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FEDERAL RESERVE BANK
OF NEW YORK




A N N U A L REPORT

1974

FEDERAL

RESERVE

B A N K OF N E W Y O R K

F e b r u a r y 19, 1975

To th e M e m b e r B a n k s in the
Second F ed era 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 s i x t i e t h A n n u a l R e p o r t ,
r e v i e w in g m a j o r e c o n o m i c and fin a n c ia l d e v e l o p m e n t s and th is
B a n k 's o p e r a t io n s in 1974.
T h is c o u n try e x p e r i e n c e d e c o n o m ic s t r a in s of e x c e p ­
t i o n a l s e v e r i t y d u r i n g th e p a s t y e a r . D e s p i t e a m o d e r a t i o n in a g g r e g a t e
d e m a n d , v i r u l e n t i n f l a t i o n p e r s i s t e d , e x a c e r b a t e d by th e f o u r f o l d i n ­
c r e a s e in th e p r i c e o f p e t r o l e u m i m p o s e d b y th e m a j o r o i l - e x p o r t i n g
n a tio n s. C o n s u m e r and b u s i n e s s c o n fid en ce s a g g e d a s in fla tio n red u c ed
r e a l i n c o m e s , a n d a p e r v a s i v e c o n t r a c t i o n in e c o n o m i c a c t i v i t y d e v e l o p e d
in t h e f i n a l m o n t h s o f th e y e a r . P r e s s u r e o n th e d o m e s t i c f i n a n c i a l
s y s t e m w a s a s o u r c e o f d e e p c o n c e r n a n d , o v e r th e s u m m e r , th e F e d e r a l
R e s e r v e w a s c a l l e d u p o n to h e l p p r e v e n t a m a j o r b a n k f a i l u r e f r o m h a v i n g
s i g n i f i c a n t c o n s e q u e n c e s t h r o u g h o u t th e e c o n o m y .
L i k e th e U n i t e d S t a t e s , m o s t c o u n t r i e s a b r o a d w e r e b e s e t
b y s e r i o u s e c o n o m i c d i f f i c u l t i e s s t e m m i n g in p a r t f r o m th e r i s e in th e
p r i c e o f o i l . In a n u m b e r o f c o u n t r i e s , i n c r e a s e d o i l p a y m e n t s w e r e
a d d e d to t r a d e d e f i c i t s t h a t w e r e a l r e a d y l a r g e . W h i l e t h e s e e n l a r g e d
d e fic it s w e r e fin a n c ed w ith ou t undue s tr a in , th er e w a s a w o r r i s o m e
i n c r e a s e in th e b u r d e n o f e x t e r n a l d e b t f o r s o m e c o u n t r i e s . M o r e o v e r ,
c o n f i d e n c e in th e i n t e r n a t i o n a l b a n k i n g s y s t e m w e a k e n e d , f o r e i g n e x c h a n g e
t r a n s a c t i o n s w e r e s h a r p l y c u r t a i l e d f o r a t i m e , a nd l e n d i n g b y E u r o - b a n k s
s l a c k e n e d s i g n i f i c a n t l y i n th e s e c o n d h a l f o f th e y e a r .
E c o n o m ic p o lic y m a k e r s fa c e a v e r y d ifficu lt en v ir o n m e n t
in 1 9 7 5 . A s t r e n g t h e n i n g o f i n t e r n a t i o n a l f i n a n c i a l c o o p e r a t i o n i s c l e a r l y
req u ired .
T h e i n d u s t r i a l c o u n t r i e s m u s t a l s o m a k e m a j o r e f f o r t s to
r e d u c e th e p a y m e n t s i m b a l a n c e b y c o n s e r v i n g e n e r g y and d e v e l o p i n g
a l t e r n a t i v e e n e r g y s u p p l ie s and by e x p a n d in g e x p o r t s to the o il- p r o d u c in g
c o u n t r i e s . In t h i s c o u n t r y , w e m u s t a t t e m p t to a r r e s t th e m a r k e d r i s e in
u n e m p l o y m e n t and to l a y t h e g r o u n d w o r k f o r a r e s u m p t i o n o f s u s t a i n e d
e c o n o m i c g r o w t h . A t t h e s a m e t i m e , w e m u s t b e c a r e f u l to a v o i d o v e r l y
s t i m u l a t i v e p o l i c i e s w h i c h c o u l d add u l t i m a t e l y t o t h e c o s t s o f a c h i e v i n g
a r e a s o n a b l e d e g r e e o f p r i c e s t a b i l i t y . S t r i k i n g th e p r o p e r b a l a n c e in
p u r s u in g t h e s e o b j e c t i v e s i s no e a s y ta s k .




---A L F R E D HAYES
P r e sid en t




Federal Reserve Bank
of New York

SIXTIETH
ANNUAL REPORT
For the Year
Ended
December 31,1974

Second Federal Reserve District

C o n t e n t s
Page
THE ECONOMY IN 1974 ....................................................................................................................

3

Monetary policy in 1974 ................................................................................................................
The international economy under strain ...................................................................................

7
11

Problems for monetary policy .......................................................................................................

19

THE BANK’S OPERATIONS IN 1974 ..............................................................................................
Resolving the Problem of Franklin National Bank .................................................................

21
21

Discount window assistance ...........................................................................................................
The search for a resolution .......................................... ................................................................
Franklin’s foreign exchange contracts .........................................................................................

22
24
24

The final stages .................................................................................................................................

25

Operational H ighlights......................................................................................................................

27

Strengthening planning and budget c o n tr o ls..............................................................................
Book-entry progress ........................................................................................................................

27
28

Treasury offerings attracted thousands of individuals ............................................................
Foreign account investment activity increased ........................................................................
Monitoring foreign exchange markets .......................................................................................
New building and energy conservation .......................................................................................
Food-coupon-processing facility in Puerto R i c o ........................................................................

28
29
29
29
30

Financial S ta te m e n ts ........................................................................................................................

31

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

31
32

Changes in Directors and Senior O fficers..................................................................................

34

Changes in directors ........................................................................................................................
Changes in senior officers ................................................................................................................
Member of Federal Advisory Council— 1975 .........................................................................
List of Directors and O fficers.........................................................................................................

34
35
36
37

CHARTS
Chart 1. Production, Prices, and Unemployment in the United S ta te s .............................

5

Chart 2. Money, Bank Credit, and Interest Rates .................................................................

8

Chart 3 . Changes in Consumer Prices and Production for Selected C o u n trie s .............

14

Chart 4 . Current-Account Balances in 1973 and 1974 ........................................................

17




S ix tie th A n n u a l R e p o r t
F e d e ra l R e s e rv e B a n k o f N e w Y o r k

Th e Econom y in 1974
A combination of severe, and in some respects unprecedented, economic strains
caused deep concern throughout much of the industrialized world in 1974. In­
flation of great severity continued during the year. At the same time, economic
activity slackened in many industrial countries, and in the United States a reces­
sion developed. Both inflation and emerging recessionary tendencies were
strongly influenced early in the year by the oil embargo, but the fourfold in­
crease in the price of petroleum imposed by the major oil-exporting nations
proved of more enduring importance. This development directly exacerbated
inflation and, at the same time, dampened economic expansion both by signifi­
cantly reducing purchasing power in the industrial countries and by exerting
major strains on world financial markets.
The United States shared many of the economic woes which beset the rest
of the world. The effects of demand pressures dating from the mid-1960’s com­
bined with special developments, including the rise in oil prices, to generate in
1974 an inflation of unprecedented severity for a peacetime period. A muchneeded cooling of the economy emerged, but was magnified by the strains of
inflation on both business and consumer psychology and on financial markets.
Liquidity pressures mounted and, in the final months of the year, a very painful
contraction of economic activity developed. While there were some encouraging
straws in the wind at the year-end, significant progress against inflation was by
no means assured. Overall, recent experience confirmed that the longer inflation
is allowed to run unchecked, the greater are the distortions built into the econ­
omy and the more difficult and painful it is to bring inflation under control. In




3

looking ahead to 1975, it was clear that economic policy makers faced an excep­
tionally difficult set of circumstances.
Largely as a result of the energy shortage, weakness had emerged in the
domestic economy early in the year. Real gross national product (GNP) de­
clined sharply in the first quarter and moved down slightly further during the
spring and summer months. However, industrial production recovered a bit
over this period and employment also increased. It was not until the final
months of the year that a classic recessionary pattern, including substantial
declines in industrial output and sharply rising unemployment, set in (see
Chart 1). The downturn was accompanied by increasing public concern about
the economic situation, as evidenced by the depressed state of consumer and
business confidence and by the further slump in the stock market.
Conditions in the labor market were reasonably stable over the first two thirds
of the year, as employment increased modestly and the unemployment rate
advanced only slightly from the level established in January. However, the final
months of 1974 witnessed a sharp deterioration. Unemployment climbed to
7.1 percent of the civilian labor force in December, primarily as a result of a
surge in job layoffs. Some sectors of the economy, notably manufacturing and
construction, were particularly affected.
While the symptoms of economic contraction began to become pronounced
and general only relatively late in 1974, inflation was an acute problem through­
out the period. Indeed, inflation was far worse than it had been in the preced­
ing year. It is difficult, however, to provide a wholly adequate explanation for
the full extent of price inflation. Certainly, past demand pressures stemming
from overly stimulative policies were in part responsible. Over the past ten
years or so, the Federal budget was frequently in deficit by a substantial amount,
and fiscal policy was overly expansive much of the time. This fiscal policy pos­
ture added directly to demands for goods and services during a period when
the productive capacity of the economy was often strained. Moreover, stimu­
lative fiscal policy requiring deficit financing put upward pressure on interest
rates. To the extent that the Federal Reserve resisted this pressure, the large
deficits served to encourage excessive monetary expansion. And, apart from
fiscal influences, monetary policy was rather too expansionary in 1972. Other
developments, namely, the fuel and food supply shortages and the depreciation
of the dollar, also contributed materially to the recent inflation.
Experience suggests that the influence of demand pressures tends to work
its way through the price system over an extended period, as labor and other
4




C h a rt 1.

