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innual

federal

Report

Reserve

f, JIflI

of the

Brink

of Philadelphia-195

THE FEDERAL RESERVE ACT
IN PERSPECTIVE AND
AS APPLIED IN 1953

THE

FEDERAL

RESERVE

BANK

OF PHILADELPHIA

March

15,1954

23rd was the fortieth anniversary of the signing of the Federal Reserve Act.
We thought it would be fitting, therefore,
to
Last December

devote most of the Annual Report for 1953 to
a look at the act and how it has changed during
four decades. This gives a picture of the act in
perspective; a review of Federal Reserve policy
actions in 1953 gives a picture of the act in
application.

Alfred

H. Williams,
President

CONTENTS
Page

FORTY YEARS OF THE FEDERAL RESERVE ACT

I

What

2

From 1913 to 1953

Is the Act?

3

How Changes Have Been Made

5

Changes in Content:

6

Changes in Content: Means

7

The First Decade

9
10

Rest of the Twenties
The Early Thirties

14

1935

16
17

Center
Pages

Ends

Since 1935
Conclusions

SYNOPSISOF MAJOR CHANGES
IN THE FEDERAL RESERVEACT

19

1953 IN RETROSPECT

26

RESERVE BANK OPERATIONS
Directors and Officers

33

APPENDIX

Additional

copies of this report are available
upon request to the Department of Research,
Federal Reserve Bank of Philadelphia,

Philadelphia 1, Pa.

FORTY YEARS OF THE FEDERAL
RESERVEACT
We shall deal with our economic system as it
is and as it may be modified, not as it might be
if we had a clean sheet of paper to write upon,
and step by step we shall make it what it should be.
Wilson
-Woodrow
First Inaugural Address
Forty years ago last December
23, President Woodrow
Act.
If, today, he could
Wilson signed the Federal Reserve
look back over four decades of experience with the act, he
he
of the approach which
would see a working illustration
for the act
advocated when he first assumed the Presidency;
from
different
December
23,1953
what it was
on
was quite
on December 23,1913.

WHAT

IS THE ACT?

To most people the Federal Reserve Act may seem simply
a confusing assemblage of words - almost 40,000 of them, or
roughly half an issue of the Reader's Digest. Though it is of
direct interest to
only a few, the Federal Reserve Act inby
directly concerns
us all. It is a law of the land, enacted
Congress,
by
President,
in
the
the
approved
the
and tested
courts. It is an expression of the will of the people, and
imposes certain restraints and conditions
in the interests of
the public welfare. In these respects, of course, the act is no
NOTE: Although this article attempts to convey an accurate picture of
the Federal ReserveAct, it does not pretend to present a precise description of the act from a legal point of view. Those interested in exact
terminology should consult the act itself.
1

different from many other laws; but unlike many laws, it affects
us all because it has to do with something vital to the economy
in which we work and live - that is, money.
On the other hand, the importance of the act should not
The act is words, and it takes people to
be exaggerated.
done
translate the words into actions. How effectively this is
depends on the ability, personality,
and character of men
and administer the act. In a way, the act is
who interpret
and alternative
simply a road map. It shows destinations
But
which routes are taken and whether the destinaroutes.
is
of the
tion
reached depends on the skill and judgment
driver as well as the accuracy of the map. In other words,
forty
we cannot by looking back at the act over a period of
years get a comprehensive or even a very precise idea of what
Federal Reserve policy has been.
Reserve Act, like any law, is a
servant of the people, not master. Since it exists only to serve
the common good, it can and should be changed whenever
necessary to do that job. The history of the act is a story of
in an effort to serve the
many changes and adaptations
better.
economy
Furthermore,

the Federal

FROM 1913 TO 1953
The Federal Reserve Act has been changed as its envirorl_
ment has changed. For one thing, the act is working in a different material environment than in 1913. The economy has become much bigger. The long-run growth trend has pushed
up national income approximately
ninefold,
and even after
Over the
allowance for price changes, more than threefold.
four
decades
has
borne
the economy
also
the shock of
past
two world wars, two major inflations, a few minor recessions,
one great speculative orgy, and one catastrophic depression
These changes in material setting have been accompanied
The American
by changes in the idea environment.
drive
2

for greater economic well-being is still with us and, if anything,
has become intensified. It has also been expanded to include
a strong desire for economic security. The role of Government has been enlarged.
have affected the
These basic environmental
influences
Federal Reserve Act. The greater reliance on Government
has meant more laws. Whereas the Federal Reserve Act was
one of many Federal laws in 1913, it is now only one of many,
including a whole new body of adminismany, many laws trative law promulgated,
administered, and enforced by alphabetical agencies
dealing in credit and fi- several of them
fields.
Even
in
nancial
matters relating to the Federal Reserve
System directly, it is, perhaps, revealing that for 18 years
few changes have been
has
made in the act itself; new authority
legislamore often been granted to the System through other
(The selective credit regulations, for
tion or Executive Order.
) All this is a
have
been
issued
example,
under such authority.
in which monetary policy is now
reflection of an environment
only one of many ways of influencing
our economic destiny.
At the same time the
flow from it
act and policies which
has
become
because
more
are more vital than ever
our economy
Matters of finance
and more a money and credit economy.
have permeated throughout
levels, and more people
all income
today have a greater stake in economic growth and stability.
In trying to develop
have
security for many groups we may
introduced inflationary
finally,
And,
biases into the economy.
in this country
the need for maintaining
growth and stability
has
assumed increasing world-wide importance
as the United
States has become the foremost
world power.

How Changes

Have

Been Made

The Federal Reserve Act has been
adapted to this changing
environment
through
the political
process. Like any other
law, the Federal Reserve Act
always has been no better and no
3

(in the true meaning
worse than the thousands of politicians
formulate
it and modify
it.
have helped
of the word) who

All kinds of men have participated in the give and take that
has produced the act and its revisions. Consequently, it is
but it has the strength
not so "neat" as some might like it to be;
and realism that come from the democratic process.
It is also a reflection of historical evolution. In his book,
The Big Change, Frederick Lewis Allen makes the point that
one of the great strengths of this country is our approach to
economic problems:
here in the United States we have not been construct...
ing a system as such, but tinkering with and repairing and
rebuilding, piece by piece, an old system to make it run
better
have arrived at a trans...; and ... accordingly we
formed product which might be likened to an automobile
continually repaired, while running, by means of new parts
taken from any old car which seemed to suit the immediate
purpose of the repairers, with the result that in the end it
is hard to say whether what we have is a Buick or a Cadillac
or a Ford. *
Everyone might not agree that all problems have been
attacked quite so cavalierly; nevertheless, this is a penetrating
observation on the American attitude.
A look at the Federal Reserve Act today
suggests that 'we
have worked on it in
a similar way during the past forty years,
In the process it has been more than doubled in length.
On
only about five occasions has the size of the act been reduced
and usually only to a very minor extent.

The act has been amended on 84 occasions. Most changes
came in two spurts, during the first decade and agair, in
the early thirties. These spurts were followed by relatively
* By permission, Harper

4

and Brothers.

inactive periods. In seven years there were no changes.
alterations were made in 19 33 and 19 3 5.

Major

has been influenced
Legislation
strongly by the condition
has been bad something
business.
When
business
was
of
likely to be added to the Federal Reserve Act; when business
has been good little was done. Also, there have been lags.
Changes in the act frequently have come some time after the
downturn
in business has begun, often about when activity
has hit the bottom of the cycle.

Looking back, this kind of behavior seems natural and
human. It may at times seem somewhat less "rational" and
"clear-cut" than the ivory-tower student of central banking
might like; but as long as we work through the democratic
process it is likely to continue that way.
(1) Ends
Amid forty years of change one thing has been held constant - the basic objective. This statement, however, should
be qualified. The immediate impetus for passing the Federal
Reserve Act was to solve some of the pressing problems of
the day. Some of these are indicated in the preamble to
the act:
Changes In Content:

To provide for the
Banks,
establishment of Federal Reserve
furnish
to
an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective superin the United
States, and for other
vision of banking
purposes.

