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FEDERAL RESERVE BANK
OF NEW YORK




A N N U A L REPORT

1978

FEDERAL

RESERVE

B A N K OF NEW YORK

March 23, 1979
To the Member Banks in the
Second Federal Reserve District
I am pleased to present our sixty-fourth Annual
Report, reviewing major economic and financial developments
and this Bank's operations in 197 8.
This Report amply describes the overriding need
for economic policy in general, and for monetary policy in
particular, to restore stability in the purchasing power of
the dollar at home and in the foreign exchange markets.
Encouragement could be found in the array of domestic and
international measures taken toward those ends as the year
wore on. But at year-end, strong new inflationary pressures,
arising both from growing strains on internal resources and
from external disturbances in oil markets, were evident.
Success in turning back the inflationary tide will plainly
rest on sustaining determined effort over a period of time,
building upon the steps taken in 1978.
Within the Bank, the Report is able to point at
striking progress toward enhancing the efficiency of our
operations. Those results reflect our continuing commitment,
shared widely within the entire Federal Reserve System, to
do our work at standards of effectiveness, and with an
economy of resources, comparable to best business practices.
We have been able to act upon that commitment only through
the loyal and dedicated efforts of our able staff and
officers, and I take pride in the way they have responded
to the changing needs of the Bank, its member institutions,
and the public at large.




PAUL A. VOLCKER
President




Federal Reserve Bank
of New York

SIXTY-FOURTH
ANNUAL REPORT
For the Year
Ended
December 3 1 ,1 9 7 8

Second Federal Reserve District

Contents:

Page
INFLATION AND THE DOLLAR IN 1978 ........................................................................

3

The Decline of the Dollar Domestically

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

4

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

18

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

33

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

33

The Dollar and International Adjustment

THE BANK IN 1978
Bank Supervision

Managerial and Operational Highlights
Financial Statements

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

35

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

39

Changes in Directors and Senior Officers

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

42

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

45




Sixty-fourth Annual Report
Federal Reserve Bank of New York

IN F L A T IO N A N D T H E D O L L A R IN 1978
Inflation came to be recognized as the prime economic problem in the United
States during the course of 1978. Economic activity remained at satisfactory
levels. The real gross national product (GNP) posted a gain of almost 4 per­
cent, a vigorous advance for the fourth year of recovery even if somewhat
less than in 1977. The pace of the expansion was uneven during 1978, but the
year ended on a very strong note. Employment again rose impressively, and
unemployment among experienced workers with marketable skills was virtually
eliminated. To be sure, the chronic joblessness among minorities and the young
remained a serious concern, but substantial progress was made toward the
nation’s goal of providing employment for all who seek it.
Any immediate satisfaction in these achievements was, however, overshadowed
by inflationary pressures that constituted the greatest threat to the sustainability
of the expansion and to the functioning of the international monetary system. As
aggregate output began to approach levels that put strains on productive capacity,
it was perhaps natural to expect some increase in price pressures. But early in the
year it was hoped that underlying inflation would not greatly accelerate from the
6 percent rate of 1977. Instead, price increases began to pick up speed as soon
as the economy started pulling itself out of its winter difficulties, and by the yearend the overall level of prices was about 9 percent higher than a year earlier.
In the face of this disappointing performance, the dollar continued the down­
ward slide on the foreign exchanges that had begun in the latter part of 1977.




3

The decline of the dollar, which sometimes seemed to accelerate under its own
momentum, reached proportions far in excess of what could be justified as a
correction for past, current, or even prospective inflation differentials. Depre­
ciation thus added to the price pressures already at work within the American
economy, further complicating the problem of controlling inflation. More
broadly, the exchange instability created major disturbances in international
financial markets generally, raising new doubts about the future of a liberal
trading order.
These clear threats to domestic and international economic stability invoked
a forcible response in midautumn when the United States launched major new
efforts to deal with both domestic inflation and with the excessive decline of
the dollar in the exchange markets. More restrictive monetary policies were a key
element in those efforts. The immediate results were highly constructive, particu­
larly in achieving some recovery and stabilization of the dollar abroad. But infla­
tion pressures—recently aggravated further by dislocation in oil markets—
remain very strong. The new initiatives, both domestic and international, can
only be the first step in the difficult and extended process to unwind inflation.
The apparent growing public consensus that restoring price stability must be a
prime goal, even if it requires painful adjustments, is encouraging. Our ability
to build on that consensus, and to persevere with the disciplines necessary for
success in the struggle against inflation, will shape the health of the United
States and the world economy for a long time to come.

T h e Decline of the Dollar Domestically
The worsening of inflation in 1978 was substan­
tial, however measured. The basic inflation rate, measured by prices of consumer
items other than food, rose to 8 V2 percent over the twelve months ended
December 1978, compared with little more than 6 percent over the preceding
year (Chart 1). The prices of services increased particularly rapidly as homeowning costs speeded up sharply. Moreover, there was evidence that prospects of
continuing inflation had become more embedded in consumers’ expectations than
ever before, contributing to higher mortgage interest rates and to strongly rising
prices for houses.
in f l a t io n

4




a c c e l e r a t e s

.

C h a rt 1.

P R IC E S A N D U N IT L A B O R C O S T S

Food prices, traditionally m ost volatile and often unpredictable, surged
again and jum ped alm ost 12 percent at the consum er level. Some food prices
spurted early in the year, as a result of the severe w inter, and m oderated later
on. T ow ard the year-end, how ever, b ad w eather was once again disrupting
supplies and driving prices higher. L onger run forces also played a m ajor role
in the food price escalation. T he m ost conspicuous increases in 1978 were those
in beef prices, w hich can be reversed only over an extended period because of the
tim e required to rebuild cattle herds. G overnm ent policies to protect farm in ­
com es also m ay have contributed to the overall rise in food costs. In the last two
years, the artificial floor under some im portant com m odity prices was moved




5

upward by legislative actions, and acreage “set-aside” programs were activated
for the first time in five years to restrict grain output.
The depreciation of the external value of the dollar imparted a special infla­
tionary thrust to the economy, well beyond what might be expected from the
relatively small share of imports in total spending. The rise in import prices
resulting from depreciation spread rapidly through the economy because many
domestically produced commodities are in direct competition with goods pro­
duced in foreign countries. The best-known example of this phenomenon has
been the rise in domestic prices of smaller automobiles, which followed upward
adjustments in dollar prices of Japanese and European models dictated by
declining foreign currency values of the dollar. But the prices of a wide range
of other goods, on which the availability of importable substitutes is normally
a restraining influence, were similarly affected. In some cases, this restraining
influence was also limited by new protective barriers that restricted imports or
forced their prices up to higher levels.
Dollar depreciation also appears to have contributed to a new surge in
dollar prices of raw materials in general. These prices are determined by supply
and demand in the world market as a whole, but the uncertainties about the
exchange value of the dollar meant that some purchasers may have turned to
commodities as a hedge against future dollar price increases. In any event,
dollar prices rose on United States imports of goods for which foreign residents
were paying unchanged, or even declining, prices measured in their own appreci­
ating currencies. This inflationary effect applied also to raw materials and other
goods in which the United States is self-sufficient or which it exports.

LAGGING PRODUCTIVITY AND MOUNTING LABOR COSTS.

Labor COSt

trends, as determined by the relationship between compensation and the produc­
tivity of workers, deteriorated further in 1978. Labor compensation represents
about two thirds of production costs in the private business sector and more than
half of total Government expenditures for goods and services. Thus, labor costs
are a major channel for the transmission of inflationary impulses through
the economy.
The growth of labor productivity in the United States began to slow during
the latter half of the 1960’s. In the five years following the business-cycle peak
in 1973, the rate of growth of output per hour worked in private business fell
even further to only a little over 1 percent per annum, compared with the
6




3 percent that had come to be viewed as normal in the first two decades of the
postwar period. Typically, productivity has risen faster than its long-run trend
during the recovery phase of business cycles. This did happen in the early part
of the present expansion— indeed, productivity gains were exceptionally large
in the first half year after recovery began in 1975— but the rate of improvement
quickly fell back and was unusually low by late 1976. And in 1978 productivity
improved only modestly in the private sector as a whole.
This flattening of productivity has a number of explanations. In part, it is
attributable to a slowdown in the introduction of new techniques in American
industry. Also, in recent years an increased share of capital investment, which
might in earlier times have gone toward directly improving the capacity to produce
goods, was directed toward environmental protection, health, safety, and other
goals the achievement of which is not captured by conventional measures of
output. Productivity growth has also been slowed by the shift of economic
activity from manufacturing. In manufacturing, it has always been easier than
in the service industries to achieve (and to measure) improvements in efficiency.
Indeed, productivity in manufacturing posted a good advance in 1978.
The decision by growing numbers of Americans who had not previously
participated in the labor force to seek jobs has also contributed to the arith­
metic of lower productivity gains. The more plentiful supply of labor has induced
some substitution of workers’ efforts for the services of capital goods and, with
less labor-saving capital to support the average worker, labor productivity has
suffered. At the same time, relatively inexperienced, and thus less productive,
workers now make up a larger proportion of the work force than before.
The understandable desire to continue to enjoy ever-growing real earnings,
combined with increased awareness of the threat that real wages might be eroded
by inflation, has for some time exerted strong upward pressure on the com­
pensation levels expected by American workers. In the first years of the recovery
union wages led the way, but in 1978, with tightening labor market condi­
tions, wages of nonunionized workers rose almost as rapidly as those of
union members. All in all, over the four quarters of 1978, total compensation
(which includes wages and fringe benefits) per hour worked in the private
business sector rose almost 10 percent, up 2 percentage points from the
preceding year.
Government policies contributed to rising labor costs in 1978. An increase
in the minimum wage and the rise in payroll taxes, put into effect at the be­
ginning of the year, boosted average compensation by about 1 percent. Further




7

increases for both the wage floor and payroll taxes took effect at the beginning
of 1979.
The combination of very small productivity growth and large gains in com­
pensation resulted in the most rapid increases in labor costs per unit of output
since 1974. In private nonagricultural business, unit labor costs rose 9 percent over
the four quarters of 1978, sharply higher than the 6 percent increase in each
of the two preceding years. In large measure, the rapid cost increases of
1978 were reflected in consumer prices. But that was not the end of the story.
Last year’s inflation will trigger further wage adjustments for many of the record
8 V2 million workers covered under formal cost-of-living agreements in collective
bargaining contracts. And many millions more workers not covered by such
agreements will receive catch-up wage increases. Once started, an inflationary
spiral becomes difficult to reverse.
The voluntary program of wage and price restraint announced by President
Carter on October 24 is aimed at breaking this vicious circle. The program is
designed so that moderation in the growth of labor compensation—which is
imperative if inflation is to be reduced—need not penalize workers. Standards
for price increases and profit margins, as well as the proposed “wage insurance”
plan, are intended to protect the real incomes of working people even as rates
of increase in nominal wage levels are reduced. Of course, such a program is
no substitute for fiscal and monetary restraint. Nevertheless, widespread confor­
mance to the program would enhance the effectiveness of those more fundamen­
tal policies by quickening their effects on prices while reducing the risks of
excessive restraint to the economy.