P R O D U C T IO N , P R IC E S , A N D U N E M P L O Y M E N T IN T H E
U N IT ED S T A T E S

Ind ex

125
120
115

110

105

100
Percent

10

5

0
-5

-1 0
I

II

III

IV

I

II

III

IV

Percent

6

5

4

3




All data are seasonally adjusted. Quarterly gross national product (GNP)
numbers are at an annual rate.

5

costs as well as price expectations respond only gradually to demand condi­
tions. This explains, at least in part, why prices can continue to rise rapidly
for a time during periods of slack demand, as they did during the 1969-70
recession and in 1974. The tardiness with which inflation has tended to respond
to the removal of demand pressures and, more broadly, the severe overall accel­
eration of inflation over the past decade have focused increasing attention on the
ability of aggregate demand policies to lower, by themselves, the long-run
average level of unemployment.
In light of our recent experience, the notion that unemployment can be
permanently reduced below some specified minimum simply by expanding
aggregate demand appears to be seriously misleading. To be sure, if unemploy­
ment is abnormally high, the judicious application of stimulative policies can
help to reduce unemployment to more moderate levels with little adverse effect
on inflation. Beyond a certain point, however, one that seems to be dictated
largely by the structural characteristics of labor markets, attempts to reduce
unemployment in this fashion require larger and larger doses of stimulus. Thus,
a progressively more rapid inflation is required to achieve given effects on unem­
ployment. It is quite clear that, if this process is pushed far enough, the results
could be disastrous.
Much of the longer run unemployment problem in this country appears to
be of a structural nature; that is, the problem is rooted in the relative frequency
and high incidence of joblessness among particular groups in the work force.
Women, young people, and members of minority groups bear a disproportion­
ately large share of total unemployment, in periods of excessive aggregate de­
mand as well as in periods of slack overall activity. Workers in these groups
have special difficulties in finding jobs and tend to change jobs frequently. To
a considerable extent, this experience reflects the unavailability to many of these
workers of jobs offering high wages, good working conditions, job security, and
opportunities for advancement.
Given this situation, the only way permanently to reduce the levels of unem­
ployment compatible with price stability appears to lie in measures that deal
directly with the structural problem. There are several proposals along these
lines that merit serious consideration. Expanded government employment ser­
vices, by publicizing job opportunities, might greatly facilitate the matching
of available jobs and workers and thereby reduce the average duration of un­
employment. Improved and expanded manpower training programs that would
give marginal workers the skills needed in our complex economy could play a
6




m ajor role. M odification of the m inim um wage laws that apply to young w orkers
could prove beneficial by m aking it m ore econom ical for firms to hire and train
such w orkers. These proposals offer at least some prom ise th at the relatively
high long-run average unem ploym ent rate that has characterized the U nited
States econom y can be reduced. A t the same time, tem porary program s— such
as public service em ploym ent and expanded unem ploym ent com pensation—
are helpful in cushioning the special hardships associated with abnorm ally high
unem ploym ent in the private sector during periods of cyclical weakness.

m o n e t a r y p o l i c y i n 1974. As a general strategy over m uch of 1974, the
F ederal Reserve sought a further gradual reduction in the rate of grow th of the
m onetary aggregates, since a slowing of m onetary expansion is essential in
the longer ru n if a reasonable degree of price stability is to be restored. A t the
same time, the m onetary authorities were fully aware th at an abrupt slowing
in m onetary grow th was not desirable. Indeed, the determ ination of the authori­
ties to avoid a p rotracted period of little or no growth in m oney should help to
prevent the developm ent of severe econom ic difficulties.
O pen m arket operations were the prim ary instrum ent used in 1974 to m od­
erate the rate of m onetary expansion. T he discount rate, which had been raised
seven tim es in 1973, was increased to a record 8 percent in A pril but was sub­
sequently low ered to 73A percent by the end of 1974. M em ber bank borrow ­
ings from the discount w indow surged over the sum m er, but this represented
in large p art emergency Federal R eserve B ank of New Y ork lending to the
troubled F ranklin N ational Bank. In this m atter, as in the com m ercial paper
m arket crisis following the Penn C entral bankruptcy of 1970, credit assistance
provided by the Federal Reserve helped to prevent a m ajor failure from having
serious im pact on the functioning of the financial system.
T he grow th of the m oney and credit aggregates slowed further in 1974. Over
the twelve m onths ended in D ecem ber, the narrow money supply rose 4.5
percent, dow n from 6.1 percent in 1973. Similarly, growth in the broad m oney
supply dropped 1.5 percentage points in 1974 to 7.3 percent, while total bank
credit rose by 8.1 percent, dow n 5.4 percentage points from 1973. H istori­
cally high interest rates did prevail for a time during the year, but this should
not be interpreted as a sign of exceptionally restrictive policy. T he high rates
experienced were to a considerable extent one of the effects of the virulent
inflation which dom inated the econom ic environm ent, as rapidly rising prices




7

Chart 2.

M ONEY, BAN K C R ED IT, AND IN TE R E S T R A TE S

The money supply growth rates are computed from daily average levels in the final month o f
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 1974 are expressed at seasonally adjusted
annual rates. Rates for Federal funds, three- to five-year United States Government securities,
and seasoned Aaa-rated corporate bonds are m onthly averages of daily figures.

8




increased the interest rates lenders dem anded and borrow ers were willing to pay
on obligations fixed in dollar term s. In any case, the Federal Reserve did not
seek any p articular level of interest rates as an ultim ate objective of policy; its
general strategy of a gradual slowing in the aggregates allowed for a substantial
degree of interest rate flexibility, perm itting the System to respond to em erg­
ing econom ic and financial developm ents.
As 1974 began, the F ederal O pen M arket Com m ittee (F O M C ) was con­
cerned about the curtailm ent of oil supplies and the resultant weakening of
econom ic activity. A t the F O M C m eeting of D ecem ber 1973, the C om m ittee
m ajority concluded th at the econom ic situation and outlook called for some
easing in b ank reserve and m oney m arket conditions, provided that the m one­
tary aggregates did not appear to be growing excessively. Similarly, at the first
m eeting in 1974, a m ajority of the F O M C voted for a further m odest easing
in reserve and m oney m ark et conditions. In addition, the m ajority favored rais­
ing slightly the longer ru n target for grow th in the narrow m oney stock.
This B ank’s P resident dissented from the decisions taken at the D ecem ber
and January m eetings. A t the D ecem ber m eeting, he favored a continuation of
the prevailing degree of m onetary restraint unless signs of w eakening in the
econom y becam e m ore apparen t and pervasive. H e pointed out th at the pro b ­
lems of inflation were increasing rath er than abating and th at the m onetary
aggregates had grown m ore rapidly in 1973 than the Com m ittee had considered
desirable. H e believed that, while there was not m uch that m onetary policy could
do to relieve the econom ic problem s arising from the oil shortage, a prem ature
easing of policy could exacerbate the problem s of inflation. A t the January
m eeting, this B an k ’s P resident expressed opposition to raising the M 1 grow th
target and to adopting a range of tolerance for the Federal funds rate which
implied fu rth er reductions in th a t rate. H e expressed the view th at strong
inflationary pressures rem ained the m ajor econom ic problem .
In accordance w ith the C om m ittee’s decisions, some easing in bank reserve
and m oney m arket conditions was achieved early in 1974. Short-term interest
rates fell appreciably following the January m eeting, in large p art because m oney
m arket conditions h ad eased b u t also, apparently, because m arket participants
expected them to ease further. A s it turned out, there was alm ost universal
m iscalculation of the likely course of interest rates early in the year. W hile the
narrow m oney stock contracted in January, substantial grow th resum ed in F eb ­
ruary and continued through the first half of the year (see C hart 2 ) . A t the
sam e tim e, bank credit expanded rapidly, led by a very large runup in business




