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FEDERAL RESERVE HANK OF RICHMOND HRANCIIES IN BALTIMORE AM ) CHARLOTTE JAN 1 1 1963 FHDKRAL RKSKKVE BANK OF KLCIIMOM) TO THE MEMBER BA N K S: W e are pleased to present the Annual Report of the Federal Re serve Bank o f Richmond fo r the year 1961. This year’s report features the role o f the head office and branch directors in the operation o f the Federal Reserve Banks and their contribution to the functioning o f the nation’s econom y. Since Class A and Class B directors are selected by mem ber banks, we believe the story o f their duties and functions will be o f interest to you. In addition, the report contains a summary of Fifth District operations, a current list o f officers and directors, and com parative financial statements. On beh alf o f the directors and staff, we wish to express our ap preciation fo r your cooperation and support throughout the year. Very truly yours, Chairman of the Board. President. 5 Federal Reserve Bank Directors 6 Structure o f the Federal Reserve System 9 The Board o f Directors 12 Nomination and Election o f Directors 15 Functions o f Directors 20 Federal Reserve Branch Directors 22 Summary of Operations 24 Comparative Statement of Condition 25 Comparative Statement of Earnings and Expenses 26 Federal Reserve Bank of Richmond— Directors 27 Federal Reserve Bank of Richmond— Officers 27 Baltimore Branch— Officers 27 Charlotte Branch— Officers 28 Baltimore Branch— Directors 28 Charlotte Branch— Directors FEDERAI. RESERVl*: HANK DIRECTORS “ [They] shall act primarily in the public interest and [their] motives and conduct shall be so absolutely well-known and above suspicion as to inspire unquestioning confidence on the part of the community ” “ [They] are men of stature and ability— men who are dedicated to the public welfare. Their decisions are made without bias or self-interest of any group. And I can say from my personal experience that there is no consideration other than for the country as a whole.” The w ording o f these two statements is different, yet the ideas expressed in each are substantially the same. The significance o f this similarity lies in the fa ct that these statements were separated by some forty-seven years. The first appears in House Report No. 69 o f the Sixty-third Congress. The time— 1913. The subject— the soon-to-beestablished Federal Reserve Banks. The second is part of a statement by the president o f a Federal Reserve Bank to a sub-committee o f the Banking and Currency Committee o f the House o f Representatives. The time— 1960. The subject— the directors o f a Federal Reserve Bank. The first statement em bodies the hopes and aspirations which Congress had fo r the new central banking system it was establishing— the second eloquently describes the spirit and character o f the men who have helped guide and direct an im portant part o f that system— the Federal Reserve Banks and their branches— during the years which have follow ed . The ensuing years have seen the Federal Reserve Banks develop from the intangible fram ew ork outlined in the pages of the Federal Reserve A ct into the flesh and blood o f 20,000 em ployees o f the 12 Banks and their 24 branches and the steel and concrete buildings which house them. They have seen the functions which the A ct so drily calls upon the Reserve Banks to perform brought to life and becom e an active and indispensable means through which the econom y o f the nation operates— through the services perform ed by the Banks in acting as the G overnm ent’s principal fiscal agents, collecting fo r the public over fou r billion checks annually, serving as the channels through which practically all currency and coin moves into or out o f circulation, and issuing Federal Reserve notes, which account fo r approxim ately 85 per cent o f the nation’s “ pocket m oney.” The years follow in g have also seen the Reserve Banks carry out their more basic purposes under the Federal Reserve A ct— making loans to m em ber banks and super- 5 vising and examining State mem ber banks— and help to accom plish its broader objective— that o f regulating the flow o f money and credit in order to prom ote econom ic stability and growth. These years have also brought a gradual increase in public know ledge and understanding o f the purposes and functions o f the Federal Reserve Banks and o f the System. The accom plishm ents and continuing developm ent of what began as a new and untried experiment are a tribute to the directors o f these institutions. W hat is the role o f these “ men o f stature and ability . . . dedicated to the public w elfa re” who help give reality and substance to the ideal expressed by Congress nearly half a century ago— who contribute to w hatever success the Banks and the System have in main taining the “ unquestioning confidence o f the com m unity” ? W hat quali fications must they have and how are they elected? H ow long do they serve and what are their duties? The Federal Reserve A ct furnishes the answers to some o f these questions, and publications of the Reserve Banks and the Board o f G ov ernors answer such questions as “ W ho are the current directors o f each Federal Reserve B a n k ?” “ W here do they liv e ? ” “ W hat are their occu p ation s?” None of these sources, how ever, answers the broader questions involving why men o f talent and ability who have made their marks in their own fields accept the time and energy consuming job s o f being Federal Reserve Bank directors. Nor do they indicate the significance o f their service as directors. To find the answers to these more general questions and to appre ciate the significance o f answers to the specific questions, it is necessary first to have some understanding o f the fram ew ork o f the Federal Re serve System and the basic concepts underlying its establishment. The regional structure on which Congress built the System and the inherent public nature o f the Federal Reserve Banks dictate the tenor o f every law and ruling relating to Federal Reserve Bank directors. STRUCTURE OF TIIE FEDERAL RESERVE SYSTEM Congress, in fram ing the Federal Reserve A ct, was fa ced first with the problem o f designing a central banking system which w ould meet the credit and m onetary needs o f a large, diversified, and com plex econom y. It settled upon a regional system with national coordination of policy rather than a central institution such as had been established in older countries. It was then fa ced with the questions o f form and control o f the regional system. The simpler o f these was the question o f form and, in keeping with the business practices o f the day, the regional Federal Reserve Banks were set up as corporations. A more difficult problem was that o f constituting control and management o f the system in a way which w ould generate absolute confidence and at the same time satisfy the people. Some thought that the new institutions should be managed by businessmen alone without any Governm ent interference. Others felt that since the Reserve Banks w ould have the pow er to issue money, which is a Governmental function, the Government should run them. M anagem ent o f a central banking institution exclusively by the Government, how ever, was thought too likely to carry with it control fo r partisan political purposes by the administration in pow er. On the other hand, placing control o f the new institutions exclusively in the hands o f banks and businessmen would be sure to create alarm and suspicion. Congress resolved the problem in a manner consistent with the theory o f separation o f pow ers and the system o f checks and balances which had becom e characteristic o f the nation. First, it made the new 6 system responsible to the Congress rather than the President. Second, it. created an organization in which Government representatives would iiave final authority over matters o f national policy but in which the day-to-day operations w ould be largely conducted by the regional Banks and in which private individuals w ould participate. The central banking system which has evolved from the exposition o f these principles in the Federal Reserve A ct is com posed o f the Board of Governors of the Federal Reserve System, the Federal Reserve Banks, the member banks, the Federal Open Market Committee, and the Fed eral Advisory Council. The Board of Governors is a Governmental body consisting o f seven men appointed by the President with the advice and consent o f the Senate. Board members are appointed fo r fourteen-year terms and are ineligible fo r reappointm ent after having served a full term (p ro visions designed to insulate them from partisan politics and other pressures). The B oard’s prime function is form ulating monetary policy and supervising its execution. More particularly, it has authority to change reserve requirements within limits set by Congress; it reviews and determines the discount rate established by the individual Reserve Banks and is required to establish maximum interest rates which m em ber banks may pay on time deposits. It represents the System in rela tions with the Federal Governm ent and exercises special supervision over the foreign contacts and international operations o f the