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F E D E R A L R E S E R V E BANK O F R IC H M O N D Cl/umcd Report 1956 F E A T U R IN G THE CHARLOTTE BRANCH Forty-Second Qmual Report 1956 F E D E R A L R E S E R V E B AN K O F R IC H M O N D W I T H B R A N C H E S IN B A L T I M O R E AND CHARLOTTE TO THE MEMBER BANKS It is with pleasure that we again submit to you, our stock holders, the annual report o f the Federal Reserve Bank of Richmond, an institution which since its establishment in 1914 has played an increasingly important role in the eco nomic activity o f the Fifth Federal Reserve District and our nation. During the year covered by this report “ tight m oney” has been uppermost in the minds o f most bankers and business men and there has been much public discussion o f the role o f m onetary policy. In these pages, in addition to a brief summary o f developm ents in business, banking, and agricul ture, are comments on money and credit in 1956 that we hope will be o f more than casual interest. Presented also is an article featuring the bank’s Charlotte Branch, the expanding operations o f which over the past three decades have so well reflected the econom ic progress o f the territory it serves. In submitting this report we again express our deep ap preciation fo r your continued support and cooperation. Very truly yours, President 1 1 I warn .. w m sm i ^ K p a r n im Keeping pace w ith expanded operations Branch completed a d d itio n in 1956 [ Branch firs t occupied this b u ild in g a t Tryon and Second streets in 1942 The Charlotte Branch of the Federal Re serve Bank o f Richm ond opened fo r business on D ecem ber 1, 1927. The w orld little noted the event. things were more newsworthy. Other Outside o f the city o f Charlotte itself head lines in the papers that day directed readers’ attention to such intelligence as: “ F ord Car Prices Announced— $385 to $570,” “ Secre tary M ellon Favors Corporation Tax Cut to 1 2% , Sees Several Years o f Prosperity A h ead,” “ League o f Nations Begins W ork on Plans to Outlaw W a r,” “ W orld U rged by Russia to Destroy A rm s,” “ Bank Pays 5% Interest on Savings,” “ Am erican Living Charlotte. Standard at New High M ark,” “ Stock Ex change Seat Sells for $305,000.” In Charlotte, though, one o f the papers heralded the opening o f the new branch with this bold-face observation: “ New Era Dawns in Industrial Life o f Piedmont Section.” It was a prophetic headline. No one now resident in the Piedmont area o f North Caro lina and South Carolina is likely to argue the point. No one, either, is likely to attribute the immense expansion o f the area’s com m erce, industry, and agriculture, its gains in over-all wealth and well-being, to the mere fa ct that Richmond credit that foster and support a dynamic econom y. Speaking- at Charlotte in 1952 on the oc growth in industry, agriculture, trade, and Significantly, Charlotte is one of the small est cities in which a Federal Reserve Bank or branch is located, and this office was the last of the tw enty-four Reserve bank branches of the nation to be established. Yet in volume of principal operations the Charlotte Branch is well above the mid-point among the twentyfour branches, a further indication o f the business activity and econom ic importance of banking in this area. the Carolina Piedmont area. the Federal Reserve Bank of opened a branch there in 1927. casion o f the Charlotte Branch’s twenty-fifth anniversary, Hugh Leach, president o f the Federal Reserve Bank of Richmond and in 1927-1931 the branch’s first executive officer, said, “ I sometimes suspect that our branch was not the sole cause of the remarkable It seems possible that the progress may be attributable to natural resources, the vision o f your leaders, the in A Service Institution dustry o f your people, tem perate climate, As a unit o f the Federal Reserve System, the Charlotte Branch is a service institution, perform ing its services mainly through the com mercial banks that are Federal Reserve System members in the fifty western North Carolina and twenty-one western South Caro lina counties in its territory. distribution o f population, and the develop ment o f great educational institutions, to name but a fe w .” Yet, o f course, since money and credit are the lifeblood o f the economy, the Charlotte Branch has played an important part in the area’s progress through the years. Through its services to the commercial banks it has helped to sustain the flow o f money and These services are many. The Charlotte Branch supplies the banks with the currency and coin that they need to meet the require- Reception desk and officers' area in m ain public lobby on firs t flo o r of C harlotte Branch ments of their customers. It handles mil lions o f the checks that flow from bank to bank through the Federal Reserve’s swift and efficient nationwide “ clearinghouse.” It makes loans to the banks when they need additional funds to replenish their reserves. It provides a speedy means of transferring bank funds from one part of the country to another through the Federal Reserve’s tele graphic network. It holds in safekeeping securities owned by m ember banks. The Charlotte Branch, although it and the other Reserve banks and branches are not governm ent-owned (the capital stock o f the Federal Reserve Banks is ow ned by the com mercial banks o f their areas that are mem bers o f the Federal Reserve System ), also perform s various functions in its role as fiscal agent and banker for the government. In Accounting Departm ent are kept reserve accounts of m em ber banks Some Startling Figures The perform ance o f all o f these many serv ices produces some startling figures, the more startling, in 1956, when this year’s figures are com pared with those of 1928, the first full year o f the branch’s operation. For example, currency and coin transac tions in 1956 amounted to $645,554,971, more than seven times the $91,222,508 o f 1928. By way of further com parison, in 1928 the Richmond head office and the Baltimore and Charlotte branches had a com bined total o f $1,430,215,335 in currency and coin trans actions. Members of Transit D epartm ent sta ff processed nearly 50 m illio n checks am ounting to $19,965,635,000 in 1956 The Charlotte Branch in 1956 handled 48,034,000 checks adding up to a total amount of $19,965,635,000. The 1928 figure was I M illions of dollars in currency are counted in M oney D epartm ent each day 6,589,000 checks amounting- to $1,691,921,000. It is interesting to note that the checks handled by the Charlotte Branch in 1956 were almost as many as the 54,570,000 handled by the entire bank and its two branches in 1928 and that the dollar amount represented in those checks well exceeded the $13,990,057,000 o f the whole bank in 1928. Billions by W ire In 1956 the Charlotte Branch made 46,979 transfers o f funds fo r m ember banks, the total amount reaching $23,339,027,739. In 1928 it made 25,803 transfers