Full text of Annual Report of the Federal Reserve Bank of San Francisco : 1972 Annual Report

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HG2567

S3A1
1972

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j o hn j . Ball es (left) assum ed o ff ice
as Presid ent of t he Fed eral Reserve
Bank of San Franci sco in Sep tem ber
1972, rep lacin g Elio t l. Swan (ri ght),
who too k earl y re t irem ent in jun e.
Mr. Balles cam e he re fr o m th e M ell o n
Nat io nal Ban k and Trust Co m p any
o f Pitt sburgh, w here he served as
Senior Vi ce Preside nt.
At th e Mellon Ban k, Mr. Balles was
in charge of t he eco nom ic and
corpo rat e p lan n in g office, wi t h
respo nsib ility fo r analys is o f b usiness
and fina ncial d evelop m ents,
m anage m ent science, long- ru n
p lan n ing , legi slat ive rel at io ns, an d
li aison w it h bank su pe rvi sory age nc ies.
He serve d the re 13 years, and p rio r
to t hat, he w o rked w it h the Fede ral
Reserv e Ban k o f Cleveland , f irst as
Senior Financi al Econom ist in t he
Research D epartm ent and later as Vice
Presid ent in char ge of t he Cr ed it
D epartm ent and sp ecial adv iso r o n
m o net ary po licy to t he Bank ' s
Presid ent.
Active in b an k in g circl es, Mr. Ball es
has serve d on th e Ad m in ist rative
Comm ittee o f t he A m erican Bankers'
Associatio n Govern me nt Relat io ns
Co unci l and o n t he Eco no m ic
Ad viso ry Co m m itt ee. D urin g 1971,
he wa s chairm an o f t he A BA Speci al
Committee o n t he Presidential
Co mm ission on Financ ial St ruct ure
and Regu lati o n. He also is past
chair m an o f t he Tr ust ee s o f t he
Banking Research Fu nd o f t he
Assoc iat io n o f Reserve City Bankers
an d a past p reside nt o f the
Penn syl van ia Ban kers Assoc iati on .
M r. Ball es has ser ved o n t he Bo ard

o f D irecto rs o f No rt h A merican
Ro ckw ell Corporatio n and has bee n
chairm an of t he Co nsu lt ing Co mm itte e
of Bank Eco no m ists to t he Comptro ller
of t he Cu rren cy. He also is a former
d i recto r of the Am erica n Fina nce
Associa tion and of t he Natio nal
Asso ciati on of Busin ess Economists.
He receive d his B.S. an d M .A . d egr ees
f rom th e State Un iversity of Iowa ,
and he ho lds a Ph.D. d egree in
eco nomics fr o m Oh io State U n iversity.
He also served as a facu lty m ember
in the eco nomics de part ment at Ohio
State, and w hi le t he re, co aut ho red
a bo ok entitled " Princip les o f M o ney
and Ban kin g."
M r. Swan's caree r with t he Fed eral
Reserve Bank cove red a span of 31
years-more th an half t he inst it ution 's
li fespan. He came to the Bank in
1941 afte r tea ching for a period o f
years at t he Un ive rsity of Cali fo rni a
at Berk eley and also at St. M ary' s
Co llege . He served in a num ber o f
staff and o p erati ng assign men t s at the
Ban k, unti l being named Fi rst V ice
Presid ent in 1956 . He became
Presid en t- t he Ban k's eight h-in 1961,
and served in t hat position un t il h is
ret irem ent last year.

The national economy surged forward
in 1972, recording the best growth
record of the past decade and the most
favorable price performance of the
past half-decade. GNP climbed al
most 10 percent to $1,152 billion, on
the basis of a 61/2 -percent increase
in real (p rice adjusted ) GNP and a
3-percent rise in the general level of
prices. Other aggregate mea sure s
a/so reflected the strength of business
activity, with personal income rising
81/2 percent to $936 bill ion and
civilian employment increasing 3 per
cent to 81.7 million .
The 2.3 million expansion in employ
ment was the largest gain of the
past quarter century and almost twice
the total gain of the 1970 -71 period.
With activity risin g, however, millions
of new jobseekers (ad u lt women , re
turned veterans and teen-agers)
poured into the labor market. Because
of this rapid growth in the civilian
labor force, the unemployment rate
stayed relatively high until the last
several months of the year, when it
at length declined to 5.2 percent.
Inflation remained a worrisome prob
lem for the nation's policymakers,
despite the much reduced (3 percent)
rate of increase in the GNP implicit
price deflator-the broadest measure
of price change-and despite the de
celeration in consumer prices (except
for food) during the Phase II period
of controls . But wholesale prices
rose more rap idly than at any other
time of the p ast two decades, largely
because of a price up surge in farm
products and proce ssed foods and
feeds, and thus presaged future prob
lems for family budgets.

Substantial Western gains
West of the Continental Divide,
business activity expanded strongly
throughout 1972. The leading
"export" industries, such as agri
culture and aerospace manufacturing,
reported respectable increases in
output; the construction industry
behaved spectacularly; and the
region 's extractive i nd ust ries con
tinued to participate in the fortunes
of the sturd y nationwide expansion .
Western banks, boasting a significant
growth in bank credit, meanwhile
helped to provide the financing for
this substanti al increase in business
activity.
Personal income in the states of
the San Francisco Federal Reserve
District increased by more than 81/2
percent during the year to a landmark
$150 billion-almost one-sixth of
the national total. (The District
includes California, Hawaii , Oregon ,
Washington , Alaska , Idaho, Utah,
Nevada, and all except the south
eastern corner of Ar izona.)
By this and other broad measures of
act ivity, the pace of regional business
was stronger than at any time since
the late 1960's.

Millions

Manufacturing & Other
8

o
'65

'66

'67

'68

'69

Employment expands stro ngly in the West in 1972, after
three sluggish years . .. all sectors score significant gains

'70

'71

'72

N on farm em p loyme nt in crea sed more
th an 3 p er cent during 19 72, o n th e
basis of a notabl e recovery in the
cy cl ica l m anufacturin g and con stru c
t ion indu str ies, alo ng w it h a so lid
ex pa nsio n o f job s in trade, serv ic es
and go ve rn me nt . Employment gains
we re wid espr ead throughout th e
W est, m o st notabl y in Arizona, w it h
almost a 9-p ercent gain for the yea r.
No nfar m job s increased by 2 percent
or less in Califo rnia and Washington ,
but tho se fi gures contrasted with
th e act ual declines recorded in
th o se two key states during the
pr eviou s year. Hawaii was the
onl y sta te to report a significant
slo w dow n in employment growth
and a sig n if icant increase in un
em p loyme nt -largely because of
recent sh ip p i ng strikes and the
earlie r ove rb u ild ing of resort faciliti es.
T he regi on al un employment rat e
dropped sha rply, reachin g 5.8 p er cent
in late 19 72 in co nt rast to th e sp ring
1971 peak of 7.5 p er cent. Th e level of
jobl essness rem ain ed so mewhat
h igh er in alm ost ev er y D istri ct state
th an in th e nation, w it h it s S.2- pe rce nt
rat e at yea r-e nd; onl y A rizo na showed
sig ns o f sig nificant labo r shortages.
(Na t io na l and regional data are not
qui te co m parab le st at ist ica lly.)
Yet in Ca lifo rn ia and Washin gton ,
w he re un employment had been
ext re mel y hi gh as late as mid-1 971,
th e recov ery from the aerospa ce
rel at ed recession brought about a ver y
sha rp improvement within the short
spa n of a year and a half-a 11/2
per centage point decline in Californi a
t o a S.7- p ercent rate, and a
3- pe rce ntage point decline in
W ashin gton to 8.0-percent by
yea r-e nd.

Stronger demand patterns
Weste rn co nsume rs respon d ed to th e
m ore buoyan t b usi ness at mosp he re
w it h an o ld -fas hi o ne d bu yin g sp ree .
In th e Paci fi c regio n, ret ail sales
in cr eased alm ost 10 percent ove rall
-s ig nifica nt ly higher th an nat ion all y
- and spe ndi ng fo r au tos, f u rniture,
and other d u rabl es j um pe d almos t
14 pe rce nt fo r th e seco nd st raig ht
yea r. Yet w it h th e sti ll sig n ifica nt
amo u nt of slack in th e regi on al
eco nomy, co nsu me r pri ces co nt inued
t o rise at a slight ly slower pace her e
th an elsewhere, in cr easin g by about
3.1 pe rce nt as against 3.3 per cent
nati on all y.
Th e bu yi ng boom was f ue le d by a
19- percent inc rease i n ba n k co nsum er
cred it lo an s, with aut os and mobil e
hom es acc o u nti ng fo r a subs ta nt ia l
sha re o f th e total. Th e earlie r up surge
in cred it-card exte nsio ns taper ed off
durin g t he yea r, bu t as recomp en se,
check-cred it exte nsio ns ro se ve ry
rap idl y.
As t he eco nomy expan de d, Wes te rn
b usi ness fi rms lo o sen ed up t hei r
pu rsestr in gs and began spe nd ing
mo re fo r p lant, equi p me nt and
inve nto ries. A t t he same t im e, co r
pora ti o ns began to turn to th e ban ks
on ce agai n fo r fin an cin g-in cr easin g
t heir bo rrowi ngs 10 p er cent after
two sluggis h yea rs o f loan demand
alt houg h th ey co nt inue d to obtain
large am ou nts o f fund s from the
co m me rcia l- pa pe r market and from
th ei r own ret ain ed earn ings. The
heaviest bank bo rro w ers were public
util ities (espec iall y communication's
f ir ms) and tr ad e and serv ice firms.

