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Twenty-ninth Annual Report Federal Reserve Bank of New York For the Year Ended December 31, 1943 Second Federal Reserve District Federal R eserve Bank of NEW YORK March 31, 1944. To the Stockholders of the Federal Reserve Bank of New York: I am pleased to transmit herewith the twentyninth annual report of the Federal Reserve Bank of New York reviewing the year 1943. A l l a n S pro tjl , President. 2 CONTENTS PAGE Production and Consumption during the War; Control of Prices...................................................................... 5 War Financing during 1943........................................................ 12 Money Market Developments in 1943........................................ 19 Federal Reserve Policy............................................................... 24 Business and Employment in the Second Federal Reserve District............................................ 31 Postwar International Monetary Cooperation............................. 34 Proposed Bank for Reconstruction and Development................. 39 Balance of Payments of the United States; Capital and Gold Movements.................................................. 40 Balance of Payments.......................................................... 40 Effect of Lend-Lease............................................................ 42 Recent Capital Movements.................................................. 43 Gold Movements.................................................................. 45 Foreign Exchanges...................................................................... 47 Foreign Relations........................................................................ 49 Developments in Operations of the Bank.................................... 49 Membership Changes in 1943...................................................... 53 Financial Statements ................................................................ 55 Statement of Condition........................................................ 55 Income and Disbursements.................................................. 57 Changes in Directors and Officers.............................................. 59 Changes in Directors.......................................................... 59 Changes in Officers.............................................................. 60 Member of Federal Advisory Council.................................. 60 List of Directors and Officers...................................................... 61 3 S E R V I N G T At the end of 1943 more than 700 members of the bank’s staff had joined the armed forces of the United States, and are now serving their country in all branches of the services and in all parts of the world. The directors, officers, and staff of the bank take pride in their service. The management of the bank also appreciates the quality of the service of the employees who continued as members of the staff during the year. The work of the Federal Reserve Bank of New York con tributes directly and indirectly to the war effort. It could not be carried on without the understanding and the willing work of all members of the staff. A l l a n S proul , President. 4 H E Federal Reserve Bank of New York Twenty-Ninth Annual Report In 1943 this country’s war production about reached its peak. Though there will doubtless be many adjustments within the production program, the expansion phase seems virtually completed. It began with the outbreak of war in 1939, and our own defense program of June 1940, was sharply stepped up in 1942 following Pearl Harbor and our entry into the war, and continued at a rate which diminished progres sively in each quarter of 1943 as full mobilization was approached. In its totality, the increase of output has been extraordinary. Until recent years statisticians talked of a growth trend of about three to four per cent a year. In the late thirties, after observation of Germany’s achievements in building her war machine, the view was expressed that under rigid totalitarian controls a country of high technological capacity could for a period expand its output by as much as ten per cent a year. But in the present war, in the four years from 1939 to 1943, our gross national product has been increased from 88.6 billion dollars to 186.8 billion. Even allowing for the fact that the price level has risen about one third this expansion of output surpasses anything of which the world had any previous experience. A companion fact scarcely less noteworthy is that, broadly speaking, the economic conduct of the war has not been for this country a belttightening process. Despite the fact that there has been much diversion of manpower and resources from civilian to military uses, and a virtual elimination of consumer durable goods, the fact seems to be that American consumption in 1943 was in the aggregate about as high as in any previous war year and substantially above 1939. The Department of Commerce estimates of output of consumer goods and services rose from 61.7 billion dollars in 1939 to 74.6 billion in 1941 and 90.5 billion in 1943. What these figures appear to indicate when corrected for the rise in prices is that consumption rose markedly in the years prior to our own entry into the war, when the rise in cost of living was still only slight, and reached an all-time record in 1941; and that the apparent further rise since that time has been about offset by the rise of prices. 5 TWENTY-NINTH ANNUAL REPORT 6 Gross National Product of the United States BILLIONS OF DOLLARS 250 I — — -------------------------------------------------------------------- r 200 (Department of Commerce estimates) There has been much comment on the year 1941 as indicating what a high-consumption economy the United States became under the stimulus of the defense program but before price controls, rationing, production controls, and taxation had begun seriously to restrain consumption. Since 1941, however, we have had not only the controls but an increase in war expenditure from 12.5 billion dollars to 83.7 billion in 1943. In accounting for the continued high level of consumption one fact to bear in mind is that total production for civilian use has shown some decline, even before correction for price rise. Gross private capital formation has been virtually eliminated, dropping from 19 billion dollars in 1941 to 1 billion in 1943. Governmental nonwar expenditure, including State and local, has also declined moderately. How our economy has been streamlined for the two basic purposes of war pro duction and consumers ’ needs is best indicated by the fact that in 1941 these two categories combined were 73 per cent of gross national product, and in 1943, 93 per cent; war goods and services amounted to 10 per cent and consumers’ goods and services to 63 per cent of the total in 7 FEDERAL RESERVE BANK OF NEW YORK 1941, while in 1943 the war portion was 45 per cent and the consumers’, 48 per cent of the gross national product. One had best preserve some caution in accepting at face value the consumption estimates of 1943. One thing especially hard to measure is the decline in quality of consumer goods in wartime. Taking this into account, cost of living has probably risen more and real consumption been less well maintained than the figures indicate. One must bear in mind also the unequal impact of the war on different categories of goods. Wholesale prices of foods and farm products have risen much more than commodities in general, with the result that in the cost of living food has gone up about twice as much as the index as a whole. Within the aggregate of consumption, moreover, some classes and income groups, and notably the white collar workers, really have found war a belttightening process. Yet for the community as a whole it seems a con servative conclusion that consumption has risen substantially since 1939; it can only mean that the reduced consumption of some groups has been more than offset by the increased consumption of others. Such high consumption in the face of the unparalleled war effort, and without more serious inflationary pressures than have thus far appeared, must be ascribed basically to the extraordinary powers of production of this country which our war program has revealed. Another outstanding, and closely related, fact about the war has been the accumulation of wartime savings. Though consumption has been high, the net inflow of money incomes to the community, after taxes and Government borrowing, has been much in excess of the con sumer goods and services available. That this “ inflationary gap’ ’ has not produced more upward pressure on prices than has occurred has been one of the most surprising developments of the war. One can hazard tentative explanations. To some extent it may indicate a desire to hold money idle because of uncertainties about the future. Probably more important has been the absence of consumer durable goods. In the past, as between periods of low and high national income, the great fluctuations have been in the durable goods. What the present experi ence seems to demonstrate is that even when such goods are not available the expansion of consumption in other directions is comparatively moderate. One might well ask why the excess income does not flow into investment, which now would mean into Government securities. To a considerable and an increasing extent this has happened, and it should go further in the future. But the differences in motivation and habitua- 8 TWENTY-NINTH ANNUAL REPORT tion as between spending and investing incomes make it a slow process and one requiring continuing pressure. Perhaps the largest underlying fact about wartime saving is the absence of any general popular fear about inflation, for when that is present it practically always shows itself in a desire to run away from money into other things even at rising prices, and indeed because of them. A t present the community, though in the aggregate still well supplied with excess income, seems not inclined to reach for goods. But we must bear constantly in mind that a vicious spiral of inflation, if for any reason it got started, would have much to feed upon. One of the most striking aspects of the great expansion of wartime production has been its relation to the mobilization of manpower and employment. The total labor force from January 1941 to January 1944 increased from 54 million to 60.9 million. Of this increase it has been estimated that about, 2 million consisted of the normal growth in the working population and the remainder of persons who would not normal ly be employed — youths under the usual working age, workers past retirement age, and women normally at home. But from this labor force 9.4 million were taken into the armed forces during the period, and 1.3 million were added to Federal war agencies, leaving a net avail able labor force of 49 million in January 1944 as against 52.8 million* in January 1941, or a net contraction of 3.8 million workers. Our greatest problem has been how, with this contracting labor force, to carry through the war production program. That we have done it without contraction of consumption in the aggregate makes the performance more remarkable. The answer appears to be threefold. There has been first the taking up of slack in employment. It is a rather astonishing fact, and one not without significance for the future, that as late as January 1941, with production already substantially above any previous level in our history, it was estimated that there were still 7.7 millions of unemployed. By January 1944 unemployment had been reduced to 800,000, which is perhaps some 2 million less than could be expected in conditions of normal peacetime full employment and indicates how tight the manpower situation became by 1943. In consequence, despite the mobilization of the armed forces and the expansion of Federal war agencies, there was an increase in civilian employment in the three-year period from 45.1 million to 48.2 million. A second and even more important factor has * In January 1941, of a total labor force of 54 millions, one million was in the armed forces and 0.2 million in Federal war agencies, leaving a total available labor force of 52.8 millions. FEDERAL RESERVE BANK OF NEW YORK 9 been the increase in the average work week from 38.1 hours in 1940 to 45 hours in 1943. The combined increase in numbers employed and hours worked is equivalent to an increase of about one fourth in the effective labor force. Clearly a large part of the explanation of the increased output is to be found in shifts to more productive employment and to improved equipment and technique. What questions this aspect of our experience may raise for postwar employment and national income would carry us beyond the scope of this report. The facts reviewed above— about production, consumption, incomes, and manpower— are the basic economic and physical facts about the war. of They have provided the underlying conditions for the operation the anti - inflationary policies of Government. That, broadly considered, these underlying conditions have been so favorable consti tutes the main reason for the comparative success of our anti-inflation program. That the program has been relatively successful is perhaps best seen by comparisons with the last war. In 1939-1943 wholesale commodity prices as measured by the Bureau of Labor Statistics index rose 38 per cent, against a rise of 102 per cent in 1914-1918. The cost of living index in the same periods rose 26 per cent in this war and 63 per cent in the last. The entire rise of wholesale prices last time, to the peak in 1920, was 148 per cent over 1914 and in cost of living 110 per cent. How we shall fare at the end of an equal period remains to be seen, but thus far the record has been markedly better. It should be noted too that, at their first World War peak, Federal expenditures probably amounted to less than a third of the gross national product, as against about 47 per cent in 1943. The price control mechanism created in 1942 and supplemented to some degree last year, coupled with the basically favorable economic performance, has held prices on a remarkably even keel during the past year. The wholesale price index averaged only 4 per cent higher in 1943 than in 1942 while the cost of living index rose about 6 per cent. The over-all price picture for the war to date, however, fails to indicate how divergent have been the movements of different price categories. All commodities except farm products and food have risen only 22 per cent, against 96 per cent in the first war; farm products have risen 100 per cent against 110 per cent in the last war, and food prices 57 per cent, as against 107 per cent last time. What the compari sons do not reveal is that many prices today are as high or higher than in the last war, because the starting level in 1939 was in so many cases 10 TWENTY-NINTH ANNUAL REPORT higher than in 1914. Except for foods, onr general commodity price rise, at wholesale, since 1939 has been smaller than in Canada, United King dom, and Australia. But retail food prices in this country have risen twice as much as in Britain or Australia and nearly 50 per cent more than in Canada. The higher wholesale prices in the other countries reflect the longer and greater strain of the war. The lower retail food prices, however, appear to be due mainly to the differences in the pricecontrol programs— in part to the greater use of subsidies abroad, but much more, it would seem, to the operation of the parity price formulae and other limitations in the application of price controls to our agricultural products. Of basic importance for the avoidance of an inflationary price spiral is the behavior of agricultural prices and of wage rates. Farmers and next to them wage earners have had the fastest rise in incomes during the war, and agricultural prices and wage rates have presented some of the most controversial questions about the economic conduct of the war. A rise in agricultural prices relative to others does not in itself warrant adverse comment. Such a relative rise always occurs in wars and in periods of rising peacetime national income— and a relative fall in depressions. It must be recalled too that in the present instance the rise has been from the comparatively low base, relative to industrial prices and wage rates, which prevailed in the thirties, and has to some extent been necessary to bring out increased production and keep workers on the farm in the face of the high wages available in war industries. The danger is that the rise may be carried too far. As regards wage incomes and wage rates, the problem is more com plex than appears on the surface. In discussions of the efforts to hold to the “ Little Steel” formula, the point has been repeatedly made