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FEDERAL RESERVE BANK OF NEW YORK A N N U A L REPORT 1973 F eb ru ary 20, 1974 T o th e M e m b e r B a n k s in the Second F e d e r a l R e se r v e D istrict I a m p l e a s e d to p r e s e n t o u r f i f t y - n i n t h A n n u a l R e p o r t , r e v ie w in g m a jo r e c o n o m ic and fin a n c ia l d e v e lo p m e n ts and th is B a n k 's o p e r a t io n s in 19 7 3 . T he p a s t y e a r w i t n e s s e d a s e v e r e w o r ld w id e in fla tio n . A s d e m a n d p r e s s u r e s m o u n t e d , p r i c e s s o a r e d in t h is c o u n t r y , a c c o m p a n ied by sh a rp ly in c r e a se d str a in s o n r e s o u r c e s and f a c ilit ie s . M o n e t a r y p o li c y b e c a m e p r o g r e s s i v e l y m o r e r e s t r i c t i v e o v e r the f i r s t tw o th ir d s o f the y e a r b u t, w h ile r e a l e c o n o m ic g r o w th s lo w e d , s e r io u s in fla tio n p e r s is t e d . L a te in th e y e a r , th e d e v e lo p in g e n e r g y s h o r t a g e in t r o d u c e d a h o s t of n e w u n c e r t a i n t i e s in to th e e c o n o m i c situ a tio n . W h ile th e in te r n a tio n a l fin a n c ia l s y s t e m e x p e r i e n c e d c o n s i d e r a b l e s t r e s s d u r in g th e f i r s t h a lf o f th e y e a r , th e a t m o s p h e r e in th e e x c h a n g e m a r k e t s i m p r o v e d in th e l a t t e r h a lf o f 1 9 7 3 . E v id en ce th a t the c e n t r a l b a n k s , in c lu d in g th e F e d e r a l R e s e r v e , w e r e p r e p a r e d to i n t e r v e n e in th e m a r k e t s f o s t e r e d r e n e w e d c o n f i d e n c e . A n d , a s it b e c a m e e v id e n t th a t t h e r e w a s s u b s t a n t ia l i m p r o v e m e n t in o u r i n t e r n a tio n a l p a y m e n t s p o s it io n , th e r e c o v e r y of th e d o lla r g a in e d m o m e n t u m . Q u ite c l e a r l y , ser io u s p r o b le m s, c o m p o u n d e d b y th e e n e r g y s it u a t io n , c o n fr o n t m o n e t a r y p o l i c y in 1 9 7 4 . W e m u s t s e e k to r e d u c e i n f l a t i o n a r y p r e s s u r e s a n d to r e v e r s e th e e s c a l a t i o n o f c o s t a n d p r i c e in c r e a se s. B o th th e r e c o n s t r u c t io n of th e in t e r n a t io n a l m o n e t a r y s y s t e m a n d th e r e s t o r a t i o n o f c o n f id e n c e in th e d o lla r d e p e n d h e a v i l y o n th e r e s u m p t io n of a r e a s o n a b l e d e g r e e of p r i c e s t a b ili t y in th e U n it e d S t a t e s . W e m u s t , a t th e s a m e t i m e , s e e k to e n c o u r a g e s u s t a i n a b l e e c o n o m i c g r o w t h , b e i n g p r e p a r e d to r e s p o n d if u n e m p l o y m e n t b e c o m e s e x c e s s i v e . P r o g r e s s to w a r d t h e s e o b j e c t iv e s c a l l s fo r the d e t e r m in e d , effo rts of m o n eta ry and fis c a l p o lic ie s . A L FR E D HAYES P resid en t co o rd in a ted Federal Reserve Bank of New York FIFTY-NINTH ANNUAL REPORT For the Year Ended December 3 1 ,1 9 7 3 Second Federal Reserve District C o n t e n t s Page THE ECONOMY IN 1973 .................................................................................................................... 3 Monetary policy in 1 9 7 3 .................................................................................................................... 7 International developments .............................................................................................................. 12 Problems confronting monetary p o lic y ......................................................................................... 19 THE BANK’S OPERATIONS IN 1973 .............................................................................................. 20 Managing for the Future .................................................................................................................. 20 Meeting demands for sp a c e ................................................................................................................ 20 Progress against p a p e r ....................................................................................................................... 21 The growing securities and money transfer n etw o rk ................................................................. 22 Reduced flo a t ........................................................................................................................................ 22 Electronic p a y m en ts........................................................................................................................... 23 Improving internal organization, planning, and budgetary c o n tr o l........................................ 24 Financial Statements ......................................................................................................................... 26 Statement of c o n d itio n ....................................................................................................................... 26 Statement of earnings and ex p en ses................................................................................................ 28 Changes in Directors and Senior O ffic e rs ................................................................................. 29 Changes in d irecto rs........................................................................................................................... 29 Changes in senior officers.................................................................................................................. 30 Member of Federal Advisory Council— 1974 ............................................................................ 32 List of Directors and O ffic e rs ....................................................................................................... 33 CHARTS Chart 1. Resource Utilization, Real Growth, and In fla tio n .................................................... 4 Chart 2. Changes in Consumer and Wholesale P r ic e s ............................................................... 5 Chart 3. M oney, Bank Credit, and M oney M arket C o n d itio n s............................................. 9 Chart 4. Exchange Rates: M ajor Currencies against United States D o lla r ........................................................................................................................... 14 Chart 5. United States Balance of P a y m e n ts.............................................................................. 17 F ifty-nin th A n n u al R e p o rt F ederal R e se rve B an k of N ew Y o rk Th e Econom y in 1973 Inflation reem erged as the param o u n t econom ic problem in the U nited States in 1973, exploding with a force not seen since the early days of the K orean war. W ith shortages of m aterials and parts w idespread and with m any industries operating close to capacity, it becam e painfully clear that this time labor was not the only constraint on aggregate supply. T he surge in inflation was not con fined to the U nited States, for prices rose even m ore rapidly in W estern E urope and Japan. This developm ent, coupled with the effects of two m ajor exchange rate realignm ents, contributed to a substantial im provem ent in the U nited States foreign trade and paym ents positions in 1973. H ow ever, confidence in the dollar, as well as in the continuity and effectiveness of U nited States econom ic policies generally, was affected by the high rate of inflation and by some concern from tim e to tim e about the im pact of unfolding political developm ents in this country. N o r was the recovery in the balance of paym ents costless, as an extra ordinary increase in U nited States exports together with higher im port prices com pounded price pressures. N evertheless, the inflationary pressures in the U nited States were in good p art dom estic in origin. Severe capacity constraints beset the econom y beginning early in 1973, far sooner than had been anticipated. T he extent to which the m argin of underutilized productive facilities h ad shrunk in 1972 was not widely recog nized. This m ay have been because the overall unem ploym ent rate was high through m uch of th at year, and capacity utilization in m any sectors rem ained low. In any case, the conventional assessm ent overestim ated the am ount of slack rem aining in the econom y and m ay , thereby have encouraged policies in 1972 3 th at at least in retrospect seem overly expansive. Evidence of strains on facilities and resources becam e unm istakable as 1973 unfolded. C apacity utilization in the basic-m aterials-producing industries climbed to record high levels (see C h art 1 ). Strains were also m anifested in the persistent buildup in unfilled orders, in extended delivery delays, and in shortages which lim ited spending on trucks, com pact autom obiles, farm m achinery, and a rather wide variety of other goods. T he situation was exacerbated later in the year as the controls program , by preventing prices from rising com petitively in the U nited States, diverted some m aterials to export. As a result of these pervasive dem and pressures, prices soared in 1973, far outstripping m ost previous episodes of peacetim e inflation in this country. Con- Chart I . R E S O U R C E UTILIZATION, R E A L G R O W TH , A N D IN FLATION Percent 94 92 90 88 86 84 Percent 8 6 4 2 0 -2 I 1969 1970 1971 1972 II III 1973 IV All data are seasonally adjusted. GNP growth rates for 1969 through 1972 represent increases in annual averages, while the quarterly GNP numbers are expressed at annual rates. C h a r t 2. C H A N G E S IN C O N S U M E R A N D W H O L E S A L E P R I C E S 1973 C O N S U M E R PRICES Data are percentage changes on a December-to-December basis. sum er prices, for exam ple, were 8.8 p ercent higher in D ecem ber 1973 th an they w ere one year earlier, and wholesale prices increased even m ore (see C h art 2 ) . T o be sure, a num ber of special factors contributed significantly to the extra ordinary surge in the price level. A gricultural prices spiraled upw ard, partly as a consequence of crop failures in m any countries in 1972. In 1973, the eco nom ic boom abroad added to the already excessive dem ands in this country, as 5 did the devaluation of the dollar. T he depreciation of the dollar boosted prices of im ported goods both directly and through intensifying the inflationary atm o sphere w orldwide. Fuel prices clim bed considerably tow ard the year-end, reflect ing the developing energy