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THIRTY-NINTH

ANNUAL REPORT
OF TH E

FEDERAL RESERVE BANK OF NEW YORK




For the Year Ended December 31

1953

Second Federal Reserve District

FEDERAL RESERVE BANK
OF NEW YORK

March 1, 1954

To the Stockholders of the
Federal Reserve Bank of New York:

I am pleased to transmit herewith the thirtyninth annual report of the Federal Reserve Bank
of New York reviewing the year 1953.




A ll a n Sp r o u l ,

President.

Contents
Market Economies and Sustained Prosperity.........................................
Readjustment in the United S ta tes ....................................................
Economic Strength A b ro a d .................................................................
The American Economy in 1953 .................................................................
Adjustments at High L ev e ls .................................................................
Sources of Strength in the E con om y ..................................................
Continued Stability of Prices ............................................................
The Economy of the Second D istrict........................................................
Employment in Manufacturing Industries .......................................
Nonmanufacturing Industries Advance, But Agriculture Lags

Federal Reserve Credit P o licy .....................................................................
Tightness and Relaxation .....................................................................
Bank Credit and the Money Supply ...............................................
Impact of System Policy on the Money Market and the
Government Security Market ........................................................
Changing Blends of Policy: Open Market Operations, Repur­
chase Agreements, and Discounting .............................................
The Sources, Uses, and Cost of Funds ....................................................
The Over-all Pattern of Borrowing and Lending ........................
Conditions in the Capital and Credit M a rkets ................................
Financing Costs ......................................................................................
The Balance of Payments of the United S ta tes.......................................
Foreign Dollar G ains ..............................................................................
Foreign Aid .............................................................................................
Financial and Economic Developments Abroad ..................................
The Pattern of Prosperity ...................................................................
Flexible Monetary Policies ...................................................................
The Growth of Monetary Reserves ..................................................
Developments in the New York Foreign Exchange Market . . . .
Volume and Trend of the Bank’s O perations.........................................
Domestic Operations ................... ..........................................................
Foreign and International Operations ................................................
Financial Statem ents......................................................................................
Statement of Condition .........................................................................
Earnings and Expenses .........................................................................
Changes in Membership ..............................................................................
Changes in Directors and Officers...............................................................
Changes in Directors ..............................................................................
Changes in Officers ................................................................................
Member of Federal Advisory Council — 1954 ..............................
List of Directors and Officers.......................................................................




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Charts
Page

Gross National Product, 1950-53 ...............................................................

16

Employment Changes in Second District and United States, 1952-53

21

Member Bank Borrowing and Excess Reserves and Cumulative
Change in System Security H oldings................................................

24

Sources of Net Credit and Capital F u n d s................................................

35

Long and Short-term Security Yields,. 1953 ........................ .....................

39

Gold and Dollar Holdings of Selected Countries and Areas .............

46




4

Thirty-Ninth Annual Report

Federal Reserve Bank of New York

Market Economies and Sustained Prosperity

T

HE American economy continued into 1953 the further rise in output
and employment that had begun in the fall of 1952. But during the
second half of the year, without any dramatic reversal, and without falling
below the previous record peaks achieved in 1952, the economy began to
settle down. In contrast, most df the other leading countries outside the
Soviet area had sagged somewhat or moved sideways in 1952, but by
mid-1953 nearly all were again increasing their aggregate production.
The free world, having met the test of reconversion and rehabilitation
after World War II, and then of revived military burdens as a result of
Communist aggression in Korea and potential aggression in other areas,
faced in 1953 the further test of sustained economic performance. Through
World War II and the Korean experience, the economies of the Western
World had amply demonstrated their capacity to produce, swiftly and in
vast quantity. After World War II, they had further demonstrated that
economies based primarily upon private ownership and incentives, and
guided primarily by consumer demand expressed through the functioning
of market prices, could accomplish quickly and without distress the change­
over to peacetime production for consumer needs. There had also been
a considerable widening of world trade, as barriers obstructing the flow
of goods and services were gradually lowered or removed.
The test faced in 1953 was that of adjustment to the high level of
activity previously attained through the effects of the war and postwar
forces. In particular, the challenge lay in demonstrating that the change
from the conditions that had produced unusually rapid growth to a more
nearly normal peacetime economy could be made without serious recession
and unemployment. This question, which came increasingly to the fore in
the latter part of 1953, is also the largest economic question for the year
ahead.




5

6

THIRTY-NINTH AN NUAL REPORT

Readjustment in the United States

It was largely accidental that the turn in the United States coincided
with the final ending of hostilities in Korea in July 1953. That outcome
had been anticipated, and discounted, over the long period of stalemate
and negotiations that began in 1951. But the rapid build-up of the defense
program in 1951, and the continued substantial growth of that program
through the first half of 1952, had generated inflationary pressures which
were only gradually brought under control. With defense spending virtu­
ally stabilized after the middle of 1952, and with increasingly effective
general restraint exerted by credit and other indirect controls, the remain­
ing direct controls were abandoned early in 1953 and the economy was
able to work off its immediate inflationary potentials by midyear.
At the same time, some of the principal heavy goods sectors of the
economy, notably steel and automobiles, were approaching a phase of
readjustment in their operations, following years of rapid expansion in
production to catch up with backlogs of demand. Most other sectors had
already passed through such phases during preceding years, with readjust­
ment rolling from one industry to another while the economy as a whole
continued strong, offsetting or absorbing the impact of readjustment in
individual industries while the total output of goods and services continued
to grow. Some industries, such as textiles, apparel, and leather and rubber
products among the nondurables, and such consumer durables as television,
although their initial major readjustments seemed to have been accom­
plished, faced again during 1953 the prospect of another round of inventory
correction. Such correction, when it came, would exert a depressing influ­
ence of some magnitude upon current production and employment. Along­
side these changes in the manufacturing and distributive sectors of the
economy, there was a special problem of adjustment from war and postwar
conditions in agriculture. Although apparent for several years, the para­
doxical nature of the problem became particularly striking during 1953 as
agricultural output remained at the 1952 peak while farm incomes again
dropped materially, as they had in 1952.
None of these developments, apart from those in agriculture, had
emerged at the beginning of 1953. Although it was unmistakable by the
close of the year that the combined impact of the various readjustments
in process was producing some over-all decline in economic activity, the
economy was still in the throes of expansion when the year began.
The need then was to hold in check the remaining forces of inflation —




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

7

to prevent a bubble on the boom that could burst with suddenness
and set off a sharp and cumulative downward movement. To help fore­
stall such a development, in an effort to assure an atmosphere of order­
liness for the basic readjustments that lay further ahead, the Federal
Reserve System had allowed strong credit demands to exert their tighten­
ing effect upon the money and capital markets during 1952. In January
1953, the System further confirmed the policy of restraint. The discount
rates of the Federal Reserve Banks were raised from 1% per cent to 2
per cent. As reserve funds were absorbed, or released gingerly in brief
periods of market strain, through the System’s open market operations,
the banking system had become increasingly dependent upon borrowing
from the Reserve Banks to meet fluctuations in reserve needs. The com­
bined effect of the restrictive open market operations, of the caution
engendered among banks by dependence upon borrowing, and of the higher
discount rate was to place banks under considerable pressure to restrict
expansion of their loans.
At the same time, partly because of the cumulative tendencies to be
expected after a period of sustained economic expansion, partly because
of business expectations that credit might become tighter through the year
as the Treasury came in to compete for funds during its low-revenue
periods, and partly because of such other factors as the usefulness of bor­
rowed funds in reducing corporate excess profits tax liabilities, business
demand for credit remained unusually high. Very little of the customary
spring repayment of loans actually occurred. As a counterpart, business
inventory continued to grow, with additions of 6.3 billion dollars occurring
during the second quarter of the year, while the annual rate of gross
national product rose 7.5 billion.
Expansion that rests so largely upon an increasing rate of inventory
accumulation is inherently unstable. To have nourished unrestricted
growth of inventory through a ready availability of credit during the early
part of the year would have aggravated the unstabilizing influences. Con­
sequently, the System continued a restrictive policy. Not until May was it
clear that the limitations on the availability of bank reserves were becom­
ing broadly effective in restraining bank lending policies. But by that time,
the continuation of restraint over a relatively long period had led the
money and capital markets to develop cumulative forces of their own,
intensifying the degree of restraint. This tendency was aggravated by the
upward revisions of estimated Treasury borrowing needs over the




8

THIRTY-NINTH ANN UAL REPORT

remainder of the year and by other factors which the market interpreted
as further tightening influences superimposed on the expected demands of
business for plant and equipment financing and for seasonal needs. Bond
prices slumped and mortgage funds began to dry up. As market forces
thus produced a degree of tightness that ran beyond System objectives, the
System quickly stepped in, before the middle of May, to begin reversing
these further tightening influences.
After the peak of credit tightness was reached at the beginning of
June, the System continued to provide funds through purchases of
Treasury bills, as it had done on an appreciable scale in May, and the
Board of Governors lowered reserve requirements effective early in July.
These steps were taken to prevent seasonal and other credit demands from
causing any further tightness of the credit and capital markets, once the
risks of inflation had passed. Over the remainder of the year, as sagging
tendencies became more apparent in the economy, the System took further
action to assure an ample supply of funds to meet seasonal and other needs
for credit and currency. By October, market rates of interest on Treasury
bills, for example, were down to 1 % per cent, from the peak of
per cent
reached at the beginning of June. Seasonal credit demands exerted some
upward pressure on short-term rates later in the year, but credit was at
all times readily available.
Thus, with some assistance from flexible monetary and credit policy,
this country had met during 1953 one of the recurrent tests that confront
market economies. A period of sustained growth had passed over into a
stage of consolidation, and substantial readjustments had begun, without
an explosion at the turning point. Speculative excesses, and a credit boom,
had been avoided while the economy was still in the zone of further infla­
tionary danger. Influences that had, in earlier years, been among the
principal initiating causes of a sudden and spiraling downturn had appar­
ently been neutralized during 1953. But there are also other tests. Market
economies have demonstrated their great capabilities for innovation,
development, and growth, but the question arising once more in 1953 was
whether these gains must necessarily be paid for by undergoing cyclical
extremes of prosperity and depression. Although the experience in 1953
provided reassuring evidence that the turning point from expansion to
readjustment could be passed without an immediate and sharp downswing,
the ability of the economy to complete the readjustments without develop­
ing serious recession had not yet been fully tested.




FEDERAL

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

9

At the end of 1953, this major test was still ahead. So much had been
done since World War II toward building a high consumption (high
standard of living) economy, that prospects for stability had become
increasingly dependent upon consumer behavior. Consumers had refuted
the forecasts of a slump at the end of World War II by providing active
demand for the nation’s enlarged capacities. They were also partly
responsible for the waves of anticipatory buying that augmented infla­
tionary pressures following the Korean outbreak, and again early in 1951.
And they could produce an opposite outcome if, after a phase of gradual
decline in total output and employment related to realignmerts in the
production of key sectors of the economy, they should begin widespread
retrenchment, reducing their spending in anticipation of further unemploy­
ment or of decisive reductions in prices.
The counterinfluences in the event of such an unpredictable develop­
ment would, under free market conditions, lie very largely in the producing
and selling capabilities of business enterprise, bringing more goods to the
consumer market at attractive prices. But full dependence upon offsetting
market adjustments might not be enough to avoid the cyclical extremes that
had at times followed corrective realignments in the past. Moreover,
although this country had moved a long way since World War II toward
restoring free market conditions, and although a large part of the remark­
able achievement of recent years was attributable to that movement, a
number of rigidities had also been introduced over recent decades. Price
supports, wage laws and agreements, and “fair trading” of many products
at the retail level, for example, impelled by whatever social need, were
still added impediments to the free functioning of the market price
mechanism.
On the other hand, traditional assumptions concerning the operations
of free markets have never been fully realized in the past, and governments
have for generations been trying to find effective reinforcements for their
economies — measures or methods which, while preserving the essential
vitality of the market place environment, would exert a general stabilizing
influence upon the direction of over-all economic activity. The institution
of central banking had itself emerged out of this search. And developments
in the American economy following the last great depression and World
War II had, at least potentially, increased the opportunities for effective
monetary and credit control, while also opening up important new possi­
bilities for Government action of a general stabilizing character.




10

THIRTY-NINTH ANN UAL REPORT

In the American economy of 1953, a large and widely distributed
Government debt provided the central bank with a broad range through
which its open market operations could exert a contracyclical influence
upon the credit and capital markets. A vast potential counterbalance to
depression could also be created through the Government’s fiscal policy.
The high tax rates necessitated by the prolonged growth of Government
expenditures provided leverage for increasing the spending power of
consumers, as well as the incentives of business, through suitably timed
tax reductions. Stimulus of that kind, exerting its influence through the
free choices expressed by consumer demand and through business response
to more profitable opportunities for production — without imposing the
deadening effects of state dictation over individual decisions — might
greatly strengthen the forces promoting stability in the modern market
economy. In addition, a number of so-called “built-in” stabilizers had been
put in place since the last great depression. Some, such as social insurance,
were broadly consistent with the framework and the freedoms of a market
economy; others were not; but all would tend to hold back, or cushion,
the effects of general economic decline. Much had been learned, too, about
the scheduling of needed public works to provide some counterweight to
any substantial shrinkage in employment and production.
Balancing influences might produce more harm than good if they were
invoked so quickly, and with such force, as to prevent the prompt though
gradual correction or realignment needed as the economy adapted to
changing patterns of consumer preference. But, suitably guided, they
could serve to check the momentum of any cumulative downward force
which might feed upon itself, after having been set off initially by the
processes of essential readjustment. Thus, through helping to check decline
and encouraging the underlying forces of sustained growth to reassert
themselves through the mechanism of the market economy, Government
and, to some extent, the central banking system had become able to play
a greater role in the effort to approach nearer to sustained prosperity.
The year 1953 was also a pioneering year in working out the relation­
ships between flexible monetary controls and the debt management aspects
of Government operations. The year provided a convincing demonstration
of the marked effects produced by relatively moderate shifts in monetary
and credit policy, when the public debt is large and thus provides a medium
through which the effects of changes in policy can be transmitted readily
and widely. But it was also a year in which the Treasury had to place in