by the critics that wage rates have risen much more than the cost of living. According to the official figures, hourly earnings of factory workers have risen about 52 per cent as against a rise of 26 per cent in cost of living. But this high figure reflects the shift of workers from low-wage to high-wage industries, as well as the actual raising of wage rates and the effect of overtime penalty rates. It has been estimated that the actual rise in the price of factory labor between 1939 and July 1943 was about 32 per cent. This correction somewhat weakens the argument that the advance of wage rates threatens to produce inflation by forcing price increases to cover costs, which in turn would lead to further wage increases in the familiar vicious spiral. But it should be borne in mind FEDERAL RESERVE BANK OF NEW YORK 11 that the upgrading of labor involved in this switching of employment implies impairment of labor efficiency, which is a hidden factor in costs, just as deterioration of quality of products is a hidden factor in cost of living. Moreover, the formula apparently so generally adopted that increases in wage rates should cover increases in living costs is itself questionable if not accompanied by measures to absorb the rise in total labor incomes. An effective anti-inflationary policy must embrace always the two-sided approach of controlling, on the one hand, the effects of rising production costs on prices and, on the other, the effects of rising incomes on demand for the limited supply of goods and services available. In concluding this broad survey of some of the main economic features of the war, and before coming to the more detailed discussion of monetary and fiscal developments in 1943, we may venture some comments upon the economic outlook for 1944. There are signs that we have reached and even passed the stage of most acute pressures on our economy. Both industrial production and the gross national product are rapidly leveling off. The raw materials situation has been easing markedly. There seem to be definite signs that the manpower problem as a whole will not become more serious although it obviously may remain critical as to particular skills and industries; since November there has been a drop in the number of places classified as acute labor shortage areas. There have been some sizable cuts in previously authorized military expenditures, and it seems even probable that actual expenditures will run somewhat under the budget estimates. None of this implies any slackening of the war effort, but is to a large extent a natural consequence of the completion of the mobilization program, and of savings realized through productive efficiency. One of the chief reasons for economic strain during the expansion phase of a war production program is that for a considerable period resources must be used to construct new, and convert old, plant and equipment in order to produce the final products wanted. How this kind of pressure has relaxed is shown by the fact that in 1943 Government outlays for industrial plant construction were 40 per cent below 1942, and in the last three months of the year were 75 per cent below such expenditures in the last quarter of 1942. As to output of civilian goods, it seems probable that the next change will be upward, although the expansion may be only slight until the European war has ended. How much danger of inflation there will be will depend upon the TWENTY-NINTH ANNUAL REPORT 12 policies pursued. The need for retaining, and in some directions for strengthening, our anti-inflationary policies will continue to be of pri mary importance not only for the remainder of the war period but very probably also during the period of transition to peace. Besides the wartime savings and the accumulated domestic demands for goods, we shall have to consider the effects of international demands upon us during the transition period. Belief and reconstruction in Europe will un doubtedly call for large amounts of American food products, raw mate rials, and equipment. W e shall very likely also be called upon to pay in goods for the large amounts of materials which we have been import ing, particularly from the Latin American countries, for war production and civilian needs. During the war, owing both to lack of shipping and to our concentration on war production, this trade has been one-sided and has resulted in a rapid accumulation here of gold and dollar balances by these countries. If all these demands, domestic and foreign, were permitted to converge upon our markets without restraint before re conversion to peacetime production had been completed, there would be serious danger of disorderly price increases and other dislocations in our economy, and we might easily have, as after the last war, a boom followed by cpllapse. Until we can see our way safely past such dangers it would be most unwise to remove anti-inflationary controls. W a r F i n a n c The effort to finance war expenditures by inflation resistant methods fell short of our hopes in 1943 but exceeded our expectations. Total Government expenditures (90 billion dollars), while not as large as had been estimated at the beginning of the year, were more than 32 billion dollars greater than in 1942. Over half of the increase in expenditures was covered by increased Government revenues— chiefly from individual and corporation income taxes. Most of the remainder was financed through increased sales of Government securities to nonbank investors. Consequently, although the total amount borrowed by the Treasury during the year was 57 billion dollars as compared with 48 billion in 1942, the amount of Government securities absorbed by commercial and Federal Reserve Banks was only slightly greater in 1943 than in 1942, and was substantially less than had been indicated by some forecasts early in the year on the basis of the budget estimates set forth in the President’s message to Congress in January 1943. Nevertheless, the amount of Government financing through the banks, directly or indi rectly, was very large— 24% billion dollars— and efforts were made to i n g FEDERAL RESERVE BANK OF NEW YORK 13 U . S. Government Expenditures and Sources of the Financing of Such Expenditures b il l io n s OF DOLLARS EXPENDITURES * 50r 1 A L L OTHER WAR EXPENDITURES 2** 2 /w> i* 7" 2 W HALF HALF HALF 1941 1942 1943 HALF t* r 2 * HALF HALF 1941 1942 1943 + NET ABSORPTION BY NONBANK IN VESTO RS OF G O V E R N M E N T S E C U R ITIE S OTHER THAN TA X AND SA VING S N O TE S . reduce the volume of such financing, both by further proposals for increasing tax revenues and by further efforts to sell Government securities to investors other than banks. It appeared probable, toward the end of 1943, that the amount of bank financing of Government expenditures during 1944 could be substantially reduced. The accompanying diagram shows, by six-month periods, the amount of war and other expenditures of the Federal Government during the past three years and its receipts from various sources during the same half-year periods. In reviewing the sources of Government receipts in relation to expenditures, it will be noted that the amount of Government receipts from security sales during the latter half of 1942 was substan tially greater than the amount needed to cover Government expenditures during that period. This excess of borrowing produced an increase of approximately 7 billion dollars in the Treasury working balance, which has since been maintained at a relatively high level. In the first half of 1943, Treasury borrowings were slightly less than net Government expenditures, and in the latter half moderately in excess of expenditures. TWENTY-NINTH ANNUAL REPORT 14 Another aspect of the problem of war finance and inflation presents itself in the delation of Treasury receipts to increases in the national income. It appears that the net national income in 1943 (147 billion dollars) was about 27% billion greater than in 1942. Taxes paid by individuals increased by something like 12 or 13 billion dollars during the year, and net purchases of Government securities by nonbank in vestors increased by approximately 11 billion. It appears, therefore, that the amount of income remaining for consumer expenditure was only slightly larger in 1943 than in 1942. The amount of such income con tinued to be substantially greater, of course, than the amount of consumer goods and services available valued at 1942 prices. Part of the excess was absorbed in an increase in prices in 1943. A considerably larger part, as in the preceding year, appears to have been added to savings in forms other than direct or indirect investments in Government securi ties. These savings appear in the statistics as increases in currency cir culation and in bank deposits. They have no inflationary effect so long as they remain relatively idle, but they constitute a continuing threat to the effective maintenance of price control while the supply of civilian goods necessarily remains restricted, even though large. W ar expenditures continued to increase fairly rapidly during the first quarter of 1943, but leveled off thereafter at around 7 billion dollars a month. Some parts of the war program, including the production of airplanes and ships, continued to expand throughout the ,year, but con struction of war plants and, to a smaller extent, of army camps and other military establishments, did not need to continue at previous levels, and there were “ cutbacks” in some parts of the munitions program. Reduced prices for war materials, as volume output made possible more efficient production, also played a part in holding down the cost of the war program. Total war expenditures during 1943 amounted to approxi mately 83 billion dollars, and total Government expenditures were 90 billion dollars, or about 8 billion less than the amount indicated for the calendar year by the budgets for the fiscal years 1942-43 and 1943-44. While Government expenditures fell short of the huge totals indi cated by budget estimates, Government revenues substantially exceeded the amounts indicated by the January budget figures. The estimates for the two fiscal years indicated that during the calendar year 1943 net rev enue receipts would amount to approximately 28 billion dollars. Despite the fact that no general increase in tax rates was effected during the year, actual net receipts of the Treasury amounted to more than 34% billion FEDERAL RESERVE BANK OF NEW YORK 15 dollars and were more than double the net receipts of 16.3 billion in 1942. A substantial increase in revenues was anticipated by the budget estimates because of the rising national income and stiff increases in, taxation under the Revenue Act of 1942, most of the provisions of which became fully effective in 1943, but actual receipts were considerably larger than estimated. The difference is attributable largely to the effects of the Current Tax Payment Act of 1943 (as a result of which individual taxpayers were required to pay, in 1943, the estimated taxes on their income during that year rather than on their income of the preceding year).* Another factor tending to increase Treasury receipts above the amount estimated at the beginning of the year was a substan tial volume of cash refunds (about 1 % billion dollars) on renegotiated war contracts completed in 1942. Despite overestimates of expenditures and underestimates of re ceipts, the Treasury was a continuous and heavy borrower in 1943. The excess of expenditures remaining to be financed by sales of Treasury securities was a little over 55 billion dollars, compared with about 41 billion in 1942.f The success of the First War Loan drive in December 1942 set the general pattern for selling such a huge quantity of securities, and two War Loan drives were the main reliance of the Treasury in selling its securities during 1943. The form of selling organization was changed during the year and was expanded with each succeeding drive. In the First War Loan drive there were Victory Fund Committees organized on the basis of Federal Reserve Districts, and W ar Savings staffs organized by States. The existence of two separate sales organizations resulted in some overlapping and duplication of effort. For the Second War Loan drive in April a W ar Finance Committee was set up in each Federal Reserve District, headed by the President of the Federal Reserve Bank, with a view to * At the beginning of 1944 it appeared likely that total Government revenues during the year would amount to at least 40 billion dollars, without giving effect to the provisions of the revenue act then under consideration by Congress. Collection of individual income taxes on the basis of income during the current year, rather than on income of the pre ceding year, will mean that increases in income will immediately be reflected in increasing Treasury receipts. In addition, the provision of the Current Tax Payment Act, under which taxpayers with a tax liability for 1942 (or for 1943 if lower) of more than 50 dollars will be required to pay at least one eighth of the tax liability for that year by March 15, 1944, will produce further funds for the Treasury. The tax bill which became law early in 1944 is expected to bring in an additional 2 billion dollars during its first year, not all of which will be collected in 1944, however, and not all of which will be net additional revenue to the Treasury because of the accompanying freezing of payroll taxes. f Actual borrowing was 57 billion in 1943 and 48 billion in 1942; consequently the Treasury’s working balance increased from about 3 billion dollars at the end of 1941 to ^nearly 10 billion at the end of 1942, and liy 2 billion at the close of 1943. 16 TWENTY-NINTH ANNUAL REPORT effecting greater coordination of effort between the two selling organiza tions. Substantial progress was made but certain organizational difficul ties remained. In preparation for the Third War Loan drive in September and October, the Treasury decided to organize the sales staff entirely along State lines. A War Finance Committee was appointed in each State and given sole responsibility for the sale of all types of securities during drives. While the drive method was immediately successful in producing a huge volume of subscriptions, the amount of sales to individuals was considered disappointing, in view of the rapid growth of wartime in comes, and the amount of securities taken directly and indirectly by the commercial banks continued to be very large. The selling effort in successive drives, therefore, was directed increasingly to sales of securi ties to individual investors, with secondary emphasis on sales to other nonbank investors. In the First and Second War Loans, limited (but large) issues of two types of securities were offered for commercial bank subscription. In the Third W ar Loan the offering of securities to commercial banks was reduced, timed to follow the conclusion of the drive, and not included in the total sales during the drive. In the Fourth W ar Loan, beginning on January 18, 1944, there was no offering to commercial banks.* The accompanying table compares the sales of Government securities to nonbank investors in the First, Second, and Third W ar Loan drives and shows the improvement in sales to individuals. The increase in such sales was proportionately greater than for any other class of subscriber, except State and local governments. These data, however, conceal a substantial use of bank credit in the successive drives, both in the form of loans to finance subscriptions by nonbank purchasers, and in the form of bank buying of outstanding securities from other investors, who were thus enabled to increase their subscriptions, The rise in loans on securities, by weekly reporting banks throughout the country (measured from the low point preceding each drive to the Jiigh point during the drive) was about 700 million dollars in the First W ar Loan, approximately 1,275 million dollars in the Second, and more than 1,800 million dollars in the Third. Most of the expansion in security loans in connection with the First W ar Loan occurred at * Except for an arrangement whereby such banks could purchase certain types of securities in amounts up to 10 per cent of their savings deposits or $200,000, whichever was less. 17 FEDERAL RESERVE BANK OF NEW YORK banks in the Second Federal Eeserve District, but increasing amounts of loans were reported by banks in other parts of the country during the Second and Third War Loans. Preceding and during each drive there were also substantial sales of holdings of outstanding securities by insurance companies, savings banks, and other investors to obtain additional funds for the purchase of securities offered during the drives. The greater part of the securities sold for this purpose were purchased by the commercial banks. Subse quent to each drive these banks were the principal purchasers of securi ties sold by speculative subscribers, who financed their subscriptions with bank loans and liquidated their holdings within relatively short periods. It is estimated that, in addition to Government securities acquired by commercial banks by direct subscription, during and following the War Loan drives, the banking system (including commercial and Federal Reserve Banks) acquired through purchases in the market a total of approximately 2,400 million dollars of Government securities in the four months November 1942— February 1943, more than 3 billion in the four months March-June 1943, and nearly 4 billion in the four months August-November 1943. Comparison of Sales to Nonbanking Investors in the First, Second, and Third War Loan' Drives (In millions of dollars) Second Federal Reserve District United States Type of investor First Third First Second Second Third War Loan War Loan War Loan War Loan War Loan War Loan Individuals, partnerships, and personal trust accounts........... Insurance companies.................. Mutual savings banks................. Dealers and brokers*.................. State and local governments....... Corporations and other investors.. 