9

loans, and banks bid aggressively for large-denom ination certificates of deposit
(C D s) to m eet the loan dem and. Beginning with the M arch F O M C meeting,
the C om m ittee resisted these developm ents by seeking bank reserve and money
m arket conditions th at would m oderate grow th in the m onetary aggregates over
the m onths ahead. This policy stance was essentially m aintained through midSeptem ber. As the System w orked to achieve its aggregates targets, the m odest
dow ndrift of the Federal funds rate was reversed, and the rate clim bed steadily
through July. In late A pril, the F ederal Reserve discount rate was raised Vi per­
centage point to a record 8 percent. T he com m ercial bank prim e lending rate,
which had declined early in the year, began to advance in M arch and reached
12 percent at m ost m ajor banks in July.
T he high and rapidly rising interest rate levels experienced during the spring
and sum m er were accom panied from tim e to tim e by the buildup of considerable
tension in the financial m arkets. This tension was m anifested in a variety of
ways. Y ield spreads betw een high- and low er quality securities widened, in part
because of the uneasiness th at developed as a result of the problem s experienced
by the F ranklin N ational B ank and of reports that some other institutions might
also be encountering difficulties. In some cases, the creditw orthiness of entire
industries— such as the real estate investm ent trusts and the electric utilities—
was called into question. The renew ed em phasis on high quality in the com ­
m ercial p ap er and capital m arkets m eant th at m any borrow ers had to draw
upon long-standing lines of credit at com m ercial banks, thereby transm itting
the liquidity strains to the banking system. A t times, pressure in the m oney
m arket becam e intense, m aking short-run control of the Federal funds rate
difficult and resulting in exceptionally high levels of the funds rate in early July.
T he F ederal Reserve was deeply concerned about the em erging liquidity diffi­
culties and the general fragility of the financial m arkets over this period and,
indeed, rem ained so over the balance of the year.
G row th of the narrow m oney stock slowed significantly in the third quarter
of the year, and signs of m oderation in business borrow ing from com m ercial
banks appeared during th at period as well. In early Septem ber, the B oard of
G overnors of the F ederal R eserve System announced the rem oval of the 3 p er­
cent m arginal reserve requirem ent on large-denom ination CDs and related in­
strum ents m aturing in four m onths or more. Shortly thereafter at the Septem ber
F O M C m eeting, a m ajority of the C om m ittee decided to increase m odestly the
longer run targets for grow th in the m onetary aggregates and to perm it the
F ederal funds rate to decline gradually from the 113A percent level prevailing.
10




T he President of this B ank dissented from these actions. In so doing, he
observed that inflation and inflationary expectations continued unabated.
A t the O ctober m eeting, the C om m ittee voted to seek a “resum ption of m od­
erate growth in the m onetary aggregates” . This action was taken because the
aggregates had grown less than desired and expected during the sum m er, as
they often do over periods of only a few m onths; hence, the basic policy strategy
was not changed by this decision. Given the overrun in m onetary expansion that
occurred over the first half of the year, the shortfall during the sum m er was not
considered too serious at the time, b u t it was im portant to take steps to ensure
th at it w ould not persist, especially in view of the m arked w eakening in the
econom ic outlook. In any event, in keeping with this objective, pressure on
bank reserve positions was m oderated som ewhat. The Federal funds rate, which
h ad eased a bit in Septem ber, continued to decline over the balance of the
year. O ther short-term interest rates generally followed suit, and long-term
rates m oved lower. T hese developm ents were accom panied by some relaxation
of tensions in the financial m arkets. O n D ecem ber 6, the B oard of G overnors
approved a Va percentage point reduction in the discount rate at this and an­
other R eserve Bank. T he new 13A percent discount rate becam e effective D e­
cem ber 9, and the rem aining ten R eserve Banks joined in this action shortly
thereafter. T he B oard announced th at this action was taken in view of lower
m oney m arket rates and the slackening in the dem and for credit.
A lthough there were frequent changes in short-run operating tactics during
1974, the F ederal Reserve for the m ost p art adhered to the basic posture of
m oderate grow th of the aggregates. This policy was in m any respects a continu­
ation of that pursued in 1973. T he rate of expansion of the aggregates did
decline in each of these two years, and aggregate dem and pressures in the
econom y eased substantially. T he foundation for a gradual slowing in inflation
thus appeared to have been established.

in te rn a tio n a l e c o n o m y u n d e r s tra in .
Like the U nited States,
m ost countries suffered serious econom ic strains during 1974. A lm ost every­
where, the rates of inflation accelerated even as the expansion of real economic
activity slowed from the abnorm ally rapid pace of the previous two years. T he
task of bringing national econom ies back to a path of sustainable growth w ithout
inflation, difficult enough in the best of circum stances, was greatly com plicated
by the quadrupling of the price of crude oil. T he oil price increase also resulted
th e




11

in an unprecedentedly large and rapid deterioration in the trade balances of oil­
consum ing countries in favor of the oil exporters. A lthough the oil consum ers’
deficits w ere successfully financed in 1974, the increase in the burden of external
debt for some countries was cause for deep concern. By the year-end, a con­
sensus was developing th at p ro m p t and concerted official efforts w ere required
to assure not only th at necessary financing would be available b u t th at the huge
international disequilibrium w ould be corrected.
Oil developm ents transform ed the international econom y during 1974. D e­
spite the price increase and the em bargo, the volum e of oil exports by the m em ­
bers of the O rganization of P etroleum E xporting C ountries (O P E C ) rem ained
alm ost as high in 1974 as in the year before. Thus, O P E C oil receipts totaled
nearly $100 billion in 1974, roughly four tim es that of a year earlier. A substan­
tial prop o rtio n of these paym ents went to sparsely populated countries whose
capacity to absorb im ports was low. Even am ong the oil producers th at had rela­
tively large populations and potentially great needs for industrial products, re­
ceipts from oil exports could n o t be quickly translated into increased im port
dem and because of the lengthy tim e required to form ulate developm ent and
other spending program s, to decide on appropriate suppliers, and to negotiate
contracts. A lthough O P E C im ports were rising rapidly in the latter p a rt of 1974,
m ore th an half of the total paym ents for oil was returned to the consum ing
countries, n ot as dem and for goods and services, but as investm ents in various
types of financial assets.
Difficulties caused by the oil price increase were superim posed on problem s
that the m ajor industrial countries had inherited from previous years. In 1972
and 1973, real G N P h ad grow n at unsustainably rapid rates. Pressures on p ro ­
ductive capacity, especially for scarce raw m aterials, com bined with crop fail­
ures, strikes, and com m odity speculation had by m id -1973 pushed international
com m odity prices far above the levels of a year earlier. In this inflationary en­
vironm ent, the authorities— som etim es prom ptly, elsewhere with a lag— brought
fiscal and m onetary policy into play to curb excess dem and. By the latter p art
of 1973 and early 1974, the grow th of m onetary aggregates in the m ain indus­
trial countries had been reduced substantially from the very high rates th a t had
previously prevailed.
W ith official policy directed tow ard the elim ination of excess dem and, real
grow th am ong the industrial countries was already expected to slow significantly
in 1974. T he oil em bargo and price increase w orsened the outlook at the begin­
ning of the year. E ven so, real G N P continued to grow in 1974 in m ost in­
12




dustrial countries abroad, though at a m uch slower rate than during the year
before. T rue, in Japan, w here inflation was especially severe, real G N P actually
dropped significantly for the first tim e since W orld W ar II (see C hart 3 ) . In
B ritain, prolonged strikes and the adoption of a three-day week during the w inter
depressed real output, b u t some recovery developed in the spring and summer.
A m ong the continental E u ro p ean countries, the perform ance was m ore favor­
able, with the expansion of real G N P in 1974 ranging from a low of under
1 percent in G erm any to a high of alm ost 5 percent in France. In m ost indus­
trial countries, however, grow th slackened further as the year progressed and,
with unem ploym ent at its highest levels in m any years, some governm ents
m oved cautiously to stim ulate spending.
Official caution in attem pting to counter the slowing of grow th stem m ed from
the continuing virulence of inflation. T rue, prices of industrial m aterials did
drop from the astronom ical heights attained in the spring of 1974 b u t rem ained
well above their levels at the beginning of the boom in 1972. M oreover, agri­
cultural prices, boosted by sustained strong dem and and disappointing harvests
of some key crops, continued to rise. As high wholesale prices w orked through
to the retail level, the increase in consum er prices accelerated alm ost everywhere.
In the final m onths of 1974, the rise in consum er prices above a year earlier
ranged from 11 percent in the N etherlands to well over 20 percent in Italy and
Japan. The m ajor exception was G erm any, w here the advance in consum er
prices from a year earlier slowed perceptibly in the final quarter to 6 percent.
W hile the strains of shifting to a low er grow th p ath were fam iliar, those that
arose from the quadrupling of oil prices were unprecedented. T he oil price
increase was the m ore serious b oth because of the widely differing dependency
of consum ing countries on im ported oil and because increased oil paym ents
were superim posed in several industrial countries on trade balances th at were
already heavily in deficit. A lm ost three quarters of the estim ated $75 billion
increase in oil im ports from O P E C m em bers in 1974 was concentrated in the
countries affiliated with the O rganization for Econom ic C ooperation and Devel­
opm ent (O E C D ). A m ong these, the hardest hit were B ritain, F rance, Italy, and
Jap an , whose aggregate current-account deficits seem ed likely, according to
O E C D estim ates, to total about $30 billion in 1974, a deterioration of $23 bil­
lion from a year earlier. A lthough G erm any’s oil im ports also jum ped sharply,
the continued expansion of its exports was even larger. Consequently, G er­
m any’s current-account surplus in 1974 rose substantially above the record set
during the previous year (see C h art 4 ) .




13

C h a rt 3 .

C H A N G E S IN C O N S U M E R P R I C E S A N D P R O D U C T I O N
FO R S E L E C T E D C O U N TR IES

Percent

12
10
8

6
4
2
0

-2
-4

-6
-8

Estim ates of real GNP for 1974 are preliminary.