shortage. T he influence of these factors notw ithstanding, econom ic policies contributed to some extent to the severity of the inflation in 1973. In retrospect, it appears th at m onetary policy had been som ew hat too stim ulative during the preceding year; the narrow ly defined m oney supply (M i) grew 8.7 percent in 1972 and the other m oney and credit aggregates expanded even m ore rapidly. Also, fiscal policy was designed to, and probably did, spur dem and. Given the lags associated with m onetary and fiscal actions, the expansionary policies pursued in 1972 contributed to the strong rise in aggregate dem and in the latter p art of that year and in the opening m onths of 1973. W hile this was translated into a very rapid expansion in real o u tp u t for a time, dem and pressures on prices inevitably m ounted as resources and unused capacity grew increasingly scarce and produc tion bottlenecks developed. W hile the wage and price controls em bodied in the E conom ic Stabiliza tion P rogram contributed to a dam pening of cost inflation in 1972, in the general ized excess dem and environm ent of 1973 the price controls were substantially less effective. T he failure of the controls program to m ake significant headw ay against inflation was perhaps understandable, given the intensity of dem and pres sures. U nfortunately, to the extent that the controls led to distortions in the allo cation process and to shortages, inflationary pressures were exacerbated. M ore over, the frequency of the changes in the E conom ic Stabilization Program — Phase T hree, Freeze Tw o, Phase F our, and special treatm ent of prices of certain com m odities— increased uncertainties and generated considerable skepticism about the soundness of the anti-inflationary strategy. A lthough fiscal policy was less stim ulative in 1973 than in the preceding year, it was nevertheless expansionary; the unified Federal budget rem ained in deficit in calendar year 1973 despite the fact that receipts were swollen as a result of inflation and the strength of the econom y. In light of the strong excess dem and conditions w hich characterized the year, a m ore restrictive fiscal policy involving a sizable budget surplus w ould have been appropriate. T here was, however, no w idespread support for the changes in G overnm ent spending or in taxes that w ould have brought about this result. W hile the record on the price front was dism al, some progress was m ade in further reducing unem ploym ent in 1973. O verall, though, the difficulty of achiev 6 ing the often-m entioned goal of 4 percent unem ploym ent by expanding aggre gate dem and w ithout encountering serious and perhaps accelerating inflation was dem onstrated forcefully in 1973. T he changes in the age and sex distribu tion of the labor force since this goal first gained wide acceptance, the pre vailing structure of labor and product m arkets, and the experience of the past several years together suggest th at aggregate dem and policies probably cannot reduce unem ploym ent m uch below 5 percent if reasonable price stability is to be reestablished and m aintained. O ther m easures which deal m ore directly with structural problem s are needed if the unem ploym ent rate is to be low ered to 4 percent or less in a noninflationary environm ent. A long these lines, im proved labor m arket inform ation which helps to m atch w orkers with jobs, modification of m inim um wage requirem ents for young w orkers, and greater progress against job discrim ination coupled with better training program s could m ake a signifi cant contribution to reducing structural unem ploym ent. A gainst the background of the severe inflation th at enveloped the country and the expansive policies of the previous year, the F ederal Reserve pursued a policy of active restraint in 1973. A t the same time, the m onetary authorities sought to avoid extrem e pressures on financial m arkets which could seriously disrupt credit flows and ultim ately risk generat ing a substantial contraction in econom ic activity. All the m ajor instrum ents of m onetary policy were called into play during the year in an effort to slow the expansion in m oney and b ank credit. O pen m arket operations steadily in creased pressure on bank reserve positions over the first two thirds of the year, and this pressure was relaxed only slightly during the rem ainder of 1973. Banks m ade record use of borrow ings at the discount window for tem porary assistance in adjusting to this pressure. Federal Reserve B ank discount rates were raised frequently in the first half of the year and reached record levels during the sum m er. M oreover, reserve requirem ents on m ost dem and deposits at m em ber banks were increased in July. M arginal reserve requirem ents on large-denom ination certificates of deposit (C D s) and related b ank sources of funds were established in June and raised in Septem ber before being low ered near the year-end. T he m onetary restraint exercised in 1973 operated to a greater extent through interest rates and less through credit availability than in other recent periods. T he absence of R egulation Q ceilings on large CDs of less than ninety days’ m aturity and the subsequent suspension of ceilings on all large CDs m eant that m o n e ta ry p o lic y in 1973. 7 banks could com pete effectively for the funds needed to m eet loan dem ands. A t the sam e tim e, over m uch of the year there was a special incentive to borrow from banks because the C om m ittee on Interest and Dividends (C ID ), in p u r suit of its voluntary program to bring interest rates into the overall price and wage control program , kept bank lending rates from rising as fast or as far as m arket rates of interest. W hile the actions of the C ID to lim it the increases in b ank lending rates m ay have helped gain acceptance for incom es policy, they altered norm al interest rate relationships. This, in turn, had a differential effect on the grow th in the aggregates. B ank credit, and business loans in particular, grew at an extraordinarily rapid rate through A ugust. The F ederal R eserve sought to counter this developm ent in p art w ith m oral suasion, asking banks volun tarily to lim it credit expansion and the sale of CDs. H owever, the im pact of these efforts was probably limited. D espite som e rath er w idespread forecasts of an im pending credit crunch, m onetary policy was exceptionally tight in 1973 only as m easured by the be havior of short-term interest rates. This may not be a particularly good test, how ever, especially in a period of rapid inflation. G row th of the m onetary and credit aggregates slowed less than in other periods of restraint and rem ained rath er high by historical standards. Increases in long-term interest rates were relatively m odest, with these rates rem aining below their 1970 peaks. A nd, with the exception of the m ortgage m arket in the latter half of the year, credit generally rem ained readily available. A t the outset of the year, the Federal O pen M arket C om m ittee (F O M C ) sought m oney m arket conditions and supplies of bank reserves conducive to slower grow th in the m onetary aggregates than had occurred in the latter half of 1972. T he initial restrictive moves were m oderate in scope. O pen m arket policy was firmed, placing increased pressure on bank reserve positions, and the Federal funds rate m oved upw ard from 5.33 percent in D ecem ber to a daily average in excess of 7 percent in M arch (see C hart 3 ) . T he F ederal Reserve discount rate also was increased in two V2. percentage point steps to reach 5 V2 percent by early M arch. Follow ing the M arch m eeting of the G roup of T en finance m inisters in Paris, w hich resulted in agreem ent th at official intervention in the foreign exchange m arkets m ight be useful at times to facilitate the m aintenance of orderly condi tions, the b o ard of directors of this B ank voted at a special m eeting held M arch 16 to raise the discount rate 1 percentage point to 6 V2 percent. In view of the circum stances at th at tim e, the directors also authorized the officers of this B ank 8 C h a r t 3. M O N EY , B A N K CREDIT, AN D M O N EY M A R K E T CONDITIONS Percent G R O W T H OF N A R R O W M O N E Y SUPPLY ( M l ) 10 5 0 25 G R O W T H OF T O T A L B A N K CREDIT 20 15 10 5 ■ IB l I 0 1969 1970 1971 1972 I III IV 1973 The money supply growth rates are com puted from daily average levels in the final month of the preceding period and the final month of the period covered. Changes in bank credit include loan sales to affiliates and are based on levels as of the close of the period covered and the close of the preceding period. Quarterly figures for 1973 are expressed at seasonally adjusted annual rates. 9 to fix a rate of 6 percent in the event that the B oard of G overnors of the Federal R eserve System failed to approve the 6 V2 percent rate. T he directors were con vinced th at a strong signal of the Federal R eserve’s intention to deal w ith the uncertainties and instability that had arisen w ithin the international m onetary system was highly desirable. T he B oard of G overnors did not act on any dis count rate increase, however, and the rate rem ained at 5 V2 percent. Thereafter, at m eetings in late M arch and A pril, this B ank’s directors voted to increase the discount rate V2 percentage point to 6 percent. W hile it was noted that a 1 percentage point increase was justified by both dom estic and international con siderations, it was felt th at such a move might have severe repercussions on the capital m arkets at th at time. The B oard of G overnors failed to act on the V2 percentage point increase voted by this B ank’s directors. T he B oard of G overnors subsequently did approve a V* percentage point rise in the discount rate to 53A percent at seven Reserve B anks effective A pril 23, and four other Reserve B anks quickly joined in this move. This B ank aligned its rate accordingly in early May. Then, at a special m eeting on M ay 10, the directors voted to raise the discount rate another percentage point to bring it to 6 percent. This increase was approved by the B oard of G overnors. A t the end of M ay, this B an k ’s directors voted to establish a discount rate of 6 V2 percent in the belief th at such an action w ould further dem onstrate the Sys tem ’s willingness to take the necessary steps to help control inflation and restore confidence in the dollar. T he directors voted this increase again at their first m eet ing in June, and the B oard approved the rise in the discount rate