Reserve Banks. It directs the bank examination w ork of the Federal Reserve Banks, coordinates System econom ic research and data collection, and reviews all System publications. In addition, the Board supervises Re serve Bank operations, examines each Reserve Bank and its branches annually, and its approval is necessary fo r the appointment o f the presi dent and first vice president o f each Reserve Bank. The Federal Reserve Banks, each a separate corporate entity, were established by Congress as the System’s operating arms— the means through which the day-to-day operations o f the System are conducted. In order that all parts o f the United States might have convenient access to the Reserve System, Congress specified that the Reserve Banks should be located in different sections o f the country, with the result that the country has been divided into tw elve Federal Reserve districts— each with a Federal Reserve Bank. There are now also tw enty-four branches o f these Banks serving particular areas within the districts. The Reserve Banks hold the cash reserves of their m em ber banks, provide checking accounts fo r the Treasury, issue Federal Reserve note currency, collect checks, supervise and examine m em ber banks, handle the issuance and redem ption of Governm ent securities, and act in other ways as fiscal agent fo r the Government. The Federal Reserve Banks are prim arily concerned with serving the public interest. They do not operate to make a profit although they do operate with regard to effi cient management. Their earnings— after provision fo r operating and other expenses and the paym ent o f dividends on their stock as fixed by law— are paid to the U. S. Treasury. The member banks o f the System number more than 6,000 o f the privately ow ned com m ercial banks in the country. All national banks are required to be members and qualified State-chartered banks may becom e members. Most of the larger State-chartered banks are m em bers o f the System. M ember banks must subscribe to the capital stock o f their Reserve Bank in an amount equal to 6 per cent o f their own capital and surplus (only half o f this is paid-in— the other h a lf is sub je c t to ca ll). They must com ply with reserve requirements and with regulations governing branch banking, check collection, and other bank ing matters. In return they have the privileges o f borrow ing under 7 certain conditions from the district Reserve Bank; of using System facilities for collecting checks, settling balances, and transferring funds to other cities; and of obtaining currency and coin as needed. They receive a dividend of 6 per cent annually on their Federal Reserve Bank stock and vote in the election of six of the nine directors of the district Federal Reserve Bank. T h e F ed eral O pen M ark et C om m ittee, the System’s most important policy-making body, is composed of the seven members of the Board of Governors and live presidents of the Federal Reserve Banks. The presidents serve as members in rotation except for the President of the New York Reserve Bank, who is a permanent member of the Committee. The Committee’s main responsibility is the establishment of System open m arket policy— the extent to which the System buys and sells Govern ment and other securities. Such purchases and sales of securities directly affect the volume of member bank reserves and, consequently, the over-all cost and availability of credit. T he F ed eral A d visory C ouncil is composed of twelve members, one from each Federal Reserve District, who are elected annually by the board of directors of the Federal Reserve Banks of their districts. The Council meets in Washington at least four times a year and advises the Board of Governors on important current developments in business and banking. The Federal Reserve System thus includes within its framework both the purely Governmental— the Board of Governors, and the purely private— the member banks. Linking these two components are the Federal Reserve Banks. While Congress clearly established the Re serve Banks as public institutions, it provided at the same time that they should be the means for attracting and binding to the System the sup port of its private element, the nation’s commercial banks. It accomplished this by tying the member banks to the Reserve Banks through the requirement that each member bank subscribe to a fixed amount of capital stock of its Federal Reserve Bank and by providing that the member banks in each district might elect six of the nine directors of its Reserve Bank, the other three being appointed by the Board of Governors. As a check against the possibility of any undue influence over the Reserve Banks which might arise from this arrangement, Congress provided that, while the directors of the Banks would supervise and control them and perform the usual duties of directors of banking insti tutions, the Board of Governors would have general supervision over them. In addition, the six member-bank-elected directors of each Re serve Bank were divided into two groups and a rather detailed method provided for their election. Finally, limitations were placed on the rights which would accrue to member banks through their ownership of Federal Reserve Bank stock. Ownership of such stock carries with it no claim upon the earn ings of the Reserve Banks beyond the cumulative dividend provided by law. The stock cannot be transferred or hypothecated and, regardless of the number of shares it holds, each member bank has but one vote in the election of directors of its Federal Reserve Bank. A member bank may not vary the amount of its holdings of Reserve Bank stock except as the amount of its own capital and surplus changes. Thus, it cannot purchase additional stock in order to increase its earnings or to increase its influence over the management of the Reserve Bank. Con versely, it cannot reduce its required holdings in order to release funds for more profitable use. From the point of view of the member bank, ownership of stock in a Federal Reserve Bank is more in the nature of a compulsory participation in a public enterprise than an investment acquired for control or income purposes. 8 Till] HOARD OF DIRECTORS Just as the Federal Reserve System as a whole was organized on the principle of separation of powers and provision for checks and bal ances, so too were the boards of directors of the individual Federal Reserve Banks organized. The Federal Reserve Act groups the nine directors of each Reserve Bank into three classes— A, B, and C— of three members each. The term of office of each of the nine directors is three years, with the term of one member of each class expiring each year. A director has no authority to continue to serve after his term expires even though his successor has not been elected or appointed. Class A consists of three directors chosen by and representative of the stockholding banks. These directors are usually officers or direc tors of member banks, although this is not required. The Federal Re serve Act sets forth no residential qualifications for them, but the Board of Governors has decided th at in order to be truly representative Class A directors must be residents of the Federal Reserve district from which they are elected. Class B consists of three directors chosen by the member banks who at the time of their election are actively engaged in their district in agriculture, commerce, or some other industrial pursuit. They may not be an officer, director, or employee of any bank but may be a stock holder. Class C consists of three directors appointed by the Board of Gov ernors of the Federal Reserve System. They must have been residents of the district from which they are appointed for at least two years. They may be neither an officer, a director, an employee, nor a stock holder of any bank. No other qualifications for directors are specifically set forth in the Federal Reserve Act and the only persons prohibited by the Act from serving as directors are members of Congress, who are likewise prohibited from serving as members of the Board of Governors or as officers of Federal Reserve Banks. The principle which Congress had in mind in adopting this prohibition, together with the nature of the Reserve Banks as public institutions, has brought about in practice, how ever, a most significant qualification which Reserve Bank directors must meet. The Board of Governors early recognized that in view of the status of the Reserve Banks as public institutions, performing essential func tions of a public nature, no situation which might be interpreted as associating them with any political party or political activity should be permitted to exist. Accordingly, in 1915 it adopted a resolution that “persons holding political or public office in the service of the United States, or of any State, Territory, county, district, political subdivision, or municipality thereof, or acting as members of political party com mittees, cannot consistently with the spirit and underlying principles of the Federal Reserve Act, serve as directors or officers of Federal Reserve Banks.” The Board has prescribed as a condition of eligibility that candi dates for election as directors of the Reserve Banks must comply with the