1.593 1,699 620 886 200 2.593 3,290 2,408 1,195 544 503 5,145 5,377 2,620 1,508 894 795 7,120 387 1,038 405 817 29 1,138 737 1,426 730 439 71 1,892 1,021 1,600 895 629 116 2,072 Total nonbanking (excluding Federal agencies)................. Federal agencies......................... 7,591 270 13,085 391 18,313 630 3,814 1 5,295 7 6,334 9 Total..................................... 7,860 13,476 18,943 3,815 5,302 6,343 *For the Second drive, dealers’ allotments earmarked for distribution to nonbanking investors were credited to the appropriate nonbanking investor classes. In the other two drives, no such redistribution was made. Note: Figures are rounded and do not necessarily add to totals. 18 TWENTY-NINTH ANNUAL REPORT By assembling data for four-month periods including each of the first three War Loan drives, and making adjustment for all of the factors cited above, a fair comparison of sales of Government securities to bank and nonbank investors can be obtained. The results are set forth in the following table which shows the estimated increases in Government security holdings of the two principal classes of investors for these periods. (In billions of dollars) Period Nonbank holdings Bank holdings* + 9.9 +10.5 +14.2 + 9.5 +10.3 + 9.2 November 1942— February 1943 ...................... March — June 1943 ............................................. August — November 1943 ................................. * Including Federal Reserve Banks as well as commercial banks. These estimates indicate that little progress was made between the First and Second War Loan drive periods in increasing the propor tionate sales of Government securities to nonbank investors, but that substantial progress was made in the Third W ar Loan drive period. One further factor should be mentioned in assessing the non-inflationary character of our war financing, however. It is probable that an in creasing proportion of the net absorption of securities by nonbank investors in successive W ar Loan drives has been and will be the result of purchases paid for out of current income, and that a correspondingly smaller proportion of purchases has been and *will be made with previously accumulated funds. A real increase, from one War Loan to the next, in the purchase of Government securities by individuals out of current incomes would be a distinctly anti-inflationary development. On the whole the record of war financing in 1943 indicates a substantial measure of success in the efforts to finance war expenditures more largely by taxation and sales of Government securities to nonbank subscribers. It still leaves much to be desired, however, and indicates the need for continuing and intensified efforts to obtain a greater flow of individual incomes into the financing of the war. 19 FEDERAL RESERVE BANK OF NEW YORK Money Market Developments in 1943 The almost continuous drain on the reserves of New York City “ money .market” banks, which developed after the first quarter of 1942, continued during 1943. As in the earlier period, the largest factor con tributing to this movement was the transfer of funds on Treasury account — Treasury receipts from security sales and tax collections in the New York area continued to exceed by a wide margin Government disburse ments in the area, including Treasury checks deposited in New York City banks to the credit of concerns operating in other parts of the country. The average weekly volume of Government checks deposited in New York City banks was considerably greater in 1943 than in 1942, reflecting the increased magnitude of the war program. At the same time, payments of Federal taxes out of accounts maintained in this District were considerably greater than in 1942, and payments for Government securities, including withdrawals from W ar Loan deposit aries of the proceeds of security sales, also increased greatly. Conse quently, as the accompanying chart indicates, the net outflow of funds from this District through Government transactions, while subject to Principal Factors Accounting for Movements of Funds Into and Out of Reserve Balances of Member Banks In Second Federal Reserve District (Cumulative since January 1, 1 9 42; ( + ) = gain to reserve balances; (— ) = loss to reserve balances) 0IL L IO N S OF DO LLA RS 20 TWENTY-NINTH ANNUAL REPORT some interruptions, was on the whole at a rate fully as rapid as during the last 9 months of 1942. On the other hand, the flow of funds between this District and other parts of the country through commercial and financial transfers resulted in a net inflow in 1943, reversing the outflow in 1942. The direction of the flow of funds through such transactions was strongly outward during the Second War Loan drive in April, and increased in volume in Sep tember and 0arly October in connection with the Third W ar Loan drive, but the general movement was inward in the periods between drives. One factor in this inflow appears to have been the purchase of securities by banks and other investors in other parts of the country following War Loan drives, which no doubt reflected, at least in part, the distribution of securities purchased by dealers and others, with borrowed funds, during the drives. In addition there appears to have been some tendency for funds to accumulate in the New York deposit accounts of business organizations. Such accounts were drawn down sharply for the purchase of securities in the War Loan drives and for the year as a whole the increase was probably of rather moderate proportions. The reduction in business accounts in connection with the drives was not limited to payments for securities purchased in the District, but included (especially in connection with the Third W ar Loan drive) large transfers to other parts of the country, presumably to pay for subscriptions placed in other localities. A second continuing factor in the drain on the reserves of banks in this District, as well as in other districts, was the persistent demand for currency, The net withdrawal of currency from banks in this District during the year is estimated at approximately 1 billion dollars, or about one fifth of the total increase for the country as a whole. Data on the note circulation of Federal Reserve Banks indicate, however, that large as was the demand for currency in this area, the demand was relatively even greater in some other parts of the country, especially those in which there has been an unusually rapid growth of war industries and other activities related to the war program, such as military training centers. As in 1942, a substantial part of the demand for currency was for bills of the smaller denominations, but there was a noticeable increase during the past year in the demand for $50 and $100 bills, and to some extent for even larger denominations. While precise information con cerning the factors that have given rise to the persistent demand for 2 1 FEDERAL RESERVE BANK OF NEW YORK currency is not available, a number of possible factors have been sug gested. In the first place there was undoubtedly some increase in the amount of currency actually needed in connection with consumer expenditures, owing partly to a moderate rise in prices. “ Black market” transactions, efforts to evade taxation by concealing income, and hoarding may also have been factors although hoarding in the sense of currency accumulations induced by specific or indefinite fears was probably of minor importance. It seems likely that a major factor was the accumu lation of savings in the form of currency by individuals whose income has increased substantially during the war, but who do not have bank accounts. Whatever the causes, the continued increase in currency out standing was the largest factor in the drain on bank reserves for the country as a whole, and was the second largest factor for banks in this District. A third factor which had its immediate impact largely on the New York City banks, although its ultimate effects may have extended farther, was the accumulation of funds in the accounts of foreign central banks and governments in the Federal Reserve Bank of New York. Deposit balances of that character showed a net increase of approxi mately 700 million dollars during the year, despite the use of approximately the same amount by foreign owners of dollars for the purchase and earmarking of gold in our vaults. This accumulation of foreign official funds in Federal Reserve Banks involves the transfer of funds from commercial banks and thus results in a drain on their reserves. The reasons for this accumulation of funds by foreign central banks and governments are discussed in a subsequent section of this report. Despite the large increase in bank credit, which reflected mainly bank participation directly or indirectly in the financing of the war, and the accompanying large increase in the total volume of bank deposits, the growth in member bank reserve requirements was a relatively minor factor in bank needs for additional reserve funds during 1943. For all member banks the increase in the amount of their required reserves was only about 500 million dollars, and for the principal New York City banks there was an actual net reduction during the year of nearly that amount. Increases in reserve requirements would have been a much more important factor affecting the reserve position of member banks had it not been for legislation enacted by Congress early in the year which exempted War Loan (Government) deposits in the banks from TWENTY-NINTH ANNUAL REPORT 22 reserve requirements for the war period. As War Loan deposits in all member banks, at the end of 1943, were approximately 9 billion dollars, the required reserves of these banks were at least 1 % billion dollars less, at that time, than they would have been if continued maintenance of the same percentages of reserves against War Loan accounts as against other deposits had been required. As a result of this legislation, a new pattern of fluctuation in member bank reserve requirements developed during the past year. Up to the end of 1942 each war financing operation, including the First W ar Loan, was accompanied by a substantial increase in the reserve requirements of the banks owing to the growth of W ar Loan deposits, and in the periods following such operations reserve requirements tended to level off. After the elimination of reserve requirements against W ar Loan accounts, however, the periodic financing drives had the effect of releas ing substantial amounts of reserves, as deposits were shifted from private accounts, against which the banks were required to maintain reserves, to W ar Loan deposits. Thus, instead of creating pressure on the reserve positions of the banks, large war financing operations recently have had the effect of easing the reserve positions of the banks temporarily. Sub sequently, as the Treasury has made periodic withdrawals of funds from W ar Loan accounts to meet Government expenditures, and as the dis bursement of the funds increased private deposits, the reserve require ments of the banks have again increased. Although the New York City banks had a net reduction in their required reserves during the past year, in contrast to the moderate increase for the country as a whole, the release of reserves through this decline in r0serve requirements offset only to a small extent their net losses of reserves through other transactions, especially transfers of Government funds. A small part of their need for reserve funds to offset losses of reserves was met by using up the remainder of their excess reserves early in the year; at the end of 1942 the New York City banks had around 400 million dollars of excess reserves, most of which was used up by the middle of February. Subsequently, individual banks followed the policy of keeping fully invested and had to make almost constant adjustments to keep their reserves at the required levels. These adjustments took the form largely of sales of Treasury bills to the Federal Reserve Bank, and the banks availed themselves of the option to repurchase the bills when, individually, they gained reserves FEDERAL RESERVE BANK OF NEW YORK 23 through transfers from other localities, deposits of Government checks, or other transactions. For the year as a whole, however, their sales of bills to the Reserve Banks were greatly in excess of their repurchases, and the Treasury bill 4‘ option account’ ’ of the Federal Reserve Bank of ,New York at one time during the year rose as high as 3.3 billion dollars. In the latter part of the year, a number of banks exhausted their supply of Treasury bills (or reduced their holdings to levels which they wished to maintain), and thereafter adjusted their reserve position either through temporary borrowings from the Reserve Bank or through sales of Treasury certificates of indebtedness or other short term securi ties in the market. Because of the persistent outflow of funds from New York to other parts of the country, a large part of the reserve funds provided by the security operations of the Federal Reserve System in New York (includ ing purchases of Treasury bills as well as transactions in the open mar ket), spread out over the country to sustain the reserve position of banks in other communities. Despite their lack of excess reserves during most of the year, the New York City banks continued to take their share of new Treasury issues when the Treasury found it advisable to resort to direct offerings to the banks, and in addition bought substantial amounts of other securi ties in the market, selling Treasury bills and other short term securities when necessary to offset losses of funds. In general, they showed a tendency to increase their holdings of Treasury bonds. Nevertheless, they retained a larger portion of Treasury bills and certificates of in debtedness in their portfolios than is customary for most banks through out the country. 