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Attttuai
PHIA

defia
JANUARY 1961

BUSINESS
REVIEW
The Tightrope of Monetary Policy
Federal Reserve Bank Directors
Business and Banking in 1960




BUSINESS REVIEW
is produced in the Department of Research.
David P. Eastburn was primarily responsi­
ble for the article “ The Tightrope of
Monetary Policy,” Evan B. Alderfer for
“ Federal Reserve Bank Directors,” and
J. Frank Rehfuss for “ Business and Bank­
ing in 1960.” The authors will be glad to
receive comments on their articles.

be

Requests for additional copies should
addressed to the Bank and Public

Relations Department, Federal Reserve
Bank of Philadelphia, Philadelphia 1,
Pennsylvania.

THE TIGHTROPE
OF MONETARY

oO L\C<

Making monetary policy is really very much

walking a tightrope between desirable objectives.

like the process of day-to-day living. Each of

Often the policymakers have to strike a com­

us, each day, is forced to make countless deci­

promise— get the best combination of two or

sions if only because there is just so much time

more possibilities.

to do all the things we want to do. As you read

Thinking of Federal Reserve policy in this

these lines, you are making a decision not to

way helps toward an understanding of some of

spend these few seconds doing something else.

the major issues of the day. Specifically, this

And so it goes, hour after hour, day after day.

principle has a very real bearing on the relation­

Often we must decide between two equally

ship of the Federal Reserve to (1) economic

desirable things. Perhaps you are torn whether

growth, (2) Government, (3) social goals, and

to read the rest of this Review or turn to the next

(4) interest rates.

piece of literature in your in-box. Perhaps you
compromise— read some of this and some of the

Economic g ro w th

other too. If so, you are deciding to give up

Rapid economic growth is essential for many

something in one to get something from the other.

reasons, not the least of which may be our very

What’s the connection with monetary policy?

survival as a nation. Yet growth is only one of

This kind of decision is the essence of policy­

the things we as a society want from the econ­

making.

omy. We also want reasonably full employment

The

Federal




Reserve

is

constantly

3

and a reasonably stable dollar. If we are un­

important to maintain their confidence in the

mindful of these other goals, pursuit of growth

dollar. A sizable part of the deficit in recent

could be self-defeating. Trying so hard to grow

months has been caused by money moving

that we bring on an inflationary boom, we could

abroad to take advantage of higher interest

end up with recession and unemployment. So

rates. This situation means that declines in

Federal Reserve policy must constantly consider

interest rates might cause some further outflow.

growth in relation to other worthwhile goals—

What all this adds up to is that in moving to

reasonably full employment and reasonably sta­

stimulate the economy Federal Reserve policy

ble prices. In the end we can have sustainable

must consider the effects of these moves on our

growth and full employment only if we have a

balance of payments. We now walk the same

reasonably stable dollar.

tightrope most central banks have been walking

Right now there is little or no immediate dan­

for years.

ger of inflation and the Fed has moved promptly
to ease credit in order to encourage growth and

Federal R eserve a n d G o v e rn m e n t

employment. But unfortunately it now faces a

The reason we have a Federal Reserve is that

different problem— trying to stimulate the do­

Congress has decided money and credit need to

mestic economy without complicating our inter­

be regulated in the public interest. The nature

national problems.

of the System reflects the public nature of its

This country is running a deficit in its balance

job. The Federal Reserve was established by

of payments. We have a substantial export sur­

Act of Congress and the Board of Governors

plus— over $4 billion a year. But we are also

reports to Congress. Members of the Board are

lending and spending abroad so that on balance

appointed by the President and confirmed by

we are paying out about $4 billion a year more

the Senate. Three of the nine directors of each

than foreigners are paying to us.

Federal Reserve Bank are appointed by the

How serious is this? On the one hand, it

Board as, it is sometimes said, representatives

would be a mistake to exaggerate the danger. It

of the public.* Our earnings, after expenses and

is still true that this country has a very large

a fixed dividend, are turned over to the Govern­

amount of gold compared both with the world

ment.

supply and with our commitments to supply

Not only in its structure but in its operations

gold to holders of dollar claims. The dollar is

the Federal Reserve gives evidence of its respon­

still the reserve currency of many countries.

sibility to Government. The Federal Government

Some of our products can no longer compete

pays out and takes in almost $100 billion a year;

with foreign goods as well as they could, but

it owes one-third of all public and private debt

we have not— in the over-all— priced ourselves

outstanding; it buys $1 of every $10 of goods

out of the world markets; we have a large favor­

and services produced in our economy. Obvi­

able balance of trade.

ously, the Federal Reserve must consider the

Yet it would be equally dangerous to mini­

financial needs of the Federal Government as

mize the problem. Obviously, we can’t keep on
losing gold at this rate indefinitely. Foreigners
are watching this country very closely, and it is

4




* Actually, as the following article points out, all nine directors of
each Federal Reserve Bank have the duty of fulfilling a public re­
sponsibility and not of seeking simply to advance the interests of
any particular group.

well as the financial needs of business or con­
sumers.

Congress acted in 1935 to remove the Secretary
of the Treasury from the position of ex officio

So the Federal Reserve System must fulfill its

member of the Federal Reserve Board.

responsibilities to the public and be responsive

So the Federal Reserve is responsible to the

to what society wants as expressed through its

public, through Congress; but at the same time

elected representatives in Congress.

Congress has taken steps to guard against mis­

It is quite

understandable, therefore, that

Congress has always guarded against control of

uses either for private gain or for purely politi­
cal purposes.

monetary policy by private interests. The ar­
rangements cited above are evidences of this

Federal R e serve a n d social g o a ls

concern.