Government agricultural
policies, labor cost trends, and dollar depreciation had all been channels of
inflation in the United States well before 1978. In the past year, additional
pressures were felt as the economy began to approach full employment of
productive resources.
In the earlier years of this expansion the economy had remained notably
free of the various excesses and distortions that typically start cropping up as
the advance continues. For one thing, the 1973-75 recession had been unusually
deep and hence the economy had plenty of spare capacity at the start of the
recovery. For another, the severe strains, financial and otherwise, that resulted
from the preceding boom imparted a definite sense of caution to business

s h rin k in o

8




m a rg in s o f u n u s c d

re s o u rc e s .

decision making. As a result, and also because of the general mood of uncer­
tainty, a boom-like atmosphere did not engulf the economy. The expansion
proceeded unevenly, to be sure, with occasional pauses as early and minor
inventory adjustments were made, but briskly on balance. Even as inflation
began to accelerate, the business atmosphere remained generally calm.
The consumer in contrast reacted to worsening inflation fairly promptly.
Consumer spending had led the recovery from the beginning, and in 1978 fear
of inflation appears to have been a major force behind the continued surge of
personal expenditures, particularly on automobiles and other durable goods and
on housing. The savings rate went down and borrowings went up, especially
on mortgages despite rising interest rates. Residential construction held up
remarkably as mortgage credit remained readily available following the intro­
duction of six-month money market certificates with yields tied to Treasury
bill rates.
With the consumer propelling the expansion, and capital spending by busi­
ness also rising, the economy was approaching the limits of potential output as
the year wore on. A net 3.5 million persons were added to nonfarm payrolls
during the year, an increase of more than 4 percent. By the end of the year, a
record 59 percent of working-age Americans had jobs. The unemployment rate
declined by nearly a full percentage point from 6.8 percent in the second half of
1977 to 5.9 percent in the second half of 1978. That was of course still well
above rates of unemployment during advanced stages of earlier postwar eco­
nomic expansions, since the labor force continued its extraordinarily rapid growth.
Most of that growth consisted of women and teenagers, who traditionally have
been unemployed more frequently than adult males. Liberalization of unemploy­
ment insurance and other income maintenance programs has also had the effect
of keeping the unemployment rate relatively high— at a minimum by enabling
unemployed persons to spend more time in the search for suitable jobs. And so,
despite relatively high measured rates of unemployment, the labor market
tightened noticeably. By the latter part of the year, shortages of workers with
particular skills were being reported with increased frequency.
Shortages of some materials, semimanufactured products, and components
also came into evidence before the year-end, as margins of unused industrial
capacity shrank further. By the fourth quarter, the rate of capacity utilization in
manufacturing had risen to 85.8 percent, according to a Federal Reserve mea­
sure. Strains on capacity tend to develop at rates of utilization well below 100
percent. In the summer of 1973, for example, the rate had peaked at 88 percent.




9

By the end of 1978 there apparently was little efficient industrial capacity left
unused in a number of key industries. Economically viable capacity was probably
even less than the available measures suggest, because the increases in energy
costs since 1973 may have rendered some productive processes and facilities
economically obsolete.

b u r g e o n i n g c r e d i t d e m a n d s . The need to finance a high rate of spend­
ing on goods and services, as well as brisk turnover of houses sought as
hedges against inflation, generated strong demands for credit in 1978. The
Federal Reserve— confronted by rapidly growing monetary aggregates, accel­
erating inflation, and a depreciating dollar on the exchange markets— took a
series of steps to resist excessive credit expansion. In this environment of
restraint, burgeoning demands for credit drove interest rates to the highest
levels since 1974 and, in some cases, to the highest levels on record (Chart 2 ).
Households were the largest users of credit. The boom in consumer spending
through 1978, it is true, was sustained in large measure by rapidly growing
household income. To a significant extent, however, it was augmented by
stepped-up borrowing by consumers. During 1978, consumer instalment in­
debtedness rose by $45 billion, representing a 21 percent increase. Mortgage
debt of households grew even faster, by $101 billion, exceeding 1977’s previous
record increase. While the near-record rate of construction of single-family homes
was partly responsible for these large demands for mortgage credit, the greater
part was secured by existing homes. Record sales of existing homes were stim­
ulated in part by the rapid increases in real estate prices during the past
several years. These price increases enabled many households to “trade up” by
using the proceeds of the sale of a residence to make the downpayment on a
bigger or better one, while often having enough left over to purchase consumer
durable goods or to add to financial assets. Others realized capital gains on their
homes by refinancing an outstanding mortgage or by taking out a junior mortgage.
Consumer debt burdens climbed to record levels last year, according to
various measures. By the end of the year, consumer instalment and mortgage
debt together represented a larger proportion of disposable personal income
than at any time previously. The lengthening of maturities of some types of
debt, especially new automobile loans, somewhat tempered the immediate
impact of this growing debt on family budgets. Nevertheless, repayments of
consumer instalment and mortgage debt ate up a record share of disposable

10




C h art 2.

S E L E C T E D IN T E R E S T R A T E S

incom e. Inasm uch as interest paym ents are deductible from incom e for those
who item ize deductions in calculating taxable incom e, the foregoing m easures
m ay exaggerate the debt burdens borne by consum ers. T o som e ex­
tent, too, increasing debt levels represented a natural outgrow th of the relative
shift in the com position of the population tow ard the 25- to 44-year age group
th at historically has been the heaviest user of credit. T he rising proportion of
families w ith at least two wage earners m ay reduce the risk of larger indebtedness
for those households. N onetheless, the speculative elem ents associated w ith in­
creased consum er indebtedness in 1978 w ere disturbing, as people attem pted to
protect them selves from inflation by acquiring appreciating assets and by incurring




11

debts to be repaid with depreciated dollars in the future. As the year was ending,
consumers were beginning to find credit somewhat less available. This was
especially true for mortgages, as usury ceilings began to restrict the availability
of credit in a number of states.
Credit demands of nonfinancial businesses also rose strongly in 1978. After
the winter lull in business, demand for short-term credit surged in the spring
to finance a burst of activity, coupled with a resurgence of inflation. Beginning
about midyear, the growth of business loans at commercial banks moderated
considerably as rising interest rates undoubtedly reinforced business firms’
cautious approach to inventory investment. However, while firms were expand­
ing their reliance on bank credit more slowly than before, they were turning
increasingly to other sources. During the final quarter of the year, large firms
with high credit ratings issued a sizable volume of commercial paper. At
the same time, smaller firms were rapidy increasing their borrowing from
business finance companies.
Corporate demands for long-term funds also showed little sign of abating
during 1978. Net issues of bonds by nonfinancial corporate firms, though well
below the record volume of flotations in 1975, were only slightly less than the
totals in 1976 and 1977. Moreover, substantial increases in commercial mort­
gages and in multifamily residential mortgages were recorded.
The Federal Government continued to borrow heavily during 1978, though
in lessening amounts toward the latter part of the year. The Federal budget
deficit totaled $49 billion in the fiscal year 1978, slightly greater than the pre­
ceding year’s deficit. The investment in Treasury securities of the bulk of the
proceeds of the large-scale dollar support operations undertaken by foreign
central banks helped to relieve some of the pressure that the heavy Treasury
borrowing might otherwise have placed on the Government securities market. A
narrowing of the Federal budgetary deficit in fiscal year 1979, which began
on October 1, 1978, was reflected in somewhat lighter borrowing requirements
in the last three months of the year. According to official estimates, the deficit
is to shrink to about $37 billion in fiscal 1979 and to a targeted $29 billion in
fiscal 1980. However, Federal credit demands were augmented during 1978
by an “off-budget” deficit of more than $10 billion— chiefly to finance programs
through the Federal Financing Bank— and this deficit is not expected to decline
in the foreseeable future. Moreover, Federally sponsored credit agencies bor­
rowed a net of $23 billion in 1978— more than three times the borrowings of
the previous year—largely to funnel resources into housing and agriculture.
12




State and local governments as a whole continued to enjoy large budgetary
surpluses last year, though somewhat less than the record level of 1977. Never­
theless, these units issued a record $48 billion of tax-exempt bonds in 1978,
slightly more than in the previous year. Part of the 1978 volume reflected
special factors. For example, sales of tax-exempt bonds rose to a record volume
in August as many issues were rushed to market in anticipation of the Septem­
ber 1 effective date of Treasury regulations intended to restrict “arbitrage” gains of
issuers selling tax-exempt obligations and investing the proceeds in higher
yielding taxable instruments. Some new bonds were floated to refund older
bonds that had been issued at times of higher interest rates.

r e s t r i c t i v e m o n e t a r y p o l i c y . Strong credit demands were accompa­
nied by rapid growth of the monetary aggregates until late in the year. In Jan­
uary 1978 the Federal Open Market Committee (FOMC) projected growth of
the monetary aggregates for the period from the fourth quarter of 1977 to the
fourth quarter of 1978 within the following ranges: 4 to 6 V2 percent for Mi
(currency and demand deposits), 6 V2 to 9 percent for M2 (Mx plus commer­
cial bank savings and time deposits except large negotiable certificates of
deposit), and IV2 to 10 percent for M3 (M2 plus deposits at mutual savings
banks and savings and loan associations). Those ranges of growth were
reaffirmed at the April and July FOMC meetings, when the four-quarter
projected period was moved forward by one quarter in each case. During the
first three quarters of the year, Mt grew at an annual rate of 8.2 percent, far
above the upper limit of the projected range of growth. M2 and M3 remained
within their respective ranges, albeit toward the upper end.
The growth of the broader aggregates was sustained in part by the intro­
duction of a new type of time deposit, paying rates competitive with rates on
open market instruments. Beginning June 1, banks and thrift institutions were
authorized to offer “money market” certificates in minimum denominations of
$10,000 with maximum rates tied to Treasury bill rates. Commercial banks
were allowed to pay an interest rate equal to the average rate of discount for sixmonth Treasury bills established in the preceding weekly Treasury auction, and
mutual savings banks and savings and loan associations were allowed to pay the
equivalent of Va percentage point more annually. These certificates proved to be
very popular. At the year-end, some $23 billion was outstanding at commercial
banks and $54 billion at thrift institutions. The new certificates, while cutting




13

into the earnings of thrift institutions, enabled them to offset the withdrawal of
funds from savings deposits stimulated by high yields available on open market
instruments. Thus, the certificates helped to sustain the flow of funds into mort­
gages and to spread the impact of credit restraint more evenly rather than
concentrating it on residential construction as happened so often in the past.
The Federal Reserve took a number of overt steps during 1978 to resist
excessive credit and monetary expansion. The first such move, an increase in
the discount rate to 6 V2 percent from 6 percent early in January, was particularly
intended to complement other steps to stabilize the dollar on the foreign exchange
markets. Then during the period from May through October the discount rate
was raised five times for domestic as well as for international reasons. By

C h art 3.