The enumerated objectives
are limited in scope. Underlying them, however,
was the broader
objective
of
contributing to the stability of the economy. This objective
was not spelled out in the act; but it was emphasized in discussions at the time, including the reports of Congressional
committees on the act.
5

has been given somewhat
more
objective
have been added from
expression
powers
as additional
explicit
to
time to time. Among such expressions of purpose are
"preventinjurious
credit expansion or contraction";
prevent
ing the excessive use of credit"; "maintenance
of sound credit
during the late twenties and
"
But
attempts
conditions....
early thirties to make stable prices the statutory objective
of
Federal Reserve policy were unsuccessful. In 1935 a proposed
provision, which would have spelled out objectives in more
detail was defeated. So the act today remains much the same
as forty years ago so far as basic objectives are concerned.
Congress has not placed the System into a straight
Although
jacket by enumerating precise and detailed objectives in the
act, it has made clear that the System's main job is the broad
one of facilitating economic progress and stability.
This

broader

Changes In Content:

(2) Means

It is in methods of achieving this objective that significant
changes have taken place. At the risk of over-simplification,
the philosophy of operations underlying the original Federal
Reserve Act might be characterized by these four terms:
Real bills
Gold
Automatic
Regional
Founders

the System believed that the amount
of
currency and credit would be just right if issued against
real bills, that is, short-term, self-liquidating
paper based on
industrial,
E
commercial,
and agricultural
transactions.
cessive changes in the domestic price level could also be
held in check if rules of the international
gold standard were
faithfully
observed. It was also felt that if the money aril
credit sytem were based on real bills and gold, it would work
less automatically;
there would be no need
more or
to
6

of

"manage" money. Finally, policies could be adapted closely
to local conditions, and control either by politicians or Wall
Street could be avoided if power were decentralized by regions.
Much of the history of the Federal Reserve is a story of
modification of these principles. It might be helpful, therefore, to keep them in mind as one reads the chronological
development of the act.
The first decade:

gaining

strength

and efficiency

As the new System felt its way, the act was amended from
in the interest of greater operating
time to time primarily
Here
efficiency.
are some examples of changes made: position
of Deputy Federal Reserve Agent eliminated;
procedure for
Federal
directors
denomination
larger
electing
simplified;
bank
Reserve notes provided;
national
provisions governing
banks
loans
on farm land liberalized; trust powers of national
Federal Reserve
broadened; discretionary
power granted to the
fringes
Board to reclassify
banks
of central
on
member
reserve and reserve cities, etc.
financial
Amendments
were also passed to strengthen the
structure of the Reserve Banks. Member bank reserves were
concentrated in the Reserve Banks, gold was mobilized, and
provision was made to build up the surplus of Reserve Banks.
Some of these
from a
measures and the experience gained
few years of
System
operations, enabled the Federal Reserve
helping
to undertake
job
its
to finance
successfully
of
World
War I.

After the war came inflation and sharp recession. Farmers
were particularly hard hit, and changes in the act give a hint of
the repercussions on the System. The number of appointed
members of the Federal Reserve Board was increased from
five to six, and
agricultural interests were to be given fair
representation on the Board. Not long after, the act was
amended further to facilitate agricultural financing.
7

the System
Although
action was taken to strengthen
during the first decade, no major new tool of credit
generally
it is true, the Reserve Banks
control was added. In 1920,
discount rates on
were given authority to impose graduated
was
banks which borrowed excessively, but this provision
Board
recommended
repealed in 1923. As early as 1916 the
in ernerbe
it
requirements
that
given power to raise reserve
gencies; this authority was not obtained until seventeen years
later.

Two early changes which, at first glance, seem only technical, really marked a departure from the strict real bills
principle. In 1916 the Reserve Banks were authorized to
make direct advances to member banks on their promissory
notes secured by Government securities or eligible paper. The
change was made primarily in the interest of operating
efficiency, but it actually broke the direct link, so important
to founders of the System, between self-liquidating transactions and the flow of credit.
The next year another provision
changed the relation
between real bills and Federal Reserve notes. The original
at
by an equivalent
provided that notes must be collateraled
amount of eligible paper. Whenever a Reserve Bank hacl to
issue notes it would get them from the Federal Reserve Agent
depositing eligible paper as collateral.
The Reserve Batik,
however, could then cancel its liability
for the notes 1,
y
depositing gold with the Federal Reserve Agent and taking
back the eligible paper. In practice, the close relationship
between real bills and Federal Reserve notes was already broken
because, in essence, notes were collateraled by gold in addition
to eligible paper. In 1917 an amendment to the act recognized
for
this practice and permitted the use of gold as collateral
notes.

8

Rest of the twenties: the "new era"
After the first decade came a period of legislative quiet the quietest in the act's history. This was the age of "new era"
complacency. Confidence in monetary policy as a solution to
the economic troubles of this country rose to an all-time peak.
For several years after its organization, the Federal Reserve
Board included in its annual reports a section describing
legislation passed during the year and another section detailing legislation which it recommended for action. As one
reads through these reports he will notice that proposed legislation in one year was likely to be reported as actual legislation
the next. Congress acted promptly on most of these recommendations during the early years of the System, particularly
during World War I.
The
twenties the situation
was quite different.
in
the annual
section on proposed legislation did not appear
reports for a number of years. No amendments were either
1924,1925,
and
proposed or enacted for three years 1926. The annual report for 1927 described several changes
been made, and
of relatively minor significance
which had
Only
also recommended
several more of similar nature.
one of the proposed changes was enacted in 1928, and the
Board repeated its
earlier recommendations
with one addition.
Congress made
no changes in 1929; the Board again put
forth the
same list of recommendations
and added several
other proposals.
In

the

The list of recommended legislation in 1929 included items
like these: Permit officers
of mutual savings banks to be Class
B or C directors of Reserve Banks;
authorize the Board to
waive the six months' notice required of state member banks
before withdrawal from the System;
clarify the section of the
act which describes procedures for counting ballots in elections
of Reserve Bank directors; make it a Federal offense to rob a
Federal Reserve Bank
or member bank, etc.
9

All this time, pressures were building up within the economy
which were to show that the twenties were not so calm as
may suggest.
these relatively minor recommendations

The early thirties: depression and emergency
The early thirties were as hectic as the twenties were placid.
Within five years the act was amended 23 times, and most
of the activity was confined to an even shorter period.
Business activity was already well on its way downward
in
few
1930. During
that year a
minor changes were made
in the act along lines recommended in the Board's annual report for the year before. No amendments were made in 193 1.
It was not until 1932 that the act was changed materially.
In that year and the one following,
the depression hit the
banking system hard. Banks were caught by three develop(2) conversion
ments: (1) panicky withdrawals of currency;
of deposits and currency into gold; and (3) declining values
on which bank assets were based. The result was a severe
liquidity
crisis in 1932 and a banking crisis in 1933.
Deviations

real bills. In this atmosphere of emergency, reluctant permission was given to temporary deviations
from some of the principles on which the original
act was
based. The Glass-Steagall Act, passed early in 1932,
reduced
further the relationship between real bills and Federal Reserve
first altered in 1917 were
notes. Collateral requirements,
relaxed once again; this time they were changed because they,
stood in the way of an easy-money policy. The Federal Reserve
wanted to meet the public's demand for liquidity and also to
buy more Government
securities so as to help stimulate the
But
System
the
was hamstrung by the collateral
economy.
The
Reserve
Banks were required
to hold
requirements.
100 per cent collateral, in the form of eligible paper and gold
had to hold
against their notes. They also
gold reserves
liabilities
40
35
their
note
to
per
cent
of
and
per cent of
equal
10

from

their deposit liabilities. Any gold used as collateral against
notes could also be used as reserve behind notes, but not as
reserve behind deposits. Since there was not enough eligible
paper to meet the collateral requirements against notes, gold
was used to make up the difference. But the volume of gold
was also limited. If the Federal Reserve were to buy Government securities to inject new funds into the economy, banks
were likely to use those funds to pay off their borrowings at the
Reserve Banks, thus further reducing the amount of eligible
paper available as collateral. More gold would have to be used
as collateral against notes at the same time that more gold
would be needed as backing for newly created reserve deposits.
In order to break this log jam, Congress authorized
the
Reserve Banks to
Government
in
addition to
securities,
use
eligible paper and gold, as collateral for Federal Reserve notes.
but after a number of
The grant of authority was temporary,
extensions it was finally made permanent in 1945.