totaling $1,187,774,235. The bank and its two branches in 1928 made 141,525 transfers totaling $5,676,459,000. An interesting sidelight on the telegraphic transfer o f funds is that the nerve-center o f the Federal Reserve System’s vast wire net work is located in the head office o f the F ed eral Reserve Bank o f Richmond. Millions o f dollars every day, billions upon billions over the course o f a year, are transferred from bank to bank over the System’s telegraphic network— and every such transfer message goes t h r o u g h the automatic electronic “ switching center” at Richmond. The net w ork links together the twelve Federal Re serve Banks and their tw enty-four branches, and in addition serves the Board o f Governors of the Federal Reserve System, at W ashing ton, and the Treasury D epartm ent’s W ashing ton and Chicago offices. Another function o f the branch is to hold member banks’ deposit accounts, called “ re serve” accounts, funds that the banks are required to maintain as a reserve against their own deposits. Reflecting the tremen dous increase in com m ercial bank deposits, figures show that the Charlotte Branch held a daily average o f $142,633,565 in member bank reserve deposits in 1956, as contrasted with a daily average o f only $7,852,980 in 1928. In loans to member banks the Charlotte Branch reported a daily average o f $6,474,180 in 1956. There is no com parable figure for 1928, since at that time lending was done by the head office at Richmond. C harlotte Branch has tw o big vaults like this containing m any m illions of dollars in currency, coin, and securities. Vaults are a lw a ys under w atchfu l eyes of arm ed guards In addition to its many operational fu n c tions the Charlotte Branch also plays an im portant role in bank relations and public information. Officers and staff members about the Federal Reserve System, supplying teachers, students, bankers, and others with helpful publications and educational motion pictures. Officers and staff members fre make frequent calls on the com m ercial banks o f the area, discussing and, it is hoped, solv ing many o f the day-to-day problem s that may arise. The branch is always represented at the bankers’ conventions, conferences, and other meetings that take place during the quently are speakers at meetings o f many year in the tw o Carolinas, and because the branch is a segment o f a nationwide organiza tion many o f its people attend also meetings of national groups. Am ong its many public information activities the branch serves as a sort o f clearinghouse fo r facts and figures kinds. Expanding activity o f the Charlotte Branch since its beginning has made necessary sev eral expansions o f its banking quarters. The newly enlarged office at the corner o f Tryon and Second streets in Charlotte is a fa r cry from its first headquarters. The Federal Reserve Bank o f Richm ond annual report fo r 1927 described the first office with m odest pride: “ The Charlotte Branch is located in the First National Bank building, occupying the entire twentieth floor, with a com m odious and up-to-date vault in the basement o f the building.” The entire twentieth floor, notwithstanding the proprie torship o f the com m odious vault, to which branch people had access by w ay of a private elevator, soon came to be too small. In 1931 the branch took over the entire first floor and part o f the second floor o f the building, which today is known as the Liberty Life building, and there it remained, finding itself more and more compressed as operations grew apace, until in January o f 1942 it occupied its own new building at Tryon and Second. W hen the branch first opened it had a total staff o f 54 persons. W hen it m oved into its new quarters in 1942 it had 96. In 1956 it had 194, and until the new 44,000 square foot addition was com pleted in D ecem ber some of those 194 persons hardly had room to do their work. In view of the great and grow ing volume o f w ork to be done, it might be said that the expansion came none too soon. Now, however, at least fo r the present and the foreseeable future, there is room to get the w ork done. And as fo r the money and securities that must be locked up safely, the newly expanded office has two commodious and up-to-date vaults. One o f the vaults is new, but it is only a part of the over-all aspect o f the newly ex panded bank building. W hat was for almost fifteen years a three-story building backed by a drivew ay and a vacant lot is now a fivestory structure built over the driveway and on through the 46-foot lot at the rear. On the ground level is the bank’s new enclosed security court, where arm ored trucks laden with millions o f dollars load and unload under the close scrutiny o f armed guards. Upstairs much needed additional space has been apportioned am ong the money, check collection, accounting, governm ent bond, and other departments, with new facilities for staff restaurant and recreational areas. Total cost o f the addition to the building, including w ork done under the general con struction contract, architectural and engi neering fees, installation o f two new elevators and com plete renovation o f a third, amounted to approxim ately $1,390,000. The new con struction added 43,642 square feet o f usable space, bringing the total gross space in the building to 77,954 square feet. G oode Con struction Corporation handled the general construction work, and the firm o f J. N. Pease and Com pany provided architectural and engineering services. The elevators were installed by the W estinghouse Electric Cor poration. The building committee which planned the project was com posed o f G eorge S. Crouch, o f Charlotte, chairm an; Thomas J. Robertson, o f Columbia, South Carolina; T. H enry W il son, o f M organton, North Carolina; W illiam H. Grier, o f R ock Hill, South C arolina; and Robert L. Cherry, vice president in charge o f the Charlotte Branch. Mr. Grier and Mr. W ilson are directors o f the branch, and Mr. Crouch and Mr. Robertson were board mem bers at the time the p roject was planned. In architectural design the expanded build ing remains the same, a structure m odeled after that o f an ancient period, severe rather than ornate, with a facade depending upon mass and proportion fo r its effect rather than upon columns, pilasters, or architectural de tail. The exterior is o f Indiana limestone above a base of North Carolina granite, and is unrelieved except fo r the accents given by the entrances and the simply fluted frieze and parapet. The building is set back from the street to give space for foundation plant ing and fo r low steps flanked by great stone urns at the main doorw ay. Visitors W elcom ed The photographs on these pages show some of the offices in the building. They cannot show everything, nor can they do more than indicate some o f the many kinds o f w ork that go on within the building. Because the Char lotte Branch o f the Federal Reserve Bank o f