The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
PHOTOGRAPHEDSEPTEMBER9, 1925 RESEARCH Fed library The first location o f the Federal Reserve Bank o f Richmond (far right) F e d e r a l 1 9 8 9 R e s e r v e A n n u a l B a n k o f R ic h m o n d R e p o rt C o n te n ts Message from the Chairman and the President 3 The Federal Reserve Bank of Richmond: Governor Seay and the Issues of the Early Years 4 Directors 20 Advisory Councils 22 Operating and Financial Statistics 24 Officers 27 ISSN 0164-0798 LIBRARY O F CO N G RESS C A T A LO G CA RD NUMBER: 16-7264 Federal Reserve Bankof Richmond PublicationNumber: P-l Additional copies o f this Annual Report may be obtained without charge from: P ub lic Services D e partm ent Federal Reserve Bank o f R ic h m o n d R O . Box 27622 R ich m o n d , V irginia 23261 Federal Reserve Bank of Richmond M e s s a g e fr o m , C h a ir m a n a n d th e th e Robert P. Black President W e are pleased to present the 1989 Annual Report of the Federal Reserve Bank of Richmond. This Annual Report commemorates the Bank’s 75th anniversary. In the anniversary spirit, we turn attention from the issues that we encounter daily to those that confronted our counterparts during the Bank’s early years. In the feature article, author James Parthemos relates how George Seay, the Bank’s first chief executive officer, led the District’s bond drives to finance W orld War I, helped define the roles o f the Reserve Banks, and directed District efforts to improve the nation’s payments system. The article serves to remind us that the Reserve Banks have always contributed importantly to the many functions o f the Federal Reserve System. P r e s id e n t Hanne Merriman Chairman o f the Board The Bank’s highlight o f 1989 was the completion o f the new building in Charlotte. New buildings have now replaced the three original buildings constructed for Fifth District offices in Richmond, Baltimore, and Charlotte. The old buildings are featured on page 18, and the new ones on page 28. On behalf o f the directors and staff, we thank you and your predecessors for the support and coopera tion that you have given the Bank over these past 75 years. C h a ir m a n o f th e B o a r d P r e s id e n t 3 1989 Annual Report '•illllllf/fHH .Illin iu m ' Wunnvi. G- McADOO JOHN SKELTON WILLIAMS ---COMPrKOij.FROFTHECVRKKW'Y ---- T h e F e d e r a l R e s e r v e G o v ern o r S eay B a n k a n d o f th e E a r ly R) OFTHETRF.ASVKv_- o f R i c h m o n d : th e I s s u e s Y ea rs James Parthemos he choice o f Richm ond as a Federal Reserve city was greeted with jubilation by the civic leaders o f the old capital o f the Confederacy. For three m onths they had w aged a carefully orchestrated campaign to convince the Reserve Bank Organization Committee, established to select the sites for the new Reserve Banks, o f the superiority o f R ichm ond’s claims over those o f such c o m peting cities as Washington, Baltimore, Charlotte, and Columbia. The chief architect o f that campaign was George J. Seay. For Seay, the choice o f Richmond, announced on April 2, 1914, was a great personal triumph. He had w orked tirelessly in the campaign to bring the Reserve Bank to Richm ond. The city’s petition to the organization com m ittee and its supporting brief were largely his w ork. He had made the principal oral presentation before the com m ittee in January 1914 and had prepared the revised written brief presented to the com m ittee in the follow ing m onth. W ith other Richm ond leaders, he had toured the Carolinas in an effort to m obilize support am ong bankers and business leaders in those states. He had prepared an extensive brief countering efforts by Baltimore leaders to reverse the choice o f Richmond. Seay’s contributions were recognized and lauded, even am ong the leaders o f rival campaigns. The c o m pelling arguments presented in his brief to the organization committee were widely credited as the crucial factor in the decision to locate the Reserve Bank in Richm ond. T 4 Federal Reserve Bank of Richmond eorge J. Seay was born in Petersburg, Virginia, in March 1862. He was educated in the public schools o f Petersburg, win ning first honors on graduation from high school. Seay had no college training. At 17, he accepted employment as a runner at the Petersburg Savings and Insurance Company. His talents were quickly recognized, and he rose rapidly in the organi zation. He served that institution for 24 years, the last nine as cashier. In 1902 he was elected president o f the Virginia Bankers Association. He resigned from the Petersburg institution in 1903 to becom e a part ner in the Richmond banking house o f Scott and Stringfellow. He remained in that post until 1909, leaving in that year to devote himself to independent study o f banking reform and railroad finance, sub jects that had commanded his interest for most o f his adult life, Seay was especially interested in the movement for banking reform at the turn o f the century and had follow ed closely the various reform proposals. He published a pamphlet on the Fowler and Aldrich bills and was said to have “ devoted many months’ study to the Federal Reserve Act during its progress in Congress.” While the record indicates that he retired in 1909, at the age o f 47, it is likely that he maintained some connection with one or more local businesses between 1 9 0 9 and 1 9 1 3 , perhaps in a con sultative capacity. O n December 28, 1913, he was retained by the Committee on Locating a Federal Reserve Bank in Richmond to put together a case for the city’s petition to the organization committee. Following the choice of Richmond as a site for one o f the Reserve Banks, Seay, amid plaudits for his con tributions, was widely regarded as a likely candidate for a high post in the new institution. He was recom mended by a former employer as a man . . of absolute integrity and high character, perfect habits and o f great industry and energy, with an effi ciency, capacity and ability in banking matters which I have never seen surpassed, and rarely equalled in many men o f his age.” This employer deemed him “ eminently qualified” for the position o f manager o f the Reserve Bank. The Richmond Reserve Bank was incorporated on May 18, 1914. On the same day, representatives o f some 2 10 banks from the Fifth District met in Rich m ond to discuss procedures for electing three Class A directors, representing the banking community, and three Class B directors, representing industry, commerce, and agriculture. This gathering was without authority to elect directors, but it never theless proceeded to offer a preferred slate o f can didates which included Seay’s name as a Class B director. This slate was later elected through the elaborate election procedure prescribed in the Federal Reserve Act. While in January Seay had in dicated to the organization committee that he had “ no business or financial connection,” in executing the oath o f office as director in August he described himself as “ Vice Pres’t U.S. Tobacco Co. and RR and Financial Statistician and Expert.” Selected with Seay in the Class B category were David R. Coker, o f Hartsville, South Carolina, and James F. Oyster, o f Washington, D .C. The Class A directors were W aldo Newcomer, o f Baltimore; J. F. Bruton, o f Wilson, North Carolina; and Edwin Mann, o f Bluefield, W est Virginia. Three Class C directors, representing the general interest, were appointed later by the Federal Reserve Board. They were William Ingle, o f Baltimore, designated Chairman and Federal Reserve Agent; James A. Moncure, o f Rich m ond, designated Deputy Chairman and Deputy Federal Reserve Agent; and M.F.H. Gouveneur, o f Wilmington, North Carolina. At its first meeting, on October 5, the board o f directors elected Seay to be the Bank’s first governor, as the chief executive officer was then called. It also named him the Fifth District’s representative to the Federal Advisory Council. Seay served as governor o f the Richmond Bank until 1936. His tenure covers the Federal Reserve System’s formative years. This formative period embraces two distinct chapters, the first dominated by W orld War I and the second by the vicissitudes o f the world econom y in the decade following. The second chapter ended unhappily, with the great stock market crash o f 1 9 2 9 followed by a collapse o f the banking system that led to a restructuring o f the Federal Reserve. 