The year 1932 also saw a further break in the link between
real bills and credit. The public was seeking greater liquidity and
safety by drawing out currency and converting to gold; the
banks, in turn, sought liquidity by calling loans and selling assetson an already depressed market. A vicious spiral developed,
feeding upon itself
and making banks weaker and weaker even
though most of them were basically sound. Banks could not
get enough funds from the Reserve Banks to break out of this
spiral because they did not have enough eligible paper to
discount. So the Glass-Steagall Act provided that the Reserve
Banks could make loans to
member banks on notes "secured
to the satisfaction of such Federal Reserve Banks. " But
these loans were to be made only "in exceptional and exigent
circumstances, " the discount rate was to be at least 1 per cent
higher than the regular
rate, and the authority was granted
only for about a year. The real bills principle was dying, but
it was dying hard. After
two extensions, the final break with
11

Act of 19 35
the real bills principle came with the Banking
interest
which removed most of the conditions, reduced the
a
rate differential to V2 per cent, and made this provision
permanent part of the act.
1933 emergencies. The year 1933 was even more hectic.
On March 9, five days after the new Administration
took
banking
holiday,
Emergency
in
the
the midst of the
office and
Banking Act of 1933 passed through the complete legislative
A. Goldenweiser
relates that
process in a single day. E.
a
draft of the law was prepared by the General Counsel of the
Among its many proFederal Reserve Board in one night.
Act
Emergency
Banking
amended the Federal
visions, the
Reserve Act in several respects. In an effort to make currency

more readily available, Congress broadened the powers of
the Reserve Banks to issue Federal Reserve Bank notes. Iri
order to facilitate access to Reserve Bank credit, it liberalized
the 1932 provision authorizing loans to member banks on
paper previously considered ineligible, and gave the Reserve
Banks power to make advances to individuals, partnerships, and
corporations on notes secured by Government obligations.
Shortly after this, Congress passed the so-called Thornas
Inflation
Amendment.
This law contained several measures
affecting the Federal Reserve - especially provision for direct
purchases of Government
securities from the Treasury

but actually amended the Federal Reserve Act, as such, in only
one major respect. Curiously, this particular provision Was
anti-inflationary, not inflationary; it provided that the Federal
Reserve Board could change reserve requirements if «an
emergency existed by reason of credit expansion. "
Act of 1933. Up to this point, action was
essen_
tially of an emergency nature. The Banking Act of 1933
just about when the depression
however (passed, incidentally,
hit bottom)
undertook to get at some of the basic causes of
the situation.
Banking

12

In the first place, it struck at speculative excesses to which
banks had contributed. Banks were required to divorce themselves from security affiliates and to correct certain other undesirable practices which had developed during the twenties.
Behind some of these measures was increasing doubt of the
real bills principle as a means of channeling credit into
"productive" uses. Thus one provision required the Reserve
Banks to keep informed as to the useswhich bankswere making
of Federal Reserve credit so as to avoid "undue use ...
for the speculative carrying of or trading in securities, real
estate, or commodities, or for any other purposes inconsistent
with the maintenance of sound credit conditions. "
Meanwhile the idea of regional autonomy was also being
reassessed. Ten years earlier the Reserve Banks had discovered
that their open-market operations, undertaken initially to
bolster earnings, had noticeable effects on the money market.
So in order to coordinate their
activities they set up an informal
The
Banking
Act
committee.
of 1933 gave statutory basis
to this committee and authorized the Federal Reserve Board
to prescribe regulations for its conduct. No member of the
Board was a member of the committee, however, and any
Reserve Bank could still decline to go along with the committee's policies.
In the case of dealings with foreign central banks the
change was more abrupt. Most of the negotiations on foreign
matters had been carried on by the Federal Reserve Bank of
New York, which handled the financial operations involved.
The Banking Act
of 1933 changed that by providing that
"no officer or other
representative of any Federal Reserve
Bank shall conduct negotiations
of any kind with the officers
or representatives of any foreign bank or banker without
first obtaining the
permission of the Federal Reserve Board. "
Among the many provisions
of the Banking Act designed
to strengthen the banking system perhaps the most outstand13

Although
this measure related
was deposit insurance.
Congress included
Reserve,
Federal
it
indirectly
to the
only
in the Federal Reserve Act. It remained there after a major
1950 when
it
revision in 1935 and was not removed until
law.
became the subject of a separate

ing

Gold, industrial loans, and margin requirements. In 19 34
the Government called in all gold. Actually, the rules of the
gold standard as a guide for monetary policy had been
for the most part only in the breach for years, but no
indication
of this can be seen in the Federal Reserve Act.
Even in 1934 about the only hint that something had happenfor
ed was the substitution
of the words "gold certificates"
"gold"
If we were to judge
the word
wherever it occurred.
by the act alone, gold would seem to occupy today essentially
the same position it did in 1913.

honored

the same year, however, two other developments
reflected a widening concept of the System's responsibilities_
One was the grant of authority for Reserve Banks to make
working capital loans to existing industrial
and commercial
businesses unable to get credit through usual channels.
This
further
departure
from
idea
marked a
the traditional
that
the Federal Reserve Banks should be simply bankers' banks.
The other development had nothing to do
with the Federal
Reserve Act itself, but because it introduced a new principle
It was a provision
of credit control deserves special mention.
Securities
Exchange
Act
the
of
which authorized the Federal
Reserve Board to prescribe margins for stock purchases
and
sales. This was the first of the selective credit regulations
and the only one destined to remain a permanent
tool
of policy.
During

1935: a fundamental

revision

By 1935, business was well on its way up again.
was down by 2 million
with 1933, unemployment
14

Compared
and indus_

All the time the
trial production was up by one-fourth.
from
depression,
ideas
were fermenteconomy was recovering
ing. The result was the most comprehensive reappraisal and
revision of the Federal Reserve Act in all its history.
many important
of 1935 contained
detail; it clarified
be
discussed
in
provisions which need not
the bankmany sections of the act and generally strengthened
final
break
ing system. As has been mentioned, it marked the
It also marked a further departure
with the real bills doctrine.
decentralization.
The organifrom the
principle of regional
from
know
dates
1935.
it
zation of the System as we now
The

Banking

Act

The Federal Reserve Board became the Board of Governors
of the Federal Reserve System. Congress provided terms of
four years for the chairmanship
and vice-chairmanship
lengthened
(both officials being eligible for reappointment),
fourteen
terms of Board members from twelve to
years, and
removed the Secretary of the Treasury and the Comptroller
of the Currency (who had been serving as ex officio members)
from the Board.
The internal
structure
of the Reserve Banks was
Executive
reorganized.
responsibilities, which had been
divided between the chairman of the board of directors and
the non-statutory governor, were consolidated in the newly
created position of president; and the chairmanship became
a nonsalaried position. The president and first vice-president
were to be appointed by the board of directors for five-year
terms, subject to approval of the Board of Governors.
The make-up of the Federal Open Market Committee was
changed even more drastically. The Banking Act of 1933
had set up
a committee of twelve men, one from each Reserve
Bank. The Banking Act
of 1935 reduced representation of
the Reserve Banks to five men and included all seven members
of the Board of Governors.
15

Changes in powers went in the same direction as changes
Decisions of the Open Market Committee
in organization.
Banks.
The Board
binding
of
on all Reserve
were made
Governors was given power to change reserve requirements,
declaring an emergency
within limits, without the necessity of
The Reserve Banks
or securing approval of the President.
discount rates every fourteen
were required to establish their
days, or oftener if deemed necessary by the Board; this meant
that the rate would come up for formal review and determirla_
tion more frequently.

Since 1935: war and inflation
The act has been changed little in the past eighteen years,
these have been years of momentous
events
although
recovery, recession, war, inflation. The recession of 1937-1938
came and went with no noticeable repercussions on the act,
although proposals of the more radical kind were not hard to
find. Then came World War II, and after that a difficult post_
war period.
Congress made several changes to facilitate war financirrg.
It gave the Federal Reserve temporary power to buy limited
amounts of securities direct from the Treasury; it temporarily
exempted war-loan accounts from reserve requirements;
and
as the reserve positions of the Reserve Banks became tighter
and tighter, it reduced the percentage of gold certificate back
ing required against Federal Reserve notes and deposits.
On the whole, however, this was a period characterized
Shortly
more by requests for rather than grants of legislation.
after the outbreak of war in Europe, the System recommended
that Congress give it increased power to meet the threat
'()If
It wanted authority
inflation.
to raise reserve requirernents
further and to apply the requirements to all banks.

16

After the war, the Board of Governors,
concerned about
its inability to restrain inflation
and at the same time support
the Government
market,
suggested consideration
securities
kinds
of additional powers: either new
of reserve requirements
in
increase
to be
or a straight
ordinary reserve requirements
made applicable to all banks. Congress took no action until it
met in special session in August 1948, when it gave the Board
power to raise reserve requirements a small amount above the
and expired
ordinary limits; but the authority
was temporary
in mid-1949.

Congress also did not pass legislation on two other matters
on which the Board proposed action. One had to do with
more effective regulation of bank holding companies; the other
with a program for guaranteed loans by the Reserve Banks.
The Board also recommended that it be given permanent
to
power to regulate consumer credit terms. Authority
terms
to
regulate
on
realregulate consumer credit, and power
estate credit, had been granted either by Executive Order or
by temporary legislation outside the Federal Reserve Act
proper. Congress did not give the System permanent authority
in these fields, and at one time it limited the discretion of
the Board of Governors by specifying in the law maximum
terms on consumer and real-estate credit.

CONCLUSIONS
It is a fair bet that Woodrow Wilson would not be very

much surprised at the Federal Reserve Act as it is today. He
was a student of political
view of
science with a long-run
historical
he
He
evolution,
and
was a practical politician.
have
by
would
recognized the process of accretion
which the
act has almost doubled in size, and the process of adaptation
to a changing environment.