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

1
1

the market some 46 billion dollars of refunding and new money issues
(exclusive of regular weekly Treasury bills, aggregating 1 9 billion at
the year end, that must be rolled over four times during the year). The
fact that nearly a third of this Treasury borrowing was successfully com­
pleted early in the year, during a phase of increasingly restrictive money
and capital market conditions, indicates the progress that had been made
in establishing a modus operandi between necessitous Treasury borrowing
and a flexible monetary policy. There were temporary difficulties at times,
to be sure, and procedures for handling the interrelations between System
policy and Treasury operations can no doubt still be improved. But the
import of the year’s experience was promising for the future* in making
clear that the needs of Treasury finance did not have to stand in the
way of flexible adaptation of System policy to changing economic and
credit conditions.
At the end of 1953, there was as yet no evidence of cumulative down­
ward movement calling for a full mobilization of either the System’s or the
Government’s powers for resisting depression. After a year in which
it had established new records in employment, income, and production,
the American economy could move from a position of strength to meet
the challenge of 1954.
Economic Strength Abroad

Meanwhile in other countries, most notably in Western Europe, 1953
had shown a very different pattern. The lull in 1952 that had followed
successful monetary and fiscal efforts to contain inflation continued
into the early months of 1953. But by mid-1953, expansion had become
general, including countries of such varied economies and problems as
Finland and Greece, Italy and Norway. There were, of course, some devia­
tions from the common pattern. Industrial production in Germany and
Canada, and in India and Japan, for example, had expanded quite rapidly
through part or all of 1952, as well as 1953. France, on the other hand,
even fell below her 1952 performance, partly because of the inroads of
serious nation-wide strikes upon production in the third quarter of the
year. While industrial production in most Latin American countries
apparently moved sideways with occasional declining tendencies, through
both 1952 and 1953, raw materials output in these countries and in most
primary-producing countries rose to new peaks in 1953. Agricultural




12

TKIRTY-NINTH ANNUAL

REPORT

output was good in most countries, although not generally up to the
unusual volume of 1952,
The prevailing impression at the close of 1953 was one of renewed
strength. Visible inflation had largely subsided in 1951. The physical
recovery of most domestic economies that had occurred following the
early postwar years was consolidated in 1952, with relatively little for­
ward movement. In 1953 domestic expansion was resumed. Moreover,
the burdens of defense preparation seemed to be better borne, without
upsetting economic balance. While most government budgets remained in
deficit through 1953, the needed borrowing appeared to have been generally
financed without inflationary consequences. External trade also grew.
And most significantly, the gold and dollar holdings of the rest of the free
world rose by 3.9 billion dollars, or by 21 per cent, over the twenty-one
months following March 1952.
There were many explanations for this encouraging record; some
depending on unique developments in one country, some related to
American economic and defense assistance, and some depending on the
fortunate combination of good harvests and current improvement in the
terms of trade for manufacturing countries. But an important part of the
answer seemed to lie in renewed reliance upon the functioning of the market
place economy. Planning, more or less detailed, had served, and had
often served well, for the tasks of concentrating a nation’s economic effort
upon war or recovery from war, and for filling out patterns of production
and distribution that had already been developed or established in earlier
years. But when the enlargement upon old routines had been generally
completed, and expansion depended upon the imaginative development of
new products and new techniques to fulfill new and growing consumer
demands (both at home and abroad), economies subject to detailed con­
trols and the confining routines of centralized planning began to fall behind.
The stimulus and guidance for experimentation, and for the allocation of
resources to new tasks, was provided by the restoration of individual incen­
tives and the functioning of a price mechanism that reflected the “priori­
ties” of consumer choice.
Two outstanding examples tended to confirm this explanation. The
Federal Republic of Western Germany, which paced the advance through
1953, had largely abandoned direct controls in 1949. The United Kingdom,
having gradually dropped one wartime control after another, had by
1952 begun vigorously energizing the forces of market supply and demand.




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

13

Both countries also recognized a need for giving over-all orientation to their
economies through broader and more diversified use of monetary and fiscal
measures than had been customary in earlier years. Both enjoyed sub­
stantial gains in internal production through 1953. West Germany, despite
the dislocations of war, and dismemberment from her granary and natural
markets in the east, and despite the impact of ten million displaced refugees
upon her employment and available resources, had steadily reduced unem­
ployment from 10 per cent of the employable urban labor force in 1950
to 5 per cent at the end of 1953. Actual employment had risen more than
15 per cent over the same period; agricultural production by roughly 20
per cent; and industrial production by nearly 50 per cent. Gains in
Britain were less striking because the initial levels were not relatively
so low, and employment had continued “full” throughout the post-World
War II period. But industrial production, having advanced only impercep­
tibly from 1950 through 1952 in the United Kingdom, rose by about
5 per cent in 1953.
The gains in the foreign trade and in the monetary reserves of these
and other countries, and the temporary as well as the lasting factors con­
tributing to these gains, are described further in later sections of this
Report. The reassuring implication of the gains, however, was that depend­
ence upon extraordinary dollar assistance had greatly declined, and that
trade within Western Europe and between Western Europe and the rest
of the world had moved considerably nearer to a self-sustaining basis.
Important as the internal and external achievements of other countries
were during 1953, they did not provide the basis for complacent confidence
in the future. Much remained to be done if their domestic economies were
genuinely to flourish, and if a reasonably free flow of international trade
were to be re-established. Trade barriers were still high. Most currencies
were still inconvertible into dollars. All countries nervously pondered the
effects of an American recession upon their trade and upon their internal
employment. A serious setback could still recall the restrictive measures
of “planned economies” which might assure stability at some level, even
though they lacked the touchstone to an energetic and sustained expan­
sion in response to the free choices of consumers. A reversal could also
bring increased restrictions on trade, and further controls over the con­
vertibility of currencies.
Nevertheless, 1953 had brought a significant change in tone and
decided forward momentum. The challenge to the other democratic coun­




14

THIRTY-NINTH ANNUAL REPORT

tries, like that to the United States, was to find the proper blend, for the
conditions of each country, between expanded governmental responsibility
of a general nature and the full encouragement of individual enterprise. If
this challenge could be met successfully, the promise was great for assur­
ing reasonable economic stability while preserving the opportunities for
growth and for rising standards of living that had been revealed by the
rediscovery of the strength of market economies.

The American Economy in 1953

The nation’s farms and factories, stores and offices, and all other
private and public enterprises turned out goods and services totaling 367
billion dollars in 1953, a gain of 19 billion dollars or 5% per cent over
1952, the previous record year. Since prices remained relatively stable,
the greater part of this increase represented a rise in the physical
volume of output. Yet, although most business indicators rose to new
peaks during the course of 1953, only a few were rising at the end of
the year. The gross national product, which had been growing irregularly
but continually since the end of 1949, started to decline in the third
quarter of 1953. In the fourth quarter, the seasonally adjusted annual
rate of gross national product had slipped back to 363 billion dollars, less
than 1 per cent above the fourth quarter of 1952.
Adjustments at High Levels

Much of the change within the year originated in an underlying
shift in the supply and inventory situation. At the beginning of 1953,
many raw materials, particularly basic metals, were in relatively short
supply; stocks of steel and of fabricated items and parts made from steel
were still being replenished following the steel strike in the summer of
1952. Manufacturers usually found it necessary to place orders for sub­
stantial quantities of raw and processed materials well in advance and,
where possible, they endeavored to maintain protective inventories of
scarce materials. At the start of the year, the use of steel, copper, alumi­
num, and other strategic materials was still subject to Government con­
trols and allocations (and many prices and most wages were still subject
to Government stabilization measures). By the end of 1953, however,
the situation was reversed. Controls had been lifted earlier in the year,
and raw materials were, almost without exception, more plentiful. With




F E D E R A L R E S E R V E B A N K O F NE W Y O R K

15

prompt delivery schedules, manufacturers found it possible to operate
with smaller stocks of materials and to cover their needs for a shorter
period in advance. New orders for finished goods as well as materials
were cut, while stocks and commitments were worked down; the shorten­
ing of the time between ordering and delivery tended to reduce the back­
logs of unfilled orders, even when final demand remained unchanged.
In certain lines, output rose faster than demand in the early part of the
year, and in others, notably farm machinery, a decline in final demand
caused inventories to rise all along the line; as a result, production and
factory employment were cut back in the latter part of 1953.
This process of inventory adjustment, together with lagging demand
in certain lines, had widespread effects. The output of almost every
major industry (on a seasonally adjusted basis) was lower in the fourth
quarter of 1953 than it had been earlier in the year. Total industrial
production, as measured by the revised Federal Reserve index, had de­
clined approximately 7 per cent by December (on a seasonally adjusted
basis) from the all-time record set in July. A considerable part of the
decline centered, however, in the production of steel and motor vehicles
which, without any seasonal adjustment of the figures, was down about
25 per cent from the March and April peaks. In part, this more pro­
nounced decline represented a basic readjustment, as these industries
scaled back their operations after years of maximum production to meet
demand backlogs. In part, too, this particular decline reflected a reemergence of seasonal patterns of production and demand in these indus­
tries. During the years of sellers’ markets and shortages, production had
several times been stopped or reduced by major strikes but there had
been very little seasonal variation. With the return of buyers’ markets
to these sectors of the economy in 1953, some resumption of seasonal
patterns was to be expected. It was too early to tell how far the read­
justment would go, but it did seem reasonable to expect fluctuations of
production below the absolute peak of capacity in the future.
Alongside the readjustments in steel and some consumer durables,
and the inventory corrections in other lines, a basic readjustment was
continuing in agriculture. Improved techniques and expanded acreage
had greatly enlarged agricultural production through the war and postwar
years. With the passing of war-induced needs, and with the recovery and
expansion of agricultural production abroad, American agriculture neces­
sarily faced realignment. The consequent readjustments (reflected mainly




16

THIRTY-NINTH ANNUAL REPORT

through falling farm prices, as harvested acreage remained large and
physical output rose) had produced an over-all decline of 8 per cent in
realized net agricultural income in 1952, and despite heavy Government
support measures there was a further 7 per cent decline in 1953.
In view of the extensive adjustments in process, the decline in over­
all economic activity through the end of 1953 was relatively moderate.
Actually, total consumer demand continued at peak levels throughout the
year, as can be seen in the accompanying chart, and the drop in gross
national product of approximately 8 billion dollars (seasonally adjusted
annual rate) between the record second quarter and the fourth was
actually less than the reduction in expenditures caused by the shift in
inventory policy. In the second quarter of 1953, business inventories were
being accumulated at a rate of more than 6 billion dollars a year; by
the fourth quarter, inventories were being liquidated at a seasonally ad­
justed annual rate of 3 billion dollars.




F E D E R A L R E S E R V E B A N K O F NEW Y O R K

17

Sources of Strength in the Economy

In recent years, much of the stimulus to expansion had come from
the combined effects of increases in defense spending, new construction,
and business expenditures on durable equipment. During 1953, however,
these sectors taken together accounted for less than one third of the growth
in gross national product. The rise in final demand during 1953 instead
represented largely higher personal consumption expenditures.
Defense spending remained on a plateau after the second quarter
of 1952. At that time it accounted for less than 15 per cent of the gross
national product and, subsequently, varied slightly below that mark. The
stretching-out or canceling of orders for defense goods served to curtail
further growth in defense spending and, in the final quarter of 1953, the
annual rate of national security expenditures was slightly less than it had
been a year earlier. Spending by State and local governments increased
by 2 billion dollars during 1953, reflecting the continued need for schools,
highways, and other types of public works, brought about by our growing
and shifting population and by wartime deficiencies in maintenance and
new construction. At the end of the year, demand from these other
governmental sources was still strong.
Business expenditures on new plant and equipment continued rising
only through the third quarter of 1953, but the total for the year was up
5 per cent over 1952. Expansion of industrial plants slackened as defensesupporting investment passed its peak, but there was a strong demand
for modernization of facilities and for investment in labor-saving or costcutting equipment. At the close of the year, businessmen were reportedly
planning a sustained high level of plant and equipment expenditures for
the opening months of 1954. Residential construction was off to a good
beginning in 1953, but the number of new dwelling starts declined after
April, in part because of the temporary stringency in mortgage funds. For
the year as a whole, however, over 1.1 million new dwelling units were
started, only slightly fewer than in 1952; and the seasonally adjusted
annual rate of private housing starts began rising again in September, as
mortgage money became more readily available. In the fourth quarter of
1953, total investment in new construction and producers* durable equip­
ment was at an annual rate approximately 2 billion dollars greater than a
year earlier.
Consumer expenditures rose to new peaks in 1953; in fact, the yearto-year increase from the fourth quarter of 1952 to the fourth quarter of




18

THI RTY-NI NTH A N N U A L REPORT

1953 was more than triple the combined rise in Government defense
spending and private investment in construction and equipment. This high
rate of consumer spending accompanied a corresponding increase in per­
sonal income, reflecting record employment and somewhat higher wages.
Even toward the end of the year, when nonagricultural employment had
declined slightly from its previous high, total personal income was only 1
per cent below the July peak.
One feature of the consumer goods market in 1953, particularly in
the automotive field, was the aggressive competition among durable goods
manufacturers for a larger share of the consumer’s dollar. A total of 6.1
million passenger cars was produced, the second highest year on record.
Despite stepped-up sales effort by automobile dealers, in many cases in­
volving large trade-in allowances or cash discounts, total new car inven­
tories at the end of 1953 were about one-fourth greater than they were
at the beginning. Radio and television manufacturers likewise increased
production faster than sales, expanding inventories considerably. Appli­
ance sales were better than in 1952, but not up to the 1950 record. On
the whole, however, consumers spent more for durable goods in 1953 than
in any previous year, and they were assisted in this by an expansion of
mbre than 3 billion dollars in consumer instalment credit.
! The dollar volume of expenditures for nondurable goods showed only
a small gain during 1953. Since retail prices for nondurables declined
moderately during the year, the physical volume of purchases appeared
to have increased in line with the rise in population. Expenditures for
services continued their steady long-term growth, partly attributable to
higher rentals and increased costs of medical and personal services.
Continued Stability o f Prices

The past year was one of notable price stability. The economy was
able to shift from expansion to readjustment during the course of the year
with little change in the over-all price level. Similarly, the final abandon­
ment of controls on prices, wages, and practically all materials, and the
signing of a truce in Korea were taken in stride with only moderate price
changes. Wholesale prices at the end of 1953 were only of 1 per cent
higher than a year earlier, while the year’s average was about 1 per cent
below the 1952 level. Consumer prices advanced less than 1 per cent
both from December 1952 to December 1953 and on a yearly average
basis. The over-all pattern of price stability, however, concealed some




F E D E R A L R E S E R V E B A N K O F NEW Y O R K

19

marked changes in individual commodities or groups of commodities.
The over-all stability which characterized prices was also true of
wages. Average hourly earnings of factory workers advanced about 3 per
cent from the end of 1952 to the end of 1953, but the average number
of hours worked per week fell off by an equal percentage, leaving aver­
age weekly earnings approximately the same as a year earlier. The reduc­
tion in the work week reflected elimination of overtime operations and
adoption of part-time work by many factories endeavoring to bring pro­
duction and inventories into line with current demand. In addition, many
workers were laid off, and at the end of the year seasonally adjusted
factory employment was nearly one million lower than at the June peak
and about half a million lower than in December 1952. Declines in other
types of nonagricultural employment were much less marked and, in
terms of annual averages, both nonagricultural employment and total
income from wages and salaries set new records.
On the whole, the national economy weathered the many changes
that occurred in 1953 with reassuring stability. The over-all decline fol­
lowing the second-quarter peak was moderate, and the aggregate measures
of gross national product and national income in the fourth quarter were
still above any point reached prior to the fourth quarter of 1952. Of
course, as in all adjustments, some lines of activity were hit much
harder than others, and aggregates or averages do conceal individual and
personal hardships which accompany even modest economic readjustment.
Nevertheless, although working hours were cut and unemployment was
rising toward the year end, consumers continued to maintain their spend­
ing, thus cushioning the readjustment which was under way and preventing
the downturn from becoming cumulative during 1953.