People today want certain things— a higher

At the same time Congress has taken pains to

standard of living, better public services, etc.—

see that monetary policy is insulated from day-

and seem determined to have them one way or

to-day pressures of partisan politics. It has been

another. Federal Reserve policy is designed to

well aware of a major lesson of history— that

help satisfy these wants. But there are times

the sovereign frequently has been unable to re­

when insistence on satisfying all wants right

sist the temptation to use the central bank— the

away may bring on inflation. This is when de­

money-creating mechanism— for his immediate

mands for goods and services are so strong that

political gain. He has often found it easier and

the economy is unable to meet them even by

politically more popular to finance large Gov­

producing at capacity. Some demands would

ernment spending by creating new money rather

have to go unsatisfied in any case. By restraining

than by financing through taxation.* Many an

credit in these circumstances, the Federal Re­

inflation stands as a monument to this fact.

serve can help to restrain demands temporarily

Congress has tried to insure against this in a

until our productive machinery is better able to

number of ways. For example, it has given mem­

meet them. Monetary policy is simply one way

bers of the Board of Governors staggered terms

of holding demands down so that prices don’t

of 14 years each in order to overlap several ad­

go up. It restrains demands now so that they

ministrations. It has built checks and balances

may be better satisfied later. In the process the

into the Federal Reserve System. The Board of

Fed naturally comes in for criticism by those

Governors has been given sole responsibility

whose demands are restrained.

over reserve requirements and margin require­

But society is concerned with more than satis­

ments, but shares responsibility over the dis­

fying these tangible wants. Among other things it

count rate with the directors of the Federal

wants freedom— in the way it earns and spends

Reserve Banks and over open market operations

its money as well as the way it thinks and votes.

with presidents of the Reserve Banks. This ar­

We don’t like people telling us what to do.
General monetary controls are designed in

rangement reduces the concentration of author­
ity. Finally, although the Fed works very closely

such a way as to interfere as little as possible in

with

the detailed workings of the economy-—to pre­

the Treasury,

as already pointed

out,

serve as much economic freedom as possible.
* Our Annual Report issue last year traced this historical pattern.
See "Henry VIII Revisited," Business Review, January I960.




They affect the total supply of money and credit,

5

leaving it up to the market place to distribute

Reserve influences the supply of money and

this over-all supply.

credit. This naturally affects interest rates. If the

Now this indirect and over-all approach may

demand for credit is strong, interest rates tend to

not affect all sectors of the economy equally. In

go up. If demand is weak, rates tend to go down.

the collective decisions of all lenders, the credit

Federal Reserve actions affecting the supply may

market may distribute less to some sectors than

accentuate these changes in interest rates.

to others. For example, when excessive demands

If society doesn’t like high interest rates, it

bring about tight money, housing may be hit

can see to it that rates are held down. But here,

harder; new and marginal businesses may feel

too, there are effects many may not like. The

a greater impact.

Fed has found from experience that interest

Controls can be designed that are more selec­
tive in their impact. It is always possible to inter­
vene in the market place. But in doing so we also
infringe more on economic freedom.

rates can be held down only if it supplies all the
funds the economy wants.
This experience dates back to World War II
and the immediate postwar years when the

When there are not enough goods and services

Federal Reserve was pegging rates on Govern­

to meet all the demands of would-be buyers,

ment securities. Something like the same thing

some demands must remain unsatisfied. The

happened that is happening in our farm pro­

question is which ones. Inflation lets the price

gram. When the U.S. pegs the price of, say,

mechanism decide the question; excessive de­

wheat, it finds itself holding all the wheat no­

mands force prices of goods and services up so

body else wants at that price. When the Fed held

far that some people are unable to buy them.

down interest rates on (or supported prices of)

General monetary restraint relies on the credit

Government securities, it ended up holding all

market to decide the question; the Federal Re­

the Governments no one else wanted at those

serve limits the over-all supply of money and

rates. Lenders saw they could get a better return

credit in order to bring excessive demands into

on business and consumer loans, corporates, and

line with the supply of goods and services and

municipals, so they sold their Government se­

thus help keep prices from rising; lenders then

curities. The Fed bought them, paid for them

allocate the limited amount of funds. Some other

with new reserves, made it possible for banks

kinds of controls, such as price and wage con­

to expand their loans and investments further,

trols, require decisions by Government authori­

and the money supply expanded. This encour­

ties as to whose wants will go unsatisfied.

aged inflation.

The question remains one of the most basic

The Federal Reserve cannot artificially hold

of our time: how much are we willing to rely

down interest rates and still restrict the expan­

on relatively free markets and how much are we

sion of money and credit. On this issue, unlike

willing to interfere in these markets to satisfy

the others we have discussed, there is no middle

the particular wants of particular groups?

ground.
The real question, therefore, is not whether

Interest rates

rates are too high or not. The question is how to

In helping to achieve the goals of growth, full

maintain a growing, healthy economy. If we do

employment,

this by regulating money and credit and in the

and stable prices,

6




the

Federal

process find that interest rates are “ too high,”

remain insulated from pressures exerted by pri­

then we must decide what alternative methods

vate interests and partisan political groups. It

we would prefer. Except for an effective fiscal

must be responsive to social wants, but within

policy, these alternatives almost invariably in­

the framework of a relatively free economy. On

volve some sort of direct intervention in the

the question of interest rates, however, there is

economy. The real issue is not between high

no middle ground. If the Fed is to do its job,

and low interest rates, but between indirect and

interest rates must be free to move up as well as

direct controls over the economy.

down.
All of us would like to see more growth, more

Conclusions

employment, stable prices, an end to the outflow

Making monetary policy in a real world is like

of gold, more economic freedom, lower interest

walking a tightrope. The Federal Reserve must

rates, and aH the rest. But it is a fact of life that

help the economy grow, at the same time work­

we can’t always have them all, 100 per cent.

ing toward full employment and a stable dollar.

The Federal Reserve’s job is to help us get as

In doing so it must weigh domestic considera­

much of them as possible. Its really difficult

tions

an

task is deciding when to give way here in order

agency operating in the public interest, it must

to gain a little bit there. This is the tightrope

be responsible to Government; but it also must

monetary policy is always walking.

against foreign




considerations.