Rate (Percent)

o
'68

' 70

'72

Unemployment declines
especially in the West
7

The cost of borrowing rose over the
course of the year, reflecting the rising
trend in the prime business-loan rate;
between the February and November
survey dates, the average rate on reg
ular short-term loans rose from 5.39
to 6.41 percent.

Easier fiscal position
Many regional governmental units,
after subsisting for years practically on
a hand-to-mouth basis, moved into a
much stronger financial position in
1972. (For example, California now
expects to find itself with an $850
million surplus after spending its $7.7
billion budget for fiscal 1973 .) This
healthy fiscal situation came about in
part because of the overall accelera
tion of economic activity. In addition,
it reflected the impact of previous tax
leg islation (such that California's
revenues benefitted both from the
payment of 1971 income taxes and
from the startup of withholding for
1972 taxes) as well as a sharp
rise in Federal grants, highlighted
by the initial payment of revenue
sharing checks in December.

Not much tax legislation was passed
in most District states (except Cali
fornia) during 1972. Washington and
Oregon both acted to give property
tax relief to the elderly. Idaho re
adjusted personal-income tax rates,
and also boosted rates on corporate
income and on cigarette and motor
fuel sales. Most importantly, California
adopted a $1.1-billion revenue bill
designed for local-school support
as well as property-tax relief, with
most of the revenue being obtained
from higher sales and corporate
income taxes. The tax bill came
about as a response to a 1971
California Supreme Court ruling,
which declared unconstitutional a
public-school financing system based
on local property taxes.
Municipal-bond calendars lightened
considerably during 1972, reflecting
the easier position of states and
municipalities. Western governmental
units borrowed $2.9 billion during
theyear-10 percent belowthe
heavy borrowing pace of the previous
year-and they borrowed at a
slightly lower cost, with a decline
in the average yield on rated general
obligations from 5.24 to 5.13 percent.
State governments borrowed $1.2
billion, and a vast range of local
units borrowed $1.7 billion-in each
case, considerably below the 1971
pace.

Aerospace out of tailspin
The Western aerospace industry pulled
out of the tailspin it had been in
for almost a half-decade, as aircraft
and electronic producers boosted
employment about 3 percent during
the year. In absolute numbers,
California accounted for most of the
employment growth , but in per
centage terms, Washington recorded
a far larger gain. Yet even with
this increase, regional employment
at year-end totalled only 545,000
almost 200,000 below the peak
reached five years before.
Military prime-contract awards to
Western fi rms rose 16 percent in
fiscal 1972 to $7.9 billion, as Western
firms managed again to capture about
one-fourth of the Pentagon's total
business. Few new military projects
got underway during the year, but
awards for ongoing aircraft and missile
projects increased sharply at both
California and Washington facilities.
Space-agency work continued to
decline; NASA's $544 million in new
contracts in fiscal 1972 was roughly in
line with the previous year's total but
amounted only to about one-fourth
of the 1965 peak. The $2.6-billion
space -shuttle development contract
awarded to North American Rockwelt
last summer promises eventually to
reverse this prolonged decline. (The
shuttle is planned as a reusable two
stage rocket capable of carrying a
dozen passengers and a 65,OOO-pound
payload into earth orbit.) However,
the project has gotten underway rather
slowly because of Federal
fiscal constraints.

Billions of Dollars

Military Prime Contract Awards
6

Co m me rcial Backlo gs
4

Spa ce Procurement Awards

Olo-

L -_ _--,-........

......

--Io.

........

'65
' 66
' ' 67
'68
'69
'70
Aerospace sector benefits from sharp rise in military contracts ..•
commercial backlog declines despite larger inflow of new orders

--'

'71

'72

I
I

Change (Percent)
15

Crops

The regional industry benefitted from
an improvement in orders for com
mercial aircraft, although backlogs
continued to trend downward most
of the year. An increase in airline
passenger traffic-combined with a
return to profitability-encouraged
the carriers to order additional
equipment. However, they confined
their purchases mainly to older
generation equipment, especially the
Boeing 727. (During the year, the firm
obtained its 1,000th order for this very
popular plane.) Orders for the more
expensive wide-bodied jets-the
Boeing 747, the McDonnell Douglas
DC-10 and the Lockheed L-1011
remained relatively weak until late
in the year. Foreign airlines mean
while provided a growing outlet for
both older and newer-generation
equipment, a historic breakthrough
in this direction being China's $125
million purchase of 10 Boeing 707's.

o
15

u.s.

I
Livestock

West
10

o
'70

'71

'72

Western livestock industry booms,
but crop receipts fail to gain
10

Mixed results on the farm
The farm sector reported mixed
results in 1972; livestock producers
benefitted from a 1O-percent gain
in cash receipts, while crop farmers
reported no gain at all. Total
cash receipts rose to a record
$8.7 billion, for a 4-percent increase,
or less than half the national pace.
(The slower-than-national pace
reflected the West's limited output
of certain commodities, such as
hogs, soybeans and feed grains, that
have risen most rapidly in price over
the past year. ) But net income
apparently remained stable, reflecting
not only the modest gain in gross
receipts but also a steady rise in farm
production expenses and a decline
in government payments.

Rising production and (especially)
rising prices accounted for the strong
gain in livestock income. Beef cattle
prices rose 12 percent for the year,
and prices of poultry, eggs, and dairy
products also advanced sharply.
Arizona and Nevada, the states most
heavily dependent on cattle pro
duction, thus scored the largest gains
in farm receipts. On the supply
side, cattle slaughter and milk pro
duction continued to expand, and at
a faster rate than nationally. Yet
despite the high levels of fed beef
prices, livestock profit margins de
clined as a reflection of the rising
costs of feeder cattle and feed grains,
partly caused by the early 1972
drought in the Southwest range
country.
The sluggish behavior of crop receipts
reflected the reduction in output
brought about by bad weather
including the early-spring freeze
damage to deciduous fruits (especially
in the Mountain states) and the wide
spread freeze damage to citrus fruits
and vegetables in the latter part
of the year. Lower prices for oranges,
lettuce and potatoes also cut into
receipts, but these price declines were
offset by the late-year upsurge in
wheat demand, which sent prices soar
ing 73 percent above a year ago.
Cotton prices also strengthened, and
cotton yields were substantially
higher than previously.

Wheat far me rs benefitted f ro m a shif t
fr o m wo rldwid e glut to sho rtage
in a brie f th ree-year period , as th e
giant con sumin g nations (India, Chin a
and th e Sovi et Union) all turn ed to
thi s country fo r sup p lies. Th e North
wes t harvest did not begin until
the $1- b illi o n d eal w it h th e U.S.S.R.
had been p ub licized, so th at farme rs in
th at region, unlike th eir counterp art s
in th e So uthe rn Plain s, we re ab le to
ben efit f ro m skyrocketi ng w heat
prices as well as from an expansion
in output.
Farm d ebt inc reased substant ially in
th e W est durin g 1972, refl ectin g both
an expansio n in farm act iv ity and
a f av o ra b le lend in g clim ate. Co m
merc ial ban ks we re v er y ac tive
lend ers; at mid year, bank s rep orted
a 7- percent yea r-to -y ear gain in farm
mortgage d ebt outstanding (foll owin g
two years' d eclin e) alo ng with an
8-p ercent gain in farm produ cti on
lo ans. Thi s in cr ease in produ cti on
credi t refl ected both an in crease in
p urc hases of farm eq uip me nt and an
exp ansio n of livestock herd s.

Spectacular construction results
Construction activity burgeoned
during 1972, as construction awards
reached a record $15.7 billion, with
every Western state sharing in the
gain. Nonresidential awards rose 15
percent, bolstered by a substantial
increase in contracts for factories
and office buildings. Heavy con
struction rose 8 percent, with an
increase in demand for streets,
highways, reservoirs and water
supply facilities. But in particular,
the residential sector reported a
20-percent increase in new awards
for the year, and in the process
accounted for over one-half of the
industry's total dollar volume.

About 550 ,000 new units were added
to the region 's housing stock last year,
with 455,000 housing starts being
supplemented by about 95,000
mobile homes. Thi s 12-percent
increase fell somewhat below the
national pace-partly because of
continued weakness in Washington 's
housing situation-and it was far
below the 40-percent gain recorded
in the West the preceding year.
Nonetheless, it represented a sub
stantial expansion in supply-perhaps
too substantial , in view of a growing
number of danger signals in the
market. Vacancy rates (especiall y on
rental units) increased as the year
progressed , and at year-end, the
number of units under construction
and the unsold inventory of new
single-family homes both reached
record levels.