17

And he probably would be intrigued by the extent to which
basic principles underlying the act have changed. The
Reserve policy is still basically the same,
objective of Federal
but the four principles for achieving the objective have been
greatly modified.
1. The real bills principle has gradually broken down under
the press of circumstances and as fallacies in the theory
have become more widely appreciated.
2. Rules of the gold standard have ceased to be regarded
as a guide for monetary policy.
3. No "automatic regulator" has been found to take the
place of real bills and gold.
4. As the economy has grown and become more complex,
and as transportation and communication have improved, economic events have tended to have nationwide, even world-wide, significance. Authority
over
basic policy has become less decentralized.
Put this way, however, the process of change seems essentially negative. Actually, the whole conception of monetary
policy has been broadened and deepened to conform to a
changing environment. It is not only real bills and gold that
have been replaced as guides; it is the whole conception that
there is some device that will produce an appropriate monetary
policy automatically. As Allan Sproul has put it, "If you are
not willing to trust men with the management of money,
history has proved that you will not get protection from
a
mechanical control. Ignorant, weak, or irresponsible men will
pervert that which is already perverse. " Finally, judgments
are now made within an organizational structure which makes
it possible to draw upon diverse experiences of many men, and
yet to coordinate actions and fix responsibility for final
decisions.
The Federal Reserve Act is a living, human statute that
forty years of adaptation to
can never be perfect. During
corrl_
18

SYNOPSIS'

of major changes
in the FederalReserveAct

The following seven pages summarize the more important
provisions of the act and trace the major changes in those
provisions over four decades. The major points covered are:
A.

The three main instruments of policy1. Open-market operations
2. Changes in reserve requirements
3. Discounts and advances

B.

The organization of the Federal Reserve SystemI. Board of Governors
2. Federal Reserve Banks
3. Federal Open Market Committee
4. Federal Advisory Council

How to read the tables
For important provisions of the original act, read down the
left-hand
column.
To trace changes in
from left to
a particular provision, read
right. Each block in the left-hand column lists a major provision
in the original Federal Reserve Act. Any
subsequent changes in
that provision
are shown to the right.

For a summary
of the provisions of the act today, read the
provisions from left to right, adding and subtracting as changes
were made. A blank space to the right indicates that the last
provision shown is still in effect.
This synopsis is intended
to give the essence, but not necessarily the exact legal
terminology,
of the provisions. Nor does it take into consideration rules and regulations
made under these provisions by the Board of Governors.

A. INSTRUMENTS
OF POLICY
I. Open-Market Operations
Original

Act

Amendments

1913

1933

Every
Federal
Reserve
Bank shell have power
to buy and sell bonds
and notes of the United
Stnto: '

1935

1942

Buy and 1011
any direct
or fully guaranteed
ligations
ob_
of U. S. with.
out regard to
mater;.
ties, but
only in the
open market

Buy

and sell either in
market or directly
or to U. S.. but
aggregate
of
amount
diobligations
acquired
from U. S. which
redly
is held
at any one time
limited
to $5 billion
open
from

)I.

No Federal Reserve Bank No Federe)
R"'I've
shall engage in openank
engage or decline
market operations ex- thall
cept in accordance with market ag
operations
requlations adopted by in accordance
excopf
Federal Reserve Board
direction
with the
of and regulations
If any Federal Reserve Open adopted by
Merket Committee
Bank shell decide
not to
participate
in
openmarket operations recommended
and approved, it shall file with
Chairman of the Open
Market Committee
within 30 days a notice
of
its decision
and transmit
a copy to the Board
The time, character,
and
volume of all purchases
and solos shall be governed with a view to accommodatinq commerce
and business and with
regard to their bearing
upon the qoneral credit
situation of the country

*Of

much loss importance was the power to buy

and sell
terrain

oth ar

Paper and gold.

2. Changes in Reserve Requirements
Original
Act
1913

Amendments
1933

1942

1935

1948

1949

Federal Reserve
Board may increase or d oocrease reserve
quirements

re-

By declaring

an
by

emergency

reason of credit Provision removed
expansion

Objective

Z
0

-o
ö
<
0

ý

of

changes in reserve
is
requirements
to prevent injurious credit expansion

or

contrac-

tion
With approval
President

of

Provision removed
Can change
requirements
of all

member banks, of
country
member
banks, or of reserve
city
and

central
city

reserve

banks

com-

bined

Changes limited,
on lower extreme,
to
requirements
in effect 8/23/35;
on upper extreme
to twice the requirements in effect on that date

Can

change

re-

quirements of reserve

city

and

central
reserve
city
member
banks separately

Temporary
authority
to raise
furrequirements
trier

Temporary
au
thority expired

3. Discounts and Advances
Amendments

Original Act
1920

1916

1913

1932

1928

1923

Bank

Reserve
shall
Federel
from
have power to establish
discount
time to time rates of
Subject

to

review

and

defer.

Board
Rates may be grad.
uated
or
progressed on basis of
amount
of accommodations extended
to borrowing
bank

Fixed
with a view of eccom"
and busicommerce
modating
ness

Provision removed
Federal
Reserve Bank shall
14
every
establish
rates
days, or oftener if deemed
by Board
necessary
to
In determining
whether
accomgrant
or refuse credit
Federal
Reserve
modations,
Bank shall give
consideration
to whether undue use is being
made of bank credit for specpurpose
ulation
or any other
inconsistent
with
maintenance
of
sound
credit
conditions.
Whenever
Federal
Reserve
Board determines
any member
bank is making
undue use of
bank credit,
the Board
may
suspend such bank from use of
facilities
credit
of the Federal
Reserve System

Reserve Bank shall exFederal
bank
to each
member
tend
as may
such accommodations
be safely and reasonably
made
for the claims
with due regard
and demands of other member
banks

Federal Reserve Bank may discount notes, drafts, bills of
exchange arising out of actual
commercial transactions

Lý

Eligible
paper includes
that of factors
making
advances
to producers
of staple
agricultural
products
in the
raw
state

Maturity at time of discount
not more than 90 days
Maturity for agricultural purposes, not more than six
months
Federal
Reserve Bank
may discount acceptances
[based on
importation
or
exportation
of goods]
J}

Maturity at time of discount
not more than 3 months

This
clause
moved
and
sion
made
general

reprovimore
Maturity
at time of discount
than
not more
6 months, if drawn for
agricultural
purpose
and secured
by warehouse receipts
and
other
documents
such
covering
readily
marketable
staples

Federal
Reserve
Bank may make
advances to member
banks
on promis.
sory notes secured
by
eligible
pa er
or Gov't
securities
Maturity
not
than 15 days

more

Maturity not more than 90 days

if
Federal
Reserve
Bank
may discount
or purchase bills of exchange
drawn
to finance
domestic shipment
of ag.
riculturaI
products
Not
to
be held
by
Federal
Reserve
Bank
over 90 days

secured

by eligible

paper

Federal
Reserve
Bank may discount
bills of
or purchase
exchange
which
grow out of domestic shipment
or exportation
of
agricultural
and
other
staples

Federal
Reserve
Bank
may discount
notes,
d rafts,
bills
of exchange issued or drawn
for
agricultural
purposes
Maturity at time
count not more
months

of disthan 9
Reserve Bank
Federal
may discount for
i'dividual,
partnership,
or corpoany
drafts,
bills
and
ratinotes,
of
exchange

Endorsed and otherwise secured to
satisfaction of Federal Reserve Bank

Endorsed

bank must have capital not

or otherwise

cured

in unusual and exigent circumstances
Borrower must be unable to get credit
from other banking institutions
Reserve Bank may make ed"I
-j-1
to group of 5 or more member ýi
vances
time or demand promis
upon
banks
the banks have
sory notes, provided
amounts of eligible and
no adequate assets
to obtain credit
acceptable
than
seclion 10(b) (derýibed
immediattely below)
scribed
must not be less than I per cent
discount rate
above
may make adFederal toReserve Bank
member banks on time or
vances promissory
notes
demand
satisfaction of Federal
Secure
Resew Bank

Bank

seof

maturities
Notes must have
than 4 months
cf not more

Provision

over

removed

bank

must have no eligible
Member
assets to get adeand acceptable
except through section
quate credit
immediately
10(a) (described
above) 1
Advances
ceptional

ý

may be made only in ex- 1and exigent circumstances

provision removed

Provision removed
h.ot less
above

than

I/2 per

cent

Bank may
Federal
Reserve
make advances to any individ.
ual,
partnership,
or corporation
on promissory
notes secured by Government
securities
Maturity
days

not

rnora

than

90
Federal
Reserve
Bank may
make loans,
purchase oblige.
Lions of make commitments
to,
industrial
established
or com.
businesses
mercial
In exceptional
circumstances
business
is unable
when
to
financial
obtain
requisite
asbasis
sistance
on reasonable
from usual sources
ror working
capital
Maturity
not over 5 years