T O T A L F U N D S R A IS E D IN C R E D IT M A R K E T S
E xcluding Financial Sectors

Billions of
dollars
400

TOTAL FUNDS RAISED

350

-

/

30 0

-

/

250
200

—

------------

15 0

—

100 50

^
I I I

_________________

—

1

1

1

1

1

1

1

_ .l

Percentage
of GNP
15
10
5

0

Quarterly da.ta for 1978 are expressed at seasonally adjusted annual rates.
Fourth-quarter data are preliminary.

14




October 13, the discount rate had been raised to a record level of 8 V2 percent,
eclipsing the former record of 8 percent set in 1974. Nevertheless, these boosts
in the discount rate generally followed increases in market rates and conse­
quently did not provide strong signals of restrictive policy. A strong signal
was given on November 1, when the Federal Reserve raised the discount rate
a full percentage point to 9Vi percent and imposed a supplementary reserve
requirement of 2 percent on large time deposits. These measures were part of
a coordinated Administration-Federal Reserve program aimed at restoring
confidence in the dollar.
Over the course of the year, the Federal funds rate was increased by 3 V2 per­
centage points while other short-term rates rose about 3 to 4 percentage points.
Long-term yields experienced increases ranging from about 1 percentage point
on high-quality corporate bonds to as much as 1V2 percentage points on Treasury
bonds, which were marketed in relatively large volume as the Treasury sought
to extend its debt maturity structure. Corporate and tax-exempt bond yields
ended the year still below their 1974-75 peaks. By late 1978, however, yields on
Treasury securities were close to record levels across the maturity spectrum, from
near-term bills to bonds that will not mature until after the turn of the century.
Home mortgage yields also rose to new highs during 1978. Yet it was not clear
whether interest rates had risen enough to achieve the needed credit restraint.
With prices of goods and services— and especially values of capital assets such
as homes— rising rapidly, even high nominal interest rates still seemed tolerable
to many borrowers.
Credit expansion peaked in the third quarter of the year, when total
funds raised in the credit markets by nonfinancial sectors rose to 19 percent of
GNP (Chart 3). The subsequent decline in the rate of borrowing was not uni­
form, however. It was centered chiefly in credit demands of the Federal Govern­
ment, reflecting a strong cash position and a modest movement toward a less
expansionary fiscal policy. State and local governments also eased the pace
of their borrowing, and net issues of corporate bonds tapered off somewhat.
The effects of restraint were very apparent in commercial banking, the sector
most directly affected by restrictive Federal Reserve policies. Total commercial
bank credit in the second half of the year grew at an annual rate of 7 percent,
only about half the rate of expansion in the first half.
At the end of the year, credit demands remained strong but the groundwork
was laid for significant restraint. Liquidity positions of consumers, businesses,
and financial institutions were declining. There were a few signs of reduced




15

credit availability. Uncertainty over prospects for business was beginning to
discourage overly exuberant commitments. And the growth of the monetary
aggregates subsided.
The slowdown of monetary growth was most pronounced for the narrowest
version of the money stock (Chart 4). Mi increased at an annual rate of only
4.4 percent in the final quarter of 1978, compared with 8.2 percent during the
first three quarters. The growth of M2 slowed more modestly to a 7.7 percent
rate in the fourth quarter from 8.6 percent earlier in the year. The growth of
M3 slowed only in relation to the rapid expansion of the third quarter. M3 rose
at a 9.3 percent annual rate in the final quarter, down from 10.4 percent in
the preceding quarter but above the 8.3 percent growth of the first half of 1978.
In part, the slowdown of Mi growth reflected the introduction of interestbearing NOW (negotiable order of withdrawal) accounts in New York State and
automatic transfer service (ATS) at banks across the country. Under revised
banking regulations that went into effect on November 1, individuals were
allowed to authorize their banks to shift funds from savings to checking accounts
as needed to cover checks. It is estimated that the economizing on demand
account balances stimulated by the introduction of ATS may have reduced the
annual growth rate of Mx by roughly 1 percentage point in the fourth quarter.
More generally, rising interest rates and heightened consciousness on the part
of consumers and businesses of the interest foregone on idle balances reduced
the demand for deposits included in Mi. Liquid assets such as the money market
certificates offered by depositary institutions and shares in money market mutual
funds proved to be increasingly attractive substitutes for money balances as
short-term interest rates rose.
While the effect of the evolving changes in financial management on the
demand for Mx balances was clear, the speed and extent of these changes was
uncertain. Consequently, when the FOMC reviewed in October the longer run
ranges for growth of the monetary aggregates, the Committee both lowered and
widened the range for Mi. For the four quarters ending with the third quarter
of 1979, the FOMC established a range of 2 to 6 percent for Mi, while leaving
the M2 and M3 ranges unchanged at 6 V2 to 9 percent and IV2 to 10 percent,
respectively. After the turn of the year, in February 1979, the FOMC reduced
the projected ranges for all three aggregates. For the period from the fourth
quarter of 1978 to the fourth quarter of 1979, the projected ranges of growth
were set at IV2 to AV2 percent for Mi, 5 to 8 percent forJM2, and 6 to 9 percent
for M3. The FOMC established these ranges in light of its objectives of a gradual
16




winding-dow n of inflation and th e m aintenance of the stronger position of the
dollar in the exchange m arkets, while providing sufficient liquidity to finance
sustainable grow th in the economy.

Chart 4.

G R O W TH O F M O N E T A R Y A G G R E G A T E S




1978
The m oney stock g ro w th rates are com p ute d fro m d a ily average s e a s o n a lly
a dju sted

levels in

th e fin a l q u a rte r o f th e p re c e d in g p e rio d and t h e fin a l

q u a rte r o f th e p e rio d co vered .

Q u a rte rly d a ta fo r 1978 are e xpre sse d at

a n n u a l ra te s.

17

Th e Dollar and International Adjustment
THE DECLINE OF THE DOLLAR IN THE EXCHANGE MARKETS.

The year

began with the dollar under generalized selling pressure in foreign exchange
markets that had become increasingly disorderly in the latter part of 1977
(Chart 5). Pessimism about the dollar had grown in 1977 in the context of deep­
ening trade and current account imbalances among the major industrial econ­
omies, and these imbalances continued to dominate the scene in 1978. As the
price performance of the United States economy deteriorated, in major foreign
economies inflation rates remained low or were declining. At the same time, eco­
nomic recovery abroad was generally slow in picking up speed, while the expan­
sion here was proceeding at a good pace. As a result, and because of the initially
perverse effects of the dollar’s depreciation, the United States balance-ofpayments deficit on current account widened further.
Concern over the huge United States deficit was heightened by the unbalanced
international payments positions of other industrial countries. As OPEC’s (the
Organization of Petroleum Exporting Countries) surplus, which had loomed as
a major threat to world financial stability in the mid-1970’s, dwindled to man­
ageable size, the persistent current account surpluses of three industrial countries
— Germany, Japan, and Switzerland—took center stage. The German surplus
doubled in 1978 to $8 billion, and the surpluses of Japan and Switzerland in­
creased by one half to $16 billion and some $6 billion, respectively. Simulta­
neously, France, Italy, and the United Kingdom all achieved further improve­
ments in their international payments which had been plagued by deficits in pre­
vious years. Indeed, all but a few OECD (Organization for Economic Cooperation
and Development) member countries’ current account balances improved
during 1978.
As the large United States current account deficit persisted in the course of
1978, market psychology was also influenced by continuing misgivings about
the effect of government policies on the deficit and on the corresponding
surpluses of foreign countries. Skepticism persisted about United States energy
policy as energy legislation made its way through a difficult legislative process
to be finally enacted only late in the year. Beyond the narrow questions of
energy policy, doubts were also heard about overall United States economic
policies, including monetary policy, and the seriousness of the United States
resolve to fight inflation. In spite of the concern about a weakening dollar ex­
pressed by spokesmen for the Administration and the Federal Reserve, the
18




C hart 5.

T H E D O L L A R A G A IN S T S E L E C T E D FO R EIG N C U R R E N C IE S

1977

1978

question resurfaced occasionally w hether U nited States authorities were
indifferent, if not welcoming, in their attitude tow ard dollar depreciation. All
in all, the credibility and coherence of U nited States econom ic policies becam e
a serious issue for holders, and prospective holders, of dollars.
W ith the huge volum e of dollar assets th at is now in the hands of both private
and official foreign holders, even a small change in views on the desirability of
holding dollars can have a large im pact on exchange m arkets, larger than
fairly m ajor shifts in current paym ents flows. In the last few years, some holders




19

of dollars have sought to diversify the currency composition of their foreign
exchange portfolios. Even though the bulk of international currency holdings
is still held in dollars, some shift of this sort in preferences at the margin may have
been an inevitable result of the changes both in the international system and in
the relative economic position of the United States. But the manner and rate
at which diversification is carried out is by no means predetermined. In any

C h a rt 6 .

S H O R T -T E R M M O N E Y M A R K E T R A T E S

1977

1978
Rates shown are: for the United States, dealer offering rate for
prime commercial paper of 90 to 119 days’ maturity; for Japan,
rate on unconditional call money; for Germany and Switzerland,
three-month interbank rate.