As

7

FEDERAL RESERVE BANK DIRECTORS
For most people, Thursday is like any other

table, interspersed with officers of the Bank.

working day and there is no particular differ­

The walls of the board room are bedecked with

ence between one Thursday and another. Not so

an assortment of charts on various aspects of

at this Bank, for Thursday is the day the board

business and credit developments, freshly up­

of directors meets— the first and third Thursday
of each month.

each director reads his copy of the minutes of

As the board meeting day approaches, the

the preceding meeting, the pervading silence is

Bank is astir with more than its usual activity.

violated only by the muffled rumble of Chestnut

dated with the latest wiggles and waggles. While

By way of preparing reports of their steward­

Street traffic below and the muted clatter of

ship, the president and the vice presidents in

check-handling machinery

charge of the major blocks on the organization

chines run night and day and stop for no one.

above.

These ma­

chart call for a variety of information from their
assistants. There is much advising and con­

M e e t the b o a rd

ferring, checking and charting, telephoning and

You are in for a surprise if you expect to meet

typing, writing and wiring befQre all the reports

an obesity of bald and bespectacled dividend

are properly dressed up for presentation to the

clippers, so frequently caricatured in the smart

board. Even the page girls do greater mileage.

magazines. If there are such boards, this is not

Promptly at 10:30 in the morning, come deep

one of them.

snow or high water, the chairman calls to order

All of the members of this board are active

the nine-man board assembled around the oval

in business and civic affairs in their respective

Digitized for8 FRASER


communities. All of them serve as a matter of

The Class B directors are elected by the same

public duty at considerable sacrifice of time and

procedure, but, unlike Class A directors who

energy. Some of them are required to travel a

may be bankers and usually are, Class B direc­

substantial distance to attend the fortnightly

tors may not, must not, and cannot be bankers.

meetings. None of them is bent over with years.

Anyone who is an officer, director, or employee
of a bank is ineligible. Though chosen by the

All are very human.
The people at present serving on this board

member banks, Class B directors at the time of

are listed on page 19 of this Annual Report

their election are people actively engaged in the

issue. There you can see who they are, where

district in business, agriculture, or some com­

they come from, their occupations, and the ex­

mercial pursuit.

piration dates of their terms of office. The direc­

The three Class B directors currently serving

tors are arrayed in trios with alphabetic and

on the board happen to be engaged in manufac­

numeric labels, which will be explained as the

turing. Frank R. Palmer, who was elected by

men are introduced.

the large Group 1 banks, is chairman of the

The three at the top of the list, designated

Carpenter Steel Company of Reading, Pennsyl­

Class A, are bankers. Frederic A. Potts is presi­

vania.

dent of the Philadelphia National Bank nearby,
so near that he can get to a board meeting

steel products. R. Russell Pippin, elected by the

quicker by walking than riding down Chestnut

du Pont de Nemours & Company of Wilming­

Street’s slowly moving traffic. J. Milton Featherer
is one of the newly elected directors just begin­

ton, Delaware. Elected by the small banks and
just beginning his term is Leonard P. Pool,

ning his term. He comes from the other side of

president of Air Products, Inc., of Allentown,

the river in New Jersey where he is executive

Pennsylvania.

vice president and trust officer of the Penn’s
Grove

National

Bank

and

Trust

The

medium-sized

company
banks,

manufactures
is

treasurer

specialty
of

E.

I.

Unlike the Class A and Class B directors, who

Company.

are elected by the member banks of the district,

0 . Albert Johnson is president of the First

the Class C directors are appointed by the Board

National Bank of Eldred, on the far northwestern

of Governors in Washington. One of the ap­

edge of the district, where oil began to flow over

pointees is always designated as Chairman and

a century ago and still flows with the help of

Federal Reserve Agent, and another as Deputy

pumps.

Chairman. As Federal Reserve Agent, the Chair­

Special provision is made to assure repre­

man represents the Board of Governors in the

sentation by banks of various size. To achieve

handling of certain functions such as the issu­

this, all member banks of the district are divided

ance of notes to the Reserve Bank. The Deputy

into three groups— large, medium, and small—

Chairman takes over in the absence of the

on the basis of their capitalization, and each

Chairman.

bank regardless of size has one vote. Hence, the

Chairman

and

Federal

Reserve

Agent

is

numerical “ group” designation. Mr. Potts was

Henderson Supplee, Jr., president of the Atlantic

elected by the Group 1, or big banks, Mr. Feath­

Refining

erer by the medium-sized banks, and Mr. John­

Chairman is Walter E. Hoadley, vice presi­

son by the small banks.

dent and treasurer




Company

of
of

Philadelphia.

Deputy

the Armstrong Cork

9

Company of Lancaster, Pennsylvania. Armstrong

vice presidents, the money-counting machines,

Cork is a manufacturer of building materials,

and the vaults. The resemblance goes still fur­

floor coverings, and related products. The third

ther in that there is a general ledger, bookkeep­

member of the Group is David C. Bevan, vice

ing machines, money lending, check clearing,

president, Finance, the Pennsylvania Railroad

and unannounced bank examiners making their

Company. Class C, like Class B directors, may

appearance usually at the most inconvenient

not be officers, directors, or employees of any

times. And of course stockholders and a board

bank. In fact, Class C directors may not even be
stockholders in a bank— so completely must they

of directors.

be divorced from banking.

is a basic and fundamental difference. A com­

Despite the many resemblances, however, there

From the foregoing it is apparent that the

mercial bank is in business to make profit; a

directorate is a three-ply laminated board of me­

Federal Reserve Bank is not. The directors of a

ticulous construction from material very care­

commercial bank or any industrial or commer­

fully selected. The designing and engineering

cial corporation are elected by the stockholders

were conceived by the framers of the Federal

to supervise the company’s affairs in the interest

Reserve Act. The purpose of all the classifica­

of the stockholders. Their major interest is

tion, stratification, and different ways of selec­

maximum

tion is to assure a directorate of men of different

capital. The best directors, therefore, are men

calling, varied background, unlike experience,

who can make the best yardage toward the goal

dividend return on their

invested

and diverse points of view. Both bankers and

of profits. Not so the Federal Reserve direc­

non-bankers serve on the board and the latter

torate.

outnumber the former to prevent a banker-

The Federal Reserve Act requires directors

dominated directorate, and, as already observed,

to administer the affairs of the Bank fairly and

little banks have as much voice and as many

impartially and without discrimination in favor

votes as the big ones. Among the non-bankers

of or against any member bank or banks. The

are men of diversified activities and experience.

