflo w o f s h o r t- te r m fu n d s in c o n n e c ­
tio n w ith t h e w id e r in t e r e s t d if f e r e n t ia ls t h a t had d e v e lo p e d a nd t h r e a t e n e d
t o in c r e a s e . C a n a d ia n r a te m o v e m e n t s r o u g h ly p a r a lle le d t h o s e in t h e U n it e d
S t a t e s , r e f le c t in g t h e c lo s e t ie s b e tw e e n t h e tw o m o n e y m a rk e t s .

CHART 9

36




Net outpayments in connection with United States military transactions were
somewhat smaller in 1964, and there was a diminished outflow of Government
capital, including reduced outlays under assistance programs. However, the
postponement of a regular British debt repayment of $138 million, scheduled
for December, was among the adverse developments for the United States over­
all payments balance in the fourth quarter.
The 1964 deficit on regular transactions was financed primarily by increases
in United States liquid dollar liabilities and to some extent also by reductions in
United States monetary reserves. As compared with other recent years, a greater
share of dollar accruals to foreigners in 1964 remained in private hands. Con­
tributing factors were a higher level of interest rates here, more active compe­
tition for deposits by American banks through their branches abroad, and the
larger volume of world trade and other private payments. Underdeveloped coun­
tries, whose needs for working balances of convertible currencies are especially
pressing, experienced a modest improvement in their payments positions and thus
were able to add to their dollar holdings during the year. On the other hand,
official gains in dollar reserves among major industrial countries were generally
not so large as in the earlier 1960’s. The special Governmental transactions that
assist in offsetting the United States deficit on regular transactions were smaller
than in other recent years.
For the first time, the United States financed part of its deficit with foreign
currencies drawn from the IMF, although technical considerations prompted the
Fund drawings.3 United States drawings in 1964 totaled $525 million. Since
other countries drew dollars during the year and thereby reduced the repurchase
obligation of the United States, our net obligation to the IMF from all transac­
tions was only $262 million at the year end.

3 During much of the postwar period the United States had been a creditor with the IMF, since
other countries had borrowed dollars from the Fund (on a net basis) and had reduced the Fund's
holdings of dollars to below the initial 75 per cent of the United States quota. In the late 1950*s and
early 1960’s, however, there were net dollar repayments to the Fund, and its dollar balances gradu­
ally returned to 75 per cent. (IMF holdings of a currency may not exceed that limit without a
country's drawing from the Fund and thus taking on a repayment obligation to the Fund.) Since the
dollar is widely used by foreign monetary authorities as a reserve currency, the United States Treas­
ury arranged a stand-by with the Fund in July 1963, which permits the drawing of convertible cur­
rencies when needed for United States sales to countries that would wish to use dollars to make
their IMF repayments. The drawing of these currencies from the Fund has no effect on the United
States payments balance: the initial increase in United States holdings of foreign currencies is offset
by an equivalent decrease in claims (i.e., drawing rights) on the Fund. The subsequent sales o f cur­
rencies drawn by the United States help to finance the deficit since these sales absorb foreign-held
dollars.




37

Monetary gold holdings of the United States declined by $125 million in 1964.
Other sources of supply, such as increased new production and exceptionally
large Russian sales, helped satisfy the foreign demand for monetary gold. Esti­
mated official gold reserves in the Free World increased by about $700 million
through the third quarter of 1964, as against an increase of about $800 million
for the year 1963.

International Financial Cooperation —
Stiff Tests Passed Successfully

In a year in which the monetary authorities continued and deepened their studies
of the international financial system, cooperation among the major industrial
nations under existing arrangements quelled large-scale attacks against two
major currencies, the Italian lira and the pound sterling. In the Italian case,
the lira had come under increasingly heavy selling pressure during the winter
of 1963-64 as the result of a widening payments deficit on current account, capi­
tal outflows, and repayments of foreign indebtedness by Italian commercial
banks. To deal with the situation, the Italian authorities initiated various correc­
tive policy measures (described in the next section) which were expected to take
effect over a period of months. Meanwhile, the Bank of Italy suffered heavy
reserve losses in supporting the lira. On March 14, the Italian authorities
announced an aid package of about $1 billion from the United States Gov­
ernment, the Federal Reserve, and European central banks. In addition, the
Italians shortly drew $225 million from the IMF. This support proved sufficient
to stop the run on the lira, capital inflows (including reflows) quickly developed,
and the effect of the basic stabilization measures soon became apparent. The
Italian payments balance then swung into surplus, allowing Italy to reconstitute
its foreign exchange holdings to mid-1963 levels and to repay credits made avail­
able under the assistance package.
Several factors were at the root of the sterling crisis, which reached its height
in November. Throughout the year substantially higher (and partly anticipatory)
imports, coupled with lagging exports and heavier outflows of capital, had led to
a sharply widened payments deficit. These factors, along with uncertainties over
38




the British election to be held in October, resulted in a weakening of sterling in
the exchange markets. When the Labor Government assumed office, it took a
series of actions calculated to shore up the balance of payments and to strengthen
sterling (see next section). The discussions in Britain and abroad that followed
these actions included sharp questioning as to the adequacy of the corrective
measures. Thus, further uncertainties developed in the exchange market, which
in turn generated speculative sales of sterling. In this context, the increase in
Britain’s bank rate— by 2 percentage points to 7 per cent on November 23—
gave only momentary relief.
International cooperation measured up to the challenge. A massive package
of $3 billion in short-term credit facilities from the United States Government,
the Federal Reserve, and ten other central banks, along with the Bank for In­
ternational Settlements, was put together in a few hours and announced on No­
vember 25. A drawing of $1 billion on the IMF at about the same time enabled
Britain to repay previous central bank credits. The full package of $4 billion
was the largest in the history of international financial assistance. By its very
size it was intended to erase any residual doubt over the firm determination of
monetary authorities to stifle disruptive forces in the exchange markets for major
currencies. The package gradually achieved its goal of halting the attack, while
Britain took a firm grasp on the job of resolving its underlying payments prob­
lem. Indeed, around the turn of the year, there was already a growing awareness
in the financial markets the world over that the steps taken by the British au­
thorities in the closing months of 1964 added up to a much stronger program
in defense of sterling than had at first been recognized.
Many other aspects of growing cooperative international action in 1964 de­
serve to be noted. The IMF was used more than ever before by major indus­
trial countries; as mentioned, Italy, Britain, and the United States drew on the
Fund. Britain was the first country for which a part of the currencies needed was
supplied to the IMF through the supplementary facilities made available by the
General Arrangements to Borrow of the Group of Ten.4