20




short period, decisions of this kind are highly sensitive to fluctuations in prevailing
sentiment toward the dollar.
In periods of comparative calm, interest rate differentials are a powerful force
affecting movements of funds between currencies, whether for reason of port­
folio diversification or any other. As United States interest rates climbed while
those in most other major centers changed little or even eased, interest rate
differentials in general strongly favored the United States (Chart 6). The effect
of these differentials, however, was swamped for a time by the bearish sentiment
that grew against the dollar. The resulting heavy outflows of capital took all
forms, including shifts in leads and lags in commercial payments against the
United States— a speedup in foreign currency purchases with dollars, and delays
in foreign currency sales.

n e w c o m m i t m e n t t o d o l l a r s t a b i l i t y . Early in 1978 the United
States authorities took a number of steps to counter the disorder that had
developed in the exchange markets in the last weeks of 1977. On January 4
the Federal Reserve and the United States Treasury announced a shift to a
more open and forceful intervention approach in the exchange markets than
had been followed in previous months. And swap facilities with the German
Bundesbank were enlarged as part of a broader agreement between the United
States and German authorities on close cooperation in the exchange markets.
This commitment to a more active defense of the dollar by the authorities,
combined with a further move toward monetary restraint by the Federal Re­
serve, succeeded in easing the pressures on the dollar for a time.
In the late spring and early summer, however, bearish sentiment resurfaced,
and by late July the dollar was again under widespread selling pressure. As
pessimism toward the dollar deepened, the market became increasingly one
way and dollar rates plunged to record lows against several currencies, ex­
ceeding any levels justified by underlying economic conditions. By the end of
October, the dollar was down 26 percent from the start of the year against
the Japanese yen and the Swiss franc, and 18 percent against the German mark.
The dollar also fell sharply vis-a-vis other major European currencies. Only
against the Canadian dollar, among major currencies, did the United States
currency rise in value.
The dollar’s decline threatened to undermine United States efforts to curb
inflation, to undercut policies of foreign governments to stimulate domestic

th e




21

growth, and to throw the international financial system into disarray. More
broadly, the decline could, rightly or wrongly, be interpreted as a symptom of
weakened United States capacity for leadership, with implications for the
stability of the world political structure. Consequently, on November 1 President
Carter announced the mounting of a major new effort, in coordination with
the authorities of several other industrial countries, to restore order in the
exchange market and to correct the excessive decline of the dollar. The pro­
gram featured a further tightening of monetary policy—highlighted by a 1
percentage point rise in the discount rate and a boost in reserve requirements—
and the mobilization of foreign currency resources totaling up to $30 billion to
finance the United States part in coordinated exchange market intervention.
Among the financing measures, the Federal Reserve swap network with foreign
central banks was expanded by $7.6 billion, and the Treasury drew $3 billion
from the United States reserve position in the International Monetary Fund
(IMF), sold %\Vi billion of special drawing rights for foreign currencies, and dis­
closed plans to issue foreign-currency-denominated securities up to $10 billion.
The program was well received in foreign exchange markets and in United
States financial markets generally. The dollar rebounded sharply in the first
days after the announcement of new measures, and by mid-November good
two-way trading conditions were restored. Subsequently, the dollar declined
again amid fears that United States inflation had still not been brought under
control, new uncertainties about the availability of oil and the increases in its
price, and fears that the United States was rapidly using up its resources in
heavy intervention, In fact, however, the United States authorities needed to use
only a part of the resources that had been assembled to support the dollar.
Indeed, with the turn of the year, the markets were coming into much better
balance, and scattered signs were appearing that part of the previous outflow of
funds from the dollar was being reversed.

b u r d e n o f p e t r o l e u m i m p o r t s . Our enormous imports of petro­
leum products have placed a heavy burden on the United States current ac­
count. These imports declined only slightly in 1978— to $42 billion—from the
record $45 billion pace of the year before, largely reflecting the availability
of new production from Alaska. At the time of the oil price revolution, it had
been widely expected that the United States would be less affected than other
industrial countries by the dramatic increase in world oil prices. The United
th e

22




States is one of the world’s major oil producers, and its relatively heavy use
of oil for consumption, as opposed to production, purposes seemed to provide
it with greater scope for conservation. So far the experience has belied those
expectations.
Since the early 1970’s domestic crude petroleum production has declined
and, as a result, United States imports have risen more than consumption.
The United States, it is true, has made relatively good progress in reducing total
energy use per unit of output throughout the economy. Use of petroleum per unit
of real GNP, however, has declined only slightly, in contrast to sharper reduc­
tions in other countries. This is in part because most other oil-importing
countries have on balance been substituting other energy sources for oil, while
the United States has not; in fact, some switching into oil has occurred on
balance over these years, mainly from natural gas. But a large part of the
difference is due to the heavier American reliance on road transportation.
America with its vast distances became greatly dependent on the avail­
ability of low-cost gasoline. Today transportation accounts for over half
of petroleum use and for one quarter of energy use in the United States, far
higher than the proportions in Europe and Japan. Transportation, particularly
automobile transportation which is disproportionately important in the United
States, is a sector in which energy saving has been very difficult in all countries.
Although the increase in American energy consumption for transport has in
fact been comparatively moderate, it has been large enough to offset the steady
reductions achieved in industry energy use. These reductions have compared
favorably with those in other countries, both in absolute amount and in relation
to overall GNP growth.
It has been clear for some time that a substantial reduction in the country’s
dependence on imported oil would not be easy to achieve but that the task
would have to be approached both from the production and the consumption
side. The steps taken so far did not have much effect on United States oil
imports in 1978, but they may be expected to yield benefits in the future
even though the energy bill finally enacted in October was less embracing than
the Administration’s original proposal.
The legislation did provide for the gradual raising, and eventual abolition,
of ceilings on prices charged for natural gas that have discouraged domestic
production and thus added to requirements for imported petroleum. A special
“gas guzzler” tax was imposed on large automobiles that are particularly ineffi­
cient in fuel use. This will complement the effect of the new car mileage stan­




23

dards, imposed by the Environmental Protection Agency over the last several
years, in reducing the United States large petroleum requirements for transporta­
tion. As higher prices continued to reinforce conservation efforts and where pos­
sible facilitate higher domestic production, further progress in lessening our
reliance on foreign petroleum seemed feasible. Nevertheless, as 1978 ended,
the question remained whether further major policy changes were needed to
accelerate the process.

The United States current account posi­
tion continued to be adversely affected through most of last year by the disparity
in the tempos of the cyclical expansions here and abroad. As the consumer
continued to propel the United States economy in the fourth year of expansion,
consumer demand in foreign industrial countries by and large showed little
vigor. Personal savings rates remained high in 1978 in Germany and other
foreign countries in contrast to the United States.
The difference in economic trends abroad was most visible in the slackness
which continued to exist in the use of productive resources in industrial countries
outside the United States. Unemployment rates again failed to decline from their
historically high levels, and in some countries even rose further. Similarly, utiliza­
tion rates of industrial capacity (Chart 7) edged off again in 1978, as they did in
1977, to levels no better or even below the worst recession levels recorded in early
1975. The widespread existence of unused industrial capacity necessarily damp­
ened enthusiasm for new capital investment, which has remained weak throughout
the current recovery abroad. The low capacity utilization rates in the foreign
industrial economies had a particularly damaging effect on United States exports
by depressing demand for that mainstay of our sales abroad— capital goods,
which have accounted for some 30 percent of nonagricultural exports over the
last ten years. At the same time, the continued excess capacity spurred foreign
producers to extra efforts to supply goods at competitive prices to the American
market and to the markets of the developing world.
In the latter part of the year, signs of the long-awaited pickup in the pace
of economic activity abroad became more visible. New measures of fiscal
stimulus, announced by the governments of Germany, Japan, and other United
States trading partners after the July “summit” meeting in Bonn, added support
to recovering growth of those countries, although most of the effect was not
expected to be felt before 1979. However, at the close of 1978 the indications
b u s in e s s -c y c le

24




d iffe re n c e s .

Ch art 7.

U TILIZ A TIO N O F IN D U S T R IA L C A P A C I T Y

Federal Reserve Bank of New York sta ff e stim a te s for foreign
countries and Federal Reserve Board’s index for the United States.
All data are seasonally adjusted.

were that, with the prospective slowdown of the U nited States expansion in 1979,
the earlier divergence in econom ic grow th am ong the industrial countries was
finally ending.

In the 1970’s the
ability of U nited States industry to com pete in w orld m arkets has been influenced
by substantial swings in com parative price levels, as both dollar exchange
rates and relative inflation patterns here and abroad shifted rapidly. C om petitive­
ness in international m arkets is of course im portantly affected by other factors,
including export financing, taxation, and other policies. O ver the longer run,

U N ITED S T A T E S PRICE C O M P ETITIV E N ES S RECOVERS.




25

however, changes in relative prices adjusted for exchange rate m ovem ents do
have a m ajor im pact. F o r a tim e after the beginning of floating exchange rates
in early 1973, the overall rate of U nited States inflation was som ew hat lower
th an foreign inflation, on average. This com plem ented the effect of the 1973
dollar depreciation and led to a m arked overall im provem ent of U nited States
cost com petitiveness during 1973 and m uch of 1974 (C hart 8).
B ut this relatively favorable U nited States price position was partly reversed
in 1975 as the dollar appreciated. A t the same tim e, unfavorable cyclical con­
ditions gave foreign producers not only far stronger m arkets in the U nited States

C h a rt 8 .

U N IT E D S T A T E S P R IC E C O M P E T I T I V E N E S S

T h is indicator of changing price com petitiveness is a ratio of wholesale prices,
measured in dollar terms, of com petitor countries to United States w holesale
p rice s. An increase in the ratio sug g ests an im provem ent in United States
competitiveness and a decline, a worsening.

26




Chart 9.

