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Twenty-sixth oAnnual 'Report
of the
FEDERAL RESERVE BANK
OF PHILADELPHIA
1940
Third Federal Reserve District
CONTENTS
Pagc
Businessconditions
.
....................
Industrial production
.....................
Construction
Employment and income ...........
Agricultural conditions
.................
Distribution
Commodity prices
.... .............
.........
7
g
12
13
..
. ..........
16
..........
Banking and national defense
.
.......
Financing defense
.
Subcontracting
..................................
The Defense Contract Service
...........
Banking and credit conditions
..........
......
Bank reserves
.........
.
................
Federal Reserve Bank
........
.
........
Member banks
Condition of member banks
..
................
...........
Deposits
Loans and discounts
... ..........................
Investments
Capital funds
.........................
......
Earnings and expenses
Money
rates
Federal Reserve Bank
Reserve Bank credit
Industrial loans
.....................
Volume of work
Earnings and expenses
Membership
Directors and officers
..............................
1
3
18
20
24
25
26
26
-17
28
32
.
33
..
35
37
41
42
45
51
..........
53
54
56
58
58
60
..
FEDERAL RESERVE BANK
OF PHILADELPHIA
May 15,1941.
To the Stockholders of the
Federal Reserve Bank of Philadelphia:
Presented herewith is the twenty-sixth annual
report of the Federal Reserve Bank of Philadelphia, containing a summary of the operations of this Bank and a review of business,
banking and credit conditions in the Third
Federal Reserve District during 1940.
JOHN S. SINCLAIR
President
i
i
Business Conditions
Business
activity in the Philadelphia Federal Reserve District increasedsharply in 1940
and in many lines reached the highest levels in
a decade or more. Virtually
all types of industry and trade advanced
steadily after late spring,
and by the end of the year several capital
goods industries were the
most active in about two decades. After a
temporary reduction in
operations to take inventory and make repairs
in January,
the gains were extended into 1941,
with further substantial
expansion in prospect.
Orders for
steel, textiles, and other defense materials continued to
exceedoutput and
shipments in the first quarter of 1941, despite unusually active
production. With backlogs in key industries accumulating,
manufacturing facilities
expanding, and government and private
expenditures increasing,
the
volume
of business in 1941 is expected to
be the largest
since the peaks reached during the last World War.
Manufacturing
activity increased considerably from 1939 to 1940,
'hen the Output
of capital goods was the largest in eleven years. Min1119
Operationswere
sustained near the levels of the previous year, and
production
and salesof electric power advanced to
a new high record.
Construction
activity also increased substantially and was the
greatest
': ", tell years,
owing chiefly to widespread renovations and additions to
industrial
and commercial structures.
employment and payrolls advanced almost to the peaks
of1 1`)i7" As
a result of higher consumer incomes, the
volume of disirtbtttjOf increased,
particularly in the case of such durable goods as
automobiles
radios refrigerators, and furniture.
I
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
i
INDUSTRYAND TRADE
PHILADELPHIA
FEDERAL
RESERVE
DISTRICT
BUILDINGCONTRACTS
AWARDED
25
,.
0msrco lo^ soso1936
1937"T
............
1938
1939
...
1940
.......
.......
1942
1941
Less accumulation of inventories was in evidence in 1940 than in
the previous active year of 1937. Industry generally appears to have
allocated deliveries on the basis of actual or average requirements to
minimize speculative buying. In some cases,stocks were bought well
ahead as a protection against possible future shortages, but for the most
part the accumulation of inventories reflected requirements for higher
operating schedules and more active sales. The largest increases were
in supplies of raw materials.
Commodity prices generally declined in the late fall of 1939 and in
early 1940 from the unusually high levels reached in a surge of specu-
PRICES
PERCENT
I.....ý. 00
--ý-
GENERALWHOLESALE
COMMODITIES"'
COSTOF LIVIIlG
F. n
401
--
_
.. ý. i...
ýý..
ý
.... _........
1938
_......
1937
........
1938
I...........
......
1939
1940
ýý,
I.........
1941
1942
_
2
ý«s".
ý
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
lative buying
after the outbreak of war abroad. By late summer, quotations began to advance sharply and toward the end of the year
approached and in some cases exceeded the peaks in 1939. Potential
shortagesof key labor, materials, plants, and shipping facilities contributed to strength in commodity markets early in 1941 as the industrial
system sought to makc full use of all available facilities in the shift
from
peacetime to defense production.
Industrial
production
Industrial activity improved steadily in 1940, after sonic
decline in the first quarter of the year from the high levels
inreached in the latter part of 1939. By December 1940
dustrial
production in general approximated the recovery peaks atlevel pretained in the spring of 1937
and was 8 per cent above the
vailing at the end of 1939. Operations advanced further in the first
quarter of 1941, and continued expansion is in prospect for the balance
of the year.
Manufacturing
between
activity increased more than 20 per cent
PRODUCTIVE ACTIVITY
PHILADELPHIA
FEDERAL
RESERVE
DISTRICT
rf Ili
l LI. URIC
POWER
PHOCUCT ION
A
19 36
1937
MINfRill ',
1938
1939
3
1940
nCiNITY
.
...............
1941
...
1942
I
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
MANUFACTURINGACTIVITY
FEDERAL
PHILADELPHIA
PER CENTi
RESERVE
DISTRICT
__
I
ýöö
125
I
25,
DURABLE
GOODS
ý/
I
_.........
1929 1930
1931
1932
1933
1934
_ ------ -..
1937
1935 1936
__'
1938
ýIII
1939
1940
1941
1942
the low point in March 1940 and December, when, on a seasonally adjusted basis, operations were at the highest point in more than a decade.
The largest gains were in the output of heavy goods, which averaged
28 per cent above 1939. Particularly sharp increases were reported by
the transportation equipment industry, especially at shipyards and
plants manufacturing locomotives, cars, and allied products. There
was a large expansion in the output of metal products, the greatest
being in the case of pig iron and electrical apparatus. Other industries
engaged directly in defense production, such as aircraft and explosives,
also increased operations greatly over the levels of 1939. Orders for
armaments and capital goods in early 1941 were still being received
ACTIVITY IN THE STEEL INDUSTRY
PHILADELPHIA
1932
1933
1934
1935
FEDERAL
1936
RESERVE
1937
Z,
1938
DISTRICT
1939
1940
1941
1942
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
from our
government and from England faster than the goods could
be produced
and shipped.
The output of consumers' goods in general showed little change
throughout the year and averaged about 5 per cent below 1939. The
principal declines were in the output of shoes and certain textile products, especially carpets and rugs, hosiery, and silk goods. Production
in most other lines was well sustained at levels slightly above those
prevailing a year earlier. New orders accumulated rapidly in late 1940
and early 1941, providing backlogs against which operations could
first
he maintained
at high levels throughout the greater part of the
TEXTILE ACTIVITY
EMPLOYEE -HOURS
IN PENNSYLVANIA
PER
CEri1
11--loo
I
Ir_ ,
i__
I
----- ------_....
1933
1934
-.
1932
1935
1936
1937
1938
-.
..1939
-- --. -.1940
-.....
half
of the current year. This was especially true in the case of textiles,
for which large
government orders were received and are in prospect.
Mining activity in
this District in 1940 was fairly well sustained.
Production
of anthracite exceeded 50,000,000tons, or about 3 per cent
Icssthan in 1939
when demand was stimulated by a six-weeks' shutdown
of bituminous coal mines. The market for anthracite has been
in a declining trend, however, for
some years, and, except for 1938, the
output last year
was the smallest since 1933. In early 1941 production
was sustained around
the levels prevailing at the end of the previous
year.
5
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
The output of bituminous coal in this District in 1940 amounted to
113,000,000tons, was 22 per cent above the low level of 1939, and was
in the early months
the largest since 1930. Production continued high
inventories against
of 1941, reflecting in part some accumulation of
the possibility of curtailed operations at the expiration of the wage
from the United States, chiefly to
contract on April 1. Exports of coal
in
Canada, increased sharply
the year, aggregating 17,000,000 tons as
in
against less than 13,000,000 1939.
Productive activity
Philadelphia Federal
Reserve District
(1923-25 average = 100)
Industrial
production......
Manufacturing
..............
Durable goods.............
Nondurable goods.........
Annual averages of monthly
indexes
Dec.
1937 1938 1939 19 40 1ý 1939
ý1
1929'II 1932
110
111
110
112
63
91
61
39
77
Coal mining
92
60
Anthracite .................
91
62
................
98
51
Bituminous
...............
Crude oil
230
295
...................
Electric Per
191
177
output ........
Building contracts awarded
Total
132
34
............
. 104
Residential
17
................
Nonresidential............
160 1 41
Public works and utilities... 1 146
66
I
Iý
' Three-month moving average.
70
i
Monthly
Dec.
19d11
82
88
93
1111
93
95
92
100
11S
89
89
88
91
68
55
77
80
72
87
87
93 ýI
82
65
64
76
56
57
53
63
63
64
64
02
78
57
55
77
69
67
82
498
445
437
424
479
445
242
238
263
285
269
295
57
38
71
84
54
35
66
87
65
57
50
124
73
57
72
53*
52*
45
120
S5*
66"
64 *
76"
73*
The production of crude oil in the Bradford Field amounted
to
about 14,250,000barrels in 1940,or 3 per cent less than in the previous
year. This volume was the smallest since 1935 and reflected to a large
extent the loss of export markets. Shipments of oil from this country
were reduced to about 29,500,000 barrels as compared with nearly
46,000,000barrels in the previous year.
Output of electric power by eight reporting systems, representing
r\vcr 90 per cent of the total production in this District, reached a rceoro,
6
Ttventy-sixth Annual Report, Federal Reserve Bank of Philadelphia
high of 8,850,000,000kwh.,
or 8 per cent more than in 1939. Production
continued active in early 1941. Total sales of electric power in 1940
industry inincreased 9 per
cent over the previous year, and sales to
creased 10 per cent to approximately 4,275,000,000 kwh.
The volume of construction in this District during 1940
highest levels in
expanded substantially from 1939 to the
building
the past ten years. The value of total awards of
contracts reached $221,500,000,or 12 per cent more than a year earlier.
Construc6o12
CONSTRUCTION
CONTRACTS
PHILADELPHIA
FEDERAL
RESERVE
the
DISTRICT
volume of residential building expanded slightly from the tenyear peak reached in 1939, but
factory and
the principal gain was in
commercial building. Further increases are in prospect during 1941,
asadditional plant expansions
and the erection of new plants are under
Way, requirements for defense housing in industrial areas have increasetl,and generally higher
busiconsumer incomes and more active
nessare expected to
sustain residential and commercial building.
7
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
Awards for factories and commercial structures aggregated $53,700,000in 1940, or about double the value of the year before. New aircraft factories and powder plants are being erected, and shipyards, steel
mills, and plants manufacturing machinery and other metal producare being expanded and rehabilitated. Many new commercial building
are being erected in Philadelphia and several other large cities, and
existing structures are being extensively reconditioned.
The value of contracts awarded for the erection of family houses
aggregated slightly less than $61,000,000 in 1940 as against slightly
more than $61,000,000in 1939. Large residential building operations
were undertaken in suburban areas, particularly in the $4,000 to $7,000
price range.
There was an increase in formal commitments by the Federal
Housing Administration for insurance on residential mortgages. Over
4,900 commitments for mortgages on new construction, aggregating
nearly $22,000,000,were made in thirty-eight counties of eastern Pennsylvania and in Delaware. This compared with about 3,900 commitments, valued at about $18,000,000in 1939. Commitments for mortgages on existing construction showed some decline.
EmployiKilt
and
Employment and wage disbursements in nonagricultural
:. 1..,..
_.
_:,...
11Mu,
i111-,
:.
1_:
_ .llll,, 111
Ll,
lrl(;
L 111Crc: i, cu
1-------_..
Jul),
l: lIlll: .:. -11..
llly
:.
1I1_
1OA1
i7-lv
and early 1941. The number of workers in twelve principal branches of trade and industry in Pennsylvania wa
6 per cent larger than in the previous year
and by December approache,
the peak levels reached in 1937. Wage disbursements in these lines e;
paneled by 13 per cent from 1939 and in December were the largest i
more than a decade. The principal
gains were in bituminous
coat
mining,
manufacturing,
and quarrying.
The number of wage carvers in Pennsylvania
factories in 1940
averaged over 930,000, or 7 per cent more than in the previous yczj.
This compared with 985,000 in 1937. At the year's high in December,
more than a million
workers were employed. Wage payments
in,
8
i
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
EMPLOYMENTIN PENNSYLVANIA
IýI
12 LIMES OF TRADE
AND INDUSTRY(ýoý: "ýoo)
120
100 -
L-V
ýIIIýý
co
., " :..:
40...
li..
1932
_
i' .
I
"',
..
FACTORY
(wzv zý"ioo)
ýI
1_...
_. _.......... .... _
1933
1934
1935
.
_. ý
1ý_____
1936
..ý_....
1937
...
ý. _..
1938
... ý. ý. _
1939
__ý-.
1940
1941
1942
ý
creased 16 per cent over 1939 to an average of $23,500,000 a week, or
about the same as in 1937. By llccember, factory wage earners were
receiving about $27,500,000a week, and this volume was expanded to
over $30,000,000in April 1941.
