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t' .., 1 l.t • j .. i-" lr """. 1 ~ . t'o" . , - 1(";7 L J ) 7 ._--. U' --... .. . . ... . . ~ -, " ~-...:-- ~ ~ Contents From the Board room Troubled Prosperity Rapid Lending Pace Active Central Banking Twelfth Federal Reserve District ... ~ ...-." - . 2 4 IS 24 32 . --- . ........ ~.~~ ~ -~ 1 From the Boardroom A pe r usa l of the hi st o rical rec ord of 1973 leaves the rea der w ith di sti n ct ly mi xed feeli ngs. We ca n be proud of the ec on omic g row th wh ich permi tted the nati on (a nd the West) to se rve as g ra na ry as we ll as wo rks hop for the wo rld . At the sa me time, we can o nly be dis ma yed by the persistence of the in flation which d id so much to di sturb the econ omic a nd politi ca l stability of the nati on. The financial sys tem last year fel t the ful l im pact of th e pressures ge nerated by th e in flati ona ry boo m, b ut it perfo rmed creditab ly in meeting the h ea vy de mand s p laced upon it. The doll ar figur es a lo ne wer e im pressive. For example, banks in the Sa n Franci sco (Twel fth) Fed era l Reserve District recorded a 13-p erc e nt in creas e in loans and in vestm ents in 1973, to a year -end tot al of $92 billion. Eve n more impre ssive was the sy stem 's ability to meet the frenzied credit demand s of early 1973 and then settle down to a more susta inab le pa ce in the latter part of the year. 2 lr- r. : ( --; rt - ?J T h e Fe d e ra l Rese rve 's m o re restrictiv e policy sta n ce p layed a m aj o r ro le in th is tra nsitio n. T h roug h our pa r ticip ation in th is po licy-m a king p rocess, we a ttem pted to b ri ng a bou t a re tu rn to a no n- in fla tio na ry g ro w th path, full y re a lizing the co m p lex ities of th is task in th e new atm os phe re of s u p pl y shortages . O u r Ban k ma d e a major im p ro vemen t in the mo ney pa y m e nts sys tem last ye a r, w ith th e es ta b lishme n t of four regi o na l check-process ing cen te rs to provi de ove r n igh t proce ssing and se tt lement of ch ec ks in the ir servi ce a reas. Even so, this ad vanc e only repres en ts an in ter im step along the roa d to an e lectro n ic pay m en ts sys tem . We a re deter m ined to procee d fu rth e r alo ng tha t roa d, b uild in g on our ongoi ng work w ith electron ic fun ds tra nsfe rs and au to m ated clearing ho uses. In its supervi so ry activities, th e Ba n k faced a m ajor prob le m w ith th e fai lure of a la rge So uthe rn Ca lifo rn ia ba nk , bu t it coopera ted wi th o ther s upervisory ag e ncies in th at a ctio n to p rotect the interests of ind ivid ual depos ito rs a n d of the regio na l ec onomy. In o th er opera tions, we co ntinu ed to sup po rt th e smooth pe rfor man ce of th e Western econo m y, through the p rov ision of fiscal, coi n, cu rre ncy a n d oth er services . A lso, we worked to im p rove th e efficie n cy of interna l a dm in istration, nota bl y th ro ugh o ur in itia tives in budget making and pe rso nnel p ractices . O ur thank s go to the financial, industry, and com m un ity lea ders who served as d irectors in 1973, he lp ing to gu ide the Ba n k th rough that difficu lt yea r. In pa rtic u la r, we shou ld note o ur a p preciatio n for those w ho com pl eted term s as di rec tors d ur ing the period : Marron Ke nd rick (Presid en t an d Boa rd Cha irm an, Schlage Lock Co m pany ) at H ead O ffice; Ru th Ha nd le r (Pre side n t, M a tt e I, In c.). Ca r! E. Ha rtna ck (Presid ent, Security Pac ific Na ti ona l Bank ), and Ed ward A. Sloa n (Presi dent, Sloan 's D ry Clea ne rs) at Los A ngel es; an d Fra nk And er so n (Fa rmer) at Por tla n d . A special note of appreci ation is du e A. B. M e rr itt, who re ti red la st year as First Vice - Presi den t af ter a dis ti nguis hed and prod uc tive 30-year caree r as a central banker. O . M e red ith W ilso n C ha irman ~ J .~ John J. Balles Presiden t 3 Troubled Prosperity The nation's economic performance was mixed in 1973; a number of things went wrong, but a number of things also went right during the year. Real output grew 5.9 percent, nearly matching the performance of 1972, while a gain of over 3 million jobs helped bring unemployment to its lowest level of the past three years. The trade balance with other nations, in deficit since 1971, turned around in the wake of devaluation and the institution of floating exchange rates. The resultant price differential in this country's favor helped stimulate a heavy export trade, first in agricultural commodities and later in industrial goods. The record of prosperity was badly flawed, however, by the resurgence of inflationary pressures. An increase of 5.3 percent in the general level of prices was well above the 3.2-percent price advance of 1972. Indeed, almost everything that could go wrong on the price front apparently did so during the year. / 4 Severe price pressures developed first in the farm products and food category, partly because of the effect of massive grain exports on domestic food stocks. These pressures were accentuated by seemingly unrelated phenomena, such as the upsurge in soybean prices caused by the disappearance of the Peruvian anchovy, another major animal feed. Meanwhile, on the demand side, sharply rising incomes supported strong demands for meat at a time when available supplies were down from a year ago. Although the increase in retail food prices decelerated in the final quarter, by year-end prices were still 20 percent higher than a year earlier. In addition, the massive industrial expansion which had developed over the preceding year and a half kept many industries operating near the limits of their physical capacity during 1973 . Shortages of many industrial com modities became endemic, leading to a IS-percent rise during 1973 in that category of the wholesale price index. Late in the year, the energy crisis resulted in sharp increases in prices of petroleum and other fuels, thereby creating increased pressures on the overall indexes. During the year, price controls of one type or another were utilized - Phase III, Freeze II and then Phase IV but these attempts to keep inflation under control generally failed , because of the severe shortages and heavy demand pressures which beset an economy with very little unused capacity. Triumphs and defeats The Western economy experienced the same production triumphs, and suffered the same price defeats, as did its national counterpart. The regional boom was based mostly on heavy national and international demands for the products o(Western farms , forests and mines. Pockets of weakness remained in some geographic areas and regional industries, but the overall boom supported a strong IO-percent advance (to $16S billion) in personal income in the states of the San Francisco Federal Reserve District (California, Hawaii, Oregon, Washington, Alaska, Idaho, evada, Utah and Arizona). Nonfarm employment increased 4.2 percent in 1973, on the basis of impressive gains in manufacturing, con struction, finance and services . Only the Federal govern ment reported a decline in employment during the year. By state, employment gains ranged from 2.0 percent in Hawaii and 3.6 percent in California (matching the U.s. gain), all the way to an 8.S-percent increase in Arizona. 5 Employmm t rises more thlm 4 percent in the W est, with strong gains in factory and con struction jobs M illio ns 12 10 & uufacturir g... ..p ther 8 M 6 !.J' ve r n rn en r 4 :J9rvices 2 - i5tiribution I I '66 ' 67 ' 68 ' 70 ---f --j--~ i ' 69 o '73 ' 72 ' 71 Regional unemployment falls from recession levels, but still rem ains high by national standa rds Rate (Perce n t) 8 ~~ 6 4 Une m p loy m e nt a ve rage d 6.4 pe rce nt of the la bo r fo rce for th e regi on as a w ho le, d o wn so mew ha t from th e 6.S- pe rce n t figure of th e pre vio us year. Se ve ra l states which had be e n h it h a rd est by the turn -o f-th e- d ecade rece ss ion , n otably W ashin gton and Cal ifo rn ia, showed the strongest improv e m e nt in this re ga rd in 1973. Still , unem p loy m ent rema in ed a pro blem in th ese a nd other re gi o na l s ta tes, and onl y Arizo na , w ith a 3.7-perce n t job less rate, fell co m fo r ta b ly be low th e nat ional norm o f 4.9 percen t. Mo reover, u ne m pl oy m en t appe ared to be on the in cr ease again a s the ye a r came to a n end. ..., t .... ..., U ..., s. .. 