The Economy of the Second District

The Second Federal Reserve District shared in the nation’s sus­
tained high volume of business during 1953. It also shared in the down­
turn over the last half of the year but, in general, business probably
held up in this area somewhat better than in many others. For 1953
as a whole, income payments in the Second District have been estimated
by this Bank to be nearly 43 billion dollars, compared with slightly more
than 40 billion dollars in 1952. This year-to-year increase of approximately
6 per cent slightly exceeded the rate of increase in the income of the rest




20

THIRTY-NINTH ANNUAL REPORT

of the United States. The increase in District income was rather widely
distributed; farmers were the only major group to experience a decline
in income.
Employment in Manufacturing Industries

For the year as a whole, average District employment in durable goods
manufacturing was greater than in 1952, while employment in nondurable
goods industries declined slightly. These yearly averages, however, conceal
significant changes that occurred during the course of the year. During
the first half of 1953, aggregate factory employment (on a seasonally ad­
justed basis) continued the more or less steady rise of the previous three
years, reaching its highest point since World War II in June. From then
on it declined and by the end of the year had fallen to 5 per cent below the
June level — approximately the same rate of decline as in the country as a
whole.
By December 1953, Second District employment in durable goods
industries was slightly below the level of a year earlier, but, as shown in
the accompanying chart, this decline was concentrated in New York City,
and a moderate rise was recorded for the rest of the District. In non­
durable goods industries, on the other hand, employment in December
1953 had fallen below the December 1952 levels both in New York City
and in the rest of the District, and the percentage fall for the District as
a whole (4.8) was substantially greater than the decline for the country
(2.4). This was primarily attributable to the fact that the women’s
apparel industry had a relatively slow autumn selling season; mainly
because of unusually mild weather, the season started late and ended
early. Employment in the textile, fur, shoe, and leather goods industries
was similarly affected.
Largely because of layoffs at manufacturing plants, the number of
unemployment claimants rose during the latter half of 1953. In December,
insured unemployment in New York State totaled 244,000, an increase
of over one fourth from December 1952 but otherwise the lowest number
for any December since the end of World War II.
Nonmanufacturing Industries Advance> But Agriculture Lags

Nonfarm employment other than manufacturing advanced moderately
during the past year in the Second District; in December, it set a new alltime record. The increase was a fairly general one, with construction




21

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

EMPLOYMENT CHANGES IN SECOND DISTRICT AND UNITED STATES, 1952-53
Dec. 1953 vs. Dec. 1952

1953 average vs. 1952 average
DURABLE GOODS MANUFACTURING

DURABLE GOODS MANUFACTURING
New York City

Reel of 2nd District
Rest of U. S.
NONDURABLE 300DS
MANUFACTI RING

NONDURABLE GOODS
MANUFACTURING

I
I
I
I
I

I
OTHER NONAGRICULTURAL

i

!

:

I

I

0

I
I

!
I

I
I

-5

OTHER NONAGRICULTURAL

I

*5

♦10

Per cent change

-10

-5

0

♦5

Per cent change

Source: Compiled by the Federal Reserve Bonk of New York from data provided by State agencies
and the U. S. Bureau of Labor Statistics.

and government employment showing the largest year-to-year gains; the
major groups reducing employment included railroads, wholesale trade,
and real estate.
Construction contracts awarded in the Second Federal Reserve
District were well above the 1952 level. Residential building lagged,
and most of the gains came from nonresidential projects. Total resi­
dential building contracts awarded in this District were 7 per cent lower
than in 1952, but actually all of this drop was attributable to the sharp
cutback in public housing. Although industrial construction contracts
declined 7 per cent, the net rise in nonresidential building activity reflected
increases of one eighth in school building and nearly one third in awards
for commercial buildings (including numerous suburban shopping centers
and several large office buildings in New York City). The largest gains
over 1952 were in public works and utilities, including some contracts for
the New York State Thruway and other highway projects.
Second District consumers spent more money in retail stores in
1953 than they did in 1952. Automobile dealers and household appli­




22

THIRTY-NINTH AN NUAL REPORT

ance and radio stores were the chief beneficiaries of this increased
spending. Department stores, on the other hand, barely kept pace with
19S2; a decline in New York City was offset by gains in most other
trading areas in the District. Beside continuing their over-all spending
at a relatively high rate, consumers also increased their savings in such
institutions as savings banks, savings and loan associations, and insurance
companies. At the same time, however, consumer instalment credit
continued to rise.
Mainly because of declining prices, farmers in the Second District
received approximately 6 per cent less for their output in 1953 than
they did in 1952, even though they marketed a greater quantity of farm
products. Farm prices in New York State averaged 14 per cent lower
than in 1952, while in the country as a whole prices received by farmers
dropped about 10J4 per cent. Income from marketing of crops in New
York State dropped much more than that from dairy, poultry, and other
livestock products. In part, this reflected the effects of drought on truck
crops and fruit and the sharp fall in potato prices from the previous
year’s unusually high levels.

Federal Reserve Credit Policy
Tightness and Relaxation

The economic developments during 1953 described in earlier sections
of this Report called for a high degree of adaptability in Federal Reserve
policy. Monetary and credit policy moved from restraint in the opening
months, when the boom levels at which the economy was operating cre­
ated potentially inflationary demands for credit, to positive ease as eco­
nomic activity slackened in the closing months of the year. The avail­
ability and cost of credit in New York City, the nerve center of the
credit structure in the United States, was a focal point during the year
for the changing impact of Federal Reserve policies aimed at creating
money and credit conditions conducive to economic stability.
Even though the risks of a general, surging inflation did not appear
to be great in the early part of 1953, the nature and strength of demands
for credit indicated developments in the economy which gave cause for
concern. Business demands for credit were unusually large for that period
of the year; during the first four months, seasonal repayments of business
loans in the principal cities were almost completely offset by contraseasonal business loan extensions to other borrowers. The failure of




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

23

business credit to decline seasonally at this time reflected, in part, the
funds needed to carry inventories which had been increased sharply toward
the end of 1952 and which continued to grow through the first half of
1953. Consumer credit to finance purchases of durable consumer goods,
after having grown rapidly in the last eight months of 1952, was another
area of persistent demand for new bank credit during the first few months
of the year. Occurring after a lengthy period of economic expansion,
there was danger that the temporary support these developments pro­
vided to the economy would, when it ran out, set the stage for a more
serious economic adjustment than would otherwise have been necessary.
In view of this situation, the Federal Reserve System in the opening
months of 1953 continued the policy of restraint upon the availability
of credit that had been followed during 1952. Discount rates at the
Reserve Banks were increased in January from 1 to 2 per cent to bring
them in line with market rates of interest, which had risen in response
to earlier measures of credit restraint, and to signalize and symbolize a
continued policy of moderate restraint. Open market operations, includ­
ing a decline in repurchase agreements, were employed to absorb reserve
funds as they became available to the banks. During the first two months,
the return of currency from circulation, the decline in required reserves,
and the net influence of all the usual seasonal factors gave member banks
access to almost 1 billion dollars of available funds exclusive of discounts
or advances from the Reserve Banks. But sales and redemptions from
System holdings of Government securities, including a sizable reduction
in the volume of securities held by the Federal Reserve Bank of New
York under repurchase agreements at the end of 1952, absorbed most of
these funds. By the end of April, the net availability of reserve balances
to member banks, exclusive of borrowing, was about the same as it had
been at the close of 1952.
Open market policy during the first four months of 1953 had the
effect of maintaining steady pressure on member banks’ reserve positions
and thus on their ability and willingness to assume new credit commit­
ments. Of course, during the period of credit restraint member banks
had the privilege of borrowing at their Reserve Banks to make necessary
individual reserve adjustments. But the reserves acquired by borrowing
are not viewed as wholly owned resources of the borrowing bank. When
reserves upon which new credit creation may be based are obtainable
only through borrowing, the knowledge that these funds are only tem­




THI RTY-NI NTH A N N U A L REPORT

24

porarily available, and must be repaid, creates an atmosphere of money
tightness. This is what happened early in 1953, causing the individual
banks to adopt more cautious lending and investing policies. The fol­
lowing chart illustrates the complementary roles played by open market
operations and discount policy in maintaining first restrictions and then
easier money conditions during the year.
MEMBER BANK BORROWING AND EXCESS RESERVES
AND CUMULATIVE CHANGE IN SYSTEM SECURITY HOLDINGS
8illions of dolltrs

Billions of dollars

Not*: Borrowings and excess reserves ore weekly averages of dolly figures and data for System security
holdings are plotted oo a weekly cumulative change basis.
*Excludes purchases of special certificates of indebtedness.

The central reserve New York City member banks were called upon
during January to absorb the major part of the pressure upon member
banks throughout the country which resulted from the withdrawal of
Federal Reserve credit in that month. This pressure upon the New York
money market culminated almost a year of steady drains on New York
City. As they had in previous months, the New York City banks relied




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

25

largely upon sales from their holdings of Government securities to make
adjustment for the demands upon them during January. The strain
upon New York City banks apparently reached a peak in January and,
although the New York banks remained under pressure as steady re­
straint was maintained upon the banking system during the following
three months, the necessary further adjustments in total reserves were
made almost exclusively outside New York City.
By May, it had become apparent that inflationary pressures had
receded while the economy continued to operate at high levels. Accord­
ingly, the emphasis of credit policy was shifted from efforts to limit bank
reserves and the growth of bank credit toward a controlled release of
Federal Reserve credit in a volume sufficient to provide for the market’s
anticipated seasonal credit requirements. The shift in credit policy repre­
sented an effort to alleviate the more acute phase of money market strin­
gency which developed at that time for a variety of reasons. Among them
were the unexpectedly large continuing demands for bank credit from
private borrowers and heavy corporate and municipal demands on the
capital markets. Most important, Treasury tax collections on 1952 in­
comes proved to be smaller than anticipated and, as the months passed,
estimates of the volume of necessary Treasury borrowing over the re­
mainder of the year increased.
Beginning with the second statement week in May, purchases of
Treasury bills for the System Open Market Account were made in moder­
ately large volume over the balance of the month. Despite the provision
of reserves through these purchases by the System, however, the market
was slow to realize that a shift in credit policy had taken place. Influenced
by expectations of a large volume of private demands for credit during
the remainder of the year and what appeared to be a sudden expansion
of Government demand, the credit markets continued to tighten through
the month of May.
To meet this situation the Federal Reserve System stepped up its
purchases of short-term Government securities, and a large volume of
reserves was supplied in this way during June and the first week of July
to implement the redirection of credit policy that had taken place earlier.
As a result, in early June the upward movement of interest rates came to
an end and a pattern of declining rates developed which continued subse­
quently over most of the balance of 1953. And on June 24, the Board of
Governors of the Federal Reserve System announced that reserve require­




26

THIRTY-NINTH ANNUAL REPORT

ments on all classes of member banks were to be lowered in early July.
This action released more than 1 billion dollars of reserves to the member
banks. The reduction in reserve requirements was particularly useful
in a situation where a relatively large volume of reserves, widely distrib­
uted, was needed at one time. In combination, the reserves released
through open market operations and the reduction of reserve requirements
were ample to assure the banks and all other investors that the expected
volume of private and Government borrowing could be absorbed without
unwarranted pressure on the supply of credit.
As the summer passed, the apparent balance in the economy between
inflationary and deflationary forces that had developed in the late spring
became instead a balance between tendencies toward stability and toward
corrective adjustments at lower levels. Against this backdrop, Federal
Reserve credit policy shifted gradually to a policy of ease. Through
September commercial banks, on balance, reduced their Government
security portfolios, reflecting in part the secondary distribution of some of
the new securities which were issued in large amount to the banks in the
Treasury’s July financing. Nonbank purchases of the securities sold by
banks in the summer months released member bank reserves to meet
other demands upon the banks for credit, and further large System
security purchases were not made until September. Indicative of the
easier supply of reserves, average daily borrowing of member banks from
their Federal Reserve Banks fell by 700 million dollars between April
and September, while at the same time excess reserves were increasing
moderately. As shown in the chart on page 24, excess reserves of
member banks first rose above borrowings in June, and over the remainder
of 1953 excess reserves fell below borrowings on only a few occasions.
Execution of Federal Reserve policy during the summer and fall
months at times resulted in sizable accumulations of free reserve balances
in the banking system. For example, when the demand for commercial
bank credit failed to develop during September and October in the
expected seasonal volume, the reserves that had been released to the
member banks in advance of the actual need for the funds — so as to
avoid any degree of credit tightness when the anticipated demand did
arise — were added to member bank excess reserves, used to repay
indebtedness at the Reserve Banks, or to purchase short-term Government
securities. As a result, the most sensitive market rates dropped sharply
in the early fall and firmed only moderately during the period of greatest




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

27

seasonal pressures, and other open market rates declined almost steadily
through the latter part of 1953. Federal Reserve security purchases were
suspended for a few weeks in October but were resumed when seasonal
demands on the banking system increased toward the year end. The
decline in System security holdings in November, shown in the chart,
reflected the sale to the Treasury of 500 million dollars of securities in
exchange for gold certificates issued against part of the Treasury’s “free
gold”. The operation made it possible for the Treasury to avoid breaching
the public debt limit and did not affect member bank reserves.
Despite the maintenance of an adequate supply of reserves in the
banking system as a whole, seasonal money flows tended to exert tighten­
ing influences in the New York City money market during November
and December. But the atmosphere in the money market during
the 1953 period of year-end adjustments was not at any time allowed
to develop into outright money tightness. To aid in preventing the
localized pressures during November and December from creating tempo­
rary conditions inconsistent with underlying credit policy, the Federal
Reserve Bank of New York made repurchase agreements freely available
to dealers in Government securities, and in December such agreements
were made at a rate of interest lower than the discount rate. As described
in a later section of this Report, repurchase agreements are peculiarly
appropriate for dealing with temporary forces that would otherwise pro­
duce stringencies in the central money market.
At the year end, the Federal Reserve Banks stood ready to supply
the banking system with whatever funds might be needed to assure that
the processes of economic readjustment then under way should not be
complicated by shortages of credit or by high financing costs.
Bank Credit and the Money Supply