IN CREASES IN CONSUM ER PRICES

Annual rate of change from twelve months earlier.

than American firms had abroad, but also extra incentives to search out profit
opportunities in international markets in general to compensate for the weak­
ness in their own domestic economies. Largely as a result, the United States
trade position deteriorated from a surplus at an annual rate of $9 billion in the
fourth quarter of 1975 to a $48 billion deficit in the first quarter of 1978.
The worsening inflation in the United States during the past year was
accompanied by a slowing in both price and wage increases in most major
foreign economies (Chart 9). However, the decline of dollar exchange rates far




27

exceeded this deterioration in the relationship of price trends here and abroad
and resulted in a very large gain in cost competitiveness for United States pro­
ducers, compared with those of Europe and Japan.
In contrast, the sharp decline of the Canadian dollar’s exchange rate in terms
of United States dollars in 1977 and 1978 far outweighed the inflation differ­
ential between the two countries, which had moderately favored United States
products. This deterioration in United States competitive position vis-a-vis Canada
offset some of the gain in United States competitiveness caused by the dollar’s
drop against the currencies of Europe and Japan. But, even so, between the
second quarter of 1977 and the fourth quarter of 1978 there was an overall
improvement in United States competitiveness against the world’s major trading
nations of almost 10 percent on average, measured by wholesale prices adjusted
for changes in exchange rates.

Foreign trade flows
adjust to changes in international price competitiveness only with a considerable
time lag. By 1978 the improvement in the competitive position of American
producers that had begun in 1977 started showing up in the trade data. The
change was particularly evident in figures on the volume of trade that abstract
from changes in prices. The expansion in the volume of United States imports
other than petroleum slowed down significantly more than the expansion in
domestic activity—to about 5 percent between the last quarter of 1977 and the
last quarter of 1978, from more than 13 percent the year before.
On the export side, volume growth for nonagricultural products spurted
starting in the second quarter and amounted to 17 percent over the year,
in contrast to the previous year’s decline (Chart 10). The surge in exports was
broadly represented in major categories of both consumer and producer goods,
and market shares of United States exporters recovered significant ground.
The volume of agricultural exports rose by 21 percent over the year, after
almost no growth in 1977.
The clearest possible sign that adjustment was under way in the under­
lying current account position of the United States came in the improvement
in the volume of exports and imports of manufactures. As a result, United States
trade in manufactures recovered to a surplus in the final quarter of 1978, follow­
ing a succession of deficits. Corresponding signs were seen in the slowdown in
overall export volume by the major foreign surplus countries— even extending
im p r o v in g

28




u n ite d

s ta te s tr a d e

p e rfo rm a n c e .

to an outright decline for the year in Japan—and in accelerating import volumes
in those economies.
The United States current account deficit settled at around a $13 billion annual
rate in the last three quarters of the year, roughly half the peak rates experi­
enced in the fourth quarter of 1977 and the first quarter of 1978. The initial
perverse effect of the sharp depreciation, through the rising dollar cost of imports,
offset much of the improvement in volume trends in the past year. Further
improvements in the current account position may be anticipated over the next

C h a rt 1 0 .




U N IT E D S T A T E S E X P O R T V O L U M E

All data are seasonally adjusted at an annual rate.

29

year or more, as earlier gains in competitiveness continue to affect export and
import volumes and as the expansion abroad is maintained.

Strengthening the Dollar at Home and Abroad
The past year brought home to the United States the lesson long ago learned
by other trading nations that the external and domestic health of a country’s
currency are inextricably intertwined. In the past the United States had been able
to ignore this elemental truth both because its foreign trade involvement was
relatively small and because it so dominated the world economy that the United
States dollar was beyond questioning. By the 1970’s, however, the United
States economy’s dependence on imports and exports had grown greatly,
and the observed instability in exchange rates brought the dollar under greater
scrutiny.
The dollar’s travail in the last two years stems in large part from the
divergence of growth rates here and abroad and from the huge burden of our
petroleum imports. But inescapably it has reflected the worsening of domestic
inflation and our reluctance until recently as a nation to come to grips with the
problem. And, under floating rates, markets have been quick to fasten upon a
country’s inflation and the resolve to combat it. For the dollar, the leading
currency held so widely around the world, the exposure to market pressures
has been particularly great. In the event, domestic inflation and external depre­
ciation fed upon each other to the extent that the markets began to see no end
to the process, and those uncertainties in turn were undercutting the prospects
for sustaining the business advance.
The measures of last November 1 marked a turning point as they demonstrated
to the world that the United States was indeed determined to protect the domestic
and international stability of the dollar and clearly recognized the link between
the two. In one sense, the mobilizing of an array of internal and external mea­
sures to defend the dollar was not a new departure, but rather a culmination and
reinforcement of earlier concerns and actions. But, in another sense, the actions
did seem to represent a kind of watershed— a frank recognition that full autonomy
in domestic policy is not consistent with an integrated world economy, that inter­
national money cannot be left to manage itself, that the responsibilities of the
30




United States for encouraging stability cannot, in its own interest, be shrugged
off at the water’s edge.
As so often happens, it took a looming crisis— this time in the exchange
markets— to crystallize government action and to focus public attention on the
need for stability. Some have interpreted the actions as adding to the risk of
recession in the domestic economy; more likely, by dealing intelligently and
forcefully with the major source of disturbance in the domestic economy, that
risk was reduced. Perhaps more important was the frank recognition implicit in
the actions that the stability of money, domestically and internationally, was
crucial to the outlook for both the United States economy and the international
financial system over a longer period of time.
Floating exchange rates served the world well in helping to cushion the major
shocks to the international financial system in the mid-1970’s. Moreover, in
today’s world there may be inherent advantages in a system that does not
require explicit international agreement on a particular exchange rate— agree­
ment on an “equilibrium” rate being unlikely in any event— or a rigid commit­
ment to defend a particular rate regardless of changes in economic circumstances.
But it has become equally clear that floating offers no easy, painless way of
insulating a country, even one so large as the United States, from external
influence. The system, like any system, can be abused— and if it is it can become
a source of instability that subverts other objectives. Specifically, volatile
expectations came to dominate exchange markets, and wide swings in exchange
rates, instead of delivering on the promise of more autonomy for domestic
monetary and other policies, have complicated domestic economic management.
The wish for greater stability will not, of course, in itself bring about the
result. Nor can we expect exchange market intervention alone, however massive,
to be effective. The major countries have consistently to pursue overall policies
designed to bring about more stability in their economies, and they will need
to maintain close cooperation among themselves as they take actions to that end,
considering among other factors the implications for exchange rates.
The amended Articles of Agreement of the IMF provide a broad framework
for international surveillance of that process. Consultations among the leading
countries themselves, extending to the highest levels, can further it greatly. Dif­
ficult and changing questions of substance are never easily handled, however
effective the consultation process. But, as 1978 ended, the imperative for the
United States seemed clear enough: unwind the inflationary forces in the
economy. To that end, a combination of policies is in place— a tighter wage-price




31

policy, a tighter budget, and tighter money.
So-called incomes policies have many serious pitfalls, as experience both here
and abroad has shown. Such policies, if structured too rigidly and left for too
long, have the characteristics of controls that inevitably lead to waste, ineffi­
ciency, and inequities. Often, too, they have been used as substitutes for mone­
tary and fiscal discipline. But by 1978 inflation and expectations of inflation had
come to be so built into the United States economy that normal demand restraint
by itself would have taken too long to end the inflationary spiral. Used in con­
junction with monetary and fiscal restraint, the current United States program
of wage and price restraints can break into the wage-cost-price spiral more
directly and thus act as a vital complement to the traditional efforts.
Budget deficits continue large but, as the need for fiscal discipline has
become widely recognized, they are being gradually reduced. Equally impor­
tant, the overall role of government spending in the economy is coming down.
Cutting back the government’s regulatory involvement in the economy and the
cost-raising effects of other policies are also receiving increased attention.
Over the course of the recovery Federal Reserve policies, as has been the
custom, have been criticized by some as too tight, by others as too easy. Be
that as it may, as 1978 ended, monetary restraint was in effect and the results
were beginning to show. Nevertheless, the road ahead is bound to be difficult
and any progress will be hard won. But combating inflation and protecting the
dollar have assumed the policy priority they deserve, and that is a necessary
beginning.

32




T H E B A N K IN 1978

Bank Supervision
During 1978 the Bank continued its efforts toward stronger and more costeffective supervision of banks and bank holding companies. In the area of
foreign lending, which had been the subject of a special Federal Reserve study in
1977, the Bank played a major role in a joint endeavor of the Federal Reserve
System, the Comptroller of the Currency, and the Federal Deposit Insurance
Corporation to unify procedures for appraising country risk.
The Bank contributed substantially to the development of the Uniform
Interagency Bank Rating System, a new system for employing examination
data and other relevant information to measure bank financial condition. This
system is expected to improve the accuracy and consistency of Federal bank
examination ratings and thereby to strengthen supervision of banks. Along the
same lines, the Bank helped in the formulation of a new trust department rating
system adopted by the three Federal bank regulatory agencies. This Bank was
also instrumental in the development of a uniform report of examination for
use in on-site inspections of banks’ electronic data processing functions.
In addition, the program for uniform evaluation of large credits extended
jointly by commercial banks was expanded to include a significant number of
international credits. This program of “shared national credits”, for which this
Bank maintains a computerized file used by all three Federal bank regulatory
agencies, has significantly reduced bank examination time and costs. These
new achievements in interagency cooperation highlight the possibilities for addi­
tional interagency programs which promote efficiency and increased cost
effectiveness in Federal banking supervision.
As primary supervisor of the nation’s bank holding companies, the Federal
Reserve System focused its efforts on improving bank holding company
inspection procedures and techniques. This Bank, having extensive experi­
ence in the supervision of large, complex banking organizations, helped develop
a new uniform inspection report covering all large bank holding companies.
Similarly, this Bank participated in the development of a new bank holding
company rating system which is expected to provide added insight into the
strengths and weaknesses of bank holding company parents, nonbank subsidiar­
ies, and banking affiliates.