Act further specifies that “ Each Federal Reserve

There is an oil man, a steel man, a railroader,

Bank shall keep itself informed of the general

a

character and amount of loans and investments

manufacturer

of

building

materials,

and

manufacturers in two different divisions of the

of its member banks with a view to ascertaining

chemical industry. Collectively, the board is a

whether undue use is being made of bank credit

cosmopolitan

for the speculative carrying of or trading in

gentry— professionally

and geo­

graphically.

securities, real estate, or commodities, or for any
other purpose inconsistent with the maintenance

Duties of R e serve B a n k directors

of sound credit conditions. . . .” Accordingly,

A Federal Reserve Bank is a unique institution.

the board is concerned with the lending and

On the outside it looks like an ordinary com­

investing activities of member banks and the

mercial bank, with its massive masonry sugges­

relation of these activities to the maintenance of

tive of solidity and impregnability. Inside it

healthful credit conditions. How the board seeks

looks even more like just an ordinary bank when

to fulfill its public obligations is perhaps best

you see the armed guards, the caged tellers, the

understood by observing how it works.




The b o a rd a t w o rk

the

After a review and approval of the minutes of

oughgoing analysis of current and prospective

the preceding meeting, the chairman invariably

business conditions. In this task the directors

calls for a report of the credit-discount opera­

are assisted by an analysis of business condi­

tions from

In other

tions both locally and nationally by the vice

words, what the board wants to know first is

president in charge of research. With the aid of

how much money the Bank has been lending to

professional assistants on his staff, he brings to

the appropriate officer.

the member banks of the district.
In their quest for profits, member banks com­

board

of

directors

undertakes

a

thor­

the attention of the directors all available and
pertinent information on business and credit

pete with each other in lending money; that is,

developments that have taken place since the

extending credit to borrowers. When credit, so

previous meeting of the board.

The review

extended, is used for the production and con­

covers the whole gamut of economic activity—

sumption of goods and services, it plays a useful

production

and salutary role in the economy. And when

lending, employment and unemployment, saving

and

consumption,

borrowing and

banks encounter unexpected needs for reserves

and investing, and, from time to time, the re­

which cannot reasonably be met from their own

sults of special research surveys undertaken to

resources, they may turn to the Federal Reserve

throw light on prospective developments in such

Bank for credit.

areas as capital investment plans or consumer

The discount rate, the rate paid by member

buying intentions or mortgage financing and

banks when they borrow from the Reserve Bank,
is one of the instruments of credit control. When

residential construction.
The chairman of the board also conducts a

the board of directors believes some restraint in

go-around by calling upon each of his fellow

credit expansion is called for, it may raise the

members for reports and observations, includ­

rate. The higher rate discourages borrowing by

ing latest developments in his company or in­

making it more costly, in turn putting pressure

dustry. With their

on the member banks to curtail their lending.

they are able to make significant contributions

Under different circumstances when business is

to the common fund of knowledge.

diverse

business contacts

slack, the board encourages borrowing by re­

Before voting on the establishment of the

ducing the discount rate, tending to make credit

discount rate, the board is also briefed on fiscal

cheaper. In deciding what action to take with

operations of the Treasury. A review and pre­

respect to the rate, the directors consider what

view of the ebb and flow of funds in Uncle

is being done with the other instruments— open

Sam’ s monumental money basket have an im­

market operations, reserve requirements, and

portant bearing on the total demand, availabil­

margin requirements— for which they have no

ity, and cost of credit inasmuch as the Federal

statutory responsibility. In this consideration,

Government is the country’s biggest borrower

they are aided by recommendations of the presi­

and spender.

dent who also participates in meetings of the

Upon careful consideration of all facts ob­

Federal Open Market Committee where all of

tainable, the board establishes the discount rate,

the instruments are discussed.

which is subject to “ review and determination”

Before establishing the discount rate, however,




by the Board of Governors. Although the Board

11

FEDERAL RESERVE SYSTEM
Boundaries of Federal Reserve Districts and their branch territories in the continental United States.

of Governors has the final say, the directors

ratios among the 12 Federal Reserve Banks,

initiate changes in the rate.

each striving for the best performance.

Establishing the discount rate is one of the
major functions of the directorate, but by no

C ou n try-w id e counsel

means its sole responsibility. Mention has been

We have seen how the board of directors of this

made of the fact that the Bank is not run

Bank is constituted, what duties it performs, and

for profit, but that does not mean it is run like

how the board operates. The boards of the other

a volunteer church choir. The board of directors

Federal Reserve Banks are constituted in the

oversees all major aspects of the Bank’s opera­

same way, perform similar duties in their re­

tions, scrutinizes expenses, approves large capi­

spective districts, and with minor variations,

tal outlays, exercises control over salaries and

operate in like manner.

other expenditures. Much of this work is ex­
pedited

by

specially

appointed

The country is divided into 12 Federal Re­

committees,

serve Districts. The location of the banks and

notably audit, budget, building, personnel, and

the delineation of the districts are shown in the

an executive committee. For the purpose of

first of two maps. Each district is officially iden­

improving efficiency, comparisons are constantly

tified by a number and the location of the bank

being made in various financial and operating

in each district is indicated in large type. The

12




PLACES OF BUSINESS OF BANK DIRECTORS

trouble with a map is that it’s so flat and doesn’t

Adding the 152 directors of branches to the

show such things as the importance of steel in

108 directors of the mother banks makes a

the Cleveland district, tobacco in the Richmond

total of 260 directors.