4 The original agreement, in effect since 1962, was among the ten major industrial countries that
held the bulk of national gold and convertible currency reserves. In view of the potentially heavy
demands upon the IMF for convertible currencies, each of these countries has agreed to make available, upon request by the Fund, up to a specified amount of its own currency for medium-term
credits to other members of the Group. Out of the over-all credit facility o f $6 billion, the United
States pledged $2 billion. In 1964, Switzerland, which is not a member o f the Fund, agreed to associ­
ate itself with the Arrangements, thus adding $200 million equivalent to the facility.




39

The network of Federal Reserve swap facilities was increased further, to a
total of $2,350 million. The increases included one of $250 million (to $750
million) in the arrangement with the Bank of England and one of $50 million
(to $100 million) with the National Bank of Belgium. In another active year,
the Federal Reserve carried out official transactions in nine of the eleven cur­
rencies covered by the swap arrangements. The United States Treasury also
undertook substantial foreign exchange operations. In addition, the Treasury
issued $356 million (net) of foreign currency bonds in 1964. Outstanding obli­
gations under such borrowing totaled $1,086 million at the year end.5
Looking beyond immediate problems, the major nations studied and discussed
basic questions concerning the functioning of the present international mone­
tary system. The regular exchange of ideas continued at the ministerial meet­
ings of the Group of Ten and of their deputies, the Organization for Economic
Cooperation and Development, and the Bank for International Settlements.
Moreover, two authoritative studies of the monetary system were prepared in
advance of the IMF’s annual meeting in Tokyo in September. These studies—
one written under the auspices of the Group of Ten and the other by the IMF
itself— indicated general agreement on a wide range of fundamental issues. In
particular, it was concluded that the present international monetary system, based
on fixed exchange rates and the established price of gold, has proved its value
as a firm basis on which to build. Furthermore, for the system as a whole, gold
and convertible currency reserves are fully adequate for the present and are
likely to be for the immediate future. Over time, the continuing growth of world
trade and payments might call for greater amounts of international liquidity.
Such a need may best be met for the time being by the expansion of existing
credit facilities. While disagreement on specific issues did appear at the Tokyo
meetings, support developed for a general 25 per cent increase in IMF quotas,
with larger increases in certain cases, when present quotas are reviewed in 1965.
It is clear that any radical departures from the current system— such as the im­
mediate establishment of a new form of reserve asset— are far from likely. In­
stead, the evolutionary approach will undoubtedly continue.

ZIncluded in these Treasury operations were new issues of $404 million of mark-denominated bonds
to Germany, $82 million of Swiss franc bonds to Switzerland, and $70 million of Swiss franc bonds
to the Bank for International Settlements. The Treasury also redeemed for the Bank of Italy $200
million equivalent of previously issued lira-denominated bonds.

40




The Industrial Economies—
Keeping Growth on an Even Keel

In general, the industrial economies continued to grow in 1964, with many
countries reaching record levels of production and income. (See Chart 10 for
industrial production and consumer price indexes of major countries.) Except
for Italy, unemployment rates held at generally low levels, and labor scarcities
intensified in some areas. Disposable incomes continued to rise, and larger con­
sumption was a major factor in the over-all expansion in most countries. The
Japanese economy, in particular, continued its impressive postwar advance.
Along with the United States, Germany was an important beneficiary of the
increased world demand for goods and services. The German export surplus was
again sizable, although it narrowed as the year progressed.
Private investment was also growing, but not generally at so brisk a pace
as in previous years. In some European countries, businessmen were faced with
declining profit margins, which reflected both increasing international competi­
tion among producers and rising production costs in economies operating close
to full capacity. By reducing incentives for new investment, inflationary pres­
sures— which were present in many industrial countries abroad— became a pos­
sible force for curbing, if not reversing, the current expansion.
Against this background, several governments found it necessary to adopt a
variety of anti-inflationary measures or to intensify earlier action. Nearly all
governments made serious efforts to trim over-all budget deficits. Specific
measures— such as purchase taxes— were often employed to curb demand for
particular products, especially imports. Monetary policy also tended to be more
restrictive. Many central banks raised their discount rates during the year, in­
cluding those of Belgium, Canada, Japan, the Netherlands, Sweden, Switzer­
land, and the United Kingdom. Central banks also moved to curb excessive
increases in bank credit through changes in borrowing and lending ceilings. For
example, along with other measures taken by the Netherlands in 1963-64,
ceilings were placed on increases in bank credit. When these ceilings were per­
sistently exceeded early in 1964, the banks were required to make noninterestbearing deposits at the central bank equal to the amounts by which they had
exceeded the ceilings. In several countries— Germany, Switzerland, France, and
occasionally in Belgium and the Netherlands— sizable inflows of funds from
abroad tended to add to domestic liquidity, and measures were again taken in 1964
to reduce these inflows and to moderate their effects on the domestic economy.