terms of this resolution. Consequently, candidates may be required to resign a political or public office if retention of the office while a candidate might tend to associate the Reserve Bank in the public mind with political activities. Directors, as well as officers and employees, 9 of Federal Reserve Banks are, however, free to render public service of a nonpolitical character so long as the positions do not interfere with Bank duties and are free from political activities. On the other side of the picture, the Board of Governors has at tempted to prevent the Federal Reserve System from being identified with private interests. Thus, while the Board of Governors does not assume any jurisdiction over the business affiliations of directors, except insofar as they may affect the qualifications prescribed in the Act, directors of Federal Reserve Banks and their branches may not use references to their directorships for the purpose of advertising or pro moting private business connections. Any failure or neglect on the part of a director to prevent or stop reference to his official position in advertisements of a private business is considered by the Board of Gov ernors sufficient cause for calling upon him to sever his connection either with the business advertised or with the Reserve Bank. CHAIRMAN OF TIIE BOARD OF DIRECTORS The chairman of the board of directors of a private business cor poration is generally elected by the other directors. In the Federal Reserve System, however, the Board of Governors designates the Chair man of the Board of each Federal Reserve Bank annually from among its appointees to the board of directors (the Class C directors). Another Class C director is designated by the Board of Governors as Deputy Chairman and, in the absence of both of these directors, the third Class C director acts as chairman. Also unlike the situation in many private business corporations where the chairman of the board may be the chief executive or operating officer, the Chairman of the Board of a Reserve Bank as such has no operating duties, the President being the chief executive officer of each Bank. The Chairman of the Board of a Reserve Bank is also designated by the Board of Governors as Federal Reserve Agent. In this capacity as well as that of Chairman he has a special relationship to the Board of Governors. He is required by law to maintain a local office of the Board of Governors on the premises of the Bank, to act as its official representative, and to make regular reports to the Board of Governors, including reports of any undue use of Reserve Bank credit by member banks. As Federal Reserve Agent he supervises and has ultimate responsi bility for the issuance and retirement of Federal Reserve notes and the collateral pledged to secure them. In addition, he must report to the Board of Governors any cases of unsafe or unsound banking practices on the part of member bank officers and directors. As Chairman of the Board he presides at all meetings of the board of directors and supervises, through the directors’ Committee on Audit ing, the work of the General Auditor of the Bank. In this connection, he must review the report of examination of the Federal Reserve Bank which is made annually by examiners of the Board of Governors. The Chairman is also responsible for conducting- the nomination and election of Class A and B directors. The Chairman and the Board of Governors have a mutual obliga tion to inform each other of matters of importance which should be considered by the board of directors and, as one means of accomplish ing this, a Conference of Chairmen of the Reserve Banks has been formed which meets from time to time with the Board of Governors. ROTATION OF DIRECTORS A broad cross section of the public has generally been represented on the boards of directors of all the Reserve Banks. This stems from two factors— first, the Board of Governors’ views regarding the desira bility of rotating memberships on the boards and, second, an awareness by member banks of the public nature of the Reserve Banks and recog nition by them of the wisdom of the Board’s views on rotation. Since the Federal Reserve Banks are public institutions operated in the public interest and not for private profit, the Board of Governors has always felt that a certain degree of rotation in the membership of the directorates of the Federal Reserve Banks and branches is desirable in order to give the System the advantages of broader representation over a period of time and help insure against a possible crystalization of the influence of particular individuals or groups. The Board there fore follows a policy of not reappointing Class C directors after they have served two full terms of three years each. An exception is made, however, when a director who has served all or a part of two terms as a director is then designated by the Board as Chairman and Federal Reserve Agent. In such a case the director may serve another threeyear term, for a total of not more than three full terms as a director. The Board has expressed the hope th at a similar policy would be followed by member banks in the election of Class A and B directors. As a consequence of this the member banks in most districts have volun tarily adopted procedures under which Class A and B directors are elected on a rotating basis substantially similar to the Board’s policy regarding Class C directors. In the Fifth Federal Reserve District, for instance, a committee composed of representatives from member banks in each state in the District (including the District of Columbia) several years ago agreed upon a schedule under which Class A directors would serve for only one term and Class B directors would serve for two terms. The plan provides also for the rotation of the Class A and B directorships among the several states in the District and, to the extent possible, for the representation of each state on the board of the Fifth District Reserve Bank by at least one Class A or B director each year. NOMIN ATION AM) ELECTION OF DIRECTORS In setting up checks and balances to guard against any possible undue influence over the Reserve Banks, Congress not only divided the boards of directors into three classes but also designed a plan to insure fair representation of both large and small member banks in the election of the six Class A and B directors. CLASSIFICATION OF MKM1M3R HANKS FOR ELECTORAL PURPOSES The Federal Reserve Act requires the Board of Governors to group the member banks of each district into three general divisions which are designated by number, with each group consisting as nearly as possible of banks of similar capitalization. Generally, Group 1 contains the largest banks of the district but has the fewest number of banks of any of the groups. Group 2, composed of the middle-sized banks, contains around a third of the number of member banks in the district, and Group 3 consists of the smaller banks. Any one member bank in a group can participate in the election of only two of the six elected directors— one Class A director and one Class B director— and has but one vote for each. The group classifica tion therefore prevents the more numerous smaller banks from electing all six of the Class A and B directors and assures substantially equal representation of banks of differing size. This classification and the fact that each bank has only one vote, regardless of the number of shares of Reserve Bank stock it holds, also prevent a concentration of voting power in the hands of a few larger banks. In other words, while the vote of a larger bank may have a greater weight in its group in the election of the two directors for whom it is entitled to vote than the vote of a smaller bank in its group (because of the fewer number of banks in the larger bank’s group), there is nevertheless an equality of voting power within a group and between groups. To further remove the possibility of domination of the boards of directors by a particular group of banks, the Federal Reserve Act pro vides that no officer or director of a member bank is eligible to serve as a Class A director unless he is nominated and elected by banks which are members of the same group as the bank of which he is an officer or director. In addition, a person who is an officer or director of more than one member bank is not eligible for nomination as a Class A direc tor except by banks in the same group as the bank having the largest aggregate resources of any of those of which he is an officer or director. Similarly, if two or more member banks in the same Federal Re serve district are affiliated with the same holding company affiliate, only one of these member banks in any one group may participate in the nomination and election of Class A or B directors. If a holding com pany affiliate is itself a member bank which controls other member banks in its own group, only one of the banks, including the holding company affiliate, may participate in the nomination and election of directors by the banks in that group. 