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BANKINGTRENDSAND PROSPECTS
Twenty-ninth
ý4nnual
UZeport
of the
FEDERAL RESERVE BANK
OF PHILADELPHIA
1943
Third
Federal Reserve District
CONTENTS
Page
Banking,
credit, and finance
.........................
of the Third District in war finance
.............
Federal Reserve
policy .............................
Banking
trends
.................................
Government
securities ..........................
Deposits
....................................
Loans
........................................
Capital funds
..................................
Earnings
and expenses
...........................
Prospects
.....................................
Role
Business
conditions
I
i
FederalReserve
I
I
1.
_
l..
-
..................................
Bank
....:.......................
inuustrial loans
..................................
Regulation V
....................................
Federal Reserve
credit
.............................
Federal Reserve
notes
..............................
Earnings
and expenses
..............................
Volume
of work
..................................
Membership
................................
Directors
and officers
..........
.
.
1
1
4
6
.
8
11
14
14
15
16
28
37
38
40
42
44
44
45
47
FEDERAL RESERVE BANK
OF PHILADELPHIA
April
30,1944.
To the Member Banks in the
Third Federal Reserve District:
There is presented in this Twenty-ninth
Annual. Report of the Federal Reserve Bank
of Philadelphia
a review of major banking
and business trends and developments
Third Federal Reserve District.
ALFRED
H.
in the
WILLIAMS
President.
BANKING,
CREDIT,
AND
FINANCE
Each of the
banking
many units that comprise the American
system must adapt its policy and program to its own problems.
For the
system is strong only as each of its units is strong; the
strength of one cannot
Yet there
offset the weakness of another.
is no grand, simple, universal plan suitable without modifications
to all banks. Each bank is
both general and
compelled to analyze
local developments
if it is to provide leadership in its community
in the difficult
periods ahead.
i
I
I
The
development of the past year has been
outstanding
further integration general
banks
into the war effort. This conversion
of
to agencies of
finance
is
war
reflected clearly in the recordincrease in holdings
break-'fig
in
Government
securities by members
this district from $1,841 of
$2,764
December
31,1942
to
on
million
million a year later,
and the resulting increase from $4,145 million
to $4,831 million in deposits. The importance
of local conditions
to individual banks is
fact
by
that although the rate of
shown
the
increase in deposits
banks
in
district
in the four years
the
at all
ended June 1943
was 45 per cent, the rates for individual counties
varied from 8
per cent to 91 per cent.
I
1iýThe
l 'bird D hc'icl Purchases
4
of
securities
by
commercial
banks
and
ill war fr».
in the Third Federal Reserve District, shown
: ce others
in the table on the next page, give a rough measure
borof the participation
of the district in the war
ing program of the Treasury.
The
success of efforts to sell as many securities as possible to
'lonbank investors ;.s ;
district they
nd cared by the fact that in this
bought
$335 million of securities in the First War Loan Drive,
I
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelphia
Third
(Millions
of Treasury
on Cash Off erings
Allotments
Reserve
% of
United
States
260.6
200.7
213.2
207.4
112.4
5.3%
5.3
4.1
5.5
6.9
12
97.3
38.1
135.4
5.0
Feb.
1
April 15
Aug. 2
.. Sept. 15
Oct. 15
47.0
94.7
56.6
25.9
101.7
0
171.4
72.8
196.4
56.6
171.4
91.3
1,718.4
July
0
91.3
636.6
issues
Bills
.................
Fax and savings notes
Savings bonds: F....
1,722.3
0
0
0
1,722.3
G....
"Dotal continuou.....
Grand total, 1943..
two months
Special issues
Bonds:
21/4%
21 % ..............
..............
Total
123.2
200.7
213.2
207.4
0
15
15
15
15
15
Continuous
1944:
1yonbank
investors
137.5
0
0
0
112.4
April
April
Sept.
Sept.
Oct.
.
11/2%
..............
Cert. of indebt.:
7/s%
7/e%..............
7/s%..............
7/8%..............
7/8%..............
..............
Total special.........
Dis/rict
Commercial
banks
Date
$)
1943
Special
issues
Bonds:
2 °lo
21/z% ..............
2 °I ..............
21/2% ..............
..............
2%
(additional)
Notes:
Federal
Securities
2,359.0
0
1,081.7
3.3
3.7
5.7
4.2
5.8
4.7%
3.0%
5.8
4.8
5.8
6.5
4? %a
1,722.3
4(,3.3
463.3
491.9*
491.9*
43.0
43.0
171.7
171.7
1,170.0 ý2,892.3
1
2,251.7 4,(i10.7
4.4%
First
Cert. of indebt.:
7i&%
..............
Total special
........
Continuous
issues
Bills
.................
Savings
notes
Savings Bonds:........
E....
Total
Feb.
Feb.
1
1
Feb.
1
39.4
6.5
232.3
85.9
0
45.9
217.7
I'....
.. 0
4.7
19.5
continuous.....
241.9
Grand total, 1944,
2 months
......
287.8
271.7
92.4
7.3%
4.2
164.7
164.7
3.3
482.8
528.8
4.8°h
0
122.3
139.6*
12.4
51.1
217.7
122.3
139.6*
17.1
70.5
2.7%
5.5
4.4
C,.f)
7.0
325.3
567.2
3.8%
808.1
Does not include postoffice sales or those by certain Army
Note:
Interdistrict allocations omitted.
7
1,09(i. 0
and Navy
ý
4.3%
establishments,
i
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
$659 million in
the Second, and $934 million in the Third, and
$85 5 million in the Fourth.
Approximately
3 1,2 million Series L'
bonds were
sold in the Third Drive in addition to 75,000 other
figures for the
sales to nonbank investors. The corresponding
Fourth Drive
were over 41/? million and 76,300.
Banks played
an important
part in achieving these results.
With each
successive war loan drive, they intensified their efforts
to siphon surplus spendable funds into Government
securities.
Their
officers, directors, and key men have served as chairmen,
members, and solicitors of regional and local committees organized
to sell new issuesto individuals, business concerns, and institutional
investors. About four-fifths
Pennsylvania
of the securities sold in
during the Third Drive
the
efforts
of banks.
were sold through
Purchases
busiof Government securities by individuals and
ness institutions do
of
not result in permanent withdrawals
deposits from
the banking system. The complete cycle of Treasury financing through
follows:
nonbank investors is roughly as
A bank
funds
effects payment for its customer by transferring
from the
account of the customer to the War Loan Account of
the Treasury. When
the Treasury pays its bills, the deposits are
withdrawn from
the War Loan Account and are returned to
private accounts. Individual
banks share to different degrees in
the various phases
of this process, but most of the deposits never
leave
the banking system.
Although
the net effect is the same, the process in general is
slightly more
complicated for any single Federal Reserve District.
l' or
example, the Treasury
disusually raises more funds in this
trict than it
here;
but,
in
spends
the table on page 6,
as is shown
the loss of funds
from
Treasury
resulting
operations is more than
offset by commercial
funds
transfers
to this district, including
of
those that
Inter-relaarise indirectly from Treasury operations.
tions between Treasury
transfers may
be
operations
and
commercial
visualized by
means of the following example. The Treasury
usesfunds,
part of which were borrowed in this district, to pay a
prime contractor in
another district for final products delivered
under a war
The prime contractor
in turn uses part
contract.
of these funds
to pay a subcontractor
in this district for raw
3
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
materials and parts that were purchased to complete the contract.
Although the Treasury operation transfers funds out of the dis
trict, it gives rise to a commercial transfer into the district.
Federal
The primary objectives of the Federal Reserve System
Reserve
have been to assure that the war effort will not be
J
impeded because of inadequate funds, to insure rela
tive stability in the money market, and to restrict the creation of
purchasing power to the minimum consonant with financing the
war.
Policies initiated earlier to keep the volume of credit to a
minimum were continued in 1943. Among the more important
of these are intensified efforts to sell Government securities to
nonbank investors, restrictions of consumer credit through Regu
lation W, and reductions—encouraged through banks and bank
examiners—in the volume of nonessential loans.
The Reserve System has adopted a number of measures to
enable banks to acquire such Government securities as they are
expected to purchase. Some of these measures were undertaken
to encourage banks to utilize available reserves as fully as possible,
others to offset losses resulting from currency demand and other
factors.
Banks have been encouraged to utilize their reserves to the full
by repeated statements that the Reserve System has, and is pre
pared to use its powers to assure that an ample supply of funds is
available at all times for financing the war effort. In an announce
ment on November 22, 1942, bank supervisory agencies stated
that banks will not be criticised for investing their idle funds as
far as possible in Government securities. To dissipate the effects
of fears that a return flow of funds would not materialize banks
have been assured of ready access to the Reserve Banks and that
they will not be criticised for "availing themselves of the privilege
of temporarily borrowing from or selling Treasury bills to the
Federal Reserve Banks when necessary to restore their required
reserve positions.”
Reserve Banks stand ready to purchase all Treasury bills offered
at three-eighths per cent and grant the seller the option of repur
chase at the same rate. As a consequence, Treasury bills are
4
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
virtually as liquid as excess reserves, and member banks may keep
fully invested. Purchases of Treasury bills were the most impor
tant method of extending credit in this district. The volume held
by this Bank varied between $2 million and $281 million. The
Bank also continued the low rates at which it rediscounts and
makes advances. The regular rate is one per cent and that on
advances secured by United States Government obligations with
one year or less to call or maturity is only one-half per cent.
Thus far, the Reserve System has found it necessary to extend
credit chiefly to offset the increase in currency demand. The
increase in reserve requirements resulting from rapidly increasing
deposits has been less than the volume of excess reserves with which
member banks entered the war. Indeed, the past year witnessed
a small further decline in reserve balances. The extent to which
banks have utilized their reserves over the past few years is shown
in the accompanying table.
Member bank reserves
Third Federal Reserve District
(Dollar figures in millions)
Ratio of
excess to
required
Actually
held
Required
Excess
banks:
1-15....................................
1-15....................................
1-15....................................
1-15....................................
$514
449
418
370
$232
294
358
357
$282
155
60
13
Country banks:
1941: Jan. 1-15....................................
1942: Jan. 1-15....................................
1943: Jan. 1-15....................................
1944: Jan. 1-15....................................
202
224
256
272
103
145
184
215
98
79
72
57
95
55
39
26
All members:
1941: Jan. 1-15....................................
1942: Jan. 1-15....................................
1943: Jan. 1-15....................................
1944: Jan. 1-15....................................
716
673
674
642
335
439
542
572
380
234
132
70
113
53
24
12
Philadelphia
1941: Jan.
1942: Jan.
1943: Jan.
1944: Jan.