district, petroleum in the Dallas district, or

The second map, where each black dot indi­

lumber and aircraft in the San Francisco dis­

cates the place of business of a Bank director

trict. But it is difficult for an economic activity

and each blue dot that of a branch director, shows

of any consequence to go unrepresented in the

how the country is peppered with Federal Re­

Federal Reserve System because the 12 banks

serve directors. The heaviest concentration, as

have 108 directors.

might be expected, is in the populous East but

And there are still more. On the map just
referred to are a number of cities in smaller type

most of the states have one or more representa­
tives on some Bank or branch board.

indicating the location of branches of the Fed­

The widely dispersed regional representation

eral Reserve Banks. All districts, except Boston

is matched by a highly diversified occupational

and Philadelphia, have one or more branch

or professional representation. Heading the list

banks. Each branch has its own board of direc­

of directors other than bankers are manufac­

tors, consisting of either five or seven individuals

turers— officials associated with firms that manu­

as indicated in the table on the next page.

facture drugs, foods, furniture, paper, steel, and




13

other products. It may or may not surprise you
to find educators in second place. This group
embraces college and university presidents, deans
and professors. Then there are farmers, econo­
mists, merchants, miners, lawyers, and also an
inventor, and a cotton broker. But there is no
doctor in the house.
In so large a group of individuals pursuing
such diversified callings, there are bound to be
all shades of opinions and prejudices, predilec­
tions and aversions, likes and dislikes. There
are also years of experience, observation, study,
and reflection. Here is a great body of men of
notable achievement in various walks of life
who regularly gather around the counsel tables
to assist in the difficult task of molding credit
policy for an ever-changing economy. It’s a job
that defies solution by formula, ratio, equation,
or any kind of mechanistic rig. Human judg­
ment alone must prevail and the abundance of

FED ER A L R E S E R V E

BRANCH

NUMBER OF
D IS T R IC T B R A N C H E S
D IR E C T O R S
Boston— no branches .......................................
—
New York— B u f f a lo ...........................................
7
Philadelphia— no branches ..............................
—
C le ve land— C in c in n a t i......................................
7
7
Pittsburgh ....................................
Richm ond— Baltimore ......................................
7
C harlotte ......................................
7
A tlanta— B irm in g h a m .......................................
7
7
J a c k s o n v ille .......................................
Nashville ...........................................
7
New O r le a n s ......................................
7
C h ic a g o — D e t r o i t .............................................
7
St. Louis— Little Rock. ......................................
7
Louisville .........................................
7
M e m ph is .........................................
7
M inne a po lis— H e l e n a .......................................
5
Kansas C ity — Denver .......................................
5
O klahom a C ity ............................
5
O m aha .......................................
5
Dallas— El P a s o ................................................
7
H ouston .............................................
7
San A n to n io ........................................
7
San Francisco— Los A n g e le s .............................
5
Portland ..................................
5
Salt Lake C i t y ............................
5
S e a t t le ......................................
5

counsel makes for soundness of judgment.

NEW RELEASE
Forecasts for 1961. The Department of Research has
compiled and analyzed a number of predictions made by
businessmen, ecpnomists and Government officials. This
compilation includes a summary of forecasts for the econ­
omy as a whole and particular sectors of the economy.
The more important indicators are presented in chart form.

Copies of this release are available on request from
the Bank and Public Relations Department, Federal Reserve
Bank of Philadelphia.

14




BANKS

152

BUSINESS

and

BANKING

IN
1960
Describing the economic situation in the clos­

largest on record in 1960. In other respects the

ing months of 1960, many analysts were talking

record for the year was not as encouraging.

in terms of “ hesitation,” “ recession,” or “ roll­

District

figures

covering

the

first

eleven

ing adjustment.” Nationally, the index of indus­

months of the year show virtually no change

trial production was down to 105 in November

in the average level of over-all employment or

from 110 in July; private residential construc­

in factory working time. Their failure to in­

tion had been running materially under a year

crease takes on added significance when it is

earlier; manufacturers’ inventories were declin­

recalled that a steel strike curtailed output over

ing; and unemployment was causing concern.
During 1960 wholesale prices moved within a

widespread repercussions in other fields. Car

relatively narrow range and retail trade little

loadings in the Philadelphia region were fewer

more than equaled the volume in 1959.

than in the corresponding period of 1959, and

a period of several months in 1959 and had

more marked declines were reported in anthra­
Bu siness conditions in the Third District

cite coal production and in contracts let for

Mixed tendencies were apparent in Third Dis­

residential construction.

trict business activity. Capital expenditures of

stores were much the same in both years but,

manufacturers in the Philadelphia area were the

as in the country as a whole, registrations of

BUSINESS

Sales

of

department

INDICATORS

Third Federal Reserve District
Percent change 1959 to I960
Change

Change
Em ploym ent (14 a r e a s )* ..................................
Factory pa yro lls* ..............................................
Factory w orking tim e* .......................................
Electric pow er consum ed by m anufacturers* .......
A nthracite coal o u tp u t* ....................................
C o nstruction contracts:
R esid e n tial* .................................................
N o n re sid e n tial* ............................................
Public works and utilities* ...............................
* First eleven months.

-f- 0 %
-j- 3
0
-f- 6
— 12

C a r lo ad ings (Philadelphia region) * . . . . ............Retail sales, total (excluding na’tional chains) * * ..
Departm ent store sales* ....................................
A uto m o b ile registrations (48 counties, eastern
Pe nnsylvan ia)* ..............................................
Bank debits (20 c itie s)* ....................................

5%
— I
-}- I
4-14
+ 5

— 18
— 2
-f 3

* * First ten months.




15

UNEMPLOYMENT

IN

MAJOR

LABOR

MARKET

AREAS

Third Federal Reserve District
N um be r of areas
Nov. '60

Nov. '59

Nov. '58

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

0
8
0
3
2

I
7
2
0
3

0
3
5
I
4

Total num ber ......................................................