Wage payments in the durable goods industries increased 28 per
cent to the highest level on record, while in industries producing
lighter goods disbursements
in 1939.
were I her cent smaller than
IntlexesofQeneral
employtttenl
and payrollsl
Penttsylvanl,
t
(1932 avv.
1(1(1.
dexes nre -al, 'I'
uvcri}; cti. )
1,
rteneralindex*
......
j :i "mu6u'l urinyq.
......
! Antliru it( ".
........
Biturninuns
roal......
(2uarryinl...........
( rurle petrolcum.....
I,
Relative
h
ýmlxnI t: un'oof
tol, d
il
100.0
-iHO
.'6.9
5.7
0.0
11.2
Retail trade.
IS.
Wholesale trade....
........
'd.
7
Ilotels
..
1.1
.............
"aundries...........
0.7
Uycinl
and clcxuiin}
0.2
..
' Inýýludes building
I': nýrolls
Employment
-.
I1037;
ýý
125
14)11
1937
103S
1039
los I 114
139
172
217
129
152
146
185
67
106
1(()
134
95
110
120
102
10a
100
81
217
225
1i1
10-1
13(1
119
123
11')
120
66
67
155 , 167
154
186
16-1 155
105
103
122
123
114
119
119
123
121
12S
126
117
193')
Ip37
lo."
I-`117 1211 t.i0
tl 1
70
07
av
123
102
11)
1
,.º 101
161
119
118
112
105
lll5
1d5
05
107
113
110
llln
101
and ronstruution.
9
132
0.1
100
110
10n
0IS
90
1940
165
21-1
66
207
2(P)
101
11(1
13(1
126
12(1
133
125
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
Large gains occurred in the year at plants producing primary and
finished iron and steel products. Activity in the nonferrous metal industries was sharply stimulated by the demand for armament materials. In the transportation equipment industry, large increases
occurred at factories producing locomotives and cars, aircraft, and autohas been
mobile bodies and parts. The expansion at shipyards, which
in evidence since early 1936, continued. Wage payments at plants
manufacturing explosives and heavy chemicals increased sharply.
In the nondurable goods industries, substantial gains were reported
in the caseof certain textiles, clothing, and foods. The largest decreases
were at textile dyeing and finishing plants, and at mills producing
hosiery and silk goods.
Hourly and weekly earnings of factory workers advanced substantially in 1940, owing largely to an increase in overtime work in the
capital goods industries, where the supply of labor is relatively limited,
and to increases in basic wage rates. Average hourly earnings in the
year rose 4 per cent from the previous record in 1939 to 72 cents, reaching a peak of nearly 78 cents in April 1941. The highest earnings,
averaging over 80 cents an hour, were in the printing, iron and steel,
and transportation equipment industries. Working time in Pennsylvania factories increased to an average of 37.6 hours a week in 1940
and reached a peak of slightly more than 40 hours in December. This
level was somewhat below that prevailing in 1937 and more than 11
hours a week less than in 1929. The longest hours and the largest it,
creasesfrom 1939 occurred in the capital goods industries.
Reflecting the increase in wage rates and working time, weekly
earnings of factory workers in 1940 advanced to an average of more
than $27.00, the highest for any year since the last war and 8 per
cent
more than in 1939. At the peak in December, earnings averaged over
$29.50 a week.
The cost of living for wage earners and lower-salaried
workers
showed little change during 1940. By March 1941 the index of the
IO
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
INCOME
PHILADELPHIA
PERCCUT
--ý
ý
RESERVE
FEDERAL
ýý-
DISTRICT
1932"V4"100
250
i
_---
225
-
PACTORY
". ".
PAYROLLS ý 'jl
ý_ ý; ý
"""
_-_
ý
M
200
-.
I
-r
_ --ý
,
ý,
%ý
ý
,
;ý%' '
.!
;, I
.33
ýI"
!
175
---S
150
i,;
Iw'
.. 1`,
'I
f"ý.
r
,ýý";
Aý
:_;"'
FARM INCOME
01
FACTORYPAYROLLS
i
NON-DURABLE
GOODS
iooý-ý
I-
75, ^,
,ý
"
",
.
iý
.n
ýr'
50I"
`ýý.
"
, 'v
" ý-,:
.
-ý..
,..,
w.
ý,
DURABLE GOODS
z5"
150
i 1-2l1vG
. i00
125
AVERAGEHOURLY
EARNINGS
,
wo----
ýs
50
1
,
-=
I`_
.. ' ". ýý fIII
-.
.:..,.:
"",::
ý'.. ý
-"ý
! 'd,
-ý
AVERAGEWEEKLY
EARNINGS
i-
,,.
25
1932
l
V
1933
1934
1935
1937
1930
1939
1940
-.___
______
____ýý-.
_...
...._- ................
193B
II
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
by
cost of living in thirty-four cities of the United States, published
less
2
United
Labor
Statistics,
States Bureau of
than
per cent
the
was
higher than in December 1939. These costs also advanced 1 per cent in
Philadelphia and 2 per cent in Scranton but were still about 20 per cent
below 1929.
Increased employment and income resulted in sharp reductions
in relief payments in 1940. Expenditures by the Federal Government,
under the Federal Emergency Relief Appropriation Acts, in Pennsylvania, New Jersey, and Delaware declined from $313,000,000 in 1939
Average number
of persons
(in tbousun(ls)
Public
assistance
in Pennsylvania
by type
1 1938
Direct relief
Federal work ...............
relief
Old-age assistance .........
.........
Pensions for the blind
......
Aid to dependent children.
Total
..............
I
I
1
1939
642
897
744
694
91
11
61
83
12
93
1,672*
1,564*
Amount
spent
(in millions)
ý 1940
1938
503
532
76.0
169.5
ýI
97
13
129
23.5
4.2
7.2
1,214* I1 $280.4
1939
I,S
91.6
132.7
20.3
4.4
1(1.9
$259.9
1
1,)-lo
o0.9
100. -4
25.3
4.7
16.7
5208. (1
" Adjusted to eliminate duplication.
Source: Pennsylvania Department of Public Assistance.
to $189,000,000in 1940, the principal reduction being in work relief.
Total public assistancein Pennsylvania
was sharply reduced, the number on the rolls declining 350,000 to 1,214,000, and payments being
reduced by $52,000,000to $208,000,000.
Agricul-
Agricultural production in this district in 1940 was
; cnrr.
ally above 1939. Moisture conditions were favorable over
most of the year and crop damage from storms and frost
was light. Production of tobacco was the greatest since
1931, and total yields of other leading field crops were well
sustained.
Marketings of orchard fruits continued near the high levels
of 1 year
earlier. The supply of farm labor declined and wage rates advanced
in the second half of the year, as workers were absorbed by
cxplnding
tural conditions
12
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
industry. Farm
prices were generally firm
the average in 1939.
at levels somewhat above
Farm cash income in Pennsylvania, New Jersey, and Delaware
increased from $386,000,000in 1939 to $404,000,000in 1940. This represented a gain of $10,000,000 to $137,000,000 in receipts from the
sale of crops and an increase of $8,000,000to $259,000,000 in proceeds
from the
farmers
sale of livestock products. Government payments to
reached a new high level of about $8,400,000compared with $8,200,000
in 1939and only $4,000,000in 1938. The
for each farm
average income
Farm cusp incomePenna., New Jersey, Delaware
(I"
millions
of dollars)
United
States
Livestock
products
Government I
rental and
hencfit
Total
payments
1936
1937..... ........................
..............
1938...............
1039............................
1940".......
...........................
Surre;
Crops
'
I
$,137.8
141.1)
117.7
126.9
136.8
Department
5248,6
269.2
256.2
251.1)
258.8
83.0
3.2
4.0
8.2
8.4
S389.4
413.4
377.9
386.1
404.0
of Agriculture.
in the State
of New Jersey was $4,100, which next to California was
the highest in the United States. In Delaware, receipts averaged $2,165,
and in Pennsylvania $1,650.The outlook for 1941 is generally regarded
as favorable because higher
of
earnings of industrial workers and the
greater domestic demand for high
quality food products.
Distributine
Distributive
activity
in general
during
1940 reached
the
highest levels in
in retail
several years. Stocks of goods
and wholesale channels increased somewhat but were
not large in relation
to the volume of business. Sales of durable consumers' goods were
especially active, and high quality merchandise
was in better demand
than has been the case for sonic time. Christmas
trade in this district
was
the best since 1929, and the outlook for sales
in 1941is favorable.
13
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
Sales by department stores in this district increased 7 per cent over
the year before and were the largest since 1931. Sales of men's apparel
The volume of
expanded 5 per cent to the greatest volume since 1930.
durable
handling
business at credit stores
consumers' goods advanced
in these lines was unusually ac4
1939,
trading
per
over
when
only
cent
tive, but exceededany year since 1928. At shoe stores and women's spebefore. Invencialty shops, trade in 1940 was about the same as a year
tories in December showed increases over December 1939, ranging
from 2 per cent at shoe stores to 8 per cent at department stores.
Annual
averages of monthly
indexes
Distribution
Philadelphia Federal
Reserve District
(11923-25 average = 100)
Retail
trade
Sales
Stacks.......................
New passenger .....
automobiles.
.
Commercial
hotels (1934 = 100)
OccupancN ...................
Inconletotal
........
Freight-car
loadings
Allegheny
District-total.....
Merchandise
fi miscellaneous
Coal
.....................
Philadelphia
industrial
area...
Port of Philadelphia
Exports (1935-37
100)
.....
Imports (1935-37 = 100).....
=
1929 1933 11937
100
131
59
59
62
83
83
136
\IOnthlV
1938 1 1939 1940
75
78
73
81
77
101
...
86 I 123
82
129
117 I 114
122 119
106
112
92
107
55
56
58
62
74
74
71
70
54 ý 66
55
66
64
55
61
02
ý 170
156
66
58
127
122
121 I 127
69
84
84
78
134
De".
39
19Dec.
1940
88"
76*
122
119 ý 103
134
130
74
74
1
73
66
157
87
92"
79"
171
105
134
84*
84*
71*
72*
90'
90'
7(i*
177
85
121
80
79*
Adjusters for seasonal variation.
Wholesale trade salesexpanded by 7 per cent in 1940. Buyers for
retail stores continued cautious, and a large volume of fill-in orders cane
into the wholesale markets throughout 1940. Toward the end of the
year advance buying of seasonal merchandise expanded substantially,
The demand for luxury and scmiluxury goods at wholesale was
espe
cially strong. Salesof jewelry increased 20 per cent in the year, electrica'
supplies 18 per cent, and hardware 16 per cent. Such staples as dry
goods and groceries were sold in about the same volume as in 1939
Inventories at wholesale establishments at the end of the year
wen
only 4 per cent larger than in December 1939.
14
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
DISTRIBUTION
PHILADELPHIA
FEDERAL
RESERVE
DISTRICT
i
FREIGHT CAR LOADINGS
MERCHANDISEAND
MISCELLANEOUS_! _
:A
50
ý^
I,
Q
I
A.. L" x%
,
ýD1VlTCD
..........
1929
rOR
]C"]ORn[
....
1930
1931
VARIATION
ýII
ý
ýý
--
T»ýI
I
I....................
II,,,
I
ý.
ý......
........
1932
1934 ...
1935_........
1936
............
_....
..... 1937
1933
ý
COAL
1938
ý..
1939
-...
1940
1941
Registrations
of new passenger automobiles in 1940 aggregated
nearly 215,000,or 33 per cent more than in 1939 and nearly as many
asthe 218,000registered in 1937. With this one exception, sales in 1940
were the largest on record. Markets for used cars were also active.
Although
salescontinued at unusually high levels, dealers' stocks were
increasedin
early 1941, in anticipation of a possible shortage later in
the year when defense
activity might absorb materials, labor, and plant
facilities in
industry.
the
Freight-car loadings in
the Allegheny District in 1940 totaled over
7,7(10,000
cars, the largest volume since 1930 and 13 per cent more than
in 1939.Gains in
the year, amounting to more than 4(1per cent, occurred
'n loadings of coke
and ore, owing to the active demand for these materials by the steel industry. Shipments
freight were
of less-than-carlot
the sameas in 1939,but
the movement of miscellaneous goods increased
16per
cent and coal 14 per cent in the year. The only decrease was in
shipmentsof grain
products. The movement of freight originating in
Philadelphia
showed sharp gains in the fall and continued high in
15
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
in prospect
early 1941. Further substantial increases in car loadings are
this year.
Foreign commerce through the Port of Philadelphia increased
23 per cent to nearly
sharply from 1939 to 1940. Imports expanded
5,900,000tons and exports increased 38 per cent to 2,280,000 tons. Dollar exports increased 24 per cent to 5115,000,000,the principal gains
being in shipments of war materials to Europe and finished manufactures to Latin America. In 1939 foreign commerce represented about
17 per cent of the total foreign and coastwise trade through the Port.
The principal exports are customarily gasoline and lubricating oil, representing from one-third to one-half of the total value, and steel scrap.
In the case of the Camden Port, domestic shipments increased while
foreign declined slightly. The aggregate showed a gain of 10 per cent
over 1939 to reach a total of more than 275,000 tons.