The combined effects of credit policy and of changing economic
conditions are apparent in the course of bank credit developments in
1953. Total loans and investments of all banks (including savings banks)
in the United States declined by 2.5 billion dollars during the first six
months, whereas in the similar period in 1952 they had increased by
2.7 billion dollars. But the intensity of private demands for credit in 1953
is measured by the fact that, even though further restraints were exerted
by credit policy, the loans of all banks increased by 1.6 billion dollars
in the January-to-June period. It was an indication of the pressures on




2
8

THIRTY-NINTH ANNUAL REPORT

bank reserve positions during most of the first half of 1953 that the banks
much more than offset the additional loans they acquired by the sale of 4.1
billion dollars of securities. In 1952, the larger loan expansion had been
accompanied by an increase of 500 million dollars in security holdings.
For the last half of 1953, on the other hand, bank loan and invest­
ment data reflected the slackening in over-all business activity and the
coincident easing of the pressures on bank reserves. Loans increased by
4.1 billion dollars, whereas in that period of 1952 they grew by 5.8
billion dollars. The growth during the period of seasonal expansion this
year was relatively moderate for several reasons. Among these were
the so-called “Mills plan” for corporate tax collection which has increas­
ingly concentrated corporate tax payments in the first two quarters of
each year, anticipatory borrowing by businesses in the spring in expecta­
tion of even tighter money conditions in the fall, and other influences.
But the less-than-seasonal demand for credit probably reflected primarily
the end of the rapid accumulation of business inventories and the gradual
softening in the economy. The effects of the easier access to Federal
Reserve credit at this time were visible in the security investments of
banks. Banks added 5.1 billion dollars of securities to their portfolios,
more than twice the amount added in the last half of 1952.
For the full year, the 6.6 billion increase in banks’ total loans and
investments was much less than the 10.8 billion dollar growth in 1952
(which was by far the largest increase on record except for the war years)
and was smaller than any year since 1948, when banks’ earning assets
actually declined. Loans grew by 5.7 billion, less than three-fourths as
much as in 1952, while total security investments increased by 0.9 billion
dollars, compared with an increase of 2.9 billion in 1952. Despite the
larger volume of Treasury borrowing in 1953, banks’ holdings of Govern­
ment securities at the year end were only 40 million dollars larger than
a year earlier, in contrast to the 1.4 billion growth in the previous year.
Among the other noteworthy bank credit developments in 1953 was
the apparent leveling-off in consumer borrowing at commercial banks.
The rapid growth of consumer loans after the removal of selective control
over this form of credit in May 1952 was a principal factor in the total
growth of bank loans. During the first six months of 1953, the increase
in consumer loans continued to be an important element in the credit
picture. “Other loans” at the weekly reporting member banks, a cate­
gory containing principally consumer credit, grew by about 700 million




F E D E R A L R E S E R V E B A N K O F NEW Y O R K

29

dollars in the first half of the year, more than two fifths of the total
loan expansion at all banks. In the last half of 1953, however, the
total of these loans remained practically unchanged as, after more than
a year of steady expansion, the increasingly heavy volume of repayments
on outstanding loans caught up with the volume of new loans being made.
The net expansion of bank credit in 1953 to meet Government and
private credit needs involved only a relatively small increase in the money
supply (defined as demand deposits adjusted plus currency outside banks).
The
billion dollars that individuals added to their savings deposits
during the year provided funds to cover much the largest part of the total
expansion in bank credit. And purchases of Government securities by
nonbank investors, on balance, provided the Treasury with most of the
funds it required, thus avoiding the expansion of the money supply that
would have resulted if these securities had been absorbed by the banks.
From December to December, privately owned demand deposits, the
most important component of the money supply, increased by about 1.8
billion dollars and currency outside banks increased by approximately
300 million dollars. The money supply thus grew by only 2.1 billion
dollars, or 1.6 per cent. The rate of demand deposit turnover increased by
7 per cent in 1953 at New York City banks, by 5 per cent at six other leading
financial centers, and by 3 per cent in the rest of the country. Apparently
a more efficient use of the existing money supply partly took the place
of an increase in that supply to provide for an enlarged volume of dollar
transactions in the year just completed.
Impact o f System Policy on the Money Market
and the Government Security Market

The shifting course of credit policy and of the demands for credit
during 1953 were mirrored in the money market and the Government
securities market by the pattern of interest rate developments. As the
pressure of demand for credit against the limited supply of banking funds
steadily increased the strain on the banking system during the first five
months, interest rates rose to the highest levels of the past two decades.
However, the relaxation of credit policy which began early in May and
the relatively less active demand for credit during the last seven months
of the year brought about a rapid decline in interest rates.
In the first two months of 1953, the reserves made available to
member banks through the usual seasonal factors influencing the supply




30

THIRTY-NINTH ANNUAL REPORT

of reserves were almost all absorbed by sales and redemptions of Treasury
bills from the System Open Market Account and the resale to dealers
of short-term securities held under repurchase agreements at the Federal
Reserve Bank of New York. Also, the increase in the Federal Reserve
Banks’ discount rates in January was widely interpreted as a signal
that the credit authorities did not intend that the money market should
become easier. Confronted with a steady demand for loan accommo­
dation from their customers and a supply of available funds that was
consistently less than this demand, banks found it necessary to liquidate
secondary reserve assets to secure the funds they needed. Borrowing
from the Reserve Banks was, of course, a widely used alternate source
of funds. But, in the absence of any prospect that the money market
would turn easier in the near future, banks could view borrowing only as
a stopgap until the more fundamental portfolio adjustments could be made.
As mentioned earlier, the impact of System policy in January was
absorbed initially by the New York City money market banks. Their
loans and investments were reduced by 900 million dollars in that month.
Earning assets remained practically unchanged at the reserve city banks
and actually increased at the country banks. During the following three
months, however, although New York City continued as the market
through which cash and securities flowed to effect interbank and inter­
regional corrections, the increasingly illiquid position of the City banks
restricted their ability to cushion the impact of the flows through changes
in their own portfolios.
The pressure of commercial bank selling of Government securities
at this time, despite net nonbank investment demand during most of the
period, resulted in almost steady upward pressure on yields of short-term
Government issues and on other market rates of interest. Simultaneously,
the very large volume of new municipal and corporate offerings and the
sale by the Treasury on May 1 of its first long-term bond issue since
1945 exerted steady upward pressure on long-term interest rates. Another
factor in the market was the expectation, partly based on interpretations
of statements which the market considered official, that credit and debt
management policies would bring about still higher interest rates. This
expectation encouraged investors to hold cash or very short-term securities
and encouraged borrowers to come into the market in advance of their
need for the funds, adding measurably to the pressure on interest rates.
The movement toward higher rates accelerated in the last half of April and




FEDERAL

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

31

the opening days of May, as increases in the relatively sticky customer
loan rates to prime borrowers at the leading commercial banks and in
official mortgage rates gave renewed impetus to the upward trend.
As already noted, the shift of credit policy early in May was not
reflected immediately in the credit and capital markets. Despite the weekly
purchases of securities by the System, the accumulating strains in the
credit structure resulted in a shaky Government security market. To
meet this development and to indicate in unequivocal terms that the
unavoidable needs of the Treasury for large-scale borrowing and the
expected seasonal credit needs of business would be met, increased pur­
chases of Treasury bills were made aggressively for the System Open
Market Account beginning on June 2. Also, moderate purchases of
Treasury bonds were made for Treasury accounts and these purchases,
at first, were rumored to be for the System Open Market Account. The
purchases halted the upward spiraling of interest rates. Further heavy
purchases throughout the month for the System Account and the reduction
in reserve requirements announced on June 24 eased credit conditions
substantially, and yields on Government securities declined rapidly from
the high levels they had reached in early trading on June 2. Nevertheless,
market sentiment still was not sufficiently confident to enable the Treasury,
in its July financing, to offer without considerable risk securities with a
maturity of more than one year.
The money market remained relatively easy during the balance of
the summer, and market rates of interest tended to hover around the
end-of-June levels. In the bullish market atmosphere during the last
four months of 1953, steady net buying of short-term Government issues
by nonbank corporations, and a growing tendency for investors to swap
shorter for longer maturities in anticipation of still lower market rates,
were important influences in enabling the Treasury to finance at declining
rates and in longer maturities. By the end of December 1953, prices of
Government issues had more than recovered their losses in the first five
months of the year, and yields on all issues throughout the maturity
structure were below year-earlier levels.
Changing Blends of Policy: Open Market Operations
Repurchase Agreements and Discounting

,

,

The emphasis given any one of the instruments of credit policy during
the past year, and the manner in which the several instruments were




32

THI RTY-NI NTH A N N U A L REPORT

employed in combination to achieve the objectives of credit policy, were
determined by the nature of the economic and credit situation which
policy was intended to influence. For example, on February 20, during
the period of restrictive credit policy, margin requirements on loans
collateralized by corporate securities were reduced from 75 to 50 per cent.
This apparently inconsistent action was based upon the conclusion that
the situation in the stock markets contained no threat of inflationary
loan expansion, and that restrictive measures should be relaxed promptly
once the need for them had passed. Probably the greatest strength of
money and credit regulation as a medium of public policy — when the
central bank is free to pursue a flexible policy — lies in its ready adapta­
bility to changing circumstances. The year just ended provided a number
of illustrations of that adaptability.
During the first four months of 1953, under a policy of limitation
on the supply of credit, Federal Reserve policy relied to a considerable
extent on the discount mechanism. Open market operations were employed
to soak up reserves accruing from other sources so as to maintain generally
the same relative availability of reserves as in late 1952. But the applica­
tion of increased pressure on banks, in order to translate the limitation
on banking reserves into a general limitation on the supply of credit
available to borrowers, was brought about largely through the discount
apparatus. First, discount rates were increased in January. Then, as
the demands for credit pressed on the limited availability of reserves,
more and more banks which had not previously found it necessary to
borrow found it increasingly difficult to maintain their reserve positions.
At the sustained high level of borrowing from the Reserve Banks, the
eventual, unavoidable portfolio adjustments of the borrowing banks, when
reserves failed to appear from other sources to repay borrowing, reduced
the liquidity of other banks, forcing them to borrow. Taken in the
context of banks’ traditional reluctance to be in debt to the Federal
Reserve Banks, particularly when that reluctance is stimulated by official
pressures against excessive or continuous borrowing as it was in early
1953, the continued heavy volume of discounting forced banks throughout
the country to reappraise their portfolios and policies.
After Federal Reserve credit policy shifted from restraint, first to
the relaxation of restraint, and then toward ease, open market operations
became more important, the discount mechanism less important. Funds




F E D E R A L R E S E R V E B A N K O F NEW Y O R K

33

supplied through the reduction in reserve requirements and through open
market purchases during the last seven months of 1953 anticipated the
need for reserves and generally enabled member banks to meet the
demands on them without incurring indebtedness to the Reserve Banks.
Even when total reserves were quite ample, however, some volume of
borrowing remained, as the discount privilege operated as a “safety valve”
to facilitate the adjustment of reserve positions of individual banks. But
security purchases in anticipation of the need for funds became the active
instrument of Federal Reserve policy, and the discount mechanism became
a passive instrument, useful for particular individual situations, but not
a source of reserves upon which the banking system as a whole would
have to depend.
While regular open market operations are one of the more flexible
instruments of credit policy, they can hardly be sufficiently flexible to
meet all the sharp fluctuations that occur from time to time in the supply
of funds in the central money market. At times the strains imposed upon
the central money market require the Federal Reserve System to take
actions directed specifically to that market if it is to avoid a localized
stringency that otherwise might have repercussions throughout the credit
system.
For this purpose, the Federal Reserve System employs repurchase
agreements with nonbank dealers in U. S. Government securities. These
agreements enable dealers to sell short-term Government securities to the
Federal Reserve Bank under an agreement to repurchase the securities
within fifteen days. Usually the rate charged for this accommodation
has been equal to the discount rate, but in earlier years the rate was
temporarily moved below the discount rate at times when the System
wished to encourage use of the facility to relieve seasonal pressures on
the money market. In December 1953, a temporary reduction of this
type was made in the repurchase agreement rate to facilitate the accom­
modation of year-end demands for funds. The dealers bought large
amounts of short-term Government securities, sold by corporations and
others to obtain needed funds, and were able to carry them without
incurring a substantial rate penalty by selling them temporarily to the
Reserve Bank. In this way, the concentrated impact upon the money
market of the seasonal demand for liquidity before the year end was
prevented from causing a degree of tightness in the money center incon­
sistent with the System’s current policy of ease.