ý

B. ORGANIZATIONOF THE FEDERAL
RESERVE
SYSTEM
I. Board of Governors
Amendments

Original Act
1922

1913
Federal Reserve

1933

Board cre-

ated

7 members

8 members

7 members
Consisting of:

Secretary of theTreasury
and Comptroller of the
Currency removed

(1) Secretary of the Treasury
and Comptroller of the
Currency, ex officio
(2)

5 members appointed by
the President, by and
with the advice and consent of the Senate

Only one member from
Federal Reserve District

7 members

6 members

a

President shall have due regard to fair representation
of different
commercial, industrial,
and geographical
divisions of the country

I

Due regard to fair representation of financial,
industrial,
agricultural,
inand
commercial
terests, and geographdivisions
the
ical
of
country

At least 2 members appointed by President must be experienced
in
banking,
or
finance
10-year term
May be removed
by President

Provision

removed

12-year term
for

1935
Federal
Reserve Board
became Board of Governors of The Federal
Reserve System

cause

One appointive member designated
by
President
as
Governor
One appointive member designated by President as ViceGovernor

14-year term

Provision removed I Provision reinstated
One member designated
by President as Chairman
One member designated
by President
as ViceChairman
4-year terms

2. Federal Reserve Banks
Original Act

Amendments

1913

1935

1917

3 Class A directors
chosen by and
representative of member banks
3 Class B directors
elected by member banks
Must 6o
actively
merce agriculture,
dustrial pursuit

in comengaged
or some other in-

3 Class C directors
appointed
Federal R
eserve Board

by

One designated Chairman
and Fedoral Reserve Agent
Official
representative
Reserve Board

of

Federal

Person

of tested banking experience
One
appointed Deputy Chairman and
Deputy F d
e era lR eserve Agent

Deputy
Deputy

Chairman
no longer
Federal Reserve A gen t

Person tested banking
of
experience Need not be person of tested
banking experience
Terms of directors

3 years

Board of directors
appoints officers
end employees not
Sor
otherwise provided
in the act

Board of directors appoints
president, vice-presidents, and
others

President -

ficer;

charge

chief executive of-

in
Ist
vice-president
in absence or disability

of president
Appointment of president and
Ist vice-president

must be ep.

proved by Board of Governors
Terms of president and
vice-president 5 years

is

3. Federal Open Market Committee
Amendments

Original Act

1

1933

1913

1935

1942
Grouping of Federal R.
serve Banks changed _.
New York Bank givers

12 members
Z
0

One member selected annually by oach board of
directors
of Fodoral Reservo Bank

ý
ö
<
ö

5 members elected annually by boards of directors of groups of Fodoral Reserve Banks

In discretion of Board,
meetings may be ottondod by members of Fedoral Reserve Board

7 members of Board of
Governors made members
Market
Comof Open
mittee

3

permanent

representation

Representatives

of

F.... 1_

era] Reserve Banks shaj1
be presidents or Ist ViCe_
presidents

4. Federal Advisory Council
Original Act

Amendments

1913
12 members
One member
Bank

selected

annually

by board

of directors

of each Federal

Reserve

z0

Meets in Washington at least four times each year, and oftener if celled by
Federal Reserve Board

3

Power to -

ý
CL
3

business conditions
confer with Federal Reserve Board on general
jurisdiction of
make oral or written representations concerning matters within
Board
cell for information and make recommendations on discount rates, rediscount
business, note issues, reserve conditions, open-market operations, and general
affairs of reserve banking system

pelting circumstances it has lost some of its original symmetry
and consistency. It could, perhaps, be streamlined and
shortened, but it contains the legislative ingredients essential
to an effective monetary
policy. An effective monetary policy
is a necessary
condition for stable economic progress but is
not sufficient in itelf to
assure such progress.

1953 IN RETROSPECT
1953 was
good example of how the Federal Reserve Act
is translated ainto
policy. All the
tools were used and
action was taken in both directions major
to
restrict
credit and to
easecredit. A look back
that
some of the
over
the
year
shows
"theoretical"
principles underlying monetary policy actually
work. At the
same time, it reminds us that the art of central
banking is
practiced in a real world in which signs often point
in different directions
and past events are more readily perceived than future.
On the
whole, 1953 was a record year. The economy
turned out
goods and services worth $367 billion; industrial
production
was one-third higher than the 1947-1949 average;
almost 62 million
people were employed, and only 112
million were
These figures, however, are
unemployed.
averages or totals. Behind
from boom
them lies a picture of changeto "recession. "
Developments
in the credit market both reflected and influenced
this
trend of business in 1953. Actions of the
Federal Reserve,
by developments in turn, both influenced and were influenced
in the credit market.
19

Demand for credit
demand for
and behind that
credit but
before
the year
started out strong;
goods and services had weakened in most major sectors of the
demand
was over,
This story is told briefly in charts on pages 22
economy.
The

demand

for

23.

and

Business spent more money in 1953 for new plant and
before, and borrowed large amounts
of
equipment than ever
Toward
the
the
through
capital
market.
end
of
the
money
year, however, business cut its spending for capital equipment,
and the volume of corporate security issues turned out to be
less in 1953 than in 1952. Much more noticeable was the
During the first
change in business spending for inventories.
half of the year such spending was carried on at a high
rate,
considerably higher in fact than in 1952. Business borrowing
from banks reflected this fact.
As the year progressed,
businessmen were watching
inventory
their
positions
more
and more closely and during the last quarter were actually
reducing stocks for the first time in four years. Partly reflecting this development, business borrowing from weekly reporting member banks rose much less during the
second half of
1953 than in the same period of 1952.
Home

buyers spent large amounts in 1953 but
not so much
had
in the record year 1950. Their
as they
outlays declined
in the second half of the year, and although the extension
of
large over the
mortgage credit was exceptionally
year as a
latter part of the
year.
whole it, too, slackened in the

Consumers set a new record of spending. In the first half
durable consumers' goods
of the year their outlays for
were
by
a rapidly rising volume of instalment credit. jn
supported
the second half, spending for both durables and nondurables,
while still very high, weakened and the growth of consumer,
credit slowed down.
20

Federal
constate and local as well as
19
5 3. State and
tinued to spend large amounts throughout
local
governments,
alone among the major spending sectors
increased
of the economy,
their outlays despite the general
weakening of the economy in the second half of the year.
funds
Accordingly,
for
long-term
demand
grew
their
larger.
In contrast, the Federal Government,
progressively
while also spending more in 19 53 than in 19 5 2, cut expendifor defense items, in the latter part of the
tures, primarily
found it
year. Because receipts declined,
the Government
before.
necessary to borrow more than it had the year
Government

-

Supply and availability

of credit

Savings, which
the demands for

1953, met most of
were high throughout
first
part of the year the
credit. But in the
in excess of
pressing demands for credit were sufficiently
Conseinflation.
savings to cause concern about possible
quently, the Federal Reserve authorities pursued a restrictive
but to
policy, the general objective being to avoid inflation
supply enough credit and money to meet the needs of a growing and high-level
The lowering of margin requireeconomy.
but this
in
February
ments
might seem to be an exception;
was a recognition
of the fact that the trend of that particular
kind
of credit was not inflationary,
and also was a reflection of
greater reliance on general, as opposed to selective, credit
instruments.

I

In January the Reserve Banks
raised their discount rates, and
in the
early months of the year the System sold Government
securities. Pressure on bank reserve positions required rather
substantial borrowing from the Reserve Banks. The Open
Market Committee in March
reaffirmed its previous directive
that open-market
operations should be conducted "with a view
to exercising restraint
upon inflationary developments. " Credit
became harder
to get, particularly in the market for VA and
21

(ANNUAL RATE)

BILLIONS 5
Bis
plant

BILLIONS

spend hg for
and equlprnent

S

BILLIONS $

Cho rgc
, business
me n furies

Business loansbanks,
roporting

24 -

U. S.

+10-

20
-5

LLL"J.

`ý' vYVIIII

BILLIONS $

-

BILLIONS $

Spending
residential

for
construction

Mortgage

recordings

15 -

1.2 -

Is1

22

2nd
3rd
QUARTERS

4th

JFMAMJJASON
MONTHS

NDINGIN 1953
BILLIONS S

BILLIONS $

(ANNUAL RATE)
Coneu mer spending

1953
230 -

RILLIONS $

BILLIONS $

Shil,.