Richm ond is a public service institution, how ever, its directors, officers, and staff members take pride in w elcom ing visitors to inspect the premises and to see what goes on behind the scenes. Business and Bankina 1956 On its page in econom ic history 1956 will probably be characterized as a year o f “ tight m oney” and resurgence o f strong inflationary pressures. The slack in the econom y from the 1954 recession had long since been taken up, and the year opened with strong and in creasing demands upon econom ic resources already fully tapped. Shortages becam e pro nounced in such important areas as steel and other building and construction materials, and the level o f the reservoir o f unem ployed labor was further low ered to the point where was “ across the board,” with demands for real estate m ortgage and consumer credit, however, rising at a slow er rate than in 1955 as a consequence in part o f few er housing starts and smaller sales o f automobiles. The demand fo r credit by business enterprises, on the other hand, rose to fever pitch, and by year-end had resulted in over $10 billion of corporate security issues fo r new capital and in an increase o f about $5.5 billion in business loans by com m ercial banks. in O ctober only 2.8% o f the civilian labor H igher interest rates and a declining avail ability o f loanable funds were the inevitable force was unemployed. The demand fo r men products o f an econom ic mix o f capacity and materials was more than m atched in in operations, high-level employment, tighten tensity by the demand fo r credit. ing cost-profits squeeze, declining bank and The latter B U S IN E S S A N D B A N K IN G business corporation liquidity positions, and plans fo r making capital investments in excess o f the volum e o f current savings. It was inevitable, that is, unless the Federal Reserve System had fed inflationary forces by pro viding com m ercial banks with inordinate amounts o f reserves. Record Pour from 1956’s Horn o f Plenty The value o f the nation’s output o f goods and services in 1956 reached an all-time high o f about $411-412 billion, more than 5 % higher than 1955’s record total and almost double the national product o f the first post war year o f 1946. Unlike 1955, when al most the entire gain in the dollar volum e o f goods and services produced represented grow th in physical volume, a substantial part o f the 1956 increase was attributable to high er prices. Preliminary data adjusted fo r price changes indicate that the rise in physi cal volume in 1956 was around 3 % . Since output in several important areas was already limited by capacity operations, the strong demand situation at the opening o f 1956 resulted in an immediate uptrend in wholesale prices. Increases were particular ly m arked fo r construction and m achinery items and fo r such things— metals and metal products, fo r exam ple— as were needed to provide fo r the tremendous program s o f ex pansion and m odernization o f plant and equipment being carried out by business in general. Largely because food prices remained stable during the early months o f 1956, the general cost o f living did not move up with wholesale prices. In May, how ever, fo o d prices rose sharply, and the index o f con sumer prices set out on its first protracted sharp rise in five years. This resulted in subsequent cost increases in those industries in which wage rate adjustments are based on changes in this price index. Increases in prices o f steel and related items follow in g the July steel strike created other cost increases that put prices under pressure in many sec tors o f the econom y. This, then, was the picture as 1956 drew to a c lo s e : an econom y operating at capacity in a milieu o f inflationary pressures and strain ing to expand at, possibly, unsustainable rates. If this picture had unfavorable as pects, it also had its favorable facets, fo r there was a record high level o f capital in vestment by business and governm ent and a record high level o f consumer disposable income. Tight M oney Exerted Strong Pressures Mounting credit needs accom panying the rapid business expansion o f 1956 exerted strong pressures upon credit facilities o f Dis trict m em ber banks. Demands fo r bank loans were insistent throughout the year and during the first half member banks sold investments in order to satisfy their customers’ wants, thus adding to the increasing pressures in the 25 (L a s t Wednesday of the month figures.) __________ I_____________I_____________L 1952 1953 1954 1955 1956 RATIO OF LOANS TO TOTAL ASSETS Fifth District M em ber Banks 1 9 4 7 -1 9 4 9 = 100 Sales Inventorie s ■ * Estim ated Source-. Federal Reserve Bank of Richmond 150 00 B illions of D o llars 50 7 .5 | Other Investments K ■ U S- Government Securities Loans and Discounts (L a s t W ed n esd ay of the m onth fig u re s .) 1948 1949 1950 1951 1952 195 3 1954 1955 1956* DEPARTMENT STORE SALES AND INVENTORIES Fifth District 5 .0 1952 1953 1954 1955 EARNING ASSETS Fifth District M em ber Banks 1956 B U S IN E S S A N D B A N K IN G securities markets. By the end o f the year total resources, loans, and deposits all stood at record levels. Im portant as this growth in loans was, however, the increases in both loans and total earning assets were less than during the pre ceding year. Throughout 1956 Federal Re serve open market operations met seasonal and other tem porary needs fo r reserves but did not offset the tightening effects o f an excess o f demands for funds over the avail able supply. In addition, discount rates were twice raised— from 21/2 % to 2 % % fo r most districts and to 3 % fo r others in April and from 2 % % to 3 % in August fo r those dis tricts still below 3 % . For the year as a whole, reserve increases permitted provided insufficient funds to meet the ever-grow ing demands, and credit conditions tightened con siderably. These sharp pressures made it necessary for District m ember banks to turn more often to the Federal Reserve Bank’s discount win dow and, during the first seven months o f the year, to reduce government security holdings in order to meet borrow ers’ demands. As a result, the District loan-to-total asset ratio jum ped from 37.7% on D ecem ber 28, 1955, to 40.5% on August 29, and governm ent se curity holdings fell from 31.6% to 29.8% o f total assets. Loan ratios remained high throughout the remaining months but drop ped slightly below their August peaks during the Fall as the banks acquired new govern ment securities in support o f Treasury financ ing operations. Loans G rew More Slowly The greatest expansion in District loans occurred in com m ercial and industrial cate gories, although both their dollar and per centage grow th was considerably less than that o f 1955. Most of the increase resulted from expansion in loans to m anufacturing and mining firms, particularly those in the textile, food, liquor, tobacco, and metal industries. In addition, wholesale, retail, public