13

Percent of labor force unem ployment:
1.5 to 2 . 9 %
3.0 to 5 . 9 %
6.0 to 8 . 9 %
9.0 to 11.9%
1 2 % or more

13

13

new passenger automobiles picked up consid­

largely in response to climbing loan portfolios.

erably. The accompanying table shows that the

Permission to use vault cash in meeting reserve

economy continues to be plagued by areas of

requirements helped to ease the reserve problem.

pronounced unemployment, despite efforts to

As the year progressed, borrowings of both

attract new industries.

reserve city and country banks from the Reserve

Com m ercial b a n k o p e ratio n s

city banks, however, show more active borrow­

Outstanding credit of member banks in the

ing in the federal funds market and higher total

Third District totaled $8,745 million in late

borrowings, on the average, than in 1959.

Bank declined. Additional data for the reserve

December, an increase of $543 million over the

Earnings data for the year as a whole are not

level at the end of 1959. There was relatively

yet available. First-half results, however, reflect

little net change in member bank investments,

some of the circumstances under which banks

but the loans of both reserve city and country

operated during 1960. Total earnings of Third

banks tended sharply upward. Much of the in­

District member banks were up 14 per cent

crease at reserve city banks was in business loans

from a year earlier, due mainly to the expansion

and in the unclassified group which includes con­

in loans. Expenses also were higher, owing partly
to pronounced growth in time deposits and the

sumer loans.
The required reserves of member banks de­

higher rates paid on such balances by many in­

clined early in the year, but subsequently the

stitutions. Nevertheless,

trend was strongly upward as deposits expanded,

moved up $10 million to $79 million. Income

MEMBER

current

net earnings

BANKS

Third Federal Reserve District
(M illio n s $)

Dec. 3 1,
1958

Dec. 3 1,
1959

C h a n g e in
1959

Dec. 28,
I960

C h a n g e in
I9 6 0 *

Loans ................................................................ ..
Investments ...................................................... ..

4,347
3,589

4,865
3,337

+518
— 252

5,367
3,378

+502
+ 41

Total earning a s s e t s ............................... ..
Deposits (less cash items in process of collection) . ..

7,936
8,549

8,202
8,657

+266
+ 108

8,745
9,097

+543
+440

‘ Through December 28.

16




tax payments were heavier, but losses or charge-

computer— is being shipped to us as the year

offs on securities declined. Following these and

closes. Staff members have been trained to handle

other adjustments the banks reported approxi­

the operations, and programs to be used in the

mately $39 million of net profits available for

computer have been worked out in detail and

distribution, an amount almost $9 million larger

tested. The checks of many banks already include

than in the first six months of 1959.

the imprint and others are being urged to adopt
it as they place orders for new supplies.
Another computer is on order for use in Bank

R e se rve B a n k o p e ratio n s
In the course of the year 208 member banks,

operations and the handling of research prob­

more than two-fifths of the total number, bor­

lems and statistical data. This phase of the work

rowed from the Reserve Bank. Save for the 224

also is being pursued actively and programs are

reported in 1959, this was the largest number

being prepared for use in computer operations.

receiving discount accommodation in any year

Responding to public interest in the Federal

since 1934. In dollars, however, the decline

Reserve is one of numerous activities in the

was much more pronounced— from an average

Bank’s bank relations and public information

of $42 million in 1959 to $20 million in 1960.

program. While Federal Reserve policy decisions

Data

for

other

operations

Bank

receive considerable attention in the financial

show mixed changes. Increases in the number

press, local public interest often takes the form

and amount of checks handled were small, but

of requests for speeches, publications, films, and

larger

tours of the Bank. Efforts are made to respond to

proportionate

of

the

increases were reported

in transfers of funds, possibly reflecting a heavier

all reasonable requests for the purpose of con­

volume

Gains

tributing to public understanding of the Federal

also were registered in the number of depositary

Reserve. As authors of Business Review articles

receipts for withheld taxes processed, in Gov­

become better known and as other speakers from

of federal funds transactions.

ernment securities issued or redeemed, and in

the Bank gain followings, the demand for their

coupons redeemed, but declines were shown in

services increases. During the year, all country

currency and coin counted, and in the number

banks were visited once by Bank representatives

of

to help install new procedures initiated by the

postal

money

orders,

postal

remittances,

and non-cash items handled.

Reserve Bank and to gather information on de­

Over the past year preparations have gone on

velopments in the District. Conferences were

apace for the handling of checks having mag­

held throughout the District as the Bank con­

netic ink encodement. Part of the equipment

tinued its program of exchanging views on

already

business and credit trends.

is in place and the key item— the




17

D IR E C T O R S A N D O F F IC E R S

Two new directors were elected in the fall, to serve for three-year terms from January I ,
1961. J. Milton Featherer, Executive Vice President and Trust Officer of the Penn's
Grove National Bank and Trust Company, Penns Grove, New Jersey, was elected as
a Class A director by banks in G roup 2, succeeding William B. Brosius. Banks in G roup 3
selected Leonard P. Pool, President and Director of A ir Products, Incorporated, Allen­
town, Pennsylvania, as a Class B director. Mr. Pool succeeds Bayard L. England.
The Board of Governors of the Federal Reserve System reappointed W alter E.
Hoadley as a Class C director for a term of three years. Henderson Supplee, Jr.
and Mr. Hoadley will continue to serve as Chairman and Deputy Chairman, respectively,
during 1961.
Howard C. Petersen, President of the Fidelity-Philadelphia Trust Company, Phila­
delphia, Pennsylvania, will serve as the District's representative on the Federal Advisory
Council during 1961, by appointment of the Board of Directors of this Bank. He succeeds
Casimir A. Sienkiewicz, who represented the District in 1958, 1959, and I960.
Effective November I, I960, four Senior Examiners were made Examining Officers
of the Bank. They are Harold M. Griest, Leonard Markford, Jack H. James, and
G. William Metz. The title of Joseph M. Case was changed to Chief Examining Officer.
Jack H. Besse, presently assisting in the development of machine methods and general
planning, became an Assistant Cashier on January I, 1961. O n the same date Ralph
E. Haas and Henry J. Nelson, previously Assistant Cashiers, became Assistant Vice
Presidents.