to 6 V2 percent effective June 11. G row th in M x slowed sharply in the first quarter of the year but then accelerated dram atically in the A pril-June period despite the m arked rise in short-term interest rates. T he reasons for the second-quarter upsurge in the m oney stock are not at all clear. This m ay have been another instance of the erratic quarterto -q u arter fluctuations of M x. B ank credit, m eantim e, led by an explosive rise in business loans, h ad expanded rapidly in the first quarter, and substantial grow th continued in the second quarter. Some of this expansion was doubtless related to international currency speculation. In response to these developm ents, the Federal Reserve intensified its efforts to achieve restraint over m uch of the spring and sum m er. In June, the Federal R eserve B oard im posed a m arginal reserve requirem ent of 8 percent against the total of large CDs, bank-related com m ercial paper, and finance bills issued by m em ber banks above a specified base, defined as the daily average am ount of 10 such liabilities outstanding in the week ended M ay 16. A t the same time, suspen sion of R egulation Q ceilings was extended to large CDs m aturing in ninety days or more. F u rth er enhancing the restrictive m onetary policy posture, reserve re quirem ents on m ost dem and deposits at m em ber banks were raised V2 percentage point in July, in conjunction with an increase in the discount rate to 7 percent. O pen m arket operations becam e progressively m ore restrictive during the sum m er as well. As reserves were provided less generously through the open m arket, m em ber b an k borrow ings rose to over $2 billion in July and August, nearly double the level of borrow ings at the outset of the year. T he process of slowing the grow th of the m oney supply in the face of continued sizable increases in nom inal spending entailed considerable upw ard pressure on short-term m arket rates of interest, and such rates clim bed to historic peaks during the summer. The Federal funds rate rose to an average of 10.40 percent in July and increased som ew hat furth er the next two m onths. T he discount rate was boosted in A ugust to a record IV 2 percent. In early Septem ber, this B ank’s directors, believing that the Federal R eserve had to provide an overt sign of its determ ination to m ain tain firm m onetary restraint and thereby counteract any expectations of an im m inent easing of policy, voted to raise the rate another V2 percentage point to 8 percent. The B oard of G overnors disapproved this move b u t announced that the m arginal reserve requirem ent on CDs and related bank sources of funds was being increased from 8 percent to 11 percent, thus providing the desired signal. M i contracted in the third quarter, and growth was m oderate over the second half of the year as a whole. M ost of the other m onetary aggregates similarly ex panded less rapidly th an they had during the first half of the year. In recogni tion of the noticeable slowdown in the grow th of com m ercial bank lending to businesses and the decline in the volum e of large CDs outstanding, the m arginal reserve requirem ent on CDs and related liabilities was reduced 3 percentage points to 8 percent in D ecem ber. O verall, the m onetary policy pursued in 1973 was consistent with the need to slow the econom y. R estrain t was achieved, but it was n o t extrem e. M i grew about 3 percentage points less in 1973 th an in the previous year, although its rate of grow th was greater than anticipated on the basis of the m oney supply estim ates available to the F O M C over m uch of the year. A nd M 1 again fluctuated very errati cally on a q u arter-to -q u arter basis. T he reasons for these m ovem ents are often difficult to ascertain. Changes in U nited States G overnm ent deposits, changes in the distribution of deposits betw een banks subject to different reserve require m ents, and shifts in the public’s dem and for liquidity are am ong the unpredict 11 able factors th at can m ake short-run control of the m oney stock difficult. M ore im portantly, attem pts to achieve precise control of the m oney supply in the short run seem both unwise and unnecessary. Since there are lags between F ederal R eserve actions and the response of the m onetary aggregates, efforts on the p a rt of the Federal Reserve to attain a longer run m oney supply target in every m onth could involve excessive instability in m oney m arket interest rates. Sharp swings in interest rates are not only disturbing to financial m arkets but can also lead ultim ately to an overshooting of the m oney supply objectives. This sug gests th at it is desirable to take a som ewhat gradual approach to stim ulating or restraining m onetary growth. F urther, available research suggests that even relatively large deviations from desired rates of increase in the m oney stock of up to six m onths’ duration m ay have little im pact on the economy, provided th at they are subsequently offset. T he F ederal Reserve, m oreover, has generally preferred a m ultifaceted approach, paying close attention to other financial variables as well as to the money supply, because these variables— interest rates and the liquidity position of institutions and the general public, for ex am ple— also have im plications for economic activity. Nevertheless, the substan tial upw ard revision in the statistical estim ates of M 1 grow th in 1973 as a result of incorporating bench-m ark data on deposits at nonm em ber banks and the som etim es confusing signals given off by the wide fluctuations of M x in the short run suggest the desirability of continuing the search for m eans to enhance m one tary control. Two m easures th at w ould contribute to such an im provem ent are better deposit data from nonm em ber banks and uniform reserve requirem ents on dem and deposits at all com m ercial banks. in t e r n a t io n a l d e v e lo r m e n ts . A t the very start of 1973, it was clear th at the existing p attern of foreign exchange rates rested on a fragile base. Confi dence in the durability of currency relationships generally had already been un derm ined by the earlier adoption of a floating exchange rate in the U nited King dom , the introduction of a dual exchange rate system in France and Belgium, the proliferation of direct controls on capital inflows elsewhere on the C onti nent, and the intensification of inflationary pressures everywhere. A bove all, the U nited States balance of paym ents rem ained in substantial deficit through out 1972, while other countries— notably G erm any and Jap an — continued to develop sizable paym ents surpluses, as trade and other international transactions were slow to respond in any fundam ental way to the earlier exchange rate 12 adjustm ents. U nder these circum stances, and in view of the reluctance of m any governm ents to m ake the exchange rates credible to the m arkets through appropriate policies, the entire constellation of exchange rates was vulnerable to renew ed speculative pressures. Those strains first erupted tow ard the end of January, w hen speculation on a devaluation of the Italian lira generated large inflows into Swiss francs. W hen the Italian authorities responded to these pressures by introducing a flexible ex change rate for capital transactions and Sw itzerland allowed the Swiss franc to float, fears of sim ilar action by still other countries swept through the ex change m arkets. Then, early in F ebruary, these expectations developed very rapidly into a m assive attack on the U nited States dollar— one that culm inated in the announcem ent on F ebruary 12 th at the dollar would be devalued by 10 percent. A t th at point, m ost of the continental E uropean countries allowed the dollar devaluation to be fully reflected in exchange rates, but Italy and Japan chose to allow their currencies to float, thus joining the C anadian dollar, Swiss franc, and pound sterling which were already floating. These adjustm ents, together w ith the realignm ent negotiated in 1971, may well have been m ore than adequate to ensure the gradual correction of paym ents im balances among the large industrial countries. Y et the m arkets rem ained unconvinced that the crisis had ended. The resurgence of inflationary pressures in the U nited States had deprived the first devaluation of some of its effect, and there was little indication th at these pressures would be contained. A t the sam e time, the m arkets sensed th at the E uropean governm ents would, individu ally or jointly, allow their currencies to appreciate even further in term s of the dollar in an effort to reduce the inflationary effects of continuing capital inflows. A bove all, a second m ajor realignm ent in little over a year was widely inter preted as simply another step in a continuing sequence of exchange rate adjust ments. C onsequently, the m arkets rem ained deeply disturbed and, after another massive run on the dollar suddenly developed early in M arch, the exchange m arkets in E urope and Jap an were officially closed while a search for a solution to the crisis continued. Follow ing a series of intergovernm ental meetings, five m em bers of the E u ro p ean Com m unity— Belgium, D enm ark, F rance, G erm any, and the N etherlands— announced th at they w ould no longer intervene in dollars b ut w ould m aintain stable exchange rates only in term s of their respective cur rencies. W hen this agreem ent was subsequently joined by N orw ay and Sweden, the dollar was floating in term s of virtually every m ajor currency. A fter the m arkets reopened around the middle of M arch, exchange rates 13 C h a r t 4. EXCHANGE RATES: MAJOR CURRENCIES AGAINST UNITED STATES DOLLAR* * Exchange rate m o vem ents are m easured by the spread from the par value or central rate agreed to in December 1971, except for the Canadian dollar which is m easured by the spread from the parity in May 1970. Breaks in series indicate a change in the central rate. fluctuated within a narrow range (see Chart 4). Early in May, however, the dollar began to decline against most European currencies, despite some signs of an im proving trend in the United States balance of payments. Fears of a further erosion in the value of the dollar intensified, as unfolding developments in the Watergate matter raised doubts in the market as to the ability of the authorities to sustain meaningful anti-inflationary policies. At the same time, the progressive tightening of monetary and fiscal policy in Germany, coupled with recurrent rumors of still another mark revaluation, increased the pressure on the dollar, not only in terms of marks but also in terms of other European currencies. 