5 1989 Annual Report The early years— the period from 1914 to the end o f 1929— posed a number o f key issues the resolution of which was important in the development o f effective monetary policy mechanisms as well as an efficient payments system. First, there was the basic issue o f the distribution o f authority between the Reserve Banks and the Reserve Board. This issue remained in abeyance during the war years when the Banks were preoccupied with war financing and were largely under Treasury domination. Second, there were issues of credit policy involving the forging o f effective policy tools and their application to the problems o f the time. Third, there were issues and problems involved in a broad effort to improve the nation’s payments arrangements, especially in the area o f check collection. The Richmond Bank, under Seay, played an impor tant role in the System’s efforts to confront these issues constructively. F in a n c in g he entry o f the United States into the First W orld War in April 1917 presented a special challenge to the Reserve Banks. As fiscal agents o f the federal govern ment, they were called on to serve the Treasury in planning and implementing a program to finance the war effort with minimal disturbance to the nation’s financial markets. Seay and the other Re serve Bank governors participated in the planning sessions. The Banks’ services to the Treasury in this regard began in March, just before the country’s entry into the war. At that time the Banks distributed for the Treasury $50 million o f certificates o f indebtedness issued in anticipation o f income tax receipts due in June. The Richmond Bank was allotted $2 million o f this issue, which it placed promptly. Then followed the first o f five multi-billion-dollar bond issues aggregating more than $24 billion, an unprecedented magnitude o f borrowing. The socalled First Liberty Loan, announced on May 14, was a $2-billion, 30-year issue dated June 15, with interest at 3% percent. An elaborate effort was mounted to market this issue. Secretary M cAdoo led the effort, touring the country in what he later described as a “ . . . great movement that vibrated with energy and patriotism and swept the country from coast to coast in the greatest bond-selling campaign ever launched by any nation.” The marketing effort centered heavily on the Reserve Banks. In accordance with detailed plans provided by the Treasury, each Bank established a closely structured, Districtwide network for pro moting sales. The Reserve Bank governors were designated chairmen o f District committees made up, in turn, o f the chairmen o f state committees, who, in their turn, appointed county and local committees. In the Richmond District a Liberty Loan T 6 W o r ld W a r I bureau was set up in every bank, and each was advised o f its “ proportionate amount o f the loan, based on its total resources.” An executive staff, reporting directly to Governor Seay and including teams o f field directors, coordinated the effort. Seay t | I THE TIME HAS COME TO CONQUER OR SUBMIT.”FOR US THERE IS BUT ONE CHOICE. WE HAVE MADE ITP R E S ID E N T W IL S O N . i| BU Y A B O N D ° ™ [ 2 - L IB E R T Y LOAN AND | HELP WIN THE WAR A LIBERTYBONDISAUNITEDSTATES GOVERNMENT BOND Federal Reserve Bank of Richmond considered the Liberty Loan drives to be his most important duty and threw himself wholeheartedly into each campaign. The premise of the financing program was that the war should be financed to the extent possible by the real savings o f the public. Bank credit, and in par ticular, Reserve Bank credit, was to be relied on only residually with every effort made to hold the residual to a minimum, in keeping with the prevail ing view in banking circles that bank credit should be directed primarily at financing production and accommodating trade, not at accommodating government. Hence a large promotional effort was directed at placing the bonds with the nonbank public. Seay approached the financing task with a fervor bordering on the religious and worked untiringly to match or excel the best efforts o f the other Reserve Banks. Writing in 1923, he noted the District’s “ remarkable record” in 1917, 1918, and 1 9 1 9 , when the actual purchases o f all types o f war securities by the people o f the Fifth District reached “ the stupen dous aggregate of $ 1.1 billion!” It was his “ deliberate and mature judgement that but for the existence of the Federal Reserve System . . . Germany would have w o n .” He also believed that “ the bringing o f the Federal Reserve System into being and enabling it to perform such a signal service for civilization was nothing less than an act o f Providence.” As the apparatus o f wartime controls expanded, the Reserve Banks were given a variety o f additional duties in the areas o f foreign exchange trading, gold export controls, and surveillance over the capital issues o f corporations and municipalities. Much of the added work fell directly on Seay, who was already heavily preoccupied with perfecting the District’s organization for handling the Liberty Loans. The work burden contributed to a breakdown in his health in the autumn o f 1918. At the height of the influenza outbreak o f that year, he fell dangerously ill and was bedridden for more than a month. Subse quently, at the insistence o f the Bank’s directors, he underwent a convalescence o f several months before returning to work. For the five drives, subscriptions nationwide totaled just over $24 billion. The slightly more than $1 billion handled by the Richmond Bank thus accounted for roughly 4 percent o f the total. At that time the nation’s financial wealth was heavily con centrated in the large centers o f the Northeast. The New York, Boston, and Philadelphia Districts accounted for nearly half the total subscriptions, with Chicago and Cleveland accounting for an addi tional 25 percent. The Richmond District stood seventh in subscriptions, behind San Francisco. Seay and the Richmond Bank won plaudits throughout the District for their efforts. The work o f all the Banks was widely appreciated and the System emerged from the war with great prestige. It had won its spurs, so to speak, and was widely accepted as the institution at the heart o f the nation’s financial system. 7 1989 Annual Report T h e 1. R e se rv e B a n k s a n d th e R e se rv e B o a rd T he Is su e o f A u th o r ity A major issue in the early years o f the System was the question o f the division o f authority between the Reserve Banks and the Federal Reserve Board. The question was particularly contentious until the bank ing acts o f the middle 1 9 3 0 s buttressed the author ity o f the Reserve Board in several areas. For most o f the decade o f the 1920s, however, the Banks offered a distinct resistance to the Board’s dictates and relations were marked by a continuing tension. By com m on agreement the new System, when launched, was a regional arrangement envisaging substantial autonomy for the individual Reserve Banks. But the lines were not sharply drawn. Broad supervisory and coordinating authority was vested in the Reserve Board by the Federal Reserve Act. The view was widely held, however, that the Board’s role should be constraining and coordinating, not coer cive, leaving the Banks latitude for independent action to cope with credit and payments-system problems peculiar to their respective Districts. There was a general reluctance to describe the System as a “ central bank,” as though the term might under mine the emphasis on regionalism. The Richmond Bank’s directors sought from the beginning to reach an understanding on the scope of their authority. They sent a delegation to the Board early in 1 9 1 5 to discuss the matter but received little satisfaction. Immediately afterward, a sharp dispute with the Reserve Board erupted over the issue o f Governor Seay’s salary. The Richmond direc tors had set his annual salary at $ 15,000 only to have the Reserve Board reduce it to S I0,00 0 . There followed a sharp exchange o f letters in which the Board rebuked the Bank’s directors and peremptorily asserted its right to approve salaries at all levels. The directors acquiesced, but the episode left scars. The entry o f the United States into the W orld War had an important effect on the distribution of author ity in the System. Until the end o f 1919, the exigen cies o f Treasury borrowing for the war effort subor dinated both the Reserve Board and the Reserve Banks to the Treasury’s mandate. But the practical knowledge and experience that the Treasury re quired in its debt management and financing opera tions were heavily concentrated in the Reserve Banks, especially the New York Bank. As a result, Treasury officials tended increasingly to work directly through the Reserve Bank governors and to 8 Federal Reserve Board, 1924: Adolph C. Miller, Flenry M. Dawes, Daniel R. Crissinger, Andrew W. Mellon, Edmund Platt, George R. James, Edward H. Cunningham, Charles S. Hamlin bypass the Reserve Board. Governor Harding o f the Boston Bank, who had served earlier as a member o f the Reserve Board, once remarked that for this reason members o f the Reserve Board frequently felt left out o f important deliberations. As matters developed in the 1920s, the governors of the Reserve Banks, acting through conferences that met semiannually, were able to establish themselves as a major factor in shaping System policies and practices. At these conferences, the governors discussed and analyzed in detail the full range o f problems confronting the System. The discussions were comprehensive, frequently lasting four days or more and including sessions with the Reserve Board and with Treasury officials. Standing committees kept major issues, including credit policy and paymentssystem problems, under continuing study. Compared with the members o f the Reserve Board, the Reserve Bank governors were much closer to the day-to-day problems in the banking system and in credit markets. For the most part, they were sea soned bankers with hands-on experience o f the technical details o f both the payments system and credit operations o f commercial banks. This gave the Conference o f Governors an important advantage in Federal Reserve Bank of Richmond the give-and-take that determined the degree o f autonomy o f the Reserve Banks. Under the leader ship o f Benjamin Strong, governor o f the New York Reserve Bank, the Conference of Governors became the dominant forum in the System in the 1920s, with Strong emerging as the leading figure in the System. 