18




D I R E C T O R S A S O F J A N U A R Y 1961

Term expires
December 31

Group
CLASS A
1

FREDERIC A. POTTS
President, The Philadelphia National Bank,
Philadelphia, Pennsylvania

1962

2

J. MILTON FEATHERER
Executive Vice President and Trust Officer,
The Penn’s Grove National Bank and Trust
Company, Penns Grove, New Jersey

1963

3

0 . ALBERT JOHNSON
President, The First National Bank of Eldred,
Eldred, Pennsylvania

1961

1

FRANK R. PALMER
Chairman, The Carpenter Steel Company,
Reading, Pennsylvania

1961

2

R. RUSSELL PIPPIN
Treasurer, E. I. du Pont de Nemours & Company,
Wilmington, Delaware

1962

3

LEONARD P. POOL
President, Air Products, Incorporated,
Allentown, Pennsylvania

1963

CLASS B

CLASS C
HENDERSON SUPPLEE, JR.,Chairman
President, The Atlantic Refining Company,
Philadelphia, Pennsylvania

1961

WALTER E. HOADLEY, Deputy Chairman
Vice President and Treasurer,
Armstrong Cork Company,
Lancaster, Pennsylvania

1963

DAVID C. BEVAN
Vice President, Finance, Pennsylvania Railroad Company,
Philadelphia, Pennsylvania

1962




19

O F F IC E R S A S O F JA N U A R Y 1961

KARL R. BOPP
President

ROBERT N. HILKERT
First Vice President

RALPH E. HAAS
Assistant Vice President

JOSEPH R. CAMPBELL
Vice President

GEORGE J. LAVIN
Assistant Vice President
and Assistant Secretary

WALLACE M. CATANACH
Vice President

HENRY J. NELSON
Assistant Vice President

DAVID P. EASTBURN
Vice President
MURDOCH K. GOODWIN
Vice President, General Counsel
and Assistant Secretary

HARRY W. ROEDER
Assistant Vice President
JOSEPH M. CASE
Chief Examining Officer

PHILIP M. POORMAN
Vice President

HAROLD M. GRIEST
Examining Officer

JAMES V. VERGARI
Vice President and Cashier

JACK H. JAMES
Examining Officer

RICHARD G. WILGUS
Vice President and Secretary

LEONARD MARKFORD
Examining Officer

EVAN B. ALDERFER
Economic Adviser

G. WILLIAM METZ
Examining Officer

CLAY J. ANDERSON
Economic Adviser

JACK H. BESSE
Assistant Cashier

JOHN R. BUNTING, JR.
Business Economist

ROY HETHERINGTON
Assistant Cashier

EDWARD A. AFF
Assistant Vice President

WILLIAM A. JAMES
Personnel Officer

HUGH BARRIE
Assistant Vice President

WARREN R. MOLL
Assistant Cashier

NORMAN G. DASH
Assistant Vice President

FRED A. MURRAY
Director of Plant

ZELL G. FENNER
Assistant Vice President

RUSSELL P. SUDDERS
Assistant Cashier
HERMAN B. HAFFNER
General Auditor

20




S T A T E M E N T O F C O N D IT IO N
FEDERAL RESERVE BANK OF PHILADELPHIA
End of ye a r
( 0 0 0 ’s omitted in dollar figures)

1960

1959

A SSET S
G o ld certificate reserves:
G o ld certificate a c c o u n t ...............................................
Redemption fund— Federal Reserve n o t e s .....................

$ 1 ,0 5 5 , 7 1 2
66 ,2 51

$ 1 ,0 5 0 , 1 1 3
6 0 ,9 6 5

Total go ld certificate r e s e r v e s ...................................

$ 1 ,1 2 1 , 9 6 3

$ 1 ,1 1 1 ,0 7 8

Federal Reserve notes of other Federal Reserve B a n k s ........
O the r cash ......................................................................
Loans and securities:
Discounts and advances ..............................................
United States G overnm ent s e c u r it ie s .............................

4 2 ,5 1 9
1 0 ,7 9 3

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

4,19 2
1 ,5 4 5 ,0 1 2

4 3 ,0 5 5
1,51 7,2 81

Total loans and s e c u r it ie s .........................................

$ 1 ,5 4 9 , 2 0 4

$ 1 ,5 6 0 , 3 3 6

Due from foreign b a n k s ....................................................
Uncollected cash items ....................................................
Bank p r e m is e s ..................................................................
All other a s s e t s ................................................................

1
41 2 ,3 2 4
3,791
1 2 ,0 4 3

1
3 9 4,830
4 ,0 3 6
1 4 ,6 3 8

$ 3 ,1 5 2 , 6 3 8

$ 3 ,1 4 6 ,5 4 8

$ 1 ,8 6 7 ,3 2 3

$ 1 ,8 0 7 , 9 9 0

8 3 1,788
2 7 ,0 3 8
1 2 ,6 2 6
5 ,7 0 0

89 2 ,9 9 4
3 7 ,6 4 5
2 2 ,9 6 8
3 2 ,5 4 8

Total assets

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

LIAB ILIT IES
Federal Reserve n o t e s ......................................................
D eposits:
M e m b er bank reserve a c c o u n t s .....................................
United States G o v e r n m e n t .............................................
F o r e i g n ........................................................................
O the r deposits ............................................................
Total d e p o s i t s ..........................................................

$

87 7 ,1 5 2

$

9 8 6 ,1 5 5

D eferred a vailability cash i t e m s .......................................
A ll other liabilities ..........................................................

3 3 4 ,9 7 1
1 ,6 9 7

2 8 1 ,6 0 9
1,51 3

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

$ 3 ,0 8 1 , 1 4 3

$ 3 ,0 7 7 , 2 6 7

$

$

C A P IT A L A C C O U N T S
C ap ital paid i n ............................................................
S u r p l u s ........................................................................
Reserves fo r c o n tin g e n c ie s .............................................
Total liabilities and capital a c c o u n t s .........................
Ratio of go ld certificate reserves to deposit and Federal
Reserve note liabilities com bined .................................