Commodity
prices
Prices generally in late 1939 and early 1940 receded somewhat from the peaks reached in September and October
after war was declared. But for the year 1940 as a whole
quotations averaged above the level of 1939 and in December were generally higher than a year earlier. In early 1941, corn,
modity prices continued to show a marked upward trend.
The principal influences upon price movements have been
the
large volume of available funds; the potential shortages of certain basic
materials, skilled labor, and shipping space; rising costs of production
and active private and government demand. The advance in c]uot. 1,
tions has been restrained, however, by formal and voluntary priorities
and allocations and by a firm attitude on the part of both government
and business against speculation and profiteering.
In the first part of 1940, quotations on industrial staples showed
3
declining tendency, but by autumn sharp increases were in
evidence,
The average price of a selected group of basic industrial comn1oditic5
in December was 2 per cent higher than in December 1939
and J
16
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
per cent above the prewar level in August 1939. The largest increases
last fall were in steel scrap, copper, lead, hides, and wool.
Annual
averages of monthly
indexes
Monthly
Commodity
prices
(1926 average
= 100)
1929
1932
-
All con] modities*
Raw malen; ls
.............
Setnilinishcd
articles.........
Finished goals
..............
Farm products
..............
Foods
Other ....................
commodities...........
Staple commodities**........
AG!ril'ulttlral
I ndustri;, I .................
...................
98
94
95
55
59
70
105
100
92
48
G1
70
il
1
ý 79
Dec-.
1931) 1 1940
De(`.
II
-iý--
11
-- -,
79 li 79
77
ý 72
70
8i
85
87
72
75
82
77
80
82
82
73
71
82
86
86
85
69
74
82
65
70
81
68
72
83
70
73
84
ii .._
ýý
_ý
84 ýý 62
71
52
88
65
39
..
United States Bureau
mrxlitics.
""Total-lMoody's
11
I,
65 ', H6
95
............
1937 1938 1939 1940
65 I 69
54
52
ý
76 I 83
index of wholesale
prices
of Labor Statistics
index of prices of 15 staple commodities.
72
56
88
80
74
79
83
68
71
1 84
74
55
00
of 813 com-
WHOLESALE PRICES
UNITED
STATES
PERCENT'
I
ALL OTHER
FOODS
r
i
eo la
ý
Iý
ý,
iýýný
ý-ý
,--i
_
FARM
40
-PRODUCTa
^. c
eol
ý_..
60
4.
-..
tý,
rc.
"L",
4{ , jf
Týýý
ý
SEMI-FINISHED
-
_I
GOODS
RAW MATERIALS
40
i932
1933
FINISHED
GOODS
1934
1935
1936
17
1937
i. l____
1ý1
_-1938
1939
1940
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphiafq
Prices of agricultural staples also declined until the late summer
of 1940, but subsequently advanced. In Dccember, the average quotabelow
tion on a selected group of these commodities was 3 per cent
The
level
in
August
1939.
a year ago and 13 per cent above the prewar
in
cocoa, coffee, cotton,
principal strength during the advance was
i
and wheat.
The general level of wholesale prices declined until September of
1940 and then advanced considerably. The greatest strength was in
index of 813 commodity
quotations on farm products. In December the
prices, compiled by the United States Bureau of Labor Statistics, was
I per cent higher than in December 1939and 7 per cent above August
1939.
Banking and National
Defense
The National Defense Program, undertaken on an unprecedented
scale in the spring of 1940, has become the greatest productive effort
in the history of the country. A total of about $40,000,000,000 in government expenditures for defense purposes was authorized and proposed between last June and March of 1941. This sum, to be used for
the purchase of airplanes, tanks, guns, ships, and other defense requirements, is equivalent to more than one-half the total national income
in 1940.
United
States
(Dollar figures in millions)
Total
major
awards
........................
Airplanes,
eni'ines, parts and equipment........
Ship construction
and equipment ..............
Ordnance and ammunition
...................
Construction
other than ship construction......
All other equipment,
supplies, and material.....
I
Third
Federal
Reserve
District
$12,576
$1,374
2,275
51065
7.,028
1,727
1,481
878
180
21)
74
212
Per cettt
Third
District
of U. S.
10.9'-,
1.3
17.3
8.4)
-1.3
14.3
Source: Bureau of Research and Statistics, National Defense Advisory Commission,
1R
i
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
Major defense contracts awarded by the War and Navy Departments from June 1,1940 to January 31,1941 approximated $12,600,000,000,of which
in the Third
nearly $1,400,000,000 was awarded
Federal Reserve District. Distribution
of these contracts among the
various phases of the program is indicated in the preceding table.
defense
The problem of accomplishing
the objective of national
is two-fold. First, it is
from
necessary to convert our industrial structure
a peacetime to a defense basis, directing our resources of man power,
materials, and money principally
toward the production of armaments
rather than nondefense products. Second, an effective means must be
provided to finance the mobilization
and conversion of our resources
in such a way
to
as
complete the program as quickly as possible, to
spread the burden of cost equitably, and to anticipatc problems of postemergency readjustment.
Particularly important from both
the industrial and the financial
standpoint is the channeling of resources into the defense effort. Actual
government expenditures for defense have advanced steadily from
$153,000,000last June
to about $760,000,000in April 1941, and further
substantial increases are in prospect as additional facilities come into
operation and engineering problems are solved. The result thus far has
been
not only a rapid expansion in general industrial activity and in
NATIONAL DEFENSE EXPENDITURES
MILLIONS
000,
MONTHLY AVERAGES
FISCAL YEAR
MONTHLY TOTALS
aoo
aoo.
J", r
_
1937
,
193B
1939
1940
.,;
1
I940
19
lKI
1,<1
Lf'
,t" 4Iý
461Q
19
4
RI h
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
incomes of wage earners but also an unprecedented demand for key
materials, skilled labor, plants, and equipment.
New sources of raw materials have been found, and reserves have
been accumulated. Jobs have been revised to permit the use of lower
have been undertaken. Plants
skills, and widespread training programs
been adapted to defense
customarily used for peacetime purposes have
have
production, old factories have been renovated, and new plants
been erected. In cases where industrial capacity has been inadequate
to supply the immediate requirements of the defense program and the
market for consumers' or other nondefense goods, systems of priorities
have been established either voluntarily, by allocation of orders within
industry, or officially, through the Priorities Division of the Office of
Production Management.
These methods of making the fullest possible use of our resources
arc to be supplemented by appropriate financial policies. In addition
to avoiding possible shortages and disturbances in individual lines of
activity, comprehensive policies affecting all phases of the problem arc
necessaryin a period of national emergency.
i
i
Financing
defense
The broad objective of financial policy under the national
defense program is to provide adequate funds as quickly
as possible and in a way that is least disturbing to the
general economic welfare. Existing supplies of funds are
to be drawn upon to the greatest practicable extent through taxation
and the sale of savings securities, and additional requirements will be
met through a further expansion of bank credit.
The policy of drawing heavily upon
existing supplies of funds
arises primarily from two aims: first, to permit everyone to contribute
directly and in a tangible way to the national effort and,
second, to
minimize inflationary developments during the defense period and the
probable subsequent deflation. Bank reserves at the end of 1940 were
nearly twice as large as the amount required to sustain the volume of
20
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
credit then outstanding, and surplus funds were so great as to be beyond the scope of existing monetary and credit powers. The danger in
financing national defense
through bank credit alone lay in these
unwieldy excess reserves and in the possibility that the volume and
use of credit in this country might expand far beyond the needs of
trade and industry and result in a rising spiral of prices. Under such
conditions, attempts at price stabilization without influence over the
supply of funds might prove inadequate. But by financing a large proportion of defense expenditures through existing funds rather than
through an expansion of bank
credit, the possibility of a costly and
disruptive
has
in
advance
prices should be lessened. This policy also
the effect of conserving
consumer demand during the emergency, so
that productive facilities may be used principally for defense and so
that markets in the post-defense
better sustained.
period may be
It is desirable to finance
as much of the defense expenditures as
While
possibleout of current income,
rather than through borrowing.
revenuesmay rise as a result of expanding national income, consideration is being given to the
possibility of a comprehensive revision of
existing tax rates. An appropriate tax program, based upon wide distribution of the burden
income
of cost and apportioned according to
and ability to pay, has the effect
of providing additional revenue and
of restricting buying power
available for the purchase of nondefense
goods.Increased
induring
revenues
the period of emergency when
cot»esare large
also minimize the tax load necessaryin the post-defense
period when incomes
may decline.
A part
of the fiscal program recently announced by the Secretary
of the Treasury is the
so-called Savings Bond Program to become clfecfiVe Maay1,1941.7-his
bonds
program calls for the issue of appreciation
with ten-year
maturities and an average return for this period of 2.9
per cent, appreciation bonds
with twelve-year maturities and an average return
of 2.53 per cent, and income bonds with twelve-year maturities and
a return of 2.5 per cent payable semiannually. Holdings
of the ten-year
appreciation bonds are limited to individuals in their
21
Twenty-sixth Annual Report, Federal Reserve Banl{ of Philadelphia
own right in the amount of $5,000, maturity value, issued in any one
calendar year. This bond is designed to appeal particularly to indi
viduals of moderate income. Ownership of the other two types of bonds
is limited to individuals, associations, partnerships, trustees, or corpora
tions other than commercial banks in the amount of $50,000, cost
price, issued in any one calendar year.
It is believed that through this savings bond program and increased
tax revenues a substantial part of the cost of defense can be met. But
in order to speed up production, banking funds are temporarily needed,
not only by the government but also by private contractors working
on government orders. This has represented a considerable financial
problem, because the amounts of funds needed in many cases were
larger than the general credit standing of some of the smaller and
moderate-sized concerns warranted. Under regulations existing until
October 1940, no assignment of a claim against the government was
valid. This prevented the hypothecation of amounts to become due
on government contracts for the purpose of borrowing funds to finance
operations against these contracts.
On October 9, this difficulty was overcome by the passage of the
“Assignment of Claims Act of 1940,” which provided that the re
striction on assignments should not apply in case “moneys due or to
become due from the United States or from any agency or department
thereof, under a contract providing for payments aggregating $1,000
or more, are assigned to a bank, trust company, or other financing in
stitution, including any Federal loan agency.” In this way it was
made possible for banks to lend to manufacturers on the security of
claims against the government, and a substantial volume of such loans
has been made.
Another difficulty essentially financial in character was the prob
lem of encouraging the erection of new plant facilities for defense
production. Plants required during this emergency period could not
be expected to be operated at or near capacity when defense production
22
Twenty-sixth Annual Report, Federal Reserve Ban\ of Philadelphia
came to an end. This meant that many establishments cooperating in
the defense effort by expanding their facilities would subsequently
be burdened with idle capacity.
In order to meet this problem, the “Second Revenue Act of 1940,”
also passed in October, provided that the cost of facilities erected for
defense production might be amortized over a period of five years and
that this amortization charge would be deductible from income for tax
purposes. To take advantage of this provision, the manufacturer is
required to submit two certificates: first, a “Necessity Certificate” from
the Advisory Commission to the Council of National Defense and the
Army or the Navy certifying that the facilities are essential in the
defense effort and, second, either a “Certificate of Nonreimbursement,”
stating that the government is not paying for the facilities directly or
indirectly, or, in case the government pays the cost of erecting the
plant, a “Certificate of Government Protection,” stating that adequate
provision has been made to assure the reversion of title to the gov
ernment.
Three methods in general have been used to provide adequate
productive facilities. The first of these involves construction by the
manufacturer using his own funds, government funds, or funds bor
rowed from banks. In case government funds are used, title to the
facilities reverts to the government at the completion of the payment
period. After that time the manufacturer may purchase the facilities
if he desires. The second method involves construction of facilities by
the government to be leased to private manufacturers. The third plan
involves the construction of plants to be owned and operated by the
government.
In order to facilitate the financing of defense production, includ
ing the provision of funds for both supplies and facilities contracts, an
organization was established through the Federal Reserve System.
Defense Contract Officers were appointed in each of the twelve Federal
Reserve Banks and twenty-four branches to cooperate with the Board
23
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
Activities in Washof Governors and with the Office of Small Business
ington. In this Bank, W. J. Davis, Vice President, was appointed. His
function is to advise bankers, prime contractors, and subcontractors
burden of defense
on financial problems and to assist in spreading the
is warproduction among all available facilities. In cases where credit
institutions, funds for
ranted but cannot be furnished by local banking
Reserve Bank
by
Federal
be
the
made available
working capital may
Federal
Reserve
Act.
under the provisions of section 13b of the
Another immediate problem under the defense program,
in addition to financing production, is the use of all available plant and labor facilities through the extension of
subcontracting. Trade associations, state agencies, government organizations, and local groups have actively sought to effectuate such an
Subcontracteng
i
i
extension of production.
One of the striking developments in this field has been the "York
Defense Plan, " established by manufacturers and businessmen in York,
Pennsylvania. Under this plan, comprehensive surveys of all facilities
available for defense production have been made and the equipment hasbeen "pooled" to assure its fullest possible use. Machine tools in the
metal-working industries and at plants in other lines are being made
available for subcontracting, and complete records are being kept of idle
machine and man-hours in all types of plants, so that prime contractors
may sublet parts of their work in this area. Prices on subcontracted
work are established only after trial runs, so that the subcontractors
are assured a reasonable profit. At the same time, overhead and profits
are reduced, and prime contractors are given the privilege of reviewing
all costs and estimates.