2. S e a y ’s V i e w s Seay was a major contributor to the deliberations o f the Conference. He was chairman o f the commit tee on discount rate policy and also chaired a special advisory committee to the Federal Reserve Board on legislation. Like most o f his colleagues, Seay had an aversion to the term “ central bank.” He was a vigorous defender o f regionalism and favored a high degree o f autonomy for the Reserve Banks. He argued, in particular, that the Banks, as the best judges o f credit conditions in their respective Districts, deserved broad latitude in setting discount rates. Because o f what he perceived as wide disparities o f basic credit conditions among Districts, he opposed requiring uniformity o f discount rates. He also insisted on the right o f individual Reserve Banks to buy and sell government securities. Yet Seay was a team player. To him, autonomy defined a relationship between the Reserve Board and the Banks and did not preclude close coopera tion among the Banks. He thought that the gover nors of the Banks should discuss discount rate policy every 6 0 days and that such discussions should becom e an important factor in discount rate deci sions. He thought that transactions in government C r e d it 1. P o lic y Issu e s G en era l B a ck g rou n d The decade o f the 1920s presented a variety o f challenges to the System. It was, in general, a period o f rapid economic growth, fueled by the intensive development o f new industries— the automobile, radio, major appliances— and by innovations in the organization of production. Public confidence in the econom y’s capacity to generate high levels o f pros perity ran high and translated soon into a strong speculative m ood that constituted an important ele ment in the backdrop against which the Reserve Banks operated. Prosperity was by no means com securities should be managed with similar coopera tion among the Reserve Bank governors and was prepared to limit, though not to deny altogether, independent operations by the Banks. In other areas o f the Reserve Banks’ activities, Seay was inclined to favor Systemwide uniformity of prac tice. This was especially the case for such paymentssystem functions as check collection and clearing and noncash collections. He sought uniformity o f prac tice in such technical details as the timing o f debits and credits to reserve accounts in the course o f check-collection operations, the treatment in reserve accounting o f coin and currency en route to the Reserve Banks from members, and penalties for reserve deficiencies. Questions involving these and other important details were not definitively settled in the 1 9 2 0 s, and for much o f the decade practices differed among the several Districts. Yet close cooperation among the governors was the general rule. The Conference o f Governors, under the leadership o f Governor Strong, was pro tective of the rights o f the individual Banks and resis tant to broad interpretations o f the Reserve Board’s authority. Strong’s death in October 1928 marked the beginning o f a shift o f power away from the Banks and toward the Reserve Board, away from regionalism and toward centralization. The stock market crash o f 1 9 2 9 and the banking collapse o f the 1930-33 period accelerated that shift. The Banking Acts o f 1933 and 1935 ratified it in many respects. For virtually all of the decade o f the 1920s, however, the Reserve Banks were able to hold centralization at bay and to realize a high degree o f autonomy. o f th e 1 9 2 0 s prehensive, however. The agricultural sector re mained depressed for the entire decade. Large numbers of bank failures occurred almost every year. Serious problems existed, too, in the international area. A large fraction o f the w orld’s monetary gold had lodged in this country and its orderly redistri bution became a key condition for the restoration o f the international gold standard, a prime objective of U.S. policy. The vexatious issue o f war reparations and resurgent economic nationalism in the world at large were also complicating factors. Early in the decade the econom y slipped into a severe recession for which the System was widely 9 1989 Annual Report blamed. Milder recessions occurred in 1923-24 and 1927. Combined with the continuing bank failures and widespread farm sector discontent with credit conditions, these interruptions seriously eroded the System’s prestige, which reached a low point in the financial disturbances at the end o f the decade and in the early 1 9 3 0 s. 2. S e a y 's A p p r o a c h to C r e d it P o l i c y During the war years, credit policy was dominated by the U.S. Treasury. The discount rate was deter mined by the interest rate the Treasury placed on its offerings o f securities. Moreover, to facilitate the Treasury’s financings, the Reserve Banks offered preferential rates on their loans when government securities were offered as collateral. Such loans were made at rates slightly below the nominal rate on the Liberty bonds, with the result that they rose sharply and, while the Reserve Banks bought only small amounts o f government securities, they held large amounts as collateral. Seay shared a widespread conviction that exten sive use o f bank credit to finance the war would pose a problem in the war’s aftermath. At this stage, he adhered strictly to the commercial loan, or real bills, theory, holding that bank credit should be ex tended to finance only self-liquidating loans arising out o f the production or distribution of goods. Credit extended for any other purpose, including even the holding o f government securities, represented un sound banking practice and multiplied the risk o f destabilizing price movements. Seay would purchase only those government bonds that were eligible for use as collateral for national bank notes and this only for the purpose o f retiring all such notes in order to leave the issue function exclusively with the Reserve Banks. Like most o f his contemporaries, Seay had no idea of using Federal Reserve credit policies in any countercyclical way. He attributed the burst o f rising prices in 1 9 1 9 and 1 9 2 0 to the large amounts o f government securities in the banking system. Like most o f his colleagues, he failed to envisage using open market operations in government securities as a policy instrument. Rather, he felt that the inflation problem had to be met with discount rate action that would force banks to disgorge their government securities. Following the lead o f Strong, he recom mended and the Richmond directors voted suc cessive increases in the discount rate from 4 percent in late 1 9 1 9 to 6 percent in m id- 1 9 2 0 . 10 George J. Seay (foreground) in the early days o f his tenure as governor o f the Federal Reserve Bank o f Richmond The discount rate increases in this period created some friction in relations with the Treasury, which operated in the market for government securities on a virtually continuing basis at the time. Since discount rate increases tended to hamper its operations, the Treasury favored a program o f direct controls on credit expansion administered by the Reserve Banks instead o f rate increases. This view also found some support at the Reserve Board. The Reserve Bank governors for the most part felt, as did Strong and Seay, that credit expansion could not be controlled effectively without discount rate action. W hen the econom y slipped into a sharp recession in the spring o f 1920, Seay and the Richmond direc tors saw little reason to reduce the discount rate promptly. Indeed, the Reserve Banks generally were slow to take any easing action. In the face o f a sharp break in commodities prices, rising unemployment, and a severe depression in the farm sector, the System came under criticism by a number o f groups, especially by governors and legislators from farm states. Under pressure from the Treasury, the Boston and New York Banks began reducing their discount Federal Reserve Bank of Richmond rates in the spring o f 1921. But the Richmond Bank continued to hold out, waiting until November to reduce its rate from 6 percent to 5 xh percent and until December to reduce it to 5 percent. In public addresses, Seay staunchly defended the action o f the System in the recession o f 1920-21. He argued that the basic problem was the earlier credit inflation caused by sizable holdings o f government securities in the banking system. The solution lay in moving these securities out of the banking system and into the hands o f the nonbank public. He con sidered the resulting reduction in bank credit, with its accompanying setback to business, a necessary and inevitable part o f the nation’s adjustment from a wartime to a peacetime econom y. Seay also argued that an overriding objective of discount rate policy had to be the protection o f the gold reserves o f the Reserve Banks. At the depth o f the 1 9 2 0 - 2 1 recession the gold reserve ratio o f the Richmond Bank had fallen to 34 percent and the ratios o f five other Reserve Banks were substanti ally lower, far below the legal limit o f 40 percent. These low reserve ratios were clearly a factor in the tardiness o f the Richmond and other Reserve Banks in reducing the discount rate. Seay’s view, widely held at the time, was that the System’s main concerns had to be the soundness o f bank credit, the preven tion o f financial panics, and the preservation o f gold payments. Systematic control o f the m oney supply and positive action to moderate cyclical swings in business were not part o f his agenda. 