24 TWENTY-NINTH ANNUAL REPORT Federal Reserve Policy The problems of our war economy in the monetary and fiscal field were much the same in 1943 as in 1942. Consequently, the objectives of Federal Reserve policy remained the same and operations in execution of System policy differed only in detail. The amount of funds which the Treasury was called upon to raise to finance war operations was much greater than in the preceding year, and despite the large increase in tax revenues previously noted, the amount to be raised by borrowing was considerably greater. In view of the necessary limitations on sup plies of consumers ’ goods and the continued increase in the aggregate amount of individual incomes, there was a continuing problem of pro moting savings and debt retirement and the diversion of large amounts of current income to the financing of the war, not only as a means of raising the needed funds, but also as a means of reducing potential inflationary pressure. As was pointed out in the annual report of this bank for 1942, Federal Reserve policy during the war period has had three principal objectives: 1. The maintenance of adequate reserves in member banks to assure the success of war financing; 2. Maintenance of stability in the Government security market; and 3. Promotion of efforts to counteract wartime inflationary tendencies. Purchases of Government securities, either in the market, or (in the case of Treasury bills) directly from the banks, were relied upon to an even greater Extent than in 1942 to achieve the first of these objectives, and, as in that year, accomplished at the same time the purpose of maintaining a reasonable degree of stability in the Government security market. On the whole, there was less need during 1943 for emphasis on market stabilization, but the need for active intervention to maintain an adequate supply of reserve funds was fully as great, owing to the continued heavy demand for currency and to other factors affecting the reserve position of the banks. During the early part of the year, market stabilizing operations took the form, most frequently, of sales of securities that were in demand. A generally strong market developed after the First W ar Loan, and prices of Treasury bonds showed an even greater tendency to rise after the Second War Loan. Under these circumstances, substantial sales, of both taxable and partially tax-exempt Treasury bonds, were effected, 25 FEDERAL RESERVE BANK OF NEW YORK in contrast to the situation in the autumn of 1942 when large purchases of bonds for the System account were required to maintain the stability of the market. As the year advanced, however, it became apparent that, in general, nonbank investors would be able to fill their requirements, as fully as they desired, during the periodic War Loan drives. A t the same time banks which had adopted the policy of maintaining a fully invested position soon used up their excess funds, and there was less inclination to pay substantial premiums for bonds between drives. This develop ment was emphasized by market conditions following the Third War Loan. In that drive, a large volume of securities was subscribed for and financed by bank loans in the expectation of realizing substantial profits, such as were obtained after the Second W ar Loan. were disappointed. Such expectations It became apparent after the Third War Loan that relatively large amounts of securities were overhanging the market, while demands were less pressing than in the earlier months of the year. The market settled down to relative stability at quotations only slightly above par for the new issues, and no large operations by the Reserve System were required, either on the buying or the selling side of the market for most classes of Government securities. The one exception was in the market for securities of short maturity, in which some excess of supply appeared from time to time— certificates of indebtedness and other securities having only a few months to run to maturity. A principal reason for the development of some unbalance be tween demand and supply in that section of the market, of course, related to the need of certain banks for additional reserves rather than to a market situation. Some of the buyers who formerly were most active in this section of the market, notably the New York and Chicago banks, became net sellers at times during the latter part of 1943, in order to maintain their reserves at the required levels. Among the strictly market factors then was noted a tendency on the part of some investors to sell their short maturities at small premiums, in order to obtain a slight profit, and to reinvest some of their funds in securities of longer maturity at higher yields. Similar in its general effect on the market, but differing as to purposes, was the selling of short term securities that had been acquired by investing institutions as temporary investments, pending more permanent investments in the longer term securities offered during War Loan drives. Such selling was concentrated in the periods just before W ar Loan drives and extending into the early days of the drives. 26 TWENTY-NINTH ANNUAL REPORT Market demand for short term securities tended to be insufficient to absorb the supply at times when there was concentrated selling for any one of the above reasons, and as a result purchases for the System Open Market Account were largely short term securities. There were, of course, substantial amounts of excess reserves available to the banking system at all times, and it might have been expected that some of these funds would seek investment in short term securities. The excess bank reserves were concentrated, however, in banks which were either not inclined to become fully invested, or which were apparently not interested in investing their funds at the rates obtainable on short term securities. As a result of these developments in the market during the past year, the maturity distribution of securities in Reserve Bank portfolios underwent a substantial change. While the total volume of securities held by Reserve Banks showed an increase of more than 5 billion dollars during the year, holdings of Treasury notes and bonds were reduced and holdings of Treasury bills and, to a smaller extent, certificates of indebt edness showed large increases. Holdings of Government Securities by All Federal Reserve Banks (In millions of dollars) Dec. 31,1942 Treasury bills ............................................... Certificates of indebtedness ........................ Treasury notes ............................................. Treasury bonds ............................................. Government guaranteed issu es................... Total ............................................... Dec. 31,1943 Change 1,010 1,041 1,324 2,777 37 6,768 2,467 665 1,560 83 + 5,758 + 1,426 — 659 — 1,217 + 46 6,189 11,543 + 5,354 In view of the general objective of promoting the financing of war expenditures as largely as possible outside the banks, System open market operations were limited to the amounts needed to offset, in part, drains on the reserves of member banks. Additions to member bank reserves, which might have tended to induce the banks to compete with other investors for securities offered by the Treasury, were carefully avoided. The actual total of member bank reserves showed a small net reduction for the year, and as there was a moderate increase in the required reserves of the banks, excess reserves were reduced from ap proximately 2 billion dollars at the end of 1942, to about 1 billion dollars at the end of 1943. FEDERAL RESERVE BANK OF NEW YORK 27 Major Factors Affecting the Reserve Position of Member Banks BILLIONS OF DOLLARS B AN KS IN FEDERAL RESERVE BAN KS . Most of the reserve funds supplied to the banks through System security operations were absorbed by the increase of slightly over 5 billion dollars in the amount of currency outstanding. Another factor tending to draw down member bank reserves was the increase in foreign official deposits and earmarked gold in the Reserve Banks, which was mentioned previously in connection with the discussion of the New York City money market situation and is discussed at greater length later in this report. The discount rates of this bank remained unchanged during the year. The buying rate for Treasury bills continued to be the most effective rate, however, as it afforded banks an opportunity to obtain 28 TWENTY-NINTH ANNUAL REPORT needed reserves (by selling Treasury bills to the Reserve Banks with an option to repurchase the bills at the same rate— in effect, a borrowing operation) at the low rate of % per cent, without showing indebtedness on their statements. Many banks still seemed reluctant to borrow outright from the Reserve Bank, a practice which was common prior to the huge accumu lation of excess reserves during the 1930’s. But the reluctance to borrow appeared to be gradually weakening as the year progressed. The general tendency was for banks sustaining persistent losses of funds to exhaust their holdings of Treasury bills (or at least to reduce them to some minimum amount which they wished to retain) before resorting either to sales of longer term securities in the market or to borrowing against such securities at the Reserve Banks. After reaching that point, how ever, the banks could borrow at the Reserve Banks against securities maturing in one year or less at % per cent and retain the balance of income on the securities, whereas if the securities were sold in the market they, of course, lost any further income from them. Consequently, member banks in increasing numbers, including several of the large New York City banks, after disposing of all or part of their securities yielding less than the % per cent discount rate, adopted the practice of borrowing at the Reserve Bank to offset temporary losses of funds. The aggregate amount of such borrowings at the Federal Reserve Bank of New York reached, in December, the highest levels in more than ten years, and the number of borrowing banks also was the largest in a num ber pf years. The following table indicates the growth in borrowing by member banks during the year. The figures on aggregate borrowing Number of borrowing banks Month Manhattan January ........................ February ...................... June ............................. July ............................. August ........................ September .................. October ........................ November .................... December .................... 1 2 3 4 3 4 4 7 8 4 7 10 Rest of District 23 31 17 24 28 21 25 53 52 39 55 74 Borrowings Manhattan $ 3,000,000 5,500,000 9,500,000 8,100,000 13,750,000 34,950,000 40,200,000 148,000,000 233,600,000 7,800,000 57,100,000 826,400,000 Rest of District $13,520,000 11,355,000 2,525,000 12,866,000 18,703,000 4,838,000 5,745,000 13,411,000 14,570,000 9,575,000 20,700,000 26,040,000 FEDERAL RESERVE BANK OF NEW YORK 29 represent the total of all loans to member banks made during each month; the amount outstanding at any given time was, of course, much smaller. By way of contributing to the attainment of the third objective of Federal Reserve policy— the promotion of efforts to counteract wartime inflationary tendencies— this bank continued its support of measures designed to reduce dependence on bank credit in financing the war and to encourage the diversion of substantial amounts of individual incomes into savings and debt reductions. Until the conclusion of the Second War Loan drive, the President of the Reserve Bank was Chairman of the War Finance Committee in the Second Federal Reserve District, and after the change from district to State organizations, the bank and its staff continued working closely with the State W ar Finance Committees. The Reserve System consistently opposed all proposals or tendencies which might involve unnecessarily large absorption of Government se curities by commercial banks, or unnecessary extensions of bank credit in other forms. Extensions of Federal Reserve credit were limited to amounts actually needed by the banking system to offset losses, in part, of reserves through currency and other demands. Bank financing of specu lative subscriptions to Government securities was opposed, and the President of this bank, on September 1, addressed a letter to all banks in the District urging them to adopt lending policies designed to dis courage speculative subscriptions to War Loan securities.* The experi ences of the Third War Loan drive indicated the need for vigorous action to restrain speculative subscriptions, financed by bank loans, and such action was taken prior to the Fourth War Loan drive in JanuaryFebruary 1944. Regulation W , issued by the Board of Governors of the Federal Re serve System, to control the terms under which consumer instalment loans may be made by all types of lenders, continued effective, during the past year, in reducing the volume of consumer credit outstanding. In a small way this helped to draw off surplus purchasing power in the hands of consumers. As the diagram on page 30 indicates, in a little over two years the estimated total volume of consumer credit has been reduced from between 9 % and 10 billion dollars to a little more than 5 billion dollars. This reduction was due, in large part, to the suspension or restriction of production of goods the sale of which is commonly financed by instalment credit, but it was also due, in part, to the tightening of credit terms. * Circular No. 2680. TWENTY-NINTH ANNUAL REPORT 30 Estimated Short Term Consumer Debt Outstanding at End of Each Month, Classified by Principal Types of Debt BILLIO NS OF DOLLARS 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 (Data for 1934-August 1942 are those o f the Department o f Commerce; for September 1942-December 1943, those of the Board of Governors o f the Federal Reserve System.) Consumer instalment credit extended by commercial banks was reduced at the end of 1943 to less than one-third the volume outstanding at the end of 1941. The greatest curtailment, as might be expected, was in bank holdings of retail automotive paper, but there was nearly as large a reduction in holdings of paper representing instalment financing of other retail transactions. Loans to finance the repair and moderniza tion of homes also were substantially reduced (by nearly two thirds) during 1942 and 1943, reflecting the shortage of materials and labor available for such purposes, as well as the more limited credit terms. The smallest reduction was in personal instalment cash loans, but even in that case the volume of loans held by the banks at the end of 1943 was less than one half of the volume outstanding at the end of 1941. The shrinkage in consumer credit extended by banks in this District showed tendencies quite similar to those shown by data for the country as a whole, although the decline here was of somewhat greater proportions, especially in the case of automotive financing. FEDERAL RESERVE BANK OF NEW YORK 31 Business and Employment in the Second Federal Reserve District The volume of employment, production, trade, and income of this District increased further during the past year. Although the increases again appear to have been somewhat less than in the country as a whole, they were substantial, and such unemployment as remained at the end of 1942 appears to have been largely eliminated. A preliminary estimate of the amount of income payments received by individuals in this District indicates an increase from approximately $19,700,000,000 in 1942 to about $23,400,000,000 in 1943. This increase of $3,700,000,000, or 19 per cent, is the largest increase of any recent year and compares with an increase of approximately $2,500,000,000, or about 15 per cent in 1942. From 1939 to 1943 the estimated increase in income payments received in this District was approximately $9,500,000,000, or 68 per cent. During the same period income payments for the country as a whole nearly doubled. Despite the substantial increase during the past year, this District’s share in the national total appears to have declined slightly further, to less than 17 per cent compared with nearly 20 per cent in 1939. Employment trends in the larger communities in the District were widely divergent during 1943. Some communities such as New York City, Rochester, the central Hudson River area, and the Binghamton area, where increases in factory employment during the earlier part of the war period had been relatively moderate, showed further increases during 1943. Other communities such as Bridgeport, Connecticut, the Albany-Schenectady-Troy area, and the Buffalo area, where the increases in previous years had been relatively large, showed slight declines, especially in the later months of the year. On the other hand, in the Paterson, New Jersey area, and Syracuse, further sizable increases in employment followed substantial gains in preceding years, while in Eliza beth, Jersey City, and Yonkers, net reductions in employment followed below-average increases previously. In New York City, where a considerable amount of unemployment persisted well into 1942, a fairly tight labor situation developed by the middle of 1943. The change in the situation here may be attributable in part to inductions of men into the armed forces, in part to the efforts to place more war contracts in areas of labor surplus, and in part to the employment of considerable numbers of residents of New York City in the nearby war industries of Long Island, Northern New Jersey, and Western Connecticut. 32 T W E N T Y-N IN T H A N N U A L REPORT Percentage Changes in Factory Employment Aug. 1939 to Dec. 1942 Buffalo, N. Y ............................................................ Albany-Scl}enectady-Troy, N. Y........................... Bridgeport* Conn.* ............................................... Paterson, ijt. J.* ..................................................... f Syracuse, fsf. Y ........................................................ Utica, N. Y .............................................................. Rochester, \ Y ...................................................... N. Elizabeth, N. J.* ................................................... Newark, N. J.* ..................................................... Kingston-Newburgh-Poughkeepsie, N. Y............. Yonkers, N. Y.* ................................................... New York City ..................................................... Binghamton-Endicott-Johnson City, N. Y........... Jersey City, N. J.