33

During the year, this Bank took a number of steps to improve on-site
examination procedures for state member banks and bank holding companies
in the Second District. The number of man-days involved in major examinations
was cut substantially, while the quality of examinations was maintained through
better examination techniques. By making more effective use of head office
records, time spent on on-site examinations of foreign branches was shortened,
which in turn enabled examining personnel to investigate additional subsidiaries
and affiliates. Also, toward the end of the year, this Bank’s supervisory person­
nel began using statistical sampling techniques to evaluate the effectiveness of
commercial banks’ own internal loan review programs. This program permits
reduced loan review activity by field examiners when the banks’ internal review
programs are found to be effective.
In the field of consumer protection, this Bank completed examinations of
seventy state member banks to evaluate compliance with Truth-in-Lending and
related consumer protection laws and regulations, and made follow-up examina­
tions to ensure that infractions were corrected. The Bank also conducted semi­
nars to help banks understand and comply with consumer protection laws and
regulations, and expanded its public information activities on consumer protec­
tion matters.
The supervision programs and initiatives pursued during the year aimed at
safer and sounder banking without dampening the recovery prospects for
the banking industry. The 1978 operating results for the District’s major bank­
ing organizations suggest that substantial progress was achieved toward those
twin objectives. The nine large money center banks reported an aggregate gain
of nearly $300 million in net income for the year, or just over 25 percent.
Reflecting improved loan experience, provisions for future loan losses declined
moderately, and actual loan losses written off declined substantially. Other
banks throughout the District reported sizable gains in income. On the debit side,
however, capital ratios slipped somewhat at the larger organizations. All things
considered, the banking industry appears to be continuing its strong rebound.
Nonetheless, banks face the challenges and opportunities of major new banking
legislation— the Financial Institutions Regulatory Control Act, the International
Banking Act, and the Community Reinvestment Act, all enacted in 1978—
which are now being implemented. It will be the task of the supervisors in the
coming year to ensure that banking strength in the United States is promoted
and protected in a rapidly changing financial environment.

34




Managerial and Operational Highlights
During the year staffing at the Bank declined by 5 percent, following a reduc­
tion of 6 percent in 1977 (Chart 11). Indeed, 1978 marked the fourth
consecutive year in which the size of the Bank’s staff was smaller at the end
of the year than at the beginning, despite steady increases in the volume and
complexity of the Bank’s activities.
This decrease in the Bank’s work force offers perhaps the most tangible

C h art 1 1.

TO TA L S TA FF
Federal R eserve Bank off New Y o rk

Number of employees




All data are year-end levels.

35

evidence of the concerted efforts being made to enhance the effectiveness of the
Bank’s management and operations and to ensure that the Bank carries out its
responsibilities for monetary policy, supervision, and banking services in the
most efficient and cost-effective manner possible. Behind these reductions in
staff and the accompanying increases in productivity lay a series of managerial
and operational initiatives supported by the willing cooperation of an experienced
staff. These initiatives included a reshaping of the Bank’s basic organizational
structure, introduction of a multiyear planning process, refinement of capital
and expense budget and management reporting systems, development of a
long-range automation strategy, and an upgrading of the Bank’s physical plant
and equipment.
In mid-1977, senior management had introduced a number of changes in the
organizational structure of the Bank in an effort to promote “greater cohesion
and more effective coordination of planning, budgeting, operations and systems
analysis through closer alignment of a number of related, but organizationally
separated aspects, of these activities”. This organizational refinement was carried
forward during 1978 with the restructuring of the Bank’s management and re­
source planning areas and of certain control and systems development activities.
The growing administrative burdens connected with the Bank’s internal plan­
ning and budgeting system, coupled with senior management’s need for more
timely and concise information on key operational developments, prompted a
number of improvements in the Bank’s management information systems during
the year. In this regard, the amount of paper work associated with the internal
budget process was reduced by one third, a new consolidated report on expenses,
staffing, productivity, and unit costs was developed, and a systematic Bankwide
program aimed at monitoring and controlling capital acquisitions was introduced.
In the area of systems development, the Bank established more comprehen­
sive standards and management controls for the development and implementa­
tion of new processing systems and completed a reappraisal of the Bank’s auto­
mation strategy which provided broad guidelines the Bank should be following
in the context of current and future business needs and technology.
In 1978 the Bank developed its first integrated multiyear business plan. In
broad terms, this plan seeks to identify the changes that will help improve
Bank operations, strengthen the Bank’s contribution to the dialogue on public
policy issues, and otherwise enhance the role of the Bank and the System in
the coming years.
During the year, major strides were also made in overcoming some of the
36




more vexing problems posed by inadequate office space and by the Bank’s
56-year old physical plant. For instance, during 1978 the Bank completed the
demolition, construction, outfitting, and occupancy of over 150,000 square
feet of leasehold space at 59 Maiden Lane acquired in late 1977 and, at the
same time, successfully completed negotiations to terminate existing leases at
other locations. This resulted in a substantial consolidation of operations, im­
proved working conditions for a large segment of the Bank’s work force, and
a net reduction in total costs of space.

o p e r a t i o n s . Total expenses for 1978 grew by 3.6 percent
in the face of generally higher rates of inflation of wages and prices of purchased
goods and services. Over the period 1975-78, Bank expenses have grown at
an annual rate of about 5 percent, in sharp contrast to the average increase of
13 percent registered in the first half of the decade.
Unit costs of operations for measured activities (which cover areas accounting
for about two thirds of the Bank’s expenses) declined by almost 7 percent in
1978. This decline was accompanied by marked gains in productivity in virtually
all processing areas of the Bank. This, in turn, permitted a reduction in the aver­
age staff of the Bank’s Operations Group by 8.5 percent.
As anticipated, some of the largest gains in productivity and unit cost savings
were achieved in areas of the Bank where costs had been higher and productivity
lower than in other Federal Reserve Banks. This was notably true in check
processing, where physical productivity grew by more than 20 percent over
1977 levels.
The recent increase in check handling efficiency reflects the initial results of
an effort aimed at bringing productivity and unit costs in line with the best
in the System. This effort is based on the introduction of new computerprocessing equipment and a new staffing configuration in which teams of
employees will have responsibility for handling a group of checks from receipt
in the Bank to ultimate disposition. This “cradle to grave” approach contrasts
with the fragmented processing techniques used in the past wherein separate
groups of employees were responsible for segments of the work. Early experi­
ence with this approach at the Bank’s Buffalo Branch and at the Cranford, New
Jersey, Regional Check Processing Center suggests that these initiatives should
result in major gains in both the cost effectiveness and the quality of the Bank’s
check handling operations.
e x p e n se s a n d




37

While the increases in check handling efficiency were the most pronounced,
other processing areas of the Bank— including those which compare favorably
with operations elsewhere in the Federal Reserve— also showed marked im­
provement in 1978. For example, in currency processing, average staffing levels
were reduced by 9 percent and unit costs declined by 5 percent. These gains
in the efficiency of currency handling stemmed, in large part, from the expanded
use of medium-speed processing equipment which allows for batch processing
of currency rather than less efficient note-by-note techniques. This mode of
processing currency is an interim step pending the installation of high-speed
equipment with the capability of counting, sorting fit from unfit currency, pro­
viding counterfeit detection, and destroying unfit currency. In late 1978, the
Bank placed its initial orders for production models of this new equipment.
The Bank’s fiscal agency operations conducted largely on behalf of the
Treasury also showed sizable gains in operational efficiency in 1978. In this
area— where volume increases were particularly pronounced— staff levels de­
clined by 4.5 percent and unit costs fell by more than 10 percent. One factor
contributing to the growth of volume in the fiscal area in 1978 was the high
level of public participation in subscriptions to new Treasury securities, as indi­
vidual investors were attracted to these instruments by higher yields.
In a number of areas of the Bank, new efforts are under way to assure that
quality standards and reliability are maintained and enhanced as efficiency is
improved. One priority objective is to upgrade the quality of currency placed
in circulation, an effort that at times has been hampered by limits on the avail­
ability of newly printed currency. As new automated equipment becomes avail­
able to sort and destroy unfit currency with greater speed and accuracy, that
effort should be enhanced.

38




Financial Statements
S T A T E M E N T O F E A R N IN G S A N D E X P E N S E S FOR
T H E C A LEN D A R Y E A R S 1 9 7 8 A N D 1 9 7 7 (in dollars)

1978

1977

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

2,108,679,754
135,546,130

1,702,740,726

Current net earnings

1,973,133,624

1,571,062,524

Additions to current net earnings...................... .......................

361,442

3,740,033

Deductions from current net earnings:
Loss on foreign exchange (net)* ..............................................

130,971,648

37,474,391

Loss on sales of United States Government securities and Federal
agency obligations (n e t)................................................ ............

31,579,498

11,783,645

All o th e r......................................................................................

582,453

659,296

Total deductions

163,133,599

49,917,332

Net deductions............................................................................

162,772,157

46,177,299

Assessment for the Board of Governors......................................

13,851,000

12,048,600

Net earnings available for distribution

1 ,79 6 ,5 1 0 ,4 6 7

Dividends paid .......................... ............................ ...................
Transferred to surplus ..................................................................
Payments to United States Treasury (interest on
Federal Reserve notes).............................. .................................

16,518,453
13,133,300

15,319,899

1,766,858,714

1,482,064,726

266,708,950
13,133,300

251,256,950

2 7 9 ,8 4 2 ,2 5 0

2 6 6 ,7 0 8 ,9 5 0

131,678,202

15,452,000

SUR PLUS A C CO U N T

Surplus— beginning of y e a r .................................... ..................
Transferred from net earnings for year ......................................
Surplus -e n d of year

15,452,000

★ The amount shown for 1978 includes New York's share of realized losses on foreign exchange transactions of $77.0
million and unrealized losses of $54.0 million resulting from revaluing foreign exchange holdings and outstanding com­
mitments at current market exchange rates. Of these amounts, $68.3 million and $38.9 million, respectively, reflect
New York’s share of losses associated with Swiss franc commitments entered into before August 15, 1971. The unrealized
net loss is calculated using market exchange rates of December 29, 1978 to value the System’s foreign currency holdings
and foreign currency commitments; liquidation or payment may actually take place at exchange rates that differ from
these rates.




39

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

Assets

O EC . 3 1 , 1978

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

D E C . 3 1 , 1977

3,205,935,246
330,000,000

3,492,174,498

20,732,835

18,079,848

Total

3,556,668,081

3,823,254,346

Advances ......................................................................................
Acceptances held under repurchase agreements........................

310,780,000
587,128,600

102,800,000
953,597,256

26,632,041,344
1,083,900,000

23,819,212,000
1,901,000,000

Bought outright ..........................................................................
Held under repurchase agreements............................................

1,920,695,909
133,000,000

1,889,089,015
451,000,000

Total loans and securities

30,667,545,853

29,116,698,271

Other assets:
Cash items in process of collection............................................
Bank prem ises............................................................................
All o t h e r f ....................................................................................

1,359,756,205
9,965,152
1,039,906,461

1,450,436,176
9,207,030
492,282,697

2,409,627,818

1,951,925,903

Special Drawing Rights certificate account................................