utility, and construction firms stepped up their bor rowing considerably. On the other hand, there were cutbacks in loans to sales finance companies. Am ong the other loan categories, consumer loans showed the greatest activity, although they rose by less than 70% as much as during 1955. Real estate loans— one o f 1955’s lead ers— failed to equal the strong upward surges o f the previous tw o years and ended the year with a net increase less than two-thirds as great as that o f 1955. Another fairly im por tant category— security loans— showed sharp declines. In contrast to the slow er expansion in earn ing assets, deposits o f District member banks increased by more than during 1955. Time deposits rose only slightly more rapidly, de mand deposits accounting fo r most o f the growth. A sudden burst in deposits tow ard the end of D ecem ber resulted in a sharp in- 1 5 0 0 - Thousands 1000 Nondurable m m ***' V Durable 500 * N o ve m b er and D e c e m b e r fig u re s e s tim a te d . S o u rc e . B ureau of L ab o r S t a tis t ic s and c o o p e ra tin g S tate A gencies Millions of Pounds Production 1949 | S to c k s H Disappearance 1950 1951 1952 1953 1954 1 95 5 1956* MANUFACTURING EMPLOYMENT * Estimated Fifth District 2000 1000 Millions of D o ll a r s 300 1 9 3 6 -4 0 1 9 4 1 -4 5 1 9 4 6 -5 0 195 1 -5 5 1956 _ ■ (744) Tot al R esiden tial * N o v e m b e r a n d Decem ber figures estim ated S o u rc e ; F W Dodge Corporation FLUE-CURED TOBACCO TRENDS United States I li 200 100 f I 194 8 19 4 9 1950 1951 19 5 2 1953 1 95 4 1955 CONSTRUCTION CONTRACT AWARDS Fifth District i B U S IN E S S A N D B A N K IN G crease in the banks’ cash position just at the close o f the year. H igher interest rates and decreased avail ability o f credit led individuals and business firms to cut bank balances to the minimum consistent with their needs. The result was a sharp increase in the turnover o f deposits and other form s o f money, which made it possible fo r a money supply only a little larger than that o f the preceding year to fi nance the trem endous growth o f expenditures during 1956. T ob a cco Problems In Spotlight A part from the continuation o f the costprice squeeze with a consequent adverse effect on farm income, developments in the District’s flue-cured tobacco industry claimed the agricultural spotlight during 1956. The features o f the situation which caused this neither had their beginning nor spent their energy during the year. These forces were o f sufficient magnitude in 1956, however, to merit prom inent billing. On the supply side, the upward trend in yields has been sufficiently sharp to offset partially attempts to em ploy reduced acreage allotments as a means o f bringing production in line with disappearance. Included in this trend tow ard higher yields are such factors as closer spacing, higher rates of fertilization, irrigation, and use of some new varieties which, though high yielding, are viewed as undesirable under present demand conditions. Significant developm ents have occurred also in the area o f demand, thus further com plicating the flue-cured tobacco situation. At home the grow ing popularity o f filter tip ciga rettes appears to be associated with shifts in the buying practices o f cigarette companies as regards their interest in the various grades of tobacco. A by-product effect o f this has been a grow ing demand and higher price fo r some o f the traditionally important export grades. This has led both to an intensifica tion of interest on the part o f foreign custo mers in foreign growth o f flue-cured tobacco and to an accumulation in the government price support program o f those grades which are abundant relative to demand. A further developm ent on the demand side is the ap parent use of reconstituted or hom ogenized leaf. As a result o f these developments, it now seems unlikely that the quantity o f to bacco used in cigarettes will increase even though the number produced is expected to be larger in 1957 than in 1956. In late 1956 tw o steps were announced which were designed to help meet the needs o f the situation— a 2 0% further cut in acre age allotments and a reduction in the support level fo r certain varieties o f tobacco with un desirable characteristics. Even so, there are few , if any, observers who believe that real solutions for the problem s of tobacco as a com m odity, or for the problem s o f tobacco farmers and tobacco producing areas, have yet been found. Credit 'pblici/ O B J E C T I V E S IN During 1956 Federal Reserve credit policy was one o f restraint. Reflecting abnormally high demands fo r credit, interest rates rose and many requests for credit were not met as readily as in the immediate past. W hen credit is not made as available as borrowers would like, the dollar amount o f spending for goods and services does not reach the level it could have attained had all borrow ers’ de mands been fully satisfied. The question is, “ W h y was credit not made as freely available in 1956 as was desired by the nation’s busi nessmen and consum ers?” Restraint in 1956 The econom y was straining at the seams throughout 1956. Our human resources were almost fully and continuously engaged, and w eekly earnings were at peak levels. Indus trial production, in spite o f the month-long I 1956 steel strike, established new records in the Fall. Commercial and industrial construc tion, public works, and other investment plans made exceedingly heavy demands fo r capital funds. The level o f business and con sumer spending during the year provided the basis for the highest level o f personal income yet reached. The strength o f all these forces was reflected in capacity operations in many basic lines, and they led to claims for higher rates o f pay and exerted upw ard pressures on prices. In 1956 the roots o f inflation were develop ing strength and spreading w idely. The objective o f Federal Reserve credit policy throughout the year was to restrain over optimism and the speculative excesses which may develop when demands fo r credit and goods are high relative to the supply and continuing price rises are anticipated. The purpose o f this policy was to limit creditbased dem ands fo r goods and services and thus to ease some o f the potential upward pressures on prices. To accom plish this objective, the System conducted its open market purchases and sales in a manner to permit the monetary tightness inherent in an excess o f demands for funds over the available supply, and the Reserve banks raised their discount rates twice during the year, in April and again in August. A definitive evaluation o f the suc cess o f this policy must necessarily lie in the future, but the price rises which have taken place during the year remind us o f some of the limitations o f monetary actions alone, especially in the short run. No one likes to have his spending plans disturbed. Y et the purpose of monetary restraint is to curb some spending