14 Throughout the spring, as the dollar rate continued to depreciate, the mar kets became demoralized and, at times, disorderly. Official assurances that the central rates were realistic seemed to fall on deaf ears. Indeed, as the dollar rates collapsed, without any indication of support or concern by any govern ment, many market participants appeared to lose all confidence in their ability to assess meaningful exchange rate relationships and looked increasingly for central bank guidance, but in its absence continued to sell dollars. From early May through the first week in July, the dollar depreciated against the more actively traded European currencies by as much as 15 percent. At those levels, the dollar had become transparently undervalued on any reasonably objective appraisal of the cumulative effects of two major exchange rate realignments, which had already been reflected in an improving balance of payments. Against this background, and after consultation with the Treasury and repre sentatives of other countries, the Federal Reserve announced on July 10 that it was prepared to intervene in the exchange markets. In addition, the swap net work was increased by about 50 percent to nearly $18 billion. The announce ment came as a major relief to the markets, and contributed to an immediate recovery of the dollar against the major European currencies. Throughout the latter half of the year, the Federal Reserve intervened in several coordinated operations with other central banks—most heavily in marks, but also in French francs, Belgian francs, and Dutch guilders. These operations clearly helped to restore a sense of order in the exchange markets, and at the same time encouraged the covering of some of the short positions in dollars that had been established earlier in the year. As the rate for the dollar advanced, all of these operations, which were financed by Federal Reserve swap drawings, were quickly reversed. The fact that the central banks were prepared to intervene to prevent the reemergence of disorderly conditions contributed to a much calmer atmosphere in the markets during the late summer and early fall of 1973. The markets showed much greater resiliency in absorbing a succession of adverse political and eco nomic shocks, most notably the outbreak of war in the Mideast in October. The recovery of the dollar then gained momentum, as the markets recognized that the United States was less vulnerable than other industrialized countries to the effects of the interruption of oil supplies and escalation of international petro leum prices. However, the recovery would not have materialized without a tan gible improvement in the United States balance of payments, and as the year progressed it became increasingly clear that a turnaround was under way. Follow ing a massive $10 billion deficit on official settlements in the first quarter of the 15 year, the balance shifted into slight surplus in the second quarter and continued to widen over the remainder of the year (see Chart 5). On any of the other measures of the United States external accounts, the swing was equally dramatic. The improvement was spread throughout the full range of international trans actions and was not just a reflection of an inflow of easily reversible short-term funds. Although the full dimensions of the improvement remain to be tabulated, the balance on trade and long-term capital transactions had moved into sizable surplus by the third quarter of the year. This correction was long overdue. Indeed, the return to a more balanced pattern of international payments was an indispensable condition for the reconstruction of a more viable international monetary system. For the events of 1973 made it clear that no large country is prepared to allow the external value of its currency to fluctuate under all circumstances, in any direction, or without limit, in response to market forces. To do so is to invite speculative aberrations which may at times carry exchange rates to levels that are inconsistent with long-run external payments equilibrium. In a highly integrated world economy, variations in exchange rates have very pervasive and at times unwelcome domestic effects on the economic life of every country, large and small. During a period of global inflationary pressures, more over, extreme exchange rate fluctuations may exacerbate those pressures. For similar reasons, national authorities normally find it desirable whenever feasible to implement policies in an environment of reasonably stable exchange rates to be adjusted where necessary to avoid inflationary or deflationary dis tortions in the domestic economy. However, the need for such adjustment is inherently a matter of international concern, since any exchange rate change entails reciprocal variations in the exchange rates of other countries and may introduce new problems in the management of other economies. It follows, there fore, from the very nature of exchange rate relationships that the determination of exchange rates under virtually any regime is a matter of international negotia tion and reconciliation. The Bretton Woods system, as implemented in practice, provided an effective solution to this problem for many years but one that placed the United States in a passive role. That role is no longer feasible for the United States, and now that countries are prepared to allow their exchange rates to move more promptly than previously, the need for rules of international conduct— whether formally negotiated at a high intergovernmental level and embodied in a revised code of international monetary conduct or developed gradually in other forums— is all the more urgent. Rules that might command broad international support have not yet evolved, and the development of any consensus has become 16 even more difficult in view of the prospective changes in international financial flows resulting from the oil crisis. In very broad terms, of course, the principles of a reformed system began to emerge in 1973 through the negotiations of the Committee of Twenty. Yet many contentious issues were still unresolved, and the operational provisions of a reformed system remained to be negotiated. In fact, there was little inter national agreement on the criteria— objective or otherwise—that might guide or condition changes in exchange rates, on the timing or form of any pressures that might be invoked to induce appropriate policy adjustments, on the desirability of controls over capital flows, on the circumstances under which provision should be made for recourse to floating rates, or on the form and manner for settlement of payments imbalances. C h a r t 5. UNITED S T A T E S B A L A N C E OF P A Y M E N T S Quarterly data at seasonally adjusted annual rates. Taken together, these and other questions represent an extensive list of un resolved issues, and it became increasingly clear that they could not be quickly resolved through intergovernmental agreement. Each of these issues bristles with technicalities, but the difficulties in reform are not so much technical as political, for even the most seemingly arcane features of international monetary arrange ments have a tangible counterpart in domestic as well as international affairs. Whatever the specific characteristics of a reformed system, it is clear that any viable agreement would need to leave scope for adaptation to changing cir cumstances. Moreover, any system would have to survive the severe market pressures to which all currencies are at times exposed and to which the dollar is particularly vulnerable by virtue of its varied and extensive use as an inter national currency. Indeed, no set of rules, however fully codified, will be workable over the long pull unless governments are prepared to make it work and to use for that purpose the entire range of monetary, fiscal, and other policy instruments at their disposal. This implies that all countries must be prepared to qualify their autonomy in economic policy, at least in some respects. That autonomy has already been limited de facto by the very process of economic and financial integration. In a world of interdependent economies, no country can escape the consequences of policies adopted elsewhere, and no country can cope satisfactorily with the problems of adjustment if it stands alone or tries to resolve those problems en tirely on its own terms. The adjustment process must be a joint effort if it is to work satisfactorily, whether that process is formalized in terms of agreed bound aries around the freedom of national action or reflected in looser accommoda tions of uncertain duration. Either way, cooperation remains imperative in a world in which economic interdependence is a fact of life. The need for international cooperation on a broad front is hardly new, but it became even more urgent in the aftermath of the restrictions on oil exports and unprecedented increases in prices announced unilaterally by the oil-producing countries. For the sheer size of the increases carried with it the potential for a massive redistribution of resources, real and financial, from consuming countries to the oil-exporting countries. Under these circumstances, the risks of competi tive and self-defeating policy adjustments to emerging payments imbalances increased considerably. Indeed, the dislocations resulting from the oil problem introduced entirely new dimensions into the process of international monetary management, which will clearly test the commitment of all countries to a mutually beneficial international order. 