Construction financing and perma
nent mortgage financing were amply
available to support the very strong
pace of housing activity. The major
lending institutions, almost inundated
by heavy inflows of savings , vastly
expanded their mortgage lending
during the year. Savings-and-Ioan
associations increased their net mort
gage lending 36 percent to $6.8 billion.
Commercial banks , although record
ing a considerably smaller savings
inflow than in 1971, posted a $2. 8
billion in mortgage portfolios-a 55
percent larger gain than in 1971-and
sharp ly expanded their lo ans to mort
gage companies and their outstanding
credits on mobile homes. Compared
to 1971, this increase in lending ac
tivity was carried out generally at
lower interest rates , lower down pay
men ts and longer maturities .
One of the major building develop
ments of the year was September's
ruling by the California Supreme
Court that environmental-impact
statements must be filed with requests
for building permits on all private
construction projects where a "signi
ficant" impact occurs. The Court thus
extended to private projects the same
safeguards applied to public projects
under California's 1970 environ
mental quality act. The decision
threw California's building industry
into a turmoil; some communities
even reacted by stopping the issuance
of building permits. However, much
of this concern was alleviated when
the state legislature voted to
narrow the interpretation of the
court's ruling.

Stronger lumber, steel demand
The record volume of housing activity
nationwide translated into an insati
able demand for We stern forest
products during 1972. Lumber mills
boosted production 6 percent to a
near-record level, but they remained
unable to keep up with the historic
volume of orders. The result was a
sharp run-up in prices, w ith lumber
prices up 18 percent for the year and
plywood prices up 22 percent, despite
the presence of Phase II controls.
Lumber prices rose sharply early in the
year, partly because of the absence
of controls on raw timber, and partly
because of provisions in "term limit"
pricing agreements which permitted
price boosts as high as 15 percent
on some individual items. Further
increases occurred early in the spring,
when the Price Commission lifted
wage and price controls on small
firms, and the upsurge continued
even after the Cost of Living Council
reimposed controls on small lumber
producers and wholesalers. Lumber
men themselves blamed much of the
upward price pressure on the profit
limitation provisions of the control
program , claiming that these pro
visions discouraged mills fro m
producing at full capacity .

Change (Percent)

-10

-5

10
1972

Lumber

1971
1970

Steel

Copper

Refined Petroleum

Output increases in the West's major extractive industries in 1972 ,
following several years of general sluggishness

Western steel production rose 3 per
cent above 1971's depressed level to
6.2 million tons, but it remained
considerably below the 1969 peak.
Output declined sharply in early 1972,
as a result of a six-week strike at a
major integrated facility at Fontana,
California, but then it recovered
strongly, running far ahead of the pace
of the inventory-liquidation period of
late 1971. Steel prices increased
6 percent for the year, reflecting a
first-quarter boost in quotations for
most sheet and strip products. After
that increase, producers held prices
stable for the remainder of the year,
partly because of competition from
foreign steel makers, but they raised
prices again on a wide range of
products in early 1973. Throughout
this period, imports posed a major
problem for the regional industry.
A voluntary quota agreement reached
with foreign producers in May held
total imports nationwide below the
peak level reached in 1971, but
imports continued to flow into Pacific
ports at a record pace, and in the
process captured over one-third
of the Western market.

announced a 14-percent cut in list
prices on aluminum ingot (the
primary form of the metal) but even
that reduced quotation remained far
above the actual selling price.
Copper was in a similar situation,
since excess supplies in that industry
acted to restrain prices despite a
strong improvement in demand.
Copper consumption reached the
highest level of the past half-decade,
with strength concentrated in the
latter part of the year, but the higher
prices quoted by producers in
February failed to stick because of
a 6-percent rise during the year in
mine production and an even greater
increase in refinery output. The
domestic producer price reacted to
the price quoted on the London Metal
Exchange, weakening in June in
response to the floating of the British
pound, and strengthening in early
1973 in response to a strong industrial
demand and to a speculative upsurge
which took place in the face of a heavy
buildup of inventories.

Metals work off stocks
Demand picked up sharply at
Northwest aluminum plants, enabling
producers to reopen most of the
potlines closed because of serious
overproduction problems during the
several preceding years. Producers
reduced their inventories almost by
half during 1972, but discounting
from published prices remained a
problem. In May, the industry

Silver proved newsworthy in 1972,
partly because of the tragic fire which
closed a major mine in Idaho for
most of the year, and partly because
of the tumu Itous market situation
which sent prices soaring. Silver pro
duction declined substantially,
reflecting mostly the losses at the fire
damaged mine, while industrial con
sumption and speculative buying both
increased , so that the New York dealer
pr ice jumped from $1.29 to $2.03 an
ounce between late 1971 and late
1972. But the domestic producer price
held at the $1.61 ceiling until
August, when the Cost of Living
Council lifted controls to permit
domestic producers to benefit from
the sharp rise in world prices.

Oil confronts energy crisis
In the midst of growing discussion
about an energy "crisis," Western
oil refineries increased their output
7 percent in 1972 , responding to a
rising demand for gasoline and
other fuels. But d omestic sources
provided only 65 percent of the
regional industry's total crude
supplies, as against 70 percent in
1971, with the gap being filled from
Canadian and other sources. This
situation reflected a 5-percent
reduction in crude output from
Western fields , as p roduction con
tinued to decline in both California
and Alaska.

The fears of a developing crisis came
about because of the nation 's
growing dependence on imported oil
and natural gas, and because of the
shortage of heating oil and other
fuels already evident in many sections
of the country. To avert a crisis, oil
industry spokesmen and other con
cerned parties have urged the Federal
government to develop a coordinated
national energy policy, including in
centives to spur the development of
domestic supplies.
The proposed oil pipeline from
Alaska's North Slope remained a
symbol of the difficulties involved
in reconciling the demands of a
national energy policy with those
of a national environmental policy.
But even if the environmental
problems were to be solved and
construction immed iately begun, the
first oil supplies from this source
would not reach West Coast markets
for three more years , and the pipel ine
would not reach its full capacity of
2 million barrels /day until 19BO. The
conflict between energy and envi
ronment also surfaced in the
proposals made by the Environmental
Protection Agency in earl y 19 73 to
solve Southern California's severe
smog problem; the proposals would
involve an BO-percent reduction in
auto travel during the peak May
October smog season (partly through
actual gas rationing) along with limits
on hydrocarbon emissi ons by
industrial sources.

Financial activity expanded vigorously
throughout the nation during 1972,
helped along by a generally accommo
dative monetary policy which
provided the funds needed for the
substantial increase in GNP. The
money stock-currency plus demand
deposits-increased about 8 percent
for the year, as against a 6-percent
rise during 1971. Defined more
broadly to include banks' consumer
type time and savings deposits, the
money stock grew about 10V2 percent,
slightly less than in the previous year.
The Federal Reserve furnished reserves
to the commercial-banking system at
a faster clip during 1972 , as RPD's
reserves available to support private
nonbank deposits-grew about 10
percent for the year. Early in the
year, the Fed began to use RPD's as a
major criterion for guiding open
market operations, its major policy
tool.
This large increase in bank reserves
provided the basis for a record
shattering $la-b illion (14 percent)
increase in commercial-bank credit.
The vast bu Ik of the expansion was
concentrated in bank loans-up al
most twice as fast as in 1971 -as every
major loan component increased at a
record or near-record pace .

Short-term money rates moved irregu
larly upward throughout most of the
year, reflecting this expansion of bank
loan demand as well as an enlarged
volume of money-market financing .
Thus, 3-month Treasury bill rates rose
more than two percentage points, to
5.03 percent, between February
and De cember.
Long-term interest rates, in contrast,
stayed relatively flat during 1972,
although at very high levels by his
torical standards. The volume of both
corporate and municipal borrowing
declined significantly from 1971 levels.
Net market demands of the U.S.
Treasury also declined, as the budget
situation improved on the basis of
such factors as the substantial over
withholding 'o f individual income -tax
payments and the delayed outlays for
social security and revenue sharing.
But this decline in Treasury require
ments was more than offset by a sharp
rise in Federal agency financing,
especially in t he housing and farm
sectors.

Banks meet broad-based demands
Because of the rising tempo of
regional business activity,
Western banks were faced with broad
based demands for credit during
1972. At the sam e time, they
operated in a changing financial
envi ron ment, characterized
by the rise in money-market rates
which led to higher costs for funds
as-well as higher rates of return on
earning assets. For the year , total
loans and investments at Twelfth
District banks increased $9.0 billion
(12112 percent), while a $7.9-billion
(11 percent) increase in deposits
provided the maj o r source of funds to
fuel the rapid expa nsion of cred it.

Change (Billions of Dollars)

Savings Accounts

Savings & Loans
2

01--- - - - - - - - - - - - - . . ;:

" ortgage Loans
M
Commercial Bank
Savings & Other Consumer
-Accounts

2 ~'6:":
5:----~::----:==---~ 68
'~~---:":~--""""":~--""""":~---~
Mortgage lending continues to dominate Western financial scene ...
boom fueled by record savings inflows at banks and S&L's

The 12V2-percent gain in total cre d it
lagged the national pace, reflecting
the modest increase in security
holdings which accompanied a sharp
18-percent increase in loan portfol ios.
In contrast to 1971, practically the
entire increase in credit showed up in
th e loan catego ry, in the wake of
heavy loan demand by real-estate
buyers, business firms, consumers
and nonbank financial institutions.
But secu rity p o rt fo lio s remained
relatively stable, as banks alternately
accumulated and reduced h o ld ings
o f Treasury and other securities
t hroughout t he y ear.