122%
53
17
4
In addition to legal reserves, member banks in Philadelphia
early in 1944 held $72 million and country members held $180
million of balances due from other banks. These amounts were
equal to 20 per cent and 84 per cent respectively of required
reserves at the two groups of institutions.
5
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelphia
Bank purchases of Government securities result in corresponding increases in bank deposits. As a result, banks were subjected
heavy
to temporary strains upon reserve positions when they made
from
Relief
Government
strains
such
purchases of
securities.
Act
was accomplished in April 1943 when the Federal Reserve
loan
was amended to eliminate reserve requirements against war
deposits. In effect, this amendment deferred the need for reserves
from the time securities were bought to the time the Treasury
spent the funds.
The big independent factor that has absorbed reserves and has
brought the market into the Reserve Banks has been the continued
increase in currency demand, which in this district amounted
to
$305 million in the year 1943. The increase in circulation
absorbed not only the net gain in funds resulting from the excess
of interdistrict transfers over Treasury operations but over $200
The details of factors
million of Reserve Bank credit as well.
bank
in
district
in the past three
affecting member
this
reserves
years are given in the accompanying table.
Changes in
member
bank reserves
and related
Third
Icdcral
Reserve District
(Millions
of dollars)
items
1941
1942
7
+484
+3
-369
+112
+ 39
+876
+2
-659
+258
1943
Sources of funds:
Reserve Bank
credit extended in district........
Intcrdistrict
transfers
commercial
..............
Mint told purchases, net
......................
Treasury
operations
..........................
fetal
....................................
Uses of funds:
Currency demand
............................
Member bank
reserve deposits .................
"Other deposits" at Reserve Bank
.............
Other Pedcral Reserve
accounts ...............
Total
........................
Banking
trends
+210
±84(
-755
+301
-}-]G8
-42 14
p
+280
1O
1-91
I4+1
+305
+112
+258
+301
-
-}-
r,
ý
Member bank trends
continued to be influenced by
forces
the same
as in the preceding year. Unlike the
financial impact of the First World War,
which rein sharply expanded loans to war industries
sulted principally
6
Twenty-ninth Annual
Report, Federal Reserve Bank of Philadelphia
and to customers to finance
the purchase of Government securities, the major
force
in present war finance is exerted
active
through direct bank
Total
purchases of Treasury securities.
loans
at all member banks in this district, which increased by
about 20 per cent from 1938
to our entry into the conflict, have
decreased
continuously since, except for temporary interruptions
during
the war loan drives. The decline was halted at Philadelphia members during
the past year but continued at country
members. Investments
other than Governments also have been
reduced. Banks have
utilized the opportunities
afforded by relatively active
dispose of real estate assets. The net
markets
to
increase in
assets has been accompanied by an approximately
equivalent increase in deposits,
since capital accounts were enlarged
only in relatively negligible amounts.
The
position of the major
accounts and the changes since
strategic dates are
shown in the table. October 2,1939, was just
after the outbreak
of war in Europe; June 30; 1940, may be taken
as the beginning
of our preparedness; December 1941 marks our
entry into the
conflict; and December 1942 was shortly after
the inauguration
of what has been called aggressive deployment.
Member
banks
Third I
cdcr. ýl Reserve District
f Ihdlair figures
ill millions)
Dcc. 31,
1943
Per cent change from
Dec. 31,
1942
Dcc. 31,
1941
J unc 29,
1940
( )ct. 2,
1939
Itesources:
Luaus
U. S. týodt
obligations.......
Other
Cash securities
asset
l sal
other estate assets
...........
.................
'I'ntal
.......
. ...
LiabiIities
and
accounts: capital
t)cposits*
Other liabilities.................
Capital
accounts
...........
$ 852
2,764
427
1,167
106
24
-18
-4
-15
+33
- 24
+1G8
25
12
- 23
+ 14
$5,340
+15
ý
27
F 42
+ 47
$4,830
19
491
+17
-10
+2
+ 30
- 14
+2
+ 49
-- 10
+2
+ 55
-E. fi
-I
$5,340
+15
ý 27
+ 42
ý
-8
+5()
14
-+270
-
30
- 32
+ 14
'total.....
; Includes
reciprocal bank balances
prior to December 1942.
7
-S
+261
33
+G
39
-4
47
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
Government Government securities now make up well over half
of the assets of member banks in this district. From
a purely quantitative point of view the increase of
bank holdings of Government securities measures the extent to
which the Treasury has not secured needed funds from other
sources. Although banks have secured the funds to a limited
extent from reductions in other earning assets, for the most part
the increased holdings have resulted in larger deposits.
When all banks maintain a fully invested position, the partici
pation of an area such as the Third Federal Reserve District in
the total expansion depends upon its general position in the whole
economy—just as under such conditions the expansion of a single
bank depends upon its position in the community. As banks
have become more uniform in following policies of substantially
full investment, they have shifted their emphasis from amount to
types of securities they acquire.
YIELDS ON TAXABLE TREASURY SECURITIES
BASED ON MEAN OF CLOSING BID AND ASKED QUOTATIONS
JAN.31,1944
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
Banks are limited, of course, both by the amount of certain
types available and with respect to the issues they may purchase.
Still important but destined to disappear are the partially taxexempt issues. Of publicly marketable issues outstanding, such
securities made up three-fourths on December 31, 1941, twofifths a year later, and only one-fourth on December 31, 1943.
The relative decline resulted both from increases in total issues
and absolute decreases in tax-exempts. Since they held Government
securities long before exemption privileges were removed from
new issues, banks always have held considerable amounts of taxexempts. For years, however, their earnings and income tax
positions were such that they gained very little from the exemp
tion features. The improved income prospects at many banks
directed attention to the privileges of such issues. During the
past year, particularly in the first quarter, banks in certain areas
purchased tax-exempts in considerable volume, especially those
of long maturities, as insurance companies sold. Banks in this
district, however, did not increase their total holdings of such
securities although there was some shifting from intermediate to
long maturities.
The primary differences among Government securities are
those with respect to maturities and the correlative differences in
yields. The relationships between the two as of January 31, 1944,
are shown in the chart.
Major influences that have affected the maturity distribution
of member bank portfolios of Government securities over the past
two years have been the gradual spread of the policy of substan
tially full investment—as contrasted with the policy of maintain
ing large excess reserves—the changes in maturity composition
of outstanding issues, and changes in issues available for bank pur
chase. The maturity compositions of outstanding marketable
Government securities and of those held by over 5 50 banks in
cluding savings banks in this district are shown in the table on
the next page.
At the end of 1941 outstanding marketable issues of Govern
ment securities were about equally divided between those maturing
9
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
Maturities
of marketable Government
securities
Dollar amounts
in millions)
December
December 31,1943
Outstanding
United
States
Held by banks in
Third Federal
Reserve District
I Country
Philadelphia
United
States
Iield by banks in
Third Federal
Reserve District
I-
$2,002
Philadelphia
I Country
II
$ 10
$ 15
82
349
76
$ 142
239
61
3,239
45
$ 507
$ 442
5,241
$ 55
48_
$ --$
63
323
674
328
373
576
225
17,708
12,318
12,612
210
235
265
173
154
169
$119,250 1 $1,832
1 $1,616
$4 7,878
$767
$559
Bills
$ 13,072
..............
..
Certificates
22,843
Other under 1 year...
6,916
_$ 42,831
Total
........
1-5 years
22,940
............
5-10 years
30,015
............
Over 10 years.........,
23,464
$
Outstanding
31,1941
Percentages
1 ills
..............
Certificates
.
Other under 1 year....
11%
19
64
5%
19
Total
36%
28%
19
25
20
17
37
18
........
1-5 years
5-10 years
............
Over 10 years.........,
100%
ý
9%
15
3
4%
1%
3%
7
6
8
1 27%
11%
23
36
14
100%
ý 100%
37
26
26
100%
7%
27
31
35
100%
11%
31
28
30
100%
within five years and those maturing after five years; the longer
issues in turn
were about equally divided between those maturing
At
within five to ten years and those maturing after ten years.
banks
larger
in
district
held
that time
this
procomparatively
portions of long-term issues, especially those maturing
after ten
years. The apparent policy of banks was to maintain
primary
reserves at levels sufficient to provide liberally for all possible cash
needs and to invest the remaining funds in long-term and higheryie'. ding securities. In part this was a result of the abnormal conditions of the preceding decade
when the usual secondary reserves
loans, banker's acceptances,
-call
almost disappeared,
etc. -had
when yields on those that remained fell to negligible amounts,
and when banks became habituated to very large excess reserves.
These underlying conditions
changed markedly in the ensuing
two years. The Treasury brought out much larger proportions
10
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
of the rapidly increasing total volume of Government securities
in the form
bills and certificates of
of short-term issues-Treasury
indebtedness, issuance of which was resumed. Yields on new bill
offerings increased from about 1/20 per cent, where they had
been
prior to the increase in reserve requirements
effective
November 1,1941,
to 3/8 per cent. Assurance that the Federal
Reserve System
would use its powers to supply at all times ample
funds to finance
the war effort helped to overcome the reluctance
of banks to invest their funds fully.
Finally new issues with
maturities in excess of ten years were made ineligible-with
certain exceptions-for
a term of years for bank investment.
both
As a result, banks in
this district have greatly increased
absolutely and relatively
their holdings of issues maturing within
one year and those maturing in between five and ten years. Holdings of maturities in the
one to five year range and of those over
been
ten years have decreased
to total holdings but have
relatively
increased
The increase in longest
somewhat in absolute amounts.
term issues is a
by savings banks,
result primarily
of purchases
whose holdings are included in the table.
Deposi[s
The dynamics
deposit creation and distribution is shownof wartime
next
graphically in the chart on the
pagewhich has been simplified
developments during
to
emphasize
and between war loan drives.
The Treasury
drives to obtain funds. During these drives conducts periodic
individuals pay for their subscriptions, and funds
flow
out of private accounts into Government deposits. The increase in Treasury
accounts
the decrease in private
accounts largely because banks exceeds
create additional deposits to pay
for their
own acquisitions of Government securities. In the intervals between drives,
as Treasury payments to contractors and
Others exceed
receipts, the deposits again flow into private
accounts. In
other words, funds used to purchase Government
securities
never leave the banking system at all, except to the
extent that
currency is
or foreign operations absorb
them" What happens withdrawn
is a series of shifts in deposit ownership
coupled with
an increase in total deposits resulting from bank
purchases.
11
Annual Report, Federal Reserve Bank of Philadelphia
Twenty-ninth
DEPOSITSCOME BACK
BILLIONS
BILLIONS
F-60
ý1
-
Source
: Weckly
reporting
banks
in loading
12
cities of United States.