* ............................................... 135 132 118 94 70 60 48 48 45 35 33 29 21 16 Dec. 1942 to Dec. 1943 — — — + + — + — — + — + + — 1.4 3.1 2.8 14.3 22.0 7.6 2.7 3.2 1.9 5.2 14.7 3.9 4.9 3.3 * Data for these cities are from United States Bureau of Labor Statistics and represent percentage increases over 1939 average; data for all other localities are from the Divi sion of Statistics and Information, New York State Department of Labor. Estimates of the civilian population as of November 1, 1943 indi cated a further shrinkage in this District of approximately 3.3 per cent compared with May 1, 1942, and about 6.1 per cent compared with April 1, 1940. The most recent decrease appears to have been only slightly greater than in the country as a whole, whereas in the preced ing two years this District had shown a shrinkage in civilian population which was not paralleled in the rest of the country. Apparently there was some migration from this District to other areas between 1940 and 1942, which does not appear to have been repeated between 1942 and 1943. In fact, there were indications that the transient population of New York City increased considerably during the past year. One development which no doubt tended to relieve the situation in a number of communities where labor shortages were developing a year ago was a substantial curtailment of construction work. Reports on construction contracts awarded during 1943 showed large shrinkages from 1942 in all of the principal areas of the District. Agriculture in the Second Federal Reserve District participated in the further substantial increase in farm income which was reported for the country as a whole during 1943. Reports of the United States Bureau of Agricultural Economics indicate that the cash income from farm marketings in New York State, which during the earlier years of the war period had lagged considerably behind the increase for the FEDERAL RESERVE BANK OF NEW YORK 33 United States, showed an increase in 1943 proportionately as large as for the whole country. The estimate for 1943 was approximately double that for the year 1939. The increase in farm income during this period was considerably less than the increase in aggregate wage payments to factory workers (which reflect the combined effects of increased em ployment and longer working hours, as well as higher wage rates), but undoubtedly was considerably greater than the increases in the income of many other groups in the District. Retail trade in this District continued to increase in most areas, the principal exceptions being Bridgeport, where large increases had been reported in the preceding three years, and Newark, where there had previously been no unusual expansion of trade. For the District as a whole, the rate of increase continued to fall considerably short of a num ber of other districts and again was less for the country as a whole. The same factors that have tended to limit the growth of employ ment, incomes, and trade in this District relative to other areas of the country during the war years, should tend to make the problems inci dent to reconversion to peacetime activities somewhat less difficult than in those areas where more radical changes have occurred. Among these factors are the relative importance of consumers’ goods industries, dis tributive trades, and other nonwar activities, and the relatively small in-migration of workers from other areas, with a few notable exceptions, such as the Buffalo and Bridgeport areas, and to a smaller extent Northern New Jersey. Presumably the most difficult problems of readjustment in the postwar period will be in the large aircraft and shipbuilding indus tries of the District. Aside from the problem of reconversion of war industries, however, the postwar situation in New York City, as the largest distributing center of the country (including foreign trade as well as domestic distribution), will depend heavily upon the degree of success in meeting postwar reconversion problems in other parts of the country and upon the extent of the recovery in foreign trade. 34 TWENTY-NINTH ANNUAL REPORT Postwar International Monetary Cooperation The British and American Treasuries each made public on April 7, 1943, a draft project of international currency stabilization.* The plans contemplate concerted action by the United Nations in making available to one another their respective currencies for the purpose of meeting temporary deficits in the settlement of international transactions, and international consultation prior to changes in currency values when such changes appear to be unavoidable. The United States Treasury, in releasing the plan drafted by its technical experts, emphasized the urgency of arriving at an international agreement upon the terms of this or some similar plan before the end of the present conflict, and stated that “ the provisions of the proposal are in every sense tentative, intended as a basis for discussion and exchange of views. ’ ’ The proposal was for the creation of an International Stabilization Fund of the United and Associated Nations. Following exploratory discussions between its experts and those of the other United Nations, the United States Treasury released on August 20 a revised draft of the proposed plan for an international stabilization fund.f The new draft, it was ppinted out, was still pre liminary and did not necessarily reflect the official views of any of the United Nations. As contemplated in the revised draft, the resources of the Stabilization Fund would be 5 billion dollars or more, to be sub scribed by the member countries under a system of quotas based on the size of their gold and exchange holdings, their national income, and the magnitude of fluctuations in their balance of payments. Of each quota 50 per cent (or less in the case of gold-poor countries) would be in gold, the rest in local currencies and securities. The Fund would be administered by a Board of Directors (consisting of a Director and an alternate from each member country), an Executive Committee, and a Managing Director. Voting power would be distributed roughly in proportion to the quotas. The British proposal was in many ways similar to that of the American experts. It called for an International Clearing Union, based on an international accounting unit called the “ bancor” , which would be defined in terms of gold and treated as the equivalent of gold. The * The full text of both plans was published in the Federal Reserve Bulletin, June 1943, pp. 501-21. t For the text of the revised Plan, see the Federal Reserve Bulletin, September 1943, pp. 827-40. FEDERAL RESERVE BANK OF NEW YORK Union would begin its functions without capital or cash. 35 Countries which had a favorable balance resulting from their exchange of goods and services with the rest of the world, would be credited with that balance at the Clearing Union, while those buying more of the world’s goods and services than they sold would have a debit balance or over draft in bancor at the Union. To each member state would be assigned a quota determining the extent of its participation in the credit facilities of the Union. The initial quotas would be fixed at 75 per cent of the sum of each country’s exports and imports on the average of the years 1936-38. The Union would be administered by a Governing Board appointed by the member governments. in proportion to quotas. Voting would, in general, be The proposals of the British and American Treasury experts have aroused widespread discussion among bankers and economists, here and abroad, but have awakened perhaps less interest on the part of the general public than the importance of the problem warrants. The general aims of the two international currency plans have met with wide accep tance in the limited circles in which they have been discussed. For the most part, there is agreement that it would be highly desirable to have international collaboration for the purpose of stabilizing the exchanges, and facilitating the restoration and growth of international trade, thus helping to raise the living standards of all peoples. A t the same time, questions have been raised as to the content and timing of the specific proposals. In America there has been criticism of the British proposal because of the potentially large commitments of the United States. British technical opinion, on the other hand, in the main considers that the generous scope of the British plan is one of its principal merits. It is suggested that the danger of a renewed period of contraction and depression such as the world experienced in the thirties can be success fully countered only by a bold expansionist scheme of this sort which will ensure the ability of all countries to fill their urgent postwar import requirements and will thus maintain an adequate level of world trade and employment. As seen by British and perhaps other foreign observers, the problem of postwar international financial equilibrium is primarily one of induc ing the United States to make more dollars available through the purchase of more foreign goods and services. It is widely felt abroad that the TWENTY-NINTH ANNUAL REPORT 36 United States, during the interwar period, insisted upon selling more goods and services to the rest of the world than it was willing to buy from the rest of the world. It is true that there was a sizable American merchandise export surplus during the interwar period. How ever, the figures of our balance of trade must be considered in connec tion with other items of our current balance of payments; an American export surplus does not necessarily mean a shortage of dollars for other countries, since the dollars which the rest of the world needs may be provided in a number of other ways— for example, through American expenditures abroad in the form of tourist travel, shipping costs, silver purchases, and emigrant and other remittances, all of which constitute direct or indirect purchases of foreign goods and services. Taking these additional items into account, analysis of a study issued during the latter part of the year by the United States Department of Commerce* shows that during the 16-year period 1922-37 (the other interwar years being omitted as abnormal), the United States' purchases of foreign goods and services exceeded its sales of goods and services abroad by about 2.5 billion dollars. The residue of truth in foreign beliefs about our international purchases and sales of goods and services is that our foreign purchases did not exceed our sales abroad by a sufficient margin to offset the outside world's need of dollars for interest and dividend payments and government debt transfers. During the twenties these latter items were offset mainly by an extensive movement of long term capital from this country to foreign countries. During the years 1930-37, inclusive, our foreign lending largely ceased, but our excess purchases of foreign goods and services, calculated in the manner stated above, amounted to nearly 80 per cent of the interest, dividend, and govern ment transfer items payable to us. It was the heavy flow of foreign and American capital from foreign countries to the United States during this period, due in large part to political conditions abroad, which aggravated our balance of payments position and resulted in the great movement of gold to this country. The belief has also been widely held abroad that the United States, during the interwar period, ‘ ‘ hoarded’ 9 too much of the world's gold, in the sense that it did not permit gold that came here to have the expansionary effects on the American banking and economic system which it was claimed it should have had if the gold standard were to function * “ The United States in the World Economy” , published by the Bureau of Foreign and Domestic Commerce, Washington, 1943. FEDERAL RESERVE BANK OF NEW YORK successfully. 37 With respect to this second point (which is the reverse side of the first), the facts also are at variance with the assumptions. Not only was there a great expansion of credit in this country during the twenties, but also the statistics of actual gold stocks and movements do not support the claim of excessive hoarding here. Thus, for example, in the ten-year period 1919-28, the average net annual gold inflow into this country was only 77 million dollars, while during the same decade the declared gold reserves of countries other than the United States rose from 4.2 to over 6 billion dollars. Even after the great inflow of gold since 1933, the published gold stocks of the world, excluding the United States, amount to nearly 11 billion dollars, and total stocks (disclosed and undisclosed) held outside the United States are estimated at not much less than 13 billion dollars, or (measured in dollars) almost twice the total gold reserves of the world (including the United States) at the end of 1918. Any realistic financial and economic policy after the war must take these facts into account. It is true that an unusual demand for dollars during the period of transition from war to peace is not unlikely, but it should not be forgotten that many foreign countries still have, or have acquired during the war period, substantial holdings of dollars as well as gold with which to meet their needs. Unless a radically differ ent situation prevails after the transition than before the war, it would appear unlikely that the demand for dollar credits through the pro posed funds would, in the long run, reach such proportions as have been feared by some American critics of the British plan, or as are anticipated by some foreign critics of the American plan. This approach to the problem has led to the suggestion that the proposed plans have not made a clear distinction between the require ments of the postwar transition period and the more permanent and normal requirements of the years which will follow. It has been argued that the needs of the two periods are different in both character and scope. During the transition period, the war-stricken areas will be im poverished, suffering from the disruption of their industrial and trans portation systems, and unable to feed, clothe, and shelter their peoples adequately, much less export substantial quantities of goods. Such areas will have a large excess of imports over exports, and some countries will be unable to pay for everything they need. These extraordinary needs, it has been suggested, should be financed, not by a currency stabiliza tion fund or union, but by special machinery such as lend-lease, relief TWENTY-NINTH ANNUAL REPORT 38 and rehabilitation agencies, or, perhaps, by direct loans. Should the resources of the fund or union become frozen by financing such needs, during the transition period, it is feared the institution would be unable to serve its primary function in the years which follow, without an undesirable refinancing. Objections to the early emphasis on a mechanism for achieving exchange stability have also been raised by those who believe that international monetary stability is dependent primarily upon mainte nance of a state of economic health in the leading commercial and industrial nations; that if this could be done, there would be less diffi culty in maintaining exchange stability and a reasonable state of economic well-being in the world. An international plan aiming at post war external stability has been held to be premature so long as little is known about the prospect and plans for maintenance of postwar internal stability in the principal countries at a high level of production, income, and employment. In similar vein, it has been suggested that any international finan cial mechanism of the kind proposed presupposes a specific political and economic environment. According to this viewpoint, the first step toward international monetary stability should be a decision on the pattern of political organization of the postwar world, following which inter national agreements on trade policies, commodity price stabilization, international investments, and the like might be reached, and finally a financial mechanism devised which would be suitably adapted to the economic policies already agreed upon. On more technical grounds, some observers do not believe that it will be possible to fix suitable exchange rates simultaneously for a great number of countries at the end of the war. According to this thesis, it would be better to try to fix rates at the outset only for those few countries, the value of whose currencies, at the time, will be most impor tant to international trade and finance, leaving the other nations to put their affairs in order and to ascertain the correct value of their currencies through a more liberal application of trial and error before they join in a plan of international currency stabilization and financial support. These, and other suggestions and criticisms, have no doubt received the attention of the Treasury experts who are working on the proposed FEDERAL RESERVE BANK OF NEW YORK plans. 