2 o ' 69 ' 70 ' 71 ' 72 ' 73 Strength ill demand The stro ng ga ins in e m p loy m ent and income we re re flec ted in an ll- pe rce n t rise in retail sa les. Auto and o th e r d urabl e-goods sa les rose s harp ly, a ltho ugh not so s tro ng ly as in the prece ding two-ye a r period. Su p e r ma rk e t a nd restaura n t sa les al so expa nd ed ra pid ly, but this gai n in dollar volu me was far oversh ad owed by a sharp rise in prices, su ggesti n g a shift by h o useho ld s away from more exp ens ive food ite m s. The consumer buying surge was partly financed by a 16- percent rise in co m mercia l-b a nk instalm en t loa ns. The increase was sm aller than 1972's, however, partly because of a late -year slowdow n in auto fina nci ng . Consume r buying was suppor ted by large Federal inco m e- ta x refunds ea rly in th e year, due to tax ove r withh olding d ur ing the previo us yea r. T hese windfa ll refunds often were used as down-payments on autos and app lia nces, with th e remai ning ba lances fina nce d by instalment-credit loans. The strong pa ce of b us iness sal es went han d-in- ha nd with a regionwide demand for increased investment, and re la te d heavy borrowing for new plan t, equipment a nd inventories . Des pite record loan rates, business fir m s re lied h eavily on comme rcia l-ban k cred it, espe cia lly long-term loans, for financing the ir purchases . Moreover, d u ring muc h of th e year, ma ny firms fo und borrowing at the bank pr ime ra te to be more profitable th a n borro wing at high e r com m ercial -pa per rat es. Durable-goods manufacturers in general, an d mac h inery pr odu cers in par ticu la r, were a m ong the hea viest ba nk b o rr owers, as Western industries geared up to increase the ir prod uc tive capaci ty. Food ma n u fa ctu rers a lso re lied heavily on bank cre dit to finance sharply higher inv en to ry costs. H owever, th e larges t in cr ease in ban k loans oc cu rred in th e servi ce sector, reflecting th e strong growth of tourism and other services. 5trorzg fiscal position West ern govern mental uni ts ma inta ined a st ro ng fin an cial position during 1973. Revenues expanded on the basis of a booming eco nomy, pas t tax increases, and th e inflow of Federal revenue -sharing funds. However, go ve rn m ent spendi ng grew at a slower pace-especially fo r public ed uca tio n, as the post-World W ar II baby crop continued to wend its way out of school and in to th e la bo r force . Many sta tes were in s uch good fiscal shape that they actually re d uced their ta x rates, instead of bo osting them, as they had don e in earlie r y ea rs. Ca lifo rn ia built up a large bud get su r plus, pa rtly becaus e of the fac to rs noted abo ve, but a lso be cau se o f th e initi at io n of ta x wi th hol d ing in 1972. Con se qu entl y, th e legi sl ature voted to allow a ta x cre d it o n 1973 income taxe s, and also su spe n d e d a sch eduled in cr ease in th e sa les- ta x ra te for a s ix- mo nt h perio d . Th e Governor proposed a plan to limit s ta te s pe n d ing to a decl ining perce nta ge of Ca lifo rn ia p ers onal incom e, with th e lim it dropp in g from 83,!.1 percent in fiscal 1974 to 7 percent in 1990. H owever, th is propos al was rejected by the elec to ra te, partly because of fears tha t it would le a d to spe n di ng redu cti ons as large as $6 30 milli on in the first ye a r of the plan (fisca l 197 5 ). Mun ic ipal-bo n d fina ncin g g rew sha rp ly despite the eas ier fiscal position o f s ta tes and mu nic ipali ti es . W est e rn gove rn me n ta l units borro w ed rou ghl y $3 .3 bill ion duri ng the yea r- m ore th an 15 percen t abov e th e 19 72 figur e a n d about eq u a l to th e 1971 record . Despite th is inc re as e d fin a n ci ng , bo rr o wi ng co sts were ro ug h ly in line w ith earlier le vel s of rates, wi th a S.l S- p e rcent a verage y ie ld o n rat ed ge ne ra l o b lig a tio n s. S ta te gove rn m ents, pr im ar ily Wa sh in gton, O regon, Ca lifo rn ia and Alaska, b orr owed ab out $1.2 billion . Local go vernments, le d by Cal ifo rnia, Ari zo n a a n d W ashington un its, went into the mark et for a bout $ 2.1 bill ion . Ore gon 's legislat u re a tte mp ted to comb ine a tax-ref o rm plan with a s hi ft in the sch ool- finan cing bu rd en . T he Ore gon plan ca lle d for prope rt y-ta x re lie f for lo w- and mid dl e- income taxp ay e rs, incre ase d sta te fina nci ng of publi c school costs, and an acce le ra tio n in corporate inc om e taxes. A rel ated pro p os al for an in crease in per so na l ta xes w ill go be fo re the vo ters this spr ing . But Wa shington vo te rs overw he lmi ng ly rej e ct ed a legi slati ve pr o p os al fo r th e ini tia ti o n of a g ra d ua ted in co me tax , in a re form packa ge which als o ca lle d for state assumption of th e ful l cost o f p u blic ed u cation, th e p has ing o u t of th e business-in ventory ta x a nd a limit o n sa les -tax rates . The farm boom provid ed bedro ck support fo r the reg io n a l prosp er ity, as eve ry single W estern sta te re po rte d siza b le ga ins in fa rm in com e durin g th e y ear. In total , cas h rec eipts so are d 34 perce nt to a rec o rd $12 billion-almo st entire ly be ca u se o f h igher prices, sin ce th e physi cal vo lu m e o f marketings failed to increase sig n ifica n tly ove r th e ye ar. The surge in farm sal es stim ulated a stro ng ga in in n et in come, to $4 bil lion , far offs e tting th e impact of a rec ord r ise in produ cti on cos ts and a sh arp declin e in go ve rn m e n t payments to farm e rs . Spectacular farm boom A spectacular 43-percent gain in crop receipts reflected a very strong market demand for Western crops against a tight supply situation worldwide . Du ring the summer period, crop prices skyrocketed in the wake of soaring exports, dwindling stocks and fears of worldwide short ages. Prices then began to drift lower in the fall , when bumper crops were harvested and worldw ide produc tion prospects improved. Even so, average crop prices at year-end remained sharply higher than a year earlier, especially for wheat (up 90 percent) and cotton (up 58 percent) . The expansion of export sales provided a strong impetus to the pace of farm activities, with Western farm exports rising 50 percent in fiscal 1973 to a record $1.5 billion . Wheat, cotton and rice exports in particular posted very sharp gains. On the production side, fruit and vegetable output benefited from an expansion of acreage and good yields . Wheat was another story, how ever; output actually declined in the Paci fic Northwest because of a prolonged drought which offset a 20 percent rise in planted acreage. Soaring cro p and livestock sales rej1eet strong U.S. and foreign demand fo r foo d and fiber Change (Percent) CROPS 60 50 .......... 40 30 20 West U.S. 10 n I 1 o Change (Percent) ' 71 LIVESTOCK '72 ' 73 II Aerospace 011 recovery path Lives tock producers rep o rt ed a 25-percen t gain in cash rec e ip ts in the face of fall ing output, soaring feed costs and mark et un ce rta in ties . Lives to ck production fell sub stantia lly, und e r th e impact of th e consu m e r bo yco tt a nd severe w ea t her conditions in the spring pe riod, followed by the price freeze and related cos t squeeze d u ring the summer. But production prospects later improved measured by the rising nu mber of ca ttle a nd calves on feed -after the lift ing of p rice ceilings and th e ex pansion of feed-grain and soybean suppl ies . The Wes tern aerospace industry con tinu ed on a recovery path as activity picked up in a ll major produ ction lines aircra ft, e lectro n ic equipment, ins truments and ord nan ce . Em p loyment increased 8 percent -tw ice the previous year's gai n - to 587,000 at ye a r-en d . But this repres en ted only a partia l recovery from the p rolo nged slump of the 1968 -71 period, sin ce ind ustry employment sti ll re mained abou t 22 percen t below its earlier peak. Agric u ltu ra l len ding inc reased sharply in the West dur ing the year. Productio n Credi t Associations reported a 21-percent y ea r-t o-year gain in outstanding loans (end of Oc tober) on the bas is of expanded farm production at higher cos ts, and co m m ercia l-ba n k farm le nding grew apa ce . Federal Land Banks posted a co m pa rab le gai n, reflecti ng the impact of sh arp in creases in lan d va lues on mor tgage-deb t dem a nd . Military prime con tra ct awards to Western firms rose 4 percent duri ng fisca l 1973 to $8 .2 b illio n, increasi ng the region' s share to 27 percent of total Pen tago n spe n d ing. Few new mili tary projects were sta rted dur in g the yea r, but ongoing aircraft and m issile projects rece iv ed a dd i tio nal funding . Space spending rose sharp ly to $0.7 b illion, but this sti ll equa led only about one- third of the earl ier (1965) peak . Developmental work o n the space sh utt le project pro vid ed the ma jor upward thrus t, and th e Skylab pr oject also remaine d im po rta n t. Despite the im pro ved outlook in these two secto rs, th e co m m e rcia l market for aircraft and electronic eq u ip ment pr ovided the in d us try' s main support durin g the yea r. Even in the face o f the disappo int ing g rowth o f a irline pa ssenger trave l, domestic and foreign ca rrie rs substant iall y increased their orders, especiall y for Boein g's w ide -b odi ed 747 mode l and me di um-ra ng e 737 m od el. Th e picture darkened towa rd year- e nd, ho w eve r, as air lines continued to post poor earn in gs re por ts a nd as fue l shortages necessitated cutbacks in sc he d u led flights . Deficit-plagued Lockheed began to lay o ff w o rkers late in the year, in response to a deci si on by a maj or cus to m e r to postpone delivery on nine L-10n's . Mixedcons/ruction results Last year turned out to be another strong year for th e We stern co n str ucti o n industry despite a significant de cline in residential activity. Total construction awards ros e 6 percent to a record $16.6 billion, with almost every sta te sharing in the gain. Heavy construction awards rose 8 per cent, thanks largely to an increase in awards A erospace secto r benefits from military co ntracts. . . co mmercia l backlog lags despite rise in new orders Billion s of Do lla rs 10 8 6 V7 bm m ---- ~ r--.ercia l Backlogs , " ~ Milita ry ri~ Contract lA.wa rds V'" - ~ - - 4 2 S pace Pr o urement o ' 66 Fisca l Year '67 wards '68 '69 '70 '71 ' 72 ' 73 for water-supp ly and e lec tric-power projects . No nr es i de n tia l activi ty, on th e hee ls of a major boom in 1972, s urged 20 percent more last year in response to rising de m an d for new fac tories, stores, schools an d public buildings. Awards in both th ese ca tegori es con tin ued high at yea r-end, p resaging contin ued strength in 1974. For the residential sector, it was a somewhat different story. Following seven years of almost uninterrupted expansion, housing star ts dropped during 1973 to 370,000 units, an d th e decline apparently gained momentum as the year went on . This IS-percent (greater th an -national) declin e reflected a fall -off of a ct ivity in IS of the region's 16 majo r metropo litan markets. How ever, th e n umber of complet ed u n its (390,000) and the num be r of mobile- ho m e sales (90,000) rou ghly appro xi m ated 1972 's record to ta ls . In view of the modest growth of pop ulation in th e region, the co nti nued strong expan sion of th e region's ho us ing stock appears inordina tely large, and provides gro und for worry abo ut 1974 demand. The sharp d rop in new housing activity refle ct ed not just the growing imbalance of hous ing supply, b ut also a sharp rise in home prices and (especially) a surge in mortgage borrowing cos ts after midyear. T he median price of new single-family homes rose IS percen t to $34,000, in response to soaring la nd and material cos ts . The rise in home prices was accompanied by a continued in crease in homeownership costs, as region al in creases in p ro pe rty taxes, ins u ran ce, maintenance and utility costs genera lly excee d ed th ose recorded nationa lly. Mortgage- bo rr ow ing costs rose apace wit h the soaring cost of funds to lenders; th e average rate on conventional new-home loans went from 7.75 percent early in the year to 8.95 percent a t year-e nd , wi th a peak of 9.40 perce nt in October. Ind ee d, muc h o f 1973's h ou s ing story was writte n in th e cred it markets, wh e re th e cost of mortgag e fu nd s was m aterially affected by the sharp rise in yi elds on money m a r ket ins tr ume n ts a nd a n a tte ndan t re d uc tio n in sav ings in flows in to d epo s it in stitut ions. 5avi ngs-a nd- loa n assoc iat ions record ed a $3 .6-bi llion s avings inflow-less than one-half the 1972 record pace- whil e co m m ercia l banks made a so m e w hat be tter relati ve showing wi th a $2 .2- b illi on in flo w. As a refl ecti on of this differen ce in savings infl ows, banks rep o rted a 26- pe rcen t in cr ease in n et mortgage loans to $3 .7 bi llion, wh ile 5&L's re por ted a 23-percen t de cli ne to $5 .3 billion . T he lat ter figure still represented the second largest ga in in 5& L hi st o ry, but it was ac h ieve d only th ro ugh s u bs ta n tia l bo rro w ing from Home Loan Ban k s a nd liquidation of in vest m en ts, plus a h igh vo lume of loan repayments . The hou si ng outlook at year -end re m a ine d clo ud ed , not si m ply becaus e of demand problems and the co n tin ue d high cost of mortgage money, b u t a lso becau se of th e exte nde d rise in co ns tr uc tio n cos ts and growi ng mate rial s s ho rtages , incl uding those of certain petrol e um deri vatives . In additio n, the industry was tro ub led b y a nu mb er of energy-crisi s problems- co ncerning, for exampl e, th e imp ac t of energy-rel at ed pr oduction cut backs and job layo ffs on overall hou sin g d emand, and the impa ct of possib le gasoline ra tio ni ng on the de ma nd for subu rban housing in pa rti cu la r. Boom in lumber and steel The nati on wid e co ns tr uc tio n boo m e na b le d th e W estern lum ber industry to experi ence its third co nsecu tive year of pr odu ction and em pl oy m ent gains . Lum ber mills boosted prod uc tion o n ly slightl y, bu t stil l a p p roached 1959's re co rd lev el. Prices meanwh ile ro se sharply 28 percent for lum ber and 25 pe rcent for p ly wood reflecting signi fican t crosscu rren ts in m arket con di tions . Strong demand from the nation's homebuilders, together with the Phase III removal of mandatory controls, sent lumber prices soaring during the January-May period, extending an uptrend which began in early 1971. Prices then trended downward throughout most of the remain der of the year, as housing demand slowed and the Federal government took various steps to increase timber supplies. Lumber and plywood prices already were dropping from their peaks when the 60-day freeze was imposed in mid-June, and the Cost of Living Council consequently exempted the industry from Phase IV price controls. The second-half decline in lumber prices was relatively mild, however. Plywood prices, which had dropped more severely, spurted upward again late in the year, because of a wave of scare buying which developed when a shortage of fuels and glues forced the closure of six Oregon mills. As a means of overcoming the industry's evident shortages, several major forest products firms announced major capacity-expansion plans during the year. The regional steel industry set a new production record, with output soaring 18 percent above 1972's pace to 7.4 million tons. The industry benefited not only from a strong demand for structural steel for construction, but also from a slowdown in the flow of foreign imports. The import decline was steeper in the region than nationally, since the devaluation of the dollar raised the price of Japanese steel relative to domestically-produced metal, causing customers on the West Coast to turn increasingly to regional suppliers. Domestic steel producers raised their prices by less than 3 percent for the year, posting increases on a wide range of structural and tubular products in early January and on flat-rolled sheet products in early October. Further increases were recorded in early 1974, in response to the industry's plea for higher prices to finance the huge capacity expansion that would be required to meet projected demands for structural steel. Boom in nonferrous metals Demand for a lumin um was exce p tiona lly strong, but Northwest produce rs were ha rd-p ress ed to satisfy cus tomers' requirem e nt s beca use of a sho rtag e of hydro electric power. Pro d ucers were fo rced to sh ut down a portion of th ei r ca paci ty in m id- Ap ril, whe n the Bonneville Power A dminis tra tio n red uced its inter ruptib le powe r su pply in respo nse to a low strea m ru n off. D ro ug ht conditio ns subsequently necessitat ed a furth er cutback in power, idli ng one-quar ter of the regiona l industry's to tal capacity by mid-Ju ly. Hea vy ra in fa ll late in the year prevented fu rth e r d isr upti o ns, ho wever, a nd b y ea rly 1974 m ost p roducers were ab le to reac tiv a te id le ca pac ity beca use of th e im p ro ved po wer si tua tio n . M ean wh ile, wi th d ema nd soari ng, th e se ll ing price fo r primar y ingo t jumpe d sharp ly du ring th e firs t qu arter to th e pu bli sh ed level of 25 cen ts a po u nd, end ing more than three years of price d iscou nti ng. The price rem ai ned stab le until lat e D ecem be r, whe n the Co st of Living Cou n cil granted the in dustry permissio n for another boost to 29 cents per pou nd. O utput rises ill major extract ive industries, with very strong gains in steel and petroleu m Change (Percent) ,.. 20 1 5 10 5 o n 1~ r1 II lJ • II . - 5 :I II -10 lJ ..... ;' II 11 U 197 1 1973 -15 - 20 Lumber Steel Copper Refined Petroleum Silve r pr ices trended upward in 1973, extending the spe ctacular advance that be gan in late 1971 . Over the course of the year, th e New York dea le r price jumped from $2.03 to a reco rd h igh of $3 .27 an o unce . S up p ly problems a nd stro ng ind ustrial dem and co n trib ute d to the ad va nce, as a four-month strik e at Idaho's Sunshine m ine d epressed production in the face of a furth er incr ease in industr ia l consu mpti o n . But the strongest stimu lus came from the worldwide co m mo d ity in flation and uncertain intern atio nal-cu rren cy situat ion, wh ich inc reased the specu lat ive demand for s ilver by those who view ed the meta l as a sa fe store of va lue . Copper and other nonferrous me tals a lso were in extremely sh o rt supply, as equipment breakdowns, po llution-control requirements, and ot her problems restricted the growth of producti on in the face of record demand . A devalued dollar and strong market con di tions abroad con tribu ted to the squeeze, leading to an upsurge in nonferrous -metal pr ices during th e first fo ur months of the yea r. Serious s hortages de ve loped as the year progressed , since p rice controls hel d domestic pri ces stabl e in the fa ce of soaring world pr ices, contrib uting to an o utflow of meta l to o ve rseas markets. Fina lly, in Decembe r, the Cost of Living Counc il de contro lled the p rices of lea d and z in c, as a means o f dis courag ing exports and encourag ing expansion of domestic capacity, and granted co p pe r producers permission to ra ise prices from 60 to 68 ce nts a pound . , f : :I i I ,/ / .,..