that would take place if this restraint were not present. Most o f us agree that inflation is highly undesirable, and we agree that something should be done to prevent its development. Nevertheless, restraint becom es more and more unpopular as it reaches into the specific plans o f individuals and business firms. During the course of the year, there were many com plaints from particular segments of the econom y that a restrictive credit policy was denying to them an “ equitable” share of more attractive outlets for investment else where. Some maintained that “ small busi ness” was being crucified by the tight money policy. The Things W e W ant W hat do we want the econom y to do for us? Probably the first thing to com e to mind is “ to provide enough job s.” And im m ediate ly after this we might add “ to provide a con tinuing flow o f goods and services to meet the wants o f the people— not just the needs but the wants.” Implicit in both o f these answers is the desire for stability— stability of employm ent and stability o f incom e— and ever-rising standards of living. It is in the maintenance o f stability and econom ic growth that credit policy plays so crucial a role. W hen we say we want our econom y to satisfy the wants o f the people, we point to the fundam ental difference between a truly free society and one subject to governm ent edict. W hat we really mean by this is that we want the resources o f the country allo cated under relatively free market arrange ments in which each person, according to his resources, is able to offer goods and services for sale and is able to bid fo r the purchase of goods and services offered by others. is in residential construction, deplored the The very essence o f a free market is flexi bility in the prices of individual commodities. The people who provide things for sale in the market want to get as good a price as they can; the people who come to the market to buy want their incomes to go as fa r as pos sible. As consumer and business preferences change, it is primarily through price adjust ments o f the comm odities involved that p ro duction is either encouraged or discouraged. scarcity o f funds available for home m ort gage loans because market conditions offered A flexible pricing mechanism both reflects changes in the relationship of demand for available funds. Some state officials and school boards indicated that they could not obtain funds fo r school construction, either because they w ould not pay the higher inter est rates dem anded in the market or because the funds w ere just not forthcom ing at the rates specified. Some, whose direct interest INTEREST RATE P A T T E R N S particular goods to the available supply and influences the decisions o f buyers and sellers in the disposition o f their resources. In so doing, the pricing mechanism becom es the vehicle through which the nation’s resources are best allocated according to the individual wishes o f our millions o f people. The Role o f Price Stability A lthough it is highly desirable to have prices o f individual items free to move either upward or dow nw ard, according to the exist ing dem and-and-supply relationships, it is highly undesirable to have the prices o f a large number o f goods and services m oving simultaneously in one direction or the other. Such broad movements create serious inequi ties am ong the various sectors o f our econo my. In an inflationary period, many incomes IN 1956 relationships are disturbed by price changes. The debtor, fo r exam ple, in a deflationary period, must pay back the same amount o f dollars he borrow ed earlier, but the dollars he must use now to make the repaym ent are more valuable dollars than those he received when he borrow ed the m oney— the dollars now will buy more goods and services because prices have declined. In addition, therefore, to providing us all with a continuing opportunity to strive fo r ever higher standards o f living, each a ccord ing to his own personal preferences, we would like our econom y to provide us with stability in the purchasing pow er o f our money, which is sim ply another w ay o f say ing over-all stability in the general level o f prices. do not move upward as rapidly as prices, and O bjectives o f Federal Reserve Credit Policy these incomes will, therefore, buy less for their recipients than heretofore. These peo The Federal Reserve System is the nation’s central banking system. It is the source o f the nation’s money supply and its operations are all within the financial arena. Federal ple have their standards o f living reduced as a result o f the price rise. D ebtor-creditor Reserve’s contribution, therefore, toward pro moting conditions favorable to high levels of em ploym ent, sustainable econom ic growth, and stability in the purchasing pow er o f the dollar must be initially in the realm of money and credit. The Federal Reserve System is able to in fluence strongly general credit conditions by affecting the availability and cost of reserve funds to com m ercial banks. Changing de grees o f ease or tightness in the commercial banking system, in addition to affecting bank lending and investing policies, fan out quickly to other financial markets and eventually affect lending conditions throughout the coun try. Federal Reserve operations to affect the reserve positions o f comm ercial banks also have some direct effects in the money markets, and these effects supplement and quicken the spread o f the changed credit conditions through financial institutions and other markets to blanket the nation. Federal Reserve Influence H ow ever great may be the System’s in fluence in the credit markets o f the country, credit policy is by no means the only factor affecting the progress of the economy. The Chairman o f the Board o f Governors o f the Federal Reserve System recently while em phasizing the im portance o f monetary policy also pointed to the limited scope and pow er o f the System’s operations in a statement of the long-run purpose, “ to minimize econom ic fluctuations caused by irregularities in the flow o f credit and money, foster more stable steady econom ic progress. But credit and monetary policy is an indispensable element in the achievement o f stable progress.” In what ways do changing credit condi tions affect econom ic activity— employment, production, consum ption? Credit plays a very important role in our market economy. It enables savings to be re-em ployed, thus maintaining the level o f total spending in the econom y and diverting a large share o f it to the acquisition of capital goods which enlarge our productive capacity. Credit outlets also make saving profitable and thus encourage the building up of funds to meet future needs or to provide security in old age. Just as in the case o f other scarce re sources, credit is made available through market processes in which price is an im por tant allocating device, although not the only one. There is a demand