41

P R O D U C T IO N A N D P R IC E S IN S E L E C T E D C O U N T R IE S .
Industrial production
indexes showed a somewhat mixed pattern in 1964. Production in the United
S tates continued its sustained advance. In a num ber of European countries, the
grow th was less rapid than in the previous year and in a few cases production
declined. Consum er prices In the United States rem ained relatively stable. In
several other countries Inflationary pressures increased, although in some cases
the upward drift of prices was slowed by effective stabilization efforts.
Per cent IN D U STRIA L PRO DUCTIO N
180

JA P A N
(1960-100)

1957-59=100

ITA LY

N

/--------G ERM AN Y \
Federal Republic

JA P A N
(1960-100)

\

T T l

BELG IU M

140
UNITED STATES

1 I 1 M

G ER M A N Y
Federal Republic

1 i 1 I M

I II

-

.

UNITED K IN G D O M

‘ SW ITZER LA N D

— ■»

130

_

UNITED K IN G D O M

120

-------- C A N A D A

/

^

___________
UNITED STATES

-------\
CANADA

110 /
100

1 1 1 1 1 II

II

-

1 1

..U

i. 1 I I

II

I I I

105

BELGIUM
... 1... 1 1 1...1 1 1 I I ... 1 1

.1 .1 1 ! L i

1 !

For cla rity o f presentation, the co u n trie s were a rb itra rily separated
into two panels. All data a reseaso nallyad ju sted.

Comprehensive stabilization plans were employed in countries where infla­
tionary pressures were recognized as being particularly serious. F or instance,
the Italian program included a reduced government deficit, increased purchase
taxes on certain consumer goods, several actions to limit foreign borrowings by
Italian banks, and a generally more restrictive credit policy at home. Although
production then declined, upward pressure on prices eased somewhat, the trade
account improved sharply, and capital inflows— including foreign direct invest­
ment— resumed. Italy thus achieved a balance-of-payments surplus for the last three
42




quarters of 1964. With the improvement in the external balance, the Italian author­
ities were able to begin relaxing some of the earlier measures. France, Switzerland,
and the Netherlands also had stabilization measures in operation during the year,
and in each case the rise in prices slackened although wage pressures tended to
persist. In France, inflation curbs also halted the growth of production.
The British program, put into effect in the fourth quarter, included a 15 per
cent surcharge on imports of most manufactured and semimanufactured goods as
well as some rebates of indirect taxes on exports. In addition, the budget deficit,
already running lower than had been expected, was to be further reduced
through tax increases, some of which went into effect almost immediately.
Moreover, besides the 2 percentage point hike in its rate, the Bank of England
requested the commercial banks to slow the growth of bank lending while still
making credit readily available for exports and productive domestic investment.
Capital markets, especially in Europe, showed further gradual development in
1964. New instruments and techniques were introduced and, with a larger
volume of funds to be channeled between savers and investors, competition con­
tinued to stiffen among financial intermediaries, both domestically and inter­
nationally. Partly as a result of the United States interest equalization tax, more
international securities issues were floated in European financial centers
(especially in Britain and Germany). Most were denominated in dollars, but
there were also quite a few issues in German marks.
Nevertheless, many official and institutional barriers to international capital
movements remain. In fact, in several highly developed countries there was con­
siderable questioning of the advisability of accepting, and possibly depending on,
large-scale direct investments and inflows of short-term capital from outside
sources, notably the United States. It was suggested that such inflows might lead
to external control of important segments of industry and add to the problem
of curbing excess domestic liquidity.
Important trade policy discussions took place during the year and will con­
tinue into 1965. In particular, the sixth round— the “Kennedy Round”— of
multilateral negotiations by the contracting parties to the General Agreement
on Tariffs and Trade opened officially in May 1964. As was to be expected,
progress in the negotiations has been slow. In November, the contracting par­
ties submitted lists of nonagricultural products on which tariff reductions would
be considered, and the ensuing discussion took on a cautiously hopeful tone.




43

The Underdeveloped W orld —
M od est P rogress in S o m e A reas

The relations between the industrial and the less developed countries were thor­
oughly discussed in 1964. One important forum was a special United Nations
Conference on Trade and Development held in Geneva from March to June,
where representatives from 120 countries exchanged views and decided to
establish an institution in which the discussion between the two groups of coun­
tries might continue. During the year, less developed countries did show some
over-all improvement in their trade position. In large part, this reflected the
rise in many commodity prices that had started in 1963 and continued in
1964. Last year’s trend was highlighted by rising prices for nonferrous metals
— tin and copper in particular— and by an additional firming of coffee prices.
On the other hand, prices of several foodstuffs softened after an earlier advance;
sugar, for example, slid further from its 1963 highs.
Meanwhile, sizable aid flows from the United States and other industrial coun­
tries as well as from international institutions continued. Lending by interna­
tional agencies was broadened in scope, giving more attention to such funda­
mental needs as improved education and agriculture. On the resources side, the
Inter-American Development Bank increased its capital stock and special funds
by $1.3 billion, and the International Development Association (ID A) received
an additional $753 million from a consortium of eighteen capital-exporting na­
tions. Furthermore, the World Bank took the initiative in transferring $50 mil­
lion of its earnings to the IDA.
On their own account, a larger number of underdeveloped countries in the
Free World were making strong efforts toward more rapid economic growth.
Progress was again recorded in such countries as Mexico, Peru, Taiwan, and
quite possibly Nigeria, while a renewed rise in real growth occurred in Pakistan.
Moreover, Brazil took determined steps to slow its inflationary spiral, and
some of the newer African republics— Kenya and Uganda, in particular—have
made a promising economic start under independence. On the other hand, many
underdeveloped countries have still not adopted effective policies to overcome
poverty and stagnation. Thus, ample seedbeds of political and economic instabili­
ties continue to exist. Progress on these immense problems will require the com­
bined efforts, public and private, of all nations of good will.