14




T he U nited States balance of paym ents on current-account w ithstood the
shock of the oil price increase fairly well. To be sure, U nited States petroleum
im ports increased to alm ost $25 billion in 1974, $17 billion m ore than the year
before, but this increase, the largest of any country, was mostly offset by a
sustained rise in A m erican exports. Benefiting from earlier devaluations of
the dollar, exports of m anufactured goods were especially strong. Rising foreign
dem and also pushed U nited States agricultural exports substantially above the
peaks attained in 1973. D espite some reduction of incom e from A m erican oil
properties transferred to O P E C m em bers, net investm ent income jum ped, ac­
cording to prelim inary estim ates, to about $9 billion in 1974, some 70 percent
above a year earlier. W ith these gains cushioning the effect of higher oil prices,
the U nited States current-account balance, including G overnm ent grants, was
expected to show a deficit of nearly $5 billion in 1974, com pared with the $0.5
billion surplus of 1973.
The financing of large current-account deficits was clearly a m ajor preoccu­
p ation of the authorities in m ost oil-im porting countries in 1974. Such financing
was provided through a m ultitude of channels. O PE C m em bers provided loans
not only to m any less developed countries b ut also to industrial countries such as
Britain, France, and Japan. Placem ents w ere m ade with various international
and regional lending institutions. Substantial sums were also placed in nego­
tiable securities, m ainly short-term governm ent securities in Britain, Germ any,
and the U nited States, as well as in direct investments.
How ever, the m ost im portant channel in 1974 was the Euro-currency m arket.
B anks operating in this m arket thus played a key role in interm ediating between
the surplus and deficit countries. E uro-currency placem ents by O PE C m em bers
were estim ated at about one third of these countries’ aggregate investable sur­
pluses. F o r their p art, oil-im porting countries relied heavily for financing on the
E uro-m arkets, borrow ing a reported total of nearly $27 billion in 1974, 39 per­
cent m ore than in the previous year. C om m ercial banks in the U nited States also
participated vigorously in the interm ediation process, increasing their liabili­
ties to foreigners by about $16 billion in January-N ovem ber and their claims
on foreigners by $17 billion.
W ith financing available to cover the oil-im porting countries’ current-account
deficits, exchange rates fluctuated in response to shifts in official policy and
especially to changes in interest rate differentials am ong the m ajor financial
centers. Shifts in speculative pressures also played a significant role. Reflecting
such influences, the effective value of the dollar ranged during the year from




15

approxim ate parity with the central rates established under the Smithsonian
agreem ent of D ecem ber 1971 to an 8 percent depreciation. Fluctuations against
the individual currencies in which traders actually operate were of course far
wider. T he swing in the dollar-D eutsche m ark rate, for exam ple, was no less
than 18 percent against the central rate. T he dollar’s greatest strength was dis­
played in the early weeks of January, w hen the m arket judged th at the U nited
States could cope w ith the effects of O P E C policy better than other countries
th at were m ore dependent on im ported oil. The dollar’s largest depreciation
was reached in m id-M ay after a 3 Vi -m onth decline which began with the
dropping of U nited States capital controls and which also witnessed the relaxa­
tion of foreign restraints on capital inflows. A fter wire services reported on
M ay 14 th at the G erm an, Swiss, and U nited States central banks were prepared
to counter excessive speculation against the dollar and, with short-term inter­
est rates in the U nited States rising relative to those in m ajor centers abroad,
the dollar’s effective exchange rate recovered m ost of the losses suffered earlier
in the year. A fter early Septem ber, however, m oney rates in the U nited States
began to decline relative to those abroad and some foreign countries took fur­
ther steps to dism antle restrictions on capital inflows. Consequently, the dollar
cam e under new pressure. A t the year-end, its effective depreciation from the
Sm ithsonian central rates am ounted to 5.6 percent, com pared with 3.4 percent
at the beginning of the year.
T he strains th at arose from wide exchange rate swings, from the slowing
of econom ic growth, and from the im balance betw een the oil-exporting and
oil-im porting countries produced severe pressures on the international banking
com m unity. W hile m any banks profited from exchange operations, some sus­
tained losses that, in a few cases, led to insolvency. The closure of a G erm an
b ank (B ankhaus I.D . H e rsta tt) tow ard the end of June had especially serious
repercussions. Foreign exchange transactions were drastically curtailed im m e­
diately following the closure, with trading lim ited to nam es regarded in the
m arket as having the highest quality. Subsequently, activity recovered, but
small- and m edium -size banks continued to experience trading difficulties both
in the exchanges and in the E uro-dollar m arket as credit lines were tightened
for all b u t the best nam es. M oreover, banks in num erous countries had to
cope with rising liquidity needs as business plans, form ulated in an inflationary
environm ent, were underm ined by the slowing of real econom ic activity. The
banks also encountered difficulties in interm ediating balances betw een the
surplus and deficit countries. As the year progressed, the ratio of b anks’ short16




Ch art 4.

C U R R E N T -A C C O U N T B A L A N C E S IN 1 9 7 3 A N D 1 9 7 4

Billions of
d ollars

70

60
50

40
30
20

10

0

-1 0

-2 0
-3 0

-4 0
-5 0

Current-acco unt balances, estim ated by the International M onetary Fund, include goods,
services, and private transfers but exclude governm ent grants. The estim ates are adjusted
to take account of various statistical asymmetries in oil trade and, for 1974, are preliminary.
* Nonoil prim ary-producing countries outside the com munist bloc.

term liabilities to capital rose tow ard the limits set by prudent m anagem ent.
A t the sam e time, bankers becam e increasingly concerned to avoid undue loan
exposure to countries whose external debt was already large and whose balanceof-paym ents prospects were poor. O ne consequence of these various develop­
m ents was th at lending by E uro-banks slackened significantly in the second half
of 1974 from the very rap id rate of the first half. M oreover, U nited States




17

commercial bank loans to foreigners, which had increased rapidly in FebruaryAugust following the removal of capital controls, actually declined in September
and then rose only modestly during the remainder of the year.
The need to avoid incipient banking difficulties was of major concern to the
monetary authorities in all the industrial countries. In most of them, central
bank surveillance over the exchange operations of commercial banks was tight­
ened. In several countries, leading commercial banks established, with the
encouragement and support of the monetary authorities, facilities designed to
assist smaller institutions by relieving their liquidity difficulties. In Britain, the
Bank of England acted to clarify and make explicit the responsibility that parent
banks were customarily assumed to have toward consortium banks as well as
toward subsidiaries. As the year progressed, increased efforts were made to
maintain orderly conditions in the exchange markets through concerted inter­
vention by the Federal Reserve, the Bundesbank, and several other central
banks.
These various official efforts, important though they were in assuring the
smooth functioning of international banking, could deal with only a part of the
world’s economic difficulties in 1974. With all but a few oil-importing coun­
tries suffering large current-account deficits and with unemployment rising, the
pressure to adopt “beggar-thy-neighbor” policies was increasing. The agree­
ment in May by the OECD countries to refrain, during the ensuing year, from
imposing new restraints on trade and other current-account transactions was
therefore welcome, as were the steps taken by six countries in September
toward agreement to avoid the competitive extension of export credit. Even with
the par value system suspended, International Monetary Fund (IMF) members
were, of course, bound to refrain from exchange depreciation in order to gain
competitive advantage. Beyond this, governments required a framework of
reasonably stable exchange rates within which to cope with the formidable eco­
nomic problems that lay ahead. The other side of the coin was, of course, the
need for agreed guidelines by which appropriate changes in exchange rates could
be made.
Increased recognition was given during 1974 to the need, not only for greater
order in the exchange markets, but also for additional official facilities to finance
payments imbalances. While the substantial existing facilities available among
central banks and from the IMF still served important functions, they had been
established to facilitate the financing of disequilibria that could be corrected
in the short and medium term, i.e., more quickly than many feared the oil im­
18




balance could be reduced to manageable size. To deal with this new situation,
a facility was established in June within the IMF to which oil-exporting coun­
tries, and the Netherlands, committed themselves to lend $3.7 billion equivalent
and from which various oil-importing countries borrowed $2.1 billion during
1974. In view of the huge imbalance between oil-exporting and oil-importing
countries, and of the reduced extent to which private markets could be expected
to finance that imbalance, it became clear that, as initially constituted, the IMF
oil facility went only a little way toward meeting the growing need for official
financing. During the autumn, accordingly, various new proposals were made.
The United Kingdom proposed that the existing oil facility within the IMF be
modified and enlarged, while the United States advocated the establishment of
a $25 billion facility to assure the availability of financing to OECD countries
that were unable to meet their needs elsewhere on reasonable terms.
Although a strengthening of international financial cooperation was clearly
required, the more basic need was to reduce the payments imbalance between
the oil-exporting countries and the rest of the world. A further substantial ex­
pansion of exports to the oil-producing countries was, of course, essential. There
was also scope for the placement of OPEC balances in long-term portfolio and
direct investment in the industrial countries. Beyond this, major efforts were
required in energy conservation and the development of alternative energy sup­
plies. Already progress was being made in this direction. Stimulated by high oil
prices as well as by concern over the whole energy problem, intensive explora­
tion during 1974 significantly increased proven reserves of oil outside the
OPEC. Large coal reserves— particularly in the United States—remain to be
exploited. The feasibility of generating energy by various advanced technologies
deserves further intensive study. If energy use is reduced and additional sup­
plies become available, both the volume and price of oil imports could be cut
and the imbalances between oil-consuming and oil-producing countries could
be reduced to manageable size.