3. C h a n g i n g V i e w s o n O p e r a t i o n s in th e G o v e r n m e n t S e c u r itie s M a r k e t The decade was an extended learning experience for the entire System. Seay’s views on credit policy underwent significant changes, as did those o f most other System personnel involved with policy. Credit policy was discussed at length in the semiannual meetings o f the Conference of Governors and in the sessions with the Reserve Board. These discussions, and especially the trenchant observations o f Gover nor Strong, had a major influence on Seay’s think ing. There were other influences as well. One was an increasing appreciation of the potential usefulness o f systematic operations in the market for govern ment securities. Another was the large contem po raneous swings in gold exports and imports, which tended to upset conventional notions regarding the relationship between the gold reserve ratio and the discount rate. In any case, in the early 1920s, Seay modified his views on the holding o f government securities by the Reserve Banks. At a conference o f the governors in March 1923 he observed that a stock o f govern ments held by Reserve Banks would give the System “ a better hold upon the market.” He joined several colleagues in noting that sales from such holdings could prove useful in offsetting excessive easing in markets resulting from large gold imports. This adjustment in Seay’s attitude was probably influ enced in part by the indifferent success o f the System’s efforts to establish an acceptance market o f significant dimensions. Seay had been a strong supporter o f such efforts and of arrangements for coordinating operations in acceptance markets. Among the Banks, attitudes toward investing in government securities were affected by a sharp reduction in their earning assets in the recession o f 1920-21. As rediscounts declined and the supply o f acceptances diminished, most o f the Banks turned to the government securities markets for investments in order to be able to cover costs and pay the divi dend provided for by the Federal Reserve Act. Pur chases and sales were o f sufficient magnitude to in terfere with Treasury operations in the market and hence aroused the opposition o f the Treasury. The matter was discussed in detail by the Conference in May 1922. At that time all the Banks except Atlanta and Richmond were buying and holding govern ments. The governors of all, including Richmond and Atlanta, vigorously defended their right to do so at their discretion. The Conference was confronted with the problem o f reconciling the Treasury’s apprehensions and the Reprinted from the W all Street Jo u rna l, April 28, 1925 11 1989 Annual Report Reserve Banks’ need for earning assets. The Banks were reluctant to accept any restrictions on their right to invest as they deemed necessary. The Treasury for its part insisted that the Banks refrain from purchases and sales whenever it was engaged in market operations. Under Strong’s leadership and after extended dis cussion, a compromise was reached. Each governor agreed to recommend to his directors that invest ments in government securities be limited to “ . . . such amount as is required, over a period o f time, to meet . . . expenses and dividends and necessary reserves.” It was also agreed that purchases and sales would be coordinated to avoid interference with the Treasury’s activities in the market. To pro vide this coordination a Committee on Centralized Execution o f Purchases and Sales o f Government Securities by Federal Reserve Banks was estab lished, composed o f the governors o f the New York, Boston, Philadelphia, and Chicago Banks. Later the governor o f the Cleveland Bank was added. This committee, under the chairmanship o f Gover nor Strong, operated until March 1923 when, on orders o f the Federal Reserve Board, it was dis banded and replaced by an Open Market Investment Committee. The change, however, made little dif ference in practice, amounting to little more than a formal response to the Reserve Board’s assertion o f authority over open market operations. The new committee was com posed o f the same governors as the old and included no member o f the Reserve Board. Like its predecessor, it allowed the Banks a wide latitude o f discretion with respect to their par ticipation in the new committee’s purchases and sales. Moreover, no limits were placed on the Reserve Banks’ transactions in government securities with member banks o f their respective Districts. The arrangements for dealing in government securities were satisfactory to Seay and the Richmond directors. The Richmond Bank had no earnings problem in that period and consequently no need to rely on government securities as a source o f earn ings. Accordingly, Seay was not as exercised over the issue as some o f his counterparts and could take a longer term view o f the implications o f the new arrangement. While he was fiercely defensive o f the Banks’ rights to buy and sell securities, he agreed with Strong that coordination of purchases and sales was highly desirable. He argued that open market operations should not be geared to the earning needs o f the Reserve Banks but rather to the “ overall credit requirements” o f the econom y. 12 Along with many o f the other governors, Seay recognized limitations on the practical usefulness o f open market operations. Through much o f the decade, large operations had to be undertaken to off set gold movements and these often had a major im pact on the Committee’s portfolio without a cor responding effect on bank credit. Moreover, doubts soon developed that the government securities market was sufficiently large to accommodate the magnitude o f operations that domestic and inter national considerations might require. The Treasury was actively retiring debt over much o f the period and, while the Committee operated in acceptances as well, that market contracted in periods o f slack business. Recognition o f this limiting factor strengthened Seay’s conviction that the discount rate had to be the System’s chief policy instrument. 4. C o o r d in a tin g O p en M a r k e t a n d D is c o u n t R a te P o lic ie s The System’s m ove toward systematic open market operations had implications for the manner in which discount rate policy was implemented. These implications were quickly recognized by Seay and others o f the governors. In 1924 Governor Strong noted that the “ . . . belief o f the Governors has been uniformly for some years past that the operations o f the Open Market Committee are designed . . . to exert some influence on matters preliminary to the possible need for changes in dis count rates.” In the same year, Seay observed that the Committee’s purchases led member banks to reduce their borrowings at the discount window and, with diminished dependence on the Reserve Banks, to step up their efforts to make loans. This put downward pressure on loan rates, setting the stage for discount rate reductions. Seay appreciated the relationship between dis count rate policy and gold movements but seemed reluctant to use the discount rate to help restore the international gold standard. W hen in the late summer o f 1927 the Reserve Board, largely at the initiative o f Governor Strong, undertook to or chestrate a general reduction in discount rates in order to help Great Britain solidify its return to the gold standard, the Richmond Bank followed, cutting the discount rate from 4 percent to 3 V2 percent. But Seay expressed sympathy for the position o f the Chicago Bank, which refused to reduce its rate, with the result that the Reserve Board fixed it at 3 V2 per cent at that Bank. This action by the Board ran counter to Seay’s conviction that the initiative for Federal Reserve Bank of Richmond rate changes should come from the Banks. But Seay appears also to have entertained doubts about giving international considerations precedence over domestic conditions. W hen this controversial rate action was discussed at the meeting o f the Con ference o f Governors in November, he argued that the rate should be higher to reflect “ true market forces instead of international conditions.” The stock market speculation o f the later years of the decade troubled Seay. He met with groups of District bankers on several occasions and urged them to limit stock market loans. But to him the problem went beyond stock market loans and was not likely to be solved by moral suasion. The basic problem was excessively easy credit and had to be ad dressed by effective tightening action on both the open market and discount rate fronts. The excessive ease, he argued, resulted largely from the arbitrary P a y m e n ts S y ste m eay held strong convictions regarding the role o f the Reserve Banks in the nation’s payments system. In his view, the Reserve Banks should have the exclusive issue privilege and also be the principal managers o f the nation’s facilities for check-collection and checkclearing operations. S reclassification o f demand deposits as time deposits by member banks, which created large amounts of excess reserves. In March 1928 and again in April, the Richmond directors conveyed to the Open Market Committee their conviction that the Committee should be sell ing securities. In an April 1929 communication to the Reserve Board they argued that, from the national standpoint, a strong reason existed for raising the dis count rate to 6 percent, noting, however, that Fifth District conditions could not justify such an action. Rather they believed that the rate should be raised first in the New York District since the stock ex change loan problem was centered there, with the other Banks following later. Actually, the rate at the Richmond Bank, which had been raised in successive steps from 3 xh to 5 percent in 1 9 2 8 , was not raised further in 1 9 2 9 . 