Labor facilities have been expanded through training at Plants
and
in vocational schools. The existing supply is being organized through
a complete survey of all skilled machine operators. The object of this
survey is to make available for defense production any skilled workman, whatever his present occupation. If additional workers arc
re24
Twenty-sixth Annual
Report, Federal Reserve Bank
of Philadelphia
quired, arrangements
are made with their present employers to provide
for their
return to their jobs at the completion of their defense work
without loss of seniority
or other privileges. This has been an important
problem throughout the
country, as many skilled workers have taken
unskilled jobs and are
no longer listed as unemployed. The entire York
flan has
received widespread attention as a model upon which other
communities might he
organized.
Thc
Defense
Contract
In order to facilitate
by the extension of
subcontracting
-' local plans as that
---- in York and by the coordination
-sLIcn
of the productive capacities of all plants, large and small,
a Defense Contract Service has been established in the
Office
of Production Management, and regional offices
have been
organized in each of the Federal Reserve Banks and branches.
Service
Four principal divisions
of the service have been established in
Washington:
the business section, which provides information on
where, when,
and how to bid on Army and Navy contracts; the financial section, which
provides information on all financial matters relating to brume
contracts and subcontracts; the subcontracting and
engineering
section, which provides general information to facilitate
subcontracting
and offers specific consultation and technical advice in
particular cases;
and the contract section, which provides information
on the terms and
provisions of government contracts.
in the Third Federal
Reserve District, Thomas S. Gates, President
0>fthe University
Pennsylvania,
has had broad experience in
of
industry and investment banking, who
was appointed District Coordinator
early in 1941.Under Mr.
Gates, Orville H. Bullitt, an investment banker,
was a1Tointed
as Deputy Coordinator, and Frederick W. Hankins,
Assistant Vice
President in
charge of operations of the Pennsylvania
Railroad,
was appointed as District Manager. When
completely organized with
a staff of qualified experts and engineering consultants,
this regional Defense
Contract Service will make
a comprehensive
study of available
plant facilities in this district and coordinate pro25
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
ductive efforts. Contractors are being advised as to the procedure inin or
volved in bidding on government contracts and in participating
In
sharing work on government orders which are already under way.
how
is
contracts may be
particular cases,technical advice offered as to
be
adapted to this production.
subdivided and as to what facilities can
The significance of such organizations designed to extend subcontracting arisesfrom the necessity for accomplishing the objectives of the
National Defense Program as quickly and effectively as possible. To
do this it is necessary that all available plants, equipment, and skilled
labor be employed, as the erection of new facilities and the training of
additional workers requires months of valuable time. Although new
plants are required in many key industries, it is further important in
this national effort that existing industrial capacity be used to the
fullest extent possible, not only to accomplish the program quickly
but also to avoid distortions which may accentuate problems of readjustment when the defense period is ended.
Banking and Credit Conditions
Barak Reserves
Reserve funds of the banking system in 1940 expanded to the largest volume on record, in spite of a sustained advance in the amount of
money in circulation. The demand for credit and currency was sharply
stimulated in the second half of the year by increased industrial and
trade activity under the expanding defense program, but the inflow of
funds exceeded public and private requirements, so that toward
the
end of the year surplus reserve balances reached a new high level.
The principal source of reserve funds again in 1940
was the hea, )y
inflow of gold from abroad. The spread of war accentuated the Bight
26
i
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
of capital to this country, and large gold balances were deposited in
payment for purchases of war materials. A further source of supply to
the money market was the excess of Treasury disbursements over receipts, reflected in substantial reductions of Treasury balances with the
Reserve Banks. Credit
System was
extended by the Federal Reserve
reduced in the year, owing to sales of government securities from the
System Open Market Account.
In the Third Federal Reserve District, large balances were received
through the intcrdistrict settlements. Treasury payments from balances
with the Reserve Bank into accounts of business concerns and individuals continued to exceed receipts. A large volume of defense conincreased
tracts was awarded to shipyards
and munitions plants, and
funds were
supplied to Army and Navy establishments under the
defense program. Other
government disbursements in the area were
reduced, especially payments for work relief.
large
Bank reserves in 1941
are not expected to show the same
increases
have
been in evidence in preceding years, and the
as
volume of excessreserves may even be decreased. The flow of gold
to this country has declined substantially in recent months, as reserves
in foreign
countries, particularly England, have been sharply reduced,
and new shipments must arise largely from additional production. Continued expansion in business
demands for
activity will result in larger
currency and credit. Government borrowing to finance the defense prograin may reach an unprecedented total, and private requirements for
working capital will increase
into
as new plants and equipment come
operation, as the use
of subcontracting facilities is extended, as prices
further.
rise, and as public and
private expenditures generally advance
Federal
Reserve
flank
early 1941.
Cash reserves of the Federal Reserve Bank of Philadelphia
at the end of 1940 were $1,066,000,000,close to a record
level. This
volume was $193,000,000or 22 per cent larger
in
than
1939. Continued expansion was in evidence in
27
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
dollar
(End of year;
figures in millions)
Total
reserves .................
Required reserves:
Against Federal Reserve notes..
(40'i, ', in gold certificates)
Against deposits
(35v in gold ..............
certificates or
lawful inoncy)
Total
Excess
I'rol,
rtion
to required
1940
1939
1940
$873.6
$1,066.4
S1i, i24.2
$20,035.6
139.6
164.3
1,983.4
2,372.4
251.9
286.9
4,529.3
5,644.3
S451.2
$6,512.7
58,016.7
$615.2 11 S9,011.5
512,018.9
1
$482.1
................
of total
1
1939
$391.5
required...........
reserves
All Federal
Reserve Banks
Philadelphia
Cash reserves of the
Federal Reserve Banks
...
223',n
236ýö
238',;,
250', e
In the country as a whole the reservesof the twelve Federal Reserve
Banks showed an increase of 29 per cent from 1939 to a level of over
$20,000,000,000,reflecting the expansion in the monetary gold stock.
The gain at this Bank was due to the transfer of balances from other
Districts on commercial account, an increase in foreign deposits allotted
to the Bank, and proceeds from the sale of securities by the System
Open Market Account.
Reserves required to be held by this Bank, amounting
to 35 per
deposits
40
Reserve
cent against
and
per cent against Federal
notes,
were substantially heavier in 1940 than in 1939. But this increase was
smaller than the expansion in the supply of funds, so that excess reserves advanced sharply to 136 per cent of required reserves as against
123 per cent in 1939. At all Federal Reserve Banks the ratio of excess
to required reserves increased to 150 per cent from 138 per cent the
Bank at the
year before. Excess cash reserves held by the Philadelphia
close of the year amounted to $615,000,000, and in the Reserve System
as a whole to more than $12,000,000,000.
Member
banks
Member bank reservesin the Philadelphia Federal Reserve
District increased $105,000,000from the end of 1939 to
$703,000,000in December 1940. As in the case of cash
re28
Twenty-sixth Annual Report, Federal Reserve Bank
of Philadelphia
MEMBER BANK RESERVES
900
i---"----_
BOO
PHILADELPHIA
.
_._..
FEDERAL
RESERVE DISTRICT
II
II
i
_IIýIII
700
29
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
serves at the Reserve Bank, this gain was smaller than that in the prebanks
ceding year. Throughout the country, reserve balances of member
$14,000;
$2,400,000,000,
increased nearly 20 per cent, or
to more than
000,000. About $4,350,000,000was added to the monetary gold stock,
but a part of the proceeds moved directly into foreign balances at the
Reserve Banks.
The increase in the supply of funds at member banks was due
chiefly to amounts gained in transactions with other Districts. In
addition to the $170,000,000added through this source, $19,000,000was
supplied through Treasury operations. This amount was smaller than
in the previous year, despite the large increases in expenditures for
national defense.
The principal influence tending to reduce reserve balances in 1940
was the increase of $75,000,000in the demand for currency. This was
due in part to the continued expansion in industrial payrolls and business activity generally. The demand for currency has been accentuated
by the fact that service charges on checking accounts and low rates
paid on time and savings deposits tend to encourage keeping funds out
of the banking system; low money rates have somewhat discouraged
private investments; and unsettled world conditions appear to have
Member bank reserves and related items
Philadelphia Federal Reserve District
(Millions of (1ollars)
1938
I
1
1939
1
1940
Sources of funds:
Reserve Bank credit extended in District..
Interdistrict
transfers...........
commercial
Mint gold purchases, net
..................
Treasury
operations ......................
I
Total
...............................
Uses of funds:
Currency demand
........................
Member bank reserve
deposits
.............
"Other deposits" at Reserve Bank.........
Other Federal Reserve accounts............
Total
I
...............................
30
-5
-39
+5
+74
+2
+211)
+35
+287
+22
+9
+5
-1
+2i3
+24
+ 10
+ 75
+113
+1
-O
+35
+287
+1()3
+0
+170
+4
+ 19
+ 61
-I
+193
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
resulted in some hoarding, chiefly on foreign account. Throughout the
country, nearly two-fifths of the increase in circulation during 1940
was in denominations of $50 or more. At the end of the year this type
of currency represented 28 per cent of the total money in circulation as
against 18 per cent ten years ago.
As deposits at member banks also increased to record levels, the
volume of required reserves was higher than in 1939. These requirements on net demand deposits are 223/4i17i/2, and 12 per cent at central
reservecity, reserve city, and country banks, respectively, as established
These
on April 16,1938. On time deposits the requirement is 5 per cent.
levels average about
one-seventh below the maxima allowed under
the existing law.
Member
Phila.
Reserves With
Federal Reserve Bank
banks
Feil. Res. District
(Dollar ligures
in millions)
Ileld
Reluired
Excess
Due
from
domesUc
banks
Philadelphia
banks
1939-jan.: 1st half...
S243.8 S174.3 S 69.5
194o-Jan.: ist half...!
444.8 1 210.8 1 234.0
1941-Jan.: 2nd week
284.5
232.7
517,2
.'
Country banks
Cities
i
with population
100, ()0(1 or more
5140.1
174.8
1939- 1an.: Ist half...
1940-J;,,,.:
1st half...
1941-Jan.:
2nd week.
40.4
40.9
50.8
23.5
25.0
279
47.4
60.2
68.8
31.6
32.3
33.0
16.9
15.9 li
22.9 II
15.8
27.9
35.8
-Excess
reserves
Ij
I'ý
---Due from
banks
4011
1
II1111
179.3 i
of
1939-. Ian.: Ist half
1940-Jan.: ist half......
1941-Jan.: 2nd weck.
Cities with
population of
15,0()()to 100,000
Per cent of required reserves
ýII
'Ii
52.7
83.1 ýý
ý
K5.7
35.4
50.6
61.6
80
8.3
122
77
72
64
82
224
332
307
50
86
108
112
157
187
Cities
with population
under 15,00(1
1939-. j an.: Ist half.
1949-J; m.: Ist half. ..
1911-- lan . 2nd week...
All
IflCOlh-
hnn4
19.i9-)an.: lsthxlf...
ý
ý 341.9
19d0--Jan.: lstl,
620.5
ulf...
,, Y l-jan.:
2nd week.
41.4
40.5
42.3
60.3
74.6
80.3
i
717.0
270.8
308.6
335.8
i
31
58.0
18.9
34.1 ii
92.2
38.0 ýi 105.2
121.1
286.2
311.9
400.7 'i
381.2 ýýý 431.8 'iý
45
84
90
140
228
249
45
101
11-1
106
130
129
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
In the first half of January 1941,total reserves at Philadelphia banks
were 122 per cent larger than the amounts required to be held against
deposits, and at country banks these balances were 95 per cent above
requirements. The surpluses are widely distributed among the metnber banks and are supplemented in most cases by large balances carried with correspondents, especially in the case of country banks.
The preceding table shows the distribution of excess reserves among
the banks in this district.
In the caseof nearly three-fourths of the 651 member banks in this
District, reserve balances in the second week of January 1941 were 25
per cent or more in excessof requirements, and in 29 per cent of the
banks, reserves were at least double requirements. Of the 171 banks
which reported reservesless than 25 per cent in excessof requirements,
all but 20 had demand balances with correspondents equal to 50 per
cent or more of required reserves.
Condition
of Member
Banks
Deposits and resources of member banks in this District
during
1940 advanced to the largest volumes on record. Outstanding
credit
expanded moderately further as loans were increased. Credit was extended chiefly to supply the larger working
capital requirements
of
industry resulting from the higher levels
of defense production
and
investment
holdings
declined.
Available
general business activity;
funds at local banks, however,
substantially exceeded the demand
for credit, so that the principal change in
resources during the year was
another large increase in cash assets. These assets expanded 15 per cent
and at the end of the year comprised 40 per cent of deposits as against
37 per cent at the end of 1939 and 19 per cent in 1929.
The net earnings from current operations of member banks
were
increased slightly in 1940.Recoveriesand profits on sales,however,
were
reduced and charge-offs continued heavy, so that net profits for the year
were somewhat smaller than in 1939.
32
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
Member banks
Philadelphia Federal Reserve District
(Millions of dollars)
December
31.
1940
RESOURCES
Luaus
...........