44




Unfinished Business

The world economy has moved into the mid-1960’s at a fast pace— world
merchandise trade alone increased by about 50 per cent between 1959 and
1964. Still, several key areas remain in which the international economy can
be strengthened and in which added impetus to economic development can be
provided. The Kennedy Round of tariff negotiations offers an important op­
portunity to increase trade even further, so as to attain a more efficient use
of the world’s vast, yet scarce, resources. Accelerated development of the Euro­
pean capital markets could prove instrumental in enlarging the flow of resources
to the less developed countries, as well as in contributing to the reduction in
existing payments imbalances.
The international movements of goods and capital of course also increases
the scope for rapid transmission of economic disturbances from country to
country. In view of this growing interdependence, the authorities of many
nations have already established formal and informal means by which joint
problems can be handled on a coordinated basis. The Group of Ten’s con­
tinuing study of the international financial system is evidence of this coordinated
approach, and should prove fruitful in identifying future sources of instability
and in finding means of controlling them. Similarly, the proposed increase in IMF
quotas represents an important step in the continuing adaptation of the struc­
ture of the international financial system to the requirements of expanding world
trade and payments. Nevertheless, the events of 1964 clearly show not only
that economic policy must be coordinated— among the major nations at least—
but also that no nation can afford to ignore the responsibilities inherent in a
world that is becoming more closely knit.




45

THIS BAN K ’S OPERATIONS
V olum e and Trend off the Bank’s Operations

With the exception of coin activity, the Bank’s
operations, including those it carries out as agent of the Treasury, expanded
appreciably during 1964.
The volume of checks processed rose substantially in 1964. For the year as
a whole, this Bank handled 703 million checks (excluding United States Gov­
ernment checks and postal money orders). This was a rise of nearly 6 per cent
over 1963. The dollar amount of checks processed in 1964 amounted to $443
billion— a growth of nearly 17 per cent over 1963. The substantial rise in the
dollar volume was distributed about equally between checks drawn on this Bank
and those drawn on commercial banks. Checks drawn on this Bank represent
mainly interbank transfers of funds. These rose by about 27 per cent from the
year before. The similar rise in the dollar amount of all other checks represented
a 12 per cent increase.
The impressive rise in check volume was accompanied by a sizable rise in
the use by this Bank of the Federal Reserve System’s leased wire facilities. The
dollar volume of wire transfers, other than Treasury transfers between Federal
Reserve Districts, totaled $1,554 billion in 1964, an increase of 11 per cent
over 1963. The number of transfers involved also rose 11 per cent.
Forward strides were made during the past year in the use of high-speed elec­
tronic equipment in the check collection function of this Bank. The number of
checks processed on electronic equipment rose steadily— from about one seventh
of all checks handled in December 1963 to nearly two thirds by December
1964. The rapid expansion in high-speed check processing operations neces­
sitated almost continuous equipment changes throughout the year. The most
significant change was the removal of the original pilot test equipment and the
installation of seven new high-speed systems of enlarged capacity. Orders have
also been placed for delivery of two additional high-speed systems in 1965.
Use of the Magnetic Ink Character Recognition (MICR) system was en­
hanced by continued progress in the proportion of checks preprinted in mag­
netic ink with the routing symbol-transit number of the drawee bank. A Februd o m e s tic o p e ra tio n s .

46




SO M E M E A S U R E S O F T H E V O LU M E O F O P E R A T IO N S O F
T H E F E D E R A L R E S E R V E B A N K O F NEW Y O R K (Including Buffalo Branch)

Number of pieces handled (in thousands)*
Currency received......................................................................
Coin receivedt .................................................i-.......................
Gold bars and bags of gold coin handled..................................
Checks handled:
United States Government checks..........................................
All o th e r..................................................................................
Postal money orders handled...................................................
Collection items handled:
United States Government coupons p a id ................................
Credits for direct sendings of collection item s.......................
All o th e r..................................................................................
Issues, redemptions, exchanges by fiscal agency departments:
United States savings bonds...................................................
All other obligations of the United States and Federal agencies
Obligations of the International Bank for Reconstruction and
Development............................................................................
Obligations of the Inter-American Development Bank...........
Participation certificates of the Federal National Mortgage
Association ..............................................................................
Safekeeping of securities:
Pieces received and delivered.................................................
Coupons detached....................................................................
Wire transfers of fundst...........................................................
Amounts handled (in millions of dollars)
Discounts and advances!...........................................................
Currency received......................................................................
Coin received! ..........................................................................
Gold bars and bags of gold coin handled..................................
Checks handled:
United States Government checks..........................................
All o th e r...................................................................................
Postal money orders handled...................................................
Collection items handled:
United States Government coupons p a id ................................
Credits for direct sendings of collection item s.......................
All o th e r..................................................................................
Issues, redemptions, exchanges by fiscal agency departments:
United States savings bonds...................................................
All other obligations of the United States and Federal agencies
Obligations of the International Bank for Reconstruction and
Development............................................................................
Obligations of the Inter-American Development Bank...........
Participation certificates of the Federal National Mortgage
Association ..............................................................................
Safekeeping of securities:
Par value pieces received and delivered..................................
Wire transfers of fundst.........................................................

1964
1,426,131
556,807
203

1,351,268
1,601,876
177

60,937
703,430
33,233

60,403
665,207
35,151

4,007
325
19,022

4,124
315
18,634

29,719
8,510

29,327
7,420

98
59

36
5

1963

14
8,135
6,445
924

6,020

11,686
9,582
65
2,901

14,547
8,965
179
2,515

23,629
443,195
618

23,367
379,428
643

2,925
724
3,656

2,806
724
3,038

1,727
590,742

1,889
546,146

630
209

300

7,922
833

12

786
717,402
1,554,372

713,535
1,400,795

★ Two or more checks, coupons, etc., handled as a single item are counted as one "piece” .
t Excludes shipments of new coin from the Mint.
t Excludes Treasury transfers between Federal Reserve Districts.
§ The number of discounts and advances handled in 1964 was 1,248, compared with 1,369 in 1963.