34

THIRTY-NINTH ANNU AL

REPORT

The Sources, Uses, and Cost of Funds
The demand for capital and the supply of savings came much more
nearly into balance in 1953 than in the previous three years. Consequently,
the volume of additional bank credit absorbed by the capital markets
declined substantially. Over the year as a whole, there was also a marked
reduction in the growth of short-term bank credit used by business and
consumers. But the balancing forces were not at work uniformly through­
out the year. High demand, and expectations of even higher demand
ahead, along with a restrictive Federal Reserve credit policy, brought a
continuing rise in the cost of capital and bank credit over the first five
months of the year. For reasons mentioned earlier in this Report, market
conditions and financing costs eased after the beginning of June.
The Over-all Pattern o f Borrowing and Lending

For the year as a whole, aggregate satisfied demands for credit
(exclusive of credit advanced outside the banking system) and for capital
funds amounted to an estimated 28J4 billion dollars, compared with 27J4
billion in 1952 as shown in the accompanying chart. (If consumer loans by
nonbanks were included, the total would have been more than 30 billion
dollars in 1953, virtually unchanged from the corresponding total in 1952.)
A decline in the demand for additional bank credit in 1953 was more
than offset by an increase in the use of long-term or capital funds. Out­
standing short-term commercial bank loans (other than real estate loans
and term loans to business) rose by an estimated 3 billion dollars in 1953,
in contrast to the rise of more than
billion in the preceding year.
Short-term business borrowings from the banks actually declined slightly,
but this decline was more than offset by increases in agricultural loans
and loans to finance security market transactions and consumer purchases.
However, net new borrowing by security dealers and investors and by
consumers was smaller than in 1952. The gain in agricultural loans, on
the other hand, was larger than in the preceding year, reflecting principally
bank purchases of Commodity Credit Corporation certificates of interest.
In the aggregate, the use of new long-term funds rose to a new peak
of about 25 J4 billion dollars, about 2^4 billion more than in 1952. Demands
from mortgagors, State and local governments, and the Federal Govern­
ment rose; corporate needs for additional funds declined. The increase
in the combined demands for funds of all levels of government more than




F E D E R A L R E S E R V E B A N K O F NE W Y O R K

35

SOURCES OF N it CREDIT AND CAPITAL FUNDS
Billions of dollar*

Billions of dollars

30

30

1949

1950

1951

1952

1953

Note: Data lor credit exclude net credit extensions by nonfinancial Institutions and by financial
institutions outside the banking system. Data for capital are all inclusive.
Source: Estimated by the Federal Reserve Bank of New York from various' sources.

accounted for the over-all growth in net new uses of funds. Private net
demands in 1953 were slightly less than in 1952. The need for increased
State and local government facilities and services — the major substantial
backlog of demand left from the war and prewar years — remained urgent
during the year. New security flotations to finance peak public construc­
tion expenditures and for other capital purposes consequently exceeded
5.4 billion dollars in 1953, the first 5 billion dollar year in history.
Maturities of outstanding issues and sinking fund retirements reduced net
borrowing to 3.5 billion dollars, 30 per cent larger than in 1952. Cash
borrowing of the Federal Government from the public (net of cash
retirements) also was larger in 1953 than in 1952, rising to 5.1 billion
dollars from 3.4 billion. The Treasury’s cash deficit of over 6.0 billion
dollars in the calendar year was too large to be financed through borrowing
without piercing the 275 billion dollar ceiling on the public debt, or through
use of its cash balances without drawing them down below minimum




36

THIRTY-NINTH ANNUAL REPORT

working levels. The Treasury, therefore, limited the reduction of its
working funds to 1 billion dollars over the year, and in November used
half the “free gold” remaining from the dollar devaluation of 1934 to
purchase 500 million dollars of Government securities from the Federal
Reserve Banks. This enabled the Treasury to borrow an equivalent
amount from the public and thus to use this gold without effecting an
inflationary increase in commercial bank reserves.
Despite some tightness in the home mortgage market through much of
the year, mortgage credit was extended on a larger scale in 1953 than
in any other year except 1950. In view of the substantial demand for
office space and other commercial structures, easier supplies of building
materials set off a marked expansion of commercial construction, which
in turn brought on a sizable increase in the mortgage financing of com­
mercial buildings. Farm mortgage debt also increased. Although builders
of single-family homes reported difficulties in obtaining loan commit­
ments for new construction in the spring and summer of 1953, a large
carry-over of committed funds from the preceding period permitted a
substantial volume of construction and financing of one-to-four-family
homes. The combined net demand for new mortgage money amounted
to an estimated 9 % billion dollars in 1953, about 1 billion more than in
1952.
The corporate use of new long-term funds was less in 1953 than in
1952. The estimated total of net new security flotations (including private
placements) and of term loans from banks declined some 1J4 billion
dollars to 7 billion, even though capital requirements rose as a result of a
sizable increase in working capital needs and, to a lesser extent, of enlarged
plant and equipment outlays. Increased internal funds, including both
retained earnings and depreciation allowances, provided a greater propor­
tion of the necessary corporate funds in 1953 than in 1952. In addition,
larger tax accruals were a temporary source of working capital.
Nonbank investors provided a larger proportion of the requirements
for long-term funds than in any postwar year since 1950, as liquid savings
grew in response to higher interest rates and larger disposable income.
Nevertheless, funds from nonbank sources fell short of effective demand,
and the banking system accounted for the difference. Net new bank
credit made available to the capital markets, however, was consider­
ably less than in 1952, principally reflecting reduced net purchases of




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

37

Government securities. Total short-term bank loans outstanding also
rose less than in 1952.
Conditions in the Capital and Credit Markets

During the first five months of the year, the influences described in
the preceding section of this Report brought about marked declines in
security and mortgage prices; and financing costs in general rose. The
marketing of new corporate and municipal security issues became difficult,
as successive new issues fell below initial offering prices, with resultant
underwriting losses. The spread between yields on new and outstanding
securities was consequently widened. Investment bankers, because of
these marketing difficulties, in some instances refrained from bidding for
new issues. In other cases, corporate and governmental issuers, dissatis­
fied with the rates of interest required, voluntarily withdrew or canceled
bond offerings that had been prepared for actual marketing. The volume
of new capital flotations nevertheless was impressive, although refundings
were at a minimum.
Conditions in the new issue market turned around in the second half
of the year, and bond prices rose and yields fell. Many new corporate
and “municipal” issues went to premiums on initial offering, and under­
writers were able to dispose of a large volume of new securities with
little market friction. Some of the new issues postponed in the first half
of the year came to fruition in the second. Despite generally declining
common stock prices during much of 1953, new equity financing was well
sustained, reflecting substantial demands for the better grades of stocks.
The Treasury’s financing experience followed a time pattern similar to
that of corporate and State and local government issuers.
Mortgage market conditions also tightened during the first half of
1953. The tightening wras confined primarily to loans on small homes
guaranteed by the Veterans’ Administration (VA) or insured by the
Federal Housing Administration (FHA). Both commitments for future
VA and FHA loans and permanent VA and FHA mortgage money on
completed homes that had been financed with temporary loans became
more difficult to obtain. A major factor was the relative unattractiveness
of the rigid official rates on such loans compared with the increased yields
on corporate and other security issues, even after the May 2 increase in
the rates on VA and FHA loans to 4J4 per cent from 4 and 4}4 per cent,




38

THIRTY-NINTH ANNUAL REPORT

respectively. However, funds for higher-yielding conventional small-home
mortgages (and for mortgages on multifamily and commercial buildings as
well), rates on which are more flexible, remained in good supply during
the first half of 1953 (and in fact throughout the year).
Although some easing of the market for VA and FHA home mort­
gages developed during the second half of the year, the relaxation was
not so pronounced as in the security and money markets. Yields on
Government-underwritten and other mortgages, therefore, became more
attractive relative to bond yields, and the demand for them increased.
The lending practices of some major institutions remained somewhat
cautious, however. But by the year end, there was a renewal of interest
in existing insured or guaranteed mortgages, and prices rose moderately.
Conditions in the short-term credit market were likewise tight in the
first half, reflecting the strain on commercial bank reserves. Business
borrowers encountered resistance from the banks in obtaining increased
lines of credit or additional working funds, and consumers borrowing on
instalment loans generally found the banks (and other lenders) requiring
larger down payments and shorter periods to repay. Easing of credit
conditions in the second half of the year was accompanied by freer avail­
ability of bank loans for business and some relaxation of credit terms
on consumer loans.
Financing Costs

Despite the sharp changes in credit and capital market conditions
during the year and the accompanying adjustment in financing costs,
interest rates and security yields determined in the open market were,
at the year end, either little changed from or below the quotations pre­
vailing at the end of 1952. As shown in the accompanying chart of
security yields, the rise in yields in the first half was in large part
canceled by the fall in the second half. Shorter-term yields ended the
year well below the levels at which the year began, the shorter the
maturity the larger the decrease from the year-ago level. The spread
between the yields on long-term corporate and Government bonds
increased about Y$ of 1 per cent over the year, as the market for
Government securities reacted more sensitively to the changing credit
conditions. Preferred stock yields followed the pattern of corporate




FEDERAL

R E S E R V E B A N K O F NE W Y O R K

39

iO N C AND SHORT-TERM SECURITY YIELDS, 1953
(W
eekly averages)

Pef cenf

bond yields, but a marked increase in the rate of return on common
stocks reflected not only the decline in stock prices in the first nine months
of the year, but also the increase in dividends during the year.
Interest rates other than those set in the open market, including
business, consumer, and mortgage loan rates, remained close to the higher
levels established during the first half of the year. Bank loan rates to
business and consumers were raised during the early part of the year
and were not generally reduced later in 1953. In April, the rate on prime
commercial loans rose li of 1 per cent to 3% per cent, the highest since
/
March 1934. In addition to the May rise in the rate on VA and FHA
loans to a uniform 4^2 per cent, rates on conventional mortgages generally
moved up
of 1 per cent to a prevailing rate of 5 per cent in the
Northeastern and Midwestern States, and to higher rates in other sections
of the country. In trading in outstanding small-home mortgages in the
secondary market, VA and FHA loans sold at sizable discounts from




THIRTY-NINTH ANNUAL

40

REPORT

par during the first half, with a moderate narrowing of the discounts
during the second half of the year.

The Balance of Payments of the United States
Foreign Dollar Gains

Substantial gains of gold and dollars by foreign countries as a whole
(including international institutions), which had begun in the spring of
1952, continued throughout 1953. The net increase in these holdings
arising from transactions with the United States totaled approximately
2.3 billion dollars, compared with gains of 1.6 billion during the last
three quarters of 1952 and an over-all gain in that year of 1.2 billion.
The principal influences responsible for these gains were a continued
high rate of merchandise imports into the United States and a substantial
decline in our commercial exports, along with sharply increased purchases
of foreign goods and services by our armed forces abroad. A continuing,
although declining, flow of economic aid also contributed indirectly to
the dollar reserves of some countries. Improvement in the foreign supply
of coal and some agricultural products, growing recourse to nondollar
sources for other types of commodities, and such restrictions against
the import of dollar goods as were maintained, all contributed to reduced
merchandise exports from this country during the year.
The over-all United States export surplus of goods and services
declined from close to 5.0 billion dollars in 1952 to approximately 4.9
billion in 1953. In the latter year, however, a considerably larger share
of our exports — as much as one fifth — consisted of military equipment
and services made available under the Mutual Security Program; exclud­
ing this aid, the 2.4 billion dollar surplus registered in 1952 declined sharply
to a surplus of only 500 million. (All 1953 data in this section of this
Report are preliminary.)
United States exports of goods and services (excluding military aid),
amounting to 17.0 billion dollars, were noticeably below the 18.2 billion
of the previous year. Since services sold to foreigners declined only
slightly, this drop reflected almost entirely a reduction in merchandise
exports, with a substantial share of the decline being borne by farm
products, particularly cotton and wheat. Exports of fuel and of industrial
raw materials and semimanufactures also declined. On the other hand,
with domestic merchandise imports rising by only 0.2 billion, the over-all




F E D E R A L R E S E R V E B A N K O F NEW Y O R K

41

increase in total United States payments for imports of goods and services
from 15.8 billion dollars in 1952 to 16.5 billion in 1953 resulted mainly
from larger tourist and military expenditures abroad. U. S. Government
purchases of foreign goods and services, both for use by our overseas
forces and for transfer to aid-receiving countries, as well as troop expendi­
tures overseas appear to have totaled around 2.5 billion dollars, as against
1.9 billion in the preceding year.
The outflow of private direct investment capital, which continued at
a moderate pace, was largely offset by a return flow of portfolio and
other long-term capital as foreign countries, among them Canada and
Australia, reduced some of their outstanding long-term indebtedness to
the United States; in addition, there was a considerable reduction in
foreign commercial indebtedness. As a result, the net outflow of private
capital dropped to less than 500 million dollars from 1,100 million in 1952.
Similarly, the net outflow under U. S. Government credits was brought
down to 220 million dollars from 410 million in 1952 by substantial
repayments of principal by foreign countries. For the Export-Import Bank
alone, however, net disbursements rose to 342 million dollars, from 207
million in 1952, mainly because of a 100 million dollar disbursement to
France to prefinance arms deliveries under offshore procurement contracts
and a 300 million dollar disbursement to Brazil to expedite liquidation
of that country’s commercial indebtedness to United States exporters.
The increases in foreign gold and dollar assets, resulting from these
various factors, did not benefit all major trading areas alike. The indus­
trial countries of Western Europe, together with Japan, were the chief
gainers.
Foreign Aid

United States foreign aid during 1953 was directed primarily toward
strengthening the military position of the free world, in particular of the
Western European members of the North Atlantic Treaty Organization
(NATO). With economic recovery well advanced in all except a few
countries, emphasis was placed mainly on the direct furnishing of military
equipment and supplies by the United States. Total Government aid
to foreign countries, in the form of grants and loans, rose to 6.3 billion
dollars from 4.9 billion in 1952, the highest level for any postwar year;
military aid accounted for almost 75 per cent of all grants, as against
slightly below three fifths the previous year.




42

THIRTY-NINTH ANNUAL REPORT

In July, Congress voted 4.5 billion dollars (of which 3.2 billion were
for military assistance alone) in new aid funds for fiscal year 1954; the
original Administration request had been for 5.8 billion. At the same
time, the aid legislation established June 30, 1956 as the terminal date
for the disbursement of economic aid funds, with an additional twelve
months being granted for the expenditure of military aid appropriations.
A substantial volume of aid over the remaining span of time until the
cutoff dates is virtually assured as a result of the large backlog of funds,
voted under earlier appropriations, as yet unexpended.
An increasing share of this type of assistance will be in the form
of offshore procurement, i.e., the purchase with dollars of foreign-produced
military equipment for NATO use. During the fiscal year 1953, offshore
procurement orders aggregating 1.6 billion dollars were placed in fifteen
Western European countries, compared with 629 million dollars in the
preceding twelve months; perhaps as much as an additional 1 billion
may be contracted for in the current fiscal year. However, because of
the often lengthy production processes involved, this particular aspect of
our military aid is only now becoming a factor of major importance, and
the main impact of these freely spendable dollar earnings is not expected
to be felt by the producing countries until fiscal year 1955. In addition
to dollar receipts from offshore arms orders, there are, as already men­
tioned, several other types of transactions — all arising out of our mili­
tary commitments in Europe and elsewhere — which are instrumental
in providing foreign countries with substantial amounts of dollar exchange
in the immediate period ahead.