SpCr, &r, g by SfMfS
local
oncl

SCt:

governments

UiiIy

ond

rn. r,ICpal

i5SUC5

0111111111111
BILLIONS $

BILLIONS $
Federal Government
spending
for goods and services

60 -

so -

40 -

W
o__.
Ist

W

-ir

2nd
1rd
01 I ART F RS

A

4th

23

FHA

mortgages,
and a tight
money market caused some corfloating
porations
to postpone
became
new issues until funds
more readily available.
As the market grew progressively tighter and the threat of
diminished,
inflation
the Reserve authorities began to alter
Early
in
their credit policy.
May, they began to buy Treasury bills and bought even more
heavily
in June.
When
the
Open Market Committee met in
June it
its policy
reworded
directive and set
the
as
objective
"avoiding
deflationary
tenden-

Fcdcral

i.s

Dlsccunts

i.o

cies without encouraging
a redevelopnewal of inflationary
ments. "
Yet the market continued to
tighten, and on June 24 the
Board took the more dramatic
step of lowering reserve requirements. This released more than
$1 billion of reserves and was indetended to meet anticipated
borfor
by
private
mands
credit
Treasury.
the
and
rower's

The System bought more
Government
in
securities
August and September. When
the Open Market Committee
24

Resarvc holdings

PER CENT

., "i

cl

5

met in September, it again changed the objective of policy
simply to "avoiding deflationary tendencies. "
It was becoming clearer all the time that business had begun
a period of "readjustment. " Toward the end of the year the
System bought more Government
securities, and in its
December meeting the Open Market Committee directed
policy to "promoting growth and stability in the economy by
actively maintaining a condition of ease in the money market. "
Reserves supplied by purchases of Government securities
during the latter
part of the year enabled member banks to pay
down their borrowings
at the Reserve Banks, so that during
most of the second half of 1953 member banks had free
reserves - that is, more excess reserves than debt owed to
the Federal Reserve Banks (shown by the unshaded portion
in the accompanying
When banks are in that
chart).
position they are likely to be more willing to extend credit.
In a suprisingly short time the "shortage" of FHA and VA
mortgage money eased, and funds for new corporate issues
became readily
available.

Price of credit
Developments in the
credit market are perhaps summarized
most concisely in the third chart, showing selected interest
rates. The price of credit, after all, is a reflection of both the
supply and demand for credit, and this chart shows how
different the
credit market was in the latter part of 19 53 than
in the first half
of the year.
Yields
during the year,
on Treasury bills fluctuated
widely
rising to almost 2 %2 per cent in June and falling below 11/2
per cent toward the
Rates on short-term comend of the year.
mercial paper went through the same general movements, but
not to the same degree. Yields on long-term
2 %2 per cent
Government bonds
June;
in
their price
rose to 3.19 per cent
fell below 90.
Yields on the new 31/4 per cent Government

25

bonds rose to 3.3 2 per cent not long after they were issued,
But by the end of the year the
and their price fell below 99.
2%2's were selling above 96, and the 31/4's above 105.

RESERVEBANK OPERATIONS -19 53
Most
devoted

is
worked by the Bank's staff
of the man-hours
items,
to the collection
of checks and non-cash
the provision of currency
services to. the Federal Government,
discounts
interrial
and coin, and
and advances, with supporting
These
services.
activities are characteristic
of the operations
of most central banking organizations.

New high records in the fields of production and distribu_
tion in 1953 were reflected in further over-all expansion in the
operations of the Federal Reserve Bank of Philadelphia.
A substantial part of the Bank's expenses, net of
reimbursements, was taken up in paying for the printing
of Federal
Reserve notes and shipping costs between Washington
and
Literally,
Philadelphia.
That was ire
money costs money!
addition to several hundred thousand dollars of salary costs
incurred in operating the Cash Department.
The number
c),f
during
pieces of currency and coin counted
the year ran into
the hundreds of millions. For each working day the average
was 114 million pieces of currency and nearly
coins; the annual totals were approximately
ahead of 1952.

134 million
5 per
cent

More costly in terms of salary payments is the Department
of Collections, which receives, sorts, and sends out checks
items. The smooth flog,
postal money orders, and non-cash
in our system of production of
payments is like lubricating oil
26

Speed is essential and no efforts are spared
and distribution.
to make this operation one of "in again, out again" in the
shortest possible time. Proof machines permitting
numerous
both
sorts have almost entirely
the old adding
replaced
machines and the hand sorting of items into countless pigeon
holes. When
checks and money orders are
over 900,000
Reserve Bank of
day,
received on an average
as at the Federal
Philadelphia
in 19 5 3, every device must be called into use to
keep the
Over the year as a whole,
work from piling up.
Government
171,000,000
ordinary checks and 35,000,000
checks were processed gains of 1 and 7 per cent, respectively, over the previous year. In addition, 23,000,000
money
handled.
orders were

Other operations facilitate the collection of checks - wire
settlements of clearing house balances, group clearings, and
the handling of debits and credits arising out of direct sendings. Our records show nearly 1,200,000 debit and credit
entries here in connection with these matters, involving a
total of $261/2 billion.
Whether
arises for

in large

amounts or small, the occasion often
The
funds.
exceptional
speed in the transfer of
by
Bank,
largely
handled
by
year's grist of such transfers
this
In
$34
billion.
telegraph, numbered 82,000 for a total of
number and in dollars these figures were ahead of 1952.
The Credit-Discount
as it was in the late

I

is not quite as busy a place
1920s, when member banks had a lot
from the
of customers' paper on which they could borrow
Reserve Bank, but
Government
relatively small amounts of
Today, banks
securities to serve as collateral for advances.
in general have lots
many of them lodged
of Governments,
in the
custody of the Reserve Bank; so they pledge Governments rather than
That means only
send in customers' paper.
item
one
to be handled by "Discount"
rather than many pieces
Department

27

Of course, advances to industrial
conof customers' paper.
involve a substantial amount of work.
Section
13b
cerns under
We did not have them in the 1920s and there are not many
of
declined
discounts
dollar
days.
The
total
volume of
them these
but the average daily balance
from
19
53,
1952
to
somewhat
banks increased from
$29
of credit extended to member
banks
to $31 million,
and the number of member
million
from
167.
139
to
accommodated
Handling the deposit accounts of the United States Treasury and Government
agencies is quite a chore in itself, with
many millions of checks to be processed and other debits and
But a more arduous operation
credits of bewildering variety.
Federal
is
issue
on
the
account
and redemption of Government
fluctuates
securities savings types and others. Volume
but
In
1953, with extensive
markedly
always is substantial.
refunding
operations and some issues to raise new money,
deliveries
and redemptions
of marketable
securities totaled
209,000 pieces
Still
an increase of one-third over 1952.
impressive
issues
more
were the
and redemptions
of savings
bonds, running into
millions of pieces, many of them handled
by issuing agents but
all processed at some stage by this Banlt;
volume ran about 8 per cent above a year earlier.
The wonderland of the Machine Tabulating Department
is
one of the "sights" of the Bank, where the punched card does
jobs.
This Department
is largely engaged
miraculous
irl
departments,
in
handles
to
other
and
addition
the
service
proe_
depository receipts for withheld taxes received
by
essing of
349,000 pieces for a total of $1 1Z4
this Bank. Approximately
billion was the record for 19 53substantially ahead of 19 5Z

A trip into the vault reveals hundreds of millions of dollars
in currency and coin - in packages, in bundles, or in bags,
Stocks of unissued securities of the United States Goverh_
be found there, as `"ll
ment in much larger amounts are to
28

as some $2 V2 billion of securities held in custody and collateral
accounts for banks. Coupon clipping is quite an operation; in
1953 the number cut was 776,000.
The contribution of a Reserve Bank to a smoothly operating
economy through the performance of essential operations for
banks and the Government and, through them, for the
general public, does not end with the recital given in preceding paragraphs. The discussion of mutual problems with
bankers and the public, through personal visits, meetings, and
addresses, is a primary function of the Bank and Public
Relations Department.
Joining in these activities is the
Department of Research. Its basic function is to assemble,
analyze, and interpret banking and business information for
those who shape System credit and monetary policies. Much
of the information is made available through formal publications and statistical releases, or in response to direct
requests. Every effort is made to promote wide understanding
of how our economy operates and the place in it of banking,
including the Federal Reserve System.
Directors

and officers

C.
In the regular
fall, Warren
elections held in the
B
Newton
Class
was reelected by banks in Group 2 to serve as a
director for
William
January 1,1954.
three years beginning
Fulton Kurtz, Chairman
Board
of the Pennsylvania
of the
Company for Banking
Philadelphia,
was elected
and Trusts,
a Class A director by Group 1 banks. He succeeds Archie D.
Swift,
who served in that capacity for two terms.

The Board
of Governors of the Federal Reserve System
appointed Lester V. Chandler, Professor of Economics at
Princeton University,
for a three-year
as a Class C director
term. He succeeds C. Canby Balderston, who has been a
Class C director
since 1943 and Deputy Chairman of the
Board
Directors
of
since March 1949. William J. Meinel was
29

Federal ReserveAgent
reappointed Chairman of the Board and
Jr.,
Henderson
Supplee,
for 1954, and
was named Deputy
Chairman.
By appointment of the Bank's Board of Directors, Geoffrey
S. Smith, President of the Girard Trust Corn Exchange Bank,
Philadelphia,
will again represent the District on the Federal
Council
during 1954.
Advisory

In the spring, Joseph R. Campbell was made an Assistant
Vice President, and Zell G. Fenner was made a member of the
official staff, continuing his title of Chief Examiner.