47

ary 1964 survey showed that 94 per cent of the checks drawn on Second District
banks and handled by this Bank were so preprinted.
The downward trend in coin receipts that started in 1962 accelerated sharply
during 1964. To be sure, receipts of new coin by the Bank from the Mint
reached an all-time high of about $43 million in 1964. This increase of $16 mil­
lion (58 per cent) over 1963 reflected the Treasury’s stepped-up coinage pro­
gram. But at the same time, receipts of circulating coin (excluding shipments
of new coin from the Mint) declined drastically: the dollar volume by 63 per
cent to a new low of $65 million, and the number by 65 per cent. The corre­
sponding declines in 1963 over 1962 were about 20 per cent each. For the sec­
ond consecutive year, the shortage of coin necessitated a general rationing of
shipments to banks. At various times during 1964, such shipments were reduced
to a token one or two bags of certain denominations and had to be suspended
completely on several occasions. In contrast, currency received by this Bank
increased moderately during 1964. The number of items handled rose by about
6 per cent and the dollar volume by 7 per cent over 1963. The corresponding in­
creases in 1963 over 1962 were about 1 per cent each.
Continued expansion in the Treasury’s refunding and financing operations
during 1964 resulted in another increase in this Bank’s fiscal agency operations.
The dollar volume of all Government obligations (other than United States sav­
ings bonds) processed by this Bank in 1964 was $591 billion— an increase of
about 8 per cent over the 1963 volume. The number of pieces handled during
1964 was 8.5 million, 15 per cent more than in 1963. In contrast, issues, redemp­
tions, and exchanges of savings bonds processed by this Bank declined by 9 per
cent in 1964 to $1,727 million, offsetting about three quarters of the gain reported
in 1963. The number of items handled nevertheless increased by 1 per cent.
The aggregate volume of Second District member bank borrowings during
1964 amounted to about $12 billion; it was 20 per cent less than during 1963,
but more than twice that of either 1962 or 1961. The proportion of member
banks that borrowed at least once during the year, calculated at 42 per cent,
was slightly higher than that reported for 1963.
Public interest in the Federal Reserve was manifested in 1964 by the number
of requests for tours of this Bank and for speeches and publications on the Bank’s
purposes and functions. In the course of the year 12,652 persons visited the
Bank, 280 addresses were delivered by members of the Bank’s staff to various
business and educational groups, and 861,825 copies of this Bank’s publications
were distributed.
48




Despite the rise in the volume of operations of this Bank during 1964, aver­
age employment declined by about 1 per cent, which represents a reversal of a
four-year upward trend. At the end of 1964, the Bank’s officers and staff num­
bered 4,121, including 234 at the Buffalo Branch.
During 1964, this Bank transferred to (or set aside for) the United States
Treasury $412 million as an interest charge levied by the Board of Governors un­
der Section 16 of the Federal Reserve Act on Federal Reserve notes not covered by
gold certificates. Of this amount, $286 million represented the Bank’s net earnings
after statutory dividend payments to member banks on outstanding Federal Re­
serve stock, and $126 million the amount of surplus in excess of paid-in capital
pursuant to the decision of the Board of Governors to reduce the accumulated
surplus of Federal Reserve Banks to the level of the capital actually paid in by
the member banks instead of the subscribed capital. These transfers amounted
to 5.2 per cent of the Bank’s average Federal Reserve notes outstanding during
1964 (which can be broken down into transfers from current net earnings of 3.6
per cent and transfers from accumulated surplus of 1.6 per cent).

Exchange operations by
this Bank for System and Treasury account increased from last year’s high level
as a result of transactions for the Treasury in connection with United States
drawings on the International Monetary Fund. In addition, cooperative arrange­
ments among the monetary authorities of the major industrial countries were
further expanded during the year. At the year end, Federal Reserve swap facili­
ties totaling $2,350 million were in effect with the monetary authorities of eleven
countries plus the Bank for International Setdements, while outstanding United
States Treasury securities denominated in foreign currencies had risen to the
equivalent of $1,086 million.
Gold, dollar balances, and other assets held for foreign and international ac­
count decreased slightly in 1964 to $28.2 billion at the year end. This was the
first year-to-year decline in total foreign and international assets held at this
Bank in seven years. Holdings for foreign accounts decreased by $413 million
to a total of $20.3 billion; earmarked gold decreased by $235 million and United
States Government securities by $286 million, whereas dollar deposits increased
by $58 million and miscellaneous securities (including commercial paper and
bankers’ acceptances) rose by $50 million. The accounts of international organ­
fo r e ig n

an d




in te r n a tio n a l o p e r a tio n s .

49

izations registered a nominal decrease— $30 million— to a total of $8.0 billion
at the year end.
Gold operations were somewhat above the level of last year, reflecting an in­
crease in purchases from and sales to the United States Treasury as well as an
increase in exports. Requests for loans against gold under earmark continued
to be rather small; three credit facilities aggregating $57 million were made avail­
able to banks in three countries in order to assist them in meeting seasonal and
other temporary dollar requirements. Each of the credits was utilized, but at the
year end only $30 million was outstanding.

50



Financial S ta tem en ts
S T A T E M E N T O F E A R N IN G S AND E X P E N S E S FO R
T H E C A L EN D A R Y E A R S 1964 AND 1963 (In thousands of dollars)

1964

19 63

Total current earnings..........................................................................
Net expenses.........................................................................................

335,357
40,956

291,817
39,099

Current net earnings

294,401

252,718

151
76

77
113

Total additions

227

190

Deductions from current net earnings...................................................
Net additions.........................................................................................

6
221

11
179

Net e a rn in g s available for distribution

2 9 4 ,6 2 2

2 5 2 ,8 9 7

Dividends p a id .......................................................................................
Payments to United States Treasury (interest on Federal Reserve
notes) ...............................................................................................
Transferred to surp lus..........................................................................