--- Energy pinch Western oil refin eries achi eved a 7-pe rcent increase in o u tp ut in 1973 , d esp ite th e impac t of the late-ye ar Ara b oil emba rgo . But dome st ic so u rces s u pp lie d a d eclin in g po rtio n of th e reg ional in d ustry's total cr ude requ ire ments-55 percent, co m pare d with 63 percent in 1972 as crude prod uc tio n co nti n ued to decline in both Cali forn ia a n d Alas ka. For eign impo rts flo wed in at an incr ea sed rate, es pecia lly a fter mid-Ap ril, when the Adm in ist ration s us pe n d ed o il-i m port q uo tas and re moved ex isting ta riffs on crude and products. Th e Arab nati o ns were res po nsible for mos t of th is in crease an d, ind eed , had be com e the largest foreign so u rce of s up p ly prio r to the emba rgo, ac cou nt ing for over o ne - third of the tot a l cru d e oil imported into the Pacific regi on. Thereaft er, the e m ba rgo and re lated cu t ba cks in Cana d ia n an d ot h er s upplies significan tly a ffect ed W este rn refin ery o pe ra tio ns , redu cin g output about 7 per cent bet we en earl y No ve m ber an d late D ece mber. A rece n t decisio n of the Ca lifo rn ia State Lands Co m mission, 'pe rm itting the resu mption of drilling on existi ng offshore dri lling p lat forms on sta te lands, p ro m ises to reverse th e p ro longed decl in e in California cr u de-oil production . That decline began in 1969, whe n the di sas trous blow-o ut in th e Sa nta Barb a ra C han n el led to a moratorium on offsh ore drilling. Development al so is lik ely on 7.7 m illio n acres -of Federal lan ds ex ten d ing as fa r as no mil es offs ho re, in vie w o f th e Int eri or D epa rt ment's req ue st to o il co m pan ies to p ro pose tracts for possible leasing early in 1975 . The W est w ill p laya ma jo r role in the longer- ter m solu tio n to th e e ne rgy crisis . A highli ght of 1973 was Pres id ent Nix on 's signi ng of the Trans-Alas ka Pipel ine Bin, auth orizing con struction of a 789-m ile pipeline be tween th e Prudhoe Bay fie ld an d the po rt of Vald ez . The first s h ip me nts of oil from A laska 's North Slo pe sho ul d reach Wes t Coast mar kets by 1977, wi th th e pipeline re ach ing its full capacity of 2 million ba rr e ls pe r day by 1980. The recent and prospect ive rise in fue l pr ices has a lso stim u lated in tere st in th e expl oitatio n of Rock y M ountain coa l and sha le-o il resources- wit ness the specta cu lar bids rec e ive d by the Fed e ra l governme nt recentl y for a western Colorad o sha le- oi l tract. ~ !7 Rapid Lending Pace Last year was an active year for bankers-a year of strain under the pressure of seemingly insatiable financing demands. Banks paid higher and higher rates for the deposits needed to satisfy the demands for loans from all sectors of the economy. Yet many banks reported rec ord or near-record net income, as operating earnings were swelled, first, by record loan rates collected on very large increases in loan assets, and secondly, by burgeon ing income from foreign-exchange transactions and overseas operations. Financial activity, nationally and regionally, moved at a frenzied pace in the first half of 1973, and then slowed to a more sustainable pace during the second half as mon etary policy became less expansive. The narrowly defined money supply (currency plus demand deposits) fluctuated erratically from quarter to quarter, but expanded 5 1/ 2 percent for the year as a whole, somewhat be low the 8 V2 percent growth ra te of 1972. In an attempt to combat severe inflationary pressures, the Federal Reserve made a number of restrictive moves during 1973. The discount rate was raised seven times, from 4 1/ 2 percent at the beginning of the year to 7% per cent in August. At midyear, reserves on demand deposits (over $2 million) were increased V2 percentage point, and marginal reserve requirements were placed on large denomination CD's and certain other liabilities. (A further increase in these marginal requirements was applied in September, but rescinded toward the end of the year.) In May, however, all interest-rate ceilings on large CD's were suspended, so that banks thereafter could bid competitively for such funds. In the face of restrictive policy moves and record-high levels of loan rates, commercial-bank credit expanded $71 billion (12 1 percent) to a year-end total of $630 bil ;2 lion for the nation as a whole. Unlike the previous year, the increase was concentrated almost entirely in loans; total investments remained almost stable, with a sharp reduction in I.l .S. Treasury security portfolios offsetting a substantial gain in Federal agency and other securities. I [ 18 , . ; 1 / & 19 Soaring rates M ortgage-lending instituti ons still lend heavily despite sharp redu ctions in savings inflows C ha nge (Billio ns of Dollars) 8 4 2 ~ -, Sa vin s Acco un t IS& LsL 6 / -r" Savinzs & ' O ther Co sumer Ac ou nts . lban k0.... <, V o ~ -, -- - ./ - ' ", t;'/ - 2 C ha nge (Billio ns o f Dollars ) 8 6 ,/ 4 2 o ' 66 - ' 67 ........ M pr tgage Lo ns (S&Ls) t/' /"" ' 68 ' 69 --- ' 70 .' ~ ' . - - I--\ Mo rtg<pE' LOa nS (ba ks ) r '71 ' 72 '7 3 Short-term interest rates rose spectacularly, reflecting the strength of short-term demands for credit. For example, the three-month Treasury bill rate increased ove r 3% percentage po int s to a peak of over 8 1/ 2 perce nt in Au gust, bu t th en flu ctua ted conside rab ly for the rest of the year. Lon g-term rate s were so m ewha t more stable b ecause of the mo d e ra tio n of ca pital - mark et dem and s, es pe ciall y o n th e pa rt of corpo rat ion s, wh o were b oth flus h wi th ca sh a nd hea vily de pendent o n sho rt-ter m ban k loans . Treas ury- bo rr ow ing needs were mo der ate be cau se of the rel atively small Fede ral de ficit, but in co n tras t, Fed e ra l-agenc y financing boomed as m o rtga ge -related agen cies turned to th e capita l market fo r s up p le me nta ry fund s to sustain a record volume of mortgage fina ncing. I I Th e upsu rge in interest rates cou ld b e traced a lso to the virule nce o f th e inflation d isease, w hic h im pe lled bor rowe rs, sa vers a nd inve st or s to ad d a n in flation p re miu m to th e interes t ra tes a t whic h th ey were wi lling to do busi nes s. In a ddi tio n, th e u psu rge re flected the assu mp tion by mo net a ry po licy of th e major share of th e bu rd e n of curbing inflation, after fiscal pol icy had prod uce d inflation -fue ling de ficits during the forma tive stages o f the boom . Also, a growing share of cred it restraint was ac hieve d th ro ug h th e price mec hanism, rat her than throug h nonprice restraints on cred it avai lab ility, suc h as the Fede ra l Reserve forme rly had imposed through Reg ula tio n Q rate ceili ngs on la rge negoti a b le CD 's. Soaring Western demand Western ba nks succ essfully n egotia ted th e year 's haz a rd ou s co urs e to rec ord a $10- bill io n (13 percent) in crease in ban k credit- fa r above even the strong 1972 incre ase-to a year-end total of $92 billion . The boom in ban k lending to business dominated th e credit scene; thi s loan ca tegory rose 17 per cent over the year, with ab out half of the total increa se co ncen tra ted in the fren zie d first q uarte r. During th at pe riod, b urgeo ni ng cre d it d e mand s refle cted bot h the booming dom esti c economy an d the' inte rna tiona l mon etary crisis, as well as a sh ift of bo rrowe rs to ban ks fro m th e co m m e rcia l-pa per m a r ke t. Busi ness -loa n growth lat e r slacke ned as th es e facto rs weake ne d over th e co ur se of th e year; for e xample, some loan de mand s hif ted back to the co m mercial-paper market whe n bank business -lo an rates regaine d their tra ditiona l d ifferentia l ove r paper rat es . Mortgage-loan de ma nd at Western banks contin ued very strong throughout the yea r, in an expan sion w hic h excee de d eve n the acce lera te d pace of 1972. Indeed, for th e third con secutive year, th e do llar increase in mortgages was grea ter than th at of a ny othe r loa n ca te gory. Co ns u me rs, too, added to th e loan e xpa nsio n by sharp ly inc reasi ng the ir cred it de mands for autos an d other consum er items . Western banks obtained so m e funds for finan cing the loan build-up by redu cing their portfolios of U.S. Treasury securities, especially Treasury bill s. These redu ctions, concent rat ed in th e first quarte r, crea ted co lla teral -sh ortage probl e ms for som e banks. But th a t d ifficu lty was alleviated in th e final q uar ter, wh en ba nks bega n to repl en ish th eir de pl et ed stocks of short-ter m Treasur ies. Th rou gh out the yea r, ban ks adde d to th ei r holdings of Fed e ral age ncy iss ues in o rde r to profi t from th e ad va n tageo us ra tes of re tu rn on such sec uri ties . 21 Bank loans rise rapidly in West as in rest of nation, with special strength in business and mortgage loans Billion s o f Do lla rs : "' -~.....- 4 ou« ~ 0 .... ----. / o Billion s o f Doll a rs 3 2 /1 o -1 .... --- .. '" ~V ,. -" -" Real Es pte Loans SECURIT IES _ Ot he Secu ritie s // - -- r'-, " ~ / <, / / .... // e-: Loa ns/ r.:V Busi ress Loan s 2 CD's increased ve ry sharply in earl y spr ing, and again in mi dsummer after the rem o val of CD rate ceilings, wh e n agg re ss ive bidding for such funds push ed rates to a record 11 p e rce nt. The role of CD's in th is expa ns ion differed from th e situation in the similar 1969 bo o m, when Reg Q ceilings h el d CD rates below competi ti ve money-mark et ra tes, forc ing banks to turn to altern ati ve so u rces of funds suc h as Eurodollars a n d bank holding company paper. In the severely restrictiv e atmospher e of 196 9, CD's actually decl ined, in contrast to the sharp increase of 1973. LOANS 3 L S. C o v't. C e c u r i t i e ~ ,/ ,/ <, / -2 ' 66 ' 67 ' 68 ' 69 '72 '71 '7 0 ' 73 1973 Cha nge (Perce n I) 20 .