60
Twenty-ninth Annual Report,
Federal Reserve Bank of Philadelphia
At member banks in
dethe Third Federal Reserve District
posits expanded by larger
a
amount in 1943 than in any previous
year. Total deposits increased $686
million or 17 per cent. Expansion at all member banks in
United
States amounted to 18
the
per cent during the
same period.
An obvious
essential in the development of sound policies by
central banking
authorities as well as by individual banks is accurate knowledge
of the ownership of deposits. To the central bank
such information
indicates such factors as the areas in the
economy which
may be subjected to greatest pressures, the extent
to which industries
may be able to finance themselves, or the
extent to which
they may need funds. To the management of
the individual bank
is valuable in determining
the information
how it fits into
the whole economy and something of its prospects.
An analysis
of the ownership of demand deposits of individuals, partnerships,
and corporations in this district and in the
country is given in
the following summary table.
Ownership
of
of individuals,
demand
deposits
Partnerships,
and corporations
( Itecised
estimates
July 31,1943) as of
-------------Ihnnestic business:
Third
T. 1t. District
Amount
(minion $) !
ýt týn:d
l? nited St: dcs
Amount
ISilliou $)
I
of total
UMrict
of
l'ititcd
tit; itcti
--
mfinaneial\l: mntfactttring
and mining...
I'nblic
utilities
transportation,
etc_
Ir.
tdc .............
Other
nonfinancial
....
"Total
nonfinancial
financial
(insurance,
trust
funds,
etc. )
fot. "I drnucstic
................
business.........
organizations
crosonnprofit
t`orcign,t (ind. farmers) .........
.........
(rand
749
252', '
257
369
180
R.r,
12.4
6.0
1,554
393
1,946
88
940
29.611;
4.0
li. ý)
7.7
3.2
6.6
13! )
5.7
52.2 1,,
31.0
55.5
a.ý
; ý,
s.ný.
13.3
65.51/
2.9
31.6
5.8
36.8
1.4
16.4
10.5
66.3,
:
100.0%
55.11
16.4
3.7
.9
total
2,974
13
2.5
29.5
l. i
]00.0(%,
( i. 5
i'.
..
S, i
5.3%
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelphia
Changes in the total volume and in the character of
loans have reflected the adjustment of member banks
After remaining comparain this district to wartime conditions.
tively stable for several years, total loans began to expand with
the outbreak of war in Europe. The increases were greater both
absolutely and relatively to total loans at member banks in PhilaThe principal
increases in
delphia than at country members.
larger
Philadelphia were in loans to trade and industry,
where
inventories and generally more active business expanded the requirements for working capital, and in miscellaneous advances
to finance consumer purchases. At country banks the principal
increase was in loans extended for the purchase of real estate and
for construction and renovation of buildings.
Loans
Total loans ceased to increase with the entry of this country
into the war. The appropriate loan policy then became to extend
only credit needed by activities related to the war and to reduce
Total loans declined
credit extended to nonessential activities.
because many
demands
finance
initial
to
war industries had
the
of
been met and
loans
did
to them
additional
not offset reduced
credit requirements in civilian activities.
At country member banks declines
were greater and were still
in progress
at the end of the year as compared with Philadelphia
members where the second half of the past year witnessed some
The changed character of loans was rerecovery in volume.
vealed in an analysis made in the spring of 1942 when loans wholly
or partly to finance war industry accounted for 44 per cent of
new loans made to industry and commerce.
Capital
funds
Capital funds alone
of the major banking accounts
have remained virtually
constant over the past decade. As a result, the ratio of capital accounts to deposits has declined as deposits have increased. The adequacy of
In the
capital, of course, is not measured by this simple ratio.
final analysis the solvency of a bank depends
upon the quantity
The past year
and quality of the assets relative to its liabilities.
14
Twenty-ninth Annual Report,
Federal Reserve Bank of Philadelphia
has seen
not only a great increase in the amount of assets and
liabilities but
in the average quality
also marked improvement
of assets. The improvement
in quality has come both because
new assets have been mostly Government securities and because
there has been a significant decrease in lower-grade assets, especially real estate. The improvement
is indicated in the fact that
at the end of 1943 cash
assets plus Government securities were
equal to 81 per cent
of total deposits as compared with 74 per
cent at the close of 1942
and about 28 per cent in the years
1927-1929.
Earuiugs
and
expenses
The simple
statement that total current earnings of
member banks in this district increased 3 per cent to
$110.6 million, though true, gives an inadequate impression of the significant developments in earnings
and their disposition. The
small change is the net result of important but largely
offsetting changes in the amount, character, and
extent of utilization
of assets. Thus, total assets increased 1S per
cent and cash assets
were reduced 4 per cent. Even more important, however,
was the shift from loans and from other investments to Government
securities. As a result, income from investments increased 21
per cent to $53.3 million and more than offset
the decline of 17
per
cent to $35.2 million in income from loans.
Government
securities were the most important source of income.
The increase in
net profits from $18.0 million in 1942 to $30.5
million in 1943-the
largest amount since 1929-was
in sharp
contrast to the
small increase in total current earnings. Most of
the increase
in
was accounted for by reductions of two-thirds
net charge-offs. The
indismallest net charge-offs in many years
cate the marked improvement
in the quality of assets that banks
have been
effecting in recent years through disposition and markdowns
of lower-grade assets. Member banks as a whole have not
utilized the larger
net profits to increase dividends but have reta'ned them
to afford additional protection
larger
required by their
asset positions and the
necessity of assuming risks in the
post-war
period.
15
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
Member banks
Third Federal Reserve District
(Dollar amounts in millions)
Current
1942
earnings:
On investments
..............................
On loans
....................................
Trust
department
Service charges on ............................
deposits
....................
Other
.......................................
Total
Current
Salaries
Interest
Other*
.............................
expenses:
and wages ...........................
on deposits ...........................
......................................
Total
Net
current
.............................
earnings .......................
N ct charge-mil.
................................
Net profits
I
...............................
Cash dividends declared
..................
Per cent
change
1943
$ 44.0
42.3
9.7
3.2
K6
$53.3
35.2
10.4
3.3
8.4
$107.8
$110.6
$302
10.6
33.9
$ 30.9
9.7
34.7
$74.7
$75.3
$33.1
$35.3
4.8
+3
+2
-8
+2
1
i+7
$ 15.1
$
$18.0
$30.5
+69
$ 15.9
$ 15.8
-0
-ßi8
* Includes taxes.
Rates on commercial loans by banks in Philadelphia, which increased slowly but persistently for about three years until rrud1943, declined slightly in the last half of the year to the level in
effect at the end of 1940. Analysis of the accompanying
table
indicates that the
average decline, though small, is significant
because reductions
the range of rates.
were general throughout
Although loans continued to concentrate at rates between 2 and
3 per cent, only 44 per cent of volume was at higher rates in
December as compared with 58
per cent in June. On the other
hand, 20 per cent of loans
were made at lower rates in December
as contrasted with only 9 per cent in June.
Prospects
Banks continue to adjust themselves to rapid changes
in national and local environment.
Except for the
fact of change itself, much that lies ahead is uncertain.
But
though uncertainty increases the difficulties, aggressive banks
16
Twenty-ninth Annual Report,
Federal Reserve Bank of Philadelphia
Rates on
and
industrial commercial
loans made by
seven Philadelphia banks
(000's omitted in $)
Less than 1
per cent
I per
................
cent...........
l"etWeen 1
and 1% per cent
1% per
.......
cent......
Itctwcen IV-,
2 per cent..... and 2 per cent.......
L'ctwccn 2;............
and 3 per cent..........
3 per
cent...........
L'ctwccn 3
.4
and per cent..........
4 per
cent........
Ietween 4
.
and 5 per cent
5
..........
uht
Petween ....
5 and 6
per
cent..........
per cent.........
.................
Total dollar
amo: mt......
Total
6
nnn,. "v« - mans...
\vcragc
rate hased on
dollar volume
............
Dec.
1-15,
1941
ý0
1,247
730
5.748
874
1,942
2,611
4,266
2,563
3,723
1,882
1,475
139
956
$28,1: 16
Dec.
1-15,
1942
0
813
500
3,460
1,250
1,865
7,832
6,255
2,821
2,640
1,814
2,058
538
721
$32,567
1,336
?. 9%
3.0%
June
1-15,
1943
0
17
0
1,909
30(1
7,72(l
13,6 18
5,874
6,831
8,462
1,064
1,217
49
553
Dec.
1-15,
1943
$
38
110
1,025
5,613
200
1,903
10,429
8,8h(i
4,()47
3,854
799
1,314
21
381
S41,614
545,200
704
741
3.1%
2.8%
never have permitted
it to halt the development of positive policies and programs. Uncertainty
calls for flexible policies, not for
the abandonment
of policy formulation.
Wartime
credit experiences underscore the fact that individual
banks
are affected by
The
national and by local developments.
management
of a bank can divide its problems
looking ahead
of
into those affecting
the entire banking system and those affecting
the position
of its own bank in the system. The system as a
whole, of
course,
't'es it is expected will purchase the amount of Government securto take and will create sufficient deposits to do
so. The
amount and type
of securities that the individual bank
should take depend
primarily
upon the proportion
posits that it holds
of these deand will hold.
Interest
centers
balance sheet
accounts: deposits, upon the future of four major
j
loans, investments,
At the
national level,
and capital.
deposits
total
have
increased
the war,
phenomenally during
and it is virtually
higher level.
certain that they are on a permanently
As is
shown in the chart on page 19, only once in
17
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelphia
the past century-during
the Great Depression of the 1930'shave demand deposits declined as long as two years in succession.
Further expansion from present levels is in prospect during the
war to the extent that Government fiscal requirements are met
through direct absorption of Government securities by commercial banks or indirectly by increases in bank credit to facilitate
the distribution of these securities to other investors.
The trend of deposits after the war will depend largely on the
extent to which Government debt is in the hands of the banks and
on the future of bank loans. Even a decline in gross debt would
not necessarily result in smaller Government
security holdings
by banks since redemptions by the public might result in still
larger bank portfolios with
accompanying increases in deposits.
It is obvious that the country
will enter the post-war period with
a volume of deposits far in excess of the pre-war volume; and
there is little likelihood that deposits will decline below present
levels in the immediate
post-war period.
Lending where justified is one of the basic functions of a commercial bank. One need only glance at balance sheets to see that
banks have been losing loan business to
other agencies for a conThe national future of bank loans
siderable period of time.
depends upon the policies that banks
There seems little
adopt.
likelihood of any great revival in traditional
loans.
commercial
It should not occasion surprise that
customary forms of credit
instruments and traditional
rules of thumb are no longer adequate. It is anticipated that national income in the post-war
period will be at levels considerably above those achieved before
the war. If these goals are realized, it seems likely that there
The extent to which
will be considerable demands for credit.
banks will participate in the
extension of this credit will depend
upon their ability to adjust their credit facilities to the requirements of the general public.