8,138

7,743

412,485
— 126,001

232,650
12,504

Surplus— beginning of y e a r ..................................................................
Transferred from net earnings for y e a r.................................................
Payments to United States Treasury (interest on Federal Reserve notes)

263,215
0
126,001

250,711
12,504
0

Surplus— end of year

1 37,214

2 6 3 ,2 1 5

Additions to current net earnings:
Profit on sales of United States Government securities (n e t)...............
All o th e r.................................................................................................

SUR PLUS ACCOUNT




51

S T A T E M E N T O F CO N DITIO N
(In thousands of dollars)

A ssets

DEC. 3 1 , 1364

D EC. 31 , 1363

Gold certificate account.....................................................................

3,072,781

3,608,466

Redemption fund for Federal Reserve notes......................................

355,066

334,006

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

183,441

109,996

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

32,083

31,676

Total cash

3,643,371

4,084,144

Discounts and advances.....................................................................

40,980

9,998

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

93,768

161,720

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

9,285,737

8,707,557

Total loans and securities

9,420,485

8,879,275

Cash items in process of collection.....................................................

1,833,246

1,688,500

Bank premises...................................................................................

7,804

8,110

All other* .........................................................................................

139,526

105,935

Total other assets

1,980,576

1,802,545

Total A ssets

15,0 4 4,4 3 2

Other assets:

★ Includes assets denominated In foreign currencies.

52



1 4 ,7 6 5,9 6 4

S T A T E M E N T O F CO N DITIO N
(In thousands of dollars)

Liabilities

D EC. 31 , 1964

D EC. 31 , 1963

Federal Reserve n o tes..............................

8,253,863

7,939,568

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

4,829,799
152,505
67,430
180,824

4,994,535
227,126
54,054
167,741

5,230,558

5,443,456

1,113,473
172,110

967,104
21,014

Total other liabilities

1,285,583

988,118

Total Liabilities

1 4 ,7 7 0,0 0 4

14 ,3 7 1,1 4 2

137.214
137.214

131,607
263,215

Total Capital Accounts

2 7 4 ,4 2 8

3 9 4 ,8 2 2

Total Liabilities and Capital Accounts

15 ,0 4 4,4 3 2

1 4 ,7 6 5,9 6 4

Total deposits
Other liabilities:
Deferred availability cash item s................ ,
All o ther.....................................................

Capital Accounts

Capital paid in ..........................................
Surplus ....................................................

Contingent liability on acceptances purchased for foreign
correspondents!.............................................................................
Ratio of gold certificate reserves to deposit and Federal Reserve note
liabilities combined .......................................................................

32,311

24,673

25.4%

29.5%

★ After deducting participations of other Federal Reserve Banks amounting to
t After deducting participations of other Federal Reserve Banks amounting to

161,480
90,135

116,960
67,179




53

Changes in Membership

During 1964 the total number of commercial banks in this District that are mem­
bers of the Federal Reserve System declined from 426 to 418. The net decrease
of eight banks was the result of the organization of twelve new national banks, the
mergers of eighteen member banks with other members, and two member banks
combined with nonmembers. The 418 banks constitute 84 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 U M B E R O F O P E R A T IN G M E M B E R A N D N O N M E M B E R B A N K S IN
S E C O N D F E D E R A L R E S E R V E D IS T R IC T A T T H E Y E A R E N D
(Exclusive of savings banks, private bankers and industrial banks)
D ECEM BER 31 , 1964

D ECEM BER 31 , 1993

Mem bers

N on­
m em bers

P er cent
m em bers

M em bers

N on­
m em bers

P e r cent
m em bers

National banks* .. ............

294

0

100

296

0

100

State banks and
trust companies . ............

124

82

60

130

80

62

To ta l

418

82

84

T y p e of Bank

426

80

84

★ Includes one national bank located in the Virgin Islands.

C H A N G E S IN F E D E R A L R E S E R V E M E M B E R S H IP IN
S E C O N D D I S T R IC T D U R IN G 1964

To ta l m em bership be g in ning of y e a r ........................................................................................................

426

Increases:

New national banks.....................................................................................................................

12

Decreases:

Member banks combined with other members...............................................................................
Member banks combined with nonmembers...................................................................................
Total m em bership a t the year end

54




18
2
418

Changes in Directors and Officers
d ire c to rs .
In November 1964, member banks in Group 1
elected George A. Murphy a Class A director of the Federal Reserve Bank of
New York for the term of three years beginning January 1, 1965. Mr. Murphy,
Chairman of the Board of Irving Trust Company, New York, N. Y., succeeded
George Champion, Chairman of the Board of The Chase Manhattan Bank,
New York, N.Y., whose term expired December 31,1964.
At the same time, member banks in Group 1 elected Arthur K. Watson a
Class B director for the three-year term beginning January 1, 1965. Mr. Wat­
son, Chairman of the Board of IBM World Trade Corporation, New York, N.Y.,
and Senior Vice President of International Business Machines Corporation,
Armonk, N.Y., succeeded B. Earl Puckett, former Chairman of the Board of
Allied Stores Corporation, New York, N.Y., whose term expired December 31,
1964.
Also in November 1964, the Board of Governors of the Federal Reserve Sys­
tem redesignated Philip D. Reed as Chairman of the Board of Directors of the
Bank and Federal Reserve Agent for the year 1965. Mr. Reed is a former Chair­
man of the Board of General Electric Company, New York, N.Y. At the same
time, the Board of Governors appointed Everett N. Case as Deputy Chairman for
the year 1965. In this capacity, Mr. Case, President of the Alfred P. Sloan
Foundation, New York, N. Y., succeeded James DeCamp Wise, former Chair­
man of the Board of Bigelow-Sanford, Inc., New York, N.Y., whose term as
Deputy Chairman and as a Class C director expired December 31, 1964. Mr.
Wise had served as a Class C director since January 1959 and as Deputy Chairman
since January 1961.
In December 1964, the Board of Governors appointed Dr. James M. Hester a
Class C director for the three-year term beginning January 1, 1965. Dr. Hester,
President of New York University, New York, N.Y., succeeded Mr. Wise as a
Class C director.
At the Buffalo Branch of the Federal Reserve Bank of New York, in Novem­
ber 1964, Maurice R. Forman, President of B. Forman Co., Rochester, N.Y.,
was designated by the Board of Directors of this Bank as Chairman of the Board
of Directors of the Buffalo Branch for the year 1965. At the same time, the
Board of Directors of this Bank appointed J. Wallace Ely and John D. Hamilton
directors of the Buffalo Branch for three-year terms beginning January 1, 1965.
Mr. Ely, President of Security Trust Company of Rochester, Rochester, N.Y.,