--- - - ----r- - - - ---.-- - ---==---r--- - - - ,.-- - - ---, 10 H - i-----C!c-H -+- -+-I:--1-++ + + -+-I---- - t O l--''--=~~.L.-f----''-------''--+------"------I- -10 1-- --'= '-j-- - - - -+- - - - 20 ' - - -- - - - ' -Total Ban k Cre d it ,.' 22 Reliance on CO's On e of the year' s ma jor developments , h owever, was the ba nks' h eavy reliance on large negotiabl e CD's as a sourc e of funds to support the massive loan e xpansion . Total deposits of District ban ks grew by 9 perc e n t in 1973, but over half of the $7-billi on in c rease was a ttrib uta bl e to CD's, which jumped 54 percent over the year. In o ther tim e-de pos it ca tegories, pa ssbook savings droppe d 5 percen t while o ther consumer- type deposits rose 15 percen t, reflec ting differences in ra tes paya b le on these two deposi t ca tegories , __..._ t -I-+-·+-+--t-t-- - - --j - - - - - - ' - - - - ---'--- - -- "------ - ----' u.s. GOy' t. Bus iness O the r Loa n s Se cu rities Se cur ities La rge District ba nks s uffered outflows of passbook sav ings, a t least part ly beca use ma ny of th e m paid be low cei ling ra tes on s uc h deposi ts. In Ju ly, fo r e xa mp le, when th e Reg Q cei lin g o n suc h deposi ts was raise d to 5 per cent, man y banks hel d th e ir own ra tes a t 4 1/ 2 percen t, and subseque ntl y encountered some disin termedia tio n of funds as mone y-ma rket rates moved toward their hi ghs for the year. In contrast, banks recorded sub st anti al inflo ws in the form o f consumer-type tim e deposits, especially after raising the rates on th os e instruments to the new Reg Q ce ilings at m idyea r. (Abou t one-fourth of the total ga in came in fou r-yea r time certificat es, which w e re not sub jec t to ra te ce ilin gs during th e Ju ly Octob e r period .) Still, part of these funds prob ably re presented transfers from passbook savings rath e r than n ew depos its. Rising costs Past andfuture T he cost of ba n k funds (exc ept household savings) rose last year in tan dem w ith the soaring rise of money market rates . As a re flecti o n of th e removal of ra te ceil ings , rates on large CD's ranged from a low of 5% perce nt to a p eak of 11 percent, with the yea r-e nd ra te hovering aroun d 9% p ercent. The effective rat e on Federal funds (inte rbank loans of unused balances with th e Fede ral Rese rve) fo llo wed essentially the sam e pa th , al tho ug h end ing the y ea r just below 10 pe rcent. Al so, me m be r ban k borro w ings from the Fed be ca m e more expensive as the discount ra te rose from 4% p ercent in Jan uary to a final level of 7% percen t in Aug ust. H igher loan rates, when applied to the h uge increase in loan asse ts, produced a st rong level of earnings for mos t (b ut no t all) Western banks last year. Som e large banks with international operations ben efited fro m boo m co nd itio ns overseas, augment ed by the favorab le earnings impa ct of the revaluation of m aj o r foreign cu rre ncies . H owever, those banks that rel ied heavily on la rge CD's an d borrow ings to finance their expanded ass ets did not fare as well because of th e record high co st of such funds . Bank-loan rate increases were limited to some exten t by the g u id e lines of the Committee on Inte rest and Dividends . In the first qu arter, the preva iling prime bu sin ess-l oa n rat e rose only from 6 to 6 1/ 2 perce nt, w hi le marke t ra tes genera lly rose a fu ll pe rce n tage poi nt or m o re. This situa tio n hel p ed tr igger heavy d ra wd own s aga ins t loa n com mi tmen ts, as bo rro wer s shifted fro m th e co mmercia l-paper mark et to ta k e advan tage of th e m o re favorab le ba nk- loa n rates. H ow ever, the situation cha nged considerably following the CID's development of a two-t ier rate system in Apri l. Thereafter, the banks had more flexibility for ad ju sting the rates charged large borrowers, in exchang e fo r co ntin uati o n of relatively stable rates on loans to sma ll bus inesses and households . T he prime rate th us rose rapid ly in 16 separate upward adjustme nts, to a 10-percent peak in la te September, befo re edg ing down to 9 314 percent in the last q uarter. Req ui re d rese rves of District member bank s in creased $381 m illion, as a consequence of bot h strong gains in depos its an d se vera l changes in reserve req uirem ents . H igher requirements, as noted ea rlie r, a ffected not only demand deposits but a lso la rge C D ' s a nd certain other liabilities. Increased res erve press ure became evident from the sizable increas e in m ember banks' total borrow ings. Borrowing from th e Fed era l Reserve Bank of Sa n Fra ncisco jumped fro m a da ily a ve rage of $20 m ill ion in 1972 to $158 mi Jlion in 1973, a nd la rge ban ks pu rch a sed (bo rrowed) $646 m illi on in Fed funds fro m ot her ba nks on a da ily average ba sis, in co ntras t to th ei r net sa les (le ndi ng) posi tion th e previous year. Western banker s, lik e every b ody else, are starting the New Year with m any unanswered questions about the co urse of the economy in 1974. With the co nti nuation of inflation, invento ries may be more cos tly to fina nce, creat ing increase d loan d emand . Also, wi th th e s ho rtage imposed nee d fo r new bu siness investme nt , fina nci ng req uiremen ts ma y expa nd for both s hor t- ter m a nd long te rm fu nds , a ltho ug h some of thi s dem an d probab ly ca n be m et by inc reased re liance on the capital markets . Mortgage lending likely will suffer substantia lly from demand weaknesses a nd en ergy shortages, while th e pace of consumer len d in g m ay lag in response to rising unemployment, ri sing prices of necess ities, and the very hea vy debt obligatio ns of many hou seh o ld s. As overa ll loan deman d de celerates, howeve r, ban ks sho uld b e a b le to reb uil d their depleted security portfoli os. In view of the expectation of more m od erat e loan dema n d, loan rates may move down from the ir record h ighs of 1973 . The cost of funds for banks also should fall if consum e rs expand the ir savings flows in anticipa tion of a soften ing econom ic situ ation . On the other hand , corpo rate treasurers m ay be less able to put money into CD's , partly because of their need for funds for capita l goods purchases, but mostly because of the impa ct of a sluggish economy on corpora te profits . T he slo wdo w n in th e economy iron icall y co u ld bene fit Weste rn ba nks du rin g 1974, acco rd ing to most marke t observers. T he slowdow n s hou ld ease loa n d em an d enoug h to pe rmi t ban ks to b id less aggressive ly fo r deposi ts a nd ot he r fun ds, a nd in particular, to place less re lia nce on vo lati le CD 's as a source of funds. This could m ean im p roved pro fit m argins, b ecaus e of a wi der sp read between what banks will pay fo r m oney a n d wha t they will charge for the ir funds . 23 Active Central Banking The Federal Reserve Bank of San Francisco, through its many operating functions, played an important support ing role in 1973's regional expansion. (The bank's service area includes the five states on the Pacific Rim , plus Idaho, Utah, evada and all but the southeastern corner of Arizona.) The Bank also continued to develop proce dures for more efficient check-handling-and continued to prepare for that coming day when checks lose their function as the principal means of money payments. The Federal Reserve adopted a more restrictive anti inflationary policy stance during much of the year, as was described earlier. In implementation of this policy, Sys tem open-market operations tightened, reserve require ments increased, and the San Francisco Reserve Bank's discount rate rose from 4 1/ 2 to 7V2 percent. The Reserve Bank accommodated 21 member banks at the discount window during the year, the same as in 1972, but those banks accounted for 1,435 separate borrowings, far more than in the previous year. As another indication of strained financial markets, daily average borrowing jumped from $20 million in 1972 to $158 million in 1973. 24 As part of its long-range effort to improve the operation of the discount window, the Board of Governors revised its Regulation A in April, authorizing a seasonal-borrowing privilege for member banks experiencing significant sea sonal needs for funds, and providing a number of techni cal changes which broadened the types of collateral acceptable to secure advances. The Reserve Bank accom modated five member banks under this seasonal-borrow ing privilege during the year. RCPC achievement The Bank's major operational achievement in 1973 was the opening of its first regional check-processing centers (RCPC's). The RCPC's in Los Angeles, Portland, Salt Lake City and Seattle all began operations, and the San Francisco office planned for the opening of facilities early in 1974. (These highly computerized operations achieve overnight processing and settlement for checks payable in specific geographic areas.) Altogether, more than 50 banks have already changed their deposit patterns to utilize RCPC's, and this has led to a significant growth of deposits, up to 20 percent in Portland. The emphasis on increasing the efficiency of check handling through RCPC's stems from a real fear that increasing check usage will overwhelm the payments system. With check volume rising 7 percent annually, the total could rise in a decade to 50 billion checks nationwide. Incidentally, this Reserve Bank alone han dled an ll-percent increase in commercial-bank checks last year. Check volume is likely to increase because of both the growth of the national economy and the growth in the number of check users. At the same time, the difficulties of such a system could increase because of the labor intensive nature of check handling, involving substantial amounts of manual paperwork and physical transfers of paper. This paper glut could result in higher user and purveyor costs, reductions in the productivity of financial transactions, and numerous other problems associated with an overloaded system of paper-conveyed payments. 