Financial and Economic Developments Abroad
The Pattern o f Prosperity

In most foreign countries the year 1953 was marked by high and
rising industrial and primary production, expanding national income and
spending, generally higher levels of employment, relatively stable prices,
and increased trade. Rising output was particularly notable among the
industrial countries. In some, especially West Germany, Japan, and
Canada, the rise followed preceding increases; in others, including most
Western European countries, it followed the stable or slightly declining
industrial production of 1952. In a number of instances, it was suf­
ficiently large to carry the rate of production to a new peak before the




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

43

end of the year. In most countries, significant shifts in the composi­
tion of output were associated with the over-all rise: capital goods pro­
duction generally either declined or increased only moderately, while con­
sumer goods production tended to rise markedly.
Rising industrial production was, of course, accompanied by expansion
in the credit and money supply, increases in income (especially labor in­
come), and advances in aggregate consumer, government, and investment
expenditure. Increased consumer spending was evident in Canada, Great
Britain, West Germany, and a number of other Western European
countries. Among the North Atlantic Treaty Organization countries,
government expenditures for defense rose above 1952 levels, although
such spending apparently stopped rising in most of these countries early
in 1953. Investment outlays also rose substantially in several countries,
reaching an all-time peak in West Germany. Import prices, particularly
the prices of raw materials, tended to decline relative to export prices for
most industrial countries, and this shift in the terms of trade contributed
to the ease with which higher demands for consumption and investment
were met. Declines in some raw material prices, particularly in the earlier
part of the year, made the pattern of prosperity less consistent in primaryproducing countries, although aggregate production of primary commodi­
ties increased in 1953.
One of the prominent features of 1953 was the maintenance of a
fair degree of price stability in most countries, although there were a
few exceptions, notably Bolivia, Chile, Iran, Israel, and Paraguay. De­
spite the general expansionary forces at work in the industrial nations,
not only did the retail price stability that had emerged in these countries
in 1952 persist during 1953 (even in the face of reductions in government
subsidies in some countries), but wholesale prices, which had fallen
markedly in 1952, tended to decline further during the first half of 1953
and remained stable in the second half. Among the primary-producing
countries, on the other hand, there were both upward and downward
movements, in some cases rather sharp, in wholesale and retail prices,
but even in these countries the changes seem to have been somewhat
smaller than in the preceding year.
The stability of prices and the improvements in output, employment,
and productivity last year enabled many countries to make further sub­
stantial progress in dismantling the economic controls that had remained
as a legacy of World War II and the post-Korea inflation. Such in­




44

THI RTY-NI NTH A N N U A L REPORT

creased reliance upon the price mechanism has in turn had an invigorating
effect upon business activity and helps to account for the decided rise in
production and trade that occurred quite generally over the last half of
the year.
Flexible Monetary Policies

Monetary management was adjusted to meet changing economic
conditions in many foreign countries in 19S3. In contrast to the two
preceding years, during which emphasis had widely been placed on mone­
tary restraint, there was a shift during the past year toward relaxation of
restraint in most industrial countries in Western Europe — a shift that
appeared to reflect decisions to use monetary policy, once inflation had
been brought under control, to facilitate an expansion in production and
trade. On the other hand, previously existing degrees of monetary re­
straint were maintained during most of the year in a number of countries,
including Canada, while additional monetary restrictions were applied in
a few primary-producing countries, such as Ceylon and certain Latin
American countries, in which there were strong forces tending to increase
the money supply and prices.
One of the principal features of monetary management abroad in 1953
was the general reliance upon alterations in central bank rediscount rates
for effecting modifications in monetary policy. In Western Europe, redis­
count rates were lowered in eight countries — Austria, Belgium, Denmark,
France, Great Britain, the Netherlands, Sweden, and West Germany; in
the last country the rate was reduced twice. On the other hand, although
reserve requirements were also eased in some of the European countries
in which this instrument of monetary control is used, and although a few
European central banks appear to have been more ready than in the
previous year to relieve money market stringencies through open market
operations, neither appears to have represented a very pronounced change.
Indeed, central bank holdings of government securities declined in all
but a few of these countries. There were few changes during the year
in the selective credit controls and the direct controls over loans, invest­
ments, and interest rates that were in force in certain Western European
countries; but, where changes occurred, they were generally in the direc­
tion of lessening reliance upon this type of central banking control.
In most Western European countries, interest rates declined moder­
ately in 1953 but at the year end were still above the 1950 and 1951




FEDERAL RESERVE BANK

OF NEW Y O R K

45

levels. In a few other countries — Australia and Japan, for example —
interest rates also declined, but in Canada slight increases were recorded
during the first three quarters of the year, and in most primary-producing
countries rates tended either to remain stable or to advance.
A significant expansion of bank credit and the money supply occurred
in most foreign countries in 1953, broadly paralleling the further expan­
sion of economic activity. In most independent sterling area countries
the actual declines in the money supply that had taken place in 1952
were replaced by increases in 1953. On the other hand, although very
pronounced increases in the money supply were again recorded in most
nonsterling, primary-producing countries — especially in a few Latin
American countries — they seem to have been generally smaller than
in 1952.
The relaxation of monetary controls undoubtedly played a role in
the monetary and credit expansion of a number of countries, permitting
heavy demands for credit to be more nearly satisfied. But it was these
heavy demands for credit, against a background of relatively low (though
in some cases considerably improved) volume of current saving, that rep­
resented the basic cause of the expansion in money supply. Moreover, as
compared with 1952, there seems to have been in many countries, and
especially among industrial countries, a growth in private credit demands
relative to those of governmental authorities. Perhaps even more important
in some countries were the monetary effects of balance-of-payments
improvements in 1953. These improvements, generally involving a welcome
increase in foreign exchange reserves, not only led to an almost automatic
increase in the money supply, but also provided the banking system with
reserves upon which a further expansion of credit could be built. On the
other hand, in certain primary-producing countries, export difficulties led
to increased credit requirements stemming from the piling-up of inventories
of certain types of food and industrial raw materials.
On the whole, the flexible use of monetary measures during the past
year appears to have made a major contribution in many countries to
easier monetary conditions, and the latter in turn appear to have made at
least a marginal contribution to rising levels of production, income, em­
ployment, and trade. From a broader viewpoint, the greater role that
monetary management has assumed in most foreign countries over the past
few years has in many ways been symptomatic of the general movement
away from detailed planning and controls toward the re-establishment




46

THIRTY-NINTH ANNU AL REPORT

of market economies. The impact of this movement upon prices and
foreign trade has tended to create an environment favorable to economic
growth.
The Growth o f Monetary Reserves

The growth in gold and dollar holdings of foreign countries, which
had started in April 19S2, continued throughout 1953 as a result both
of transactions with the United States, already noted, and accretions from
new production and other sources. At the year end, such holdings (exclud­
ing gold holdings of the USSR and the gold and dollar holdings of
international institutions) stood at 22.4 billion dollars, or about 2.4
billion higher than in December 1952; they thus were 52 per cent larger
than at the time of the currency devaluations in September 1949 and 21
per cent above the March 1952 level, the post-Korea low. As shown
in the accompanying chart, a large part of the 1953 increase accrued
GOLD AND DOLLAR HOLDINGS OF SELECTED COUNTRIES AND ARIAS
Billions of dollars

Billions of dollars

‘ Including Switzerland, which accounts for about 2 billion dollars of the amount shown in the diart.
flnctuding the United Kingdom, but exduding Eire and Iceland*
tExcluding sterling, French-franc, and Dutch-guilder areas.




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

47

to Continental Western European countries participating in the Organ­
ization for European Economic Cooperation, in particular West Germany
and the Netherlands. There was also a notable improvement in the
gold and dollar holdings of sterling countries; the sterling area’s central
gold and dollar reserves stood in December 1953 at 2,518 million dollars,
against 1,846 million a year previous. On the other hand, most Latin
American countries, as well as the nonsterling area countries of Asia
as a whole, experienced little change, while Canada’s gold and United
States dollar holdings were somewhat lower at the year end than in 1952,
even though still much larger than during most of the postwar years.
The continued growth in foreign gold and dollar holdings during 1953
was the outcome of several basic developments that had already made
themselves felt in 1952. The achievement of record levels of output in
much of the world, together with the maintenance of financial stability in
many countries, led to a better balance between aggregate demand and
available resources than in any other postwar year. In particular, the
greater production of commodities previously imported from the dollar
area, the improved dollar-earning ability of certain countries, especially
in Western Europe, and the greater competitiveness of many nondollar
goods greatly contributed to the widespread improvement in payments
positions.
Last year’s rise in foreign gold and dollar holdings thus appeared to
rest on a firmer foundation than the reserve gains of 1950 and early 1951,
which were largely the result of the quick run-up of raw material prices
following the Korean outbreak in June 1950. Nevertheless, caution was
still called for in interpreting last year’s gains in foreign gold and dollar
holdings as a sign that the nondollar world might nearly have reached a
self-sustaining dollar position. The reserves of many countries still appeared
to provide only a narrow margin of safety to meet future contingencies.
In many countries discriminatory restrictions on the import of dollar
goods continued to be maintained, even though some of these regulations
were apparently being applied more liberally. Furthermore, as noted in
an earlier section of this Report, the reserve gains of certain Western
European countries and Japan were dependent to a considerable extent
upon United States offshore purchases of military equipment and other
goods and services, and expenditures by American troops abroad as well
as upon continuing, although much reduced, United States economic aid.




48

THIRTY-NINTH ANNUAL REPORT

Significant progress toward the dismantling of trade and payments
controls was achieved, however, among the countries of Western Europe
and their associated monetary areas. Thus, private foreign exchange
dealings were made easier throughout Western Europe; free markets for
wheat and other grains, zinc, copper, and silver were opened in the United
Kingdom; and the United Kingdom, and to a lesser extent France, resumed
the easing of direct restrictions on imports from their partners in the
European Payments Union. Furthermore, during 1953, West Germany
and Japan resumed the service on substantial parts of their external
obligations.
On balance, therefore, the year 1953 brought notable progress toward
a self-sustaining payments position in the nondollar world. Indeed, there
seemed to be a fair prospect for a further advance toward the achieve­
ment of convertibility of the principal currencies, and for an abatement
of discriminatory foreign trade practices. Further progress will depend,
of course, upon the continued pursuit of noninflationary domestic policies
designed to promote a sustained growth in output, productivity, and
over-all economic efficiency, which will strengthen the ability of foreign
countries to supply domestic and foreign markets on competitive terms.
It will also depend importantly upon the maintenance of reasonably
stable and growing economic activity, and upon the concerted efforts
of all major trading nations and international institutions in building a
freer world economy.
Developments in the New York Foreign Exchange Market

The general pattern of economic stability and growing financial
strength abroad was reflected in the movement during the past year of
the currencies actively traded in the New York foreign exchange market.
As in other postwar years, most of the trading in this market was con­
centrated in the pound sterling, the Canadian dollar, and the Swiss franc,
although a fairly sizable turnover developed in the blocked Deutsche mark
(sperrmark) as well.
The pound sterling maintained a firm undertone during the year on
the basis of commercial demand, although activity was on a reduced
scale as compared with 1952. During most of the year, the spot quota­
tion held at $2.81 or higher, the highest quotations being recorded in early
February when the rate reached $2.82, the Bank of England’s official




FEDERAL

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

49

selling rate for sterling. During September a low of #2.79% was reached,
but thereafter the rate improved, and at the year end was quoted at
$2.81
Movements of the pound in the New York market are believed
to have been limited by operations of the British Equalization Account,
presumably directed at arresting sharp fluctuations. Quotations for sterling
for forward delivery ranged between lows of s%2 cent discount and 1%
cents discount for three and six months’ deliveries, respectively, and a
high of %2 cent premium for deliveries up to six months’ forward, the
latter quotation developing temporarily at the year end. In general,
activity in the forward-sterling market was on a small scale.
Trading in Canadian dollars in the New York market increased
somewhat during the year, a good deal of the activity resulting from
capital movements. At the beginning of the year the Canadian dollar
was quoted at 3%e Per cent premium, but reached a low of %2 Per
cent premium in May, reportedly as the result of the liquidation of
Canadian securities by American holders. Thereafter, the rate generally
improved again, and in the middle of December reached 3%2 per cent
premium, principally as the result of a heavier flow of United States
capital funds to Canada.
The rate for the Swiss franc ranged between $0.2330 and #0.2334
during most of the year. In November it reached its lowest level of
$0.2321, but recovered by the end of the year to $0.2332. There was
noticeable activity in the blocked Deutsche mark in the New York market,
with demand coming mainly from American investors having industrial
interests in Germany. The rate appreciated from $0.1500 to $0.1820
during the course of the year. Other foreign exchanges actively traded
in New York showed no significant developments during the year.

Volume and Trend of the Bank’s Operations
Domestic Operations

The work performed by the Bank in serving the monetary require­
ments of the economy kept pace with the general level of economic activ­
ity during 1953 and, for the year as a whole, reached a record high in
terms of both physical and dollar volume.
Member bank use of the borrowing privilege was exceptionally heavy
in the early months of 1953, when reserve positions were under pressure.
Use of the “discount window” fell off considerably thereafter, however,




50

THIRTY-NINTH ANNUAL REPORT

as the Reserve System made additional reserves available to the bank­
ing system through open market purchases of Treasury bills, and as
reserve requirements were reduced. But 383 different Second District
member banks borrowed at some time during the year, compared with
350 in 1952. And, as measured by the number of applications for dis­
counts and advances received and processed in 1953 (4,262), the work
of the lending function expanded 8J4 per cent over 1952 and was the
heaviest since 1934.
As shown in the accompanying table, the physical and dollar volume
of currency and coin received and counted rose moderately further in 1953,
with currency received and counted reaching new peaks both in dollars
and in physical volume. These increases were related to the growth in
payrolls and in the expenditures of individuals that accompanied the past
year’s record volume of production and trade. The Bank also participated
during the year in a Reserve System program of accumulating a two-year
reserve stock of unissued currency, for use in the event of emergency.
Beginning July 1, 1953, the Bank assumed the task of destroying
for the Treasury all United States currency received in denominations of
1, 2, 5, and 10 dollars that was unfit for further circulation. In the last
six months of the year, the newly organized Currency Destruction Depart­
ment destroyed 118 million pieces of unfit United States currency (silver
certificates and United States notes), aggregating 178 million dollars.
Unfit Federal Reserve notes, and other unfit notes, continued to be
shipped to the Treasury in Washington for destruction.
Checks cleared and collected by the Bank reached new highs of 509
million in number and 341 billion dollars in value in 1953. Throughout
the year, an average of slightly more than 2 million checks per business
day was processed with less delay and fewer employees than in 1952.
This improved efficiency in the Bank’s check-handling operations was
made possible, in large part, by a lower rate of turnover of the per­
sonnel involved, with a consequent increase in the proportion of trained
and experienced proof-macfrine operators.
Early in the year, the Bank cooperated with the Nassau County
Clearing House Association in planning for and organizing the new
Nassau County Clearing Bureau, which began operations on July 1, 1953.
A large proportion of the checks handled by banks in Nassau County
and neighboring communities are drawn on other banks in the same area.
Most of these checks previously had been sent to banks in New York