18
Twenty-ninth Annual
Report, Federal Reserve Bank of Philadelphia
GROWTHOF DEPOSITSIN UNITEDSTATES
MILLIONSS
60,000
40,000',
--
20,000 Ii
i0,000
8,000,
s,000'
4,000
i_L
2000
1,000
800
600
400
i
200
AGGREGATEDEPOSITS1843-1890
ADJUSTEDDEMANDDEPOSITS1892-1943
100
80
60
co
M
N...
CD
i...
I
.....
.......
ýr
CO
co
dD
!.
_..
OMD
CO
I
rn
OD
19
_I__.....
ÖM
Oi
I
(7)
N. ....
'
M..
_'.
ý
(7)
a)
0
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelphia
focuses attention
of post-war loan possibilities
because inupon the problem of capital adequacy which arises
have
in
holdings
Government
created correcreases
securities
of
in
deposits
increases
in
without
substantial increases
sponding
has
grown
capital funds. As a consequence, the cushion of capital
This raises no problems as long as assets
progressively thinner.
be confronted
with
a
remain of high quality, but banks will
dilemma when opportunities come to acquire assets carrying
a
higher degree of risk than those now held. The dilemma is that
the thinner their capital protection, the less risk banks can afford
to take, but unless they take reasonable risks, they cannot play a
When
very positive role in the development of the community.
it
be
such opportunities come,
should
recognized that the rate a
bank charges when it acquires a risk asset should be adequate to
cover both interest on the funds and payment for the risk
assumed. Yields on Government securities may be taken roughly
as the going rates of interest on riskless assets of specified maturities. Much of the additional rate on other assets, therefore, may
be considered payment for risks assumed. That portion is not
really income and should not be treated as such; it should be
treated as reserve against losses that must be expected.
Consideration
The future of bank portfolios of Government securities depends in the first instance upon the changes in the size and ownership of the Government debt. Since expenditures to fight the
war on all fronts and to carry on the ordinary operations
of
Government were estimated
at $95 to $100 billion a year and receipts at forty odd billion a year, the debt is expected to increase
at a rate of $55 to $60 billion a year. Although this rate may be
expected to slow down after victory on one or both of the major
fronts, expenditures probably
will exceed receipts for a period
Financing a war does not end with
after the final victory.
hostilities.
As to the ownership of Government
securities, banks may be
considered residual purchasers taking over the amounts not purchased by others. In 1942 this meant about half of the increase
in debt, in 1943 about 43
per cent. There is good reason to expect
that further improvement will be shown in the current year. On
the other hand, it is quite possible that banks will again have to
20
Twenty-ninth Annual
Report, Federal Reserve Bank of Philadelphia
step into the breach if
present owners liquidate any considerable
amount of securities
after the war. For the banking system as a
whole, therefore, it
appears that holdings of Government securities will increase
even after the war though at a much slower rate
than in 1943. The
chief reason for the increase during the remainder of the war
will be the increase in total debt; the chief
reason after the war
may be liquidation by other holders.
Although
national prospects are the most important,
they are
not the only factors influencing developments
banks.
individual
at
Local factors
demand
also
For
are
significant.
example,
although
deposits
of individuals and business concerns increased generally
over the country between
1939 and 1943, they tripled at member
banks in
the San Francisco Federal Reserve District,
doubled in
the Philadelphia District,
increased
to only one and threeand
quarter times in the New York
District.
Large shifts among areas
may occur when deposits
cease to grow as rapidly as they have
recently. Some banks-especially
those in areas gaining exceptionally from
lose deposits; but since total
war activities-may
deposits
probably will be permanently higher than before or than
they are today,
other banks will gain.
Obviously bank
cannot predict precisely what its own future
may be. At athe
same
time, it cannot develop sound policies
wjtl'out an informed
opinion as to its future position. Careful
estimatesinvolve
hard work, but the rewards for accuracy
much
are great. Flexibility demands
that any estimate be subject to
revision as conditions
change
and
as new information becomes
available.
Bankers
who are looking ahead objectively for their own institutions are
asking many fundamental
Among them
questions.
are the following:
1.
Is my bank
sharing in the current growth of deposits?
shifts have taken
are likely to take place in
the volume of deposits place and
bank?
at my
2. What
3. Does
the investment policy of my bank
show effective use
of the available funds?
11
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelphia
4. Is the management of my bank surveying
the lending field in my community?
and stimulating
5. Are the loan facilities of my bank geared to meet the potential demands for loans?
6. Is the capital position of my bank adequate to assume
risks in developing business in my community?
7. What is the current and prospective earning position
of
my bank?
but upon
These questions are crucial, the answers difficult,
depends
the
the quality of answers
the effectiveness of
program
is to
of the individual bank. The function of the management
develop flexible policies and programs appropriate-on
the basis
of the best information
available-to
present and anticipated
The problem may be reduced to manageable proconditions.
portions by estimating the effects of all important influences upon
the balance sheet of the bank.
Although each bank must adopt a procedure to suit its own
circumstances, a number of bankers have found a common
approach useful in formulating
policies for their own institutions.
All accounts should be analyzed in formulating
policies; but the
be
illustrated
by
procedures employed may
application
only to
loans, and Government securities.
three major accounts-deposits,
1. Deposits. It is a common observation that most banks
expand and contract in unison and that changes in deposits at
most banks are closely related to changes in total deposits in the
area and in the country as a whole. Work Sheet 1, reproduced
on page 23, has been constructed to enable a bank to ascertain
the position it has achieved in the system. The proportion
that
deposits at any bank bear to total deposits is,
of course, usually
very small; but changes in this proportion are of great importance.
For example, if the proportion has
remained stable over the years,
it signifies that the bank is fully integrated into
the system and
that the primary influence on its position is what happens to
total deposits of the system. A regularly increasing ratio indi22
i
Twenty-ninth Annual Report,
Federal Reserve Bank of Philadelphia
Work Sheet 1
Over-All Deposit Analysis
(Dollar
in
amounts
nilllions)
Total
deposits
banks
member
December 31
United States) 3rd District
1925
.....................
$34 250,
$2,300
1926
.....................
34,528
2,386
1927
.....................
-
36,657
1928
.....................
1
39,067
I_
3,485
1929
.....................
37,981
2,468
1930
.....................
37,029
2,578
1931
.....................
1932.......
30,711
28,690
_2,263
2,209
1933
.....................
27,167
2,008
4
I
1934....
33,848
.........
2,382
1935
.....................
38,454
193(
.....................
42,885
2,935
J__ 40-.839
2.750
1937
.................
'X5 . ..............
2'861
-
.....................
1940.....................
1941
...
1942",
""'
1943.....................
1945 (est. )
2,629
43,363
.......
1939
1944((! )
st,
1
49,340
3,231
56,430
3,452
61,717
3,704
78,277
4,145
92,262
4,830
.....
...
................
23
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelphia
cates that the bank is growing more rapidly than the average and
The mana regularly declining ratio that it is growing less rapidly.
for
the
prospective
and
agement may wish to ascertain the reason
its own bank
permanence of the differences in developments at
estimate
and at other banks. In attempting to make a preliminary
its own
deposits
its
may
apply
the
management
of
prospective
deprospective ratio based upon experience to prospective total
fall
from
is
present
posits, remembering that this total
unlikely to
levels and may continue to rise.
The preliminary
national
estimate based upon prospective
Just as the
developments should be adjusted for local factors.
industries
uneven stimulation given by the development of war
has
distribution
in
of deand military
centers
resulted
uneven
be
For
deposits
the
to
expected.
posits, so shifts of
after
war are
the individual banker the important thing is to analyze the posiHis community
tion of his community in the post-war world.
deposits
its
businesses
individuals
sell their
will tend to gain
as
and
products and services outside and will tend to lose deposits as they
buy elsewhere. The community's net position will be influenced
by such factors as changes in population and working force, the
adaptability of local productive facilities to the satisfaction
of
post-war demands, the expenditures of inhabitants, especially for
durable consumer goods, and the
needs of business establishments
for reconversion and placing
basis.
operations on a peacetime
A helpful tool in estimating allowances that should be made
for these local factors is an
analysis of the ownership of deposits
which could be based on the information indicated in Work Sheet
2 on page 25. Results for an individual bank can profitably
be
compared with district and national totals published from time
to time in the Monthly Review of this bank and in the Federal
Reserve Bulletin.
2. Loans and discounts. The future of a bank's loans depends
upon its ability to adapt its practices to relevant principles
of
credit extension. Credit requirements have not remained fixed
in the midst of
great changes in other fields, and traditional
Compilation
methods of analysis call for thorough reappraisal.
and careful systematic review of a list of the wide variety of
24
i
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
Work Sheet 2
Analysis of Deposit ownership
(In thousands of dollars)
Classes of Deposits
bemand
deposits
oals, partnerships
porations
I. Xl,,..1-1-11111g
c.,.....I'ublic
utilitics.
and 0 , u
Feb. 29
1944
1939
War
Peak
Post-war
Estimates
of individand cor-
i111C1 111111111b
T.
......................... .........................
.............................
.........................
.......................
I..........................
transnnrt: ýt;.,n
.ttion.----. .-..,
..
..........................
........
I.........................
3. ]"ctail
auul xvhtr.
ý,ý,ý ý.,, t
(lealcrs in commodities w..".
.......................................................................................................................
4. All
other
businonfinancial
ness, construction,
and scrVices
- ...
.....................
I..........................I...................................................
5. Pinancial Im ;,,.
.. _...... -....«
ü. Nonprofit
churches, ctc.
Personal (incl(1ding
a. farmers
I'. t)tlu'r
..........................
......................... ........................
I.........................
...........
1
;tssnri: ýý;nný
. -1,1_
ý.........................
.I.........................
................................................
farmers)
................
personal
't'otal-A11
demand
accrnmts..
deposits
14 individuals,
partner, hips and corporations
...................................................................................................................
depo5ils (other
than
bank)
I(i C. S. '
Govermnent
II. Ucposits
political
ý
deposits.
of stales
awl
subdivisions
........................
. ........................
.........................
local
....
12. lla
nk deposits
13. All
other deposits...........
14. Grand
total-: 111 deposits....
............
.
1
....................... ........._
i
25
..................................................
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
types of loans that are extended is a useful technique in assuring
oneself that no possibilities will be overlooked. A partial list of
this type follows:
1. Agricultural loans: Home improvements, soil improve
ments, equipment purchases, farm buildings (perma
nent) , livestock production, crop production, com
munity and county groups, farm mortgage loans,
personal.