Investments
1,020
.............................
Cash assets ......
Real estate ...................................
assets ..............................
Other.........
1,379
1,383
152
22
.............
Total
. ................................
LIARILIlIFS
AND CAPITAL
ACCOUNTS
Deposits
.....................................
Otherliahilitics
...............................
I'utal
1939
194(1
-f- 40
- 25
+365
+ 74
- 17
+180
-f-
27
1
3,956
+373
+210
3,452
22
482
+371
-1-3
+3-8
+221
ýi
3,956
+373
I
.................................
Changes in-
1-210
Deposits
The volume of deposits at member banks in this District
increased $220,700,000during 1940 to an all-time peak of
over $3,450,000,000,continuing the strong upward trend which began
in the
spring of 1938. By the end of the year, deposits were about 40
per cent larger than the average in 1927-1929.Balances held by member
banksin June 1940
represented 70 per cent of total deposits, excluding
interbank balances,
1929
at all banks in the District; at the end of
the proportion held by
member banks was 60 per cent.
Continued
banks
expansion in deposits, which again was largest at
in Philadelphia,
was due for the most part to the extension of additional
hank credit
and to a heavy inflow of funds from other Districts. Demand balancesincreased
more than $236,000,000to about $2,350,000,000,
while time deposits were
somewhat reduced.
About four-fifths
of the increase in balances available on demand
was in those held for individuals
and business concerns. The volume
of funds held for other banks
also expanded substantially, but the gain
waslessthan
one-half as large as that which occurred in the previous
year.Deposits
of states and municipalities and unclassified balances,
which include
certified and officers' checks, also increased somewhat,
while balancesheld for
the United States Government declined.
33
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
While the volume of deposits is the largest on record, the use of
these deposits continues at a low rate. Check payments reported by
banks in the larger cities of the District increased only 6 per cent from
1939 to 1940, substantially less than the gain in the accounts against
which the checks were drawn. At weekly reporting member hanks the
turnover of demand balances of individuals and business enterprises
decreasedfrom about 18 times in 1939 to 16'/2 times in 1940. At banks
in smaller communities, the activity is generally somewhat less than
this rate. Despite the sharp increase in deposits since 1927-29, check
payments in 1940 were 30 per cent smaller than the average in the
earlier period. This is due in part to the lower level of prices now and to
the lack of activity in the securities markets.
The reduction of about $15,700,000to approximately $1,100,000,000
in time deposits reflected a decreasein Philadelphia, where a member
bank discontinued operations and transferred its time deposits to a
nonmember institution. At country banks in this District, savings deposits increased about 1 per cent from 1939.
Deposits
at member
I December
i
banks
Philadelphia Federal Reserve District
(Millions of dollars)
31,
1940
i
rri....,,.,.,.
:..
',..,,,, , .,,1939
1
1040
Demand:
Individuals,
partnerships,
and corporations....
U. S. Government
States and political ...........................
subdivisions
..............
Interbank
................................
Other
......................................
Total
demand
1
.........................
Time:
Individuals,
partnerships,
and corporations.....
Postalsaviugs'
..............................
States and political
subdivisions
...............
Interbank
..................................
Total
time
.............................
Total deposits
.........................
Philadelphia banks
..................
Country banks
......................
' Includes
U. S. Treasurer's
.
time deposits,
34
1,640
62
131
490
30
+220
+I+ 20
+117
+2+7
+187
16
+7
+ 51
2,353
+360
+236
1,050
+
-6
10
-1'1
+5i-G
i-
;i
0
1,099
+
-
15
3,452
+370
+221
1,772
1,680
+269
+ 101
-i-127
-F 94
31
11
open account.
10
i
Twenty-sixth Annual
Report, Federal Reserve Bank of Philadelphia
Loans
Loans and discounts
of the member banks in this District
increased $74,400,000in 1940
to about $1,020,000,000, the
highest point since 1934. The
nrincinal increasr was in
advances to trade and industry,
larger
inventories and generally
where
more active business
expanded the requirements for working capital.
Extension
of credit for the purchase of real estate and the construction
or renovation of buildings increased
and miscellaneous advances to
finance
consumer purchases and other unclassified transactions were
larger than in 1939.
The demand for bank credit in the form of loans
and discounts during the
year was the most active in more than a decade,
but the
volume extended was still small in
relation to the amount of
funds
available for lending.
and
discounts
Bank loans to
commerce industry, and agriculture in 1940 increasedabout $41,000,000in
this District, a gain about twice that reported for 1939. Additional
credit amounting to about $15,000,000was
extended to business
through the purchase of open market paper. The
increase in
advances to business enterprises was in evidence in both
city and country banks during
the year.
Loans on
real estate were increased over $13,000,000,as residential
construction
continued at a high level and many plants were renovated
and new factories
erected. At country banks, real estate loans increased
Actual-Dec.
Loans
member banks
YhiLý. of
Iýcd. K(. District
(Millions
of dollars)
31,1940
1'hilaCoundelphia
try
banks i banks
All
member
banks
Changes in 1940
PhilpIlulphia
bmiks
Conntry
banks
All
member
banks
C'nnmen'cil
2
..... ..
týhcn
market paper........
)iro kcrs'
loans......
fl her loans
.
to carrvsccm"ities
Real
27.7
222.1
.. 5
33. E
H
86.8
lo: ms....
Lo; ostate
I Conks
tither)., lo,
n .,
Total loans.....
-..
413.5
1.50.0
24.4
3.3
33.1
225.0
.2
170.3
606.3
35
367.2
52.1
2 5.4
58.6
258.4
1.0
257.1
11,1119.8
I 2'1.2
-1- 9.1
I 1.11
-{- i. 1
6.3
.......8.2
1 44.3
-1-11.6
-i- S. 9
-- 1.3
5.7
-I 19.7
ý.......
+40.8
+15.0
-
.114.1
i 311.1
.3
2.6
+13.4
'
i-74.4
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
by nearly 10 per cent and at the end of the year comprised more than
one-third of the total loans of these institutions.
The demand for credit to purchase or carry securities was inactive
in 1940. Domestic and international uncertainties restricted trading in
the equity market, and prices continued generally low. The volume of
loans to brokers and dealers in securities showed virtually no change
from 1939at banks in this District, and security loans to other customers
declined slightly.
Unclassified paper held in loan portfolios increased about $8,000,000 in 1940, as banks participated more actively in the field of consumer credit. The volume of loans to consumers, amounting to
about 7 per cent of total bank loans, is indicated in the table below,
banks
which representspreliminary tabulations of reports from member
in this District as of the end of 1940.
Member banks
Philadelphia Federal Reserve District
(\Iillions of (Iollars)
Philadelphia
banks
Retail installment paper:
Purchased
Direct loans............................
..........................
Title I loans
.............................
3.7
7.1
29.9
.............................
Totals
9.0
5.4
17.7
1.4
Personal installment cash lams............
Total
Country
banks
I
i
8.3
9.3
26.7
6.8
12.0
16.4
32.0
61.9
Surveys made by the American Bankers Association
indicate
increased activity in bank lending. Summaries covering two-fifths
of the
commercial banks in Pennsylvania, New Jersey, and Delaware showed
that the number of credit transactions increased from 1,454,000 in the
first six months of 1939 to 1,536,000 in the
same period of 1940, and
the dollar volume expanded about $51,000,000 to $1,798,000,000. The
number of new mortgage loans advanced by 1,000 to 11,000, and new
loans of other types from 387,000 to 474,000, representing a combined
dollar increase from $576,000,000 to $724,000,000. Renewals declined
somewhat in the period. Lending
was active in the second half
36
of 1940.
Twenty-sixth Annual Report,
Federal Reserve Bank of Philadelphia
ALL MEMBER BANKS
PHILADELPHIA
FEDERAL
r"ý,
ý'ý
Invcstnrcnts
DISTRICT
r
500
0
RESERVE
1929
1930
1931
1932
ý"!
1933
\
i.1934
CASH
ASSETS
1935
1938
1937
1938
1939
1940
1941
Security
holdings of member banks in this District
dcclined further in 1940, despite the continued large volume
of idle bank funrlc Qnrl tlir crrn "r"illy ctrnn(1 ni irkrt cnn-
ditions. Investments
in the aggregate were reduced about $17,000,000
to approximately $1,380,000,000,
reflecting decreases of $4,600,000 at
hh'ladell'liia banks
$12,500,000
and
at other banks in the District. The
relation of investments
loans
to total
and investments at all member
banks
was reduced in the
from
60 per cent to 57 per cent, owing
year
in part to increased demand
for commercial credit.
Most of the decline
occurred in the first part of the year, when
bond
prices were strong,
after having recovered from the lows reached
37
I
ýýý
n
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evý
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Tivcnty-sixth Annual Report,
Federal Reserve Bank of Philadelphia
Cd
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38
Twenty-sixth Annual Report, Federal Reserve
Bank of Philadelphia
in late 1939following
the declaration of war. During the second quarter
there was very little change,
and holdings were expanded somewhat in
[lie balance of the year. In early 1941, security holdings were increased
further
when prices declined and the large volume of government
defensefinancing began
to come into the market.
Maturities
of member bank investments were shortened somewhat
in the year. Securities
maturing within five years were increased to
24.9 per
cent of the total, as against 21.6 per cent at the end of 1939.
In the
caseof government securities there was some accumulation of
short terin bonds and a concentration of holdings in the ten to twenty
year maturities. This latter increase approximately offset declines in
holdings
of issuesmaturing in five to ten years and of long term securities. Average maturities
were somewhat shorter at the country banks
than at institutions in Philadelphia. The following
table shows the
volume of securities maturing
five
banks
in this District
within
years at
as compared with the
country as a whole.
Reserve city banks*
Member
Proportion
banks
of securities
within 5 years
maturing
I)ecember 31,1940
Types:
U. S. Government
direct issues..
Guaranteed
securities..........
State and local
government.....
Government
Other bonds, agencies, not guar...
notes, debentures..
Total
investments.......
lsxcluding
central
reserve
city
United
States
Third
F. R.
Dist.
32.3%
56.3
53.9
83.0
28.8
11.1 iö
44.4
48.2
61.9
17.5
39.2%
21.8 %
Country- banks
United
States
Third
F. R.
Dist.
-21.2
-11.9
- 5.7
-21.1
-11.3
28.4'`jý
55.0
52.5
56.0
15.7
26.9';;
61.1
42.3
55.9
12.3
-17.4
34.8'ý;
Difference in
points
1
27.9! 0
DifTeri ence in
points
- 1.5
+ 6.1
-10.2
.l
3.4
ýýI- 6.9
banks.
Holdings
of obligations of governments and government agencies
increased
about $32,000,000in the year, reflecting a
substantial increase
in the
securities of states and
municipalities and a small expansion in
United States
Government issues.The increase in Federal
securities was
entirely at country banks.
Sales of bonds maturing in five to ten years
and over twenty
years were substantial. The volume of guaranteed
39
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
i
BANKS
INVESTMENTSOF ALL MEMBER
DISTRICT
PHILADELPHIA
FEDERAL
RESERVE
ARLiC1S ý
5
U.S.GOVERNMENTOBLIGATIONS
(direct and guaranteed
800
1929
I-
1930
193 1
19 32
1933
1934
1935
1936
1937
1938
1939
1940
1941
issues in investment portfolios of member banks was reduced, particularly the obligations of the Home Owners' Loan Corporation. At the
end of the year, direct and guaranteed issues of the Federal Government and obligations of state and local governments comprised 77 per
cent of the total investments at Philadelphia banks and 64 per cent at
country banks.
Holdings
securities declined substantially, particularly
in the case of obligations of railroads and public utilities held by country
banks. At the end of the year holdings of railroad and public utilities
of corporate
issues comprised 18.0 per cent of the total investments of member banks
in this District as against 20.2 per cent in 1939; holdings of these securi40
Twenty-sixth Annual Report,
Federal Reserve Bank of Philadelphia
ties by all member banks in the
country decreased from 6.7 per cent in
1939to 5.5
per cent of total investments at the end of 1940.
Bank investments in foreign
securities were reduced further in
1940, and
at the end of the year these issues represented only 2 per
cent of total bank investments.
Capital
/unds
The volume
of capital funds at member banks in this
District declined
somewhat in 1940, while deposits increasedto new high levels. The cushion of capital against
liabilities, however,
continued larger than in the country, and the proportion of assetsheld
as cash expanded. Capital accounts in the aggregate were in a
more liquid position than in 1939, as the amount
absorbed by real
estate holdings declined considerably.
The ratio
of capital funds to deposit liabilities was reduced in the
year from 152 to 14
per cent, owing to the sharp increase in deposits
and a decline of $7,700,000in
capital to $482,300,000.This decrease re-
t tpital
accounts:
Percentage
I, nans, investments,
nvestments....
Inves
....
tments
Lion
and real
1939
19-40
]940
15.2'ý,
19,5
35,1
14.0'
18,9
35.0
26.1
79.6
SO.x
95.2
12.0
21.4
11.8
21.8
ti, %
15.3
49. O
50,3
55,9
ofestate assets*
... .
other than U. S. Government ohliga
.. ....................................
Surplus,
I''Ttcntnge undivided
profits
and reserves:
of- I, nans, inecsttnents,
Investments.....
and real estate assets*.