39 The plans are still under discussion and it has been reported that further revisions are being made in the light of continued study. Proposed Bank for Reconstruction and Development On November 24 the United States Treasury released the text of a proposal for a Bank for Reconstruction and Development of the United and Associated Nations, which had been drafted by Treasury experts and transmitted to the Finance Ministers of the United Nations for their consideration.* In the opinion of the sponsors of the bank plan, the flow of private long term funds to capital-poor countries after the war is likely to be inadequate unless a bank of this nature is set up. The Bank would assist in reconstructing and developing member countries, raising their productivity, and promoting the growth of international trade. It would have an authorized capital of 10 billion dollars, sub scribed by the governments which were members of the International Stabilization Fund, in accordance with a formula under which the United States would subscribe approximately one third of the total. The capital would be 20 per cent paid up at the start, partly in gold but mostly in local currencies. The Bank’s powers would include guaranteeing, participating in, and making loans to member governments and their agencies, and also, with the guarantee of member governments, to political subdivisions and private enterprises. Loans could be made, however, only when the funds were unobtainable from other sources upon reasonable terms. The Bank would also be empowered to encourage international investments in equity securities by arranging for government guarantees of the trans fer of earnings from such investments, and by participating in such investments up to 10 per cent of its paid-up capital. The provisions of the plan as to management are similar to those of the proposed Inter national Stabilization Fund. * The text is reproduced in the Federal Reserve Bulletin, January 1944, pp. 37-41. TWENTY-NINTH ANNUAL REPORT 40 Balance of Payments of the United States; Capital and Gold Movements B alance of P aym ents Fundamental shifts in the balance of payments between the United States and foreign countries, evident in the early years of the war, were virtually completed in 1943. In that year the various items making up the balance of payments began to conform to a well defined wartime pattern. Our commercial and financial transactions with foreign coun tries may be said to be in the second and perhaps final phase of their wartime developments. The shifts brought about by the war can be seen in the accompanying diagram, which shows the cumulative move ment since 1935 in the principal factors providing dollars or their equivalent to foreigners, and the chief ways in which dollars or their equivalent were used by foreigners. Principal Items in the United States Balance of Payments with Foreign Countries* (Cumulative movements since January 1, 1935) B IL L IO N S OF DOLLARS 30 25 20 a5 10 5 0 5 10 15 20 25 30 * Areas above the zero line represent three o f the principal sources o f demand for dollars by foreign countries; areas below the zero line represent the two principal methods by which dollars have been obtained. FEDERAL RESERVE BANK OF NEW YORK 41 Reviewing our immediate prewar experience, the diagram shows that, except for a period between October 1937 and July 1938, the dom inant factor in the balance of payments was a persistent inflow of capital from foreign countries. This was in large part the result, first, of monetary uncertainties abroad and, later, of the series of political crises which culminated in the outbreak of hostilities. From the end of 1934 through August 1939, this inward transfer of capital, according to reported data, amounted to somewhat over $4,900,000,000, and, when unrecorded items are considered, the total movement was con siderably larger. During the same period our merchandise exports exceeded imports by over $2,000,000,000, only about one half of which was offset by net payments to foreigners for services and other “ current account” items, not shown in the diagram. the “ current account” items The capital inflow and (including trade) were offset in the balance of payments by a net gain of gold from abroad, amounting to about $7,500,000,000 between the end of 1934 and the start of the war in Europe. The first phase of the war transition began with the prompt appli cation in 1939 of foreign exchange regulations in most parts of the world where such controls had not previously been adopted. This re sulted in the elimination of virtually all private international transfers of capital and gold not essential to the war effort, and the concentra tion of foreign exchange and gold holdings in the hands of various monetary authorities. The effect of the war on our foreign trade, in this period, was a further expansion in the already large export surplus, as the trade balance of belligerents became an expression of war needs rather than of economic exchanges of goods. Even after the beginning of the war in 1939, however, it is signifi cant to note that gold movements continued to perform many of their traditional functions. Since the British Empire and France undertook to finance their overseas purchases of war supplies through the sale to the United States Treasury of their gold stocks, there was for a time a continuation, at an accelerated rate, of the inflow of gold from abroad which had been in evidence in the prewar years. Gold, therefore, as in peacetime, was acting as a “ balancing” item in the balance of payments. The liquidation of prewar foreign gold reserves continued through the early part of 1941 and between the end of August 1939 and the end of April 1941 we experienced a further net “ gain” of gold from abroad aggregating $5,600,000,000, or at a monthly average rate of $280,000,000. 42 TWENTY-NINTH ANNUAL REPORT Because of these heavy gold sales, which at times were in excess of foreign dollar requirements, foreigners did not, on balance, draw down their dollar assets until early 1941; foreign funds in this country, in fact, showed a rather sizable increase during 1940. With the tapering off of gold sales, however, f oreign-owned dollar assets were heavily drawn upon and in the thirteen months ended February 1942, there was a recorded net reduction in foreign funds in this country amounting to $625,500,000. The greater part of this 4 outflow ” of foreign funds 1 represented the liquidation of short term dollar assets and American securities requisitioned from private holders by the British Government. Counterbalancing these gold and capital movements, there was a corre spondingly heavy, 4‘ favorable ” balance in our trade with foreign coun tries; from the outbreak of war to the end of 1941 merchandise exports (excluding lend-lease) exceeded imports by $2,859,000,000. E ffect of L e n d -L e a s e Although there is no precise division between the two phases in our wartime balance of payments experience, the second or current phase can be considered to have begun with the passage of the Lend-Lease Act in March 1941. The actual shipment of goods under the lead-lease pro gram did not, in fact, reach sizable proportions until several months later, but the enactment of this legislation provided the means whereby nations whose defense was common to ours could receive war supplies without the need of further liquidation of their depleted gold and dollar resources. It therefore became possible for the “ favorable’ ’ trade balance to continue and even increase, without a corresponding move ment of gold, capital, or both. Exports considered vital to the war effort were limited only by the practical restrictions of production and shipping. The profound effect of the lend-lease program on our balance of payments can be seen from the chart on page 40. In the early part of 1942, our net exports began to move rapidly upward and the movement continued at an accelerated pace through 1943. During 1942 and 1943 United States exports reached the unprecedented amount of $20,752,000,000 and exceeded imports by $14,645,000,000. The bulk ($14,837,000,- 000) of the total exports for the period, however, represented lendlease goods and therefore required no immediate settlement in balance of payment terms. As a result, the inflow of gold from abroad, FEDERAL RESERVE BANK OF NEW YORK 43 which previously had been the principal factor supplying the dollars needed to pay for foreign purchases of our goods, ceased. From the beginning of the lend-lease program through December 1943 we extended aid totaling $19,986,100,000, including services ren dered as well as goods transferred. Of this amount, more than half, or $11,733,000,000, was furnished during 1943. At the same time we have been receiving considerable amounts of “ reverse lend-lease” from those countries to which we have been supplying goods and services. Although no comprehensive figures have been published, it has been reported that the British Commonwealth of Nations alone had made expenditures of about $2,094,900,000 for “ reverse lend-lease” aid up to December 31, 1943. About $1,526,200,000 of this total was expended by the United Kingdom and $568,700,000 by Australia, New Zealand, and India. By the beginning of the year 1944, outlays by the British Commonwealth for “ reverse lend-lease” to the United States were at an annual rate approaching $2,000,000,000. The lend-lease program has not been the only factor bringing to a halt the drain on foreign holdings of dollar exchange and gold. The Government’s buying program of vital raw materials in Latin American and neutral European countries, either for shipment to the United States or for storage abroad, has placed relatively large amounts of dollar funds in the hands of foreigners. Not only has there been a substantial in crease in our imports, but, as a result of the restrictions on the production of civilian goods here and limited shipping capacity for such goods, there has also been an enforced reduction in our exports to those coun tries now benefiting from our buying abroad. The movement of American troops to foreign countries and the outlays of these forces for goods and services not received under “ reverse lend-lease” also have been an important source of dollar exchange to the monetary authorities of the United and Associated Nations. R e c e n t C a p it a l M o v e m e n t s The combined effect of all these factors, making up the second stage of transition from peace to war, was, first, a curtailment in the depletion of foreign-owned gold and dollars as the lend-lease program got under way and, then, a gradual building up of foreign funds as our foreign spending began to reach sizable proportions. The net acquisition of dollar exchange by foreigners began in February 1942 and has since continued at an increasing rate. According to recorded 44 TWENTY-NINTH ANNUAL REPORT data, the net amount of foreign funds held in this country rose by $2,037,900,000 between the middle of February 1942 and the end of November 1943, the last date for which figures are published. Of this “ inflow/ ’ $1,238,600,000 occurred during the first eleven months of 1943. Most of the “ inflow” during 1943, and in fact since February 1942, has represented a building up of short term dollar assets by foreign central banks and governments. Since February 1942 foreign official dollar assets in this country, despite large purchases of gold here, have increased $1,583,900,000; of this increase $1,038,000,000 took place during 1943. As a result, official holdings of short term dollar funds as of November 1943 amounted to $3,087,600,000 — a level greatly exceeding that which prevailed at the outbreak of the war. Under existing conditions and regulations, international transfers of short term capital for private foreign account have, in general, been negligible in recent years. In the first eleven months of 1943, the net amount of banking funds held in this country for such account rose by $71,200,000. The small amount of these transactions, of course, has little or no long-run significance, inasmuch as, under the systems of exchange control in force throughout most of the world, dollar exchange held for private account is kept at the minimum considered necessary for the normal conduct of business, and new acquisitions of dollars are usually turned over to the control authorities of the countries concerned. Reported Net Movement of Capital between the United States and Foreign Countries (In millions of dollars; net capital inflow -f- or outflow —) In banking funds “ Official” (a) Total Total +1,413 +1,196 + 802 + 434 +1,177 + 706 497 + 604 +1,239 + 965 + 397 + 256 + 318 +1,146 + 853 287 + 561 + 1,109 + + + - 1935—Nov. 1943, in clusive................ + 7,074 + 5,318 1935....................... 1936....................... 1937....................... 1938....................... 1939....................... 1940....................... 1941....................... 1942....................... 1943 through Nov... Through security transactions Private + + + + + + + + 10 71 163 5 304 658 147 358 1,038 + 2,450 + 2,868 + + — — + + 955 326 93 323 842 195 140 203 71 Total + + + + + — + + Domes Broker tic Foreign age bal securities securities ances 448 + 317 799 + 601 546 + 245 116 + 58 86 31 147 - 245 210 - 262 43 + 47 130 + 37 +1,756 + 712 + 125 + + 191 + + 267 + + 58 + 84 + + 78 + + 52 7 + + 82 + + 930 6 7 34 — 33 20 — 3 11 + 114 (a) Since July 1942, includes funds held for account of foreign central banks, governments, and their agencies; prior to that date included only certain foreign funds held with the Federal Reserve Bank of New York and commercial banks in New York City. FEDERAL RESERVE BANK OF NEW YORK 45 Foreign transactions in long term securities likewise were on a small scale during 1943. In the elapsed portion of the year, through November, a net amount of $36,800,000 of domestic securities was pur chased for foreign account. This represented largely purchases of long term United States Treasury securities for official foreign account. As has been the case in most previous years, foreigners continued to retire, either through redemption or repurchase prior to redemption, their securities outstanding in this market. From the end of 1942 through the end of November 1943, recorded net purchases of foreign securities by foreigners amounted to $81,600,000, most of which appeared to have reflected the repatriation of the dollar bonds of the Western Hemi sphere countries. These net purchases extended to $929,800,000 the repatriation of foreign securities since the beginning of 1935, when the present reporting system began. G old M o v e m e n t s The magnitude of recent accumulations of dollar exchange by for eign monetary authorities cannot be fully appreciated without taking into account recent gold movements. During the period from February 1942 to November 1943, when banking assets held in this country for foreign official account rose by $1,583,900,000, foreign central banks and governments also increased the total amount of gold earmarked for their account at this bank by $1,027,264,000. There has been a further increase in gold earmarkings since the end of last November and the amount held at the end of 1943 — $3,477,400,000 — was the largest on record and about $1,560,600,000 above the level of June 1941, when the current program of gold earmarking began. As the gold earmarkings, together with relatively small exports of gold, were only partly offset by domestic production and imports, the United States monetary gold stock, which reached a peak of $22,800,000,000 in November 1941, had been reduced to $21,900,000,000 by the end of 1943. A t that level, however, it was still more than $5,000,000,000 greater than at the beginning of the war in Europe. Without identifying the principal buyers of gold, the general state ment may be made that they had one characteristic in common: namely, they have acquired substantial amounts of dollar exchange in recent years following a period of severe strain on their gold and dollar reserves in the years leading up to, or immediately after, the start of the war. 46 TWENTY-NINTH ANNUAL REPORT As related to our international balance of payments, this foreign accumulation of gold is significant in two respects. In the first place, the gold purchases indicate a recouping of foreign gold reserves which had been depleted in the prewar years. The redistribution of the world’s gold supply now under way — although still on a relatively small scale — should aid in establishing and maintaining postwar exchange stability. Secondly, the foreign acquisitions of gold demonstrate that, despite the many changes the war has made in this country’s