2. Personal and instalment loans: Insurance loan, signa
ture, co-maker, automobile and truck, appliances, air
plane, education, insurance premium, collateral, per
sonal mortgage.
3. Merchant loans:
(a) Short term: Working capital, funds to carry in
creased volume of inventory, accounts receivable
financing, shift in terms of selling goods.
(b) Term and mortgage loans: Expansion into new
quarters, purchase of existing building or new
equipment, major alterations and improvements,
purchase or opening of new outlets or branches.
4. Indtistrial loans:
(a) Short term: Inventory, receivable, equipment,
conversion, cash working capital, field warehous
ing, instalment.
(b) Intermediate or term: Equipment, security re
financing, capital retirement, construction.
5. Utility companies loans:
(a) Short term: Appliance sales, working capital,
maintenance and improvement to be paid within
one year.
(b) Term loans: Conversion of or addition to existing
facilities, replacement of old equipment, refund
ing other obligations into a lower rate obligation,
finance purchase of other companies.
26
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
In estimating its prospective loan volume a bank may prepare
separate schedules of loan prospects for each of its major types of
customers such as farmers, consumers, merchants, industries,
utilities, and transportation companies. Conferences with cus
tomers in which they are stimulated to prepare for the post-war
period will be mutually beneficial.
3. Government securities. Government securities have be
come and almost certainly will remain not only the largest asset
of banks but also the avenue through which individual banks will
adjust their positions. Banks secure needed funds from the Re
serve Banks via these securities and the Reserve Banks provide
additional reserves to the market through them. It is primarily
for these reasons that a bank may properly plan its Government
securities portfolio with reference to its prospective changes in
deposits and loans.
The analysis should answer a number of important questions:
Are the Government securities properly distributed so that to
gether with cash they will meet the requirements that may arise
from loss of deposits or expansion of loans or both? Does the
ability to secure funds depend upon maturities? sale in the
market? or access to the Reserve Bank? Often forgotten but
equally important to the future of the institution is an opposite
question: Are the resources in excess of prospective needs to meet
withdrawals and loan demands being maintained in highly liquid
form at low yields? A simple schedule such as that shown in
Work Sheet 3 will facilitate answering such questions.
Procedures similar to those described for the three major
accounts may be followed in analyzing other accounts. The
detail, of course, would vary with banks. Some may make par
ticularly exhaustive analyses of their real estate holdings, others
of their lower-grade security holdings, still others of their capital
position. After these analyses have been completed, it would be
possible to construct tentative preliminary balance sheets and
budgets.
The net result would be that the management would know
where it stood, would have an estimate—based upon systematic
27
Twenty-ninth Annual Report, Federal ReserveBank of Philadelphia
Work Sheet 3
Maturity Distribution of Cash and Government Securities
1944
Immediate
Cash, savings bonds,
bills
......................................
Maturities
Post-war
and Treasury
ý........................................
Up to
1 year
.............................
I to 5 years
...............................
S to 10 years
..............................
....................
........................
................................................
..................................
................................................
Over 10 rears
...............................
study of the best and most complete information
available-of
where it was headed, and would be able to devise a program
of
action to attain its goal. The fortune of each bank is determined
fundamentally
by the capacity of its management, which alone
can devise appropriate policies and translate them into action.
As the Baruch-Hancock
report on war and post-war adjustment
policies expresses it: "No plan can be better than its administrajudgtion, and no formula or law can supplant-or
supply-good
ment and ability. "
Business Conditions
Industrial output during 1943
continued to expand and now
has reached a level beyond
which it would be difficult to go without further expansion in capacity, materials and manpower.
Since the outbreak of the war total production
in this district
almost doubled and the output of certain war goods has expanded
as much as seven times.
I
Income of the population, resulting primarily
from war expenditures, also has expanded to the highest peak on record and
continues to increase. The supply of goods for civilian consumption at the same time was remarkably well maintained
and increases in expenditures for such goods reflected principally
price
advance.
28
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
The problem
of unbalance arising from
the tremendous
growth in spendable income and a limited stock of civilian goods
has continued
to be the chief element in the domestic economy by
reason of its actual and potential dislocating pressure upon the
price structure. Price distortions of the magnitude that occurred
during
by
the last World War have been prevented principally
greatly increased taxes, price controls and rationing,
sales of
Government
securities, and the general public attitude toward
spending and war financing.
The liquidity
of individuals and
business has increased
by cash holdings,
evidenced
enormously, as
deposit
ownerships and purchases of Government
obligations.
The
significance of this development will become more apparent
when its influence
fully felt
on economic conditions becomes
after the war.
In its transformation
from peace to total war, our economy
went through three
The first phase, from the fall of
stages.
Prance
by an expansion both
Pearl
Harbor,
to
was characterized
in production for
for
peace and production
war.
INDUSTRIAL PRODUCTION
i
29
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
The outbreak of war in December 1941 plunged us into the
second phase of preparation-the
conversion of existing plant
facilities from peace to war production and an intensive building
As demand for war materials was intensified,
of new facilities.
production of civilian goods, like radios and automobiles, was cut
off completely and the facilities thus released were speedily geared
into war production.
Actual war caused military demands to rise
far beyond our productive capacity.
Tremendous additions had
to be made to our facilities in such industries as shipbuilding,
aircraft, metals, and chemicals. Military
and naval construction
constituted a large part of the huge expansion in construction
The construction of new facilities had been substanactivity.
tially completed by 1943.
The third phase of the transition was the attainment
in 1943
fell away
Construction
of a smoothly running war economy.
sharply, releasing both manpower and materials for employment
CONSTRUCTION
25
o:
ýos;
1939
__ ,.,,
I
.................
1940
I...
... ...,.....
1941
30
.,..,.
1942
1943
Ii
i
'T'wenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
in the
Industrial production
to
enlarged war plant.
continued
expand, and it is significant to note that the enormous output
of war supplies was attained without serious curtailment
of essential civilian needs. The
well sustained output of civilian goods
was an important factor counteracting
pressure
the inflationary
of greatly expanded purchasing power.
Industrial
production
leveled
off in the latter part of 1943 indicating the approach of
maximum utilization of capacity.
Business
activity in the Third District
closely paralleled that
in the United States.
The economy of this district went through
the same stages-over-all
expansion during the period of preparfirst year
edness, construction of
additional facilities during the
of war, and the attainment
in 1943.
of full productive capacity
By reason
of its well-established industrial facilities, diversification, and labor
skills, this district has played an important role
in supplying
the armed forces with the necessary implements of
war. Both prime
contracts and innumerable subcontracts awarded
in the district
completely converted this area into a war economy
of the first order.
The district
threw the full weight of its varied resources into
the war
in 1943 was 82 per cent
effort; industrial production
above the 1939 level. From
its diversified industhe
outset
very
tries contributed
a great variety of war materials in ever increasing volume. The
in the
response of its leading industries is shown
, accompanying table
of production.
Manufacture
made the greatest
gait, throughout of transportation equipment in
1943 was more
the war period; production
than
eight times tl, n t ri x, r Invrr 1 This mdustrv, embracing
ships,
aircraft, motor trucks, and a variety of specialized war
transport
equipment, supplied one of the country's most urgent
war requiremens.
Shipbuilding
was the largest component of
this industry
increase
in production is accounted
and the sevenfold
for by
the quick response
Delaware
and rapid expansion of the
L
31
31
Twenty-ninth
Philadelphia
Annual Report, Federal Reserve Bank of
Production
Industrial
Third
Federal Reserve
District
Total
production
Manufacturing
........
Durable goods
Consumers' goods ....
......
'Metal products
..........
Textile products
.........
Transportation equipment
.
Food products
...........
Tobacco
................
Building materials
.......
Chemicals and products...
Leather and products.....
Paper and printing
.......
i
Average
December
1942
1941
I
li
Average
1943
1939
June
1940
100.0
103.6
149.9
159.8
181.9
100.0
103.1
Average
I
156.4
166.1
192.0
100.0
100.0
121.2
92.2
229.2
113.6
279.0
101.6
345.4
103.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
122.7
78.5
126.5
108.9
97.8
103.3
106.0
90.7
102.5
211.2
101.8
360.9
120.0
152.8
154.2
135.1
112.7
111.4
215.2
87.6
575.2
121.9
121.3
137.7
114.9
96.5
104.6
241.4
85.7
825.9
137.8
108.0
105.6
131.9
90.1
107.3
River shipyards. Metal production also expanded very rapidly
in this district owing largely to the stimulus of shipbuilding which
is the largest wartime customer of the steel industry.
All of the major industries made considerable gains throughout the year and a half of preparedness, but after December 1941,
the demands of total war affected various industries in different
to war
ways. Some, like textiles and leather, easily convertible
production, attained an early peak of war expansion and have
is
since declined. Production of processed food, much of which
destined for foreign shipment, continued to expand.
Production
of building materials rose rapidly in response to the huge war
construction program but declined sharply in 1943 as new conAlthough
struction projects neared completion.
the output
of
steel, ordnance, ships, aircraft, and related war materials was generally higher in 1943, there was some recession in the production
of these materials toward the end of the year.
Throughout 1943, industries
of this district faced a growing
scarcity of labor. Production generally was not seriously hampered but labor shortages became acute in some areas, notably
Allentown, Trenton, Chambersburg, and Wilmington.
Factory
employment in Pennsylvania was only S per cent higher in 1943
Employeethan the average for the twelve months preceding.
32
I
Twenty-ninth Annual
Report, Federal Reserve Bank of Philadelphia
INCOME, TRADE AND PRICES
THIRD
FEDERAL
RESERVE
DISTRICT
PER
CENT
EMPLOYMENT AND PAYROLLS IN
PENNSYLVANIA
3004
1935-39=100
250
200
i50
ioo '
ýýJ
1939
1940
! 1"1
i
leo;
160' -
ia0 i
i
i(, rj
0
------------
60
1939
1940
1941
33
194
2
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
hours
were up 10 per cent and payrolls 20 per cent-the
higher
reflecting larger employment, longer hours, and
earnings.
latter
hourly
in
Total income of the district was increased considerably
income as well as larger industrial
1943 by greater agricultural
payrolls. Cash income from farm marketings for Pennsylvania,
New Jersey, and Delaware was 24 per cent above 1942 owing
largely to higher prices farmers received for their products.
In contrast to substantial gains in purchasing power, retail
of
trade showed moderate increases in dollars with the amount
goods sold continuing at record levels. The significance of this
trend is accentuated by the fact that the volume does not include
Government purchases of many similar consumption
goods for
have
soldiers which they, as civilians, would
purchased for themPrices
by
living
in Philadelphia
selves.
as measured
cost of
were
higher
December
3
in
only
per cent
as compared with the corresponding month in 1942. This is indicative of the effectiveness
of price control policies.