Ittvostments
.
other than U. S. Government
tinny,
obliga'
................
IlankinQ
house
t"+ta t e`: Perccnt, , equipment,
and
other
real
"tge of t: pilal
accounts
............................
Inr9udes
,insets indirectly
United
States
Philadelphia Federal
Reserve District
All member banks
end of year
representing real estate.
41
35.2
1
31.6
1
22.0
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
suited primarily from the withdrawal from membership and subsequent
liquidation of a bank in the early part of the year. The ratio of capital
funds to deposits at banks in Philadelphia at the end of December was
10.5 per cent as against 9.6 per cent at all reserve city member banks.
In the caseof country banks, the ratio in this District was 17.6 per cent
banks of this type throughout
as compared with only 12.6 per cent at
the country.
The cushion of capital funds against depreciable assetswas also reduced slightly to about 19 per cent, after having averaged 19.5 per cent
during the several preceding years. By December about 32 per cent of
capital funds represented banking houses and equipment and other real
estate assetsas compared with more than 35 per cent in the previous
year. In all member banks of the System, however, the proportion was
only 22 per cent.
Earnings
and
Nct earnings from current operations of member banks
C.,..
t_:,.
:..
111 .MIN
71:,. «.
1J1Jlllll -:,..
iiiuýaxu
,.,.
a
t:.
,.
_t..
aiigiiily
t
..
C...
Lullll\.-«t-.
1-
Livui -
1020
11J7
LU
tzYCFI.
'C5
1940. Supplementary income from recoveries and profits
on sales, however, declined substantially, and losses and
depreciation continued around the high levels prevailing the year before. As a result, net profits available for distribution were reduced from
$21,200,000in 1939 to $16,600,000.Payments of cash dividends
were
sustained at about $17,400,000.
Total income from current operations was reduced about $2,000,000
in 1940to $105,800,000.This was due
chiefly to a decline in earnings on
investments, which yielded an average of 3 per cent during the
year
as compared with 3.2 per cent in 1939. Miscellaneous income also declined somewhat, but this was more than offset by increases in the
returns from loans, operations of trust departments, and service charges
on deposits.
Current expenses were reduced in 1940. Payments of interest
on
time and savings deposits declined substantially to 1.3 per cent corn
pared with 1.5 per cent in 1939. Sharp reductions in the rates paid or
42
Tcventy-sixth Annual
Report, Federal Reserve Bank of Philadelphia
time and savings deposits
and the elimination of interest on demand
deposits have decreased
this cost to only 21 per cent of total expenses in
1940as compared
45
with
per cent in 1929, although these changes are
offset to some extent by the deposit insurance assessment that was not
trade prior to 1934. Miscellaneous
expenses were also reduced somewhat from 1939, but this was offset by increased taxes.
Earnings
and expenses
of member
banks
I liil: ulelphia Federal Reserve
District
(QU(Ys omitted)
Current
earnings:
Interest
dis('
is( aunt on loans...........
Interest , uul dividends
uul
on securities......
Trust department
Service charges
..................
deposits
on
All other.....
..............
.........................
Tots1
.............................
1938
.
.
1
1939
1940
S41,501
46,007
$42,099
44,772
9,1(58
2,317
9,399
8,827
2,501
9,684
$108,392
$107,883
843,034
d1,2K9
9,904
2,707
H, R9ý
S10S,829
Current
expenses:
Salaries
lnteresL and wages ....................
on time and savings deposits.....
real estate
T,;.....................
axes- other
All other..... . ..........................
.
1'eLil,
Net earnings
from current
operations....,
$27,616
16,557
2,7)5
5,119
19,863
S27, G2-1
14,325
2,710
5,42O
$73, i)76
571,980
S()9,772
$35,316
$35,903
ä36,057
51,867
0,218
16,630
1 279
51,93
3,815
13,341
1,545
$27,498
18,474
2,738
4,754
19,612
19,093
-
Recoveries
and profits on sales:
Rcrovcricsonloans.....................
Recoveries
on securities
Profits
..................
en
ell ether.....security sales........
.
losses
X
3,097
11) (>31
1,,50)
516,686
$25,994
520,654
$10,625
22,067
2,705
6,631
$12,167
18,706
3,0.53
6,773
811,920
17,871
3,445
0,889
$40,699
$40,125
$1 1
$ 6,36)
and
tdepreciation:
1)nle:,
ns . .............................
On severities
On hnnk>0h house
........
and...................
ell other
cyuip, nent.........
Total
het
812,028
-
...
addition
Cash dividendsto profits.....
declared
17,982
.................
43
388
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
Recoveries on loans were larger in 1940 than a year earlier, but
recoveries of charge-offs and profits from sales of securities were subduring the year
stantially reduced, so that total supplementary income
depreciation
were
was about $5,300,000less than in 1939. Losses and
loans
and
securities.
to
charge-offs
on
smaller
slightly reduced, owing
Depreciation on bank buildings and equipment and on other assets
was increased.
Bank earnings have declined sharply since the late 1920's, when a
decrease has reflected
record volume of credit was being extended. This
two principal influences: the shift in earning assetsfrom relatively highyielding loans to securities that bring a low return, and the sharp decline in money rates. While deposits of all member banks in this District increased 35 per cent from the average in 1927-29 to 1940, total
for credit
current earnings were reduced by one-third. Smaller demands
on the part of businessenterprises and extensive use of the open market
for current financing resulted in a decline of more than 40 per cent in
the volume of bank loans. As credit has been extended at decreasing
interest costs, the earnings from loans in this period were reduced by
55 per cent.
All member
Philadelphia
banks
Federal
1927--29
(average)
Reserve District
Deposits
$2,434,000,000
............................
Loans
. .............................
Earnings
on loans ..................
Investments
.........................
Earnings on
investments............
Earnings
Total
from other
current
-
--
_ _. -.
__ .__
+35', o
9850OOO0OOO
43,000,000
-43
-55
1,365,000,000
41,300,000
+48
-12
16,000,000
21,500,000
+34
158,300,000
105,800,000
95,500,000
924,000,000
46,800,000
sources...........
_.
cent
change
S3,295,000,000
1,718,000,000'Y"
earnings .................
Per
1940
I
1
I
___
-33
The decreasein the volume
of loans was offset to a large extent by
holdings,
in
the expansion
security
as banks turned to the open market
to employ their funds. The large volume of idle money, however,
and
44
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
the competitive purchases of securities so reduced money rates that,
despite an increase
bank investof nearly 50 per cent in the volume of
during
from
investments
income
ments
was reduced by
this period, the
12 per cent. Some part of these losses of income has been offset by the
imposition
but this has
of service charges and other miscellaneous fees,
proved on the whole to be a minor influence on earnings.
Money Rates
Money rates in 1940
in some
generally declined further, reaching
lowest
for
funds
levels on record. While the demand
casestile
expanded
to meet requirements for financing defense production and general industrial activity,
the supply was again increased substantially. A record
Inflow of funds to this country resulted from payment and commitments for purchases of war materials and transfers of short term
capital owing to disrupted conditions abroad.
The only
significant interruption to the downward trend occurred
in May and June,
inwhen rates advanced sharply during the critical
vasion of the Low Countries and France. As large volumes of funds
continued to move into the country, however, security prices recovered
and rates resumed their decline to reach a record low point in December. Yields
were firmer again in early 1941 as it became apparent that
the public and private demand for funds would expand sharply, while
the increasein the
supply of funds from abroad would be at a much
slower rate than in the
several preceding years. 711e volume of trading
in the
securitiesmarkets continued light, owing to the uncertainty as to
111e
effects of impending critical developments in the war and changes
in the
amount and methods of financing in this country.
The inflow
of gold to the United States was at a record high durIn9 1990and the
amount of funds available for investment increased
sharply. The excess
reservesof all member banks of the Federal Reserve
45
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
System expanded by $1,400,000,000to $6,600,000,000at the end of the
year. This was nearly 90 per cent above legal requirements and would
banks,
support a large volume of additional credit. Deposits at member
level
increased
of
sharply to the record
excluding interbank balances,
balances
individuals
and
$46,000,000,000,most of the gain being in
of
business concerns. Idle funds held by banks, insurance companies, and
investment trusts increased further during the year.
The use of bank credit expanded considerably, chiefly because of
large purchases of govmore active demand for commercial loans and
for
Funds
construction of plants, the pro-;
ernment securities.
required
duction of defense equipment and materials, the manufacture and distribution of consumers' goods, and government expenditures under the
defense program arc expected to be substantially larger in 1941 than
in the previous year.
Activity in the capital market also increased somewhat in 1940,
with indications of further advances in the current year. Cash allotments of direct government issuesother than savings bonds and bills
advanced from about $500,000,000in 1939 to more than $1,000,000,000
in 1940, and investment by individuals in savings issues was larger.
Flotations of other securities to obtain new capital were reported to
have declined from about $2,300,000,000to around $1,900,000,000,
the
smallest since 1935. This was due chiefly to a reduction of about 50 per
cent in offerings by Federal agencies, which amounted to more than
$900,000,000in 1939. Flotations of state
and municipal securities also
were reduced somewhat from about $930,000,000 to approximately
$760,000,000.Corporate
offerings for new capital, however, nearly doubled in the year, expanding from about $380,000,000in 1939
to over
$720,000,000.
Generally favorable market conditions
continual to stimulate refunding operations to reduce carrying
charges. The volume of these
securities, excluding direct issuesof the Treasury, declined from $3,600,
_
000,000 in 1939 to $2,800,000,000in 1940.
46
Twenty-sixth Annual Report,
Federal Reserve Bank of Philadelphia
Rates on
short term securities generally declined further in 1940 to
new low points. The average yield on outstanding 91-day Treasury
hills was
reduced from .05 per cent to .04 per cent. At certain times in
the year new issues sold
at par or more than par, as purchases on a
negative-yield basis were made for tax purposes. The average return
on 3 to 5 year Treasury notes declined from 59 in 1939 to 50 per cent
.
.
and at the end of 1940they were selling to yield 38 per cent.
.
Nominal rates
continued to prevail in other sections of the short
term market. Call money
1
was available at an average cost of per cent,
K-day bankers' bills 7/16
from
at
of 1 per cent, and commercial paper at
%z-%N
of 1 per cent. The supply of commercial paper expanded slightly
in the year but
was still substantially less than the demand; issues continued to be allotted to banks
on the basis of previous takings.
Long term United Statesbonds, due
or callable in 12 years or more,
sold at a record low yield of 1.86 per cent in early December and
throughout the year
averaged 2.21 per cent as against 2.36 per cent
in 1939. During
late
1920's, these securities were selling to return
the
an average of about 31/4-3%4
per cent.
The trend
the year
throughout
of yields was generally downward
except for the break in May
dropped about
June
and
when quotations
3 points
and yields :ulvýnrr l tr, an avemire of 21/, ncr cent. This dcclinc was substantially
immediately
smaller than that which occurred
after the outbreak
of war the preceding autumn. At that time prices
dropped
more than 7 points, and in accordance with the policy of maintaining orderly
System
conditions in the market the Federal Reserve
Open Market Committee
sepurchased $470,000,000 of government
curities. Such purchases during
1940
in
amounted
the
of
the crisis
spring
to only $10,000,000.
Rates on municipal
levels in
securities also clcclinal to record low
194(1
anal throughout the year averaged only 2% per cent as against
2% per
cent in 1939. A low point of slightly more than 2 per cent was
47
Tcventy-sixth Annual Report, Federal Reserve Bank of Philadelphia
MONEY RATES
PERCENTf
LONG
TERM
to
9i
B..
CORPORATE'
BONDS
8
6-
5
III
0
1929
1930
1931
1932
1933
1934
SHORT
1935
1936
1937
1938
1939
1940
1941
.....................
I
TERM
2'
ýIIIII
19 29
i
I`
1930
i..1931
__.
_..1-------ý---..
1932
1933
_...1934 ,.........
1935
1936
48
1937
",
1938
-{
ýý1939
; _ý--ý
1940
1941
Twenty-sixth Annual
Report, Federal Reserve Bank of Philadelphia
reached in December. The supply of these issues was generally regarded as somewhat small in relation to demand. Yields on high grade
corporate securities declined substantially to an average of 2.84 per
cent in the case of issues the Aaa
of
grade as compared with slightly
more than 3 per cent in 1939. In May
and June yields reached the comparatively high level of 3.05 but by December a new low of 2.70 per
cent was established.Average returns on lower grade corporate securities also declined to record low levels toward the
end of 1940 as income
improved
and some investing institutions in search of additional income
purchased increasing amounts
1941
of these issues. In the early part of
money rates became somewhat firmer.
Money
]: nd of year
Annual averages
rates and yields
ý
1938
Commercial
paper, prime
Rankers'
..............
accept: uu'es, 90 (lays.........
Call money renewals,
New York......
Treasury bills,
91-clay (dealers).......
Preasury notes, 3-5
year
1'reusury bonds,
over 12 .............
Mnnioipa
bonds (Standardyears........
Statistics)
Corporate bonds
(Moody):
Aaa.
............................
Industrials
Rails
........................
tilitics............
................
, ........
. ................
81
. 44
.
.
.
1.00
07
.83
.
2.56
2.91
3.19
5.80
3.50
5.21
3.87
1939
--- --1940 1939
1940
05
. 59
.