financial and com mercial relations with other nations, gold continues to play a role as a means of settling international balances. Whereas, before the inaugura tion of the lend-lease program gold flowed to this country, we are now losing gold as a result, in part, of the excess of our imports over cash exports. The esteem in which gold is still held in many countries has been evidenced not only by the monetary demand for gold in recent years, but also by a public demand in those countries where a more or less un restricted bullion market still exists. This has been particularly true in Gold Held Under Earmark for Foreign Accounts and Foreign Deposits In Federal Reserve Banks BILLIO NS OF D O L L A R S 47 FEDERAL RESERVE BANK OF NEW YORK India and in the Middle Eastern countries, where large allied expenditures and a limited supply of commodities have made possible a considerable hoarding demand for gold. Indicative of this demand, the price of gold in the Bombay bullion market, which rose steadily during 1942, turned sharply upward in April 1943 and by the early part of May had reached a record high, equivalent to about $78 per ounce. A similar movement has occurred in Egypt and prices in the Alexandria market have been roughly comparable with those quoted in Bombay. At these high levels, gold was selling at well over twice the $35 an ounce price quoted by the United States Treasury. Such wide discrepancies in price between markets can, of course, exist only because of the present re strictions throughout the world on dealings in, and the international movement of, gold. The introduction by the Indian Government of anti-inflationary measures, including restrictions on forward dealings in gold and a prohibition against loans on gold, has been instrumental in depress ing the Bombay gold price. But by the end of last November, gold bullion was still being traded in the Bombay market at the equivalent of about $62.50 per ounce. As a further means of combating inflation, official sales of gold reportedly have been made on a large scale in the Indian market and in markets of the Middle East. These sales undoubtedly have also tended to reduce the price of gold in Bombay. Foreign Exchanges The foreign exchange markets continued inactive during 1943 and any resumption of dealings on a more or less unrestricted basis must await at least the partial removal of the wartime controls on inter national finance and commerce. These restrictions at present include not only the direct foreign exchange controls in effect here and abroad, but also the various other governmental regulations covering trade and finance, which have indirectly restricted exchange transactions for private account. Governmental controls over trade and shipping, together with the curtailment of the production of civilian goods, have been instru mental in placing a large share of foreign trade on a government-togovemment basis. With but few exceptions, foreign exchange rates remained stable during 1943, although under the present conditions this stability may reflect simply the efficiency of the controls. Few changes were made in 48 TWENTY-NINTH ANNUAL REPORT the official rates quoted by the various monetary authorities. The official sterling rates continued at $4.03% for the purchase of dollars and $4.02% for the sale of dollars. As a means of simplifying the manage ment of sterling accounts held by residents of the United States, on February 2, 1943, all such sterling area and “ free” (old) accounts were converted into United States registered accounts, first established in July 1940. This amalgamation had the effect of extending to the sterling area and “ free” accounts the guarantee of convertibility into dollars at the official rate. Official dollar rates for other sterling area currencies also remained at previously prevailing levels. No large changes were made in the official dollar rates of the Latin American exchanges. In the New York market, quotations for those currencies still traded reflected closely the various official rates. In the “ unofficial” market for the Canadian dollar, the rates moved within a fairly narrow range around the official level. Among the Latin American exchanges, the free rate for the Argentine peso which had held somewhat below $0.2400 since the early part of 1941 presumably through official intervention in the Buenos Aires free market, was allowed by the Argentine authori ties to appreciate at the beginning of 1943 and by mid-April had risen to slightly above $0.2500, the highest level since before the start of the war in 1939. On April 19 the rate at which the Argentine central bank buys dollar exchange derived from “ nonregular” Argentine exports to the United States was changed to 397.02 pesos per $100, equivalent to about $0.2519 per peso (compared with about $0.2370 previously). The widest fluctuations in New York foreign exchange rates during 1943 occurred in the so-called “ free” rate for Swiss francs. This rate is to be distinguished from the so-called official rate of $0.2331, at which Swiss banks supply Swiss francs against dollars for certain specified purposes. In view of the extremely limited supply of Swiss francs available for other purposes, the “ free” rate is unduly sensitive to relatively small changes in demand and supply, and the resultant, erratic movements in the rate have little or no economic significance. During 1943 the “ free” rate fluctuated between $0.2450 on February 1 and a high of $0.4435 in mid-December. This appreciation in the rate in the latter part of the year appears to have been due largely to a tightening of the Swiss National Bank’s policy with respect to the absorp tion of the dollar proceeds of the exports of Swiss watches. FEDERAL RESERVE BANK OF NEW YORK Foreign Relations Deposits held by the Federal Reserve Banks for foreign central banks and governments rose to successive, high levels during most of 1943, and as of the end of the year totaled $1,360,000,000, an increase of $568,000,000 over the level of a year earlier. This increase occurred despite the continuation of the sizable conversion of dollar balances into earmarked gold which has been under way for several years. The total amount of gold held under earmark for foreign account rose $803,000,000 during the year to a new high of $3,477,000,000. Furthermore, foreign monetary authorities continued to show considerable interest in investing some of their holdings of dollars in United States Government securities, as evidenced by an increase of $352,000,000 in such holdings at this bank, which at the end of the year amounted to $833,000,000. All funds, including gold, held by the Reserve Banks for foreign account at the close of 1943 aggregated $5,693,000,000, compared with $3,969,000,000 at the end of 1942 and $1,515,000,000 immediately prior to the outbreak of the war. Six new foreign accounts were opened on the books of the Federal Reserve Bank of New York during the year. Two of these accounts were opened in this bank's capacity as fiscal agent of the United States, while the other four were opened by this bank on its own behalf and that of the other Reserve Banks. This bank also established three new foreign currency accounts with central banks abroad — two in its capacity as fiscal agent of the United States and the other for its own account and that of other Reserve Banks. As a result of United , States Government operations abroad in connection with the war, there was a considerable increase in the volume of foreign transactions effected by this bank, acting on behalf of the Treasury Department and several Government agencies. Two short term loans, aggregating $2,500,000 and secured by gold earmarked at this bank, were made to a Latin American central bank in January 1943 and were repaid the following April. Two similar loans made to the same central bank in the latter part of 1942 were also repaid during the year under review, so that no loans to foreign central banks were outstanding as of the end of 1943. Developments in Operations of the Bank There was a further substantial increase in the volume of operations of the bank during 1943, especially in its work related to war expendi 50 TWENTY-NINTH ANNUAL REPORT tures and the financing of such expenditures. In order to handle this greatly increased volume of work, it has been necessary to increase the size of the bank’s staff to nearly double that of three years ago. A t the end of 1943, the total number of employees, including the Buffalo Branch, was 4,632, compared with 2,482 at the end of 1940. Between 40 and 45 per cent of all employees of the bank are now engaged directly in opera tions which are carried on as fiscal agent of the Federal Government and its agencies. The Government Bond Department and its affiliated Savings Bond Redemption Department continued to be among those showing the great est expansion. A t the end of 1943, these departments had more than 1,000 regular employees and, in addition, were forced to borrow con siderable numbers of employees from other departments from time to time to handle the load at peak periods. The large increase in the work of these departments is reflected in the table at the end of this section, in which it is shown that the total number of Government securities issued, redeemed, and exchanged during the past year was in excess of 42.000.000, compared with slightly less than 20,000,000 in 1942. The dollar amount represented by these securities totaled more than $112,000,000,000 in 1943, compared with approximately $47,000,000,000 in 1942. The greater part of the increase in the number of securities handled was in Savings bonds; the number of Savings bonds issued by this bank and supplied to other issuing agents in the District increased from about 17.000.000 in 1942 to 32,000,000 in 1943, and there was also a substantial increase in the number of redemptions of Savings bonds accompanying the rapid increase in the number outstanding. On the other hand, most of the increase in dollar volume was in other types of securities, including Treasury bills, certificates of indebtedness, notes and bonds, and Savings notes. In the handling of Government checks, there was a growth of such proportions that it became advisable to set up, in June 1943, a separate department for the payment, recording, and forwarding of such checks. As the table indicates, the number of Government checks handled rose from somewhat more than 22,000,000 in 1942 to about 61,500,000 in 1943. A large part of the increase was due to the fact that, beginning in May, army dependency benefit allowance checks* for the whole country were made payable at this bank. The number of such checks handled by the end of 1943 was close to 30,000,000. Army allotment checks** also were * These checks represent payments by the Government to dependents of men in the Army, to supplement allotments made by the men themselves. * * Allotments of part of their pay, made by men in the Army to their dependents. FEDERAL RESERVE BANK OF NEW YORK m m t N c F a a h d d e a r e d n r o 9 h S r n u a 1‘ l 4 r t t r i A c c o m h e l w i s i n S t a i n m i t o f b u s b e e i l ’ t a d i h t t a t t t n e e U e s c o i t d u a a r a t i i i o n s t a o n h i e o b m m i R e t t h r d n d c n c l e , 0 0 p f o r e m y r y F d e c h e e r a s . c h u c t h i o s h u e o . c t r t s e e e e o r u e t e d e p D D w m m n l n m s e p t , y u o o h e o a a s t e i e r e k a t C T m o r i s e c n i a o . f y e d e s l o i r a r t a h e a e a d t e e a s e d a a e c s s p n i e r t a , l e a f d y p r F S s p s o s i t t a b t s e d s u i u t i i o n e h u d y e e o t t f e o f n e e a l i s u h t s q s h s p o i p k r “ y o r o e o n a b r w m t e i e t f p e m c t n o d a 5 a i e n u a r i a l b d c o e r e , 0 0 0 n k . w b d a d , e d n n c e n 3 e n a r s s h a T h e v C o r p o r D u r i n g t r a n s a c a n d i t s t r a n s a c f e n s e S a s f o r s u b s i d i t e n a n c e o w n e d G o v e r n e p o e o o 4 t B o p e p 9 x e n h a s h i h n n k s l y i s r e T h e c h b w J t t v i s e e c y c h a n h C d e e m w h t t r a a e a t n . h e r 1 t n s i t t n e n D n e r n i i o f e r s n d n s o e e t a a r g s rt o c h n e h a e e d v ’ a e l m r e s l t r l b R h k b a n a o l c i n p o n p w 99 a f n o y l a r 3 o u g t c e a o a y v Y G s c e y a y e o a p o v h p G a l e e A c m c d d 1 t e e 51 p e f i e n w a 52 o f l e s TW ENTY-NINTH A N N U AL REPORT t h s i t T h e l a r g e d i f f i c f o u n m a t e s D h a o o r u p l l t d p r i a p 1 w v u e n k l s y r t a o m r o l a 0 0 b s . d l e l e i b N e t t f e o m t h u m e i r t a F Number of Pieces Handled* Bills discounted: Applications .......................................................... Notes discounted ................................................... Industrial advances: Notes discounted ................................................... Commitments to make industrial advances___ Currency received and counted ................................. Coin received and counted ......................................... Checks handled: United States Government ch e c k s...................... All other ................................................................ Collection items handled: United States Government coupons paid'"*___ All other ................................................................ Issues, redemptions, and exchanges by fiscal agency departments: United States Government direct obligations .. All other ................................................................. Wire transfers of funds ............................................... Amounts Handled Bills discounted ............................................................. Industrial advances: Notes discounted ................................................... Commitments to make industrial advances___ Currency received and counted ................................. Coin received and counted ......................................... Checks handled: United States Government ch e ck s...................... All other ................................................................ Collection items handled: United States Government coupons paid** . . . All other ................................................................ Issues, redemptions, and exchanges by fiscal agency departments: United States Government direct obligations .. All other ................................................................ Wire transfers of funds ............................................... 1942 940 940 585 585 3 0 759,332,000 1,441,589,000 1 2 735,507,000 1,325,127,000 61,568,000 224,249,000 22,292,000 214,308,000 5,466,000 1,310,000 4,799,000 1,730,000 42,090,000 182,000 158,000 19,776,000 242,000 165,000 $642,816,000 $106,361,000 101,000 0 4,439,525,000 138,784,000 10,000 145,000 3,804,765,000 129,409,000 32,483,158,000 139,355,654,000 19,193,691,000 105,717,029,000 932,461,000 2,407,785,000 703,483,000 1,711,466,000 112,431,087,000 1,753,839,000 62,527,138,000 46,726,911,000 2,567,823,000 42,120,814,000 * Two or more checks, coupons, etc., handled as a single item are counted as one “ piece.” * * Includes coupons from obligations guaranteed by the United States. t s r l y o g a o r n n e n Some Measures of the Volume of Operations of the Federal Reserve Bank of New York 1943 i e s t e n h e d 1 53 FEDERAL RESERVE BANK OF NEW YORK a a r i J q c d t i o d e c t D F D n i i h r r a r e d e u d n t u n h l e n a k r e r R s s e D u r i n m e s h o w s t o m e b e r s h y e a r , w e r e 4 1 p e c o m m M e a s u p e r c o g l M i n e g m b 1 i p 6 m r e r r e n e s m e c c d e e n a e r w t l d t r b i a h a p b b o s i t r h 0 e h S b r p s y f h e “ e r h d o t n e h e 7 m t d o b t m , i s y n t f n m a a b p o a a , m e o b s d u D d e n g l e a e t n m h u W h i a r t k e p s i y a d e r p f r t p a n e a e m e i t a a a n l t c t r m g f e s e s r o h S t h i n t t t h t k n u n w e k c e n b a r C t p t e i p b e c e s , e r a n t o a l l o a n k . l y l e p a b e r c k e n s t a n a r t m a p t o e A e r a D e ” r e e k l p s r e w u i a a c r e 0 h r b d i e u m d c w d s e v o l o d n e d f e c r e e u h r o m T G n t m h n a t n t i v k 0 e d i s T r e a o r t s g n d o f t h m o r e B a n p a r c t e e n o d , n a o y f C a h s t e n e e r h e o y u a f e e r . o d t , 2 g n i n d n 4 9 n i e r 1 i e b s . e e d i o 2 e r r o t e h c l y f h t f R w t u i d e c t t l m t t a i b l c y d t r o g g s a k h n s i a a n e s r n r e p i n e d r b t d u i d o g u i n n a w 1 l a d n j u g , e i e e n e c e a o e v h r n I t h d u t i n c o r e i n d l h a T t h b a g u t h d i o f i i t u u s t e n ( n i t s e 54 m b TW ENTY-NINTH AN N U AL REPORT e a m n k b s e r b a n k s r e p T h e s S y s t e m a t t r i b u t i n e a r l i c i t y c o r m e n t s o t i m e d e w i t h t h t a k e a l l f i n a n c i n a p p r o a c b a n k s w r e q u i r e m v e n i n g u b s f o d e e t t e s g h s a f i e e i d w e e r t r , a w m t National b a n k s................ State banks and trust com panies ........................ 565 0 100 574 0 100 241 161 60 225 179 56 Total .......................... 806 161 83 799 179 82 Changes in Federal Reserve Membership in Second District During 1943 Total membership beginning of year ................................................................ 799 Increases:! State banks and trust companies adm itted................................................. 17 Decreases: Member banks combined with other members ........................................... Voluntary liquidation .................................................................................... 9 1 Total membership end of y e a r ............................................................................ h a c December 31,1942 Net increase ............................................................................................................. h w Non Non Per cent Per cent Members members members Members members members Total decreases ...................................................................................... a d r o s p h n f e — e d n l h s e o a s s a f t t e h , r d u s o n n r e h t e a u t h c n r s c n t e , n i v n k i — e December 31,1943 10 7 806 * This represents only banks in actual operation. t In addition to figures shown in this table, two nonmembers were absorbed by members during the year. e s s m n o t l k e a p a a d m o e r n e m p o b h a p l i n s e d e t a o y v s i n b r r n a Number of Member and Nonmember Banks in Second Federal Reserve District at End of Year* (Exclusive of Mutual Savings banks and Industrial banks) Type of bank r . y e h m a t 55 FEDERAL RESERVE BANK OF NEW YORK F i n a Statem ent o t o t t $ T f h h a f o t a e v 7 , 9 e n 3 r $ n 1 i o e r h r k a v 8 m , 7 a l S e s o a t n t , 0 0 A ssets Gold certificates on hand and due from U. S. Treasury ......................................................... Redemption Fund—Federal Reserve notes . . . . Other cash ............................................................. Total reserves ....................................... Bills discounted: Secured by U. S. Government obligations, direct and guaranteed ......................... Other bills discounted................................. Dec. w f i , 0 t e c u , 0 0 0 Dec. $ 6,855,451 1 ,364 74,244 73,223 $ 6,001,376 $ 6,930,038 $ $ $ 2,185 Industrial advances ............................................. $ 126 $ 179,243 $ Total U. S. Government securities, direct and guaranteed .................. Total bills and securities .................... Due from foreign b a n k s..................................... Federal Reserve notes of other b a n k s.............. Uncollected items ............................................... Bank premises ..................................................... Other assets ........................................................... Total assets............................................. * After deducting participation of other Federal Reserve Banks ............................................. 235 1,062 Total bills discounted ......................... U. S. Government securities, direct and guaranteed: Bonds ............................................................. Notes ........................................................ Certificates ................................................... Bills .............................................................. 3 1 ,1 9 4 2 22,844 2,185 $ $ 1,297 611 713,273 74,569 343,553 271,407 265,889 2,474,891 372,606 $ 3,000,110 $ 1,695,321 $ 3,002,421 $ 1,697,229 $ $ 56* u n d h 2 s $ 5,904,288 o i g l o c h 0 0 h , e . 0 3 1 ,1 9 4 3 t r n o 0 e (In thousands of dollars) t u $ 0 e n d n , 0 0 e d y , l l i , r m t s i u t 0 Y e n n e r 3 o 0 r l i u w o t o c C ondition of n c 9 , 5 a o e N m 9 h c h n o G t e t n 18* 12,394 7,019 502,634 3 82,789 9,121 9,823 9,936 21,947 $ 9,537,938 $ 9,048,863 80 29 r 0 i t a 56 TW ENTY-NINTH AN N U AL REPORT 1 9 4 3 . H o l d i n g r e f l e c t i n g h e a v o p t i o n s ) t o a d i n c r e a s e i n t h i i t s p a r t i c i p a t i o d u c e d . C o n s e h o l d i n g s o f T d e b t e d n e s s s h o h o l d i n g s b e i n g W “ e n m l a D a n h t i o t l a d o e r n t g e c e e d e l m o t e y l s f 1 9 4 2 , o f m e m b a n k s b e r 2 9 n D e c e m b h i l s o y j u t a n u r a e w a a r i e o c e L iabilities Dec. 31,1943 $ 3,766,861 $ 2,799,735 $ 4,263,922 210,279 600,236* 246,308 $ 5,320,745 * After deducting participation of other Federal Reserve B a n k s................................... ."........... $ 271,518 342 $ 8,917,259 $ Total liabilities ..................................... Ratio of total reserves to deposit and Federal Reserve note liabilities com bined.............. Commitments to make industrial advances . . . 301,754 1,154 57,440 70,012 7,092 12,880 $ 53,653 58,001 7,070 12,880 $ 147,424 $ 131,604 $ Capital accounts: Capital paid i n ............................................. Surplus (Section 7) ................................... Surplus (Section 13b) ............................... Other capital accounts ............................... Total liabilities and capital accounts.. $ 5,845,664 $ 9,390,514 Deferred availability ite m s................................. Total capital accoun ts......................... $ 5,029,391 144,933 367,578* 303,762 ' $ 9,537,938 $ 66.0% 9 759,843 $ 9,048,863 $ 80.2% 261 424,034 i t a t d n t c r a e n h Dec. 31,1942 Federal Reserve notes in actual circulation . . . Deposits: Member bank— reserve account ................ U. S. Treasurer— General Account .......... Foreign ........................................................ c k e l (In thousands of dollars) y l o b a r y r n t t b u u r o l n f t t t o i h k n - e s e h t s d l l s n i n e e r l e b q T a s s e d t b f s d 8 i s t h 57 FEDERAL RESERVE BANK OF NEW YORK $ $ t w t p M 7 6 e m 5 0 h r e e r T l o h c h e e D e i d a e p e l a a a n T O t o s a i n t o h p s t t o s a s 1 c 4 u 3 r o n $ f a T e t d r i n n c y c e i h , o o ” g n d u i r n u n a a t r t d w o e h r i c h e f c o t a v m e e p n m n r e a t s e e o e d a i d u d s n t w r n y e w e n o e p b m c n y a h d m r c o n c a o i t t l t e e o l r n f s c A d o h h a n a o s f a t e t G e o i p t s t t e s t g r c k s d f n m s b s o o a l e n r r n g s t n u n i l e a g y i n n i s o , s s n i e l t c p s t y r s m n b e v a , r i u l s f r r e a k a r n o h i e n s o b o a f t y n r a k o 9 a o a M r l a D isbursem en ts d r l e a l e c i c t . w e v u l a u d e r r e h r G i d e g t f o l i s e n s e a r m l e t a u f r n n f c f u e e l u o an d e c c B s n n f i o c r y s h s r i i r e a t e h O v s c . s i r n r , i t l y s i y y k n e e e l y g u I ncom e G r o i n c r e i n g s c o n s o w i n p o r t G r o s e x p e n e t e b t c s r c D , e e d e c k s t e n b r n e s a o o e o r n p r 0 0 n i n c r a a p p a r i n t h t h e b c u r r e n s t a n d i “ T r e a s b r b R e 0 0 u r u b a n k r e s e r v , 0 0 0 d u r i n g , 0 0 0 d u r i n g 1 g h G o v e r n m e n t f m u c h g r e a t e r t h s s e s o f r e s e r v e f u a s e s b y t h e F e d , 0 , 0 o e h b 0 0 r , s i i t n 58 TW ENTY-NINTH AN N U AL REPORT Profit and Loss Account For the Calendar Years 1943 and 1942 (In thousands of dollars) 1943 1942 $ 17,998 10,034 $ 14,078 8,880 $ 7,964 $ 5,198 $ 10,217 28 $ 967 7 $ 10,245 $ 974 $ 2,389 482 7 $ 1,122 482 Total deductions ................................. $ 2,878 $ 1,604 Net earnings ......................................................... $ 15,331 $ 4,568 Paid United States Treasury (Section 13b) .. Dividends paid ..................................................... Transferred to surplus (Section 13b) .............. Transferred to surplus (Section 7) .................. $ 18 3,280 22 12,011 $ 34 3,184 Surplus (Section 7) beginning of year .......... Addition as above ............................................... $ 58,001 12,011 $ 56,651 1,350 Surplus (Section 7) end of y e a r ...................... $ 70,012 $ 58,001 Additions to current net earnings: Profits on sales of U.S. Government securities All other ....................................................... Total additions ..................................... Deductions from current net earnings: Retirement system ....................................... Special reserve on bank prem ises.............. All other ....................................................... R n o e t e v o h r v k r p e r $ e u m a r i o e e e D t t s i t n 4 n n i , 5 d e n l e s s b a l a l u s . t g 0 i c y e a o r e t . o s o a m m 0 n , t f 0 t a e s o , 0 s h t n S s 0 d 1,350 t o n m c e o u k h q n o u t i 59 FEDERAL RESERVE BANK OF NEW YORK I S C b l A o w t d b g N e C w t n y s o e A r d e y a t k , B s n i i n o i n r i e r m r e o D s t e . , k t h d i r 1 9 4 n D i l l i m r , N g i n r e d s t e r a t r e e r m i n t f f a e e i y o h e o u T h e g D m s i b p e p o t n h c e m e r N e f s b t i c 4 t b y o e n 1 i r g , f o m 3 , d . Y r 1 t h , b r t 1 a e e a o f e s t N e 1 h 3 o 4 a y k r 9 n k , B m r C s a t a o , y r s i t r e u t s f e e p c e l n 1 b e r i r e y h r e I o t i W l e u r p r m e h o e o , y p D k e t x , T f d i C u a , R e t e r 3 s n r n 4 r d o u h a o e s e t b e a i d , e r Y r v u e t 9 e y i m r b d w o 1 e a n t a m e i c u l t u e s i g n a a r . r e g u l a n k e i n G r g J a n a l B a d D e c a n o e l e c t e f t h r e D t i c n r n i U r e n I e a m c , g s g n a f n a e s y i o v A t e n a n i n a t x p h a a s e r m t b h e n e a f t a p m t f n e k f a m u t h h e n I i t l a S I b o C 1 M t b p S p t t p B C S h e i s b a . e a c e n i m o n y e a x p d i r i r r e e c a c t t o f a i n o r r o t , e e o N i e h . g n m . b F o r t h , 9 T c f t c 1 , 1 , n n B f f , d n h s o 3 1 e l g o c i r y 3 D i 4 n r t d r r e a n e e a B f b M o i u 9 d u r e o B s i d l p r i n b p 1 d a a m , e e e s s J c a e a g e r r . , n D e P Y n b , . i m h e o t i s B u TW ENTY-NINTH A N N U AL REPORT 60 C h an g es O e a n r a U n y l s g J C e o u n E f a l i c a n e p a r g e R a C t i c l n f e e c t r r a o e l g J N C I o n . o u Y n . c u t i a T . , l m e t u h t a e m r H n d S r s e t 7 r p h n r M o . f n n e n e B t a m a e r o , s a y t a u u t c c . F ederal A dvisory C o u n cil n C c f D v , b y , o l u , . f V t s s n r l s r s o M t r t n a a i n u a i s i e u l I o . a a n . r r d r a p J h F T G h h h i o o a t l s c C f . n r c n e N of t a e p M em ber n u t B c e n i o 3 e i t h b h a d a t s e e t i l e t b e D s e t r D y J e n m r l s 4 A W f e e i 9 e e R m o b 1 D h e n r t m o h v i P a , , t i t k m r n t n 6 C . M f f i c e r o S t a t e s d e f b s e e d o t 1 f e e y i o y a i t n l h r M V V B D p a u O fficers in r o f y r s o r 1 a e t p r h 9 a h v 4 g e e 4 , e d S e t n u c , r o n FEDERAL RESERVE BANK OF NEW YORK Directors and Officers DIRECTORS Class A Group I S . Slo an C o lt ........................................................................................................... 61 Term Expires Dec, 31 1946 President, Bankers Trust Company, New York, N. Y. A 2 W il l ia m J. F ield ...................................................................................................... President, Commercial Trust Company of New Jersey, Jersey City, N. J. A 3 W arren W . C l u t e , Jr .............................................................................................. 1944 1945 President, Glen National Bank of Watkins Glen, Watkins Glen, N. Y. B 1 D o n a l d so n Brow n ................................................................................................. 1946 Vice Chairman of the Board, General Motors Corporation, New York, N. Y. 2 B F rederick E. W il l ia m s o n .................................................................................. 1944 President, The New York Central Railroad Company, New York, N. Y. 3 B C arle C. C o n w ay ...................................................................................................... 1945 Chairman of the Board and President, Continental Can Com pany, Inc., New York, N. Y. C B eardsley R u m l , Chairman .............................................................. Treasurer, R. H. Macy & Co., Inc., New York, N. Y. 1944 C W I. M ye r s , Deputy Chairman................................................. Dean, New York State College of Agriculture, Cornell University, Ithaca, N. Y. 1945 C R obert D. C a l k in s il l ia m ................................................................................................. 1946 Dean, School of Business, Columbia University, New York, N. Y. DIRECTORS—BUFFALO BRANCH B . F o l s o m , Chairman ........................................................................ Treasurer, Eastman Kodak Company, Rochester, N. Y. M a r io n Term Expires Dec. 31 1944 G il b e r t A. P r o l e ................................................................................................................................... Genesee Farm Supply Company, Batavia, N. Y. 1945 T h o m a s R o b i n s , Jr .................................................................................................................................. 1946 President, Hewitt Rubber Corporation, Buffalo, N. Y. R obert R . D e w ........................................................................................................................... 1944 President, Dunkirk Trust Company, Dunkirk, N. Y. L e w is G . H a r r im a n ............................................................................................................................. 1945 President, Manufacturers and Traders Trust Company, Buffalo, N. Y. B. M i l l i m a n ............................................................................................................................. President, Central Trust Company Rochester, N. Y., Rochester, N. Y. E lm er R e g in a l d B. W il t s e , Managing D irecto r......................................................... MEMBER OF FEDERAL ADVISORY COUNCIL J o h n C. T r a p h a g e n , President, Bank of New York, New York, N. Y. 1946 1944 62 TW ENTY-NINTH A N N U AL REPORT OFFICERS A l l an Sproul, First Vice President R a y M. G id n e y , Vice President J. W il so n J o n e s , Vice President L. W erner K n o k e , Vice President W alt er S. L o g a n , Vice President, and General Counsel L eslie R . R o u n d s , J a m e s M . R ice , R obert Vice President il l is , Vice President Vice President Assistant Vice President H arold V . R oelse , Assistant Vice President Assistant Vice President H erbert H . K im b a l l , H orace L. S a n f o r d , Assistant Vice President Assistant Vice President T odd G . T ie b o u t , R u fu s J. T r im b l e , Assistant General Counsel Assistant General Counsel N orris O . J o h n s o n , L oren B. A l l e n , Manager, Research Department Manager, Credit Department D udley H . B a r r o w s , W Manager, Cash Department il l ia m M . K e tt ne r , Manager, Security Custody Department H arold A . B i l b y , Manager, Check Department D a n ie l J. L iddy , H arry M . B o yd, Manager, Savings Bond Redemption Department R obert H . B r o m e , Assistant Counsel, and Assistant Secretary Manager, Foreign Department M ic h a e l J. M cL a u g h l in , Manager, Accounting Department F r a n k l in E. P e te r so n , Manager, Bank Relations Department W W . B ur t , F e l ix T . D a v is , Manager, R.F.C. Custody Department Manager, Government Check Department F rederick S to c k e r , Manager, Cash Custody Department W E d w in C. F r e n c h , Manager, Collection Department F. S h e e h a n , I n s l e y B. S m i t h , N o r m a n P. D a v is , Manager, Foreign Funds Control Department, and Manager, Security Loans Department il l ia m Manager, Bank Examinations Depart ment, and Chief Examiner Manager, Government Bond Department il l ia m F. T reiber , Assistant Counsel, and Secretary C h ar les N . V a n H o u t e n , M arcus A . H arris , Manager, Securities Department il l ia m R o u se , S ila s A . M iller , G eorge W . F er g u so n , W Vice President Vice President il l ia m s , V a l e n t in e W Assistant Vice President esley G. Jo h n H . W E dw ard 0 . D o u g la s , W President A rt hu r P h e l a n , Manager, Safekeeping Department Jo h n H . W A . H e in l , Manager, Personnel Department urts , Manager, Government Bond Department W il l ia m H . D il l is t in , General Auditor D o n a l d J. C a m e r o n , Assistant General Auditor OFFICERS—BUFFALO BRANCH B. W il t s e , H alsey W . S n o w , Managing Director Cashier R eginald G eorge J. D o l l , Assistant Cashier