At the year-end, the decline in real
activity in the domestic economy had accelerated while the rate of inflation re­
mained intolerably high. It was clear that in 1975 monetary policy would have
to avoid adding to the weakness in the economy and to the strains in the credit
system. At the same time, pressures for excessively stimulative policies had to
be resisted. Such policies might strengthen the economy in the short run, but
p ro b le m s




f o r

m o n e ta ry

p o lic y .

19

in the longer run they would rekindle inflationary pressures and increase the ulti­
mate costs of curbing inflation.
Given the deeply entrenched inflation, it seemed fairly clear that monetary
policy would have to continue to pursue an underlying objective of maintain­
ing, over the longer run, growth paths of the monetary aggregates consistent on
average with reasonable price stability. Experience has made it quite clear that
bringing inflation under control is an indispensable precondition of economic
health. High rates of inflation have arbitrarily redistributed income and wealth.
There is much evidence from many countries to suggest that, beyond a certain
point, this process poses major risks of serious social and political, as well as eco­
nomic, stress. Already, inflation has imposed significant strains on United States
society and on a financial system geared to relatively stable prices. There have
been bouts of disintermediation from financial institutions, swollen credit de­
mands, and a general deterioration in the soundness of balance-sheet conditions.
Moreover, variable and unpredictable rates of inflation may prompt borrowers
and lenders to avoid long-term commitments, thereby impairing the functioning
of the -capital markets. This development, in turn, can tend to discourage in­
vestment in long-lived capital. In the context of current accounting conventions
and tax laws, inflation has also discouraged real investment by causing profits
to be overstated in real terms. Taxation of fictitious gains on capital assets and
on inventory turnover has inflicted real capital losses on corporations.
Curbing inflation is a very important goal, but to achieve it will take time
and will inevitably involve painful adjustments. There is need, therefore, for a
range of auxiliary policies to facilitate progress toward the restoration of price
stability and to relieve some of the strains in particularly sensitive sectors. As
indicated earlier, labor market policies are needed, on the one hand, to lower
the rate of unemployment compatible in the long run with price stability and,
on the other hand, to reduce the hardship associated in the short run with the
downturn in aggregate demand. There may be merit, too, in some new form of
public institution designed primarily to provide capital to corporations suffering
unusual financial stress or corporations engaged in programs of great importance
to the solution of major national problems. Finally, policies to encourage
price competition throughout the economy should be adopted, so that prices
respond more quickly to policies designed to moderate aggregate demand. While
these various proposals are in no way substitutes for monetary and fiscal actions,
they can contribute significantly to the attainment of urgent national objectives.

20




T H E B A N K ’S O P E R A TIO N S IN 1974
Resolving the Problem of Franklin National Bank
For a period of five months beginning in early May, the problems of the
Franklin National Bank occupied much of the attention of the senior officers
and a number of the operating functions of this Bank. Under a program of
credit assistance adopted early in May and continued through the ensuing
months, the amounts of this Bank’s advances to Franklin National rose from
$125 million on May 9 to $1,723 million on October 8, the day that Franklin
National was declared insolvent by the Comptroller of the Currency and this
Bank’s advance to Franklin was assumed by the Federal Deposit Insurance
Corporation (FDIC).
Franklin National Bank, a subsidiary of Franklin New York Corporation,
had experienced rapid growth during the 1950’s and 1960’s on Long Island,
its principal area of operations. In the mid-1960’s, Franklin National expanded
into New York City by branching and merging. By year-end 1973, it had
become the twentieth largest bank in the United States in terms of total assets,
with total assets of about $5 billion, more than 100 domestic branches, and
overseas branches located in London and in Nassau, Bahamas. During this
period of rapid growth, Franklin experienced some difficulties in maintaining
sufficient capital to support its expansion and suffered a relatively high level of
loan losses as a result of its liberal lending policies.
In late 1973 and early 1974, Franklin National’s troubles were exacerbated
by general conditions in the financial markets and increasingly critical manage­
ment problems, and adverse rumors and speculation about the bank were
circulating in the financial community. In part, Franklin National’s mount­
ing difficulties stemmed from its heavy reliance on short-term borrowings and
large negotiable certificates of deposit to support aggressive lending and
investment policies. Early in 1974 the bank’s bond portfolio suffered substantial
depreciation, as a decline in interest rates anticipated by the bank failed to
materialize. At the same time, it became generally known in the financial com­
munity that Franklin National was dealing heavily in foreign exchange trans­
actions and that its earnings, particularly if foreign exchange profits were




21

excluded from reported figures, were declining substantially. By early May 1974,
Franklin National’s name faced increasing and serious seller resistance in the
Federal funds market as well as in the foreign exchange markets.
Franklin National’s problems mounted rapidly during the week of May 6,
1974. The bank found it increasingly difficult to raise short-term funds and
faced the prospect of a severe liquidity crisis. At meetings that week with senior
officers of this Bank, Franklin National’s officers disclosed the size of Franklin
National’s operating losses and the existence of irregularities in its foreign
exchange transactions, which had just come to light and which would have
serious adverse effects on the bank’s earnings. It was learned that Franklin
National’s officers planned to recommend to their directors that they omit
the next quarterly dividend.
On Friday, May 10, Franklin National issued a statement regarding the
omission of the dividend. As a result, the price of the parent holding company’s
stock suffered a sharp decline during the remainder of trading on that day. By
the close of business on Friday, Franklin National faced the prospect that its
own dividend announcement, combined with news of foreign exchange losses
and intensified market rumors about the bank’s condition, would result during
the next week in a virtual drying-up of money market sources of funds and a
very real possibility of a run on the bank.

d i s c o u n t w i n d o w a s s i s t a n c e . During the week of May 6, this Bank
had agreed to provide Franklin National with credit assistance to help it meet
what was hoped would be a temporary liquidity crisis. By late Friday, May 10,
and over the following weekend, it became apparent to the senior officers
of this Bank that Franklin National was in serious danger of failure in the
very near future if substantial Federal Reserve credit were not made available.
The weekend of May 11-12 was a time of intense activity at this Bank. Senior
officers met with Franklin National’s management and attorneys and repre­
sentatives of the Comptroller of the Currency and of the Securities and Exchange
Commission (SEC). They also consulted by telephone with members of the
Board of Governors of the Federal Reserve System in Washington, D.C.,
the Comptroller of the Currency, and representatives of a number of New
York City commercial banks. By the opening of business on Monday, Franklin
National had issued a statement announcing foreign exchange losses, the SEC
had suspended trading in the stock of Franklin National’s parent holding com­

22




pany, and Vice Chairman Mitchell of the Board of Governors had announced
that the Federal Reserve System would “advance funds . . . as needed” to
Franklin National through the discount window of this Bank “within the limits
of the collateral that can be supplied” and that the Comptroller had furnished
assurances that Franklin National was solvent.
In this Bank’s view, the failure of Franklin National at that time would have
had serious adverse consequences for Franklin National’s depositors and credi­
tors and the economy of Long Island. More importantly, given the general
financial and economic situation at that time, such a failure would have jeop­
ardized the stability of the United States banking system, with further serious
repercussions for domestic and international financial markets in general. The
decision to make substantial credit assistance available to Franklin National
had two main purposes: first, to prevent the severe deterioration of confidence
at home and abroad that would have resulted from an abrupt failure of the
bank and, second, to provide time to permit Franklin National itself, or if nec­
essary the bank regulatory authorities, to achieve a more permanent solution
of the bank’s difficulties.
Beginning on Friday evening, May 10, this Bank undertook preparations
for the anticipated increase in Franklin National’s borrowings at the discount
window. The following Saturday and Sunday, about thirty-five members of this
Bank’s staff— credit analysts, lawyers, and others— visited three of Franklin
National’s offices to identify and review assets available as collateral. Some
$500 million of Franklin National’s customer notes were physically moved to
this Bank’s vaults as collateral that weekend.
In subsequent weeks, as Franklin National’s need for Federal Reserve credit
grew, the accumulation of collateral became increasingly complex. Although
it was initially estimated that Franklin National had approximately $2 billion
in assets that could be used as collateral for advances by this Bank, many of
these assets were represented by documents dispersed throughout Franklin
National’s branch system, including a substantial amount at its London branch.
Since the transfer of some of these documents to this Bank’s vaults was not prac­
tical, this Bank rented space at some of Franklin National’s branches so as to
maintain legal possession and control of as much collateral as possible. To
accept as collateral assets of Franklin National’s London branch, arrangements
were made by members of this Bank’s Legal Department, with the assistance
of British solicitors, for assets of the London branch to be held in London on
this Bank’s behalf.