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

51

S ome M easures of th e V olume of O perations of th e
F ederal R eserve B ank of N ew Y ork
(Including Buffalo
Branch)
Number of pieces handled*
1953
1952
Discounts and advances ....................................... ................4,262
3,925
1,143,142,000
1,065,539,000
Currency received and counted...........................
Coin received and counted .................................
1,499,464,000
1,415,250,000
Gold bars and bags of gold coin handled......................121,000
158,000
Checks handled:
56,572,000
53,308,000
U. S. Government checks.............................
All other .........................................................
452,447,000
437,439,000
Postal money orders handled .............................
56,918,000
58,405,000
Collection items handled:
U. S. Government coupons p aid ..................
4,611,000
4,584,000
Credits for direct sendings of collection
items ...........................................................................321,000
335,OOOr
All other .........................................................
6,998,000
7,114,000
Issues, redemptions, and exchanges by fiscal
agency departments:
United States Savings bonds ......................
26,051,000
24,082,000
All other United States obligations ..........
3,400,000
2,954,000
Obligations of the International Bank for
117,000
Reconstruction and Development ........................233,000
Safekeeping of securities:
Pieces received and delivered ......................
5,450,000
5,494,000
Coupons detached ...........................................
2,723,000
2,286,000
308,000
Transfers of fundsf ...........................................................335,000
Amounts handled
Discounts and advances ....................................... $ 21,723,381,000 $ 23,472,385,000
Currency received and counted ..........................
7,584,736,000
6,903,818,000
Coin received and counted .................................
148,619,000
131,711,000
Gold bars and bags of gold coin handled..........
1,676,730,000
2,188,845,000
Checks handled:
U. S. Government checks ............................
23,016,234,000
22,711,540,000
All other ........................................................... 318,481,355,000 286,386,244,000
Postal money orders handled .............................
886,630,000
874,402,000
Collection items handled:
U. S. Government coupons p aid ..................
1,356,738,000
1,093,483,000
Credits for direct sendings of collection items
755,112,000
723,888,OOOr
All other .........................................................
894,006,000
982,007,OOOr
Issues, redemptions, and exchanges by fiscal
agency departments:
United States Savings bonds ......................
2,198,335,000
1,832,959,000
All other United States obligations............ 303,273,130,000 275,711,978,000
Obligations of the International Bank for
Reconstruction and Development............
415,228,000
239,558,000
Safekeeping of securities:
Pieces received and delivered (par value) 360,464,951,000 377,410,875,000
Transfers of fundsf ............................................. 295,501,530,000 253,479,280,000
r Revised.
* Two or more checks, coupons, etc., handledas a single item are counted as one
“piece”.
t Includes wire and mail transfers; excludes Treasury transfers and Reserve Bank
interdistrict settlements.




52

THIRTY-NINTH ANNUAL REPORT

City and back to Long Island in the process of collection. This method
delayed presentation and payment. Now, a check received by a Nassau
County bank on one day is processed through the Clearing Bureau on the
same evening, and is presented to the drawee bank for payment on
the following morning. Thus, the new clearing arrangement improves the
service rendered to customers of the participating banks. During the
first half year of operation, the new Clearing Bureau, with offices in
Freeport, was used by 43 banks with 73 banking offices in Nassau, Suf­
folk, and Queens Counties. Checks cleared daily averaged 46,000, most
of which would otherwise have passed through this Bank’s Check Depart­
ment, a roundabout method which unnecessarily multiplied the number of
handlings and delayed collection.
Other methods and programs designed to speed the clearing and
collection of checks were also employed in 1953. Shipments of checks
by air to other Federal Reserve Banks averaged 780,000 checks daily, an
increase of 7 per cent over 1952. And the check routing symbol pro­
gram, which facilitates the handling of checks, was pushed further toward
100 per cent cooperation in the Second District.
Wire transfers of funds between Federal Reserve Districts reached a
record volume in 1953. The leased wire system, which links the Reserve
Banks and their branches, the Board of Governors, and the Treasury, was
improved in 1953 by adoption of new facilities which provide for greater
transmission speed and more automatic operation.
The average number of employees on the staff during 1953 was 1 per
cent fewer than in 1952 despite all-time highs in the volume of work.
At the end of 1953, however, total employment (exclusive of officers)
at the head office and at the Buffalo Branch was 3,974, or slightly more
than the total of 3,950 on December 31, 1952.
Foreign and International Operations

Continuing the rise which started early in 1952, the Bank’s total
holdings for foreign account of gold, dollar deposits, U. S. Government
securities, and miscellaneous assets passed, early in 1953, the previous
record volume established in 1951 and, with subsequent monthly gains,
achieved a new all-time peak of 8.6 billion dollars by the end of the year.
This rise resulted largely from acquisitions of gold by foreign monetary
authorities— 1.2 billion dollars net. Dollar assets also rose by a net
amount of 324 million dollars, reflected in increased investments in U. S.




FEDERAL

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

53

Government securities; at the year end, out of a total of 3.1 billion dollars
of dollar assets, 2.6 billion were so invested.
Holdings of the International Bank and International Monetary
Fund, not included in the foregoing figures, remained close to the level
of recent years.
Two new accounts were opened with this Bank as principal—that
of Bank Indonesia, the recently established central bank of Indonesia,
which took over the functions of De Javasche Bank, and that of The
Bank of Japan, the latter representing a resumption of relations dis­
continued prior to World War II.
There was again only limited activity in the field of foreign loans
against gold collateral. Various advances were made to three foreign
banks, but the maximum amounts used did not exceed 57 million dollars;
only one of these banks was indebted at the year end, in the amount of
15 million dollars. As has been mentioned in previous annual reports,
such loans are made from time to time to foreign monetary authorities
on gold held under earmark in our vaults, for the purpose of assisting
them in meeting their dollar requirements for temporary periods. Such
loans are made at the discount rate of this Bank, which remained at 2
per cent through the remainder of 1953 after being increased from 1
per cent on January 16, 1953.
The Bank continued to operate the United States Stabilization Fund
pursuant to authorizations and instructions of the Treasury Department.
As fiscal agent of the United States, the Bank also continued the
administration for the Treasury Department of the blocking regulations
affecting assets in the United States of Communist China and North
Korea and their nationals, and transactions with those countries. During
the year the Foreign Assets Control Department received over 6,100
applications for licenses, bringing the total since such blocking began on
December 17, 1950 to over 20,700.
Financial Statements
Statement o f Condition

Total assets of this Bank decreased slightly in 1953, from 13,456
to 13,442 million dollars, and there were sizable changes in a number of
principal items on the accompanying balance sheet.




54

THIRTY-NINTH ANNUAL REPORT

Gold certificate holdings (the principal component of “Total cash”)
which totaled 5,978 million dollars at the beginning of the year, were
reduced by 780 million dollars in 1953. The loss resulted mainly from
the new procedure, instituted by the Federal Open Market Committee
on September 1, for allocating among the various Reserve Banks the
securities held in the System Open Market Account. At the time of
the revision in the procedure, the New York Bank acquired 890 million
dollars of Government securities against payment in gold certificates.
The 902 million dollar increase in the portfolio of U. S. Govern­
ment securities in 1953 brought the Bank’s holdings to a year-end peak of
7,115 million dollars. The increase represented in part this Bank’s share
of the System Open Market Account purchases of Government securities
(all Treasury bills) made in the last eight months of the year, but more
largely the increase mentioned above in the proportion of total System
Account holdings allocated to this Bank (which paralleled the reduction
in gold certificate holdings). The new allocation is based on the size of
A

ssets o f t h e

F ed er al R eserve B a n k

of

N

ew

Y

ork

(In thousands of dollars)
Dec. 31,
1953

Dec. 31,
1952

Gold certificates ........................ ..................................
Redemption fund for Federal Reserve notes.................
Other cash ......................................................................

5,197,851
183,706
75,303

5,977,523
135,378
64,367

Assets

Total cash ....................................... .................

5,456,860

6,177,268

Discounts and advances...................................................
U. S. Government securities ...........................................

7,050
7,115,378

114,924
6,213,352

Total loans and securities ................................

7,122,428

6,328,276

Other assets:
Due from foreign banks* .......................................
Federal Reserve notes of other banks......................
Uncollected items .....................................................
Bank premises ..........................................................
All other ...................................................................

6
26,488
790,661
7,390
38,514

7
32,307
874,505
7,292
36,637

Total other assets............................................

863,059

950,748

Total assets .......................................................

13,442,347

13,456,292

* After deducting participation of other Federal Reserve
Banks amounting t o .................................................

16

16




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

55

the Reserve Bank, measured by average total assets, whereas the former
allocation was based largely on expense and dividend requirements.
On the liability side of the statement, Federal Reserve notes of this
Bank outstanding in the hands of the public (including banks) rose 128
million dollars, or 2.2 per cent, to a peak of 5,924 million dollars at the
end of 1953. This rise for the Second District compared with a rise of
1.4 per cent for the country as a whole, and was a natural corollary of the
record level of production and trade attained during the year. Member
bank reserve accounts decreased 135 million dollars during 1953, partly
because of net payments made to foreign official accounts at this Bank
L ia b il it ie s

F eder al R eserve B a n k

of t h e

of

N

ew

Y

ork

(In thousands of dollars)
Liabilities

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

Dec. 31,
1953

Dec. 31,
1952

5,924,481

5,796,489

Deposits:
Member bank — reserve accounts.............................
U. S. Treasurer — general account..........................
Foreign* ...................................................................
Other ......................................................................

6,049,923
70,675
134,793
361,474

6,184,727
44,922
184,537
334,153

Total deposits ...................................................

6,616,865

6,748,339

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

605,851
6,787

628,042
5,996

Total other liabilities .......................................

612,638

634,038

Total liabilities ..................................................

13,153,984

13,178,866

Capital accounts:
Capital paid in ........................................................
Surplus (Section 7) ................................................
Surplus (Section 13b) ............................................
Other capital accounts..............................................
Total capital accounts .......................................
Total liabilities and capital accounts.................

81,852
176,633
7,319
22,559
288,363
13,442,347

80,139
167,503
7,319
22,465
277,426
13,456,292

7,068

5,977

42.9%

48.7%

288,486

365,403

16,872

13,815

Contingent liability on acceptances purchased for foreign
correspondents! ..........................................................
Ratio of gold certificate reserves to deposit and Federal
Reserve note liabilities combined.................................
* After deducting participation of other Federal Reserve
Banks amounting to ................................................
t After deducting participation of other Federal Reserve
Banks amounting to ................................................




56

THIRTY-NINTH ANNUAL REPORT

and a net outflow of funds to other districts on commercial and financial
transactions.
The reduction in gold certificate reserves (731 million dollars after
giving effect to the change in the redemption fund), in conjunction with
a virtually unchanged level of deposit and note liabilities combined, re­
sulted in a sharp decline — from 48.7 per cent to 42.9 per cent — in this
Bank’s reserve ratio. This change was in part a result of the reallocation
of participations in the System Open Market Account, one effect of which
was to bring about greater uniformity in the reserve ratios of the several
Federal Reserve Banks.
Earnings and Expenses

Gross income of the Bank increased IS.5 million dollars in 1953, to a
new high of 119.7 million, mainly because of a further increase in income
from this Bank’s share of the Government security earnings of the System
Open Market Account. The volume of System holdings rose; the average
rate of interest on System holdings also rose; and the Federal Reserve
Bank of New York received a larger proportion of the total as a result of
the reallocation of System Account holdings mentioned above.
Total operating expenses increased 0.9 million dollars, to a new high
of 23.2 million. The main factor accounting for the increase was a rise
in the cost of Federal Reserve currency due to the program of accumulating
a two-year supply of unissued stock as an emergency measure. A 3 per cent
increase in outlays for salaries and wages also contributed to the over-all
rise.
Profits on sales of U. S. Government securities were 0.5 million
dollars, about the same as in 1952. But deductions from net earnings
increased from 0.1 million to 0.8 million dollars, as a result of providing
for supplemental retirement allowances to employees who retired before
qualifying for social security benefits.
Net earnings after all adjustments increased 14.0 million dollars, to a
peak of 96.2 million. The statutory dividend of 6 per cent, or 4.9 million
dollars, was paid on the outstanding stock of the Federal Reserve Bank
held by the member banks. Of the remaining net earnings, 90 per
cent, or 82.2 million dollars, was transferred to the United States Treasury
in payment of an interest charge levied by the Board of Governors of




57

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

the Federal Reserve System under Section 16 of the Federal Reserve Act
on Federal Reserve notes not covered by gold certificates. The balance
of the year’s earnings, 9.1 million dollars, or 10 per cent of net earnings
after dividends, was added to the regular surplus (Section 7).
Statem ent
F or

the

of

E a r n in g s

C alendar Y

ears

and

E

xpenses

1953 a n d 1952

(In thousands of dollars)
1953

Earnings .............................................................................
Expenses ...........................................................................
Net earnings before additions and deductions----

119^734
23,235
96,499

1952

10^207
22,367
81,840

Additions to net earnings:
Profit on sales of U. S. Government securities (net) ..
All other ......................................................................

448
5

459
1

Total additions .....................................................

453

460

Total net earnings and additions...........................

96,952

82,300

Deductions from net earnings:
Retirement System (adjustment for revised benefits) ..
Reserves for contingencies...........................................
All other ....................................... ...........................

659
94
10

—
76
5

Total deductions ......................................... .........

763

81

Net earnings ......................................................................

96,189

82,219

4,879

4,627

82,180
9,130

69,833
7,759

Distribution of net earnings:
Dividends paid ............................................................
Paid United States Treasury (interest on Federal
Reserve notes) ........................................................
Transferred to surplus (Section 7) .............................
Total ....................................................................

96,189

82,219

Surplus account (Section 7) :
Surplus — beginning of year ....................................
Transferred from net earnings for year ...................

167,503
9,130

159,744
7,759

Surplus — end of year ................................................

176,633

167,503

Changes in Membership

During 1953 the total number of banks in this District that are
members of the Federal Reserve System declined from 720 to 696. The
net decrease of 24 banks is the result of mergers of 25 member banks with
other banks, and the readmission of one State bank to membership. One
State member bank converted to a national bank during the year. The




58

THIRTY-NINTH AN NUAL REPORT
N

u m b e r of

O p e r a t in g M

em ber and

S ec o n d F ed er al R e s e r v e D

N

on m e m b e r

is t r ic t a t

E nd

of

B anks
Y

in

ear

(Exclusive of savings banks, private bankers, and industrial banks)
December 31,1953
Type of bank

December 31,1952

Non­
Per cent
Non­
Per cent
Members members members Members members members

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

484

0

100

498

0

100

212

106

67

222

106

68

Total ....................