25 Paper j700d of checks co ntinues rising at San Fran cisco Federal Res erve Bank Mi llion s of Pieces - 1000 - BOO I I I I i I 600 400 200 I I I o I I I Billions of Do llar s 300 200 ;;;;;;;;;;; - ~ 100 o '6 9 '70 '7 1 ' 72 '73 RCPC procedures for improving check -hand ling repre sent a significant im p ro ve m e nt in the nation's payments s ystem, but they should be viewed primarily as a tran sitional step along the road towards the adoption of an electronic-payments system. In late 1973, the Board of Governors proposed revisions to its Regu lation J whi ch are de s igned to redu ce rel iance on checks fo r e ffect ing m oney payments. Among other th ings, th is p roposal cod ifies the rights and respons ib ilities of the parties to electronic debit-and-cred it transfers when Fede ral Re serve facilities are involved, and thus it represents an impo rtant phase in the evolution of the nation 's pay ments system . Only a large-scale conversion to electroni c payments can forestall the gro wth in check usage that threatens to impede the flow of fund s in the economy, and the proposed rev is ion outl ines a framework fo r an orderly transition. Electronictransfers D u ring 19 73 also, the Reserve Bank con tinued to support an electron ic- transfer system called th e Californ ia Auto mated Clearing House Association (CACHA). This sys tem , designed to offer an a lternative to the rising tide of paper checks, provides a co m puterized clearing system for payrolls, dividend payments and preauthorized charges. The employees of participating firms (including the Reserve Bank's California employees) can have their .... .. J • • _eO.,.. .•• ,a 11 .. Ol. !i'''~~ .J • • 6 .. . ~ (, !!1!l fir-·!!] .. .. . . Iii 1IIl--:J t ' . : ... 0· - "" ~ . •• 0 6 c,; "· 0 ~ Ifj JiJ . ~o c~c"o® T ~' - \ i i ~ c< ~~ ~ .. ~ : • r I I I I • I ----l....---'--------'-'------- \ ==---~_ pay deposited a u to m a tica ll y in banks of their ch oi ce with out checks be ing prepa red or proc essed. The pro gra m is a lso d es igned to pe r m it in divi dua ls to pa y mo rt gages, ins ura n ce premium s a n d o ther re curring bill s in the sa me way. T h e a u to m a tio n of go vern men t tran sfe r pa y me n ts, b eing de vel oped initi all y fo r Air For ce pa yr oll s, rep resents a no ther s ignifican t a dvance in th e check - p rocessi ng field . If th is project is su ccessf ul a n d is e xte n d ed to oth e r go v ernment agenc ies, the Bank s h ou ld expe rie n ce a sig n if ica nt decli n e in th e numbe r o f go ve rnme nt ch ecks a n d a cor respondin g increa se in th e efficie n cy o f pro cessing gove rn m en t payme n ts. Th e Reserve Ban k comp leted the W e st ern link in a nati o nw id e fun d s-transfer sw itc h by expa n di ng its sy s tem fro m Sa n Fran ci sco to includ e a ll of th e bran ch cities. T he cha nge to m achine - p roc essing o f w ir e tr a nsfe rs pe r mitted s h a r p in creases in productivity las t year; for exa m pl e, the Los A ngeles o ffice red u ced its sta ff in this act ivity by 50 pe rcent, w hi le e xpa nd ing vo lu me by m ore th a n 40 perce nt. Th e na tionwid e sys tem , w h e n co m p leted , w ill u ti lize a switch a t Cu lp eper, Virgi n ia to tran s fer fu n d s alm o st in sta n ta n eo usly fr om o n e commercial bank to a no ther anywhere in the co un try. Reserve Bank's wi re- transfer volume soars to over $3 tril/i on double the level of two years ago Trillio ns of Dollar s 4 ....... 3 2 o ..... ,........ - rI ' 69 ' 70 I J I J '71 ' 72 ' 73 By mea ns of the Reserve Bank computer, commercial banks located throughout the San Francisco District are able to make fund s transfers on behalf of their customers, using com pu ter te rm inals located in thei r own offices . T he conven ience, efficien cy a nd secu rity of th is mes sage sy ste m led to a sig nif icant in cr eas e in wire transfers in 1973 . D istr ict ban k s bough t and sold ov er $3.4 trillion du ri ng th e yea r, a 28-percent increase . To t ran sfer such astound ing sums, m e m b er ba n ks sent and recei ved o ver 1.1 m ill ion telegrap h ic me ssa ges, up 37 pe rcent fo r 1973. Al so in the computer field , the Sa lt La ke City branch converted from a special-purpose check-processing ma ch ine to a full-scale computer, increasi ng the branch 's ch ec k-proces sing capacity by almos t two -th irds . Th is step wa s a p re req ui site for estab lish ing the Sa lt La ke City RCPC and in tim e it wil l also perm it au tom ation of th e branch's accounting a n d other operations . a ll of the nation 's coin and cur re ncy. The System, inc i dentally, absorbs al l handling and transportat ion co st s fo r s h ip m ents to and from o ffi ces of me mber banks, a nd as su mes the risk of loss on su ch sh ip men ts. A s fiscal agent fo r th e U.S. Government, the Bank wa s bu sy last year issu ing and red eem ing U.S . Treasu ry secu rities, includ in g savin gs bonds. Marketab le secu ri ties iss ued, exchanged and re de emed at the Ban k's five offices almost doub led in do lla r vo lume to $220 bi llion. Th e number of p ieces hand led increa sed s u bsta ntiall y, although the Bank continued to extend to member ban ks a book-entry safe- keeping se rvice for the depos it of Treasu ry and Fede ra l agencyse cur ities . Pa rt icipa t ion by indi vid u al inv es tors in the T re as ury- b ill m arket incre ase d seve ra l-fold, reflect ing a s ha rp rise in b ill rate s during the year; the low for the three-mon th bill , 5.16 percent, almo st eq ualled the 1971-72 highs for the rate . Cash and securities Despite th e emp hasis o n checks a nd e lec tron ic fu nds t rans fe rs, coin a nd currency remained in heavy d e m a nd th rough o ut the Dis trict last yea r. The Reserve Bank handled 1.9 billion pieces of coin (a 9-percent increa se ) and 1.0 billion p iece s of currency (a 3-percent increase) . In do lla r ter ms , th is amounted to $24 6 m illion in coi n and $8 .9 billion in cu rrency. As in o ther years, the Fed eral Re serve w as respons ible for placing into circulation ". I -~- - ----------~-_.:.? ..r- _ ~ ";:O;; • .... . ~. - u.s. sa vings-bond redemp tions continued to exceed sale s in the Distr ict -with the marg in w iden ing from $114 mil lion in 1972 to $158 million in 1973 - partly because of th e attractivenes s of Treasury-b ill and other ma rket ra tes. Howe ver, sa vings-bond sales aga in in creased at a good cl ip , especially aft er the Treasury's December announcement that it wo uld rai se the yield on E and H bonds to 6 percen t when hel d to ma turity. Reserve Bank handles almost one billion pieces of currency and Iwice Ih al number of coin s COI N Mil lio ns of Pieces 2000 r-- r-- r-- 1500 r-- 1000 W ith respect to th e processing and de st ruction of food coupons, volume increased on ly mod erately at Ba nk offices last yea r - an d 1974 volum e is not expected to increas e dr amatically unless the re is a major program change broadening eligibility requ irement s. Th is reflects the fact that eligibl e recipien ts ha ve for som e time ta ke n full ad vantage of the program, especiall y in California . 500 o CURRENCY Mi llion s of Piece s 1000 800 - ..... 600 400 200 o lJI. ,.....-, ............ r- Superviso ry role I niemai changes D ur in g the y ea r, 35 new ban ks a nd 2 trust co mpa n ies were o rga n ized in th e San Fra n cisco Distri ct-th e highe st rigure in the past decad e. As a result of bank sales an d merge rs, th e n um b e r of m e m be r ba nks re mained stable a t 143, but me m ber- ba nk offices rose by 3 perce n t to 4,547. T h e number of n o n m e m be r ba nks meanwh ile increased b y 16 to 287, and the n um be r of nonmem b e r ban k offices rose by 10 percent to 1,387. In its inte rn a l opera tions, the Reserv e Bank adopted a ma jo r change in its budgeting sys te m , sh iftin g fr o m a semi -ann ual functio n a l forma t to an an n ua l b ud get with a " se rv ices structure" format. The n ew budget brea k dow n pe rmi ts th e o utlini ng of Bank p la ns a nd objec tives at each le v el of service pe rfo rmed by the Bank . The Ban k also ret ai n ed a managem ent-consulting firm to co n d u ct a salary st ud y, to ensure that th e Bank's sal ary sca le co nti nu es to be co m peti ti v e with progress ive firm s elsewhere. As part of this project, th e cons ultan t firm in trod uced a n ew job-evaluation program w hich was im pl e m e nt ed fo r officia l an d mi d- leve l s taff posi tio ns . Th e Bank beca me involved in emergency lending to t he forme r u.s. Na tiona l Bank of Sa n Diego . Worki ng close ly with the Comptroller of th e Currency and the Federa l Depos it In su ra n ce Co rp oration, the Fed e ral Reserve sta ff spen t several mo n ths investi gat ing U.s. Na ti on al' s cond itio n a n d h el p ing to d evi se a sol uti on to t he p ro ble m . Th at so lu tion involved the FD IC's ass umption of the ba n k's ba d lo ans as receiver for th e ba nk, and the sa le of the res t of its asse ts (incl udi ng 65 Sou thern Ca lifo rnia branches) to Crocker N ational Bank . Th e Reserve Bank co n tin ued to expa n d its s uperv iso ry role in international banking during the year, partly th rou gh ro u tine con tro l of m e mber-ba nk app licat io ns for ove rseas ac tivi ty, bu t a lso th ro ugh its s upervisio n of 20 Edge Act corporatio ns and subs idiari es . (These corpora tio ns a re ban k- o wn ed subs id ia ries whi c h e ngage in for eig n banking a nd/o r overseas fina n cing th rough equity in terests in foreign entities .) Last ye a r the Bank pro c essed 67 app lica tions involving new or expanded over seas acti vi ty by Ed ge Ac t corpora tio ns a nd Dis trict member banks. 