Throughout the duration
of the war, industrial activity
will
be affected
Already
most by the shifting needs on the battlefronts.
$12 billion of war contracts have been canceled, affecting
such
items as explosives, tanks, and small arms ammunition.
Simultaneously, the need for ships, aircraft, signal and electronic equipment increased. Military
requirements, of course, must come
first, but
some increases of civilian goods may be expected as labor
and materials become available.
Concurrent
is
with the need for making wartime adjustments
the necessity of preparing for peace. It is frequently
assumed
that victory over Germany will precede the downfall of Japan and
therefore that the transition from war to peace can be made in
two relatively easy stages. However, if the wars in both hemispheres were to end at about the same time, which is possible, the
task of reconversion would be more complicated.
Furthermore,
preparing for peace is more difficult than preparing for war, since
the problems of marketing will be added to those of production.
34
Twenty-ninth Annual Report,
Federal Reserve Bank of Philadelphia
Preparation for
Governpeace must be early and systematic.
ment, management, and labor
in
a common cause
must cooperate
to provide work opportunities for the
women
returning
men
and
from
the armed forces and for those now engaged in war production.
While
at war, the Government is the mainspring of our economy because it is the largest
largest
producer of war materials, the
employer of labor,
largest customer of private industry.
Its demobilization and the
policies
are, therefore, of utmost importance.
As many
as 8 million men and women may be released from the
armed forces. Unfinished
contracts to be terminated will probably amount to $60 billion.
Immense quantities of Government
Property will have
to be removed before private plants can prepare for peacetime
The Government also has about
operations.
$16 billion
industrial plants and huge stores of materials to be
disposed of
of after the war. The manner in which these materials
and plants are integrated into
will
organization
our industrial
Pave
profound effects upon the future of our whole national
econonny.
The job
of reconversion
industry faces consists of two
essential parts. The first whichless difficult,
is the reshaping of
and
Physical facilities
and the reestablishment of assembly lines for the
product-'011
of civilian goods. This aspect of the job is easily mastered. The
war taught American industry the art of speedy
adaptation
of mass production
techniques to rapidly changing
Product specification.
This art can be applied to advantage in the
Shift from
war to peace.
The
second and more difficult part of reconversion is merchand''"g-adapting
In time of war, merproducts to the market.
sing takes a holiday;
be
after
the
war,
markets must
rees
reestablished.
This is
far
job
than mere
a
more comprehensive
setting up
Of quotas of anticipated sales. It is the production of
goods and
To
services that people will buy that makes a market.
assurea
Post-war market of $150 billion calls for all the imagination and ingenuity
that can be mustered.
The
cooperation of labor is
no less essential to the effective
solution
of post-war
full
Labor
problems.
wants
3;
peacetime con-
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelphia
These goals are closely
sumption, employment, and production.
large part upon
interrelated.
depends
in
Their attainment
the
attitudes and policies of working men and women with respect
A realto working hours, compensation, and output standards.
istic and therefore constructive approach to these problems is one
labor can make.
of the most important contributions
District
The process of reconversion in the Third
may be
difficult
different
less
than in
in
somewhat
and,
certain respects,
by
brought
Despite
about
other parts of the country.
changes
the war, the district still has a well-balanced and highly diversified
economy. As compared with other areas, this district has a comparatively smaller volume of newly-built
war facilities to absorb
into its peacetime industrial structure.
Furthermore,
a substantial proportion of the new facilities built here by the Government
is readily convertible to the production of civilian goods.
Only
56 per cent of these new plants produce strictly combat material,
in contrast to as much as 88 per cent elsewhere.
However, the war has wrought
local areas
great changes in
within the district, and where the greatest changes have occurred,
the greatest readjustments will. have to be made. The war expansion of industries has caused 200,000 people to move into
the
highly industrialized
At
section of the Delaware River Valley.
the same time, approximately 135,000 people have left the anthracite region and 20,000 people have moved out of the bituminous
area. Though of an entirely different nature, the post-war problems are considerably magnified in local
areas that have gained
population, as well as in those that have lost.
Post-war planning is
engaging the attention
of numerous
agencies, both public and private.
The war has produced
vast
changes in the distribution of both human and material resources.
Any plans now formulated
should provide for the most effective
utilization of these resources in years to come. The urgent task at
the end of the war will be to provide productive jobs for men and
women returning from the armed services and for those currently
employed in war production.
36
I
Twenty-ninth Annual
Report, Federal Reserve Bank of Philadelphia
Federal Reserve Bank
Adjustment
of the Federal Reserve System to changing conditions is reflected in its activities in special fields of credit as well
asin its strictly central banking policies.
Primarily
as a result of the depression of the 1930's, some
established but financially
embarrassed concerns were unable to
secure credit through
regular channels. Section 13b was added to
the Federal Reserve Act
to meet "the need of many small and
medium-sized
commercial and industrial businesses for additional
working capital, to
enable them to continue or resume normal
operations and to
maintain employment
or provide additional
employment. " It
authorized the Reserve Banks to make Industrial loans "in
exceptional circumstances when it appears to the
satisfaction of a Federal Reserve Bank
that an established industrial or commercial business located in its district is
unable to
obtain requisite financial
basis from the
a
reasonable
assistance on
usual sources
" The purpose of Section 13b was to facilitate
the rehabilitation
of firms and put them in condition to obtain
credit from
regular sources. As was to be expected, many
applications were
received almost immediately, but the number
declined
rapidly with improvement in general business conditions.
When the
war broke out it became apparent that new credit
methods and
In the case
mechanisms had to be devised quickly.
of Plant construction
liberalized
terms
of amortiand expansion,
zation for tax
purposes were provided so that the cost of investment might be
written off in five years. Another method was the
1.,1ergency
Plant Facilities Contract which enabled a contractor
to build
funds and hold title until the Gova plant with his
ernment reimbursed him own
Conin sixty monthly instalments.
tracts arising from
this arrangement are guaranteed and so arc
eligible for
Il. r,,.-.,l C....
11
I,.
Tlofrnce
101
ICI
III
IVdlll
"
r(,
-... UL 1-.. L. 17,,,,
I,1ant Corporation
,,,...., , th,.
,..,.........
-_
funds
finance
Government
with
was created to
the construction
of facilities for lease to private operators.
1)41Inn.
I
Fi
Tile
The task of nYnVid;
fiindc
fur
also
PC(IUICCd
wnrl<inw
C: Illll'aI
task of providing
funds
for
hn...
r'ý..
_.... ntýý
ý.....
_..,
.. ý.
..........
ý
-"r""___....
__ý
also
required
working
capital
_
', W
:1nnr",
ti"f
new
_,. _I_
-I'
--approaches
-1-1-c11cs
suppncs
to credit
credit
speed production
production
war supplies
to speed
of war
37
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelphia
dependence
urgently needed by the armed forces. In addition to
for
type
this
of capital and
of concerns upon their own resources
loans,
for
banks
a
system of soupon the
ordinary commercial
Government
"advance
contract
or
advances
on
called
payments"
In October 1940 concerns were enabled to
awards was instituted.
for
assign funds arising from Government contracts as collateral
bank loans. Later a system of guaranteed lending-the
so-called
V and VT loans--was worked out and adopted. An analysis of
the experience of this Bank in these developments suggests several
significant conclusions.
Industrial
loansSec. 13b
The industrial loan program started at almost the
depth of the depression and was limited to loans that
to make
commercial banks were unable or unwilling
Each application was analyzed by the
on their own responsibility.
Credit Department.
Some could not be accepted because they
ineligible
were
under the restrictions of the law. Other reasons
for rejections included
unsatisfactory financial conditions, unsatisfactory earnings records, insufficient collateral, and unsatisfactory management or prospects. Although more loans have been
rejected than have been approved, the dollar amount of rejections
is considerably less than the
Substantial loans to
amount granted.
larger concerns
for
the
accounted
major part of the funds extended, but most loans were made for small amounts and to small
establishments.
Applications for industrial loans
Federal Reserve Bank of Philadelphia
1943
Junc30,1934Dcccmbcr 31,1943
Number
Approved
Rejected ............................
Withdrawn.............................
............................
Total numbcr
....................
..
I
24
1
2
347
457
68
27
872
Amount
Approved
..............................
Rejected
Withdrawn ...............................
............................
I
Total amount .....................
38
$5,339,198
30,000
535,000
$56.456426
17,126,350
3,991,700
$5,904,198
$77,574,476
I
A
Iwenty-ninth Annual Report, Federal Reserve Bank of Philadelphia
INDUSTRIALLOANS- UNDER SECTION 13B
FEDERAL
RESERVE
BANK
OF
PHILADELPHIA
LLiONS
S
15
LOANS OUTSTANDING
END OF
YEAR
i0
FINANCINGINSTITUTION
PARTICIPATIONS
FR BANK COMMITMENTS
5
ER BANKADVANCES
0
I0
I()
11
H
ýý
0
Section 13b
enabled commercial banks to secure the assistance
Of the Federal Reserve Banks in
the extension of working capital
loans businesses
to
that were unable to meet the requirements of
banks
to extend credit entirely at their own risk. As illustrated
in the
by commercial banks in
accompanying chart, participation
total loans
and commitments outstanding rose to more than 50
per cent in 1940. In
requested
no case has a financing institution
this Bank to
take
over the loan on the basis of its commitment.
Since
that time other lending
regular bank
methods, primarily
loans
and guaranteed loans
finance
under Regulation V, have been used to
the expanded activity resulting from the war.
Since 1934
total earnings of this Bank on industrial loans have
amounted
to $1,838 thousand, of which $547 thousand has been
paid to the United
States Treasury, $530 thousand has been transferred
to
r ._ cover surplus, and the rernaininu X760 thousand has been used
expenses, losses, and reserves. Losses charged off have
een only $67,618,
or considerably less than 4 per cent of total
39
39
l'iý
Twenty-ninth
Annual Report. Federal Reserve Bank of P hiladelP
To Py
e
earnings and about 0.1 per cent of the amount extended.
in
is
reset
vide against possible future losses, S115 thousand
in"Prob,
Even were lossesto absorb all of these reserves-which is
able-total losseswould be relatively small.
f.,
A few of the loanshave appearedon the "trouble list" I°(
1111'
time to time. The number has been much smaller than
Ch
« hick
in
have been
wlel
view of the conditions under
expected
loans were granted. Improvement in general conditions ` Ch
"trouble list" even beT°ee"a
some to remove themselves from the
from
a
war began; and the general expansion resulting
11f
less
At present
than
reduced the number still further.
dozen remain on the "trouble list".
a flexible
The experience of this Bank shows that with
'edit
borderline ef;
policy these loans, presumably substandard or
Most of the b0r trot'
proved reasonably safe and profitable.
have been rehabilitated and are now able to obtain credos11je
if ban
espC
their regular sources. This experience suggeststhat
risl+s' ij,t¢
losses,
for
take
they
can
fie
subsequent
adequate provision
darkest.
when the need is greatest and the outlook
for caution and a restrictive policy is a period of boom-
The ,o
These loans represent on, one type of credit.
flip. .