United States Government securities:
Bought outright* ........................................................................
Held under repurchase agreements............................................

313,000,000

Federal agency obligations:

Total other assets
Interdistrict settlement account..................................................

854,493,329

Total Assets

3 7 ,4 8 8 ,3 3 5 ,0 8 1

3 3 ,5 7 8 ,9 9 2 ,2 3 7

257,930,000

135,935,000

* Includes securities loaned— fully secu red............................................

(1,312,886,283)

t Includes assets denominated in foreign currencies. The amount of such assets on December 31, 1978 reflects
revaluation made at market rates as of December 29, 1978.

40




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

Liabilities

D E C . 3 1 , 1 97 8

D E C . 3 1 , 1977

Federal Reserve n o te s ................................................................

26,335,259,348

23,678,138,605

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

6,884,225,999
1,032,980,458
217,335,351
814,920,098

5,783,978,634
1,398,528,731
173,647,386
688,984,628

Total deposits

8,949,461,906

8,045,139,379

919,995,734
723,933,593

990,862,184
331,434,169

Total other liabilities

1,643,929,327

1,322,296,353

Total Liabilities

36,9 2 8 ,6 5 0 ,5 8 1

3 3 ,0 4 5 ,5 7 4 ,3 3 7

Other liabilities:
Deferred availability cash items
All o th e r* ..................................

Capital Accounts

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

a

279.842.250
279.842.250

266.708.950
266.708.950

Total Capital Accounts

5 5 9 ,6 8 4 ,5 0 0

5 33 ,4 1 7 ,9 0 0

Total Liabilities and Capital Accounts

3 7 ,4 8 8 ,3 3 5 ,0 8 1

3 3 ,5 7 8 ,9 9 2 ,2 3 7

The December 31, 1978 amount includes exchange translation account balance reflecting the revaluation of outstanding
foreign exchange commitments as of December 29, 1978.




41

Changes in Directors and Senior Officers
i n d i r e c t o r s . In a special election of directors held on April 19,
1978, member banks in Group 3 elected James Whelden a Class A director for
the unexpired portion of a term ending December 31, 1978. Mr. Whelden,
President of the Ballston Spa National Bank, Ballston Spa, N.Y., succeeded
Harry J. Taw, who resigned as a Class A director effective January 3, 1978.
In December 1978, member banks in Group 3 reelected Mr. Whelden a Class
A director, and John R. Mulhearn a Class B director, both for three-year terms
beginning January 1, 1979. Mr. Mulhearn, President of the New York Tele­
phone Company, has served as a Class B director since April 15, 1977.
Also in December, the Board of Governors of the Federal Reserve System
redesignated Robert H. Knight as Chairman of the board of directors and Federal
Reserve Agent for the year 1979. Mr. Knight, a partner in the New York law
firm of Shearman & Sterling, has been serving as a Class C director since Feb­
ruary 1976 and as Chairman and Federal Reserve Agent since January 1978;
he also served as Deputy Chairman in 1976 and 1977. At the same time, the
Board of Governors reappointed Boris Yavitz as Deputy Chairman of the board
of directors for the year 1979. Dr. Yavitz, Dean of the Graduate School of
Business at Columbia University, has been serving as a Class C director since
June 1977 and as Deputy Chairman since January 1978. In December the Board
of Governors also reappointed Gertrude G. Michelson a Class C director for
the three-year term beginning January 1, 1979. Mrs. Michelson, Senior Vice
President of Macy’s New York, has been serving as a Class C director since
February 1978.
c h a n g e s

Buffalo Branch. In August 1978, the board of directors of this Bank ap­
pointed Robert J. Donough a director of the Buffalo Branch for the unexpired
portion of a term ending December 31, 1978. Mr. Donough, President of the
Liberty National Bank and Trust Company, Buffalo, N.Y., succeeded Kent O.
Parmington, Regional President (Western Region) of The Bank of New York,
who served as a director of the Buffalo Branch from May 1976 until his death
on July 22, 1978. In December 1978, the board of this Bank reappointed Mr.
Donough a Branch director for a three-year term beginning January 1, 1979.
At the same time, this Bank’s board of directors designated Frederick D.
Berkeley as Chairman of the board of directors of the Buffalo Branch for the
year 1979. Mr. Berkeley, who is Chairman of the Board and President of
42




Graham Manufacturing Co., Inc., Batavia, N.Y., has been a director of the
Branch since February 1977. Also in December 1978, the Board of Governors
appointed John Rollins Burwell and George L. Wessel as directors of the Buffalo
Branch. Mr. Burwell, who was appointed for the unexpired portion of a term
ending December 31, 1980, is President of Rollins Container Corp., Rochester,
N.Y. He succeeds Paul A. Miller, President of the Rochester Institute of Tech­
nology, who resigned as a director of the Branch. Dr. Miller had been a director
of the Branch since January 1975 and was Chairman of the Branch Board in
1977. Mr. Wessel, who was appointed for a three-year term beginning Janu­
ary 1, 1979, is President of the Buffalo AFL-CIO Council. He succeeds Donald
R. Nesbitt, Sr., owner and operator of Silver Creek Farms, Albion, N.Y.
Mr. Nesbitt had been a director of the Branch since January 1973 and was
Chairman of the Branch Board in 1975 and 1978.

in s e n i o r o f f i c e r s .
The following changes in official staff at
the level of Vice President and above have occurred since January 1978:
Robert E. Lloyd, Jr., Vice President, resigned from the Bank effective Sep­
tember 14, 1978. Mr. Lloyd had joined the Bank’s staff as an officer in 1973.
Edward G. Guy, formerly Senior Vice President and General Counsel, was
designated Senior Vice President and Counsel to the President, effective January 1,
1979. Effective the same date, James H. Oltman, formerly Deputy General Coun­
sel, was appointed General Counsel.
Thomas C. Sloane, Senior Vice President and Senior Adviser, was assigned
responsibility, effective January 1, 1979, for a new Administrative Services
Group, consisting of the Accounting, Building Services, and Service Functions.
Mr. Sloane’s responsibility for the Bank Relations Office and for special studies
was continued; his responsibility for consumer affairs was transferred to the Public
Information Department.
Peter Fousek, formerly Vice President and Director of Research, was appointed
Senior Vice President and Director of Research, effective January 1,1979.
Scott E. Pardee, formerly Vice President, was appointed Senior Vice President,
effective January 1, 1979. Mr. Pardee has supervisory responsibility for activities
relating to foreign exchange operations under Alan R. Holmes, Executive Vice
President.
E. Gerald Corrigan, Vice President, formerly in charge of the Management and
Resource Planning Group, was assigned to the Open Market Operations and Trea­

c h a n g e s




43

sury Issues Function, effective January 1,1979. In addition, Mr. Corrigan was as­
signed responsibility for special studies related to the securities industry. Effec­
tive the same date, Ronald B. Gray, Vice President, assumed responsibility for
the Management and Resource Planning Group, and his assignment to the Bank
Supervision Function was terminated.
Henry S. Fujarski, formerly Assistant Vice President, was appointed Vice Presi­
dent, effective January 1,1979, and was assigned to the Accounting Function.
Ernest T. Patrikis, formerly Assistant General Counsel, was appointed Deputy
General Counsel, effective January 1,1979.
Rudolf Thunberg, formerly Assistant Vice President, was appointed Vice Presi­
dent and Assistant Director of Research, effective January 1,1979.
Richard Vollkommer, formerly Assistant Vice President, was appointed Vice
President, effective January 1,1979, and was assigned to the Service Function, in
anticipation of the retirement of Frederick L. Smedley, Vice President, on
March 1, 1979.

44




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

D IR E C T O R S

E llm o r e C. P a t t e r s o n ...........................................................................................................................

1979

A

1

1980

A

2

1981

A

3

1979

B

1

1980

B

2

1981

B

3

R o b e r t H. K n ig h t, Chairman , and Federal Reserve A g e n t .....................................................

1980

C

B o r is Y a v itz , D eputy C h a irm a n ............................................................................................................

1979

C

1981

C

Form er Chairman of the Board, Morgarf Guaranty Trust Company of New York, New York, N.Y.

R aymond W. B a u e r ..................................................................................................................................
Chairman and President, United Counties Trust Company, Elizabeth, N.J.

Jam es W h e l d e n ............................................................................................................................................
President, Ballston Spa National Bank, Ballston Spa, N.Y.

M aurice F. G ranville ...........................................................................................................................
Chairman of the Board, Texaco Inc., White Plains, N.Y.

W illiam S. S n e a t h .....................................................................................................................................
Chairman of the Board, Union Carbide Corporation, New York, N.Y.

John R. M u l h e a r n .....................................................................................................................................
President, New York Telephone Company, New York, N.Y.
Partner, Shearman & Sterling, Attorneys, New York, N.Y.

Dean, Graduate School of Business, Columbia University, New York, N.Y.

G ertrude G. M ichelson .........................................................................................................................
Senior Vice President, Macy’s New York, New York, N.Y.

D IR E C T O R S— BUFFALO BRANCH

F re d e ric k D . B e r k e le y , C h a irm a n .....................................................................................................

1979

M. J ane D i c k m a n .......................................................................................................................................

1979

Chairman of the Board and President, Graham Manufacturing Co., Inc., Batavia, N.Y.
Partner, Touche Ross

&

Co., Buffalo, N.Y.

W illiam B. W e b b e r ..................................................................................................................................

1979

Vice Chairman of the Board, Lincoln First Bank, N.A., Rochester, N.Y.

W illiam S. G a v i t t .....................................................................................................................................

1980

President, The Lyons National Bank, Lyons, N.Y.

J ohn R ollins B u r w e l l ...........................................................................................................................

1980

R obert J. D o n o u g h .....................................................................................................................................

1981

President, Rollins Container Corp., Rochester, N.Y.

President, Liberty National Bank and Trust Company, Buffalo, N.Y.

G eorge L. W e s s e l .......................................................................................................................................

1981

President, Buffalo AFL-CIO Council, Buffalo, N.Y.

M EM BER O F FEDERAL ADVISORY COU NCIL---- 1 9 7 9

W alter B. W r i s t o n ..................................................................................................................................

1979

Chairman of the Board, Citibank, N.A., New York, N.Y.