Mortgages dominated lending activity
for the second straight year
accounting for almost one-third of
the total loan increase-but business
lending also expanded substantially
and the rate of consumer lending
doubled. Loan-administration
practices were affected by policy
ma kers ' " m o ral suasion" over rate
setting but also by a vigorous
competitive atmosphere; increases in
the prime business-loan rate were not
accompanied by the usual degree of
firming in other lending practices
nor by comparable rate adjustments
on mortgage and consumer loans.

Shifts in deposit patterns
The 11-percent increase in total
deposits roughl y matched the national
pace , reflecting a faster rate of
gain in private demand deposits
but a slower pace in time deposits.
The deposit expansion fell somewhat
short of the 1971 regional expansion,
largely because of a substantially
slower pace of growth of individual
savings. In contrast, states and
political subdivisions played an
increasingly important role as a source
of bank funds, both in time-deposit
money and in loans to banks
under repurchase agreements.
In add ition, banks also relied heavily
on the issuance of capital notes and
debentures for longer-term funds.

Passbook savings increased at only
about half the previous year' s pace ,
reflecting in part the early-year reduc
tion in rates paid on such deposits, and
in part the increasing tendency of con
sumers to spend rather than save.
At the same time, other types of
consumer-savings instruments grew at
a slightly faster pace during the year,
as banks in late spring reversed
earlier actions and again offered
higher rates and longer maturities
on such certificates .
Banks sub stantially expanded their
issuance of large-denomination time
certificates , but corporations picked
up only about half of these CD 's, or far
less than their usual share. And as
noted above, time-deposit behavior
was influenced far more than usual
by governmental bodies; in April
alone, California banks received
almost $1.5 billion in public funds,
partly because of the newly instituted
withholding of income taxes, and in
December, normal deposits of tax
receipts were augmented by sub
stantial deposits of Federal revenue
sharing checks.
The sharp expansion in bank lending
caused some erosion i n bank
liquidity during 1972 , as the ratio
of loans to deposits (incl ud ing Euro
dollar liabilities) rose from 70 to 75
percent over the year . An even
sharper shift-a decline from 7 to 4
percent-occurred in the ratio of
short-term (Treasury and municipal)
securities to total deposits, reflecting
the minimal increase in securities
which accompanied the large
expansion of deposits.

Earnings reflect rate movements
Earnings reports varied widely; some
large banks reported substantial net
gains and others substantial declines,
while medium and small -size banks
generally reported very large year-to
year increases in income. In some
cases, a poorer performance came
about because of failure to match
the large gains in security transactions
realized in the preceding year. How
ever, rate movements (as always)
were crucial to bank profit margins.
Early in the first quarter, District banks
made a % -percentage point reduction
(to 4 3/ 4 percent) in the prime
business-loan rate , and followed this
with reductions in mortgage and
consumer loan rates . At the same
time, many large banks alleviated
some of the pressure on profit margins
by posting a 1 -percentage point
/2
reduction in the rate paid on
consumer passbook savings. After
money-market rates turned upward
in the second quarter, t he prime rate
followed-finally reaching 6 percent
in late December-but mortgage and
consumer loan rates d id not move
in tandem. But since the cost of funds
(except on passbook savings ) generally
moved upward with the rate of
return on earning assets, and since
operating expenditures pursued their
inexorable rise , many banks exper
ienced a squeeze on their profit
margins as the year progressed. On
the other hand, the expanded volume
of earning assets brought in larger
amounts of revenues.

Billions of Dollars
Change (Percent)
o
10

3.0

2.0

Total Bank Credit
1.0

Loan s

0
3.0

2.0

Business Loans
1.0

+
0

U.S. Gov't Securiti es

1. 0

O t he r Sec urities

2.0
'65

Twelfth District's expansive banking year highlighted by sharp gains
in all loan categories but slowd own in securities

Borrowings from the Fed
Deposits of District member banks
increased $6.6 bi IIion for the year
(daily average basis), and the required
reserves held against those deposits
increased $454 million. As banks
accommodated themselves to a
policy of increasing firmness in the
latter part of the year, some found
it increasingly difficult to meet their
reserve requirements without bor
rowing from the Federal Reserve
Bank. Thus, while average borrowings
actually declined during the year
-from $27 to $18 million-the level
of borrowings reached $40 million
in the fourth quarter. (All funds
were borrowed at a 4 Vz -percent
discount rate; however, the Bank then
raised its rate to 5 percent in early
1973, to bring it closer into line with
money-market rates.) Consequently,
District banks showed net free
reserves in the first half of the year
and net borrowed reserves in the
second half-making for a small
($1 million) net free reserve position
for the year as a whole, in contrast
to the borrowed reserve position
of banks nationally.

On balance, large District banks were
net sellers (lenders) in interbank
Federal-funds transactions in 1972.
Banks also were small net borrowers
of funds from dealers in U.S. Gov
ernment securities, and massive
borrowers of funds under repurchase
"agreem ents with corporations and
public agencies, especially the latter.
Some of these borrowed funds were
resold in the Fed-funds market, and
thus helped account for the net
sales position maintained by banks
during most of the year.

Heavier loan demand?

As Western banks entered 1973, they
were faced with the prospect of a
further strengthening in business
activity and in loan demand . The
business sector may come to rely
more heavily on banks this year, both
for short-term credits to finance
inventories and for long-term
credits to finance capital
expenditures. The volume
of mortgage lending may decline
significantly as the housing boom
tapers off, but the possible slackening
in that sector could be taken up by
a further increase in consumer loans.
The deposit scene is somewhat
murkier, although banks can expect
some deposit gains early in the year
as a result of the one-time windfall
in tax refunds-especially in Cali
fornia, where State as well as Federal
income taxes were overwithheld in
1972. Profit margins may be
squeezed by the rising cost of
borrowed funds, typified by the early
1973 increase in the discount rate and
a higher Fed-funds rate, but
on the other hand, they should be
affected favorably by the rising rates
of return on bank earning assets.

Decentralization is an important characteristic of the Federal Reserve System . Each
Reserve Bank and each branch oHice is a regional and local institution as weI! as
part of a nationwide system, and its transactions are with regional and local banks
and busines ses. It gives eHective representation to the views and interests of its
particular region and at the same time helps to administer nationwide banking and
credit policies. - The Federal Reserve Sys tem - Pu rposes and Functions .
The Federal Reserve System
demonstrated again in 1972 this
quality of decentralization which
makes it practically unique among
the world's central banks. At the
same time, the operations of the
Federal Reserve Bank of San Francisco
were coordinated with those of the
other components of the System to
provide uniformity and to benefit the
national economy as a whole.

for checks in a specific geographical
area. By extending the "close-off"
hours and operating on a round-the
clock basis, these regional centers
(usually located at existing Federal
Reserve offices) can accept checks
from participating banks up to mid
night, process them during the early
morning hours, and have them on
their way to the drawee banks by
daybreak.

RCPC-a new concept

Banks receive immediate credit for
checks cleared through the RCPC's,
and they are expected to pay for their
own checks in "immediately available
funds" on the day of presentment.
As a result, funds are collected and
placed back in financial channels
much sooner than was possible
before development of the regional
processing concept.

Typical of this cooperative effort was
the work carried out to improve
the nation's payments mechanism
the complex process by which billions
of dollars are transferred back and
forth across the continent each busi
ness day. During 1972, particular
attention was focused on accelerating
the processing and collection of
checks, the medium used in 90 percent
of the nation's money transactions.
In the process, a new set of initials
was added to banking jargon, as each
of the 12 Federal Reserve Banks
initiated-or set the stage-for RCPC's
(Regional Check Processing Centers).
Basically, an RCPC is a highly
computerized operation designed
for one primary purpose-to achieve
overnight processing and settlement

In th e Twelfth Fed eral Reserve
Di stri ct, RCPC' s w il l be est ab lished
at eac h office of th is ba n k- San
Francisco , Los An gel es, Portland ,
Salt Lake City, and Seattle . In ge nera l,
eac h RCPC w i ll serve th e same areas
no w in clud ed in th e serv ice zon es
of t he Fede ral Reser ve offices, except
t hat Hawaii and Gu am will not be
inc lud ed in th e San Francisco RCPC
whe n it first gets und erway . Present
pl ans cal l fo r t he five regio nal centers
to be o pe rat io nal by mi dyear.