18 The domestic economy remained plagued by grave problems as 1973 drew to a close. Inflation had not abated and it appeared that it would remain a major concern in 1974. While demand pressures on prices were moderating, cost pressures seemed to have strengthened. Real take-home pay declined in 1973 and consequently labor appeared poised to demand substantial wage increases in 1974. These demands seemed likely to be far in excess of any conceivable gain in labor productivity and hence to generate a further sharp rise in unit labor costs. In addition, the shortages of various petroleum products appeared likely to add significantly in 1974 to upward cost pressures on prices, and thus to inflation, while simul taneously limiting real growth. The experience of 1973, and more generally of the past several years, furnished several important lessons for monetary policy. Clearly, severe infla tionary pressures can emerge well before employment goals formerly re garded as achievable through aggregate demand policies alone are reached. And, once inflation becomes entrenched, it does not respond readily to brief shortfalls in demand. Stringent monetary policy could foster a prolonged down turn in economic activity, and eventually price stability, but only at such sub stantial costs in terms of underutilized resources and foregone output as to be completely outside the realm of acceptable policy. In addition, the experience of 1973 has raised questions about the limitations of wage and price controls. To be sure, there was some improvement during the first two phases of the Economic Stabilization Program when there was still a fair degree of slack in the economy. In such an environment controls may well serve a useful function, especially in helping to check the momentum of a longcontinuing inflation. However, some of the improvement in the latter months of 1971 and in 1972 seems in retrospect to have reflected the repression of infla tionary forces that were subsequently unleashed in 1973. Overall, our recent experience has suggested that an easy solution to the prob lem of inflation probably cannot be achieved. At the end of 1973, it appeared that the energy situation would complicate the challenges facing monetary policy in 1974. While it seemed that monetary policy could do little to relieve the economic problems resulting directly from the oil shortage, policy had to try to minimize the chances that these problems would cumulate into a serious recession or into a further marked acceleration in price increases. Beyond this, monetary policy had to attempt to lay the foundation for a progressive modera tion of inflation in the years ahead. p ro b le m s c o n f ro n tin g m o n e ta ry p o lic y . 19 T H E B A N K ’S O P E R A TIO N S IN 1973 Managing for the Future On July 3, 1973, demolition began on eight buildings occupying the site opposite the Maiden Lane side of the headquarters building of the Federal Reserve Bank of New York. By November 5 most of the 23,249-square-foot tract of land was cleared and ready for construction of the Bank’s planned 42-story auxiliary office building. The building, which will contribute to the revival of the downtown financial community, reflects the Bank’s commitment to remain an active force in the New York City labor market. The building project has received strong support and cooperation from city authorities and interested community groups. In a striking departure from conventional designs, the building will rest on four concrete and steel columns 165 feet high. The design was chosen to make the most efficient use of the available land while meeting the city’s building standards. The construction of a conventional building extending outward to the property line at ground level, with the required “setback” of upper floors, would not have provided the Bank with the space it needs. This new approach to an old problem is, in many ways, representative of a number of other developments that took place in the Bank during 1973. The need for initiatives and innovations has been dictated by more than just the projected increases in the volume of the Bank’s activities. Inherent in the antici pated volume of transfers of funds and securities is the need for more effective controls to ensure the safe, as well as speedy, handling of these activities. In addition, more detailed and accurate management information and financial statistics are needed. The Bank took a number of constructive steps toward these goals during 1973. m e e tin g d e m a n d s f o r s p a c e . A new building was foreseen a number of years ago as the way to keep ahead of the rapidly growing space requirements that were then being met through the use of rented space in nearby buildings. Along with a 26 percent increase in total staff since the mid-1960’s, there has 20 been a 32 percent increase in the Bank’s space requirements. Expanding work volumes and increasing responsibilities pointed to continued growth of staff in a high space-using computer environment. The new building, which is expected to be ready for occupancy in 1977 or 1978, will provide a gross area of more than 858,000 square feet. This is slightly larger than the gross area of the existing main building. Initially, a portion of the building will be rented. The building will allow the Bank to consoli date its present staff and foreseeable growth in staff. About 1,000 staff members are located in five buildings near the headquarters building. The officers’ Build ing Committee, aided by the planning staff, is considering which departments to locate in the new facility. The architecture of the new building will bring a refreshing openness to the narrow, cramped streets just north of the Bank. The underside of the building, thirteen stories above the street, will create a canopy for a landscaped arcade and plaza that will occupy the entire site. The soaring support columns will also frame the northern face of the headquarters building, visually linking the two structures. The two Bank buildings will be connected underground and also by an enclosed pedestrian bridge, 190 feet above Maiden Lane, between the third floor of the new structure and the twelfth floor of the headquarters building. Test borings are being taken of the soil and rock strata of the building site, and an analysis will be prepared to aid in designing the foundation. Ground breaking will take place later this year. p r o g r e s s a g a in s t p a p e r. Continued progress was made in automating United States Government securities operations, as the book-entry program ex panded substantially to include securities issued by several Government agencies and Government securities held by member banks for customers. The book-entry program eliminates the need for physical certificates by per mitting the issuance, servicing, and redemption of eligible securities through electronic entries at Federal Reserve Banks rather than by physical handling. The program also simplifies custody operations, speeds the transfer of securities through the Government Securities Clearing Arrangement, and eliminates the risk of loss or theft involved in safekeeping and delivering physical certificates. The first phase of the book-entry program, which began in 1968, involved the conversion of Government securities held in safekeeping accounts for member banks by Reserve Banks. 21 At the year-end, some $176.6 billion, or 65.4 percent of the $270.2 billion of marketable Government securities outstanding, was in book-entry form. Of the remaining $93.6 billion of direct Government obligations eligible for conversion into book-entry form, approximately $87 billion was in bearer form and $6.6 bil lion in registered form. The majority of these securities are held by banks for customers, such as correspondent banks, trust accounts, and nonbank securities dealers, and are maintained primarily in major financial centers such as New York City, according to industry sources. Member banks in each Reserve Dis trict are currently being urged to speed conversion of these holdings. Eligible securities of several major Federal agencies were also included in the book-entry program during 1973. Among the $3.6 billion in agency securities presently held by Federal Reserve Banks in this form are those of the Banks for Cooperatives, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks, the United States Postal Service, and most recently the Farmers Home Administration. Securities of the Federal National Mortgage Association are expected to be added early in 1974. T H E G R O W IN G S E C U R IT IE S A N D M O N E Y T R A N S F E R N E T W O R K . The number of securities transfers processed through the communications network in 1973 increased 42 percent over 1972 levels, totaling approximately one mil lion transfers with an aggregate par value of more than $1.5 trillion. Participants in the network can make transfers of securities or funds to one another, or to and from other Reserve Banks by telegraphic messages that automatically debit and credit the appropriate reserve and securities accounts. The communications network is also handling a rising volume of funds transfers. Last year, the Bank processed 2.8 million transfers totaling $8.3 trillion, a gain of 29 percent and 42 percent, respectively, over the prior year. Eight additional banks and one Government agency joined the network in 1973, bringing the total number of participants to twenty-two. Plans are also under way to add the Washington, D.C., office of the Treasury Department to the network during 1974. re d u c e d f lo a t. In the first full year after Regulation J was amended to accelerate the check payment schedule, aggregate float dropped 29.3 percent. Float results when a depositing bank’s account is credited for an item before 22 the payor bank’s account is charged. Regulation J was revised in late 1972 to require payor banks to pay for checks drawn on them in immediately available funds on the same day the Federal Reserve Bank presents the checks for pay ment, eliminating a large fraction of float. Aggregate float (net average daily float) in the Second District totaled $548 million, compared with $775 million in 1972. Transportation float, which gen erally reflects weather-induced delays in delivering checks to paying banks, held close to 1972’s level and totaled $216 million in 1973, compared with $203 million the year before. As part of the effort to provide faster check processing in the face of rapidly mounting volume, and particularly to provide for overnight clearing and settle ment in immediately available funds, the Bank established a regional check processing center in Cranford, New Jersey, in April 1973. The facility is cen trally located in relation to some 160 banks it serves in the twelve northernmost counties of New Jersey. The facility replaced a much smaller clearing bureau that previously served forty-three banks in eight of the state’s northernmost counties. Although less than a year old, the Cranford office is one of the largest check processing operations in the Federal Reserve System in terms of items handled. In 1973, it accounted for approximately 185 million checks, or 15.6 percent of the checks the Bank processed in the Second District, while coping with the initial operating problems inherent in any new facility. A Long Island processing facility, which opened in Freeport in 1972, was moved to new quarters in Jericho, New York, in August. These quarters are more suitable to the present operation and will allow the Long Island facility to handle increasing volume. During 1973, this clearing operation handled approxi mately 117 million items, or 9.9 percent of the Bank’s volume. Regional check processing centers, such as those at Cranford and Jericho, are an important intermediate step in the ultimate transition to an electronic payments system that will substantially offset the projected growth of paper checks. There are presently twenty-six projects in numerous cities around the country to develop a system of paperless transfers. Each is oriented toward the devel opment of an automated clearing house which would process electronic entries of bill payments and direct payroll deposits via magnetic tapes, punched cards, or some other machine-readable document. e le c tr o n ic p a y m e n ts . 