1. Issu e s The C u rren cy Regarding the currency, Seay considered the Federal Reserve note, anchored to gold to ensure its soundness and to eligible commercial paper to ensure its “ elasticity,” the ideal currency. He urged that it be allowed to displace all other forms of currency, including legal tender notes and silver Series 1918 Federal Reserve Bank note issued by the Federal Reserve Bank o f Richmond and signed by Governor Seay 13 1989 Annual Report certificates. These last two forms he believed to have taken on the character o f “ reserve m o n ey,” and, along with gold and gold certificates, should be im pounded in the Reserve Banks to support Federal Reserve credit as represented in Federal Reserve notes and member bank reserves. He was unalterably opposed to the issue o f national bank notes and urged that they be completely eliminated from the circulation, by legislation if necessary. This stance reflected his continuing aversion to linking the cur rency to government securities. On the same grounds, he opposed the issue o f Federal Reserve Bank notes, which, unlike Federal Reserve notes, were backed only by government securities. With such views, Seay often found himself at odds with both the Reserve Board and the Treasury. He was critical o f a Reserve Board ruling requiring the Reserve Banks to pay out currency in a priority order ing with national bank notes first, followed in order by Federal Reserve Bank notes, silver certificates, legal tender notes, Federal Reserve notes, gold cer tificates, and gold. He argued that, pending the retire ment o f national bank notes and Federal Reserve Bank notes, Federal Reserve notes should be third in the priority ordering. Seay also opposed proposals by the Treasury and the New York Reserve Bank to encourage the cir culation o f gold certificates in periods o f heavy gold imports. He was also cool to a Treasury request for Reserve Bank cooperation in an effort to encourage temporary use by the public o f silver dollars to allow the buildup o f an inventory o f one-dollar bills in the months before the introduction o f a newly de signed, smaller sized currency in the summer of 1 9 2 9 . 2. T h e C o lle c tio n F u n c tio n Seay’s concern over the quality o f the currency was part o f a more general interest in improving the efficiency o f the country’s payments system, which he considered to be a major objective o f the Federal Reserve Act. The introduction o f the Federal Reserve’s leased wire system in 1918 was a welcome innovation to Seay, and he favored Reserve Bank absorption o f the cost o f wire transfers o f funds by member banks. The major effort to improve the payments system in the 1920s centered on check-collection operations. Few System activities in the 1920s commanded as much attention. One o f the first standing com mittees o f the Conference of Governors was the Standing Committee on Collections and Clearings. 14 John S. Walden, Jr., an assistant to Seay and a senior operating officer o f the Richmond Bank, served on this committee during the entire decade. Through Walden, Seay contributed to the standing commit tee’s work. He was especially interested in promoting uniformity o f procedures and practices among the Banks and in pressing for effective measures to ensure collection at par, that is, with no levy of exchange charges by drawee banks. The committee devised in this period the system o f symbols, printed in the upper right-hand corner o f checks, identifying the drawee bank and the Federal Reserve office through which the check would be collected. This system quickly became o f inestimable value to banks in sorting and routing checks. The committee also faced the daunting task o f working out a satisfactory arrangement for timing debits and credits to the reserve accounts of drawee banks and depositing banks and dealing with the effect on member bank reserves o f arrangements that involved other than simultaneous debits and credits. Only after long experimentation was a satisfactory time schedule with a system o f deferred credits put in place. In the war period, as part o f the Board’s general promotion o f membership, the Banks began col lecting for member banks such noncash items as notes, drafts, and acceptances. Member banks were quick to avail themselves o f this noncash-collection service, which soon became a major activity at all the Reserve Banks. When many o f the Reserve Banks were experiencing earnings problems in the early 1 9 2 0 s, sentiment for eliminating the service began to develop. Such sentiment was especially strong in the geographically large Districts o f the South and the W est— Atlanta, Dallas, Minneapolis, Kansas City, and San Francisco— where distances were great and transportation and communications costs relatively high. Seay, however, insisted on uniformity. He had had misgivings about offering the service, but once it was instituted he favored continuing it. The System had much to lose, he thought, if it were perceived as arbitrarily turning its services off and on in response to earnings changes. Moreover, noncash-collection services were consistent with Seay’s expansive views o f the services the Reserve Banks should offer to members. Citing the nonpayment o f interest on reserve balances, he argued that Reserve Banks should offer to member banks all the services they could expect from city correspondents. Federal Reserve Bank of Richmond 3. P r o b le m A r e a s : P a r C o lle c tio n , B a n k F a ilu r e s , a n d M e m b e r s h ip Efforts to improve the collection process were hampered in the period by a continuing wave of bank failures and by a running and often acrimonious disagreement with state-chartered banks over ex change charges. In the ensuing controversy, the System found itself confronting the hostility o f state legislatures and banking commissions as well as o f many state-chartered banks. The Reserve Banks sometimes found to their consternation that member banks, especially the large-city correspondents, gave them little or no support in this impasse. In any case, the large number o f bank failures, among members as well as nonmembers, in combination with the parcollection controversy, tended to diminish public confidence in the System and to contribute to a steady erosion o f membership in the period. From the outset, exchange charges on checks were recognized as a major obstacle to membership in the System by small, state-chartered institutions. The Reserve Board took advantage o f the patriotism generated during the war period to mount a cam paign to encourage universal par remittance on a voluntary basis. So-called par lists were established, and the Reserve Banks succeeded in placing on these lists the great majority o f the nation’s banks. Yet substantial groups o f state banks in rural areas o f the South, West, and Midwest stubbornly resisted. Many soon found that they could take advantage o f the System’s collection facilities through city cor respondents without becoming members and giving up exchange charges. Acting on a Reserve Board interpretation that the Federal Reserve Act gave the System authority to collect all checks at par, the Reserve Banks met this resistance with a concerted effort to present the checks o f nonpar banks at the counter for cash pay ment. This action by the Reserve Banks brought the issue to a head. It touched off extended liti gation that seriously embittered relations with small, state-chartered banks over much o f the nation. The Reserve Banks most immediately involved in the litigation were Richmond, Atlanta, Cleveland, Minneapolis, and San Francisco. In its annual report for 1920 the Richmond Bank noted “ . . . marked progress toward the establish ment o f universal par collection.” All District states except South Carolina were reported on a par basis. O f 2,210 banks in the District, only 334, all in South Carolina, refused to remit at par. In view of developments in the following year, this report prob ably gave an inaccurate evaluation o f progress toward universal voluntary par remittance. Data for subse quent years suggest strongly that the par list for 1 9 2 0 