30 To carry o n its ex pa n ded activi ties , th e Bank im pl e me n ted a n ew ma n age men t supe rviso ry prog ra m, and accomplished its o bj ecti ves wit h a m od est increase in staff. T h is s taff included a wide range of job categories: acco u nta n ts, programmers, g uards a n d econom ists; planners, clerks, typists and personnel experts; a ud itors, secreta ries, buildi n g sta ff and messengers. A ll co ntrib u ted nota bl y to meeting th e Bank 's goal s in th is diffi cu lt yet re wardi ng pe rio d . Federal Reserv e Bank of San Francisco Summary of Operations Coin and currency Coin ve rified by piece cou nt Currency verified by pie ce count Number (thous ands ) Value ($ mi llion s) 19 73 1972 216 7,92 7 1,937,330 986,335 1,76 1, 16 1 96 1,55 7 192,035 48,095 1,883 4,476 l77, 8 1 J 42,31 2 1,578 6 ,365 833,642 127 ,736 8,422 727 749,120 121,538 7,4 25 78 0 28 ,80 2 158 4,40 I 20 1,435* NA NA 21 * 8,841 203 ,552 8,087 8,2 72 108,70 7 7, 16 6 11 6 3 14 161 51 256 162 6 40 82 79 8 556 63 670 13 ,527 461 14 ,545 12,2 24 34 7 13,660 2,1 75 39 ,105 622 1,8 29 22 , 188 570 356,1 78 6,436 326,175 292,8 80 5,4 95 31 7,455 3,381,379 2,685,683 1,116 8 27 19 73 s 246 8,921 1972 $ Collections Ch eck co llections Comm ercial bank checks Govt. check s (incl. pos tal o rde rs) Return item s Nonca sh collec tio ns . Discounts and advances Total di scount s and ad vances Da ily average borrowings. Number banks accomm od ated NA 240 * NA 22 * Fisca l agency Marketable secur ities Issu an ce . Exc ha nges a nd t ran sfe rs Rede m p tio ns Savi ngs bonds Issua nce . Reiss ue s a nd rep lace me n ts Re tire me n ts Curren cy ve rified and destroyed . Federal ta x dep os its pr ocessed Food sta m ps rece ived and processed Transfer of funds W ire tr an s fers . "actual numb er 3\ Twelfth Federal Reserve District The Federal Reserve System came into being 60 years ago with the signing of the Federal Reserve Act by President Woodrow Wilson on December 23, 1913. The System was given broad powers to " furn ish an elastic currency, to provide facilities for discounting commercial paper, and to improve the supervision of banking:' Federal Reserve functions are carried out through 12 Federal Reserve Banks and their 24 branches, under the coordination of the Board of Governors in Washington, D.C. II j 32 Decentralization is one of the important characteristics of the System 's operation. Each of the 12 Federal Reserve Banks is a corporation organized and operated for public service, with its shareholders being its member banks. On November 16, 1914 the doors of the Federal Reserve Bank of San Francisco opened to serve the banking com munity of the West. Originally the Twelfth District included the states of California, Oregon, Washington, Idaho, Nevada, Utah, and all but the southeastern portion of Arizona . Alaska and Hawaii were included in the District as they became states, and the service area has since been expanded to include certain territories such as Guam and American Samoa . In 1917 the Twelfth District's first branch was opened at Spokane, Washington. Within a few months other branches were established in Seattle and Portland. Salt Lake City opened for business in 1918, and Los Angeles in 1920. Each of these branches was established to perform for the member banks in its territory the same services and functions as the San Francisco head quarters conducts for member banks in its immediate territory. (In October 1938, the Spokane Branch was dissolved and its functions were taken over by the other Pacific Northwest branches.) 33 Twelfth District People As a qua s i-gove rnm ental institution, each Fed e ral Rese rve Ban k is a corpo ra tio n orga nized a nd opera ted for p ubl ic se rv ice . Its shareholders a re the m ember bank s lo cated w ithin the di strict served b y the Re serve Bank, but th ei r vo ting privileges ar e limited to the e lec tion of six of th e Rese rve Bank's n ine d irecto rs. Th ese dire ct o rs, w ho se rve staggered three-yea r te r m s, are divided into three classes of three directo rs each and m ay be rega rd ed as represent ing lend e rs, bo rrowers, an d th e ge ne ral pub lic. Class A directors are ne arly alwa ys me mber bank officers or d irecto rs . Class B directors mus t be act ively engaged in the ir distr ict in comme rce , agricu ltu re, or some other ind ust rial pursuit and may no t be dire cto rs, o ffice rs, or emp lo yees of a n y ban k. Class C directo rs represen t the ge n e ra l public an d fre q uen tly incl ude p rofessional peop le su ch as educators and lawyers; t hey ma y not be d irect o rs, office rs, emp loyees or stock ho lders of any ban k . J ...... , I 34 Class A and B directors are e lec te d by th e m ember ba nk s, whi le Class C d ir ecto rs are app o int ed by the Board of Govern o rs of th e Fed eral Reserve Sys te m in Washingto n, D .C. One of the Class C director s is appointed by the Board of Go vernors as Cha irman of the bank's b oard an d another is designated as Deputy Chair man . Th e Board of D ire cto rs is charged wi th respons ibility for overse eing and directing the mana ge ment of th e Res er ve Ban k in or de r to acco m plish the broa d pu bli c purposes of the Fed era l Re se rve Act, which was pas sed by Congress in 19 13 and has bee n ame n d ed several tim es in the interven in g years to furth e r serve the public. O ne of the prima ry responsibilities o f the Board of D irector s is to es tablish the discount ra te , su b ject to revie w by th e Board of G overnors . In addition, ea ch of the Reserve Ban k 's branches h as a Board of Directo rs. In the Twe lfth D istrict, the Los An geles Branch has a seven-memb er board, four ap po in ted by th e Sa n Francisco Reserve Bank's Board of Directors and three by the Boa rd of Go verno rs. Each of the other Branch offices - Po rtl a nd , Sa lt Lake Ci ty, and Sea ttle - has five-m ember boards, three appointed by the Sa n Francisc o Bank 's boa rd and two by the Board of Gove rnors. The present m emb er s of the Board of Directors ar e Cha irm an O . Me red ith Wilson, Deputy Chairma n Jose ph F A libra nd i, Carl E. Schr oe d e r, Ja m es E. Ph illips, A. W. Clausen, Cha rles Raymond Dahl .I oseph Rosenblatt, C la ir L Peck, and Ma s Oji . Th ese directors a re shown he re al ong with President John J. Bal les and First Vic e-President John B. Williams. J DAHL 35 Changes in Boards of Directors Boards Of Directors, Branch Offices Because of the public nature of the directorships of the Bank and the demands upon the time of th ose who serve, changes occu r each year in the composition of the var ious boards . Du ring 1973 the foll owing changes and reappointments were announced : Los Angeles Branch: Appointment by the Board of Governors- Board Of D irectors, Federal Rese rve Bank Of San Francisco Joseph R. Vaughan, President of Knudsen Corporation, Los Angeles, to fill unexpired term ending December 31 , 1974. (Designated Chairman of the Board for 1974 by San Francisco Reserve Bank's Board .) A ppointments by San Francisco Reserve Bank's Board- Elected by M ember Banks in the Twelfth District: Class A Direetor- Linus E. Southwick, President, Valley National Bank, Glendale, California, reappointed to a three-year term. Robert A. Barley, President, United Californ ia Bank, Los Angeles, newly appointed to a three-yea r term . A. W. Clausen, President and Chief Executive Officer, Bank of Ame rica, N.T.