44
1.00
04
. 50
.
SW nj
44
.
1.00
11
ýýýý . 04
46
.
501
.
44
.
1.00
02
. 38
.
3.01
4.96
3.30
4.53
3.48
2.84
4.75
3.10
4.30
3.25
2.91
4.89
3.15
4.44
3.36
2.71
-1..42
2.91
4.1)0
3.1 "4
59(%;,
. 44
.
1.00
2.36
2.76
ý, '
2.21
2.50
2.30
2.52
1.88
2.06
Kates
on commercial loans generally were lower in 1940 than in
1939,hut, in
the latter part of the year, increased as demand for this
type of accommodation
Philadelexpanded. Reports from seven large
phia banks indicate
loans
interest
that the average
maturing in
rate on
30 days
or more declined to about 2.8 per cent in 1940 as against 3.3
per cent in 1939.The low, indicated by
these quarterly reports, was 2.6
per cent in June,
and in December the level of 2.8 was slightly higher
111,11,
a year earlier. Most of the
between
small loans were made at rates
5 and 6
per cent, three-fifths of the total in December being in this
group. In dollar
volume, however, nearly 40 per cent of this credit was
49
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
Commercial
maturing
loans
and industrial
in 30 days or more
banks
made by seven Philadelphia
(Dollar figures in thousands)
Rate
1 per cent
Between ..........................
1 and 1% per cent
........
1%
percent ........................
Between 1%
and 2 per cent........
2 per cent
Between ..........................
2 and 3 per cent..........
3 per cent
..........................
Between 3 and 4 per cent..........
4 per cent
Between..........................
4 and 5 per cent..........
5 per cent
Between ..........................
5 and 6 per cent..........
6 per cent
..........................
Between 6 and 7 per cent
..........
Total, dollar amount..........
Total
number
1939
S
Tune
1-1, i,
194(1
S
261
j
I
'
Dec.
1-15,
1940
S
254
211
S 1,167
250
2,080
15(1
332
548
3,096
500
10,151
115
754
2,260
2,460
0
10,755
99
1,261
734
2,394
600
8,960
200
2,306
1,028
4,290
1,265
2,147
1,767
2,824
2,550
948
2,135
1,984
664
1,032
3,514
800
1,350
250
1,547
1,614
249
1,179
1,269
180
901
2,052
124
792
I $22,640
$25,952
0930
$14,993
S26,780
991
1,115
1,054
1,195
2.70
2.61"
2.8`iä
of loans........
Average rate, based on dollar volume.....
Dec.
1-15,
1939
June
1-1 5,
3.6 ý;,
extended at a rate of 1'/z per cent or less and only about 10 per cell
was in the highest range. The accompanying table indicates the volum
of this credit extended by the reporting banks at various rates in 193
and 1940.
Interest rates paid on time deposits by banks in this district decline
further in 1940, averaging about 1.6 per cent among the individu;
banks as compared with 1.8 per
cent in 1939 and 1.9 per cent in 193
Maximum rates allowable were not changed in the year. In New jerst
the maximum of 1 per cent, established by the Commissioner of Ban]
ing and Insurance and applying to all banking institutions in the Stat
remained in effect. In the rest of the District, where the maxinlunl
the same as that prescribed by the Board of Governors of the Feder
Reserve System, the limit of 2'/2 per cent on postal
savings, savin4
and other time deposits payable in six months or more, contlnut
Interest rates charged on various types of credit extended by
t
Federal Reserve Bank of Philadelphia in 1940 continued generally
50
wenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
31,
December
19-1O
Discount
and interest
rates
Federal Reserve Bunk of Philadelphia
Ai
I,
f,,,
.,,,,.,, 1,... 1,.,.. L. -12,,.,.
11'i,
l
ý
.........
Advances to member banks
under Section 10(b) ............
... .
for and
Advances secured by U. S. Government
direct obligations
of
viduals, partnerships
and corporations
under last paragraph
Section 13:
To banks
To others ...............................................
..............................................
Rates on i-idustrial
Section 13b:
advances
Advancer direct to industrial
or
organizations
......
Advances to financing institutions- commercial
On portion for which institution
is obligated
................
On remaining portion
....................................
Commitments
to make advances
............................
1%c /0
2
1%
2%
312-6
2
-2
AMY be same as rate to borrower, if lower than rate shown.
Same as to borrower.
the record low levels established earlier. Rediscounts and advances to
member banks under sections 13 and 13a of the Federal Reserve Act
were made at 111/z
per cent; advances on other types of collateral under
the terms of section 10(b) were made at 2 per cent. Loans secured by
direct obligations
of the United States Government are available to
banks 1y
October, rates
at
per cent and to others at 2'/z per cent. In
charged on advances for working capital purposes to established businessconcerns were reduced from a range of 4 to 6 per cent to a range of
3'/z to 6
instiper cent. In caseswhere such paper is offered by financing
tutions that have extended credit at lower rates, the rates may be as low
as thosecharged the original borrower.
i
i
Federal Reserve Bank
The resources
inof the Federal Reserve Bank of Philadelphia
Creased$150,000,000further during 1940 to $1,326,000,000.The gain
wasentirely in cash
resources,reflecting an expansion in gold certificates
resulting from the heavy inflow
in trade and
of gold to this country
capital transactions.
51
Tcventy-sixth Annual Report, Federal Reserve Bank of Philadelphi
Statement
of Condition
lind of yeai
ý
Federal Reserve Bank of Philadelphia
(000's omitted in dollar figures)
RESOURCES
Gold certificates on hand and due from
U. S. Treasury
...................Reserve
Redemption fund-Federal
notes. .
Other cash
..............................
Total reserves
....................
Bills discounted:
Secured by U. S. Government obligations*
Other bills discounted
..................
Total
bills discounted...........
Bills bought in open market
..............
Industrial
advances ......................
United States Government
securities......
$576,918
$873,603
notes
in
Total
liabilities
Total liabilities
and capital
counts ........................
combined..........
on bills purchased
merit.
bills
secured
$185,523
$1,326,273
$348,938
$410,704
$458,830
57,591
664
1,865
63,085
4,501
4,910
598,597
65,043
39,410
16,821
-
74.0'; x.
for
by oblik rations
I
$1,176,352
$869,972
foreign correspondents.........
...
Commitments to make industrial advances
* Includes
2,0.2
193,000
$719,877
73,806
965
703,580
13,664
75,944
20,675
--
$819,863
00,112
875
$1,143,646
$12,115
14,198
$1,291,854
ý
S11,882
15,144
4,393
2000
,
4,303
3,0011
I
ac-
Ratio of total reserves to deposit and Fed.
Res.
note liabilities
Contingent
liability
$465
0
$869,972
$12,213
13,696
4,416
2,000
.
$663
0
55
1,945
73,955
4,572
5,830
$837,647
..................
187
278
$216,442
374,231
58,155
19,545
6,899
CAPITAL
ACCOUNTS
Capital paid in
Surplus-Section ...........
7
...........
.........
Surplus-Scction
131)
....................
Other capitalaccnunts
...................
150
513
$227,114
17
2,081
54,506
4,699
4,637
$320,562
1
$1,066,384
3,0Y-F
212,695
3,120
222,761
circulation
18,7 54
26,470
$1,177
56
.
Total resources
..................
LIABILITIES
Reserve
$1,046,557
1,073
$846,062
1,071
704
473
l
Member bank reserve account..........
U. S. Treasurer-general
account........
Foreign
..........
Other deposits
........................
Total
deposits
...................
Deferred availability
items
.............
Other liabilities
..........................
1940
1939
$546,461
1,236
29,221
Total
bills and securities.......
Due from foreign banks...........
.
Federal Reserve notes of other F. R. banks
Uncollected
items
.......................
Bank premises
..........................
All other resources
.......................
Federal
Deposit,,:
1
1938
87
1,525
fulhý guaranteed
52
$1,176,352
$1,326,273
81.7%
80.7'
$0
930
by United
,
10
States
Goy c
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
The volume
declined, owing
of Reserve Bank credit outstanding
chiefly to salesof government securities from the System Open Market
Account. In early 1941 there
demand for
was some increase in the
industrial credit under
from
requirements for
section 13b, arising chiefly
funds to finance defense
by
production. The volume of borrowing
member banks from the Reserve Bank has continued small.
The principal increase in liabilities was in holdings of member
bank reserve balances. Foreign deposits held in participation with
other Reserve Banks also increased somewhat. The note issue of this
Bank expanded
substantially as increases in wage disbursements and
The
business
general
activity stimulated a heavy demand for currency.
only large decline among the liabilities was in Treasury balances.
The capital stock
of the Bank decreased somewhat, but total capital
funds were increased. Current
earnings advanced and profits on sales
of securities were substantially larger than the year before, while
expensesshowed little change.
Reserve
bank
The demand
for credit
extended
by the Federal
Reserve
Bank of Philadelphia in 1940 was small, as the volume of
credit
surplus funds held by member banks reached record
levels and was widely distributed throughout the banking
system.Participation by this Bank in holdings of government securities in the System Open Market Account
was reduced from $212,700,000
to $183,000,000.
This was due to salesby the Account and a decline in
the allotment to
this Bank. Holdings of the System Open Market
Account
were reduced from about $2,826,000,000at the peak in September 1939to $2,184,000,000
at the end of 1940.
Sonic individual institutions
in temporary need of funds discountedobligations
with the Reserve Bank. Of the 651 member banks
in this District,
only 45 made use of the discount facilities of the
ReserveBank
(luring the year. The volume of such credit ranged from
a low of $10,000 April
12 to a high of $648,000 in December, when
on
53
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
the demand for currency reached the seasonal peak. In a few cases,
advances were made on broader types of collateral under the provisions
but the largest volume so
of section 10(b) of the Federal Reserve Act,
$57,000, and over a large part of the
extended at any one time was
loans
year none of these
was outstanding.
As in 1939, no advances were made to individuals, partnerships.
corporations, or nonmember banking institutions on the security of
direct obligations of the United States Government, as authorized in the
last paragraph of section 13 of the Federal Reserve Act. At various
times during the year, discounts were increased somewhat by participation in foreign loans on gold made by the Federal Reserve Banks.
Industrial
loans
The demand for industrial loans in 1940 was smaller than
in previous years, but in early 1941, as defense production
expanded and the use of subcontracting facilities was
inquiries
for this type of credit increased. Advances to cornextended,
industry
by commercial banks rose considerably in the
merce and
latter part of 1940 and continued to increase in 1941.
The volume of industrial loans under section 13b of the Federal
Reserve Act reached a high point for the year of $3,401,000 at the close
of February, but subsequently declined to a low of $2,052,000 at the
end of the year. This was substantially below the peak of $6,960,000
reached in the autumn of 1935,about a year and a half after the program
was inaugurated, but was still the largest volume outstanding at any
Federal Reserve Bank. Loans by this Bank outstanding
at the end of
the year accounted for 27 per cent of the total extended by the Federal
Reserve System. Formal commitments to make advances declineü
sharply in 1940 to $162,000,but this figure does not include an agree'
mcnt to furnish up to $2,500,000to a local shipbuilding concern which
has received a large government contract.
The number of inquiries for industrial credit declined from Sq
in 1939 to 53 in 1940, and the number of formal applications decliners
from 27 to 20. The total volume requested in these applications, ho-t°
54
/Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
ever, expanded about $2,240,000to $7,295,000. Including one application for $200,000which was withdrawn in 1939 and reconsidered in
1940,the Bank
$7,153,000.
approved 15 applications for a total amount of
The number of requests for
was
small and
rejected
credit which were
involved
begun
in 1934,
lending
was
small amounts. Since this type of
financial
have
conrejections
resulted primarily from the unsatisfactory
dition or the doubtful business
prospects of the establishments requesting credit. Several
applications, totaling $135,000, were still under
consideration at the close of the year.
in 1940
The action taken by this Bank
upon applications received
is
and sincethe beginning of the program on June 30,1934 summarized
in the following
table.
Applications
for industrial
loans
I cýlcr, ýl Reserve l3ank
of l'hiladlclphia
Number:
Approved
{ü"jerlerl
1 inc 30,1934Ucc. 31, N-40
1940
i
'15
...................................
ýi
l+
WiLhrlr; ....................................
rwn .................................
l, nýllcr,
er ronsu.ý
-
-223
424
rtion ...........................
'I'ota
number
1)o11ar
amount:
Apr)nc,
I
..........................
l.................................
cj("Lcrl
%1'ithIr, ................
m'n
Cm1or Crmsider;
.............................
)Lion......
$7,153,000
7,500
-200, ()()()*
135,000
-- -- -rp7,095,5110
.
futal amuunt
..........................
l ýýlll.
i
i
" I)nc ,
iýýpliý ntion
for
S200,000
20
withdrawn
in
1939; reconsidercd
099
SqS1)IlO
1i, ti90,1111(1
2,250,1)1)0
) 3,5,0111)
$58,265,000
and alýlnoýcd
in
Total income
received on advances and commitments for industrial loans since
the middle of 1934 amounted to $1,277,100, of which
$171,500
13.4
or
per cent was absorbed by realized losses or necessary
reservesagainst losses.Expenses incurred in
the extension of this credit
amounted to $389,900,leaving
income
a net
of $715,70( for the period
as a whole. Of this
$350,000
amount,
was paid to the Treasury of the
Unitcd States,
representing earnings on funds turned over to this Bank
for the
purpose of extending
credit under section 13b. The experience
55
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
instituof the Federal Reserve Bank of Philadelphia as well as of other
degree
tions engaged in this type of lending indicates that a substantial
of risk is involved and larger than customary reserves are required as
loss.
a protection against possible
The volume of work at the Federal Reserve Bank inof work
creasedsubstantially in 1940with the expansion in general
business and banking activity. The number of ordinary
in the year,
checks handled advanced from 97,200,000 to 100,400,000
$26,900,000,000.