included many involuntary par remitters at whose counters the Richmond Bank was presenting checks for cash payment. On February 5, 1921, the North Carolina legislature passed “ An Act to Promote the Solvency o f State Banks,” in which it affirmed the right o f state banks to charge exchange when remitting for checks sent to them by mail. It provided, moreover, that state banks were not required to pay in cash for checks presented at their counters by the Reserve Bank or any o f its agencies but could pay with a draft drawn on a correspondent unless the drawer o f the check had made a notation to the contrary. Finally, it forbade notaries public to protest checks when pay ment had been refused solely because it had been demanded in cash. The Richmond Bank deemed the act to be un constitutional and continued to present checks on nonpar banks at the counter for cash payment. On February 9, 13 nonmember banks brought suit against the Richmond Bank in the Superior Court o f Union County, North Carolina, and obtained a restraining order forbidding the return as dishonored o f checks that the plaintiff banks had refused to pay in cash. More North Carolina banks joined the suit, and 230 were on the injunction list by December. The Richmond Bank refused to handle the checks of these banks and from time to time published their names along with the names o f other banks the checks o f which, for various reasons, it would not handle. At the end o f 1921, o f 2 ,195 banks in the District, 580 refused to remit at par. All these were in North Carolina (254) and South Carolina (326). At trial, the Superior Court ruled the North Carolina act constitutional. The Richmond Bank ap pealed the decision to the North Carolina Supreme Court, which reversed the Superior Court. The plain tiff banks, however, took the case to the U.S. Supreme Court, which in June 1923 reversed the North Carolina Supreme Court and ruled the act con stitutional. The banks o f the state thus retained the right to charge exchange and to refuse cash payment for checks presented by the Reserve Bank at the counter. Paralleling this case against the Richmond Bank were significant cases against the San Francisco, Atlanta, Cleveland, and Minneapolis Banks. As a result o f the decisions in the several cases, the System 15 1989 Annual Report INTHE Supreme Court of the State of North Carolina FARMERS &MERCHANTS BANK, ET ALS., vs. FEDERAL RESERVE BANK OF RICHMOND. HISTORY OF THE LITIGATION AND STATE MENT OF ISSUES. This case is acivil actionbrought, by thirteenbanks and trust companies organized under the laws of the State of North Carolina, whichare not members of the Federal Reserve System, against the Federal Reserve Bank of Richmond. The object of the action was to ob tainan injunction to prevent the Federal Reserve Bank of Richmond from refusing to accept exchange drafts drawnby the plaintiffs ontheir reserve deposits inpay ment of checks presented, andfromreturningas dishon ored checks drawnbyvarious depositors uponthe plain tiffs which had been presented at their counters by the Federal Reserve Bank of Richmond, but for which the plaintiffs had tendereddrafts drawnby themupontheir respective reserve depositaries. The action was insti tuted by the plaintiffs in the Superior Court of Union County, North Carolina, on the Oth day of Febru ary, 1921, andatemporary restrainingorder was award- Reprinted from brief filed May 4, 1922 ended up well short o f its desired goal o f universal par collection. At the direction of the Reserve Board, the practice o f presenting checks for cash payment at the counters o f nonpar banks was discontinued. The System adopted a policy of refusing to handle checks on nonpar banks. In the years that fol lowed, the number o f banks on the par list fell sharply. In the Richmond District, the U.S. Supreme Court decision in 1 9 2 3 was quickly followed by a large reduction in the number o f banks on the par list. Three banks in W est Virginia and 57 in Virginia C o n c lu d in g n their first five years, the Federal Reserve Banks were immersed in problems associated with financing the First World War. Not until 1 9 2 0 were they able to come to grips with issues they were designed to resolve. To a significant extent I 16 promptly removed themselves from the list. The list fell rapidly over the remaining years o f the decade, from 1,494 in 1923 to 1,091 in 1929. The decline was slightly more rapid than the drop in the total number o f banks. At the end o f 1929, nearly a third o f the banks in the District were not remitting at par. These were concentrated heavily in the Carolinas and Virginia. In North Carolina some 70 percent (294 o f 419) o f all banks were nonpar; in South Carolina, almost half (67 o f 139); and in Virginia, nearly a quarter (104 o f 468). There were nine nonpar banks in West Virginia but none in Maryland and the District o f Columbia. While the nonpar banks were mostly small banks in rural areas, the volume o f check operations for the group was significant. Their refusal to remit at par left an important gap in the Federal-Reserve-based payments arrangement that the System was so eager to establish. The outcome was especially disappoint ing to Seay. The par-collection issue affected membership. In the Fifth District membership reached a peak o f 634 in 1922 and then declined in each remaining year o f the decade. At the end o f 1929 it totaled 525. The number o f state members fell from 6 8 to 45. Over the same span, the number o f national banks de clined from 5 6 6 to 480. The total number o f banks in the District fell from 2 ,210 in 1920 to 1,637 at the end o f 1929, a reduc tion o f 573. Much o f this decline was accounted for by failures, which totaled 431 for the period. The failures were heavily concentrated in the farming areas o f the District, with South Carolina accounting for 225, North Carolina for 119, Virginia for 45, and West Virginia for 34. There were only eight failures in Maryland and none in the District o f Columbia. Among the failures were many national banks and state member banks, which accounted for much o f the decline in membership. A handful o f state m em bers merged with national banks during the period, but the decline in state membership was due almost entirely to liquidations and voluntary withdrawals. O b s e r v a tio n s the experience o f the 1 9 2 0 s represented efforts by the Banks and the Reserve Board to fill gaps and resolve ambiguities in the Federal Reserve Act, which was amended ten times in the 1920s. The original act described only a skeletal outline o f a system o f Federal Reserve Bank of Richmond banking control. Many crucial questions o f detail were left unaddressed. It remained for the Reserve Board and the Banks, in the course o f practice and experience, to put flesh on the skeleton. For the entire decade the division o f authority be tween the Reserve Board and the Banks remained at issue. While the act clearly gave the Board broad authority, certain sections implied substantial autonomy for the Banks. The new system had been treated all along as a regional system, not a central bank, and it was widely assumed that the Board’s authority over the Banks would be limited to a monitoring and coordinating function. This was clearly the view o f Seay. It was frequently ex pressed by the governors o f the other Banks and seems to have been acquiesced in by some Reserve Board members as well. In any case, it is clear from the history o f the period that the governors o f the Banks, as a group under the leadership o f Benjamin Strong, were able to maintain a high degree o f autonomy and to play a major role in shaping the System’s early development. As noted, Seay and the Richmond Bank were vigorous defenders o f the autonomy o f the Reserve Banks. They were also major contributors to the efforts o f the governors to develop an effective mechanism o f credit control and an efficient payments system. In the credit-policy area, Seay favored cooperative action by the Banks’ governors, coordinated through the Conference o f Governors, over Reserve Board leadership. He was a firm sup porter o f Governor Strong’s efforts to forge an effective policy tool out o f the Banks’ purchases and sales in the market for government securities. In ad dition, he chaired the Conference o f Governors’ committee to establish basic principles that should be followed in setting discount rates. In the payments-system area, the Richmond Bank was in the forefront o f the effort to universalize collection o f checks at par. Seay and Walden were major contributors to the work o f the Conference o f Governors’ Standing Committee on Collections and Clearings. The Richmond Bank was also in volved in one o f the key court cases that ques tioned the authority o f the System to require par remittance for checks. The stock market crash at the end o f the decade o f the 1 9 2 0 s signaled the end o f an important chapter in the history o f the Federal Reserve Banks. It ushered in a new set o f problems for the entire System, problems that dwarfed in both magnitude and complexity any that had been confronted up to that time. The banking collapse in the three years that followed and the onset o f the Great Depression led to a drastic restructuring o f the System. The result was