12 NOMINATIONS In late summer or early fall of every year the Chairman of the Board of Directors of each Reserve Bank advises the member banks in his District by letter of the coming election of a Class A and a Class B director to succeed the directors whose terms will expire at the end of the year. Nominations are requested from the banks in the group or groups entitled to vote in the particular election, and a time limit, generally a month or so, is set for the submission of nominations. A member bank may nominate a candidate for election as a Class A or B director simply by having its board of directors pass a resolution nominating the person of its choice and authorizing one of its officers to certify the name of the candidate to the Chairman of the Board of its Reserve Bank. The form which must be used in certifying nomina tions is furnished by the Chairman only to those banks entitled to vote in the particular election. The nomination process itself is thus a simple one. At the same time, however, the nature of the Federal Reserve Banks as important parts of the nation’s central banking system places upon member banks a responsibility for nominating as candidates only those persons who have evidenced an ability to contribute actively and intelligently to the efficient direction of institutions dedicated to serving the public interest. The continued development of the Reserve Banks and their increasing usefulness to the public over the years is evidence that member banks have generally recognized and met this responsibility. The manner in which the banks in the several Federal Reserve districts have recognized this responsibility as a practical m atter through the nomination and election process differs, however. In some districts, including the Fifth District, member banks have formed nomi nating committees whose purpose is to set up a list of candidates. In other districts, committees of state bankers associations suggest candi dates. The Fifth District nomination plan was set up by the Committee which designed the plan for rotating Class A and B directors. In practice it works in the following manner. Each year the member banks from each state in the District select a representative to meet with a representative of the member banks of each of the other states as a Committee on Recommendations for Directors of the Federal Re serve Bank. The selection of these representatives is generally made at a meeting held during the annual meeting of each state’s bankers association. Several weeks before the Chairman of the Reserve Bank requests nominations from member banks the Committee meets to con sider the particular persons it will recommend as candidates, giving due regard to the provisions of the agreed-upon plan regarding length of service of Class A and B directors and the rotation of these director ships among the several states. A few days before the Chairman of the Reserve Bank requests nominations, the Committee sends to all member banks in the District a letter telling them the names of the persons it recommends for nomi nation and furnishes the banks a biographical sketch of the proposed candidates. While compliance with this plan is purely voluntary on 13 the part of the member banks and they remain free to nominate someone else, the Committee’s recommendations have been followed without exception during the several years the present plan has been in effect. THE ELECTION Shortly after the date set for the nominations to be closed the Chairman of the Reserve Bank advises all member banks in his District of the dates during which the election will be held and furnishes them a list of the candidates nominated, the banks nominating them, and a biographical sketch of each candidate. The names of the nominees and those making nominations may not be divulged prior to the publi cation of this list. A member bank entitled to vote in the election does so by certifying to the Chairman of the Reserve Bank on a ballot fur nished by him its first, second, and other choices for director of the class its group is electing. However, it cannot vote more than one choice for any one candidate. The certification is made by the bank’s president, cashier, or some other officer authorized by resolution of its board or by amendment to its bylaws to cast the bank’s vote. The ballot, when marked, is placed in an envelope on which ap pears only the words “BALLOT— Class A Director’s Election” or “BALLOT— Class B Director’s Election,” as the case may be, and the envelope sealed. The sealed envelope is then placed within another envelope on which is printed a certification form for execution by the authorized officer. This envelope is then sealed and mailed to the Chairman of the Board of the Reserve Bank. When received by the Chairman the certificate envelope, before being opened, is checked against the authorization previously filed by each member bank with the Chairman. If signed by a properly author ized officer, the certificate envelope is opened and the sealed envelope within it containing the ballot is then deposited in a locked ballot box. If there is some defect apparent in the certification, however, that enve lope and the envelope within it containing the ballot are returned to the bank with a notice of the defect. In such a case the bank may then submit the ballot again upon curing the defect in its certification. With the closing of the polls, the ballot box is opened and the ballots counted by tellers appointed by the Chairman of the Board. The candidates are invited to be present or represented if they wish. An immediate report of the results of the election is made by the Chair man to member banks and to the public. While the election of Class A and B directors is in process, the Board of Governors is quietly searching for men of standing in their communities who are willing, out of a sense of community and public responsibility, to serve as Class C directors. Before the end of the year, member banks will receive notice from the Chairman of the Board of their Federal Reserve Bank of the appointment by the Board of Gov ernors of a Class C director to succeed the director whose term is expiring. The new directors of each class will execute oaths of office and, with the first meeting of the board of their Reserve Bank held after the first of the year, embark upon their service as a Federal Reserve Bank director. 14 FU NCTIONS o f d i r e c t o r s A rough outline of the agenda of the first meeting of the board of directors attended by a new Federal Reserve director might resemble the following: Approval of minutes of previous meeting. Approval of minutes of meeting of Executive Committee. Report of Discount Committee. Report of Committee on Auditing. Review of budget experience. Reports from branches. Administrative matters. Recess. Review of current and prospective economic conditions. Policy considerations. Discussion. Establishment of discount rate. Adjourn. The first part of this agenda would indicate that the functions and responsibilities of a Reserve Bank director are similar to those of the director of any business corporation— as indeed they are in many respects. Reserve Bank directors prescribe the bylaws under which the Bank’s general business is conducted and the privileges granted it are exercised. They are responsible for the general conduct of the Bank’s affairs, which the law requires them to administer “fairly and im partially and without discrimination in favor of or against any member bank or banks.” The primary responsibility for the management policies at each Bank therefore rests upon its directors, although certain actions are subject to review by the Board of Governors. A look at the second part of the agenda gives a hint of the material differences between the responsibilities of Reserve Bank directors and those of private business corporations. This distinction is inherent in the public nature of the Federal Reserve Banks as the regional arms of the nation’s central banking system. It is evidenced by the Board of Governors’ 1915 resolution regarding the holding of political or pub lic office by directors or officers of Federal Reserve Banks. The prin ciple expressed in this resolution has led to the establishment of a tradition that in accepting a directorship an individual puts aside the narrow interest of any one group and serves the public generally. Within the context of this public stewardship, however, a Reserve Bank director can still contribute the benefit of his experience in his own field of competence. For instance, Class A directors, who are generally bankers, may impart their specialized professional experience and advice in connection with the improvement of technical operations and the overseeing and management of banking functions performed by the Reserve Banks. The management experience of the directors of all three classes can be an invaluable aid in improving the efficient operation and management of the Reserve Banks. The directors’ ex perience and advice are important also as aids in judging the impact of broad policy decisions affecting the supply and cost of money and credit, and their knowledge of local conditions can provide valuable economic information necessary in making such decisions. At the same time their standing in their communities helps widen public under standing of the System’s functions and the purposes of its policy actions. A review of some of the items which appear on the agenda of a board meeting may provide a more complete picture of the functions of Reserve Bank directors. 