23

s e a r c h f o r a r e s o l u t i o n . In the following months, senior officers
of this Bank met daily to review Franklin National’s situation and to consider
means of assisting the Comptroller of the Currency, the FDIC, and Franklin
National itself to find intermediate and longer term solutions to the problem.
Constant communication was maintained with the Board of Governors, the other
bank supervisory agencies, Franklin National, and other commercial banks as
they became involved in various aspects of the problem. A special task force
of personnel drawn from the Loans and Credits, Bank Supervision, Foreign,
and Legal functions of this Bank was formed to collect, review, and analyze
data and to develop possible solutions and contingency plans. During June and
July, attrition of Franklin National’s deposits continued at a slow but steady
pace and the size of its daily advances from this Bank continued to rise.
By the beginning of July, it had become apparent that any long-term reso­
lution of the problem would require the participation of the FDIC in the form
of financial assistance. The Chairman of the FDIC began a series of meetings
with individual commercial banks to discuss the possibilities of some form
of FDIC-assisted merger or acquisition of Franklin National’s assets. As these
meetings progressed, it began to appear likely that the eventual solution would
involve the appointment of the FDIC as a receiver for Franklin National, with
a sale and assumption of all or a part of Franklin National’s assets and liabili­
ties by another bank. Such a transaction would involve the receipt of bids from
commercial banks interested in entering into such a purchase and assumption
transaction. It became clear as discussions continued that, in order to ensure
that the FDIC would receive an acceptable number of bids, it would be neces­
sary to exclude from the liabilities to be assumed the advance of this Bank to
Franklin National.
During August and September, the FDIC began a series of discussions with
interested banks to develop a purchase and assumption arrangement, including
provisions for FDIC financial assistance, on which such banks would be will­
ing to submit bids. At the same time, this Bank and the FDIC developed an
agreement under which, in the event of Franklin National’s insolvency and a
successful bidding arrangement, the FDIC would assume Franklin National’s
indebtedness to this Bank and this Bank would release to the FDIC its security
interest in Franklin’s assets.

th e

f r a n k l i n ’s

24




fo r e ig n

e x c h a n g e c o n tra c ts .

In the process of develop­

ing a purchase and assumption arrangement, the FDIC learned that, as a
group, banks interested in bidding under the arrangement were not willing
to assume responsibility for the performance of Franklin National’s foreign ex­
change contracts. At the same time, it appeared likely that, if Franklin National
were to become insolvent, legal constraints might prevent the FDIC as re­
ceiver of Franklin National from honoring many of such foreign exchange con­
tracts. There was thus a real danger that all or a substantial portion of Frank­
lin National’s foreign exchange contracts would be dishonored in the event
of its insolvency, with serious consequences for market confidence. Earlier
in the year, the failure of the Herstatt Bank in Germany to honor its current
foreign exchange commitments on its closing had resulted in a shock to the
foreign exchange markets and a weakening of the German mark. Similar dam­
aging effects on the dollar could be expected if Franklin National’s contracts
were dishonored as a result of its insolvency.
Accordingly, it was concluded that the acquisition by this Bank of Franklin
National’s foreign exchange position would be in the best interests of the United
States and the world economy as well as the foreign exchange markets. In Sep­
tember, after intensive effort by the Foreign Function of this Bank in evaluat­
ing Franklin National’s foreign exchange position, this Bank and Franklin Na­
tional entered into an agreement under which this Bank acquired Franklin
National’s foreign exchange position. Under the agreement, Franklin National
paid to this Bank an amount estimated to cover the potential losses involved in
the acquisition, including the book loss on Franklin National’s total position
and the risk that certain counterparties might fail to perform contracts as re­
quired. A substantial portion of this amount was returned to Franklin National
on October 1, after all contracts had been confirmed to this Bank by the other
parties to the contracts.
The acquisition of Franklin National’s foreign exchange position by this Bank
was greeted with relief by market participants in this country and overseas,
and Franklin National’s insolvency did not adversely affect the dollar.

As September drew to a close, it became clear to the bank
regulatory authorities that the appointment of the FDIC as receiver for Frank­
lin National and the acquisition of its offices by a sound banking institution
under an FDIC-assisted purchase and assumption arrangement offered the only
practical hope of avoiding substantial losses to Franklin National’s depositors
th e

f in a l s ta g e s .




25

and current general creditors, and the disruption of the Long Island economy
that would result from Franklin National’s failure and liquidation.
By the first week in October the purchase and assumption arrangement de­
veloped by the FDIC was complete. A plan developed by Franklin National’s
management for the continued existence of the bank as an independent, Long
Island-based institution was evaluated by the Federal bank supervisory agen­
cies, each of which concluded that the plan had no reasonable prospects of suc­
cess. Under the circumstances, this Bank determined that it would no longer be
in the public interest for this Bank to continue its program of credit assistance
to Franklin National, and the Comptroller of the Currency was so informed by
letter dated October 7.
At 3 p.m. on October 8, the Comptroller of the Currency declared Franklin
National insolvent and appointed the FDIC as receiver of the bank. The FDIC,
having received bids from four New York City banks under its purchase and
assumption arrangement, identified European-American Bank & Trust Company,
a New York state-chartered nonmember insured bank owned by a consortium
of six large European banks, as the highest bidder. By 4 p.m., a judge of the
United States District Court for the Eastern District of New York had approved
the purchase and assumption agreement between the FDIC as receiver for
Franklin National and European-American, as well as a similar agreement be­
tween the FDIC and Bradford Trust Company relating to Franklin National’s
trust business. By that time also, this Bank and the FDIC had entered into an
agreement providing for the assumption by the FDIC of this Bank’s advance to
Franklin National, with payment in full to be made within three years.
Upon the Comptroller’s declaration of Franklin National’s insolvency, the
Accounting Department and many of the other operating departments of this
Bank, following contingency plans developed in the preceding weeks, began
the complex process of checking and posting to the Bank’s books all the trans­
actions between Franklin National and this Bank that had taken place that busi­
ness day. This process was necessary to determine both the exact amount of
Franklin National’s reserve account as of 3 p.m. that day, which was one of
the assets being purchased by European-American, and the exact amount of
Franklin National’s indebtedness to this Bank, which was being assumed by
the FDIC. The calculations were not complete until about 5 a.m. on October 9,
long after those involved in the more formal transactions of the day had left
the Bank. On the morning of October 9, all of Franklin National’s domestic
offices opened under the name of European-American Bank & Trust Company.
26




Operational Highlights
STRENGTHENING PLANNING AND BUDGET CONTROLS. In a Continuing
effort to establish more effective management controls necessary in an inflation­
ary environment to deal with the cost of this Bank’s sharply increasing volume
of operations and expanded responsibilities, work continued throughout last
year on the installation of a new management system. The system more fully
integrates the planning, budgeting, and cost control processes of the Bank.
As part of this approach, each of the functional areas of the Bank headed by a
vice president is recognized as a distinct responsibility center for the purposes of
planning, budgeting, and controlling the quality and efficiency of operations.
The new system— which involves such techniques as the setting of goals and
measurable objectives, budgeting based on productivity targets as well as volume
projections, and cost-benefit analysis of all new project proposals— is being
installed by specially selected task forces made up of Bank personnel. It is ex­
pected that all areas of the Bank will be converted to this new system by mid1975.
To support the new planning and budget control systems, the Bank is devel­
oping an enlarged and improved management information system to provide
current and historical data on key volume, unit-cost, and productivity measures
that will serve as the basis for formulating annual budgets and plans and for
tracking progress and results against those budgets and plans.
Another important feature of the Bank’s overall efforts to deal with rising
operational demands is a program to improve both the productivity and the
quality of the Bank’s operations and services. The program, which will become
increasingly active in coming months, will utilize the analytical framework pro­
vided by the newly installed planning and budget control system.
Even though these steps to strengthen the management systems of the Bank
are not yet fully in place, their beneficial effects are already becoming appar­
ent. Thus, despite a large increase in the work load of the Bank in 1974 and
the rapid rate of inflation in the cost of labor and other resources, the Bank’s
total expenses net of reimbursements and recoveries rose less than 9 percent
last year, largely because the Bank was able to operate with significantly fewer
employees than had been expected.




27

b o o k - e n t r y p r o g r e s s . The joint Federal Reserve-United States Treasury
book-entry program was expanded significantly during 1974, focusing mainly on
Government and agency securities held by member banks, either as fiduciaries
or as custodians for correspondent banks and other customers. By substituting
computer bookkeeping entries for definitive securities, the book-entry pro­
cedure permits the issuance, servicing, custody, and redemption of eligible
securities electronically at Federal Reserve Banks without the use of paper
certificates. The program also simplifies and expedites transfers through this
Bank’s Government Securities Clearing Arrangement, and virtually eliminates
the risk of loss or theft involved in the safekeeping and the delivery of physical
securities.
Second District banks converted into book-entry form increasing amounts of
securities held for the account of customers. Two New York City banks, one
of which should complete its book-entry conversion early in 1975, added about
$3.6 billion of securities to the program, retiring some 77,000 pieces of paper.
At the year-end, $201.4 billion, or 71.6 percent of marketable United States
public debt, was in book-entry form, compared with $176.6 billion or 65.4 per­
cent a year earlier. In July, the initial securities of the Federal Financing Bank
were marketed and were immediately eligible for book entry. At the year-end,
almost $0.9 billion of the $1.5 billion of these securities outstanding was in
book-entry form.
Substantial progress was made toward qualifying all Federal agency securi­
ties for book-entry procedures in May, when Federal National Mortgage Asso­
ciation securities became eligible. Other agencies whose securities have been
converted include the Banks for Cooperatives, Farmers Home Administration,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land
Banks, and the United States Postal Service. Nationally, about $22.3 billion of
agency securities was in book entry at the year-end, or about 32 percent of the
estimated $70 billion eligible for conversion.

TR EA SU R Y

O F F E R IN G S

A TTR A C TE D

TH O U S A N D S

O F

IN D IV ID U A L S .