23 There are three studies presently under way in which this Bank is involved. The Rochester Clearing House Association completed a feasibility study for an auto mated clearing house that would service the Rochester-area banks and those banks that clear checks through the Buffalo office. The Long Island Bankers Association, which launched its studies in 1971, has completed the planning phase of its program and is evaluating the cost of the next phase of the program. The New Jersey Bankers Association has also completed the data-gathering phase of its studies for a possible automated clearing house to include all banks in the state. The Bank, as a possible participant in any future automated system, has been actively discussing plans, acting as a sounding board for new ideas, and providing advice and information. In November, the Board of Governors invited comment by March 8, 1974 on the broad range of issues involved in modernizing the nation’s payments mechanism, including the expanding use of electronic substitutes for check pay ments. Among the issues on which comments were invited were the role of the Federal Reserve and other institutions in the ownership and operation of an electronic payments system, the extent and conditions of access, and the means of allocating operating costs. These comments were requested in connection with a proposed revision of Regulation J. The revision would codify current practices for the use of the Fed eral Reserve communications network for member banks and their customers sending funds from one point to another. More important, the revision would for the first time permit member banks to use the network to collect funds from other commercial banks as they now use it to make payments. Under this pro cedure, a Reserve Bank would provisionally credit a collecting bank’s reserve account immediately on request, electronically transfer the collecting bank’s request to the paying bank, and, pursuant to an agreement between the Reserve Bank and the paying bank, automatically deduct that amount from the paying bank’s reserve account. IMPROVING INTERNAL ORGANIZATION, PLANNING, AND BUDGETARY c o n tr o l. The search for new approaches was highlighted last year by the formation of a senior officers’ committee on planning and budgetary control and by engaging a management consulting firm to assist the Bank’s directors and offi cers in a review of the Bank’s organizational structure and role as well as in de veloping new and improved planning and budgetary techniques and procedures. 24 Task forces headed by officers have begun conducting budget and organization surveys of all departments in the Bank. Several steps have already been taken, among them a revamping of the Bank’s overall budgeting procedures. The goal is to maximize the Bank’s ability to deal with the rapidly growing volume of activities and maintain effective controls over staffing and expenses. In recent years this goal has received increasing emphasis in the System. The Computer Planning Department took the first step in implementing a master automation plan during 1973. The plan charts the direction, scope, and timetable of the Bank’s computer development over the next seven years. The goals are to organize the proliferation of computer uses, to meet the increasing demands to process more information at a faster pace, and to provide a more accessible and flexible source of management information needed in the course of everyday business. Under the plan, the Bank’s computer facilities would be formed into an in tegrated management information system that would allow the various operat ing and administrative functions to share pertinent data gathered and stored in a central information system. Data would be fed into the information system through remote terminals, such as cathode-ray devices, connected to a com munications system controlled by an automatic message-switching unit that would direct the flow of data. Initially the communications network would connect the Bank’s in-house computer operations with the Buffalo Branch and the Cranford and Jericho check processing facilities. Eventually, terminals for collecting and supplying selected data would be extended to the Board of Governors and other Reserve Banks, the Treasury and other Government agencies, the New York Clearing House, and Government securities dealers. During 1973, information systems were designed to handle the Bank’s trans fer agent functions, to inventory and report the public debt, and to compile and analyze the Bank’s budget and expenses. A senior officers’ committee on computer uses was reorganized in July 1973 to oversee all of the automation plans, allocate computer resources, and assign priorities to all computer projects. 25 Financial Statements S T A T E M E N T O F C O N D IT IO N In thousands of dollars Assets D EC. 3 1, 1973 D E C . 3 1 , 197 2 Gold certificate account........................................................................ Special Drawing Rights certificate account.......................................... Federal Reserve notes of other B a n k s................................................. Other cash ............................................................................................. 3,231,124 93,000 197,838 19,012 2,063,888 93,000 205,956 17,435 Total 3,540,974 2,380,279 Advances ............................................................................................... Acceptances: 485,105 926,100 Bought outright ..................................................................................... Held under repurchase agreem ents..................................................... United States Government securities: Bought outright* ................................................................................ Held under repurchase agreements ..................................................... Federal agency obligations: Bought outright ..................................................................................... Held under repurchase agreements ..................................................... 68,014 0 70,461 36,306 19,313,746 58,000 17,702,177 97,500 476,947 42,000 332,538 13,000 Total loans and securities 20,443,812 19,178,082 Other assets: Cash items in process of collection ..................................................... Bank premises ....................................................................................... All otherf ............................................................................................. 2,575,287 10,067 207,995 2,543,300 7,482 258,960 Total other assets 2,793,349 2,809,742 Total Assets 26,77 8,135 24,368,103 ★ Includes securities loaned— fully secured by United States Government securities pledged with the Bank ................................................................ 162,950 27,100 t Includes assets denominated in foreign currencies. 26 S T A T E M E N T O F C O N D IT IO N In thousands of dollars Liabilities D E C . 3 1 , 197 3 D E C . 3 1 ,1 9 7 2 Federal Reserve notes .......................................................................... 16,081,665 14,809,233 Deposits: Member bank reserve accounts........................................................... United States Treasurer— general account.......................................... Foreign* ............................................................................................... 7,780,246 394,348 58,635 7,072,851 388,169 110,029 673,840 571,067 8,907,069 8,142,116 1,118,004 241,471 862,910 Total deposits Other liabilities: Deferred availability cash ite m s ........................................................... All other ............................................................................................... Total other liabilities 140,636 1,359,475 1,003,546 Total Liabilities 2 6 f348,209 2 3,954,895 Capital paid in ..................................................................................... Surplus ................................................................................................. 214,963 214,963 206,604 206,604 Total Capital Accounts 4 29 ,926 4 13 ,2 08 Total Liabilities and Capital Accounts 26 ,77 8,135 2 4 ,368,103 151,662 46,552 Capital Accounts Contingent liability on acceptances purchased for foreign correspondentsf ................................................................................ ★ After deducting participations of other Federal Reserve Banks amounting to 192,140 214,600 t After deducting participations of other Federal Reserve Banks amounting to 429,433 132,460 27 S T A T E M E N T O F E A R N IN G S A N D E X P E N S ES FOR T H E C A LEN D A R Y E A R S 1973 A N D 1972 (In thousands of dollars) 1973 1972 Total current earnings .......................................................................... Net expenses ......................................................................................... 1,347,807 108,848 971,295 90,074 Current net earnings 1,238,959 881,221 Additions to current net earnings: Profit on sales of United States Government securities and Federal agency obligations (net) ............................................... 0 770 All other ............................................................................................... 503 516 503 1,286 Total additions Deductions from current net earnings: Loss on sales of United States Government securities and Federal agency obligations ( n e t) .............................................. 9,281 0 Loss on foreign exchange transactions (net) ...................................... All other ............................................................................................... 