15 REPORT OF DISCOUNT COMMITTEE To a commercial bank one ol the most important advantages oi Federal Reserve membership is that of obtainin0* additional voeowpa on occasion by borrowing from its Federal Reserve Bank. The Reserve Bank, however, is under no automatic obligation to grant credit to a member bank applying for a loan. To the contrary, the System’s re sponsibilities for furthering the maintenance of sound credit conditions in the nation and for providing an ultimate source of liquidity for the entire banking system require the Reserve Banks to examine carefully individual cases of member bank borrowings. In considering such borrowings, the Reserve Banks must bear in mind the requirement of the Federal Reserve Act that each Reserve Bank “keep itself informed of the general character and amount of loans and investments of its member banks with a view to ascertaining whether undue use is being made of bank credit for the speculative carrying of or trading in securi ties, real estate or commodities or for any other purpose inconsistent with the maintenance of sound credit conditions.” A decision whether to extend credit in a particular case must, therefore, rest on the Reserve Bank’s judgm ent concerning the member bank’s need and the use to be made of the additional funds. While the day-to-day decisions regarding the granting of credit to member banks are carried out by the Reserve Bank’s officers, the Bank’s directors are responsible for the conduct of these operations. As a means of fulfilling this responsibility, the directors consider at each meeting a current report by the Bank’s Discount Committee regarding the operation of the “discount window.” REPORT OF COMMITTEE ON AUDITING In conjunction with their general responsibility for supervising and controlling the Reserve Banks, the board of directors of each Bank has a special responsibility for the maintenance and supervision of an effec tive internal auditing system. In each Reserve Bank there is an auditing staff which is organi zationally separate from that of the Bank. The officer in charge of this staff, the General Auditor, reports directly to the Board of Direc tors of the Bank through the Chairman and the Committee on Auditing, which is composed of members of the board. The functions of the auditing staff are performed under general policies approved by the Conference of Chairmen of Federal Reserve Banks and by the Board of Governors. The manner in which the auditing function is carried out is reviewed by the Board of Governors’ examiners in their annual examination of each Reserve Bank. Copies of the reports of the Gen eral Auditor are furnished to the Board of Governors as a further aid in the discharge of its responsibility for general supervision of the Re serve Banks. REVIEW OF BUDGET EXPERIENCE While the Reserve Banks do not operate for a profit, they are operated with regard to efficient management. Primary responsibility for their economical and efficient operation rests with the directors of each Bank. The directors’ responsibilities in this area are of particular im portance in view of the fact the Federal Reserve Banks do not operate on appropriated funds and Congress has placed no specific restriction on their expenditures except a provision in the Federal Reserve Act that they may incur only “necessary expenses.” The directors therefore have a distinct duty to see that expenses are fully justified in relation to the functions the Reserve Banks perform under the Federal Reserve Act. 16 As a means of meeting this responsibility, the System’s budgetary procedure provides that each Bank’s annual budget be approved by the directors before it is submitted to the Board of Governors for considera tion. After the budget has been finally approved, the directors check frequently during the year to see how closely actual performance com pares with budget estimates. Shortly after the first of the year, the president of each Bank submits to his directors an experience report comparing for the whole of the previous year the budget estimates with actual expenses, together with a full explanation of any material differ ences. After consideration by the directors, the report is forwarded to the Board of Governors, which is also responsible for supervising the expenditures of the Banks. In this area of expenditure control, the directors have a specific responsibility for fixing the salaries of all officers and for approving compensation paid all employees of the Banks. r e po r t s from b r a n c h e s Federal Reserve branches are operated under the supervision of branch boards of directors; however, a branch has no corporate identity separate from that of its Reserve Bank and its operations are those of the Reserve Bank. The responsibility of the Bank’s directors therefore includes general responsibility for supervising its branches. A majority of the directors of each branch are appointed by the directors of the head office and the remainder by the Board of Gov ernors. The directors’ branch responsibilities thus include also respon sibility for appointing as branch directors men who are leaders in their communities and who will bring to the branches the benefit and good judgm ent of tested experience. Similarly, they are responsible for assigning to the branches officers who are not only capable but who will reflect credit upon the Bank and the Federal Reserve System. The manner in which these responsibilities are met is an important factor in determining the extent to which the regional principle which pre vailed in the establishment of the Federal Reserve System is carried out. The “Reports from branches” item may be a report by the presi dent of the Bank, the officer in charge of the branch, or a branch direc tor— or all three. In addition to information regarding the operations of the branch, the report will probably include significant economic and banking developments in the branch territory. As a further aid in meeting their branch responsibilities some of the Reserve Banks hold occasional joint meetings with their branch boards either at the head office or at the branches, and invite branch directors to attend meetings of the head office board on an individual basis. A1 )MINISTRATIVK MATTERS Under this heading the directors may consider a host of matters related to the general management of the Bank, many of which are like those considered by directors of private corporations. Among the more important of these is the appointment of all officers of the Bank, includ ing those at the branches, and passing upon promotions or changes in official personnel. By reason of their traditional standing and strategic location in business and financial centers, the Reserve Banks are in a position to exercise an important influence both through their customary operations and through the dissemination of information and advice on matters of monetary and credit policy, as well as matters of purely regional interest. The Reserve Banks are likewise in a position to make valuable contributions to the formulation of System policies and the effective application of such policies in their districts and can help bring about understanding and acceptance of them in the various communities 17 across the country. Actions taken by the Government and the Reserve -fiolrl nnH m m ip ta H r -nnllP^r aro n f (rvpqt imnAv*fqnno to the public generally, and it is desirable that an understanding oi them be as widespread as possible In view of these considerations, it is apparent th a t the directors of Reserve Banks have a continuing responsibility for seeing that the officers of the Banks are men who command respect in their communities and who furnish leadership of the kind required. The character of the operating management of the Banks is of primary importance in its daily contacts with bankers and others and in public appraisal of the quality of System administration. The selection of the president and the first vice president of each Bank, who serve for terms of five years, is a responsibility of major im portance, for the president is the chief executive officer of the Bank, and all other executive officers and all employees are directly responsible to him. In his absence the first vice president acts in his stead. The presidents of the Reserve Banks also serve from time to time as mem bers of the Federal Open Market Committee, the System’s most im portant policy-making body. While the selection of these and other officers and their salaries are subject to the final approval of the Board of Governors, the responsibility of wise selection and provision for adequate management succession nevertheless rests with the directors of the Banks. Svst-Om U t v m 111 H IV - '-'A l * ^ 1* ' “ 1 4 U I l l U l I V - i a i J *** C 0 ~ C £IV , . U . j / v i v a i l v v ESTABLISHMENT OF DISCOUNT RATE Included in the discussion of this item of the agenda are “Review of Current and Prospective Economic Conditions,” “Policy Considera tions,” and “Discussion.” The discount rate is perhaps the best known of the instruments of credit policy lodged in the Reserve System and the only one with re spect to which the