c h a n g e s in




55

succeeded Elmer B. Milliman, President of Central Trust Company Rochester
N.Y., Rochester, N.Y., whose term expired December 31, 1964. Mr. Hamilton,
President of Chautauqua National Bank of Jamestown, Jamestown, N.Y., suc­
ceeded Anson F. Sherman, President of The Citizens Central Bank, Arcade,
N.Y., whose term expired December 31, 1964. In December 1964, the Board
of Governors of the Federal Reserve System appointed Robert S. Bennett a di­
rector of the Buffalo Branch for the three-year term beginning January 1, 1965.
Mr. Bennett, General Manager of the Lackawanna Plant of Bethlehem Steel Cor­
poration, Buffalo, N.Y., succeeded Whitworth Ferguson, President of Ferguson
Electric Construction Co., Inc., Buffalo, N. Y., whose term expired December
31,1964.

Since February 1964, two officers have retired and
one officer has resigned:
Robert G. Rouse, Vice President and Senior Adviser, retired effective October
1, 1964. Mr. Rouse had joined the Bank’s staff in July 1939 as an officer.
From November 1939 until May 1962, he was Vice President in charge of the
Open Market Operations function and Manager of the System Open Market
Account. From May 1962 until his retirement, Mr. Rouse served as Vice Presi­
dent and Senior Adviser.
Harold M. Wessel, Assistant Vice President, retired effective March 1, 1965.
Mr. Wessel had been a member of the Bank’s staff since September 1917 and an
officer since April 1945. From 1953 to 1963, Mr. Wessel served as Assistant
Vice President of the Buffalo Branch.
Robert Lindsay, Senior Economist, resigned effective September 15, 1964 to
accept appointment as Professor of Finance and Research Adviser to the Dean
at the Graduate School of Business Administration of New York University.
The following additional changes in official staff, including the appointment
of five new officers, have taken place since February 1964.
Edward J. Geng, formerly Special Assistant in the Securities Department, was
appointed an officer with the tide of Manager, effective July 2,1964, and assigned
to the Securities Department.
James H. Oltman, formerly Assistant Counsel, was appointed Manager, effec­
tive July 2, 1964, and assigned to the Bank Examinations Department. His ap­
pointment as Assistant Counsel terminated as of the same date.
Donald C. Niles, formerly Manager of the Accounting Department, was ap­

c h a n g e s in o f f i c e r s .

56



pointed Assistant Vice President, effective January 7, 1965, and assigned to the
Accounting and Planning function, with responsibility for the newly established
Computer Services Department.
Kenneth E. Small, formerly Manager of the Cash Department, was appointed
Assistant Vice President, effective January 7,1965, and assigned to the Cash and
Collections function, with responsibility for the Cash, Cash Custody, and Col­
lection Departments.
Louis J. Brendel, formerly Chief of the Computer Services Division, Account­
ing Department, was appointed Manager, effective January 7,1965, and assigned
to the Computer Services Department.
Richard G. Davis, formerly Special Assistant in the Research Department,
was appointed Senior Economist, effective January 7,1965.
Leonard Lapidus, formerly Chief of the Financial and Trade Statistics Divi­
sion, Research Department, was appointed Manager, effective January 7, 1965,
and assigned to the Personnel Department.
Robert Meyer, formerly an Attorney in the Legal Department, was appointed
Assistant Counsel, effective January 7,1965.
Everett B. Post, Manager, Planning Department, was assigned also to the Ac­
counting Department, effective January 8, 1965.
Charles R. Pricher, Manager, formerly assigned to the Personnel Department,
was assigned to the Cash Department, effective January 8,1965.

The Board of Directors
of this Bank selected William H. Moore to serve during 1965, for the second
successive year, as the member of the Federal Advisory Council representing the
Second Federal Reserve District. Mr. Moore is Chairman of the Board of
Bankers Trust Company, New York, N.Y.

m e m b e r o f f e d e r a l a d v i s o r y c o u n c i l—i m s .




57

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

D IR EC T O R S

G e o r g e A . M u r p h y ........................................................................................................................................... 1967

Class Group

A

1

A

2

A

3

B

1

B

2

B

3

Chairman of the Board, Irving Trust Company, New York, N. Y.
R a l p h H . R u e ....................................................................................................................................................... 1965

Chairman of the Board, The Schenectady Trust Company, Schenectady, N. Y.
R o b e r t H . F e a r o n ........................................................................................................................................... 1966

President, The Oneida Valley National Bank of Oneida, Oneida, N. Y .
A r t h u r K . W a t s o n ........................................................................................................................................... 1967

Chairman of the Board, IBM World Trade Corporation, New York, N. Y ., and
Senior Vice President, International Business Machines Corporation, Armonk, N. Y.
K e n n e t h H . H a n n a n ...................................................................................................................................... 1965

Executive Vice President, Union Carbide Corporation, New York, N. Y.
A l b e r t L . N i c k e r s o n ................................................................................................................................... 1966

Chairman of the Board, Socony Mobil Oil Company, Inc., New York, N. Y.
P h ili p

D.