fo r credit by many different kinds o f borrow ers, such as farmers, consumers, business firms, home builders; and the supply o f credit is provided by many different lenders: banks, insurance com panies, savings and loan associations, sales fi nance companies, and others. Changes in the price o f credit, in interest rates, reflect the varying degrees o f demand relative to supply. And such changes in price have a great influence on the suppliers o f funds as they strive to achieve the most advantageous distribution o f their resources in keeping with the liquidity and safety needs o f their institu tions. The Federal Reserve System operates values, and thus make possible the smooth within this highly com petitive m arket ar functioning of the m onetary machinery so necessary to prom ote grow th of the country rangement. and to im prove standards o f living.” He stated, “ Credit and m onetary policy alone, of o f the com m ercial banks and the shortest term money markets. course, cannot attain the indicated goal of that Federal Reserve is able to bring about It operates at the fountainhead o f our credit structure— the reserve positions The ease or tightness in these areas is transmitted throughout the credit structure of the country by the com petitive forces at w ork in the various markets for credit. Thus, the over-all availability of credit may be strongly influenced by actions taken by the nation’s central bank. It should be rem em bered, however, that availability of funds to a particular group o f borrow ers is determined not by selective action by Federal Reserve but by the competitive forces at work in these markets. Credit Plays Dynamic Role Businessmen and consumers borrow money, whether in large sums or small, fo r the pur pose o f making purchases. So long as total borrow ing is just equal to funds made avail able fo r lending by savings, the credit process will not induce demand pressures in the econom y which tend to alter prices. Should the demand fo r credit be less than funds available from savings, so that large idle balances are held by financial institutions, this w ould reflect a decline in the demand for goods and services. Prices and profits would tend to fall and, unless reduced interest rates and easy availability o f credit induce an in creased use o f borrow ed funds, unem ploy ment and declining production would follow . In this sort o f situation some limitations of credit policy appear. Credit can be made available on attractive terms to borrow ers; but if the business outlook is clouded or job tenures insecure, this may not be sufficient to induce an increased use o f credit. Some thing more than credit policy may be needed to alter the prevailing econom ic psychology tow ard the optimism needed to bring about the banking system. This has been the case through most o f the W orld W ar II and post war periods. It is through credit— bank credit— that new m oney is created. New money in the markets means added purchas ing pow er over goods and services in excess of that under which the existing price struc ture was established. If available resources are already fully em ployed and new prod u c tion cannot be forthcom ing im mediately, there will be a strong tendency fo r the gen eral level o f prices to rise. Such price instability tends to induce over production in the areas affected, the exten sion o f productive capacity beyond normal needs, speculative overinvestment in inven tories, and other excesses, including specula tion in the exchanges. The difficult task o f monetary policy under such conditions is to prevent inflationary excesses without en dangering expansion itself. The Choice T o Be M ade As indicated above, the allocation o f scarce commodities (in this case, credit) always leaves some wants unsatisfied. But when inflation threatens, we must decide which o f the alternatives is least disruptive to the econom y as a w hole and over the long run. Having decided that we do not want inflation and its accom panying evils, we wish to have as equitable a distribution o f our scarce re sources as possible; and in this country, we have chosen the m arket system fo r this pur pose. It bears repeating that Federal Reserve credit policy fram ework, operates within affecting the our m arket general tone of increased spending. credit conditions, but not having anything at On the other hand, borrow ings can exceed the funds made available from savings only through the creation o f additional money by all to do with the actual distribution o f scarce funds that finally is determ ined by the com posite judgm ent o f the m arket place. a O f e ars dctiuiiu. There are certain years in an organization’s operations that receive little attention in terms o f anniversary celebrations. At the Federal Reserve Bank o f Richmond and its Baltimore and Charlotte branches 1956 was such a year. For the head office, it marked the forty-second full year o f doing business, fo r Baltimore the thirty-eighth, and for Char lotte the twenty-ninth. Uncelebrated though it was, the year was nonetheless a big and busy one fo r the bank and branches. Richm ond handled 210,649 non-cash col lection items during the year amounting to $85,725,224, Baltimore 617,559 totaling $225,224,732, and Charlotte 41,854 totaling $54,253,390, bringing the three-office total to 870,062 and $365,203,546. O f 143,336 trans fers o f funds fo r m ember banks totaling $58,736,553,361, Richmond took care o f 67,826 amounting to $25,845,650,918, Baltimore 28,531 totaling $9,551,874,704, and Charlotte 46,979 totaling $23,339,027,739. Volum e o f Operations D irectorate Changes On the operations side, where volume fig ures summarize a story o f increased activity, the three offices handled 245,144,000 checks amounting to $85,340,610,000, with Rich m ond’s totals com ing to 130,425,000 and $46,751,258,000, Baltim ore’s to 66,685,000 and $18,623,717,000, and Charlotte’s to 48,034,000 and $19,965,635,000. In currency re ceived and paid out a breakdow n o f the threeoffice total o f 845,959,929 pieces, amounting to $5,116,435,605, showed Richmond han dling 439,735,440 pieces totaling $2,706,790,261, Baltimore 230,366,270 pieces totaling $1,424,240,501, and Charlotte 175,858,219 pieces totaling $985,404,843. O f the total of 1,360,504,170 coins received and paid out, amounting to $110,593,255, Richm ond’s por tion came to 448,589,159 pieces and $37,889,849, Baltim ore’s to 679,400,082 pieces and $52,945,632, and Charlotte’s to 232,514,929 pieces and $19,757,774. Currency and coin figures include new money received from the Elected by the m ember banks during the year were Robert Gage as a Class A director to succeed J. K. Palmer and W m . A. L. Sibley to a second three-year term as a Class B direc tor. Treasury as well as money sent to and re ceived from banks. The Board of Governors re-designated John B. W oodw ard, Jr. chairman o f the board for 1957, re-appointed A lon zo G. Decker, Jr. to a new