'n ý0r'-lev
has
been
Section
loans
13b
small
outstanding under
of
banks in this disbC tol' 1
son with the total loans of member
i
Policies similar to
0rhý1
than 1 per cent at the end of 1943.
lowed in the industrial loans program might be applied l1prvýC
`N''t
types and new types of loans in the poet-«-ar period
bank,.
able returns to commercial
to
Regulation v Guaranteed
loans were authorized
in
J
to ýrný,
ºý ,
devices and {tº1
ý{
remedy inadequacies in earlier
facilities
horile"
commercial banks to make greater useof their
ing the war effort. The Federal Reserve Banks were aUtei,
ent `'ºd
Departtt.
Navy
`
act as agents of the War Department,
Maritime Commission in guaranteeing loans to coricerº1`
wentY-ninthAnnual Report. Federal ReserveBank
of Philadelphia
l,neWa
T production and requiring credit beyond normal credit
Tr e
V1
initial purpose was served through so-called Regulation
oans. In
anticipation of the need to free funds at cancelation
andto facilitate
speedy reconversion, the "VT" or guaranteed
contract
termination loan was devised in 1943. The proposed "T"
's solely to free, at termination, working capital of contrap
aCtors
Who have not borrowed under Regulation V. The basic
tedBorroýr-ers
Upde
ulatiýn V
ý (Thoügsalis
Setl'ý
6
Cash
I 'veUt -"'
p
$ '81
58,
549
'.
V"......
I Other
Seeuritieý'
......
; cur ............
;1F"IeIt
1
assets
...
ýts (äross)
Othcrtar,
r e{u
1.
...........
TOtal
fJpthe
alms
.......
.....
liabilities
.,.
jýý
ill
S
$2,447
'Nii
ý
+17
+$758
2ý
apital
29
$ 838
-}-
-
S 4.441
14,1S1
14,397
2.759
310
3
18
151
28
+ $279
16? 00
618
3.081
$55,987
$ 4,916
10.4.51
9.937
800
$26,104
Change
from 1941
^}-
ý
{
Y
J. 13J
7.6o8
3,706
1) :Zoo
+$17,086
16 Firms
Assets
Over $5,000,000
1943
Change
from 1941
$ 66,333 +$
93,365 +
138,224 +
55,589 +
515 +
$354,026 +$181,176
3,116
144.809 +
31,298
9.612 +
9,612
618
T
641
14,453 +
6O8
,
$522,900 -+222,727
+$21,428
+$1.331
7,577
+
6,557
+
61
+$15,404
$ 46.25 +$
6ä.5l2 +
115,523 +
21.830
$252,122
107
361
67
-r
58
108
10
993
9,261
425
+
+
588
2,995
248
1,074
ý-
439
19,204
±
3,366
1n5.O16 +
`%S
+$758
+ $371
$55,987
-}-$21,428
$9,984 +$1,68?
$522,900
11,265
53,890
82.805
3,648
+$144,312
6.003
82.026 +
17.733 +
$2,447
34,126
1
.337,47
53,482
55,589
508
9.033
37.287
16.854
33,307
+$222,727
$101,904 ',-{- $ 36,864
tetttn+ore-
941 ap1tal
ý""
840
1943
$36,088
+$650
198 (+
RF
Upý"""It liabilities.
Gýhertes
,
"ht
eýc"nt
$1,416
,
1 CUrý_
`Cat'tal accounts
i- $2OJ
rt 269
+
174
t3
-1
18,;
114bllitassets
.._
...
1es
/ýýcount,
& notes
ýaa
gable
,Z;()i1.000-$5,000,000
Change
from 11)41
lq"
'-
N Firms
Assets
12 Firms
Assets
Under $500.000
1.
since
.....
ý1i917C
ý
20%
ý
57%
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelp'ýtn
purpose of the guarantee procedure is to aid concerns whose credit
standing does not enable them to secure adequate regular bafl'
loans large enough to finance their greatly expanded volume of
production for war purposes. Its success is shown in the fact that
by the end of 1943 the Reserve Banks had authorized 5,347 loans
for a total of $6,563 million, of which $1,914 million was our
d
standing. Concerns of all sizes have been assisted. In this distti
most of the borrowers have total assets of less than $500,000 aue
borrowed less than $100,000. On the other hand, some of t1ä
loans exceed $5 million.
Two or more banks have participate
in extending some of these loans.
Changes in the financial position of selected borrowers V"J'e
Regulation V are shown in the accompanying composite balaýlje
sheets of firms for which comparable data are available.
two
rapid growth in assets-an increase of about two-thirds in
Were
years-largely becauseof war conditions, explains why the
unable to secure sufficient credit through regular channels W'thour
; ng
guarantees. Most of the growth has been in current assets,
although current liabilities also have increased, net work ijl
for the largest fii'il
capital has increased considerably-57`
b ties
the table, and 179"(, for the smallest. Ability to meet ha
ý,as they fall due will require conversion of inventories and rece,
deat
ables into cash. These assetsin turn are interwoven with
contracts and depend on how expeditiously settlements are
di,
Federal
System policy of maintaining stable financial coilth,e
Reserve
of
tions resulted in an expansion in the total assets yeat
Bank from $1.7 billion to $2.1 billion in the
1943.
The chief item in this expansion was holdings of U. S. G°siero
i1i Of,
ment securities, which remain overwhelmingly
the mosth°1$862
l$s
These
tant component of Federal Reserve Bank credit.
nt
to
of
almost doubled in 1943, increasing from $440 million
Ce
for
42
per
the
the
pet
million; at
end of
year they accounted
1
the Bank's assets in contrast to 25 per cent in 1942 and 11'sed
be10
cent in 1941. Participations in Government securities pur
ý3;
by the Federal Open Market Committee were generall
bt1
19
level
for
their 1942 year-end
the first ten months of
42
rW°enty-ninth
Annual Report, Federal ReserveBank
of Philadelphia
Statement of Condition
Federal
December 31
Reserve Bank of Philadelphia
(000's omitted in dollar figures)
ine+
1
1y91
certificatPl n 1,aA --l 1- r.,,.,, IT Q
$1,224892
etherI Ption fund-Federal Reserve notes.....
cash
19,344
................................!
Total
reserves .......................
$1,244,522
discounted '
11"ustriill,
674
.....................
1. st al advances
3,468
t.:
States Government
........................!
177,982
securities.........
'
1`otal
bills and securities
$ 182,134
................
Q from
foreign banks............
Reserve
ýtmlll
notes of other
11`111k
ected items
-.
1943
$1,145,666
21,190
$1,029,794
24,120
24,499
$1,173,970
$1,078,413
2,380
4,710
440,168
-$ 447,355
700
4,046
861,738
i
RESOURCES
ýlý1
y9G1
11
I
i
55
2,700
84,370
F. R. banks... .,
.....
`111 Premises
4,866
...................
er resources
4,061
................
........
total
resources .....................
$1,522,648
LIABILITIES
--lýý
b.cl
al
Deserve
fsits
$ 575,036
p
notes in circulation.........
;
týher bank
reserve account
661,703
For ed States Treasurer-general..............
73,577
account..
ether
I,
74,057
deposits
13,392
......................
...
ý 866,484
4.755
6,925
13
4,620
117,062
3,600
4,815
$1,749,501
$2,075,007
$ 848,682
$1,149,726
651,566
52,643
67,100
4,672
645,309
31.375
120,273
5,351
2,541
114,047
Total
deposits
.......................
Otlferred
availability
items
liabilities
..................
...........................
Total liabilities
$
......................
821.729
$ 775,981
$ 802,808
90,557
89,503
524
84,031
$1,488,161 $1,714,691
$2,037,441
$
$
87s
CAPITAL ACCOUNTS
giýu'talpaid in
Si
rj)lus- Section ............................
bthlelas-Section
.....
13b
r capital
accounts .....................
Total
liabilities and capital accounts...
ýat
-,. of total reserves
eral
I2e5
ecombined....
Crve note liabilities
G\mmýtments
.
to make industrial advances....
43
11,923
15,171
4.393
3,000
$1,522,648
$
11,747
15,670
4,393
3,000
$1,749,501
11,686
17,859
4,421
3,600
$2,075,007
89.1%
72.3%
55.2%
$2,617
$1,346
$1,930
Twenty-ninth
Annual Report, Federal Reserve Bank of Philadelphi°
they increased rapidly over November and December when th"
System helped banks adjust their reserve positions to heavy with
drawals from war loan accounts, tax
payments and seasona
demands for currency.
Holdings of Treasury bills under repurchase option expanded from a low of $2 million to $281 million
shortly before Christmas, when they constituted almost one-third
A total of 128 member
of total Government securities held.
banks uEed this privilege in 1943 to meet temporary reserve re
In contrast, only 50 members borrowed during the
quirements.
year; total discounts varied between $75,000 and $12 million.
Federal
Reserve
notes
Almost the entire increase in liabilities corresponding
to the expansion in assets took place in outstanding
Federal Reserve notes. This amount grew continually
of
over the year, crossing the billion mark in July. The increase
$301 million, while larger in dollars, represents a slower rate
increase compared with the two preceding years-an increase 0t
35 per cent in contrast to 48 per cent in 1942 and 40 per cen
in 1941.
Earnings
and
expenses
Doubling of the holdings of Government securities"is
1
largely responsible for the increase of 28 per cent
5.3
total earnings of this Bank from $4.2 million to
million. The difference in the rates of increase was a result
shifts from longer-term and higher-yielding bonds and notes
Gn
certificates and to bills held largely under repurchase option.
ernment security holdings supplied 96 per cent of total earn
ý12
Net expenses increased at a much slower rate and as a res
$tl,
current earnings were up 81 per cent from $1.2 million to
e
Profits on sales of Government securities, reflecting el,
million.
36
in the n'0rl'et
policy of the System in maintaining
stability
market, added substantially to net earnings. Net earnings 0'
million available for distribution
s,
were higher than in any
year since 1921, with the exception of 1929. Of these earning'
tile''
$701,000 was paid in dividends and $2.8 million was transö
to surplus under Section 7. In addition, $84,000 was paid
Treasury, and $28,000 was transferred to surplus under Sect
13b.