Reserve Bank directors have any responsibility. The board of directors of each Reserve Bank is charged with establishing the discount rate of the Bank at least once every fourteen days, subject to the “review and determination” of the Board of Governors. While the Board of Governors has the final word, the Reserve Bank directors initiate changes in the rate. The discount rate is the rate paid by member banks when they borrow from the Reserve Bank. When some restraint in credit expan sion appears to be indicated, an increase in the rate would tend to dis courage borrowing by making it more costly, which would in turn put pressure on the member banks to curtail their lending. W hen business is slack there may be a reduction in the discount rate which would tend to make credit cheaper. In deciding what action to take with respect to the rate, the direc tors must be aware of w hat is being done with the other instruments of credit policy (open m arket operations, reserve requirements, and margin requirements). In these areas they are aided by recommenda tions of the president of the Bank, who participates in meetings of the Federal Open Market Committee, where all of the instruments are dis cussed. In making his recommendations, though, the president does not reveal to the directors any confidential information obtained through his participation in Committee meetings, for his responsibilities to the Committee and to his directors are separate. In addition, the directors must be familiar with current and antici pated economic conditions, including monetary and credit developments. In view of the impact of the taxing and spending policies of the Federal Government on the economy, they must also consider developments related to the fiscal operations of the Treasury. In these areas the directors are aided at their meeting by reviews and analyses of signifi cant factors and trends presented by the president or the Bank’s economists. 18 When all of this information has been presented the Chairman may call upon his fellow directors for their observations and for reports of developments in their own areas or businesses. With their widespread contacts the directors are in a position to make significant contributions to the common fund of knowledge. It is only after careful considera tion of all the pertinent facts obtainable that a decision is reached and the discount rate established. The agenda indicates that the meeting is now over. But adjourn ment of the meeting does not mean that the directors’ functions and responsibilities have been adjourned until the next meeting. Perhaps the most important function of Federal Reserve Bank directors is carried out between meetings. The consideration of regional conditions and the adaptation of national policy to local circumstances is characteristic of the nation. In the Federal Reserve System this is achieved through the presidents and officers of the regional Reserve Banks and their boards of direc tors. While the direct participation of Reserve Bank directors in the determination of national policy is limited to the establishment of the discount rate of their Reserve Bank, directors can make an important indirect contribution to the formulation of the entire range of credit policy. They can do so by making available to the presidents of their Re serve Banks current information on significant developments in their business or area and by expressing to them their impressions and opinions on economic developments and on desirable credit policy in the light of those developments. The presidents therefore have the benefit of the views of a broad cross section of the economy of their districts which they are able to utilize in developing the personal views which they present in meetings of the Federal Open Market Committee. They have also the benefit of economic information and analysis fur nished by the Research Departments of the Reserve Banks. The Open M arket Committee is the chief means through which credit policy is formulated and implemented. The Committee provides a body for centralized decision-making on credit policy in which is reflected the thinking of people from all regions of the country. Here diverse viewpoints and opinions are brought together and welded into a national policy. If the formulation of System policy on such a basis is to be effective, the Board of Governors and the presidents of the Reserve Banks must have available as much current information as possible regarding economic conditions and the effect of policy in all parts of the nation. While the Federal Reserve System’s research organization is wide ly recognized for its experience and the reliability of its economic in telligence in terms of statistics and other factual data, the development of statistics and facts requires time— and in formulating credit policy timeliness is of the essence. When economic changes are occurring which suggest a shift in the direction or emphasis of credit policy, the time lag in statistical and fact gathering may interfere with the most effective policy formulation. It is in this area that Reserve Bank direc tors can play an important role. The advance information and “straws in the wind” which Reserve Bank directors with their widespread con tacts can provide are an important means through which knowledge and appraisal of significant economic changes in process can be obtained. In addition to providing information on credit developments and think ing, the directors can furnish also important outlets through which an understanding of System actions may be achieved. W ider understand ing makes for a more effective response to System actions. The manner in which Reserve Bank directors fulfill their responsi bilities in this area is to a large extent the measure of the value of their service to the System and to the nation. 19 FEDERAL RESERVE BRANCH DIRECTORS Ten of the twelve Reserve Banks have established a total of twentyfour branches under the provisions of the Federal Reserve Act which authorize the Board of Governors to permit or require any Reserve Bank to establish branches. The Act provides that such branches shall be operated, subject to regulations of the Board of Governors, under the supervision of boards of directors consisting of not more than seven nor less than three directors, with a majority of one being appointed by the Reserve Bank and the remainder by the Board of Governors. The Board of Governors has provided that branch boards must consist of either five or seven directors, as may be determined by the individual Reserve Bank. Three of the Reserve Banks, having a total of eight branches, have elected to have five-man branch boards of direc tors, while the other seven Banks have seven-man boards at their six teen branches. The term of office of directors of branches is three years when the branch board consists of seven members and two years when it consists of five members. The terms are so arranged that the term of one director appointed by the Board of Governors and that of at least one director appointed by the Reserve Bank expire at the end of each year. While the Reserve Bank-appointed directors constitute a majority of the branch boards of directors, the Board of Governors has provided that the chairmen of the branch boards must be one of its appointees, although the manner of selection is left to the discretion of each Re serve Bank. QUALIFICATK )XS The Federal Reserve Act provides no specific qualifications for branch directors, but the branch directorates have, under regulations of the Board and by practice, been constituted somewhat along the lines of the head office boards. The Board of Governors in making its appointments of branch directors selects persons who are actively engaged in agriculture, industry, commerce, or in the practice of a pro fession and who are not primarily engaged in banking. The Reserve Banks, on the other hand, generally appoint persons engaged in bank ing, although they may appoint persons engaged in other businesses. All branch directors must be citizens of the United States and residents of the branch territory, and their business interests must be primarily within the branch territory. ROTATION The membership of directors of branch boards is rotated in a m an ner similar to the Board of Governors’ policy regarding rotation of Class C directors of the Reserve Banks. Both Board-appointed and Reserve Bank-appointed directors may serve consecutive terms totaling 20 six years but are not then eligible for reappointment. However, a director who has had six years of continuous service may be reappointed after two years off the branch board when the branch board has a five-man directorate. When the branch board is composed of seven members, a director with six years of continuous service may be reap pointed after three years have elapsed since such service. The specific duties of branch directors are essentially advisory in nature. The operations of a branch are the operations of the Reserve Bank, and the head office directors, under the general supervision of the Board of Governors, are responsible for the Bank’s operations. This is not to say that branch directors serve only in an inactive or honorary capacity. Their wide experience and their