45

Officers of the Federal Reserve Bank of New Yo rk
P a u l A. VOLCKER, President
T h o m a s M. T i m l e n , First Vice President
ALAN R . H o l m e s , Executive Vice President
Foreign; Open Market Operations and Treasury Issues

P e te r F o u se k , Senior Vice President
and Director of Research

S co t t E. P a r dee , Senior Vice President
Foreign

E dw ard G . G u y , Senior Vice President

F red W . P ide r it , Jr ., Senior Vice President
Bank Supervision

and Counsel to the President
P au l B. H e n d e r so n , J r ., Senior Vice President
Operations Group
J a m e s H . O l t m a n , General Counsel
Legal

T h o m a s C . S l o a n e , Senior Vice President

and Senior Adviser

Administrative Services Group; Bank Relations
P e t e r D. St e r n l ig h t , Senior Vice President
Open Market Operations and Treasury Issues

A U D IT

B A N K R E L A T IO N S

Jo h n E. F lanag a n , General Auditor
F rank C . E is e m a n , Assistant General Auditor
WILLIAM M. SCHULTZ, Assistant General Auditor
D on ald R. A n d e r s o n ,

T h o m a s C . S l o a n e , Senior Vice President

Manager, Auditing Department
G erald I. I sa acson ,

Manager, Audit Analysis Department

ADMINISTRATIVE SERVICES GROUP
T h o m a s C. S l o a n e , Senior Vice President

and Senior Adviser

Louis J. B r e n d e l , Adviser

and Senior Adviser

F r a n k l in T . L ove , Bank Relations Officer
B A N K S U P E R V IS IO N

F red W . P iderit , J r ., Senior Vice President
A. M arshall P u c k e t t , Vice President
* F rederick C . S chadrack , Vice President
R o b e rt A. J a c o b se n , Chief Examiner
'L e o n K o r o b o w , Assistant Vice President
B e n e d ic t R a f a n e l l o , Assistant Vice President
J o h n M . C asazza , Assistant Chief Examiner
E dw ard F . K ip f s t u h l ,

Manager, Consumer Affairs and
Bank Regulations Department

A C C O U N T IN G

A . J o h n M aher ,

H e n r y S. F u ja r sk i , Vice President
J o h n J. S tr ick ,

T h o m a s P . M cQ u e e n e y ,

Manager, Accounting Department

Assistant Chief Examiner

B U IL D IN G S E R V IC E S

Manager, Banking Studies Department

Assistant Chief Examiner
R ichard W . N

R a l p h A. C a n n III, Assistant Vice President
M a t th e w C. D re x l e r ,

Manager, Building Operating Department

elson,

W il l ia m L . R u t l e d g e ,

Manager, Domestic Banking Applications
Department
D o na ld E. S c h m id ,

Manager, Bank Analysis Department
S E R V IC E

B arbara L . W a l t e r ,

R ichard V o l l k o m m e r , Vice President
C ecil A . S h e p h e r d , Assistant Vice President
R o na ld E. L o n g ,

Manager, Foreign Banking Applications
Department

Manager, Service Department
F rank W . L u n d b l a d , J r .,

E C O N O M I C A D V IS E R

R ichard G . D avis , Senior Economic Adviser

Manager, Protection Department

E Q U A L O P P O R T U N IT Y

A n t h o n y N . S agliano ,

R u t h A n n T y l e r , Equal Opportunity Officer

Manager, Records Management and
Postal Services Department

46




*On leave of absence.

Officers

(Continued)

F O R E IG N

A l a n R . H o l m e s , Executive Vice President
S c o t t E . P a r dee , Senior Vice President
M argaret L . G r e e n e , Vice President
H . D avid W il l e y , Vice President
J o h n H o p k in s H e ir e s , Adviser
G eorge W . R y a n , Assistant Vice President
I r w in D . S andber g , Assistant Vice President
Je r o m e B e r g m a n ,

Manager, Foreign Department
G eorge H . B o ssy ,

Manager, Foreign Department
F ra nc is J. R eisch ac h ,

Manager, Foreign Department
R obert D . Sleeper,

Manager, Foreign Department
LEGAL

R o b e r t J. M isc h l e r ,

Manager, Resource Planning Staff
Manager, Research and

Su san C . Y oung,

Statistical Systems 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 , Executive Vice President
P e t e r D . S t e r n l ig h t , Senior Vice President
E . G erald C orrig an , Vice President
P aul M e ek , Monetary Adviser
F red J. L e v in ,

Manager, Securities Department
E d w a rd J. O zog ,

Manager, Securities Department
M ary R. C l a r k in , Securities Trading Officer
JOAN E. Love it , Securities Trading Officer

Ja m e s H . O l t m a n , General Counsel
E r n e s t T . P atrikis , Deputy General Counsel
D o n N . R in c s m u t h , Assistant General Counsel
D o n a l d L . B itt k e r , Assistant Counsel
R o b e r t N . D a v e n p o r t , Jr ., Assistant Counsel
J a n e L . D etra , Assistant Counsel

P a u l B. H e n d e r so n , J r ., Senior Vice President
J o h n C . H o u h o u l is , Operations Analysis Officer

L a w r e n c e D . F r u c h t m a n , Assistant Counsel
M ar v in D . I. in d e r , Assistant Counsel
C l if f o r d N . L ip s c o m b , Assistant Counsel

J o h n C h o w a n sk y ,

and Assistant Secretary

L O A N S A N D C R E D IT S

C h e st e r B . F eldber g , Vice President
E ugene P . E m o n d ,

Manager, Credit and Discount Department
Jo h n H . S pit z e r ,

Acting Manager, Credit and Discount Department

MANAGEMENT AND RESOURCE
PLANNING GROUP
R o n a l d B . G ray , Vice President
PERSONNEL

R o berta J. G r e e n , Assistant Vice President
J o h n M . E ig h m y ,

Manager, Personnel Department
M ich ae l J. L a n g t o n ,

Manager, Personnel Department
P L A N N IN G A N D C O N T R O L

S u z a n n e C u t l e r , Assistant Vice President
C ath y E. M in e iia n ,

Manager, Management Information Department

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

W h it n e y R. Ir w in , Vice President
J erry B e r k o w it z ,

Manager, Currency Processing Department
Manager, Cash Services Department
J o se p h F . D o n n e l l y ,

Manager, Collection Department
H e n r y F . W ie n e r ,

Manager, Funds Transfer Department

C H E C K P R O C E S S IN G

J a m e s O . A s t o n , Vice President
R o b e r t C . T h o m a n , Vice President

(Utica Office)
Jo s e p h M . O 'C o n n e l l , Assistant Vice President
L e o na rd I. B e n n e t t s ,

Manager, Jericho Office
J o se p h P. B o tta .

Manager, Check Processing Department
F red A . D e n e s e v ic h ,

Manager, Cranford Office
F iavard H. D enhoff ,
Operations Officer, Utica Office

JI ROME P. PERLONGO,
Manager, Check Adjustment and
Return Items Department
J ohn F. Sob vla. Operations Analysis Officer
C arl W . T u r n ip s e e d ,

Manager, Check Processing Department

S YS TE M S DEVELO PM EN T

D A T A P R O C E S S IN G

G eri M . R iegger . Vice President
D e n is L . C o n w a y , Assistant Vice President
H ow ar d F . C r u m b , Adviser
Israel S e ndro vic , Assistant Vice President
C arol R . A g in s ,

H e r bert W . W h it e m a n , J r ., Vice President
P e ie r J. F ul l i n . Assistant Vice President
O lf.c. H o f f m a n ,
E v erett H . Jo h n so n ,

Manager, Common Systems Department

Manager, Telecommunications Department




Manager, Computer Operations Department

47

Officers

(Continued)

GEORGE L u k o w ic z , Operations Analysis Officer
R ichard P. P assa d in ,

Manager, User Operations Department
R a l ph C . S c h in d l e r , Data Processing Officer

* R oger M . K u b ar y c h , Assistant Vice President
M arcelle V . A rak .

Research Officer and Senior Economist
S t e p h e n V. O. C larke ,

Research Officer and Senior Economist

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 I E S

E dn a E . E h r l ic h ,

E d w in R . P o w e r s , Vice President
J orge A . B r a th w ait e , Assistant Vice President
S t e p h e n G . T h ie k e , Assistant Vice President
H. JOHN C o stalo s , Operations Analysis Officer
L eon R. H o l m e s ,

R obert T . F alco ner,

Manager, Treasury and Agency Issues
Department
A n g u s J. K e n n e d y ,

Manager, Security Custody Department
F rancis H . R ohrba ch ,

Manager, Savings Bond Department

International Adviser
Manager, Domestic Research Department
S t u a r t M . F e d er ,

Manager, Research Support Department
K e n n e t h D . G arbade ,

Research Officer and Senior Economist
R ichard J. G e l s o n ,

Manager, Statistics Department
P atricia H. K u w a y a m a ,

Manager, International Research Department
♦ C ha rles M . L u c a s .

Manager, Statistics Department

P U B L IC I N F O R M A T IO N

S E C R E T A R Y ’S O F F IC E

P e te r B a k sta nsk y , Vice President
R ichard H . H o e n ig , Assistant Vice President

T err e n c e J. C heck i , Secretary
J ane L. D etra . Assistant Secretary

R ES E A R C H A N D S T A T IS T IC S

T h e o do re N. O p p e n h e im e r , Assistant Secretary

PETER F o USEK. Senior Vice President

and Assis*ant Counsel

and Director of Research

S E C U R IT Y A N D C O N T R O L

R u d o l f T h u n b e r g , Vice President

W ill iam H. B r a u n , J r ., Vice President
G erald H a y d fn ,

and Assistant Director of Research
M ichael J. H a m bu r g e r , Adviser

Manager, Security and Control Staff

OFFICERS—BUFFALO BRANCH
J o h n T. K e a n e , Vice President and Branch Manager
PETER D . L u c e , Assistant Vice President and Cashier
A C C O U N T I N G ; 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 H E C K

C O L L E C T IO N , L O A N S , A N D F I S C A L A G E N C Y ;
P E R S O N N E L ; S E R V IC E

R o b e r t J. M c D o n n e l l , Operations Officer

G ary S. W e in t r a u b , Operations Officer
M A N A G E M E N T IN F O R M A T IO N

B U I L D I N G O P E R A T IN G ; C A S H ; P R O T E C T IO N

H arry A . C u r t h , J r ., Operations Officer

*On leave of absence.

48




P e t e r D . L u c e , Assistant Vice President

and Cashier