Wh y the pu sh on clea ring ch ecks
faste r? Volum e, for o ne thing . In
1972, Americ an s w ro te probably
arou nd 26 billi on checks, and thi s
n umber is in creasin g at a fa irly steady
rate of 7 to 8 per cent a year.
App ro xima te ly a third of thi s check
vo lu me passes th roug h the Fed er al
Reserve System , and the five offi ces
of t he San Franci sco Reserve Bank
handl e abo ut an eight h of the to tal
Syste m vo lume. In 1972, fo r examp le,
t he San Fran ci sco Fed offices
processe d an ave rage o f 3 m ill ion
chec ks each b usiness da y, an an nua l
total of nearl y a b i llio n item s.
In dollar t erm s, thi s represented $215
bi llio n.

Major policy moves
Durin g t he yea r, t he p roblem of
"flo at" conti nu ed t o provid e a majo r
impetus for d evel oping fast er meth ods
o f cle aring and co llec t ing ch ecks.
Cong ressio nal cri tic ism has mounte d
over th e growth in Fed eral Reserve
f loa t, w hic h is viewed in some circles
as an inte rest-fr ee lo an t o ba nks . W ith
th e burgeoni ng use o f che cks, Fed er al
Reserve flo at rose from around $1
bil lio n a d ay in t he early 1950' s to
m o re than $3 bi llio n in lat e 1972.
26

Mos t o f th is fl o at occu rs becau se ban ks
are given credi t for checks th ey clear
through t he Fed eral Reserv e acco rdi ng
to a set ti m e sched ule, rath er t ha n
w hen p aymen t is act uall y received by
t he Fed . Until late 1972, for examp le,
ban ks lo cated o utside Reser ve cities
were not requi red to pay for checks
drawn o n th eir acco unts unti l th e da y
after th ey we re received fro m th e Fed,
which mea nt a delay in pay me nt of
t h ree or mo re d ay s fo r a large vol um e
of checks. On t he ot her hand, th e
ma xi m u m d eferm ent of credi t to
de po sit in g ba nks was tw o days , re
sult in g in t he creat io n o f f loat t hat wa s
absorb ed by th e Federal Reserve.
After several mon t hs o f d iscussion
w it h ba nkers and ot he r interested
gro ups, th e Fed er al Reserve Bo ard
o f Go vern o rs im p lem ent ed an amend
ment t o Regulation J on Nove mbe r
9,1972, req ui ring banks t o pay for
all ch ecks o n t he same d ay th ey
are p resented to them by t he Federal
Reser ve Banks. By th e same toke n,
ban ks now also receive credi t o ne
d ay earlie r for ch ecks they pr esen t
throu gh th e Fed. Thi s act io n resulted
in an im me d iate redu cti on of nearly
$2 b ill io n in f loat.

At th e same time , the Federal Reserv e
Board m ad e ano t h er historic move by
changing drastically the structure of
member-bank reserve requirements.
Formerl y, most member banks
in cit ies where Federal Reserv e Offices
are loc ated were classified as " reserve
city bank s," and were requ ired
to hold larger reserves than "co untry
banks, " those outside th e Reser ve
cit ies. Under the rev ised Regulat ion D,
a mem be r ban k no lon ger is re
quired to keep reserve s on the b asis o f
it s lo cat io n; in stead , member banks
of eq ua l size are assigned eq ua l re
serve requ ir ements. Furthermore,
ove rall reserv e requirements for most
banks w ere reduced m aterially, with
th e ne w struc t ure ranging fro m 8 per
cent on n et demand deposit s o f $2
mill ion or less t o 171/ percent o n such
2
depo sit s ov er $400 million . This act ion
rele ased ab o ut $3 .2 billion in re
serves, whi ch more than offset the
loss in float banks experienced as a
result of th e Regulation J amendment.

Reducing the paper load
The Federal Reserve worked not only
to develop faster method s of pro
cessing and collectin g checks, but also
to promote alt ernatives capable
of stemmin g the rising tide of paper
checks. One of these projects is the
SCO PE program , an acro ny m for
"S peci al Com mittee on Paperless En
tries." Co nceived and organized by a
g ro up of Californ ia ba nks, SCO PE has
become a model in num erou s other
cities and st at es fo r a computerized
clearing syst em to process payroll s
and divid end payments, as well as
certain pre-authorized charges. The
SCO PE plan permits em p loy ees of
participatin g business fir ms to have
the ir pay auto mat ically d ep osited in
th e banks of th eir ch oi ce, w it ho ut
checks bein g prepared o r processed.
Eventually, th ey also will be able
to pay their mortgages, insurance
premiums, and other recurring
bills in the same wa y.

Millions

800

600

400

200

I I

Billion so f Dollars

200
To encoura ge such innovative efforts,
the Federal Reserve Bank of San
Francisco agr eed t o op er ate automated
cle aring ho uses fo r th e SCO PE pro
gram at its San Franci sco and Los
A ng eles off ices. A dd it ional eq u ip m ent
w as in stalled and pe rso nne l w ere
trained at both o ffice s, specifi cal ly f or
th is progr am . SCOPE had made a
modest be ginni ng by yea r-e nd, and
f ro m all ind icati o ns, th e education al
and p ro m oti o na l effo rts by commercial
banks act ive in the p rogr am wi ll
brin g abou t incr eased pa rti ci p atio n
in 1973.

150

100

o
'68

'70

'72

Federal Reserve check processing
remains relatively stable over time
29

Utilizing electronic transfers
The Federal Reserve continued to work
w ith an electronic transfer system,
realizing that the future course of
payments transactions is indelibly
linked to th e ele ctronic tran sfer of
fund s. It utilized a computerized
communication s sw it ch, located at
Culpeper, Virginia, which connects
all 37 Federal Reserve office s
throughout the nation, and makes it
pos sible to transfer funds almost
instantaneously from one commercial
bank to ano t her any w here
in the country.

Trillions of Dollars.'

2.5

2.0
The Western link in this com muni
cations system is the San Francisco
Reserve Bank and it s branch es.
Plan s are underway to au gment the
Syst em 's co mmun ic ation s network
throu gh installation of a switch at
the San Francisco o ffice w hi ch will
connect all of this D istrict's Federal
Reserve offices. This will expedite
tran sfers among Western banks,
cutting down th e need for intra
d istrict mes sage s to be sent
through Culp eper.

1.5

1.0

0.5

'68

'70

'72

Bank's wire-transfer volume triples
in only five years' time
30

At p resent, six me mber bank s in San
Fran ci sco are directl y linked with the
communicat ions sy stem through
the Federal Reserve Bank computer,
and transfers by those banks are
effected witho ut handlin g by the
Reserve Bank's wire tran sfer depart
ment. Ulti matel y, co m m ercia l bank s,
w ill be able to t rans fer funds
directly through th eir own computers
to the computers of other member
bank s nearly anyp lace in the nation.
Th is method of tran sferin g f u nd s has
exp anded shar pl y in recent years.
In 1972, the fi ve offices of thi s
Bank handled 874 ,000 trans fers,
representing a dollar volume of almost
$3 trillion-an avera ge of rou gh ly
$10 billion a da y. Fund s tran sferred
by wire thro ugh th e San Franci sco
Ban k' s network in crea sed 50 p ercent
last year alon e, and more th an tripl ed
over the past five years.
Other major operations
De spite the sp o t lig ht on th e growth o f
checks as a form of m o ney, currency
and co in did not go out-o f-styl e last
year. The dollar vo lum e o f currency
rece ived and counted at this Bank
increased 5 percent over the
previous year, reach in g a total of
$7.9 b ill ion . Furth er more, Federal
Reserve N ot es of this Bank in circula
t ion ro se $585 million duri ng the year,
totalling slig ht ly more than $7
billion on Decemb er 31, 1972 .

Last year was unusual in coin annals
because there were no new develop
ments; no shortages occurred in any
coin denomination and no new coins
were issued. The supply of Eisenhower
dollars, fi rst issued in late 1971, was
adequate to meet all demands.
Moreover, demand for the Kennedy
half has been drastically reduced
even though these coins are seldom
found in general circulation.
As fiscal agent for the U.S. Govern
ment, the Federal Reserve Bank carried
out its function of issuing and re
deeming U.S. Treasury securities,
including Savings Bonds. During 1972,
the Treasury continued to be an
active competitor for funds. Market
able securities issued, exchanged,
and redeemed at the five offices of
this Bank rose 40 percent in dollar
volume compared with 1971,
although increased book-entry pro
cedures resulted in a substantial
drop in the number of pieces handled .
U.S. Savings Bond redemptions con
tinued to exceed sales in the District,
although the spread narrowed from
$157 million in 1971 to $104 million in
1972 . Savings Bond sales have shown
good growth each year since 1970,
when the rate on this savings instru
ment was boosted to 51/2 -percent.

Millions
900

1.5
600

1.0

300

0.5

O ......_ ........_ _...&.._ _i .