30

DIRECTORS
as of March 1.1954
Group
I

Term expires
December 31

Class A

WILLIAM FULTON KURTZ
Chairman of the Board, The Pennsylvania Com-

1956

WADSWORTH CRESSE

1954

pany for Banking and Trusts, Philadelphia,
vania

2

Pennsyl-

Executive Vice President and Trust Officer, The
First National Bank and Trust Company, Woodbury, New Jersey

3

1955

BERNARDC. WOLFE
President, The First National
Towanda, Pennsylvania

Bank of Towanda,

Class B

i

CHARLES E. OAKES

2

WARREN C. NEWTON
President, O. A. Newton
Bridgeville, Delaware

3

1955

President and Director, Pennsylvania Power and
Light Company, Allentown, Pennsylvania

1956
and Son Company,

ANDREW KAUL, III
President and Director, Speer Carbon Com-

1954

pany, St. Marys, Pennsylvania

Class C
1954

WILLIAM J. MEINEL, Chairman
President and
Manufacturing

Chairman
Company,

Heintz
of the Board,
Philadelphia,
Pennsyl-

vania

HENDERSON SUPPLEE, Jr., Deputy Chairman
President, Atlantic
Refining Company, Philadelphia, Pennsylvania

1955

LESTER V. CHANDLER
Professor of Economics,
Princeton, New Jersey

1956
Princeton

University,

OFFICERS
as of March

1,1954
ALFRED H. WILLIAMS
President

W. J. DAVIS
First Vice President

EVAN B. ALDERFER
Industrial Economist

KARL R. BOPP
Vice President

CLAY J. ANDERSON
Financial Economist

ROBERT N. HILKERT
Vice President

MURDOCH K. GOODWIN
Assistant Counsel

ERNEST C. HILL
Vice President

EDWARD A. AFF
Assistant Cashier

WILLIAM G. McCREEDY

HUGH BARRIE

Vice President and Secretary
PHILIP M. POORMAN
Vice President

RICHARD G. WILGUS
Cashier and Assistant Secretary

JAMES V. VERGARI
Counsel and Assistant Secretary

32

Machine Methods Officer
ZELL G. FENNER
Chief Examiner
RALPH E. HAAS
Assistant Cashier
ROY HETHERINGTON
Assistant Cashier

JOSEPH R. CAMPBELL
Assistant Vice President

FRED A. MURRAY
Director of Plant

WALLACE M. CATANACH
Assistant Vice President

HENRY J. NELSON
Assistant Cashier

NORMAN G. DASH
Assistant Vice President

HARRY W. ROEDER
Assistant Cashier

GEORGE J. LAVIN
Assistant Vice President

HERMAN B. HAFFNER
General Auditor

APPENDIX
Statistical

Tables

Page
FEDERAL RESERVE BANK
34
35

Statement of Condition
Earnings and Expenses

36

Volume of Operations

MEMBER BANKSTHIRD FEDERAL RESERVEDISTRICT
37

Combined Statement

37

Earnings, Expenses, and Profits

38

EMPLOYMENT AND EARNINGS

38

INCOME AND PRICES

39

DEPARTMENTSTORESALES AND INVENTORIES

33

STATEMENT OF CONDITION
Federal Reserve Bank of Philadelphia
End of year
(000's omitted

in dollar

figures)

1

1952

1953

1951

ASSETS
Gold

certificates
......................
Res. notes
Redemption fund-Fed.
Total

Other

gold certificate

61.085

57,278

$1,361,810

$1,328,286

$1,145,047
56,306

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

reserves ............

cash

Discounts

.................................
and advances .......................

Industrial

loans

$1,2

26,837

18,316

17,513

4,555

5,476

3,440

1,380

..............................
United States Government
securities ...........
Total loans and securities
.................
Due from foreign banks
......................
Fed. Res. notes of other Fed. Res. Banks
........
Uncollected

$1,271,008

$1,300,725

....

3,469

1,525,491

1,510,542

$1,531,426

$1,519,487

3,763
1 485,205
.
$1,492,408

.
2

items

...........................
Bank premises
..............................
All other assets
.............................

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

22

17,104

16,086

I 1,682

253,896

252,296

267,200

4,734

3,269

2,854

8,845

9,762

8,298

$3,204,654

$3,147,504

$3,0

$1,896,948

$1 857,370 1 $1.769,88S
,

ý301

LIABILITIES
Federal Reserve notes
........................
Deposits:
Member
United

bank reserve accounts.......
States Government
..............

.....
..

Foreign

..................................
Other deposits
............................

959,879

929.318

30,135

33 091

4,285

30690

40.833

41,1 19
7,41 I

8,688

Total deposits

..........................
Deferred availability items
...................
All other liabilities
..........................
Total liabilities

7,093

$1029,392

$1.010,335

201,073

205,923

875
$3,128.288

912100

$9
195,198

702
$3,074,330

66p
$2,9 03 661

CAPITAL ACCOUNTS
paid in .............................
7
Surplus-Section

Capital

13b

Surplus-Section

Reserves for contingencies
Total liabilities

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

and capital

accounts .......
reserves to deposit and

Ratio of gold certificate
Federal Reserve note liabilities
Commitments

34

to make industrial

combined...
advances......

$18,017

$17,186

$16.765

45.908

43,578

41,493

4489

4.489

4.489

7,952

7,921

$3204654

$3.147,504

7.902
$3A0

3 11-,
ý

46.5 %

46.3%

439%

$1,724

$1.136

$1,319

EARNINGS AND EXPENSES
Federal Reserve Bank of Philadelphia
(000's omitted)

1

1953

1952

$30,649

$27,455

1951

Earnings from:
U. S. Government
Other

securities ................

$28,193 1

$31,396

Total earnings

-

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

373

738

747

sources

$24,444

$24,817

....

Expenses:
Operating

expenses"

Cost of Federal
Assessment for

$ 5,612

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

Reserve currency...........

1,041

817

695

310

322

322

$ 6,963

$ 6,425

$ 5,875

$24,433

$21,768 1

$18,942

expenses of Board

of Governors ..........................
Total
Current

net expenses
net earnings

Adjustments

S 5,286 I$4,858

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

to current

net earnings:

Profits on sales of U. S. Government

All other

from current
to current

113

-

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

Net additions
Transferred

10

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

$

Total additions
........................
Deductions

132

126

(net)

securities

126

133 1

$

$

114

163

net earnings...........
$

net earnings...........

37#

132

S

31

29

20,974

18,763

$3,391

$ 3,108

to reserves for contingencies........

3

-$

111$8
29

Paid to U. S. Treasury:
Interest

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

1

Net earnings after reserves and payments

to U. S. Treasury

$ 2,760

..

Dividends paid

1,023 1

1,060

Transferred to
surplus (Section
'After deducting
#Not deduction.

16,042

7)

reimbursements

$ 2,331

$ 2,085

978
$ 1,782

..............
received

for

certain

fiscal

agency

and other

expenses.

35

VOLUME OF OPERATIONS
Federal Reserve Bank of Philadelphia
1953

1952

1951

171,300

169,300

35,400

33,000
23,600

161 500
26,100
10.1()()-

Number of pieces
(000's omitted)
Collections:
Ordinary
checks
.........................
Government checks (paper and card)........
Post Office money orders (card) .............
Non-cash items ...........................
Clearing
operations in connection with direct
sendings and wire and group clearing plans*..
Transfers of funds
...........................
Currency counted ...........................
Coins counted
..............................
Discounts and advances to member banks.......
Depositary receipts for withheld taxes...........
Fiscal agency activities:
Marketable securities delivered
Savings bond transactions

or redeemed.

(Federal Reserve Bank
and agents)
Issues (including
re-issues)

Redemptions

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

........
. ..................
Coupons redeemed (Government
and
agencies)
..............................

23,100
900
1.191
82
319,100

800

80()

1,260
73

1,288
70
290,800
479,700

304,200
412,800

439,700
21
349

1
336

209

292

157

229

6,815

6,247

6,059

6,609

6,132

5,974

915

944

$51,747

$48,264

1,032

Dollar amounts
(000,000's omitted)
Collections:
Ordinary checks
..........................
Government checks (paper and
card)........
Post Office money orders (card)
.............
Non-cash items
.........
..................
Clearing operations in connection with direct
sendings and wire and group clearing plan; "..

Transfers of funds
...........................
Currency counted
.........................
Coins counted .............................
Discounts and advances to member banks...
..
Depositary receipts for withheld taxes..........
Fiscal agency activities:
Marketable securities delivered or redeemed.
Savings bond transaction
(Federal Reserve Bank and agents)
Issues (including
re-issues) ...............
Redemptions
Coupons

..........................
(Government
redeemed

New activity,
-Debit
and credit

36

items.