12,376 60 13,477 107 Total deductions 21,717 13,584 Net deductions....................................................................................... 21,214 12,298 1,217,745 868,923 12,550 11,928 1,196,836 8,359 843,245 13,750 206,604 8,359 192,854 13,750 214,963 2 06 ,6 04 Net earnings available for distribution Dividends p a id ....................................................................................... Payments to United States Treasury (interest on Federal Reserve notes) ...................................................................... Transferred to surplus .......................................................................... SUR PLUS AC CO U N T * Surplus— beginning of y e a r .................................................................. Transferred from net earnings for y e a r ............................................... Surplus— end of year 28 Changes in Directors and Senior Officers In August 1973, member banks in Group 2 elected William S. Sneath a Class B director for the unexpired portion of the term ending December 31, 1974, from which Frank R. Milliken resigned, effective December 31, 1972, to accept appointment as a Class C director. Mr. Sneath is President of Union Carbide Corporation, New York, N. Y. In December, member banks in Group 1 reelected David Rockefeller a Class A director and Maurice F. Granville a Class B director, each for a three-year term beginning January 1, 1974. Mr. Rockefeller, Chairman of the Board of The Chase Manhattan Bank (National Association), New York, N. Y., has been a Class A director since January 1, 1973. In 1972, Mr. Rockefeller served as the member of the Federal Advisory Council representing the Second Federal Reserve District. Mr. Granville, Chairman of the Board of Texaco Inc., New York, N. Y., has been a Class B director since March 14, 1972. Also in December, the Board of Governors of the Federal Reserve System redesignated Roswell L. Gilpatric as Chairman of the board of directors and Federal Reserve Agent for the year 1974. Mr. Gilpatric, a partner in the New York law firm of Cravath, Swaine & Moore, has been serving as a Class C director since January 1969 and served as Deputy Chairman during 1971 and as Chairman and Federal Reserve Agent during 1972 and 1973. At the same time, the Board of Governors reappointed Frank R. Milliken as Deputy Chair man for the year 1974. Mr. Milliken, President of Kennecott Copper Corpora tion, New York, N. Y., has been serving as a Class C director, and as Deputy Chairman, since January 1973. He served as a Class B director in 1972. In addition, the Board of Governors reappointed Alan Pifer a Class C director for the three-year term beginning January 1, 1974. Mr. Pifer, President of Carnegie Corporation of New York, New York, N. Y., has been serving as a Class C director since October 1971. c h a n g e s in d ir e c to r s . Buffalo Branch. In December, the Board of Governors reappointed Rupert Warren a director of the Buffalo Branch for a three-year term beginning Janu ary 1, 1974. Mr. Warren, former President of Trico Products Corporation, Buffalo, N. Y., has been a director of the Branch since January 1971 and was Chairman of the Branch Board during 1973. Also in December, the board of directors of this Bank appointed J. Wallace Ely and Daniel G. Ransom as directors of the Buffalo Branch for three-year terms beginning January 1, 1974. 29 Mr. Ely, who is Chairman of the Board of Security New York State Corporation, Rochester, N. Y., had previously served as a director of the Buffalo Branch from January 1965 through 1967. Mr. Ransom is President of The Wm. Hengerer Com pany, Buffalo, N. Y. On the Branch Board, they succeeded Angelo A. Costanza, President, Central Trust Company Rochester N. Y., Rochester, N. Y., and William B. Anderson, President, The First National Bank of Jamestown, James town, N. Y., who had been serving on the Branch Board since January 1, 1971. At the same time, the board of directors of this Bank designated Norman F. Beach as Chairman of the Branch Board for the year 1974. Mr. Beach, who is Vice President of Eastman Kodak Company, Rochester, N. Y., has been a director of the Branch since January 1, 1968 and was Chairman of the Branch Board during 1971. The following changes in the official staff, at the level of Vice President and above, have been made since January 1973: William F. Treiber, First Vice President, retired from the Bank, effective June 1, 1973, after completing almost four decades of distinguished service with the Bank, including twenty-one years as its First Vice President. Mr. Treiber, who attained age sixty-five in May, joined the Bank as an officer with the title of Assistant Counsel in 1934. He held several other official positions prior to his appointment as First Vice President, effective March 1, 1952. Since July 1, 1973 Mr. Treiber has been serving as a part-time consultant to the Bank with respect to the Bank’s new building and other special long-range projects. Richard A. Debs, formerly Senior Vice President, was appointed First Vice President, effective June 1, 1973, for the unexpired portion of Mr. Treiber’s five-year term ending February 29, 1976. Richard G. Davis, formerly Adviser, was appointed Vice President on June 1, 1973 and assigned to Research and Statistics, with supervisory responsibility for the operations of the function under Robert G. Link, Senior Vice President. Effective December 1, 1973, when Mr. Link retired from the Bank, Mr. Davis was assigned as the officer in charge of Research and Statistics. Peter Fousek, formerly Vice President, was appointed Economic Adviser on June 1, 1973 and assigned to Research and Statistics. In this position, which is equivalent in rank to that of Vice President, Mr. Fousek is primarily concerned with advice and special studies with respect to international economic and financial affairs. c h a n g e s 30 in s e n io r o ffic e rs . John T. Keane, Vice President, formerly assigned to Accounting Control, was assigned to Personnel on June 1, 1973. Paul Meek, formerly Assistant Vice President, was appointed Monetary Ad viser on June 1, 1973 and assigned to Open Market Operations and Treasury Issues. In this position, which is equivalent in rank to that of Vice President, Mr. Meek is primarily concerned with advice and special studies with respect to open market operations and policies. A. Marshall Puckett, formerly Assistant Vice President, was appointed Vice President on June 1, 1973 and assigned to Accounting Control. Effective July 20, 1973, the Cash and Collections Function was reorganized into two functions, the Cash and Collection Function and the Check Processing Function. Thomas O. Waage, Senior Vice President, formerly assigned to Cash and Collections, was assigned to Cash and Collection and to Check Processing on July 20, 1973. Mr. Waage’s assignment to Public Information was continued. William H. Braun, Jr., Vice President, formerly assigned to Building and Planning, was assigned to Cash and Collection on July 20, 1973. Karl L. Ege, formerly Assistant Vice President, was appointed Vice President on July 20, 1973 and assigned to Check Processing. Robert G. Link, Senior Vice President, retired on early retirement effective December 1, 1973, after completing over twenty years of service with the Bank. Mr. Link joined the Bank’s staff in 1953 and became an officer in 1958. Thomas M. Timlen, Jr., Senior Vice President, was assigned to Building and Planning effective January 1, 1974. Mr. Timlen’s assignments to Accounting Control, Data Services, Government Bond and Safekeeping of Securities, Loans and Credits, Personnel, and Service were continued. George Garvy, formerly Economic Adviser, was appointed Vice President and Senior Adviser effective January 1, 1974. In his new position, Mr. Garvy has responsibility for advising the President and the First Vice President on policy matters and for special studies. Robert E. Lloyd, Jr., was appointed Vice President effective January 1, 1974 and assigned to Building and Planning. Mr. Lloyd joined the Bank’s staff as Adviser effective August 1, 1973; he had formerly been Deputy Manager, Operations, at Brown Brothers Harriman & Co. Paul B. Henderson, Jr., was appointed an officer of the Bank with the title of Vice President effective February 15, 1974 and assigned to Data Services. Prior to joining the Bank, Mr. Henderson was the Director of Data Services, 31 Allis-Chalmers Corporation, Milwaukee, Wisconsin. Everett B. Post, formerly Vice President, was appointed Senior Data Services Adviser, which is equivalent in rank to the position of Vice President, effective February 15, 1974; his assignment to Data Services was continued. Mr. Post has elected early retirement and will retire from the Bank on July 1, 1974. 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 - 1 9 7 4 . The board of directors of this Bank selected Gabriel Hauge to serve during 1974, for the second suc cessive year, as the member of the Federal Advisory Council representing the Second Federal Reserve District. Mr. Hauge is Chairman of the Board of Manu facturers Hanover Trust Company, New York, N. Y. 32 Directors of the Federal Reserve Bank of New York D IR E C T O R S Term expires Dec. 31 Class Group D avid R o c k e f e l l e r ............................................................................................ ................................................ Chairman of the Board, The Chase M anhattan Bank (National Association), New York, N.Y. 1976 A 1 N o r m a n B r a s s l e r ............................................................................................................................................... Chairman of the Board, New Jersey Bank (National Association), Clifton, N.J. 1974 A 2 N e w m a n E . W a it , J r ........................................................................................................................................... President, The Adirondack Trust Company, Saratoga Springs, N.Y. 1975 A 3 M a u r ic e F . G r a n v i l l e ..................................................................................................................................... Chairman of the Board, Texaco Inc., New York, N.Y. 1976 B 1 W il l ia m S. S n e a t h ............................................................................................................................................ President, Union Carbide Corporation, New York, N.Y. 1974 B 2 J ack B . J a c k s o n .................................................................................................................................................... President, J. C. Penney Company, Inc., New York, N.Y. 1975 B 3 R o s w e l l L. G il p a t r ic , Chairman, and Federal Reserve A g e n t........................................... Partner, Cravath, Swaine & Moore, Attorneys, New York, N.Y. 1974 C F r a n k R. M i l l ik e n , D eputy C h a irm a n ....................................................................................... President, Kennecott Copper Corporation, New York, N.Y. 1975 C A l a n P i f e r .............................................................................................................................................................. President, Carnegie Corporation of New York, New York, N.Y. 1976 C D IR E C T O R S — B U F F A L O B R A N C H N o r m a n F. B e a c h , C h a irm a n ........................................................................................................................ Vice President, Eastman Kodak Company, Rochester, N.Y. 1974 T h e o d o r e M . M c C l u r e ..................................................................................................................................... President, The Citizens National Bank and Trust Company, Wellsville, N.Y. 1974 D o n a l d R . N e s b i t t ............................................................................................................................................ Owner and operator, Silver Creek Farms, Albion, N.Y. 1975 C l a u d e F. S h u c h t e r .......................................................................................................................................... President, Manufacturers and Traders Trust Company, Buffalo, N.Y. 1975 J. W a l l a c e E l y .................................................................................................................................................... Chairman of the Board, Security New York State Corporation, Rochester, N. Y. 1976 D a n i e l G . R a n s o m ............................................................................................................................................... President, The Wm. Hengerer Company, Buffalo, N.Y. 1976 R u p e r t W a r r e n .................................................................................................................................................... Former President, Trico Products Corporation, Buffalo, N.Y. 1976 M E M B E R O F F E D E R A L A D V IS O R Y C O U N C I L ------1 9 7 4 G a b r i e l H a u g e ....................................................................................................................................................... Chairman of the Board, Manufacturers Hanover Trust Company, New York, N.Y. 1974 33 Officers of the Federal Reserve Bank of New York A l f r e d H a y e s , President R i c h a r d A . D e b s , First Vice President C h a r l e s A . C o o m b s , Senior Vice President Foreign T h o m a s M . T i m l e n , J r . , Senior Vice President Accounting Control; Building and Planning; D ata Services; Government Bond and Safekeeping of Securities; Loans and Credits; Personnel; Service A l a n R . H o l m e s , Senior Vice President Open Market Operations and Treasury Issues T h o m a s O. W a a g e , Senior Vice President Cash and Collection; Check Processing; Public Information A C C O U N T IN G C O N TR O L C A S H A N D C O L L E C T IO N A. M a r s h a l l P u c k e t t , Vice President W i l l i a m H . B r a u n , J r . , Vice President W a l t e r S. R u s h m o r e , Assistant Vice President J o h n C h o w an sk y , K a r e n J. B o p p , Manager, Management Information Department Manager, Cash Custody Department, and Manager, Collection Department H e n r y S. F u j a r s k i , J r . , L e o n R. H o lm e s , Manager, Accounting Department A U D IT G e o r g e C . S m i t h , General Auditor J o h n E . F l a n a g a n , Assistant General Auditor W . W illia m B a u m g a rd t, Manager, Auditing Department B A N K S U P E R V IS IO N A N D R E L A T IO N S F r e d W . P i d e r i t , J r ., Vice President BENEDICT R a f a n e l l o , Assistant Vice President E d w a rd F. K ip f s tu h l, Manager, Cash Department C H E C K P R O C E S S IN G K a r l L. E g e , Vice President J a m e s O . A s t o n , Assistant Vice President L e o n a r d I. B e n n e t t s , Manager, Check Adjustment and Return Items Department R a lp h A . C a n n , III, Manager, Check Processing Department F r e d A . D e n e s e v ic h , Manager, Check Processing Department Jo h n C. H o u h o u lis , Manager, Foreign Banking Regulations Department Manager, Payment Systems Department B e n ja m in S ta c k h o u s e , J o s e p h M . O ’C o n n e l l , Manager, Bank Applications Department R o b e r t C . T h o m a n , Assistant Vice President A d a m R . D ic k , Manager, Bank Relations Department F r e d e r i c k L . F r e y , Chief Examiner Manager, Check Processing Department W h i t n e y R . I r w i n , Assistant Vice President Je ro m e P. P e r lo n g o , Manager, North Jersey Regional Check Processing Center J am es H . Booth, Manager, Regulations and Bank Analysis Department L e o n K o ro b o w , Manager, Banking Studies Department B U IL D IN G A N D P L A N N IN G R o b e r t E . L lo y d , J r . , Vice President Louis J. B r e n d e l , Assistant Vice President R o n a l d E. L o n g , Manager, Planning Department A . T h o m a s C o m b a d e r , Buildings Administrator M a tth e w C. D r e x le r , Manager, Building Operating Department 34 D A T A S E R V IC E S P a u l B. H e n d e r s o n , J r . , Vice President E v e r e t t B. P o s t , Senior Data Services Adviser H o w a r d F . C r u m b , Adviser E d w in R . P o w e r s , Assistant Vice President J e r r y B e rk o w itz , Manager, Computer Planning Department P e t e r J. F u l l e n , Manager, Computer Operations Department G e ra ld H ayden, Manager, Computer Support Department W i l l i a m M . W a l s h , Assistant Vice President R a l p h C . S c h i n d l e r , Research Computer Officer Officers (Continued) E Q U A L O P P O R T U N IT Y CECIL A. S h e p h e r d , Equal Opportunity Officer F O R E IG N C h a r l e s A . C o o m b s , Senior Vice President D a v id E. B o d n e r , Vice President R o b e r t J. C r o w l e y , Assistant Vice President F r e d H . K l o p s t o c k , Adviser S c o t t E . P a r d e e , Assistant Vice President M a r g a r et L . G r e e n e , Manager, Foreign Department B e r n a r d J. J a c k s o n , Manager, Foreign Department E d w i n S. R o t h m a n , Manager, Foreign Department G O V E R N M E N T B O N D A N D S A F E K E E P IN G O F S E C U R IT IE S T h o m a s C . S l o a n e , Vice President M a t t h e w J. H o e y , Assistant Vice President P a u l J. C i e u r z o , Manager, Government Bond and Safekeeping Department R ic h a rd V o llk o m m e r, Manager, Government Bond and Safekeeping Department W i l l i a m H . W e t e n d o r f , Assistant Vice President A r m o n d J. B r a i g e r , Manager, Savings Bond Department S t e p h e n P . W e is , Manager, Security Custody Department LEGAL R o b e r t L. C o o p e r , Assistant Vice President J o s e p h R . C o y l e , Chief Securities Trading Officer I r w i n D . S a n d b e r g , Assistant Vice President E d w a r d J. O z o g , Manager, Acceptance Department, and Manager, Securities Department S h e ila L. T s c h in k e l, Manager, Securities Department PERSONNEL J o h n T . K e a n e , Vice President P h i l i p V a n O r m a n , Assistant Vice President B ru c e G . A le x a n d e r, Manager, Personnel Department T e r r e n c e J. C h e c k i, Manager, Personnel Department F ra n c is H . R o h rb a c h , Manager, Personnel Department P U B L IC IN F O R M A T IO N L e o n a r d L a p id u s , Vice President R i c h a r d H . H o e n ig , Assistant Vice President R ES EA R CH A N D S T A T IS T IC S R i c h a r d G . D a v is , Vice President P e t e r F o u s e k , Economic Adviser A n t o n S. N is s e n , Assistant Vice President C h a rle s M . L u cas, Manager, Statistics Department F r e d e r i c k C . S c h a d r a c k , J r . , Adviser R u d o l f T h u n b e r g , Assistant Vice President E d n a E. E h rlic h , Manager, International Research Department E d w a r d G . G u y , Vice President M i c h a e l J. H a m b u r g e r , and General Counsel Senior Economist J a m e s H . O l t m a n , Assistant General Counsel R o b e r t Y o u n g , J r . , Assistant General Counsel ALLEN R . B iv e n s , Assistant Counsel R i c h a r d D . C o o p e r s m i t h , Assistant Counsel E r n e s t T . P a t r i k i s , Assistant Counsel L e o p o l d S. R a s s n ic k , Assistant Counsel, G a ry H . S te rn , and Assistant Secretary M a r y J. R o d g e r s , Assistant Counsel Manager, Domestic Research Department S E C R E T A R Y ’S O F F IC E E . G e r a l d C o r r i g a n , Secretary T h e o d o r e N . O p p e n h e im e r , Assistant Secretary L e o p o l d S. R a s s n i c k , Assistant Counsel, and Assistant Secretary S t e p h e n G . T h ie k e , Assistant Secretary L O A N S A N D C R E D IT S H . D a v id W i l l e y , Vice President E u g e n e P. E m ond, Manager, Credit and Discount Department H e r b e r t H . R u ess, Manager, Credit and Discount Department O P E N M A R K E T O P E R A T IO N S A N D T R E A S U R Y IS S U E S A l a n R . H o l m e s , Senior Vice President P a u l M e e k , Monetary Adviser P e t e r D . S t e r n l i g h t , Vice President S E N IO R A D V IS E R G e o r g e G a r v y , Vice President and Senior Adviser S E R V IC E F r e d e r i c k L. S m e d le y , Vice President W i l l i a m M . S c h u l t z , Assistant Vice President Louis J. C o n r o y , Manager, Emergency Planning Department F r a n k W . L u n d b la d , J r . , Manager, Protection Department R u th A n n T y le r, Manager, Service Department 35 OFFICERS—BUFFALO BRANCH A n g u s A . M a c I n n e s , J r . , Vice President R o n a l d B. G r a y , Assistant Vice President and Cashier A C C O U N T I N G ; C H E C K ; C O M P U T E R S E R V IC E S P e t e r D . L u c e , Assistant Cashier B U IL D IN G O P E R A T IN G ; C O L L E C T I O N , L O A N S A N D F IS C A L A G E N C Y ; S E R V IC E G a r y S. W e i n t r a u b , Assistant Cashier B A N K R E L A T IO N S ; C A S H ; E M E R G E N C Y P L A N N IN G ; P R O T E C T IO N ; P U B L IC I N F O R M A T IO N H a r r y A . C u r t h , J r . , Assistant Cashier 36 M A N A G E M E N T R EP O R TS ; P ER S O N N EL R o n a l d B . G r a y , Assistant Vice President and Cashier
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