three-year term as Class C director, with re-designation as deputy chairman, and named W illiam H. Grier to a second three-year term as a director o f the Charlotte Branch. The head office board named two new branch directors, James W . M cElroy at Bal timore, to succeed Charles W . Hoff, and Charles D. Parker at Charlotte, to succeed A rchie K. Davis. Appointm ents to Advisory Groups The head office board o f directors also re appointed Robert V. Fleming as the Fifth District representative on the Federal A dvi sory Council fo r 1957 and earlier in the year appointed Edwin Hyde, a form er Class B di rector, to the Industrial Advisory Committee. Ross Puette and John L. W hitehurst retired as members o f this committee after many years o f service. Official Changes Moving up in the official staff in 1956 were Joseph M. Nowlan to vice president and cashier; J. D ew ey Daane and Thomas I. Storrs to vice president; and Charles W . Williams to econom ic adviser. Three new officers were named in D ecem ber: Edmund F. Mac Donald and G eorge W . McKinney, Jr., were elected assistant vice presidents and R. Pierce Lumpkin was prom oted to financial economist, a new official position. The bank lost a valued member o f its offi cial staff in D ecem ber when James W . Dodd, Jr., assistant vice president, died as the result o f injuries received in an automobile acci dent. He had been a member o f the staff tain areas o f the building were com pleted and occupied, however, and two o f fou r new automatic elevators were installed. Im prove ments at the Charlotte Branch are covered on other pages o f this report. Another mark o f progress during the year showed up in the T elegraph and Switching Center at the head office. As conversion was com pleted by all Federal Reserve Banks to a method of sending and receiving transfers o f funds and securities over the leased wire sys tem in clear language instead o f code, the Center upped its number o f circuits from 12 to 19, the number o f originating stations from 40 to 98, and the number o f receiving stations from 45 to 120. During 1956 the Center, which is the central control and interchange of all telegraphic com m unications between all Federal Reserve Banks and branches, the Board of Governors, and the Treasury D e partment, transmitted a total o f 1,578,000 messages. since 1933. New Member Banks Other Activities Long-standing needs for additional and im proved w orking areas in the three offices continued to receive attention in 1956. O f particular significance at the head office were the alterations to the main banking room to provide fo r better lighting and air condition ing. Renovation and m odification o f five elevators also were com pleted during the year. At the Baltimore Branch, a shortage o f some materials and scarcity of skilled labor in certain trades deferred com pletion o f the four-floor addition that began in 1955. Cer Four banks in the Fifth District becam e members of the F ederal Reserve System in 1956, one, the new ly-chartered W arw ick Na tional Bank, W arw ick, Virginia, and the other three converted nonmembers. These w ere: Ohio Valley National Bank o f Vienna, V ien na, W est Virginia (form erly the Ohio V alley Bank) ; Carolina National Bank o f Easley, South Carolina (form erly the Easley Bank) ; and the First National Bank o f Raleigh, Raleigh, North Carolina ( form erly the Bank of R a le ig h ). C O M P A R A T IV E S T A T E M E N T O F C O N D IT IO N ASSETS: D ecem ber 31,1956 D ecem ber 31,1955 Gold certificates______________________________ $1,315,476,176.09 $1,275,459,867.17 Redemption Fund for Federal Reserve notes. 71,140,170.78 72,427,230.78 1,386,616,346.87 1,347,887,097.95 31,348,800.00 18,748,368.68 4,525,000.00 38,249,760.00 23,787,968.28 4,175,000.00 105,978,000.00 673,115,000.00 563,597,000.00 172,501,000.00 88,530,000.00 348,812,000.00 834,571,000.00 165,062,000.00 1,515,191,000.00 1,436,975,000.00 1,519,716,000.00 1,441,150,000.00 1,135.39 417,564,495.66 7,219,617.41 15,336,514.24 1,113.13 437,744,631.04 5,218,406.37 9,160,589.14 $3,396,551,278.25 $3,303,199,565.91 $2,181,224,185.00 $2,024,916,515.00 814,960,898.02 28,484,110.63 15,096,000.00 8,820,000.76 833,907,250.82 17,776,533.41 19,300,000.00 21,225,299.95 ----------- ------------------------------------------------------- 867,361,009.41 892,209,084.18 Deferred availability cash item s_________________________________ Other liabilities___________________________________________________ 283,633,909.54 969,841.45 325,780,232.00 611,860.02 TO TAL L IA B IL IT IE S ________________________ 3,333,188,945.40 3,243,517,691.20 14,817,100.00 37,593,783.07 3,349,144.81 7,602,304.97 13,771,500.00 35,011,852.68 3,349,144.81 7,549,377.22 $3,396,551,278.25 $3,303,199,565.91 $ $ T otal G old C e r t if ic a t e R eserves - Federal Reserve notes of other banks_______ Other cash____________________________________Discounts and advances--------------------------------U. S. G O V E R N M E N T SE C U R IT IE S: B ills ________________________________________ Certificates-------------------------------------------------N o te s_______________________________________ Bonds ______________________________________ T ota l U. S. G o v e r n m e n t s e c u r itie s T o t a l l o a n s a n d s e c u r i t i e s ____________ Due from foreign banks Uncollected cash items— Bank premises--------------Other assets____________ T O T A L ASSETS LIABILITIES: Federal Reserve notes -----------------------------------------------------------------D EPO SITS: Member bank— reserve accounts----------------------- ----- ---------------U. S. Treasurer— general account____________________________ F oreign _________________________________________________________ Other __________________________________________________________ T otal D e p o s i t s .---------- C A P IT A L A CCO U N TS: Capital paid in____________________________________________________ Surplus (Section 7 ) ---------------------------------------------------------------------Surplus (Section 13b)--------------------------------------------------------------------Other capital accounts-----------------------------------------------------------------TO T AL LIA B ILITIE S AND C APITAL ACCOUNTS Contingent liability on Acceptances Purchased for Foreign Correspondents Commitments to make industrial loans----------------------------------------------------------- 2 ,5 3 9 ,8 0 0 .0 0 1 ,6 7 5 ,0 0 0 .0 0 1 1 ,2 5 0 .0 0 C O M P A R A T IV E S T A T E M E N T O F E A R N IN G S A N D E X P E N S E S 1956 E a r n in g s : _____ _______ ______ ____________________ Discounts and advances Fees received on commitments to make industrial loans______________ Interest on U. S. Government securities___ __________________________ Other earnings _____ . .. . ____ __ _________ ______ _________________ Total Current Earnings____________________________ $ 34,751,768^77 15,578.56 567,773.21 210.11 23,436,368.44 8,490.13 35,660,600.68 