knowledge of local conditions can be an invaluable aid to the Bank’s directors in the operation of the branch. Their role extends beyond advice on operational matters, how ever. Branch directors can, and should, play as significant a part as the head office directors in contributing indirectly to the formulation of national credit policy and to an understanding of such policy. They, no less than the directors of the Bank, can provide a valuable source of grass roots information and opinion on significant economic develop ments and the effects of credit policy. At the same time their close association with the System enables them to furnish a valuable link between it and the public and to further understanding of the System and its actions. The Federal Reserve System is a complex organization whose operations affect every region, every community, every citizen in the nation. Its present organization, evolved from experience, provides for the establishment of national policy based on regional participation, in contrast to the alternative of centralized determination and adminis tration of policy in which meaningful participation of regional repre sentatives is absent. The System’s present processes of policy determination, implementa tion, and administration are thus consistent with the political, economic, and social traditions of the nation. The extent to which “men of stature and ability . . . dedicated to the public welfare” continue to be willing to serve the Federal Reserve System may in large measure determine whether this will continue to be true. 21 FUNCTIONS SUMMARY OF OPERATIONS During 1961 the volume of operations in all departments of the Richmond Bank and its Baltimore and Charlotte Branches expanded along with the economy of the Fifth District. Over $103 billion in checks were cleared, $3.5 billion more than in 1960; and over $151 million in coins were received and paid out, $17.6 million more than the previous year. The amount of currency handled exceeded $5 billion. Transfers of funds topped the $100 bil lion mark— up approximately 1 % to a total of $105,202,198,215. Our net earnings before payments to the U. S. Treasury amounted to $48 million, and member banks received $1,168,329.36 in statu tory dividends during the year. Surplus account was increased $2,582,900.00 (surplus is twice paid-in capital), and the remaining net earnings of $44,327,343.00 were paid to the U. S. Treasury. Our capital stock, based on the capital and surplus of District member banks, rose $1,291,450.00 during 1961. In the past twelve months credit totaling over $1.7 billion was extended to 112 member banks. Publications and statistical reports of the Bank were widely dis tributed during the year. Over 107,000 copies of our Monthly Review were sent to bankers, businessmen, teachers, and other interested indi viduals, and approximately 220,000 System publications were distrib uted by our Bank. In February three exhibits of currency were made available to District member banks for display. The exhibits, along with our coin and facsimile currency displays, continued to be in great demand throughout the year. Our annual Junior Bankers Seminar was held in April of 1961. One hundred and ninety bankers, representing 134 District member banks and branches, attended the two-day session. A similar meeting is planned for the spring of 1962. EMERGENCY PREPARE! KVESS This program moved forward in the District on several fronts. In early spring, meetings for commercial bankers were held in each of the 46 emergency clearing group areas, providing an opportunity for explanation and discussion of the Check Agent Plan. The Treasury’s Emergency Banking Regulation No. 1, with related documents, was distributed to all banks at mid-year. Arrangements were begun with selected member banks, strategically located throughout the District, to serve as cash agents for distribution of currency in an emergency; details of this plan will be in forthcoming emergency circulars. Although some commercial banks of the District embarked on emergency pre paredness programs, much remains to be done in this field. At our Head Office and Branches, preparation and stocking of fallout shelters to meet civil defense standards are nearing completion. ELECT RON ICS This year the decision was made to acquire electronic equipment for check handling and data processing. These steps are in keeping with the Bank’s policy of utilizing new methods and equipment to im prove internal operating procedures as well as services to member banks. In 1961, the Federal Reserve System, with the assistance of the Stanford Research Institute, completed its evaluation of electronic check 22 handling equipment produced by five manufacturers. The results of tests at five Federal Reserve Banks proved that the electronic process ing of checks through the magnetic ink character recognition (MICR) media is both practical and economical. The Head Office and the Baltimore and Charlotte Branches have low speed proof machine amount encoders in operation now. The Head Office will install a high speed unit, composed of several pieces of equipment, in the fall of 1962; the Branches will install high speed units early in 1963. This equipment will permit complete automation of the check handling procedure from the incoming proof to the prepa ration of outgoing cash letters to the banks. For a number of years this Bank has used tabulating equipment for internal accounting procedures and for processing statistical data. A comprehensive review, conducted by a committee of officers, preceded the recent decision to acquire an IBM 1401 RAMAC data processing system as replacement for the present tabulating equipment at Rich mond. In anticipation of the mid-1962 installation date, a five-man team selected from within the Bank is currently programming present punched-card procedures for conversion to the computer. Orientation and training of Bank personnel to utilize the electronic data processing system have commenced and will continue into 1962. The study indicated that the 1401 RAMAC can process all work now performed on tabulating equipment in considerably less time and with greater flexibility. In addition, the speed and capacity of the new equipment will permit handling of a number of procedures now performed manually. Also, statistical analyses and special studies in connection with the economic research program, heretofore considered impractical because of time limits and expense, can be accommodated by the computer. These several advantages, including the ability to handle a reasonable increase in volume of present operations, will be achieved for approximately the same cost as the present system. NEW MEMUEU HANKS Three newly formed Fifth District banks entered the Reserve Sys tem during the year. The American National Bank, Silver Spring, Maryland, with branches at Rockville and Wheaton opened for busi ness on April 10. On August 10 the First National Bank of Laurens, Laurens, South Carolina, began banking operations, and on Novem ber 22 the Elkridge National Bank, Elkridge, Maryland, became the 428th District member bank. CHANGES IN OFFICIAL STAFF There were several changes in the Bank’s official staff during 1961. On February 28, Hugh Leach, president of the Bank since 1936, retired and was succeeded by Edward A. Wayne, former first vice president. Aubrey N. Heflin, former vice president and general counsel, was named first vice president, succeeding Mr. Wayne. On June 1, W elford S. Farm er was elected general counsel and Victor E. Pregeant, III, was named assistant vice president and secretary. Garnett N. Campbell retired on May 31 as assistant general auditor, and his position was assumed by Roger P. Schad. The year 1961 also saw the retirement of Vice President N. L. Armistead. At the Charlotte Branch Robert R. Fentress, former assistant cashier, was named assistant vice president, effective July 1. 