a less ambiguous centralization o f authority in a newly constituted Reserve Board, renamed the Board o f Governors o f the Federal Reserve System, and a substantial reduction in the autonomy o f the Reserve Banks. The major reforms o f the m id-1930s, along with important amendments enacted since that time, have produced a system fundamentally different, both in structure and in approaches to m oney and credit con trol, from the original. In every respect, the Federal Reserve System has becom e undeniably a central bank or, more precisely, a central banking system. The System today retains, however, sufficient vestiges o f its pristine form to continue to be described as unique among the w orld’s central banks. In particular, in the face o f increased centralization o f power in the hands o f the Board o f Governors, the regional Reserve Banks continue to play an important role. Their operations are crucial to the maintenance o f an efficient payments system. Their information services con stitute useful inputs into decisions o f businesses, large and small, and o f governments. Their role in m one tary policymaking has been restructured to bring it into closer conformity with radically revised views regarding techniques o f monetary and credit control, but it is no less significant. The boards o f directors o f the Reserve Banks continue to take the initiative in setting the discount rate. More important, the executive heads o f the Reserve Banks, now styled presidents instead o f governors, serve actively on the Federal Open Market Committee, the System’s chief policymaking body. 17 Richmond, completed 1921 ■ C o n s tr u c te d at Baltimore, completed 1927 R e s e r v e Charlotte, completed 1942 to H o u s e O p e r a tio n s B a n k D ig e s t Directors/Richmond Office 20 Directors/Branch Offices 21 Advisory Councils 22 Comparative Financial Statements 24 Summary of Operations 26 Officers 27 19 1989 Annual Report D ir e c to r s (Decem ber 31, 1989) Seated: Jack C. Smith; Thomas B. Cookerly; Edward H. Covell; Anne Marie Whittemore Standing: Chester A. Duke; John F. McNair III; Hanne Merriman; Leroy T. Canoles, Jr.; C. R. Hill, Jr. Richmond Office CHAIRMAN C . R. H ill, Jr. H a n n e M e r r im a n Chairman o f the Board and President Retail Business Consultant W a s h in g to n , D .C . M e rchants & M in e rs N a tio n a l B a n k O a k H ill, W e st V irg in ia DEPUTY CHAIRMAN J o h n F. M c N a ir II I L e ro y T. C a n o le s , Jr. President and Chief Executive Officer President W a c h o v ia B a n k & T rust C o m p a n y , N.A. a n d T he W a c h o v ia C o r p o r a tio n W in sto n- S ale m , N o r th C a ro lin a K a u fm a n & C a n o le s N o rfo lk , V irg in ia T h o m a s B. C o o k e r ly President C o o k e r ly C o m m u n ic a t io n s B e the sd a, M a ry la n d E d w a r d H . C o v e ll President T he C o v e ll C o m p a n y E asto n, M a r y la n d C h e ste r A. D u k e President and ChieJ Executive Officer M a rio n N a tio n a l B a n k M a rio n , S o u th C a r o lin a 20 M em ber, F ed era l A d v is o r y C o u n c il Ja c k C. S m ith Chairman o f the Board and Chief Executive Officer K-VA-T F o o d Stores, In c . G r u n d y , V irg in ia A n n e M arie W h it t e m o r e Partner M c G u ire , W o o d s , Battle & B o o th e R ic h m o n d , V irg in ia F re d e ric k D e a n e , Jr. Chairman o f the Board S ig ne t B a n k in g C o r p o r a tio n R ic h m o n d , V irg in ia Federal Reserve Bank of Richmond B a lt im o r e O ffic e CHAIRMAN T hom as R. Shelton President Case Foods, Inc. Salisbury, M aryland J o h n R. Hardesty, Jr. President Preston Energy, Inc. K in g w o o d , W est Virginia H. G ra n t H athaw ay Chairman o f the Board E quitable Bank, N.A. Baltim ore, M aryland R a y m o n d V. Haysbert, Sr. President and Chief Executive Officer Parks Sausage C o m pa ny Baltim ore, M aryland Charles W . H o ff III President and Chief Executive Officer Farmers an d M echanics N ational Bank Frederick, M aryland G lo ria L. Jo h n s o n Deputy Director o f Administration The B altim ore M useum o f Art Baltim ore, M aryland Jo seph W . M osm iller Chairman o f the Board Loyola Federal Savings an d Loan A ssociation Baltim ore, M aryland Seated: fohn R. Hardesty, fr.; Thomas R. Shelton; H. Grant Hathaway; Charles W. H off III Standing: Raymond V. Haysbert, Sr.; Gloria L. fohnson; Joseph W. Mosmiller Charlotte Office CHAIRMAN W illia m E. Masters President Perception, Inc. Easley, South Carolina A nne M. A llen President Allen-Austin, Inc. G reensboro, N orth Carolina C rand all C. Bowles President The Springs C o m p a n y Lancaster, South Carolina Jam es M. C ulberson, Jr. Chairman and President The First N ational Bank o f R a n d o lp h C o un ty A sheboro, N orth Carolina H aro ld D . K ingsm ore President and Chief Operating Officer Graniteville C o m p a n y Graniteville, South C arolina Jam es G . Lindley Chairman and Chief Executive Officer So uth Carolina National C o rp oratio n Chairman, President, and Chief Executive Officer The So uth C arolina N ational Bank C o lu m b ia, South Carolina „ , „ . „ _ „ , ... Sealed-. Crandall C. Bowles; William E. Masters; Anne M. Allen Standing: Harold D. Kingsmore; James G. Lindley; fames M. Culberson, fr., William McKay W illia m M cK ay President First Federal Savings Bank H endersonville, N orth Carolina 21 1989 Annual Report A d v i s o r y C o u n c i l s (Decem ber 31, 1989) O p e r a tio n s A d v is o r y C o m m itte e CHAIRMAN Ronald W . Davies Senior Executive Vice President Maryland National Bank Baltimore, Maryland W illiam E. Albert Vice President and Cashier The First National Bank o f Bluefield Bluefield, West Virginia Robert Baldw in Senior Vice President Crestar Bank, N.A. W ashington, D.C. Robert A. Barton, Jr. Senior Vice President Perpetual Savings Bank, F.S.B. Vienna, Virginia George E. Beckham Senior Vice President South Carolina Federal Savings Bank Colum bia, South Carolina Charles S. Brum m itt Senior Vice President NCNB National Bank o f South Carolina Colum bia, South Carolina W illiam V. Bunting Executive Vice President Crestar Bank, N.A. Richm ond, Virginia Marshall N. Colebank, Jr. Executive Vice President and Cashier The Charleston National Bank Charleston, West Virginia Ashpy P. Lowrimore Edward J. Spirko Senior Vice President— City Executive Senior Vice President Southern National Bank o f South Carolina Florence, South Carolina Mercantile-Safe Deposit & Trust Com pany Baltimore, Maryland Clement E. Medley, Jr. Jo h n J. Sponski President and Chief Executive Officer Group Executive Officer First Federal Savings and Loan Association o f D unn D unn, North Carolina Sovran Bank, N.A. Norfolk, Virginia Thomas J. Strange Ricky B. Nicks Vice President David A. D enton Senior Vice President Vice President W achovia Bank and Trust Company, N.A. Winston-Salem, North Carolina South Carolina Credit U nion League, Inc. Columbia, South Carolina Investors Savings Bank Richm ond, Virginia Charles E. Thomas Richard D. Pillow Vice President Raym ond L. Gazelle Vice President Senior Vice President Virginia Credit U nion League Lynchburg, Virginia West Virginia Credit U nion League, Inc. Parkersburg, West Virginia Citizens Bank o f Maryland Laurel, Maryland Rick A. Wieczorek James W . Ricci President Harrison Giles President Executive Vice President Educational Systems Employees Federal Credit Union Bladensburg, Maryland District o f Colum bia Credit U nion League Washington, D.C. NCNB National Bank o f North Carolina Charlotte, North Carolina C. L. W ilson III Senior Vice President Kenneth L. Greear Charles C. Schmitt Vice President Executive Vice President Branch Banking and Trust Com pany W ilson, North Carolina United National Bank Charleston, West Virginia Loyola Federal Savings and Loan Association Glen Burnie, Maryland James R. W ilson D. C. Hastings H. Jerry Shearer President and Chief Executive Officer Executive Vice President and Cashier Virginia Bank and Trust Com pany Danville, Virginia Vice President Commercial Bank o f the South, N.A. Colum bia, South Carolina David L. Kot Rita A. Smith Vice President Executive Vice President American Security Bank, N.A. W ashington, D.C. West Virginia Savings League Charleston, West Virginia 22 First Carolina Corporate Credit U nion Greensboro, North Carolina Federal Reserve Bank of Richmond Small Business and Agriculture Advisory Council CHAIRMAN W illiam M. Dickson G eorge B. Reeves Charles O. Strickler Owner President President Spring Valley Farm Ronceverte, West Virginia Reeves Agricultural Enterprises, Inc. Chaptico, Maryland Michele V. Hagans Robert W. Stewart, Jr. Rocco Enterprises, Inc. Harrisonburg, Virginia VICE CHAIRMAN President Chairman and Chief Executive Officer Michael Clark President Fort Lincoln New Town Corporation Washington, D.C. Engineered Custom Plastics Corporation Easley, South Carolina Clark Insurance Services Com pany, Inc. Richm ond, Virginia Jo h n W . Hane Joe M. Williams Partner/Manager Owner/Operator President Blackwoods Farm Fort Motte, South Carolina W illiams Dairy O lin, North Carolina Associated Enterprises, Inc. Annapolis, Maryland Charles H. James II Joan H. Zim m erm an Chairman of the Board and Treasurer President C. H. James & Co. Charleston, West Virginia Southern Shows, Inc. Charlotte, North Carolina Leonard A. Blackshear D ickie S. Carter President and Chief Executive Officer Urban Service Systems Corporation W ashington, D.C. 23 1989 Annual Report C o m p a r a tiv e F in a n c ia l S ta te m e n ts CONDITION D ecem ber 30, 1988 D ecem ber 2 9 , 19 89 A ssets Gold certificate account Special Drawing Rights certificate account Coin Loans to depository institutions Federal agency obligations U.S. government securities Bills Notes Bonds Total U.S. government securities Cash items in process of collection Bank premises Furniture and equipment (net) Other assets Interdistrict settlement account Accrued service income TOTAL ASSETS $ 9 4 3 ,0 0 0 ,0 0 0 .0 0 74 5 ,0 0 0 ,0 0 0 .0 0 7 8,2 7 7 ,7 7 2 .6 4 2 ,50 0 ,0 0 0 .0 0 5 4 0 ,7 38 ,8 15 .0 8 $ 917,000,000.00 461.000.000.00 61,789,181.28 122.017.000.00 540,883,421.43 8 ,66 7 ,3 0 3 ,5 8 5 .8 4 7 ,5 7 3 ,3 7 2 ,0 6 0 .4 7 2,55 3 ,7 31 ,8 39 .1 1 8,756,490,892.12 7,061,475,288.10 2,323,744,637.21 1 8,7 9 4,407,485.42 18,141,710,817.43 533 ,9 33 ,8 42 .1 2 1 2 6 ,9 9 6 , 5 5 2 . 