---I

o
Coin

Currency

Millions of Dollars

Billions of Dollars

200

150

100

'68

'70

'72

'68

'70

Federal Reserve Bank handles almost a billion pieces of currency and
twice that number of coins ... dollar volume rises in 1972

'72

One of the Reserve Bank's primary
functions-making loans to member
banks-remained relatively unused
until the latter part of the year, when
monetary policy began to shift away
from its earlier posture of ease.
As mentioned earlier, daily average
borrowings by District member banks
declined from $27 to $18 million
over the year. The Bank's discount
rate (t he rate charged to member
banks) remained unchanged at 41/2
percent during the entire year.
The Federal Reserve credit function is
an important monetary policy tool, of
course , and the System is continuing
to study ways of making the "dis
count window" more accessible to
member banks. In November, the
Board of Governors announced a
proposed revision that would provide
a seasonal borrowing privilege to
member banks. This proposal is de
signed to assist banks that may not
have access to national money markets
in meeting seasonal needs for funds
that result from recurring fluctuations
in loans and deposits. Comments
on th is change were to be subm itted to
the Board by February 28, 1973. Fur
thermore, the earlier proposal for a vir
tually automatic basic borrowing
privilege for each bank is receiving
further study.
The Feder al Reserve's supervisory
function also continued to develop
along new lines during 1972. Exami
nation of state member banks is still a
major activity, of course, but the
bank examination staff also maintains
a busy pace processing bank merger
reports, applications for new branches,

and bank holding-company in
vestigations. In addition, the
increasing number of computerized
banking operations has necessitated
the development of new techniques
and procedures.
Th irty new banks and one trust
company were formed during the year ,
the largest number of banks organ
ized in the District since 1965.
Because of mergers, the number of
member banks declined by five, to
143 banks, but the number of
member-bank offices increased by
111, climbing to 4,407 by year-end .
Total non -member banking offices
rose to 1,264, a gain of 100 over the
previous year .
A review of Federal Reserve Bank
operations would be incomplete with
out mention of a primary ingredient
-its personnel. Despite the high
degree of computerization, people still
make things happen, and the pictures
on the accompanying pages provide
only a sample of the activities of
the 1,800 employees of the Federal
Reserve Bank of San Francisco.
Accountants, programmers, guards
and economists; planners, lawyers,
clerks, and typists; auditors and secre
taries, building staff and messengers ;
and countless others with special
talents and abilities too numerous to
mention-all contributed during 1972
to the successful operation of
this institution.

Board of Directors - Federal Reserve Bank of San Francisco
Seated, left to right-Marron Kendrick, John J. Balle s, Presid ent , O . Mered ith
Wilson, Ch airman of the Board, and Joseph F. Alibrandi, Deputy Chairman.
Standing-Jo seph Rosenblatt, Abram B. Merritt, First Vice Presid ent, James E.
Phillips, Ca rl E. Schro ed er, A. W. Clau sen, Charl es Raymond Dahl , and Mas Oj L

Official Staff
In addition to the appointment of John
I. Balles to succeed Eliot J. Swan as
President of the Bank, the following
changes in the official staff were
announced during the year:
Promotions:
Kent O. Sims, Assistant Vice President
to Vice President, July 1.
John j. Carson, Assistant Vice President
(Los Angeles) to General Auditor,
September 1.
Angelo A. Carella, Assistant Vice
President, to Vice President,
October 1.
james M. Brundy, Assistant Vice
President to Vice President, January
1,1973.
Appointments:
Maynard C. Petersen, Assistant Vice
President (Portland Branch), May 1.
jane W. Langhorne. Assistant Vice
President, July 1.
Wilhelmine Stefan sky, Senior
Statistician, ) u Iy 1.
William V. Woodward, Assistant Vice
President (Los Angeles Branch),
August 1.
Adrian A. Horvay, Assistant Vice
President (Los Angeles Branch),
September 1.
Donald R. Halsted, Assistant Vice
President, October 1.
Kenneth A. Grant, Assistant Vice
President, January 1, 1973.

Retirements:
Charles R. Petersen, Senior Economist,
February 15.
F. K. Grimm, Assistant Vice President,
Portland Branch, April1.
George D. Parker, Assistant Vice
President, Los Angeles Branch,
August 1.
R. E. McKendry, General Auditor,
September 1.

Directors of the Federal
Reserve Bank
of San Francisco
As a quasi-governmental institution,
each Federal Reserve Bank is a
corporation organized and operated
for public service. Its shareholders
are the member banks located within
the district served by the Reserve
Bank, but their voting privileges are
limited to the election of six of the
Reserve Bank's nine directors. These
directors, who serve staggered th ree
year terms, are divided into three
classes of three directors each and
may be regarded as representing
lenders, borrowers, and the general
public. Class A directors are nearly
always member bank officers or
directors. Class B directors must be
actively engaged in their district in
commerce, agriculture, or some other
industrial pursuit and may not be
directors, officers, or employees of any
bank. Class C directors represent the
general public and frequently include
professional people such as educators
and lawyers; they may not be
directors, officers, employees or
stockholders of any bank
Class A and B directors are elected by
the member banks, while Class C
directors are appointed by the Board
of Governors of the Federal Reserve
System in Washington, D.C. One of
the Class C directors is appointed by
the Board of Governors as Chairman
of the bank's board and another is
designated as Deputy Chairman. The
Board of Directors is charged with

respon sibil ity fo r o verse eing an d
directi ng th e m an agem en t o f th e
Reserv e Ban k in o rder t o acc o mp lish
t he b ro ad p ub lic p u rposes of th e
Federal Reserve Ac t, w h ic h w as passed
by Co ng ress in 191 3 and has b een
ame nde d seve ral tim es in t he in ter
ve ni ng ye ars to f ur t her serve th e
pub lic. O ne o f th e primary
respon si bilit ies o f th e Bo ard of
Direct o rs is t o establi sh th e d iscou nt
rate, subje ct to review by th e Bo ard of
Gov erno rs.
In addi tio n, eac h o f t he Reserve Bank 's
branche s has a Board of Direct ors. In
th e Tw elfth Di strict, t he Los A ngeles
Branch has a seve n - me m be r board ,
four appoi nte d by th e San Fran ci sco
Reserve Ban k' s Boa rd o f D irect or s and
three by th e Boa rd o f Gover nors.
E
ach of t he ot her Branc h offi ces
Po rtlan d , Salt Lake City, and Seatt le
has fi ve-m em ber boa rds, three
app o inte d by th e San Fran ci sco Bank's
board and t w o by th e Board o f
Covern o rs.

BOARD OF DIRECTORS , FEDERAL RESERVE
BANK OF SA N FRANCIS CO
Elected b y M em b er Ban ks in th e
Tw elfth D ist rict :
Class A D i recto rsA . W . C LAUS EN, Preside nt and Chief Execu ti ve
Office r, Bank of America , N .T.&S .A ., to an
unexpi red term end i ng D ecem ber 31, 19 73,
succeed i ng Ral ph ). Vo ss, Chairman o f th e
Boa rd and Chi ef Execut ive O ffi cer of the
First Natio nal Ban k o f Oregon, Portla nd.
JAMES E. PH ILLIPS, Presid ent of th e Fi rst
Natio nal Ban k in Por t An geles, Wash i ng to n, to
a three-year term succeeding Carroll F. Byrd ,
Chai rma n of the Board and Presiden t of the
Fir st Na t iona l Ban k o f Wil lows, Ca lifo rnia .
Class B Director-

JOSEP H RO SEN BLATT , Ho no rary Chai rman o f

The Eimc o Corpora ti on, Salt Lake City,

re- elected to a th ree-year te rm .

A p po intments by th e Boa rd of G ove rno rs,
Fed eral Reserve System :
O . MER EDI TH W ILSON , Preside n t and Dir ector
of th e Ce n ter fo r Advanced Study in the
Behavio ral Scie nces, Stanford , Cali forn i a,
reappoi n ted Chai rma n of th e Boa rd fo r 1973.
JOSEPH F. A Li BRAN D I, Preside n t of W hittaker
Co rpora t io n, Los A ngeles, to a three-ye ar term
as a directo r and as Depu ty Chai rma n o f th e
Board fo r 1973. H e succee ds S. A lfred
H alg ren , Senio r V ice Preside n t and D i recto r
of th e Carnat io n Co mpany , Lo s Ange les .
BOARDS O F DIRECTORS , BRANCH OFFIC ES

Becau se of th e pu bli c nature of thes e
di rectors h ips and t he dema nds u pon
th e tim e of those who serve , ch ange s
occ u r eac h year in th e co mpositio n of
th e var ious bo ards . In 1972 , t he
fo llowi ng cha nges and reap pointme nts
were announ ced :

Los Angeles Bran ch:
A pp o i ntm en t by the Bo ard of Governors
LELA ND D. PRATT, Presiden t o f Ke/co
Co mpany, San D i ego, reapp o inted to a
three-yea r term .
App o in tm ent s by San Francis co Reserve Bank's
Board W. GOR DON FE RG USO N, President o f th e
N ati o nal Ban k of Whitti er, Cal iforni a,
rea ppoi n ted to a three-y ear term .
EDWA RD A . SLOA N, President o f Sloan's D ry
C lean ers, Inc. , Lo s Ange le s, appoi nted
Cha irman o f th e Branch Board fo r 1973. Mr.
Pratt serv ed as Ch ai rm an d uring 1972 .