Record interest rates on Treasury securities during 1974 attracted thousands
of individual investors to the Bank and generated over 100,000 telephone in­
quiries regarding purchasing procedures. About 60,000 Treasury bill tenders
from individuals were processed, more than double the number submitted in
28




1973. Similarly, subscriptions from individuals for Treasury notes and bonds
totaled over 14,000, nearly triple 1973’s total of 5,000.

f o r e i g n a c c o u n t i n v e s t m e n t a c t i v i t y i n c r e a s e d . Shifts in interna­
tional flows of funds, resulting partly from increased payments to oil-exporting
nations, led to a further increase in investment activity conducted by the New
York Reserve Bank for foreign official institutions. The open market Trading
Desk bought and sold $85 billion of Government and agency issues outright
for foreign accounts in 1974, a gain of about 15 percent over 1973. In addition,
this Bank executed a sizable volume of short-term repurchase agreements for
foreign accounts beginning in August.

m o n it o r in g f o r e ig n e x c h a n g e m a rk e ts .
Two new units were es­
tablished— one in the International Research Department and the other in the
Foreign Department— in response to 1973 legislation amending the Par Value
Modification Act and requiring United States banks and nonbank concerns and
their foreign entities to report to the Treasury their foreign exchange positions.
The Federal Reserve collects these reports on behalf of the Treasury. These
reports, along with other information, will assist in the evaluation of foreign ex­
change and Euro-currency market developments.

n e w b u i l d i n g a n d e n e r g y c o n s e r v a t i o n . Energy conservation was a
prime focus during 1974, in both the Liberty Street facility and in the new
building plans, which have progressed through the design development stage.
The President’s call for energy conservation in late 1973 was met with a pro­
gram that reduced the main building’s fuel consumption 20 percent and electricity
purchases 10 percent. In addition, plans for the new building were revised
to incorporate exterior wall construction and air conditioning systems that
will reduce energy consumption substantially. These changes will increase
original construction costs, but the savings provided by energy conservation
are expected to recover the additional investment in about a decade. All signif­
icant negotiations with New York City regarding the new building site were
completed during the year, and Carl A. Morse, Inc., was engaged as construc­




29

tion consultant. The firm will work closely with the Bank’s architects— Kevin
Roche John Dinkeloo and Associates— during construction.

f o o d - c o u p o n - p r o c e s s i n g f a c i l i t y i n p u e r t o r i c o . Plans for a new
food-coupon-processing facility in San Juan, Puerto Rico, were developed in
conjunction with the implementation by the Department of Agriculture of the
Food Stamp Program in the Commonwealth of Puerto Rico and in the Virgin
Islands in the second half of 1974. This Bank, as fiscal agent of the United
States, acting on behalf of the Department of Agriculture, has requested the
Government Development Bank for Puerto Rico to act as agent of this Bank
for the performance of certain services in connection with the Food Stamp
Program. These include the receipt and processing of remittances from the sale
of food coupons, the receipt of redeemed coupons from commercial banks in
Puerto Rico and in the Virgin Islands and the processing of payments to such
banks, and the verification and destruction of such coupons in Puerto Rico.
Until the San Juan facility is completed in early 1975, the Government De­
velopment Bank for Puerto Rico will airfreight redeemed food coupons to the
Buffalo Branch for verification and destruction.

30




Financial Statements
S T A T E M E N T O F EA R N IN G S A N D EX P E N S ES FOR
T H E C A LEN D A R Y E A R S 1974 A N D 1973 (In thousands

of dollars)

1974

Total current earnings
Net expenses

1973

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

1,686,670

1,347,807

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

118,227

108,848

1,568,443

1,238,959

1,252

503

Current net earnings

Additions to current net e arn in g s....................................................
Deductions from current net earnings:
Loss on sales of United States Government securities
and Federal agency obligations (net) ..........................................

10,575

9,281

Loss on foreign exchange transactions (net) ..................................

8,661

12,376

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

1,599

60

Total deductions

20,835

21,717

19,583

21,214

1,548,860

1,217,745

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

13,628

12,550

Payments to United States Treasury (interest on
Federal Reserve notes) ................................................................

1,515,543

1,196,836

19,689

8,359

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

214,963

206,604

Transferred from net earnings for year ..........................................

19,689

8,359

234,652

214,963

Net deductions ................................................................................
Net earnings available for distribution

Dividends paid

Transferred to surplus

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

SURPLUS A C CO U N T




Surplus— end of year

31

S T A T E M E N T O F C O N D IT IO N
In thousands of dollars

Assets

d e c . 3 1, 1974

D E C . 3 1 , 1973

Gold certificate account ......................................................................
Special Drawing Rights certificate account ........................................
Federal Reserve notes of other Banks ...............................................

3,413,162
93,000
232,852

3,231,124
93,000
197,838

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

14,251

19,012

Total

3,753,265

3,540,974

Advances ...............................................................................................
Acceptances:
Bought outright ..................................................................................
Held under repurchase agreements .....................................................
United States Government securities:
Bought outright* ................................................................................
Held under repurchase agreements.....................................................
Federal agency obligations:
Bought outright ..................................................................................
Held under repurchase agreements.....................................................

90,750

485,105

578,949
420,271

68,014
0

17,783,692
443,350

19,313,746
58,000

1,044,519
510,500

476,947
42,000

20,872,031

20,443,812

Total loans and securities

Other assets:
Cash items in process of collection.....................................................
Bank premises ....................................................................................

1,456,276
11,737
2,028,849*

2,575,287
10,067
207,995

Total other assets

3,496,862

2,793,349

Total Assets

28 ,1 2 2,15 8

26,778,135

★ Includes securities loaned— fully secured by United States Government
securities pledged with the Bank ................................................................

154,600

162,950

All otherf .............................................................................................

t

Includes assets denominated in foreign currencies.

$

Includes indebtedness of $1,723,472,055 assumed by the Federal Deposit
Insurance Corporation in connection with' the closing of the Franklin Na­
tional Bank.

32




S T A T E M E N T O F C O N D ITIO N
In thousands of dollars

Liabilities

d e c . 3 1 , 197 4

d e c . 3 1 , 1 973

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

17,979,729

16,081,665

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

6,139,480
1,080,151
201,978
812,646

7,780,246
394,348
58,635
673,840

8,234,255

8,907,069

1,157,281
281,589

1,118,004
241,471

1,438,870

1,359,475

Total Liabilities

27,652,854

26,348,209

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

234,652
234,652

214,963
214,963

Total Capital Accounts

469,304

4 29,926

Total Liabilities and Capital Accounts

28,12 2,158

26,77 8,135

248,632

151,662

Total deposits

Other liabilities:
Deferred availability cash items .........................................................
All other ...............................................................................................
Total other liabilities

Capital Accounts

Contingent liability on acceptances purchased for foreign
correspondents! ................................................................................

★ After deducting participations of other Federal Reserve Banks amounting to

216,050

192,140

f

732,186

429,433

After deducting participations of other Federal Reserve Banks amounting to




33

Changes in Directors and Senior Officers
i n d i r e c t o r s . In December 1974, member banks in Group 2
elected Stuart McCarty a Class A director and reelected William S. Sneath a
Class B director, each for a three-year term beginning January 1, 1975. Mr.
McCarty is President of First-City National Bank of Binghamton, Binghamton,
N.Y. Mr. Sneath, President of Union Carbide Corporation, New York, N.Y.,
has been a Class B director since August 15, 1973.
Also in December, the Board of Governors of the Federal Reserve System
reappointed Roswell L. Gilpatric a Class C director for the three-year term
beginning January 1, 1975, and redesignated him as Chairman of the board of
directors and Federal Reserve Agent for the year 1975. 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; he served as Deputy Chairman in 1971
and as Chairman and Federal Reserve Agent in 1972, 1973, and 1974. At the
same time, the Board of Governors reappointed Frank R. Milliken as Deputy
Chairman for the year 1975. Mr. Milliken, President of Kennecott Copper Cor­
poration, 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.

c h a n g e s

Buffalo Branch. In December, the Board of Governors appointed Paul A.
Miller a director of the Buffalo Branch for a three-year term beginning January 1,
1975. Dr. Miller is President of the Rochester Institute of Technology, Roch­
ester, N.Y. On the Branch board, he succeeded Norman F. Beach, Vice Presi­
dent, Eastman Kodak Company, Rochester, N.Y., who had been a director of
the Branch since January 1968, serving as Chairman of the Branch board in
1971 and 1974. Also in December, the board of directors of this Bank appointed
Stephen T. Christian a director of the Buffalo Branch for a three-year term
beginning January 1, 1975. Mr. Christian is President of Marine Midland BankChautauqua, National Association, Jamestown, N.Y. On the Branch board, he
succeeded Theodore M. McClure, President of The Citizens National Bank and
Trust Company, Wellsville, N.Y., who had been a director of the Branch since
January 1972. At the same time, the board of directors of this Bank designated
Donald R. Nesbitt as Chairman of the Branch board for the year 1975. Mr.
Nesbitt, who is the owner and operator of Silver Creek Farms, Albion, N.Y.,
has been a director of the Branch since January 1973.
34