2 3 ,8 3 2
4 7 ,6 6 3
*

2 2 ,8 1 9
4 5 ,6 3 8
824

$ 3 ,1 5 2 , 6 3 8

$ 3 ,1 4 6 , 5 4 8

4 0 .9 %

3 9 .8 %

* Reserve account eliminated and funds paid to United States Treasury as authorized by the Board of
Governors of the Federal Reserve System.




E A R N IN G S A N D EX PE N SE S
FEDERAL RESERVE B A N K OF PHILADELPHIA
1960

(0 0 0 's omitted)

1959

E arnin gs from:
United States G overnm ent s e c u r it ie s .............................

$

$

879

O th e r s o u r c e s ..............................................................
Total current e a r n i n g s ...............................................

6 1 ,8 4 3

4 8 ,8 4 8
1 ,5 1 0

$

6 2 ,7 2 2

$

5 0 ,3 5 8

$

7,59 4

$

7 ,0 0 6

N et expenses:
O p e ra tin g e x p e n se s*

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

C ost of Federal Reserve c u r r e n c y .................................

691

343

Assessm ent fo r expenses of Board of G o v e r n o r s ............

384

427

Total net e x p e n s e s ...................................................

$

8 ,6 6 9

$

7 ,7 7 6

Current net e a r n i n g s ........................................................

$

5 4 ,0 5 3

$

4 2 ,5 8 2

140

$

Ad d itions to current net earnings:
Profits on sales of U.S. G overnm ent securities ( n e t ) ........

$

Transferred from reserves for contingencies ( n e t ) ..........

824

A ll o t h e r ......................................................................

—

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

$

964

11
7 ,2 0 8
3

$

7 ,2 2 2

Deductions from current net earn ings:
M isce lla ne ous non-operating expenses

Total d e d u c t io n s ..................................... .................

2

$

7

$

2

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

$

957

$

7,22 0

Net ea rn in g s before paym ents to U.S. T r e a s u r y .................

$

5 5 ,0 1 0

$

4 9 ,8 0 2

Net additions

D ivid end s paid ................................................................

1,3 9 9

1,34 9

Paid to U.S. T rea su ry (interest on Federal Reserve notes) . . . .

5 1 ,5 8 5

6 2 ,4 2 1

2 ,0 2 5

$ -1 3 ,9 6 8

Transferred to or deducted from (— ) S u r p l u s ...................
* After deducting reimbursable or recoverable expenses.

22

7

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




$

V O L U M E O F O P E R A T IO N S
FEDERAL RESERVE BANK OF PHILADELPHIA
1960

1959

1958

1 7 6 ,7 0 0
2 5 ,0 0 0
1 7 ,2 0 0
707

1 7 3 ,6 0 0
2 4 ,2 0 0
1 7 ,9 0 0
718

1 6 8 ,0 0 0
2 6 ,4 0 0
1 9 ,7 0 0
819

698
145
29 5,000
45 1 ,2 0 0
2
529
326

742
13 3
2 9 9 ,2 0 0
49 1 ,1 0 0
2
505
328

792
119
30 3 ,1 0 0
51 1 ,5 0 0
1
492
347

419

353

334

7,87 2
6,65 7
1,0 4 3

7 ,5 3 6
6 ,7 6 6
953

7 ,9 3 0
6 ,2 2 3
941

$ 6 4 ,5 0 0
5,131
283
150

$ 6 4 ,3 0 0
4 ,9 7 4
287
157

$ 6 1,100
4 ,8 9 0
306
140

3 4 ,7 0 7
87,251
2 ,0 7 2
54
2 ,7 1 2
2 ,3 8 3
861

3 3 ,2 6 7
6 9 ,8 2 6
2 ,0 7 4
52
6 ,2 6 2
1,981
842

3 1 ,0 0 4
5 8 ,9 7 2
2 ,0 7 2
52
1,5 5 9
1,8 0 6
825

1 0 ,5 5 7

12,771

1 0 ,8 3 2

386
405
14 2

382
531
128

413
462
112

N u m b er of pieces (0 0 0 's omitted)
Collections:
O r d in a ry c h e c k s * ...........................................
G overnm ent checks (paper and c a r d ) ..............
Postal m oney orders ( c a r d ) .............................
N on -cash it e m s ...............................................
C le a rin g operations in connection with direct sendings and wire and g ro u p clearing p la n s * * . . . .
Transfers of funds .............................................
C urren cy c o u n t e d ...............................................
C oin s counted ..................................................
Discounts and a d vance s to member b a n k s ............
D e p osita ry receipts for withheld t a x e s .................
Postal receipts (re m itta n c e s)...............................
Fiscal a ge n cy activities:
M a rk e ta b le securities delivered or redeemed . . .
S a v in g s bond transactions—
(Federal Reserve Bank and agents)
Issues (including re-issues) .........................
Redem ptions
.............................................
C o u p o n s redeem ed (Governm ent and agencies) . . .
D o lla r amounts (0 0 0 , 0 0 0 ’s omitted)
Collections:
O r d in a ry c h e c k s .............................................
G overnm ent checks (paper and c a r d ) ..............
Postal m oney orders ( c a r d ) .............................
N o n -c a sh i t e m s ...............................................
C le a rin g operations in connection with direct sendings and wire and g ro u p clearing p l a n s * * ........
Transfers of funds .............................................
C urren cy c o u n t e d ...............................................
C o in s counted ..................................................
Discounts and ad va nce s to member b a n k s ...........
D e p osita ry receipts for withheld t a x e s ...............
Postal receipts (re m itta n c e s)...............................
Fiscal a ge n cy activities:
M a rk e ta b le securities delivered or redeemed . . .
S a v in g s bond transactions—
(Federal Reserve Bank and agents)
Issues (including re-issues) .........................
Redem ptions
.............................................
C o u p o n s redeem ed (Governm ent and agencies) . . .
* Checks handled in sealed packages counted as units.
* * Debit and credit items.




23