Portland Bran ch:
Appoint men t b y t he Bo ard of Gove rno rs
JOHN R. HOWARD, Presi d ent o f Lewi s and
Clark College, Portl an d, reapp o i n ted to a
tw o -ye ar ter m .
A p point m ent s by San Franci sco Reserve Ban k's
BoardFRANK L. SERVOS S, Presid ent o f Crater
Na tio nal Ban k, Medford, Oregon, and JAM ES
H. STANA RD, Vice Presid ent of th e Fir st
N at ion al Bank of M cM inn v il le, Oregon ,
reappoin ted to tw o -year ter m s.
FRANK ANDER SON, fa rm er from H epp ner,
Oregon , appointed Cha i rm an o f the Branch
Bo ard fo r 19 73. M r. Howard served as
Ch ai rm an du ring 1972 .

Salt Lake City Branch :
App o in tmen t by th e Boa rd of Govern o rs
SAM H. BENN ION, Secretary -Treasurer of V-1
Oil Co mpa ny, In c., Id aho Fall s, Id aho , to a
tw o -y ear t erm succeedi ng JOHN H.
BRECKEN RIDG E, Preside nt of th e L. L.
Brec ken rid ge Com pan y, Tw i n Fall s, Id ah o .
Appointme n ts by th e San Francisco Reserve
Bank' s Bo ardROD ERICK H . BROW N ING , Preside nt of the
Ban k of U ta h, Ogd en, and ROY W . SIMMO NS,
Preside nt of Zi o n s First Na t iona l Bank, Sal t
Lake Ci ty , reappoin ted to two-year term s.
THEODOR E C. JACO BSEN, Cha i rm an of th e
Bo ard o f jacob sen Co nstru ction Co mpany, In c.,
Salt Lak e Ci ty, ap p o i n ted Cha i rma n of th e
Branch Board fo r 197 3. M r. Breckenridge
served as Ch airma n duri ng 1972 .

Seattle Branch:
A p p ointm ent by t he Boa rd of G overnors
C. H ENRY BACON, j R., Vice Chairma n of
Si mpson Timb er Co mpany, Seatt le ,
reap point ed to a two -y ear term.
Appo in tme nts by th e San Fran ci sco Reserve
Ban k' s BoardHAR RY S. GOO D FELLO W, C.ha i rman of the
Bo ard and President o f th e O ld N at ional Bank
of Wa sh i ng to n, Spo ka ne, and ROBERT C.
W HI TWAM , Presid ent of th e A merican
Na tio nal Ban k of Edmon ds, Wa shing to n,
app oin ted to two-year te rms . Th ey succeed
A. E. SAU ND ERS, Vice Cha rma n of The Puget
Sound N ati on al Bank, Taco m a, and PHILI P H .
STAN TON, Presid ent of th e W ashing ton Trust
Ban k, Spo kane .
TH O M A S HI RAI, a grower, packe r, and sh i pp er
of pota toes fro m Quincy, Washington, was
ap p oint ed Chai rm an of th e Bran ch Board fo r
1973. Mr. Bacon served as Cha i rma n
du ri ng 1972.

Directors-January 1, 1973
Elected by Member Banks

Los Angeles Branch Directors

CLASS "A"

Appointed by Head Office Board of Directors
CA RL E. HARTt\lA CK
Presid ent
Secu rity Paci fi c Nation al Ban k
Los A nge les, Califor n ia
LIN US E. SOUTHWI CK
Presid ent
Vall ey National Ban k
G lendal e, Cali fo rn ia
RA YBU RN S. DEZEMBER
Chai rm an and Presid ent
American Nat io nal Bank
Baker sfield, Cali fo rn ia
W. GORDON FER GU SON
Preside nt
Nat ional Ban k of Wh ittier
W h ittie r, Califo rn ia

A . W . CLAUS EN
Presid en t and Ch ief Exec u tive Officer
Bank of Ame rica Nat ion al Tru st
and Savings Assoc iat ion
San Francisco , California
CARL E. SCHROED ER
Preside nt
The Fi rst N ational Bank
of Oran ge Co u nt y
O range, Cali fo rnia
JAMES E. PHI LLI PS
Preside nt
First National Ban k in Port Angel es
Po rt Ang eles, W ash ingt on

CLASS " B"
MA RRO N KENDR ICK
Presi dent and Ch airm an
Sch lage Lock Co m pan y
San Francisco, Cal if o rnia
CHA RLES RAYMO ND D AHL
President and Ch ie f Execu ti ve O ffic er
C rown Ze l le rbac h Co rpo rat io n
San Fran cisco , Cali forn ia
JOSEP H ROSE NB LATT
Ho nor ary Chairm an o f the Board
Th e Eim co Corp o rati on
Sal t Lake City, U tah
Appointed by Board of Governors

Appointed by Board of Governors
EDW A RD A. SLOAN , Cha irman
President
Sloa n's Dry Cl eaners, Inc.
Los Angel es, Cali fo rn ia
RUTH HANDLER
Presid ent
Mattei , Inc.
Haw thorne, Cal ifo rn ia
LELAND D. PRATT
Presid ent
Kelco Co mp any
San Di ego , Californi a

CLASS " C"
O . M EREDITH WI LSO N

Cha i rm an o f th e Boa rd and

Federal Reserv e Agent.

Presid ent and D i rector

Cente r fo r Ad van ced Study in the

Beh avi or al Sci en ces

Sta n fo rd , Cal if o rni a

MAS Oj l

Presid ent, Oji Bros . Farm, Inc.

Yu ba City, Calif orn ia

JOSEPH F. ALiBRAND I, Deputy Chai rma n.
Presid ent
W hi t ta ke r Co rpo rati o n
Lo s A nge les, Califo rnia

Portland Branch Directors
Appointed by Head Office Board of Directors

LeROY B. STAVER
Chairm an of th e Board and
Chief Execu ti ve O ffi cer
United States Nat ional Ban k o f O regon
Po rtl and , O regon
FR ANK L. SER VO SS
President
Crater Nation al Bank
M ed ford , Oregon
JAM ES H. STAN A RD
Vice Presid ent
Fir st Nati on al Ban k o f McMi n nvi lle
M cM in nvi lle, O rego n
Appointed by Board of Governors
FR ANK ANDERSON Chairm an
Farm er
'
Heppn er , Oregon

JOHN R. HOWARD

Presid ent

Lew is and Clar k Co llege

Port land , O rego n

Salt Lake City Branch Directors
Appointed by Head Office Board of Directors
JOSEPH BIANCO
Chair man and Presid ent
Bank of Idah o
Boise, Ida ho
RODERI CK H. BROW NIN G

Presid ent

Bank o f Utah

O gd en, Utah

ROY W . SIMMONS

Presid ent

Zio ns First Nat ional Bank

Sal t Lake Ci ty, Ut ah

Appointed by Board of Governors
THEODORE C. JACOBS EN. Chairm an
Cha irm an of th e Board
Jaco bsen Con stru cti on Compa ny, In c.
Sal t Lake Ci ty, Utah
SAM H. BENNION
Secreta ry -Treasure r
V- l O il Comp any, Inc.
Idah o Falls, Id ah o

Seattle Branch Directors
Appointed by Head Office Board of Directors
JOSEPH C EBERT BA ILLARGEO N
Chairm an and Chi ef Exec utive O ffi cer
Seatt le Trust & Saving s Bank
Seattle, Wa shin gt o n
HA RRY S. GOODF ELLOW
Chairma n of th e Board and Preside nt
Old Natio na l Bank of Wash ing to n
Spoka ne , Wa shi ngt o n
RO BERT C. W HI TW A M
President
American Nati o nal Bank of Ed mon d s
Ed m o nd s, W ash ington
Appointed by Board of Governors
TH O M AS HIR AI , Cha irma n
Gr ow er, Packer, Ship per of Po tato es
Quincy, W ash ington
C. HENRY BACON , jR.
Vice Chairm an
Simps on Tim ber Co m pany
Seatt le, Was hi ng to n

Federal Advi sory Council
HA ROLD A. ROG ER S, President of Peo ples Nati on al Bank of Wa shin gt on , Seattl e, w as named as th e Tw elfth Distri ct m ember of th e Fed eral
Advisory Coun ci l fo r 1973 . M r. Roger s succ eeds A . W . Cl ausen, w ho had been t he D i str ict's represent at ive since 1970. The Coun cil is co m po sed of
representati ves fr om all 12 Feder al Reser ve Di stri ct s, ap po i nted by each Reserve Bank 's Board of Directo rs ann uall y. The Co uncil w as estab lis hed
by th e o ri gina l Fed er al Reser ve Ac t an d is required to m eet in Wa shi ngto n, D. C., at least fo ur tim es eac h year to adv ise th e Board of Govern o rs o n
matters o f con cern to the Fede ral Reser ve System.