44
2WWenty-ninth
Annual Report, Federal ReserveBank of Philadelphia
\.
ý_
__._ __
Prot
ls
redera1ReservendBank account
of Philadelphia
ý
F,..
nags from
_
1941
1942
1943
$3,179
165
$3,947
227
$5,122
217
$3,344
$4,174
$5,339
$2,283
184
$2,455
334
$2,498
409
179
167
(000's omitted)
Lnited
States Government securities......
Other
sources ...........................
Total earnings
......................
EýPenses:
0
(,o'ýrating expenses*
Asst of Federal Reserve currency.........
e8sluent for expenses of Board of Governors
................................
Total
net expenses
...................
229
$2,646
$2,956
$3,136
$ 698
$1,218
$2,203
110
$ 277
150
$2,928
100
1
14
8
13
$ 127
$ 435
$3,041
3
414
Cprrept
net earnings
.......................
itious to current
net earnings:
profits
on sales of U. S. Government
Transfers
in excess of requiren1ents of reserves
Other
additions
iUCtions
from current net earnings........
\ý.
additions to
current net earnings.........
yet
earnings
. available for distribution.......
i5
of net earniugs :I
Arb i
to Treasury of United States, Sec. 13b
I)aul
iý,
d
lrai
paid to member banks..........
Transferred
Sands
to surplus (Sec. 7)
...........
$ 124
$
$ 822
$1,239
---_-
b
$
81
713
27
$
21
1,642**
$1,399
$3,602
___ _---_
32
708
499
_
$
84
701
2,789
., tter deducting
reimbursements received for certain fiscal agency and other exAnenses.
rIt'cipally
charge-off on bank premises and payments to Retirement System.
t'0r,"Ia of
As a result of the war, the volume of service functions
which the Bank performs hasexpanded tremendously.
Te
in the
increase in some of theseoperations is summarized
following
45
Twenty-ninth Annual Report, Federal Reserve Bank of Philadelpht
-ý
Volume
of operations
Federal Reserve Bank of Philadelphia
1941
1942
1943
11
185,500
365,350
109,124
195,492
419,613
109,701
1
200,093
433,502
110,713
18,567
17,801
17,608
5,439
2,797
10,236
1,250
23,359
9
4,993
1,077
318
1,129
271
55
59
1,214
212
61
881
13
7,654
32
Pieces or transactions handled
(000's omitted)
Discounts and advances
....................
Currency counted ..........................
Coins counted
Ordinary checks.............................
...........................
Checks handled in
packages by automobile
run service ..............................
TreasS. Government
checks (including
ury card checks first handled in 1943) ......
Work
relief checks ........................
Ration checks
.............................
Collection items :
Coupons of U. S. Government and agencies
All other (notes, drafts, and coupons)
.....
Transfers
of funds
Issues, redemptions, .........................
and exchanges by Fiscal
Agency Department:
U.
'U. S. Government direct obligations*......
All other ...............................
19,717
4
_ýý
Dollar amounts
(000,000's omitted)
Discounts and advances
....................
Currency counted
..........................
Coins counted
Ordinary checks.......................
U. S. Government...........................
checks (including
in
$
......
Treas-
1943)
urv card checks first handled
.... .
Work
relief checks ........................
Collection items :
Coupons of U. S. Government and agencies
All other (notes, drafts, and coupons)
.....
Transfers of funds
Issues, redemptions, .........................
by
Fiscal
and exchanges
Agency Department:
U. S. Government direct obligations*
......
All other
...............................
Securities held in custody for member banks
at end of year ...........................
Savings bonds
in safekeeping at end of year
(number of pieces)
......................
I
15
799
32
33,882
29
932
37
38,748
1,446
91
52
47
232
4,366
57
202
5,470
1.023
100
3,751
108
$753 mil.
19,000
ý1'öäö
$
$1,192 mil.
59,000
A2
i
493
63,520
'ýýp
S
2?4
7155
s,0i4
7
$1,651
133,000
* Includes savings bonds sold through other issuing agents.
be
The departments most directly affected by the war have
for c
Currency, Transit, and Fiscal Agency. As the demands
cy'
currel'
5
of
to
rency continued
rise, almost million more pieces
46
ýUuenty-ninth
Annual Report, Federal Reserve Bank of Philadelphia
and 14 million
more coins were counted by the Currency Depart'nent this year than last. Increased Treasury
payments required
the Transit Department
to handle 13 million more Government
Checks,more than twice the
number in 1942. Increases in other
payments
in
the greater volume of ordinary checks
were reflected
Passing
through this department.
The work
of the Fiscal Agency Department increased greatly
°Ver the
year, necessitating a net addition of 108 employees to this
department.
Over 19 million direct U. S. Government obligat`0ns
were issued, redeemed, or exchanged as compared with 7
million in 1942.
Membership
Member banks comprise about three-fourths in number
hold
deposits and assets
of all banks in and Thirdsimilar proportions of
Federal
Reserve
District.
If mutual
the
Banks
partly
in Third Fed. Res. District
December 31,1943
dciivcd)
Mutual
savings
banks
Other
nonmembers
Total
Member
banks
1,121
3,626
809
1,377
176
35
852
2,764
427
1,167
106
24
87
369
270
33
23
4
181
493
112
177
47
7
7,144
5,340
786
1,017
3,148
2,052
545
374
316
2,709
1,047
484
367
223
723
6,435
4,830
723
439
282
60
7
93
26
19
1
Assets
Üa''s
and discounts
.................
pthe Goyt. obligations
r securities
...............
re
.....................
assets
.........................
ether
assets
........................
Total
.......................
Liabilities
bePosits and Capital Accounts
rati'''duals,
ons_
partnerships,
and corpo-
Týfe
nand
.... .
U
.......
- ........
....
Bank Government
.................
Other .............................
.............................
Total
deposits
...................
Other
liabilities
vital
accounts .....................
.....................
Total
.......................
\ýmber
of banks
..
....................
47
881
6
682
491
61
130
7,144
5,340
786
1,017
889
646
10
233
Twenty-ninth
Annual Report, Federal Reserve Bank
of Philadelphu'
savings banks are excluded, the member bank proportions of
major balance sheet items exceed four-fifths.
Several banks were
during
but
admitted to membership
1943,
the number of n"e"
bers was reduced
by
652 to 646-principally
somewhat-from
War conditions were reflected in continued rapid
absorptions.
growth in the assets of both member and nonmember banks, W
15 per cent in the year; investments in Governments
proximating
were sharply increased, and concurrent
gains were shown '''
deposits, mostly in
the balances of individuals and business co"
Summary
figures
cerns.
showing the principal assets and liabili,
ties of member and other banking institutions in this District are
given in the preceding table.
Directors
and
officers
There were two changes in the Board of Directors
James T. Buckley, Chairman of the
of the Bank.
Executive Committee
of the Philco Corporation''
Philadelphia, was elected by the banks in Group 1 as a Class
director for a term of three years, to
succeed C. Frederickh
Stout, whose term expired on December 31,1943.
Mr. Stout
been a director for sixteen years. C. Canby Balderston, Dean of
the Wharton School of Finance and Commerce of the UniVers't}
of Pennsylvania, was appointed a Class C director on April l'
1943, to fill the vacancy created by the resignation of
W. Riefler in the fall of 1942.
Thümac R
MrCok.
R. ýý
Pl1PC1Rtl
lTP
a (1»ýrman
Of
'
the Boarvd
and Federal Reserve Agent for the current year, and «'arren ,ear
Whittier
.
was reappointed a Class C director for the three-S
Cha'rbeginning
January 1,1944, and redesignated Deputy
term
man for the year 1944.
1S
At the regular election in the fall of 1943, John
GrOu9
roup
was reelected a Class A director by member banks ü1
ý1
By appointment of the Board of Directors, \xrilliam
es
Inst'o ccs
Kurtz, President
for
Company
the
of the Pennsylvania
on Lives and Granting Annuities continued as the member erýre
Federal Advisory Council from the Third Federal
District.
{
1
The only change in the
official staff was the appolntmere
ViceRobert N. Hilkert, Personnel Director, as Assistant
dent as of October 1,1943.
tiý
r'Oenty-ninth
Annual Report, Federal Reserve Bank
of Philadelphia
Directors
as of
class
January
1,1944
A:
Grnýýh
Tcon Expires
I)ccembcr 31
1
1944
2
1945
3
1946
1
1946
2
1944
3
1945
"O\eard
A. Loeb
.................
Chairman, Tradesmens
Bank and Trust
Company, Philadelphia, -National
Pennsylvania.
George
W. Reily
...................
President, Harrisburg
..................
National Bank,
Harrisburg, Pennsylvania.
John
B. Henning
.....................................
President, Wyoming
National Bank,
I'unkhannock, Pennsvlyania.
Clan,
Jame
s T. Buckley
Chairman,
Executive Committee, Philco Corporation,
Philadelphia,
Pennsylvania.
kam'
L. Cannon
President, ....................................
H. P. Cannon & Son, Inc.,
Bridg., ille,
Delaware.
yard
D. Kerlin..
Secretary
Treasurer, Camden Forge Company,
Camden, and
New jersey.
Class
C.
Thýýiýas
L' \f
cCabe Chairman and Federal Reserve Agent
Scott Paper Company,
--ster, Penns}"h"ania.
1945
---....,., o...o.
LýniýPra
r
Deputy
Au I'arnts,
Chairman
1Jotaglasseille,
................
ýYennsyh"ania.
1946
Ca*3'
Balderston..
Wharton School
of Finance and Commerce,
Pln1versitp of Pennsylvania,
ladelPhia.
Pennsylvania.
Uean,
49
1944
d, r,,l Ký ýýr;
Twenty-ninth Annual Report,
B. ink ,i P1riladclPlr"'
Officers
as of ]auuar. 1,1.1944
Ai. ra2ýn H. Wrn i i_Nms, I'rcsi, lc»t
FRANK
J.
DRINNEN,
WiLU_ILM G. ALcCt.ELL)",
First Vice President
Assistant
Vl['i'
Pi"PSld('lJt
a1111SPcr('tnrl'
L.
C. A. MCILHENNY,
Vice President arrd C,ashhcr
W. J.
Vice
C.
Ac>1sftlllf
s0N.
V1C't'
P1'c'? 1cI('111
ýcýtt
Assistant Vic, ' Prýýi:
C.
HILL,
President
KOBERN'
N.
Assist
aid
HILKERT'
ViCP
pressillit
i:ýNi s M. Tor,
Assistant Cashier
A. SIENKIEWICZ,
Vice
DONALD.
DAVIS,
Vice President
ERNEST
E.
President
PHILIP
A
POOR\i 3\,
General Auditor
nilitor
@FedFRASER