The following changes in the official staff,
at the level of Vice President and above, have been made since January 1974:
The assignment of David E. Bodner, Vice President, to the Foreign Function
was terminated, effective February 1, 1974, in view of his resignation, effec­
tive April 1, 1974, to accept a position as Senior Vice President at Chemical
Bank, New York, N.Y. Mr. Bodner joined the Bank’s staff in 1959 and became
an officer in 1965. Between February 1 and April 1, 1974, he was assigned
responsibility for special studies for the President and First Vice President. Mr.
Bodner also resigned as Deputy Special Manager of the System Open Market
Account, effective February 1, 1974.
H. David Willey, Vice President, was assigned to the Foreign Function,
effective February 22, 1974, with supervisory responsibility for the operations
of the function under Charles A. Coombs, Senior Vice President. Mr. Willey’s
assignment as the officer in charge of the Loans and Credits Function was
continued.
Scott E. Pardee, formerly Assistant Vice President, was appointed Vice
President, effective February 22, 1974, and assigned to the Foreign Function.
Thomas O. Waage, Senior Vice President, was assigned senior management
responsibility for the Government Bond and Safekeeping of Securities Function
on September 6, 1974. Mr. Waage also maintained senior management respon­
sibility for the Cash and Collection, Check Processing, and Public Information
functions.
Frederick C. Schadrack, Jr., formerly Adviser, was appointed Vice President
on September 6, 1974 and assigned to the Bank Supervision and Relations
Function, with supervisory responsibility for the operations of the Banking
Studies, Domestic Banking Applications, and Foreign Banking Applications
Departments under Fred W. Piderit, Jr., Vice President. In addition, Mr.
Schadrack was assigned supervisory responsibility for the operations of the
Bank Analysis Department under Mr. Piderit on January 2, 1975.
Chester B. Feldberg was appointed Vice President on January 2, 1975 and
assigned to the Loans and Credits Function, with supervisory responsibility for
the operations of the function under Mr. Willey. Mr. Feldberg had returned to
the Bank as Adviser, effective September 1, 1974, following his resignation as
Secretary of the Board of Governors of the Federal Reserve System. He had
formerly served as Secretary of this Bank from 1969 to 1973.
George Garvy, Vice President and Senior Adviser, retired on early retire­

c h a n g e s

in




s e n io r o f f ic e r s .

35

ment effective February 1, 1975, after completing thirty-two years of service
with the Bank. Mr. Garvy joined the Bank’s staff in 1943 and became an officer
in 1953.

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 — 1975. The board of directors
of this Bank selected Ellmore C. Patterson, Chairman of the Board of Morgan
Guaranty Trust Company of New York, New York, N.Y., to serve during 1975 as
the member of the Federal Advisory Council representing the Second Federal Re­
serve District. On the Council, Mr. Patterson succeeded Gabriel Hauge, Chair­
man of the Board of Manufacturers Hanover Trust Company, New York, N.Y.,
who was this District’s member in 1973 and 1974.

36




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

St u a r t M c C a r t y .........................................................................................................................................
President, First-City National Bank of Binghamton, Binghamton, N.Y.

..

1977

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.

1977

B

2

B

3

J ack B. J a c k s o n ...........................................................................................................................................
President, J. C. Penney Company, Inc., New York, N.Y.
1977

C

F r a n k R . M i l l i k 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

R o s w e l l L. G i l p a t r i c , Chairman , and Federal Reserve A g e n t..................................
Partner, Cravath, Swaine & Moore, Attorneys, New York, N.Y.

,,

D IR E C T O R S — B U F F A L O B R A N C H

D o n a ld R. N e s b it t , Chairman ....................................................................................................
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 .........................................................................................................................................
Chairman of the Board, 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 ie l G . R a n s o m ...............................................................................................................................................
President, The Wm. Hengerer Co., 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

P a u l A. M il l e r .................................................................................................................................................
President, Rochester Institute of Technology, Rochester, N.Y.

1977

S t e p h e n T. C h r is t ia n .....................................................................................................................................
President, Marine Midland Bank-Chautauqua, National Association, Jamestown, N.Y.

1977

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 5

E l l m o r e C . P a t t e r s o n ..................................................................................................................................
Chairman of the Board, Morgan Guaranty Trust Company of New York, New York, N.Y.




1975

37

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; Data Services;
Loans and Credits; Personnel; Service

A l a n R . H o l m e s , Senior Vice President
Open M arket Operations and Treasury Issues

T h o m a s O . W a a g e , Senior Vice President
Cash and Collection; Check Processing;
Government Bond and Safekeeping of Securities;
Public Information

A C C O U N T IN G C O N TR O L

A . M a r s h a l l P u c k e t t , Vice President
W a l t e r S. R u s h m o r e , Assistant Vice President
J o h n J. S t r i c k ,

Manager, Accounting Department
S t e p h e n G . T h ie k e ,

Manager, Management Information Department,
and Assistant Secretary
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
F r e d e r i c k C. S c h a d r a c k , J r . , Vice President
L eo n K orobow ,

Manager, Banking Studies Department
B e n e d i c t 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, Foreign Banking
Applications Department
D o n a l d E . S c h m id ,

Manager, Bank Analysis Department
B e n ja m in S ta c k h o u s e ,

Manager, Domestic Banking
Applications Department
R o b e r t C. T h o m a n , Assistant Vice President
Ja m e s H . B o o th ,

Manager, Bank Regulations Department
F r e d e r i c k L . F r e y , Chief Examiner
R o b e r t A . J a c o b s e n , Assistant Chief Examiner
F r a n k lin T. L ove,

Manager, Bank Relations 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
L ouis 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

38




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
C A S H A N D C O L L E C T IO N

W i l l i a m H . B r a u n , J r . , Vice President
Jo h n C h o w an sk y ,

Manager, Cash Custody Department, and
Manager, Collection Department
L e o n R . H o lm e s ,

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
F r e d A . D e n e s e v ic h ,

Manager, Check Processing Department
J o h n C. H o u h o u lis ,

Manager, Payment Systems Department
J o s e p h M . O ’C o n n e l l ,

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 rlo n g o ,

Manager, North Jersey Regional
Check Processing Center
R a l p h A. C a n n III,
Operations Analysis Officer
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
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
D e n is L. C o n w a y ,

Manager, User Operations Department
P e t e r J. F u l l e n ,

Manager, Telecommunications Department
O le g H o ffm a n ,

Manager, Computer Operations Department
A n g u s J. K e n n e d y , Data Services Officer
R a l p h C . S c h i n d l e r , Data Services Officer

Officers

(Continued)
L O A N S A N D C R E D IT S

W i l l i a m M. W a l s h , Assistant Vice President
J e r r y B e rk o w itz ,

Manager, Systems Specifications Department

H . D a v id W i l l e y , Vice President
C h e s t e r B. F e l d b e r g , Vice President

G e ra ld H ayden,

H en ry

Manager, Systems Strategy Department
H erb ert

M. Q u in n ,

Manager, Custom Systems Department

S. F u j a r s k i , J r . , Assistant 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
E Q U A L O P P O R T U N IT Y

C e c il

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
H. D a v id W i l l e y , Vice President
S c o t t E . P a r d e e , Vice President
R o b e r t J. C r o w l e y , Assistant Vice President
M a r g a r e t L. G r e e n e , Assistant Vice President
F r e d H. K l o p s t o c k , Adviser
B e r n a r d J. J a c k s o n ,

Manager, Foreign Department
R oger

M. K u b a r y c h ,

Foreign Exchange Officer
G eo rg e W. R yan,

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

THOMAS 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 ie u rz o ,

Manager, Government Bond and
Safekeeping Department
R ic h a rd V o l l k 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 rm o n d

J. B r a i g e r ,

Manager, Savings Bond 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 e t e r D. S t e r n l i g h t , Vice President
P a u l M e e k , Monetary Adviser
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

L. T s c h i n k e l ,

S h e ila

Manager, Securities Department
O P E R A T IO N S IM P R O V E M E N T

K a re n

J. B o p p , Operations Analysis Officer

P ERSONNEL

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 r u c e G. A l e x a n d e r ,

Manager, Personnel Department
T e rre n c e

J. C h e c k i,

Manager, Personnel Department
F ra n c is

H. R o h r b 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

Jo rg e A. B ra th w a ite ,

Manager, Security Custody Department
S t e p h e n P. W e is , Operations Analysis Officer
LEG AL

E d w a r d G . G u y , Vice President

and General Counsel
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
D o n a l d L. B i t t k e r , Assistant Counsel
R i c h a r d D . C o o p e r s m i t h , Assistant Counsel,

and Assistant Secretary
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
M a r y J. R o d g e r s , Assistant Counsel




R ESEA 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
M i c h a e l J. H a m b u r g e r , Adviser
A n t o n S. N i s s e n , Assistant Vice President
C h a rle s M. L u cas,

Manager, Statistics Department
R u d o l f T h u n b e r g , Assistant Vice President
M a r c e l l e V. A r a k ,

Senior Economist
E d n a E. E h r l i c h ,

Manager, International Research Department
G ary

H. S t e r n ,

Manager, Domestic Research Department

39

Officers (Continued)
S E C R E T A R Y ’S O F F IC E

S E R V IC E

E. G e r a l d C o r r i g a n , Adviser, and Secretary

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 ,

R i c h a r d D . C o o p e r s m i t h , Assistant Secretary,
and Assistant Counsel
S u z a n n e C u t l e r , Assistant Secretary
T h e o d o r e N. O p p e n h e im e r , Assistant Secretary
S t e p h e n G . T h ie k e , Assistant Secretary, and
Manager, Management Information Department

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

OFFICERS—BUFFALO BRANCH
A n g u s A . M a c I n n e s , J r . , Vice President
RONALD 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

PETER D . L u ce, 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 A N D P U B L IC I N F O R M A T IO N ;
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

H a r r y A . C u r t h , J r . , Assistant Cashier

40




M A N A G E M E N T R EP O R TS ; P ER S O N N E L

RONALD

B. G r a y , Assistant Vice President

and Cashier