Officers-January 1, 1973
San Fra ncisco
Jo hn J. Balles, Presid ent
Abram B. Mer ritt, Fir st V ice Presi d ent
l. HOWARD CRAVEN , Seni or V ice President
KENT O . SIM S, V i ce Pre sident, Research
WILLI AM M. BURK E, A ssistant Vi ce Pre sid ent (Research
Publ icati on s)
GAULT W . LYNN , Di rect or o f Research

VERLE B. JO H N STO N, Sen io r Eco nomi st
ERNEST C. O LSO N , Sen ior Econ omi st
HERBERT R. RUN YOt\! , Seni o r Eco no m ist
W ILH ELMI N E STEFANS KY, Sen io r Sta ti sticia n
G ERALD R. KELLY, Sen ior Vice Presid ent
WARREN H. HUTCHINS, V ice Presid ent (Perso n n el)

JANE W . LANGHORNE , As sistan t Vi ce Presi d ent (Perso n ne l)
ELWO OD E. BERI'JSTEIN, A ssistan t Vic e Presid ent (Pay m en ts

M echani sm )
JAMES j . CU RRA N, A ssist ant V ice Presid ent (Ch eck Coll e ct i on and

Pro cessin g, Mail l

JOHN B. WILLI AMS , Se n io r Vic e Presid ent
JAMES M . BRUN DY , V ic e Presid en t (D a ta Pro cessi ng)

KEN NETH A . GRANT, A ssi stant Vic e President (Pro gram mi ng )

RICHARD G. LA M BERT, A ssistant Vic e Presid ent (Elect ro ni c

Eq u ip m en t)

ERNEST E. LIV INGS TON , A ssista nt Vice Presid en t (Co m m u nica tions)

DONAL D L. A LEXA N D ER, A ssistant Vi ce Preside n t (Bank and Publi c
Informati on )

ANGE LO S. CA RELLA, Vi ce Presid ent
W ILLIA M E. O 'D ONNELL, A ssi stant Vi ce Pre sid ent (Cash)
CLA U D E W OESSNER, A ssistan t V ic e President (Fiscal Ag en cy,
Ve rif ica t io n)

D ON ALD M . D AVENPO RT, Vice Presid ent (O m b ud sm an)
HENRY B. JAM ISON, Vi ce Presid ent
ROB ERT C. JO HNSEN , Assis ta n t Vi ce Presiden t (Ban k Exam i nati o n)
RO Y A . KAR LSSON , Chi ef Exam i ner
M ART IN S. D EPPER, Examin in g Office r
J. N O RM AN AAMO DT, Examin in g Office r, (Los An gel es)
D O NALD V. M A STEN , Vi ce Presid ent

ROY A . REMEDI O S, A ssistant V ic e Preside n t (Cred it)
E. A LLEN WE LLS, A ssistan t Vi ce President (Acco u nt ing , Pur ch asin g
and Filin g)
RIX M AURER, JR., V ice Presid ent
G EO RG E P. GALL OWA Y, A ssistant Vi ce Presid ent (Bu i ld i ngs,
Pro tecti o n, Em ergen cy Plan n i ng)
LO UI S E. REILLY, Vic e Pre sid ent and Ge neral Co u nsel

WI LLIAM L. COO PER, Assoc ia te G en eral Co un sel
RICHARD G. RE TALLlC K, V ice Presid ent (Sp ecia l As signm en t)
JOHN j . CA RSON, Ge neral A ud i tor

A MA D EO G. CO N TE, A ssistan t Gen eral A udi tor

DON ALD R. HAL STED, A ssi stan t V ice Presid ent (Plan n ing)

los Angeles
PAUL W. CAVAN , Seni or Vi ce Presid ent and M an ager
WESLEY G. D eVRIES, V ice Pre sid en t (A cco u n ti ng, Bu ilding)

HAROLD A. ERN E, A ssistant V ice Pre sid ent (Perso n nel, Pur ch asin g and Su p pl y )

AD RIAN A . H O RVA Y, A ssista nt V ice Presid en t (Cre d i t, D ata Pro cessin g, Plan n i n g, Tran sfer and

Te legraph )

jO'H N F. LU CEY, JR., A ssist ant Vi ce Pre sident (Fiscal, Sav in gs Bond s)

EUG ENE A. THO MAS, Ass istan t Vice Presid en t (Cash , Protecti on )

WILLI AM V. WOO DWAR D , Assistant V ice Presiden t (Check Co ll ectio n and Pro cessin g, Ma il )

Portland
WILLI A M M . BROWN , Vic e Presid en t an d M an ager

RICH ARD C. DUNN, A ssistant Vi ce Presid en t and A ssista n t Mana ge r (Cred i t, Person n el ,

Plannin g)

W ILLIAM K. G I NTER, A ssis tan t Vice Presid ent (A cco u n ti ng, Bu i ld i ng, Fiscal )

MAYNARD C. PETERSE N, A ssistan t V ic e Presid ent (Cash, Ch eck Pro cessi ng, Prot ec ti o n)

Salt lake City
A RTHU R L. PRICE, Vi ce Presi den t and M an ager
A. G RA NT H O LMA N, A ssistan t V ic e Presid en t and A ssistan t M anager (Bui ld i ng, Credi t, Transfer)
H. PETE R FRAN Z EL, A ssistant V ice Presid ent (Acco unt i ng, Ch eck Pro cessin g, M ail , Filin g and
Sup pl y)

DON W . SHEETS, A ssistant Vi ce Pre sid ent (Cash, Fiscal , Co llec tio n, Pro tec tio n)

Seattle
WILLI AM R. SAN DST ROM , Vi c e Presid ent an d Manager

JAME S M . DAVI S, A ssistant Vi ce Presid ent and A ssistant Ma n ager (Bu i ld i ng, Cre d i t, Per son nel )

E. RONA LD LIG GETT, A ssista n t Vic e Presid ent (A cco u n t i ng, Fiscal, Ma i l, Prot ecti on)

PARKER R. SM ITH, As sistant Vi ce Presid ent (Cash, Che ck Proce ssin g, Plan n in g)

Comparative Statement of Condition
Assets

December 31,1972 De cember 31, 1971

(Th ousand s of dollars)

1,288,51 8
49,000
118,748
35, 104

$ 1,83 2,851
49 ,000
129, 215
29,57 1

112,105
41 ,895
45,000

10 ,000
- 0
- 0

184 ,19 3

66,984

4,1 66,671
5,152 ,238
486,321

Gold certificate account
Special Drawing Rights certificate account .
Federal Reserve notes of oth er Federal Reserve banks . .
Other cash . .
.
.

4,164,707
4,910,27 6
453,868

9,805 ,230

$ 9,528,851

10 ,188 ,42 3
1,180 ,521
7,890

9,605,835
1, 354,4 51
7,950

24,768
151 ,175

2,142
113,775

$13,044,148

$13 ,124,79 2

7,04 6,268

$ 6,461 ,42 3

4,74 7,686
174 ,428
37,410
65,713

5,085 ,6 75
213 ,031
35,280
81,007

s 5,025 ,237
698,206
75, 697
$12,845,409

$ 5,41 4,993
948,653
108,800
$1 2,933,869

99,370
99,370

95,462
95,462

13,044,148

13, 124,792

Loans to Member Banks:
Secured by United States Government and Agency obligations .
Oth er eli gible paper
Other paper
Federal Agency obli gations .

•

Un ited States Government securities:
Bills
Notes
Bonds

Total United State s Government securities .
Total loans and securities .
Cash items in process of collection .
Bank premises

. . ..... . . .

Other assets:

Denominated in foreign currencies .

All other
.

TOTAL ASSETS
Liabilities
Federal Reserve notes

Depo sit s:
Member bank-reserve accounts
United State s Trea surer-general account
Foreign
Other deposits
Total deposits
Deferred avai labi lity cash items .
Other liabilities
TOTAL LIABILITIES
Capital Accounts
Capital paid in
Surplus

Total Liabilities and Capital Accounts
Contingent liability on acceptances purchased for fore ign correspondents .
38

23,091

32,11 7

Earnings and Expenses
(Thousands of dollars)

1972

Current Earnings
Discounts and advances .
United States Government securities .
Foreign cu rrencies
All other

1971

$
888
516,382
143
80

$517,492

$ 511,660

$ 40,560
2,724

37,8 22
2,764

Net expenses

$ 37,836

35,057

Profit and Loss
Current net earnings ..

$479,656

s 476,602

401
- 0
124

14,198
- 0
17

525

14,214

6,687
10

1,031
22

6,69 7

1,053

Total current earnings .

Current Expenses
Total current expenses
Less Reimbursement for certain fiscal agency and other expenses .

Additions to current net earnings:
Profits on sales of United States Government Securities (net) .
Profits on foreign exchange transactions .
All other . .

. . . . . .

Total additions
Deductions from current net earnings:
Loss on foreign exchange transactions (net) ..
All other

Total deductions
Net additions (+)/deductions (-) ... .

$-6,172

Net earnings before payments to United States Treasury
Dividends paid
Payments to United States Treasury (interest on Federal Reserve notes) .
Transferred to Surplus
Surplus January 1

47 3,484
5,899
463,677

FEDERAL RESERVE BANK O F SAN FRANCISCO
ARIZONA

$+13,161
$ 489,763
5,520
477 ,165

CALIFORNIA

HAWAII

P.O . Box 7702
IDAHO

NEVADA

3,908
95,462

7,078
88,383

$ 99,370

Surplus December 31

ALASKA

1,334
509 ,924
335
66

95,462

San Francisco, California 94120
OREGON

UTAH

WASHINGTON

Full text of Annual Report of the Federal Reserve Bank of San Francisco : 1972 Annual Report

FRASER