696

106

87

720

106

87

C hanges

in

F ed er al R es er ve M

Secon d D

is t r ic t

D

u r in g

e m b e r s h ip

in

1953

Total membership beginning of year .................................................

720

Increase:
State bank admitted......................................................................
Decreases:
Member banks combined with other members .............................
Member banks combined with nonmembers..................................

23
2

Total membership end of year ............................................................

696

1

696 member banks constitute 87 per cent of all national banks, State banks,
and trust companies in this District and hold 96 per cent of the total
assets of all such institutions.
Changes in Directors and Officers
Changes in Directors

Effective January 20, 1953, Jay E. Crane, Vice President of the
Standard Oil Company (New Jersey), New York, N. Y., was appointed a
Class C director by the Board of Governors of the Federal Reserve System
for the unexpired portion of the three-year term ended December 31, 1953,
to succeed Robert T. Stevens, who had resigned to accept appointment as
Secretary of the Army. Mr. Crane also was designated Chairman and
Federal Reserve Agent for the remainder of 1953, succeeding Mr. Stevens.
As of January 20, Mr. Crane consequently ceased to serve as a Class B
director elected by the member banks in Group 3, a position he had
occupied since January 1, 1949.




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

59

At a special election in March 1953, member banks in Group 1 elected
N. Baxter Jackson, Chairman of the Board, Chemical Bank & Trust Com­
pany, New York, N. Y., as a Class A director for the unexpired portion of
the three-year term ending December 31, 1955; Mr. Jackson, in effect,
succeeded W. Randolph Burgess who never assumed this office because of
his appointment as Special Deputy to the Secretary of the Treasury.
At the same time, member banks in Group 2 elected Lansing P. Shield,
President of The Grand Union Company, East Paterson, N. J., as a Class
B director for the unexpired portion of the three-year term ended Decem­
ber 31, 1953, to fill the vacancy which arose when Marion B. Folsom
resigned to accept appointment as Under Secretary of the Treasury. Mr.
Shield was re-elected in November 1953 as a Class B director by member
banks in Group 2 for a term of three years beginning January 1, 1954.
In the March election, member banks in Group 3 elected John E. Bierwirth, President of the National Distillers Products Corporation, New
York, N. Y., as a Class B director for the unexpired portion of the threeyear term ending December 31, 1954, to fill the vacancy caused by the
appointment of Mr. Crane as a Class C director.
In June 1953, the Board of Governors of the Federal Reserve System
appointed Franz Schneider, New York, N. Y., as a Class C director for the
unexpired portion of the three-year term ending December 31, 1955, to
fill the vacancy which occurred in March 1953 when Philip Young resigned
to accept appointment as Chairman of the United States Civil Service
Commission.
In November 1953, member banks in Group 2 elected John R. Evans,
President of The First National Bank of Poughkeepsie, Poughkeepsie,
N. Y., as a Class A director for a term of three years beginning January 1,
1954, to succeed Burr P. Cleveland, President of the First National Bank
of Cortland, Cortland, N. Y., whose term expired December 31, 1953.
In November 1953, the Board of Governors of the Federal Reserve
System reappointed Mr. Crane as a Class C director for a term of three
years beginning January 1, 1954, and redesignated him as Chairman of
the board of directors and Federal Reserve Agent for the year 1954.
Simultaneously, the Board of Governors reappointed William I. Myers,
Dean of the New York State College of Agriculture, Cornell University,
Ithaca, N. Y., as Deputy Chairman for the year 1954.
At the Buffalo Branch of the Federal Reserve Bank of New York, in
November 1953, the Board of Governors of the Federal Reserve System




60

THIRTY-NINTH ANN UAL REPORT

reappointed Robert C. Tait, President of the Stromberg-Carlson Co.,
Rochester, N. Y., as a director for a term of three years beginning January
1, 1954. In December, the board of directors of this Bank designated
Clayton G. White, dairy farmer of Stow, N. Y., as Chairman of the board
of directors of the Buffalo Branch for the year 1954. The board of directors
also appointed Robert L. Davis, President of The First National Bank of
Olean, Olean, N. Y., as a director of the Buffalo Branch for the three-year
term beginning January 1, 1954. Mr. Davis succeeded C. Elmer Olson,
President of The First National Bank of Falconer, Falconer, N. Y., whose
term expired December 31, 1953.
Changes in Officers

Robert V. Roosa, formerly Manager of the Research Department, was
appointed an Assistant Vice President, effective April 1, 1953.
Walter C. Warner, Manager of the Credit Department and of the
Discount Department, who had been with the Bank since June 1942,
resigned as of April 30, 1953, in order to accept appointment as an officer
of the Bankers Trust Company, New York.
William E. Marple, formerly Chief of the Credit Division, Credit
Department, was appointed a Manager and assigned to the Credit Depart­
ment and to the Discount Department, effective May 1, 1953.
Gregory O’Keefe, Jr., formerly an Attorney in the Legal Department,
was appointed an Assistant Counsel, effective May 1, 1953. Mr. O’Keefe
had been on loan to the Board of Governors of the Federal Reserve
System from October 1949 to April 1953, assisting the Board’s Solicitor in
the Clayton Act proceedings initiated by the Board against Transamerica
Corporation. Effective August 1, 1953, Mr. O’Keefe was appointed
Assistant Secretary of the Bank, his appointment as Assistant Counsel
continuing.
Charles A. Coombs, formerly Chief of the Foreign Research Division,
Research Department, was appointed a Manager and assigned to the
Research Department, effective June 1, 1953.
Arthur I. Bloomfield and George Garvy of the Research Department
were appointed officers of the Bank with the title of Senior Economist,
effective June 1, 1953.
O. Ernest Moore, Manager of the Research Department, who had
been with the Bank from February 1926 to April 1930 arid continuously




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

61

since August 1935, resigned as of June 30, 1953, in order to become
Economic and Financial Adviser to the Haitian Government and to the
National Bank of the Republic of Haiti, under assignment by the Technical
Assistance Administration of the United Nations*
Walter S. Logan, Vice President and General Counsel, who had been
the senior officer in charge of the Legal Department since he came to the
Bank in July 1928, retired effective August 1, 1953, upon reaching retire­
ment age. Mr. Logan resumed the general practice of law as a member
of the firm of Reynolds, Richards & McCutcheon of New York City, of
which he was a member before coming to the Bank.
Todd G. Tiebout, formerly Assistant General Counsel, was appointed
Vice President and General Counsel, effective August 1, 1953.
John J. Clarke, formerly Secretary and Assistant Counsel, was
appointed Assistant General Counsel, effective August 1, 1953.
Arthur H. Willis, formerly Assistant Secretary, was appointed Secre­
tary of the Bank, effective August 1, 1953.
William F. Abrahams, Manager of the Security Custody Department,
who had been with the Bank since September 1918 and had reached retire­
ment age, retired effective October 1, 1953.
, Walter S. Rushmore, formerly Chief of the Auditing Division, Auditing
Department, was appointed a Manager and assigned to the Security
Custody Department, effective October 1, 1953.
Walter H. Rozell, Jr., Manager of the Foreign Department, who had
been with the Bank since July 1932, resigned as of November 20, 1953,
in order to accept a two-year appointment as Governor of the State Bank
of Ethiopia.
George C. Smith, formerly Chief of the Sorting and Counting Division,
Cash Department, was appointed a Manager and assigned to the Collec­
tion Department, effective November 1, 1953.
Rufus J. Trimble, Assistant General Counsel, who had been with the
Bank since June 1934 and had reached retirement age, retired effective
November 1, 1953.
Member o f Federal Advisory Council— 195 4

The board of directors of this Bank selected Henry C. Alexander,
President of J. P. Morgan & Co. Incorporated, New York, N. Y., to serve
for a second successive year as the member of the Federal Advisory Council
from the Second Federal Reserve District.




62

THIRTY-NINTH ANNUAL REPORT

Directors and Officers
Term
expires
Dec. 31
I N . B a x t e r J a c k s o n .................................................................
1955
Chairman of the Board, Chemical Bank & Trust Company,
New York, N. Y.
2 J o h n R. E v a n s ..........................................................................
1956
President, The First National Bank of Poughkeepsie,
Poughkeepsie, N. Y.
3 F. P a l m e r A r m s t r o n g ..............................................................
1954
President, The Keyport Banking Company, Keyport, N. J.
1 C l a r e n c e F r a n c i s ..................................................... ...............
1955
Chairman of the Board, General Foods Corporation,
New York, N. Y.
2 L a n s i n g P. S h i e l d ...................................................................... 1956
President, The Grand Union Company, East Paterson, N. J.
1954
3 J o h n E. B i e r w i r t h ................................................ ..................
President, National Distillers Products Corporation,
New York, N. Y.
J a y E . C r a n e , Chairman, and Federal Reserve Agent ............
1956
Vice President, Standard Oil Company (New Jersey),
New York, N. Y.
1954
W i l l i a m I. M y e r s , Deputy Chairman .......................................
Dean, New York State College of Agriculture,
Cornell University, Ithaca, N. Y.
F r a n z S c h n e i d e r ........................................................................
1955
New York, N. Y.

Class Group
A
A

A

B

B
B

C

C
C

D

ir e c t o r s

expires
Dec. 31
C l a y t o n G. W h i t e , Chairman ......................................................................
1954
Dairy farmer, Stow, N. Y.
1954
L e w i s G. H a r r i m a n .......................................................................................
President, Manufacturers and Traders Trust Company, Buffalo, N. Y.
B e r n a r d E. F i n u c a n e ....................................................................................
1955
President, Security Trust Company of Rochester, Rochester, N. Y.
E d w a r d P. V r e e l a n d ......................................................................................
1955
President, Salamanca Trust Company, Salamanca, N. Y.
E d g a r F. W e n d t .............................................................................................
1955
President, Buffalo Forge Company, Buffalo, N. Y.
R o b e r t L. D a v i s .............................................................................................
1956
President, The First National Bank of Olean, Olean, N. Y.
R o b e r t C. T a i t ..............................................................................................
1956
President, Stromberg-Carlson Company, Rochester, N. Y.
D ir e c t o r s — B u f f a l o B r a n c h

M




em ber of

F ederal A

d v is o r y

C o u n c i l — 1954

H e n r y C. A l e x a n d e r
President, J. P. Morgan & Co. Incorporated
New York, N. Y.

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

63

O f f ic e r s
A lla n
W illia m
H a r o ld

A.

B ilb y ,

Vice President
V ice President

H e r b e r t H . K im b a ll,

L. W

Vice President
Vice President
V. R o e l s e , Vice President

ern er K noke,

A r th u r P h e la n ,
H a r o ld

John

J. C l a r k e ,

President
First Vice President
R o b e r t G. R o u s e , Vice President
G. T i e b o u t , Vice President and
General Counsel
V a l e n t i n e W i l l i s , V ice President
R e g i n a l d B . W i l t s e , Vice President
J o h n H . W u r t s , Vice President

S p r o u l,

F . T r e ib e r ,

Assistant General Counsel

D o n a l d J. C a m e r o n ,

P a u l R . F itc h e n ,

Assistant Vice President

Assistant Vice President

H o w a rd D . C rosse,

M a r c u s A . H a r r is ,

Assistant Vice President

Assistant Vice President

F e li x T . D a v is ,

S ila s A . M ille r ,

Assistant Vice President

Assistant Vice President

N o r m a n P . D a v is ,

R obert

Assistant Vice President

V.

R oosa,

Assistant Vice President
H o ra c e L . S a n fo rd ,

Assistant Vice President
D o n a l d C . N il e s ,

A r t h u r I. B l o o m f i e l d ,

Manager , Planning Department

Senior Economist

A r th u r

H a r r y M . B oyd,

Manager, Cash Custody Department
Manager, Research Department

F r a n k lin

G eorge G a rv y ,

Law rence

C li f t o n R . G ordon ,

E. Q u a c k e n b u s h ,

Manager, Bank Examinations Department

Assistant Counsel

W a l t e r S . R u s h m ore,

E dw ard G . G u y ,

Manager, Security Custody Department

Assistant Counsel

R a lp h W . S c h e ffe r ,

A . H e in l,

Manager, Savings Bond Department

Manager, Government Bond Department
K e n n e th

P e te r P . L a n g ,

Manager, Foreign Department

Jr.,

Manager, Check Department
W il l ia m E . M arple,

Manager, Credit Department, and
Manager, Discount Department
S p e n c e r S . M a r s h , J r .,

Manager, Securities Department
c L a u g h lin ,

Manager, Government Check Department
H erb ert A . M u e th e r,

C u r tis R . B o w m a n ,

E.

S m a ll,

Manager, Personnel Department
F r e d e r ic k L . S m e d le y ,

Manager, Personnel Department
G eorge C . S m it h ,

Manager, Collection Department
Thom as O. W aage,

Manager, Public Information Department
A . C h e ste r W a lto n ,

Manager, Bank Relations Department
R oy

E. W

e n d e ll,

Manager, Safekeeping Department
A r th u r

Manager, Building Operating Department




E. P e t e r s o n ,

Manager, Cash Department

Senior Economist

J. M

F . P a lm e r ,

Manager, Accounting Department

Assistant Counsel

M ic h a e l

Assistant Counsel, and Assistant Secretary
W illia m

H a r d in g C o w a n ,

A n g u s A . M a cIn n es,

N oa,

G r e g o r y O 'K e e f e , J r .,

C h a r l e s A . C oom bs,

W illia m

H.

Manager, Service Department

H.

W illis ,

Secretary
General Auditor

64

THIRTY-NINTH ANNUAL REPORT
O

f f ic e r s

In s le y
H a r o ld

— B uffalo B ran ch

B.

Vice President
Assistant Vice President

S m ith ,

M . W e s s e l,

G e o r g e J. D o l l ,

G e r a ld H . G re en e ,

Cashier

Assistant Cashier
M . M onroe M yers,

I n d u s t r ia l A
W illia m

Assistant Cashier

d v is o r y

H . P ouch,

C o m m it t e e

Chairman

Chairman of the Board, Concrete Steel Company,
New York, N. Y.

G. N e l s o n , Vice Chairman
Chairman of the JBoard,
A. G. Nelson Paper Company, Inc.,
New York, N. Y.

A r th u r




E d w a r d J. N

oble

,

Chairman of the Finance Committee,
American Broadcasting-Paramount
Theatres, Inc.,
New York, N. Y.

PLATTSBURG'

• WATERTOWN

GLENS FALLS
UTICA
•SYRACUSE
SCHENECTADY •

NEW YORK
• JAMESTOWN

ELMIRA*

• BINGHAMTON

THE SECOND FEDERAL RESERVE DISTRICT
HEAD OFFICE TERRITORY
BUFFALO BRANCH TERRITORY




ALBANY

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