An
from
$23,500,000,000
to
and the dollar amount
handled
by
in packages
the automoadditional 16,800,000items were
bile run service.
Volume
i
i
The volume of Federal Reserve notes of this Bank in circulation
expanded to $411,000,000at the end of 1940 from $349,000,000 a year
earlier. Because of the increasing demand for hand-to-hand currency,
the number of notes returned to the Bank advanced only about 3,000,000
to 169,400,000.In the case of coins, over 295,000,000 were counted in
the year as against about 273,000,000in 1939.
The volume of subscriptions for direct and guaranteed government
securities received by the fiscal agency department declined from
$1,116,000,000in 1939 to $816,000,000in 1940, owing to a reduction in
offerings of new securities of government agencies. Allotments in this
District were reduced from $223,000,000to $121,000,000,but the
number
of obligations issued, redeemed, or exchanged increased. In the case of
direct issues,there was an expansion of 46,000 to 240,000,
while transac'
tions involving securities of government agencies declined from 52,000
to 16,000.The number and value of coupons on government securities
handled by this Bank decreasedslightly, and fewer work relief
checks
were paid than in 1939.Owing to sharply increased expenditures under
the National Defense Program, however, the number of government
checks handled was substantially larger than the year before.
The volume of other collection items showed little change in
th,
year. Transfers of funds declined somewhat and extensions of credi
56
Trvcnty-sixth Annual Report, Federal Reserve Bank
of Philadelphia
to banks and businessescontinued
negligible. The work of some departments, however, was increased
substantially as a result of the
defense program. A large
volume of information on defense and
general business activity and on problems involving the obtaining,
execution, and financing of government contracts was distributed in
the year. The Bank cooperated
closely with business enterprises and
banking institutions in
an effort to facilitate the general coordination
of industry, trade, and finance
under the defense program.
The Bank held in
custody for member banks an average of
5636,000,000
in securities during 1940
and cleared 451,000 coupons on
thesesecurities during the
held in
The
year.
number of savings bonds
custody for purchasers increased to 9,823, or nearly double the number
a Yearearlier. The
volume of security transactions handled for member
hanks
in
was again
excessof $300,000,000,but the number of transactions declined from
over 16,000 to about 14,400. The following table
indicates
the number of various transactions carried on by the Bank
during 1939
and 1940.
Uis'ounts
Currency
(000's omitted)
and adv: mc'es
" ............
handled in,,, "..
packages by autorun service
Umobile,
S"
Government
.................
"
Work
W,,
checks........
relief checks.....
'"gencics
All other (notes,
................
drafts
I r,insfers
and
and coupons)
.
of funds
ssues, redempti
. ..
..
....
. by.
..
ons. an.d. ex.c.hanges.
fiscal
agency department:
U. S. Government
direct obligations
Allother......
Less than
500.
1939
1939
1940
166,628
169,391
273,429
97,232
295,186
100,442
Su
(,77
1
counted
Cions
counted
t)rrlinary
"""...................
"".. ""............
checks.
Checks
'llection items:
......
'''.
Coupons
of U. S. Government
Dollar
amounts
(000,000's
omitted)
Pieces or transactions handled
Volume
of work
federal Reserve
Bank
of Philadelphia
16 370
3 117
,
26
23,467
16 782
3,821
5,613
4,676
1,230
337
Sc)
1,117
335
54
194
52
240
16
(O9
] 6(l
1
so
197
3,197
396
122
1940
S,6
6t{tS
28
26,922
7Q5
12(i
48
2111
3,105
340
23
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
I
An addition to the Federal Reserve Bank building was started in
1940 and is scheduled for completion in the summer of 1941. llcsigncd
by Dr. Paul Cret and erected by Irwin and Leighton, the structure will
comprise six stories and a mezzanine, providing 22,500 additional
square feet of floor-space. The service departments will be housed in
the new addition, and parking facilities will be available in an underfountain, flowers.
ground garage. In front of the building will be a
shrubbery, and flagged walk.
The income of this Bank from current operations, of
which 95 per cent comprised earnings on government
securities, increased from $3,264,000 in 1939 to $3,607,000
in 1940. In spite of the increase in routine work and the
expansion of activities in connection with the defense program, expenses
were maintained at approximately the same level as in 1939, so that
current net earnings advanced from $923,000to $1,240,000. Total funds
made available for distribution in 1940 reached a new high since 1932
of $2,717,000.This compared with $1,205,000 in 1939 and $1,053,000
in 1938.
Earnings
and
expenses
Dividends again exceeded $700,000, and approximately $56,000
was paid to the Treasury of the United States, representing the carnings
on funds turned over to this Bank for the purpose of making industrial
advances.Nearly $1,950,000was added to the surplus established uncle[
section 7 of the Federal Reserve Act, and $1,000,000 was transferred
from this surplus to a reserve for contingencies, increasing this
reserve
to $3,000,000.
Membership
The number of member banks in the Third Federal Re,
serve District at the end of 1940 was 651, or 1 less than .1
year earlier. Four state banking institutions, 2 in Pennsyl'
vania and 2 in New Jersey,were admitted to membership, but one state
bank member withdrew and its deposits were assumed by a
national
bank and a mutual savings institution. Four national banks
were
absorbed by or consolidated with other member banks, reducing tilt
58
'rventy-sixth Annual Report, Federal Reserve Bank of Philadelphia
Profit and loss account
Federal Reserve Bank of Philadelphia
(000's omitte(l)
Earnings from:
$ill%discounted
S7
00
133
3,070
54
I
....................................
Bills bought
.......................................
Industrial: uly:
ulcer ................................
United States Government
securities .................
Other sources
......................................
Total
19-IU
1939
earnings .................................
I
$3,607
$2,080
103
158
52106
96
165
52,3.41
$2,367
S923
$1,240
Operating expenses*
................................
Cost of Federal Reserve
currency
Assessmentfor expenses of Board of Governors........
Total net expenses
.............................
Current net earnings
...............................
Additions to current net earnings:
Net earnings
to current
available
net earningsýS ..............
net
earnings
$282
$1,504
27
2Deductions
---$1,477
$2,717
..............
Sec. 131)
...........
_I
$0$
725
-22
502
". "...
5G
714
0
1'947 ýý
...............
After deducting reimbursements
expenses.
i
1"10725
...............
Transferred from
surplus (Sec. 131)).
rmsferred to surplus (Sec. 7)....... ...........
" S1,I100,000 subsequently
tingenries.
ý,
$1,205
for distribution
Distribution
of net earnings:
I'aid to Treasury
of United States,
Divide, l
:. l I .,,,,.., li-..... v..
$979
519
$370
33
47
Profits on sales of U. S. Government
securities.........
Transfers of reserves in excess of requirements.........
Other additions,
Net additions
121
3,426
55
$3,264
Expenses:
from current
S5
transferred
received for certain
from
Surplus
fiscal ageury
(Sec. 7) to reserve
and other
for
con-
total number
of national banks from 586 to 582, while the number of
state bank members increased from 66 to 69. Member banks also
absorbedtwo nonmember
state institutions.
7'he total
number of banks in the Third Federal Reserve District
declinedfrom 932
to 918 in 1940. Total assets,however, were expanded
Fran,$5,217,000,000
to $5,408,000,000,of which approximately 73 per
59
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelph",
banks, the
cent was held by member banks. Excluding mutual savings
84
per cent.
proportion of assetsheld by member institutions was about
The number and total assetsof banks in Delaware and in the sec
tions of Pennsylvania and New Jersey included in this District art
shown in the following table.
Banks
in Philadelphia
Federal
Reserve District
December 31,1940
(Dollar figures in millions)
Ycnnsvlvania*
New
Jersey *
District
totals
Delaware
--'
Number
of banks
1' 'tal
...........................
\I ember
banks.
Proportion-member ..................
of total
......
Total assets
Total
....................
Member
banks
Proportion-member...................
of total......
.
.
.
Portion of the state in Philadelphia
# Includes 9 branches of nonmember
759
548
72 `yý
$4,622
3,417
74ýio
Federal
banks.
105
84
80'; "
9tti
54/
19
35',
('51
7i'-;
III
$458
325
71%
Reserve
i
$328
$5,41)8
214
I73' 3,950
65';;,
District.
The number of national banks with fiduciary powers wits rcducej
from 252 to 249 during the year, owing to the surrender of partial of
restricted powers by two banks and the absorption of another national
bank by a member trust company.
Thcrc were no changes in the membership of the Boar. 1
C Tl:
1
'--1r
_,
_..,.. ý.... ui
-r
1i,,,
-- .-. vine
--.
in "ilcuin,
r--tv, ----.
anu unc
nanx uunug
cnnccr wv
-irl _.
added to the official staff. At the regular elections held it1
the autumn, C. Frederick C. Stout was reelected by the
banks of Group 1 to serveas a Class B director for term
a
of three years.
and John B. Henning was reelected by the banks in Group 3 to serve
as a Class A director. Warren F. Whittier was reappointed by the
Board of Governors of the Federal Reserve System as a Class C director,
The terms of each of these directors is for three
years beginning Janu"
1,1941.
ary
Directors
I
and
GO
Trucnty-sixth Annual Report, Federal Reserve Bank
of Philadelphia
As in 1939, Thomas B. McCabe
Board
served as Chairman of the
and Federal Reserve Agent, and Alfred H. Williams as Deputy Chairman,serving by appointment of the Board of Governors of the Federal
ReserveSystem. These
A.
terms were continued for 1941. Howard
Loeb, Chairman
of the Board of the Tradcsmens National Bank and
Trust Company
of Philadelphia, after serving for ten years as the representativeof this District
on the Federal Advisory Council, asked that
his name
he
not
considered for reappointment. To succeed him, William Fulton Kurtz,
President of the Pennsylvania Company for Insuranceson Lives and Granting Annuities of this city, was selected to
serveon the Council during 1941.
John S. Sinclair, President
Federal
of this Bank, represented the
ReserveBanks
System
Open
of Philadelphia and Cleveland on the
Market Committee from
March 1940to March 1941. W. J. Davis, a Vice
President,
was designated in November as field representative of the
Director
of Small Business Activities and of the Board of Governors
to serve in facilitating
the financing of defense production. John
Mcl)owell,
previously associatedwith the local office of the Reconstrucnon Finance Corporation,
President
was appointed an Assistant Vice
it) July.
At the
close of the year, there were 783 employees other than
officers in the Bank. This
1939.
compared with 769 at the end of
iii
ýý
61
Twenty-sixth Annual Report, Federal Reserve Bank of Philadelphia
Directors
March
31,1941
as of
Group
Class A:
Joseph Wayne, Jr
....................................
Chairman of
Board, Philadelphia National
Philadelphia, Pennsylvania.
George W. Rcily
President, .....................................
National
Ilarrisburg
Term
-xpirtS
PIT. 31
1
1941
2
1942
3
1943
1
1043
2
1041
3
1042
Bank,
Bank,
Harrisburg, Pennsylvania.
John 13. lienniny :....................................
President, Wyoming National Bank,
'1'unkhannock, Pennsylvania.
.
Class B:
C. Frederick C. Stout
John R. Evans ..................................
and Company,
Camden, New Jersey.
Harry L. Cannon
......................................
President, H.
P. Cannon & Son, Inc.,
Bridgeville, Delaware.
Ward
D. Kerlin
Secretary .......................................
Camden
and Treasurer,
Forge
Company,
Camden, New Jersey.
Class C:
Thomas
B. McCabe, Chairman and Federal
President, Scott Paper Company,
Chester, Pennsylvania.
Alfred H. Williams,
Deputy Chairman
Reserve
Agent..
ljean, Wharton
School of Finance....................
and Commerce,
University
Philadelphia.
of Pennsylvania,
Warren F. Whittier
....................................
Loniceru Farms,
Douglassville,
Pennsylvania.
62
1942
1941
1043
Trocnty-sixth
Annual Report, Federal Reserve Bank of Philadelphia
Officers
Joi-INS. SINCLAIR,President
FRANK
J. DRINNEN,
L.
E.
First Vice President
C.
Assistant Vice President
A. MC]LHENNY,
Vice President
and Cashier
W.
DONALDSON,
C.
A.
SIENKIEWICZ,
Assistant Vice President
J. DAVIS,
JOHN
Vice President
MCDOWELI.,
Assistant
1:
1kNIST C. HILL,
Vice Presidcnt
Vice President
JAMES M. TOY,
Assistant
WILLIAM C.
MCCREEDY,
Assistant Vice President
P11n.u'M.
Cashier
Awn-hilt L. PoS'F,
Secretary
POORMAN, 9tulitor
63
@FedFRASER