July

$46,718
364Q
145167

159

4,364
331
149

26,532

22,873

24,034

33,963
2,084

30,798

28,371
1.8,5'?

57
4,028
1,245

1,943
50
5,1 15
1,059

8;989

8,404

8968

49
1,537
891

406

388

3gp

412

321

330

88

87

9p

and

agencies) .............................
beginning

5,025
338

1951.

MEMBER BANKS
Third Federal Reserve District
Statement of Condition
(Dollar

amounts

in

millions)

Assets
Loans and discounts
[ U. S. Government securities
Other

Dec. 31,
1953'

I

Amount

$3,042
2.697
804
1,912
83

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

securities

Cash assets
Fixed assets
...........................
Other assets

35.5
31.5
9.4
22.3
1.0

-3

-35

+

Per cent

9%

f $248
87
-

+2

+8+II

27
$8,565

Total assets
Liabilities and Capital Accounts

Per cent
distribution
Dec. 31
1953 ,

Change in year"

I

+4
+2

$43

-i
+5

-I
-$205

.3
100.0%

Deposits:
Individuals, partnerships and
corporationsDemand
Time
.........
U. S. Government
................
Other
...........
................
Total deposits
....................
Other liabilities
.......................
Capital accounts
......................
Total liab. & cap. acc'ts
.............

. ..

+

$4.549
2,036
215

89
-f-7-3
43
+
F$168
+7+II
}
30

939
$7,739
71
755_
$8565

c

53.1'/
23. B

2.5
I 1.0
90.4°/

+5
2%

.8
8.8

-+-4
-{- 26 o

-}-$205

100.0%

Earnings, Expenses, and Profits
Change in year'"
Dollar

amounts

Earnings
On U. S. Government
On other securities

On loans

nn rl

wrýos

40.1
$256.6

Per cent

2.0

Net profits
..........
.......................
Cash dividends
declared
....................

21.2
56.8
$154.4
$102.2
-$

16.2
32.8

1

4/0

+

.3+2

+ 20.5

+17

1.3
+
+$24.1

+3
+10%

$76.4
--

Interest on riann<i+c
.
Other expenses
...........................
Total current expenses
Net current earnings before income taxes.......
Net charge-offs (-) #
....
Texes on net income
..........................

F

+$
+

143.9

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

I

Amount

$54.7
17.9

securities ................

...........................
Other earnings
Total earnings
...........................
Expenses
Salaries

1953*

in millions

-4- ý"y
+
4*8
+$12.8
{$II.

-}-

3

0/°

+
+

'r
9%

+ 120

4.8

8.0
$53.2 1
-}-$
27.2 1+1.6

+9

Itu

+I7

1
1+6

'Preliminary.
"Adjusted
for mergers
in membership.
#Includes transfers from and changes
and to valuation reserves.

37

EMPLOYMENT AND EARNINGS
WORKERS
PENNSYLVANIA FACTORY I Durable Goods
All Manufacturing
Employment`
939
..............
940 ..............
1941 ..............
1942
1943
..............
1944
1945
1946 ..............
1947 ..............
1948
..............
1949 ..............
1950 ..............
1951 ..............
1952
1953 ..............
..............
1953 January
February ...........
..........
Merck
April
May ..............
Juno ..............
..............
July
...............
August
............
September
.........
October
November ...........
.........
December
.........
1939=100

Weakly

Employ-

earnings

ment*

100
110
134
147
156
153
138
133
143
143
127
131
139
132
138
139
140
141
140
140
140
139
139
139
137
135
132

$22.42
24.27
29.25
35.45
41,48
44.57
43.29
42.21
48.04
52.84
52.94
57.01
63.74
66.54
71.38
71.31
70.88
71.36
70.48
70.95
70.92
70.71
72.13
72.32
72.33
71.72
71.39

I Nondurable Goods

Weekly
earnings

100
119
158
184
203
198
171
151
166
166
143
150
168
159
172
173
174
176
175
175
175
174
174
172
170
166
163

$25.76
28.19
34.31
41.57
47.82
51.14
48.89
45.63
52.18
57.59
57.63
62.15
70.22
72.77
78.48
79.15
78.05
78.30
77.30
77.85
77.54
77.09
79.26
79.81
80.01
79.12
78.33

Employ-

Weekly

ment'

earnings

100
101
II1
III
110
08
106
115
120
120
112
113
II
106
105
106
107
107
106
105
106
104
106
106
105
104
102

$19.1 6
19.77
22.23
25.58
30.03
32.80
34.47
37.86
42.47
46.42
47.12
50.29
54.10
57.00
60.01
58.61
59.48
60.27
59.46
59.92
60.39
60.24
60.70
60.46
60.22
59.87
60.51

INCOME AND PRICES
Fuclory Payrolls:
1939=100
f urrrmIncome P6, os: 1947-1949-100
1939
..............
1940 ..............
1941
1942 .............
..............
1943
1944
1945 ..............
1946
1947 ..............
..............
1948 ..............
1949
1950 ..............
..............
1951 ..............
1952
..............
1953 ..............
1953 January
...........
February
..........
March
............
April
May ..............
June
..............
July
August...............
September............
.........
October
November ...........
.........
December
.........

Factory Payrolls
Pennsylvania
Total
100
119
175
232
288
303
266
250
306
336
300
334
395
393
441
443
443
449
441
443
443
438
448
448
443
430
421

Sources: *U. S. Dept. of Agriculture.

Durable

Consumer

goods

goods

100
131
210
297
377
394
324
267
336
372
320
362
459
452
525
533
528
534
526
529
527
522
534
534
529
511
497

100
104
129
148
172
185
191
228
267
290
275
298
313
315
330
325
332
338
329
330
334
328
335
335
331
324
322

Income
from farm
marketings
N. J., Pa.,
and Dela. *
33
34
40
51
65
66
76
88
98
106
96
93
III
IOB
109
107
93
108
103
103
119
121
122
118
III
100
99

U. S. Bureau of Labor Statistics.

Consumer
prices in
Phila. t
59
59
62
69
74
75
77
83
95
103
102
102
112
114
1I5
114
114
114
114
114
1I5
1I5
115
1I5
115
115
115

DEPARTMENT STORE SALES
1947.1949- 100
(Adjusted for
seasonal
va riaiioný

1939
1940
1941
1942 .....
1943
1944
1945
1946
1947
1948
1949
1950
1951

...,.
.....

...,.
.....

1952
1953
1953 January
February
March
April
May ....,
June
July
August
.
September,
October
November. .
December
.

Third
District

Philadelphia

38
41
48
53
56
62
68
87
96
104
100
106
109
109
110
108
112
112
113
119
110
117
116
104
106
108
108

41
44
51
57
60
65
70
88
9B
104
99
104
106
104
105
100
108
105
109
113
106
113
112
100
99
104
102

DEPARTMENT STORE
1939
1940
1941
1942
1943
1944 ... .,
1945
1946
1947
1948
1949
1950
1951
1952
1953
1953 January
February
,"
March
,1
April
May
June
July
August......
September,
Oc+obor
November .,
December
,1

41
42
51
70
60
62
64
81
93
107
99
108
127
113
119
1 16
115
12
117
121
122
122
122
122
122
120
17

43
44
52
78
65
68
69
87
9a
105
97
107
125
110
114
109
1
108
III
115
120
117
117
118
115
115
111

WilkesBarre

York

32
35
40
44
50
55
63
83
91
104
105
116
121
122
121
122
132
128
125
131
130
123
110
113
117
116
118

32
32
38
41
46
56
65
88
97
105
98
101
100
99
99
106
98
99
98
100
98
102
112
96
99
97
95

36
39
45
53
60
68
74
94
95
105
100
106
114
117
129
120
119
130
125
157
127
137
134
117
132
120
126

32
33
47
61
54
56
56
69
84
112
105
105
127
113
116
120
116
121
132
125
108
116
115
108
110
106
112

32
32
39
50
46
50
52
70
83
116
100
110
126
109
113
116
112
113
III
112
117
119
1Is
114
112
III
109

43
45
55
71
65
66
64
85
91
108
101
112
128
119
132
127
123
131
130
144
133
136
132
128
132
129
134

Lancasfor

Reading

Trenton

36
37
45
52
57
62
67
87
97
103
100
108
110
II
115
112
107
118
107
128
114
126
120
106
115
108
118

36
39
47
53
58
62
65
88
97
104
99
102
104
104
107
107
102
114
108
118
110
III
117
98
104
103
102

INVENTORIES
44
46
52
64
55
58
56
78
96
105
99
108
124
114
121
119
120
117
119
121
122
125
121
120
124
124
125

38
41
51
69
57
66
69
83
92
108
100
106
131
114
122
123
119
114
126
128
123
124
123
124
125
120
118

39