23 C o m p a r a t iv e S t a t e m e n t of C o n d it io n December 31, ASSISTS: 1961 December 31, 1960 ________________ $1,087,526,464.63 $1,035,163,268.08 Redemption fund for Federal Reserve notes 95,166,005.00 81,220,045.00 Gold certificate account 1,182,692,469.63 1,116,383,313.08 Federal Reserve notes of other banks . __ 40,868,860.00 42,922,520.00 Other cash __________________________________ 21,451,866.15 21,478,712.60 Discounts and advances _____________________ 1,165,000.00 510,000.00 TOTAL GOLD CERTIFICATE RESERVES - U. S. Government securities: Bills _______________________ 206,976,000.00 183,566,000.00 Certificates 110,158,000.00 573,437,000.00 1,295,353,000.00 790,004,000.00 249,280,000.00 160,963,000.00 TOTAL U. S. GOVERNM ENT SECURITIES 1,861,767,000.00 1,707,970,000.00 TOTAL LOAN S AND SECURITIES ________ 1,862,932,000.00 1,708,480,000.00 482,195,599.14 Notes Bonds _ _____________ Cash items in process of collection 514,301,381.09 Bank premises ____________________ 5,589,901.25 6,113,204.43 Other assets ______________________ 15,487,701.03 13,171,811.21 $3,643,324,179.15 $3,390,745,160.46 $2,380,497,515.00 $2,185,035,255.00 TO T A L A SSE TS MAKIIilTIKS: Federal Reserve notes ______________ Deposits: Member bank— reserve accounts 759,969,411.63 726,682,213.22 U. S. Treasurer— general account 49,871,083.28 24,626,957.46 Foreign __________________ ___ _____ 12,190,000.00 9,630,000.00 Other _ ___________________________ 6,032,204.32 6,137,511.26 TOTAL DEPOSITS 828,062,699.23 767,076,681.94 Deferred availability cash items 370,799,639.99 380,482,167.80 Other liabilities _________________ 3,752,224.93 1,813,305.72 3,583,112,079.15 3,334,407,410.46 TO T A L LIA B ILITIE S CAPITAL ACCOrXT’S: Capital paid i n ______________ 20,070,700.00 18,779,250.00 Surplus ______________________ 40,141,400.00 37,558,500.00 $3,643,324,179.15 $3,390,745,160.46 $ $ Other capital accounts TOTAL L IA B IL IT IE S AND CAPITAL ACCOUNTS Contingent liability on acceptances purchased for foreign correspondents 24 5,750,000.00 10,449,000.00 C o m p a r a t iv e S t a t e m e n t of E a r n i n g ?S AND EX 1*15NSES E A R N IN G S : 1961 Discounts and advances _____ Interest on U. S. Government securities ______________ Other earnings ______________________ _____________________ $ 152,702.60 59,258,665.26 17,151.11 1960 $ 819,821.16 68,654,176.43 31,695.62 59,428,518.97 69,505,693.21 10,581,541.90 287,400.00 697,278.71 10,175,679.84 292,800.00 570,909.90 11,566,220.61 11,039,389.74 47,862,298.36 58,466,303.47 Profit on sales of U. S. Government securities (net) _________________________ Transferred from Reserves for contingencies (net) __________________________ All other ________________________________________________________________________ 219,353.67 515.24 153,386.87 1,178,351.32 277.66 TOTAL ADDITIONS ___________________________________________ ___ _________ 219,868.91 1,332,015.85 3,594.91 3,501.91 216,274.00 1,328,513.94 $48,078,572.36 $59,794,817.41 $ 1,168,329.36 44,327,343.00 2,582,900.00 $ 1,083,429.25 55,718,988.16 2,992,400.00 $48,078,572.36 $59,794,817.41 $37,558,500.00 2,582,900.00 $34,566,100.00 2,992,400.00 TOTAL CURRENT E ARN IN G S ______ ____ ________ EXPENSES: Operating expenses (including depreciation on bank premises) after deduct ing reimbursements received for certain Fiscal Agency and other expenses Assessments for expenses of Board of Governors_________________ _____ _ . Cost of Federal Reserve currency ___________________________________________ . N ET EXPEN SES _____________________________________________________________________ CURRENT NET E AR N IN G S ________________________________________________________________________ AD D ITIO N S TO CU RREN T N E T E A R N IN G S : __________ DEDUCTIONS FROM CU RREN T N E T E A R N IN G S Net Additions ___________________________________________________________________ N ET E AR N IN G S BEFORE P A Y M E N T S TO U. S. TR EA SU R Y . Dividends paid ___________________________________________ — __ ____ ____ . Paid U. S. Treasury (interest on Federal Reserve notes) ____________________ Transferred to surplus _____ __________________________________________________ TOTAL _____________________________________________________________ SURPLUS ACCOUNT Balance at close of previous year ________________________________________________ Addition account of profits for year _____________________________________________ BALAN CE A T CLOSE OF CURRENT Y E A R _____________________ $40,141,400.00 $37,558,500.00 CAPITAL STOCIv ACCOUNT (Representing amount paid in, which is 50% of amount subscribed) Balance at close of previous y e a r ______________________________________________ Issued during the y e a r _________________________________________________________ Cancelled during the year BAL A N C E A T CLOSE OF CU RRENT Y E A R ____________________ 25 $18,779,250.00 1,318,050.00 $17,283,050.00 1,654,750.00 20,097,300.00 26,600.00 18,937,800.00 158,550.00 $20,070,700.00 $18,779,250.00 FEIDE1IAL liESERVE BANK OF RICHMOND D l l iECTOUS Alonzo G. Decker, Jr. Chairman of the Board and Federal Reserve Agent Edwin Hyde Deputy Chairman of the Board CLASS A H. H. Cooley A. Scott Offutt President, The Round Hill National Bank Round Hill, Virginia (Term expires December 31, 1962) Chairman of the Board and President The First National Bank of Washington, Washington, D. C. (Term expires December 31, 1961) Succeeded Addison H. Reese by: J. McKenny Willis, Jr., President The Easton National Bank of Maryland Easton, Maryland (Term expires December 31, 1964) President, North Carolina National Bank Charlotte, North Carolina (Term expires December 31, 1963) CLA SS IS L. Vinton Hershey President, Hagerstown Shoe Company Hagerstown, Maryland (Term expires December 31, 1961) Succeeded Robert E. L. Johnson Raymond E. Salvati by: Robert Richardson Coker, President Coker’s Pedigreed Seed Company Hartsville, South Carolina (Term expires December 31, 1964) Chairman of the Board, Woodward & Lothrop, Inc. Washington, D. C. (Term expires December 31, 1963) Chairman of the Board, Island Creek Coal Company Huntington, West Virginia (Term expires December 31, 1962) CLASS C Alonzo G. Decker, Jr. William H. Grier Edwin Hyde MKM HKR President, The Black & Decker Manufacturing Company Towson, Maryland (Term expires December 31, 1962) President, Rock Hill Printing & Finishing Co. Rock Hill, South Carolina (Term expires December 31, 1963) President, Miller & Rhoads, Inc. Richmond, Virginia (Term expires December 31, 1964) ADVISORY COUNCIL Robert B. Hobbs Chairman of the Board, First National Bank of Baltimore Baltimore, Maryland (Term expires December 31, 1962) 26 FEDERAL RESERVE BANK OF RIC HMOND OFFICERS Edward A. Wayne Aubrey N. Heflin President F irst Vice President J. Gordon Dickerson, Jr. Raymond E. Sanders, Jr. James M. Slay Vice President A ssista n t Vice P resident Joseph F. Viverette Vice President Welford S. Farm er Robert P. Black General Counsel Donald F. Hagner A ssistant Vice P resident A ssista nt Vice President John G. Deitrick Vice President Edmund F. Mac Donald A ssistan t Cashier A ssista nt Vice President Stuart P. Fishburne Vice President Upton S. Martin A ssista nt Vice President H. Ernest Ford Vice President John L. Nosker William B. Harrison, III Joseph M. Nowlan Vice President and Cashier A ssista nt Vice President Victor E. Pregeant, III A ssista n t Vice President and Secretary B. U. Ratchford G. Harold Snead William H. Gentry, Jr. John C. Horigan Chief E xa m in er Robert L. Miller A ssista nt Cashier Wythe B. W akeham Roger P. Schad Assistant General Auditor General Auditor Donald F. Hagner Vice President A. A. Stewart, Jr. Cashier Edmund F. Mac Donald Vice President Stanhope A. Ligon A ssista n t Cashier A ssistant Cashier Vice President Cashier John E. Friend A ssista nt Cashier A ssista nt Vice President Vice President Clifford B. Beavers liA I /r iM C ) R E 1 { R A N C H B. F. Armstrong A ssista n t Cashier A. C. W ienert E. Riggs Jones, Jr. A ssista n t Cashier A ssista n t Cashier C11ARIA )TTE 1i l l A N( 11 Robert R. Fentress A ssista n t Vice President Fred C. Krueger, Jr. E. Clinton Mondy Assistant Cashier A ssista n t Cashier 27 AI/riMORE BRANCII 15 DIRECTORS Gordon M. Cairns H arry B. Cummings Harvey E. Emmart Jam es W. McElroy John T. Menzies, Jr Dean of Agriculture, University of Maryland College Park, Maryland (Term expires December 31, 1962) Vice President and General Manager Metal Products Division, Koppers Company, Inc. Baltimore, Maryland (Term expires December 31, 1963) Senior Vice President and Cashier, Maryland National Bank Baltimore, Maryland (Term expires December 31, 1964) Director, First National Bank of Baltimore Baltimore, Maryland (Term expires December 31, 1962) President, The Crosse & Blackwell Company Baltimore, Maryland (Term expires December 31, 1961) Succeeded J. N. Shumate John W. Stout by: Leonard C. Crewe, Jr., President and Treasurer, Maryland Fine and Specialty Wire Company, Inc. Cockeysville, Maryland (Term expires December 31, 1964) President, The Farmers National Bank of Annapolis Annapolis, Maryland (Term expires December 31, 1963) President, The Parkersburg National Bank Parkersburg, West Virginia (Term expires December 31, 1961) Succeeded by: Martin Piribek, Executive Vice President The First National Bank of Morgantown Morgantown, West Virginia (Term expires December 31, 1964) CHARLOTTE BRANCH 1)IRECT( >RS George H. Aull J. C. Cowan, Jr. W. W. McEaehern G. Harold Myrick I. W. Stewart Agricultural Economist, Clemson College Clemson, South Carolina (Term expires December 31, 1963) Vice Chairman of the Board, Burlington Industries, Inc. Greensboro, North Carolina (Term expires December 31, 1962) President, The South Carolina National Bank Greenville, South Carolina (Term expires December 31, 1963) Executive Vice President and Trust Officer First National Bank Lincolnton, North Carolina (Term expires December 31, 1962) Honorary Chairman of the Board North Carolina National Bank Charlotte, North Carolina (Term expires December 31, 1961) Succeeded Clarence P. Street G. G. Watts by: Joe H. Robinson, Senior Vice President Wachovia Bank and Trust Company Charlotte, North Carolina (Term expires December 31, 1964) President, McDevitt & Street Co. Charlotte, North Carolina (Term expires December 31, 1964) President The Merchants and Planters National Bank of Gaffney Gaffney, South Carolina (Term expires December 31, 1961) Succeeded 28 by: Wallace W . Brawley, President, The Com mercial National Bank of Spartanburg Spartanburg, South Carolina (Term expires December 31, 1964)