5 2 459,433,704.45 123,732,554.73 18,973,059.81 877,251,213.96 2 5,4 0 4,87 1.19 2,19 4 ,2 41 ,8 92 .7 1 3,70 1 ,8 51 ,8 15 .9 4 5 ,18 8 ,0 4 7 .6 6 3,132,511,163.11 5,004,507.58 $ 2 7 ,6 9 1 ,5 41 ,0 95 .2 8 $24,861,306,623.78 $ 23 ,1 80 ,1 17 ,1 24 .0 0 $20,095,524,553.00 3 ,4 5 5 ,8 40 ,3 34 .3 5 8 ,7 0 0 ,0 0 0 .0 0 8 7 ,9 8 6 ,7 1 7 .9 6 3,835,573,288.7 6 8,400,000.00 45,794,738.11 3,55 2 ,5 27 ,0 52 .3 1 3,889,768,026.87 4 4 6 ,6 3 8 ,2 37 .8 5 2 3 3 ,3 97 ,2 81 .1 2 386,779,161.09 242,323,182.82 $ 2 7 ,4 1 2 ,6 79 ,6 95 .2 8 $24,614,394,923.78 139 .430.700.00 139 .430.700.00 123.455.850.00 123.455.850.00 $ 2 7 ,6 9 1 ,5 41 ,0 95 .2 8 $24,861,306,623.78 L ia b ilitie s Federal Reserve notes Deposits Depository institutions Foreign Other Total deposits Deferred availability cash items Other liabilities TOTAL LIABILITIES C a p ita l A c c o u n ts Capital paid in Surplus TOTAL LIABILITIES AND CAPITAL ACCOUNTS 24 Federal Reserve Bank of Richmond E A R N IN G S A N D EXPENSES 1989 1988 E a r n in g s Loans to depository institutions Interest on U.S. government securities Foreign currencies Income from services Other earnings Total current earnings $ 1 ,6 1 2 , 2 5 2 . 1 8 1,62 4 ,0 11 ,5 24 .1 2 6 0 ,0 7 9 ,5 6 7 .7 7 6 2 ,0 9 9 ,0 8 7 .8 2 7 48 ,7 7 9 .8 8 $ 987,580.03 1,438,247,017.22 16,742,569.69 55,920,614.99 644,234.92 $ 1 ,7 4 8,55 1,21 1.77 $1,512,542,016.85 Operating expenses Cost of earnings credits 9 5 ,0 6 6 ,3 9 8 .6 0 12,053,256,92 Net expenses 107,119,655.52 90,254,577.59 10,150,325.95 100,404,903.54 $ 1 ,6 4 1,43 1,55 6.25 $1,412,137,113-31 1 ,208,662.07 7 4 ,3 2 9 ,4 1 8 .3 8 6 ,53 8 ,9 8 3 .1 3 8 2 ,0 7 7 ,0 6 3 .5 8 1,939,690.33 E xp en ses CURRENT NET EARNINGS Additions to current net earnings Profit on sales of U.S. government securities (net) Profit on foreign exchange transactions All other Total additions Deductions from current net earnings Losses on foreign exchange transactions All other 0 52.05 1,939,742.38 2 8 ,6 0 9 ,0 2 2 . 3 6 0 5 3,115.52 21,439.99 5 3,115.52 28,630,462.35 + 8 2 ,0 2 3 ,9 4 8 .0 6 -2 6 ,6 9 0 ,7 1 9 .9 7 2 ,9 1 9 , 9 3 8 . 2 2 5 ,2 5 8 , 2 0 0 . 0 0 1 5,2 5 3,97 1.00 2,443,149.38 4,724,500.00 12,825,070.00 $ 1,7 0 0,02 3,39 5.09 $1,365,453,673.96 Dividends paid Payments to U.S. Treasury (interest on Federal Reserve notes) Transferred to surplus $ $ TOTAL $1,7 0 0 ,0 2 3 ,3 9 5 .0 9 $1,365,453,673.96 Balance at close of previous year Addition of profits for year $ 123 ,4 55 ,8 50 .0 0 15,9 7 4,85 0.00 $ 113,919,900.00 9,535,950.00 BALANCE AT CLOSE OF CURRENT YEAR $ 139 ,4 30 ,7 00 .0 0 $ 123,455,850.00 $ 113,919,900.00 11,028,350.00 Total deductions Net additions or deductions Cost of unreimbursed Treasury services Assessment for expenses of Board of Governors Federal Reserve currency costs NET EARNINGS BEFORE PAYMENTS TO U.S. TREASURY D is tr ib u tio n o f N e t E a r n in g s 7 ,9 0 2 ,9 1 1 .6 2 1,67 6 ,1 45 ,6 33 .4 7 1 5,9 7 4,85 0.00 7,163,925.87 1,348,753,798.09 9,535,950.00 S u r p lu s A c c o u n t C a p i t a l StOCk A c c o u n t (Representing amount paid in, which is 50% of amount subscribed) Balance at close of previous year Issued during the year $ 142 ,2 18 ,9 50 .0 0 2 ,7 8 8 ,2 5 0 .0 0 Cancelled during the year BALANCE AT CLOSE OF CURRENT YEAR 123 ,4 55 ,8 50 .0 0 18,7 6 3,10 0.00 $ 139 ,4 30 ,7 00 .0 0 124,948,250.00 1,492,400.00 $ 123,455,850.00 25 1989 Annual Report S u m m a r y o f O p e r a tio n s N um b e r O p e ra tio n A m o u n t (^thousands) 1988 1989 1989 1988 Currency and coin processed Currency received and verified Currency verified and destroyed Coin received and verified 1.756.230.000 6 1 3 ,3 5 3 ,0 0 0 1.542.831.000 1.874.378.000 6 2 0 ,6 9 9 , 0 0 0 1.655.134.000 22,635,584 Checks handled Commercial— processed * Commercial— packaged items U.S. government 1,457,293,000 2 9 5 , 1 0 2 ,0 0 0 6 6,3 7 2,00 0 1,387,465,000 284,171,000 67,855,000 963 ,0 5 1 ,6 8 8 108.394.000 137.260.000 928,351,369 1 0 2 , 1 3 6 ,0 0 0 121,640,471 Collections items handled U.S. government coupons paid Noncash items 63,174 135,278 8 6 ,0 0 0 146,279 28,750 383,324 60,447 384,133 Commercial book-entry transfers originated 231,928 210,153 1,818,399,000 1,555,119,348 5,230,327 4,735,102 8 ,8 8 8 ,0 5 3 ,0 0 0 7,972,217,000 1 6 9 , 1 2 1 ,0 0 0 187,066,000 961,097 905,348 540 843 4 ,04 3 ,0 00 3,684,649 Funds transfers sent and received Food stamps redeemed Loans advanced *Excluding checks on this Bank. 26 5,466,155 2 48,019 22,542,609 5,054,682 2 6 6 ,9 0 8 Federal Reserve Bank of Richmond O ffic e r s (Decem ber 31, 1989) Richmond Robert P. Black, President Jim m ie R. M o n h o llo n , First Vice President W e lfo rd S. Farmer, Executive Vice President J. Alfred Broaddus, Jr., Senior Vice President and Director o f Research Roy L. Fauber, Senior Vice President Jam es D . Reese, Senior Vice President Bruce J. Sum m ers, Senior Vice President* Jam es F. Tucker, Senior Vice President Fred L. Bagwell, Vice President D a n M. Bechter, Vice President L loyd W . Bostian, Jr., Vice President T im o th y Q . C o o k , Vice President W illia m E. C ullison, Vice President D o n n a G. D ancy, Vice President W yatt F. Davis, Vice President M ichael Dotsey, Vice President George B. Evans, Vice President W illia m C. Fitzgerald, Associate General Counsel M arvin S. G o o d frie n d , Vice President Robert L. Hetzel, Vice President D avid B. H um p hrey , Vice President and Payments System Adviser T hom as M. H um p hrey , Vice President Jam es McAfee, Vice President and General Counsel M ichael W . N ew ton, Vice President Jo seph C. Ramage, Vice President J o h n W . Scott, Vice President A nd re w L. T ilton, Vice President W alter A. Varvel, Vice President R oy H. W e b b , Vice President K em per W . Baker, Jr., Assistant Vice President W illiam H. Benner, Jr., Assistant Vice President Jackson L. Blanton, Assistant Vice President W illiam A. Bridenstine, Jr., Assistant General Counsel Bradford N. Carden, Assistant Vice President Betty M. Fahed, Assistant Vice President Sharon M. Haley, Assistant Vice President and Secretary Eugene W . Jo h n so n , Jr., Assistant Vice President Thom as P. Kellam, Assistant Vice President Anatoli K u prianov, Research Officer H arold T. Lipscom b, Assistant Vice President Edgar A. M artindale III, Assistant Vice President Yash P. Mehra, Research Officer D avid L. M engle, Research Officer Jo seph F. Morrissette, Assistant Vice President Virginius H. Rosson, Jr., Assistant Vice President G. R onald Scharr, Assistant Vice President Gary W . Schem m el, Assistant Vice President Marsha S. Shuler, Assistant Vice President James R. Slate, Assistant General Counsel W illiam F. W hite, Assistant Vice President H ow ard S. W h ite he ad , Assistant Vice President B obby D. W y n n , Assistant Vice President A rthur J. Zo h ab , Jr., Assistant Vice President M alcolm C. Alfriend, Examining Officer W h itle y K. Crane, Information Systems Officer Floyd M. D ickin so n, Jr., Examining Officer Jeffrey S. Kane, Examining Officer Susan Q . Moore, Personnel Officer Lawrence P. N uckols, Examining Officer Virginia W . Shelor, Information Systems Officer Charlotte L. W ald ro p , Examining Officer H. Lewis Garrett, General Auditor R obert E. W etzel, Jr., Assistant General Auditor Baltimore Culpeper Robert D. McTeer, Jr., Senior Vice President Jo h n G. Stoides, Senior Vice President R o na ld B. D u n c an , Vice President W illia m E. Pascoe III, Vice President James J. Florin III, Assistant Vice President Thom as C. Ju d d , Assistant Vice President J o h n S. Frain, Assistant Vice President W illia m J. Tignanelli, Assistant Vice President Julius M alinow ski, Jr., Operations Officer J o h n I. T urn b u ll II, Financial Services Officer Charlotte Albert D. T inkelenberg, Senior Vice President Sam uel W . Pow ell, Jr., Vice President Robert F. Stratton, Vice President Jefferson A. W alker, Vice President Charleston Richard L. H opkins, Vice President Columbia W o o d y Y. Cain, Vice President Marsha H. Malarz, Assistant Vice President Lyle C. DeVane, Operations Officer R o na ld D. Steele, Check Operations Officer * On leave of absence 27 T h e th e n e w C h a r lo tte B a n k ’s 28 b u ild in g lo n g -r a n g e co m p letes b u ild in g p r o g r a m
@FedFRASER