R eed,

Chairman,and Federal Reserve Agent.......................... 1965

C

Former Chairman o f the Board, General Electric Company, New York, N. Y.
E v e r e t t N . C ase,

Deputy Chairman......................................... 1966

C

President, Alfred P. Sloan Foundation, New York, N. Y.
J a m e s M . H e s t e r ............................................................................................................................................. 1967

President, New York University, New York, N. Y .

D IR EC T O R S — B U F F A L O B R A N C H
M a u r ic e R . F o rm a n ,

Chairman.......................................

1965

President, B. Forman Co., Rochester, N. Y .

S. H a m l i n ...............................................................................................................................

A rth u r

1965

President, The Canandaigua National Bank and Trust Company, Canandaigua, N. Y .
T h o m a s E . L a M o n t ............................................................................................................................

1966

Farmer, Albion, Orleans County, N. Y.
C h a r l e s W . M il l a r d , Jr ....................................................................................................................

1966

Chairman of the Board and President, Manufacturers and Traders Trust Company, Buffalo, N. Y .
R obert

S. B e n n e t t ...............................................................................................................................

1967

General Manager, Lackawanna Plant, Bethlehem Steel Corporation, Buffalo, N. Y .
J. W a l l a c e E l y ......................................................................................................................................

1967

President, Security Trust Company o f Rochester, Rochester, N. Y.
John

D.

H a m i l t o n ...............................................................................................................................

1967

President, Chautauqua National Bank of Jamestown, Jamestown, N. Y.

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 —
W illia m

H.

1965

M o o r e ........................................................................................................................................... 1965

Chairman of the Board, Bankers Trust Company, New York, N. Y.

58




C

Officers of the Federal Reserve Bank of New York
A l f r e d H a y e s , President
W i l l i a m F . T r e e b e r , First Vice President
H a r o l d A. B i l b y , Vice President
J o h n J. C l a r k e , Vice President and

General Counsel

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
G e o r g e G a r v y , Economic Adviser
E d w ard G . G u y,

Assistant General Counsel

M a r c u s A . H a r r is , Vice President
A l a n R . H o l m e s , Vice President
W a l t e r H . R o z e l l , J r ., Vice President
H o r a c e L . S a n f o r d , Vice President
R o b e r t W . S t o n e , Vice President
T h o m a s O . W a a g e , Vice President
T h om as C . S lo a n e ,

Assistant General Counsel

D o n a l d C . N i l e s , Assistant Vice President
W i l l i a m H . B r a u n , J r ., Assistant Vice President
F r e d W . P id e r it , J r ., Assistant Vice President
F e l i x T . D a v is , Assistant Vice President
P e t e r F o u s e k , Assistant Vice President
L a w r e n c e E. Q u a c k e n b u s h , Assistant Vice President
T h o m a s J. R o c h e , Senior Foreign Exchange Officer
P e t e r P . L a n g , Adviser
F r a n k W . S c h i f f , Assistant Vice President
R o b e r t G . L in k , Adviser
A n g u s A . M a c I n n e s , J r ., Assistant Vice President K e n n e t h E. S m a l l , Assistant Vice President
F r e d e r i c k L . S m e d le y , Assistant Vice President
S p e n c e r S. M a r s h , J r ., Assistant Vice President
P e t e r D . S t e r n l i g h t , Assistant Vice President
G erald E . B each ,

Pa u l M ee k ,

Manager, Security Custody Department

Manager, Securities Department
R o b e rt M eyer,

M a r t i n W . B e r g in ,

Manager, Public Information Department

Assistant Counsel
H. N o a ,
Manager, Service Department
J a m es H. O l t m a n ,
Manager, Bank Examinations Department

A rth u r

E r n e s t E. B la n c h e tte ,

Manager, Bank Relations Department
Louis J. B r e n d e l ,
Manager, Computer Services Department
A. T h o m a s C o m b a d e r ,
Manager, Building Operating Department
R o b e rt L. C oop er,

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

Assistant Counsel

E v e r e tt B. P o st,

Manager, Accounting Department, and
Manager, Planning Department
C h a r le s R . P ric h e r ,

Manager, Cash Department
J o h n P . R in g e n ,

Manager,Bank Examinations Department

R ic h a r d G . D a v is ,

Senior Economist
R ic h a r d A. D e b s ,
Assistant Counsel

E d w in S. R o t h m a n ,

Manager, Foreign Department
W a l t e r S. R u s h m o r e ,

K a r l L . E ge,

Manager, Collection Department

M a r tin F re n c h ,

Manager, Cash Custody Department
E d w ard j . G en g,

Manager, Securities Department

F re d H . K lo p s to c k ,

Manager, Research Department
L e o n a r d L a p id u s,

Manager, Personnel Department

B ru ce K. M acL aury,

Manager, Foreign Department

Manager, Savings Bond Department
H. S c h o t t ,
Manager, Research Department

F r a n c is

W illia m M . S c h u lt z ,

Manager, Personnel Department
G e o r g e C . S m it h ,

Manager, Check Department
A l o y s i u s J. S t a n t o n ,

Manager, Check Department
R o b e rt C. Thom an,

Manager, Government Bond and Safekeeping
Department, and Assistant Secretary

W illia m E. M a r p le ,

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

M a d e lin e H . M c W h in n e y ,

R o b e r t Y o u n g , J r .,

Manager, Credit and Discount Department
Manager, Market Statistics Department




Secretary, and Assistant Counsel
Assistant Counsel

J o h n P . J e n s e n , General Auditor
L e o n a r d I . B e n n e t t s , Assistant General Auditor

59

OFFICERS —
I n s le y
G e o r g e J. D o l l ,
G e r a ld

B. S m it h , Vice President

Assistant Vice President and Cashier

H. G r e e n e , Assistant Cashier

60



BUFFALO BRANCH

John

T. K e a n e , Assistant Cashier




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