24,012,841.89 8,072,007.04 272,100.00 599,519.72 7,183,650.33 213,100.00 445,423.66 8,943,626.76 7,842,173.99 26,716,973.92 ________ 893,227.46 1955 16,170,667.90 O Q K Q $ E xpenses: Operating expenses (including depreciation on bank premises) after deducting reimbursements received for certain Fiscal Agency and other expenses..................... Assessments for expenses of Board of Governors - ______ _____________ .... ..._____ Cost of Federal Reserve currency_____________________________________ _______ _______ Net Expenses Current Net Earnings A d d it io n s to . . ...... ..... ______________________________________________ C u r r e n t N et E a r n in g s : ___ Profit on sales of U. S. Government securities (net) ___________________________________ ____ All other 16,960.10 4,039.09 482.68 20,999.19 482.68 52,927.75 1,426.32 55.37 51,954.86 995.23 54,354.07 53,005.46 -3 3 ,3 5 4 .8 8 -5 2 ,5 2 2 .7 8 $26,683,619.04 $16,118,145.12 Paid U. S. Treasury (Interest on Federal Reserve notes)____________ $23,237,534.75 Dividends paid __ _________ „ ____ ____ __ --------------864,153.90 Transferred to surplus (Section 7 ) ____________________________________ 2,581,930.39 $13,786,647.54 799,650.62 1,531,846.96 Total Additions D ed u c t io n s from _____ ________ _______ ______ ..... . _ ... C u r r e n t N et E a r n i n g s : Loss on sales of U. S. Government securities (net) Reserves for Contingencies___________________________________________ All other ______________________________________________________________ Total Deductions______________________________________________ — Net Additions ( + ) or Deductions ( — ) ____________________ __ N et E arnings B efore P aym ents Total _____ __ ____________ to B alance at Close of ______ U. S. T r easu r y _______ ___ _____ _______________________ $26,683,619.04 $16,118,145.12 ___ ________ --------------- $35,011,852.68 ____________________________________ 2,581,930.39 $33,480,005.72 1,531,846.96 SURPLUS A C C O U N T Balance at close of previous year Addition a /c profits for year ______ -------------- (S e c tio n 7 ) Current Y e a r _______________________ $37,593,783.07 $35,011,852.68 C A P IT A L ST O C K A C C O U N T (Representing amount paid in, which is 50% of amount subscribed) Cancelled during the year_________ _________ B alance at C lo se of Current Y .... e a r ... _______ ____ ________ _______ $13,771,500.00 1,051,700.00 $12,618,200.00 1,160,800.00 14,823,200.00 6,100.00 Balance at close of previous vear _______ _________________________________ Issued during the v e a r ______ ____________________________ ___ _____ _ _ 13,779,000.00 7,500.00 $14,817,100.00 $13,771,500.00 Federal R eseroe D IR E C T O R S John B. W oo dw ard , Jr. C hairm an of the Board and Federal Reserve A gent Alonzo G. Decker, Jr. Deputy C hairm an of the Board President and C hairm an of the Board, American Security and Trust C om pany W ashington, D. C. Robert Gage President, The Commercial Bank Chester, South C arolina Joseph E. Healy President, The Citizens N atio n a l Bank of Ham pton Ham pton, V irginia CLASS B L. V inton Hershey President, H agerstown Shoe Com pany Hagerstown, M a ry la n d Robert O. H uffm an President, Drexel Furniture C om pany Drexel, N orth C arolina Wm. A. L. Sibley Vice President and Treasurer, M onarch Mills Union, South C arolina CLASS C D. W. C olvard Dean of A griculture, N orth C arolina State College o f Agriculture and Engineering Raleigh, North C arolina Alonzo G. Decker, Jr. Executive Vice President, The Black and Decker M anufacturing C om pany Towson, M arylan d John B. W o o dw ard , Jr. C hairm an of the Board, N e w p o rt N ew s Shipbuilding & Dry Dock C om pany N ew p o rt N ew s, V irginia M E M B E R F E D E R A L A D V IS O R Y C O U N C IL Robert V. Fleming C hairm an of the Board, Riggs N atio n a l Bank W ashington, D. C. Bank o f Richmond O F F IC E R S Hugh Leach President Edward A. W ayne First Vice President N. L. Arm istead Vice President R. Pierce Lumpkin Financial Economist Robert L. Cherry Vice President Edmund F. Mac Donald Assistant Vice President J. Dewey Daane Vice President George W. McKinney, Jr. Assistant Vice President Donald F. Hagner Vice President John L. Nosker Assistant Vice President A ubrey N. Heflin G. Harold Snead C hief Exam iner Vice President and G eneral Counsel C liffo rd B. Beavers Assistant Cashier Upton S. M artin Vice President E. B. Coleman Assistant Cashier Joseph M. N ow lan Vice President and Cashier John G. Deitrick Assistant Cashier J. Gordon Dickerson, Jr. Assistant Cashier Robert R. Fentress Assistant Cashier H. Ernest Ford Assistant Cashier James M. Slay Vice President Thomas I. Storrs Vice President C. B. Strathy Vice Charles W. W illiam s Economic Adviser Victor E. Pregeant, III Assistant G eneral Counsel Robert G. H ow ard Assistant Vice President W ythe B. W akeham Assistant Cashier President and Secretary R. S. Brock, Jr. G eneral A uditor IN D U S T R IA L A D V IS O R Y C O M M IT T E E O verton D. Dennis Dominion Oil C om pany Richmond, V irginia Edwin Hyde President, M ille r & Rhoads, Inc. Richmond, V irg in ia W alker D. Stuart President, Richmond H a rd w a re Com pany Richmond, V irginia Baltimore Branch b lb llg H a l D IR E C T O R S O F F IC E R S G ordon M. Cairns Dean of Agriculture, University of M a ry la n d College Park, M arylan d Donald F. Hagner Vice President Wm. Purnell Hall A. A. Stew art, Jr. Cashier Executive Vice President, M a ry la n d Shipbuilding & Drydock C om pany, Inc. Baltim ore, M arylan d B. F. A rm strong Assistant Cashier Executive Vice President, First N atio n a l Bank of Baltimore Baltimore, M arylan d E. Riggs Jones, j r . Assistant Cashier A. C. W ienert Assistant Cashier James W. McElroy Charles A. Piper President, The Liberty Trust Com pany C um berland, M arylan d John W. Stout President, The Parkersburg N atio n al Bank Parkersburg, West V irginia Stanley B. Trott President, M arylan d Trust Company Baltim ore, M arylan d Clarence R. Zarfoss Vice President, Western M a ry la n d R ailw ay Com pany Baltim ore, M aryland Charlotte. Branch D IR E C T O R S O F F IC E R S W illia m H. G rier Executive Vice President, Rock Hill Printing and Finishing C om pany Rock Hill, South C arolina Robert L. C herry Vice President Charles D. Parker President, First N ational Bank and Trust Com pany Asheville, North Carolina S. A. Ligon Cashier Ernest Patton C hairm an of the Board, Peoples N atio n a l Bank G reenville, South Carolina R. L. Honeycutt Assistant Cashier Ivey W. Stew art President, The Commercial N ational Bank C harlotte, North Carolina E. C. M ondy Assistant Cashier Paul T. Taylor President, Taylor Warehouse Com pany W inston-Salem , North C arolina G. G. W atts President, Merchants and Planters N atio n a l Bank G a ffn e y , South C arolina T. Henry W ilson President and Treasurer, Henredon Furniture Industries, Inc. M organto n, North Carolina
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