&S.A., reelected to a three-year term ending D ec ember 31 , 1976. Portland Branch: Appointment by the Boardof GovenlOrs- Class B DirectorClair L. Peck, Chairman of the Board, C. L. Peck Contractor, Los Angeles, Cal iforn ia, newly elected to a three-yea r term. Appointments by th e Board of Governors, F ederal Reserve System: Class C DirectorsO. Meredith Wilson, President and D irector, Center for Advanced Study in the Behavioral Sc iences, Stanford, California . (Reappointed Class C Director fo r three-year term ending D ec ember 31 , 1976 and reappointed Chairman of th e Board for 1974.) Joseph F. Alibrandi, President of Whittake r Corporation, Los Angeles, red esignated Deputy Chairman for 1974. Loran L. Stewart, President of Bohemia Inc ., Eugene, Oregon, newly appo inted to a two-year term. Appointments by San Fran cisco Reserve Bank's Board John R. Howard, President, Lewis and Clark College, Portland, named Chairman of the Board for 1974. LeRoy B. Staver, Chairman of the Board and Chief Executive Officer, United States National Bank of Oregon, Portland, reappointed to a two-year term . Salt Lake City Branch: Appointment by the Board of GouernorsTh eodore C. Jacobsen, Chairman of the Board , Jacobsen Construction Company, Inc. , Salt Lake City, reappointed to a two-year term. Appointments by San Francisco Reserve Bank's Board Sam H. Bennion, Secretary-Treasurer of V-I Oil Company, Inc., Idaho Falls, Idaho, named Chairman of the Board for 1974. Joseph Bianco, Cha irman and President, Bank of Idaho, N.A ., Boise , reappointed to a two-year term. Seattle Branch: Appointment by the Board of GouernorsThomas Hirai, President and Director, Quality Growers Company, Inc.. and Director and Executive Officer, Panorama Seed Farms, Quin cy, Washington, reappointed to a two-year term. Appointments by the San Fran cisco Reserve Bank's Board C. Henry Bacon, JI., Vice Chairman, Simpson Timber Company, Seattle, named Chairman of the Board for 1974. Joseph Cebert Baillargeon, Chai rman and Chief Exe cutive Officer, Seattle Trust & Savings Bank, Seattle, reappointed to a two-year term . 36 Changes in Official Staff Promotions Donald V. M a sten, Vice Pre sident to Senior Vice President, Janu a ry 1. James M. Brundy, Assistant Vice Presiden t to Vice President, January 1. John B. William s, Se n ior Vice Presi d ent to Firs t Vice President, June 1. Wesley G. DeV ries, Vice Presi den t (Los An geles) to Senior Vice Presid en t (San Francisco), June 1. James J. C u rra n, Assistant Vice Pres ident (San Francisco) to Vic e Presi dent (Seattle) June 1. Jam es M . Davis, Assistant Vice Pres iden t and Assistant Manager (Seattle) to Vice President (Los Angeles), June 1. Richa rd C. Dunn, Assistant Vice President and Assistant Manager (Po rtla n d ) to Vice Pres id en t (San Francisco), June l. W illiam K. Gi n ter, As sis ta n t Vice Presi de n t to Ass ista n t Vice Preside nt an d A ssis ta n t Ma nager (Portla nd), June 1. A. Gra n t H ol m an , Assista n t Vice Pres ide nt and Assista nt Manager to Vice Preside nt a nd Ma nager (Sa lt La ke Ci ty) , October 1. H. Peter Franzel, As sistant Vice Pres ident to Ass istant Vice Pr esident and As si stant Manager (Sa lt Lake City), Octobe r 1. Wi lliam M . Burke, Assistant Vic e President to D irector of Economic Publications, Ja nu a ry 1, 19 74. Wilhelmine Stefansky, Se n ior Sta tistician to Director of Research Stati sti cs, Jan uary 1, 1974 . Kent O. Sims, Vice Presiden t to Senior Vice President, February 1974 . Martin S. Deppe r, Exami ni ng Officer to Assistant Vice President a nd Chief Exami ner, Tr us ts, Feb ruary 1, 1974. Appointments Ke n neth A. Grant, Assistant Vice President, Janu ary 1. William J. Sumne r, Vice Pre sident, March 15 . Robe rt H . Colfelt, Check Office r, Ju ne 1. H. W illiam Pennington, Ac counting and Fiscal Officer, Portland, Jun e 1. Vera J. Tayl oe, Assistant Secre tary Board of Directors, Jun e 1. Michael W. Ker an, Direc tor of Resea rch, July 1. Thomas E. Judge, Vice President-C ontroll e r, July 1. Robert C. Johnston, Se nior Economis t, August 1. Vern R. Lest er, Check O fficer (Sal t Lake City), August 1. Ro be rt C. Dietz, Vice Pres ide nt -Bank Re latio ns, A ugust 23. Ken n eth L. Peterson, Check Offi cer (Los Angeles), September 1. Judith A. Sa hagen, Management Sc ien ces Office r, Febr uary 1, 1974. Rich ard L. Rasm us se n, Pla n n ing Office r (Los Angel es), Febru a ry 1, 1974. Retirements Wi lliam R. Sa nds trom , Vice Preside n t and M a nager (Sea tt le), April 1. Gault W . Lynn, Director of Resear ch , April 1. D on ald M . Davenpo rt, Vice Presiden t, May 1. A. B. Merritt, First Vice President, June 1. Richa rd G. Retalli ck , Vice President, A ug ust 1. Arth ur LeRoy Price, Vice Presiden t and Ma nage r (Salt Lake City), October 1. E. All en W ell s, Assista n t Vice Pres iden t, deceased March 24. 37 Comparative Statement of Condition IIhou;nnds 01dollars} A ssets Gold ce rtificate account Sp ec ial Drawin g Rights ce rtificate account Fed er al Reserve no tes of othe r Fede ral Reserve ban ks Other cas h. December 3 1,1973 s 1,327,367 49, 000 17 0,935 2 8,0 39 'b 1,288 ,518 49 ,000 1J8,748 35 ,104 53,000 72,50 0 67,700 1 12,105 263 ,139 J84,193 5,01 1,13 8 5,216,920 427,667 $1 0,'6 55, 725 11,112,064 1,212,689 7,685 4,166,6 71 5 , 152, 238 _ 48l2.3:? I S 9,805,230 10, 188, 423 1,180,521 7,890 55 6 155,814 $ 14, 064, 149 24 .76 8 l51 ,175 S 13,044, 148 s 7,659,768 5 7,046,268 4,84 0,137 3 49 ,692 32,500 69450 5,291,779 751,491 144,497 513,847,535 4 .74 7,686 174,428 37,4 to 65JI3 S 5,025,237 6 0 8, 206 Loan s to M ember Banks: Sec ure d by United States Government and Agen cy obligations Oth er eligib le paper O ther paper Fed e ral Agen cy obligations Unit ed Sta tes Gove rn ment secur ities : Bills . N ot es Bonds Total United States Government sec uri ties Tot al loan s and secu rities. Cas h items in process o f collectio n . Ban k p re mises Oth er assets : De nom inate d in foreign currencies All other Total assets Liabilities Fed e ral Reser ve notes Dep o sit s : M ember bank - reserve accou nt s Unit ed Sta tes Treasu rer- general account Fo reign . Othe r de posit s . Tot al de posit s De fe rr ed avai la b ility cas h items Oth e r liabil ities . Total liabilities December 31 , J 072 s 4J,895 45, 000 _ ..75 69 7 L 512,845,40 Q Capital Accounts Cap ita l paid in Surp lus . Total Liabilities and Capital Accounts . Con tinge n t liability on acceptances purch ased for for eign correspo nde nts 38 108,307 108,307 1 4,064,149 s 72 ,638 (/9,370 ,??!~70 13,044, 14_8 S 23 ,091 Earnings and Expenses Current earn ings Disco un ts and advances United States Governme nt securi ties . Foreign curren cies . All other Total cu rr ent earni ngs 1972 1973 ,O WII;'"1d; oj do/l" r;! s 10,304 666,062 57 113 $676,5 3 6 S s 4 6,820 3,21 0 $ 43 ,610 S 40,560 2J24 S 37,836 $632,926 5479,656 888 516,382 143 80 5517,492 Current ex penses To tal current expenses , Less Re imb urseme nt for cer ta in fiscal agency and other expenses N e t expenses Profit and ioss Current net earnings A d d iti ons to curren t n et earni ngs : Profits on sal es of United Sta tes Government Sec uri ties (ne t) . Profits on forei gn excha nge t ransactions. All other Total ad d itio ns Ded uctions from current net earnings: Lo ss o n foreign exchange transac tions (net) Lo ss o n sa les o f Un ited S ta tes Governme n t Securi ties (ne t) A ll o ther Tot al d edu cti ons . Ne t additions (+ )/ de d uctio ns (-). Ne t earn ing s before payments to Un it ed S tates Treasury Dividend s pa id . Payments to United States Tre as ur y (interest o n Fed e ra l Reserve n otes ) Transferred to Surp lus . Su r pl us Jan u a ry 1 Surpl us D ece m be r 31 . 0 0 123 123 S s 5,92 7 4,82 5 7 10,759 $-1 0,636 622,290 6,221 607,131 5 s S 6,~).97 S -6,1"2:2 473,484 5,899 463,677 s 3,908 95,462 5 99,37q $ 8,938 99, 370 $ 10 8,30 8 Fed e ral Reser ve Bank of Sa n Francisco ' PO . Box 7702 . Sa n Franc isco, Ca liforn ia 94120 Alaska ' Arizo na' Californ ia ' Hawaii ' Idah o' Ne vada ' Orego n' Uta h , Wash ington S 401 0 - 124 525 6,687 0 10 S 39 40 Produced bv Uniplan Corporation. ne Emb<H~adE"ro Center . San francisco . Designer: Richard Burns, Illustrator : Ear! Thollander Edited by Willi.1m Burke &. Karen Ru-k Organization Chart AJ Rayburn S. Dezem ber Chairman and President American National Bank Bakersfield, California Robert A. Barlev ~ United California Bank President Los Angeles, California W. Go rdon Ferguson Linu s E. Southwick j. R. Vaug ha n Lelan d D. Pratt President Vallev Xatlonal Bank Glendale, California President, Kelco Company San Diego, California Chairman v{ thf Board President National Bank of vVhittier President, Knudsen Corporation Whittier, California Los Angeles, California I Directors One Board of Directors' sea t is presently vacant. Gera ld R. Kellv Senior Vice Presid;nt and Manager Adrian A. Ho rva y john F. Lucey, jr. Euge ne A. Th o mas Assistant Vice President Assistant Vice President Assistant Vice President Kenneth L Peterson Los Angeles Branch Check Officer Roderick H. Browning Rov W. Simmons Sam H , Ben nio n joseph Bianco Th eod o re C. jacob sen President . President Zions First National Bank Chairman of the' Board Secretarv- Treasurer V- I Oil Company, Inc. Idaho Falls, Idaho Chairman and President Bank of Idaho Boise, Idaho Chairman of the Board Jacobsen Construction Company, Inc. Salt Lake City, Ltah Bank of Utah Ogden, Utah Directors Salt Lake City, Utah I A. Grant Ho lma n Vice President and Manager I H, Peter Fra nzel Assistant Vice President and Assistant Manager Don W. Sheets Assistant Vice President Salt Lake City Branch Vern R. Lester, jr. Check Officer Harry S. Go odfellow Robert C. W hitwam Chairman of the Bo.:Hd & President President Old National Bank American National Bank of Edmonds of washington Edmonds, Washington Spokane. Wdshington T ho mas Hira i C. Henry Bacon, Jr. Joseph Cebert Baillargeon Ch'lirman j)( IheBoard Vice Chairman Simpson Timber Company Seattle, Washington Chairman & Chief Executive Officer Grower, Packer, Seattle Trust & Savings Bank Shipper of Potatoes Quincy, Washington Seattle, Washington I Directors Paul W. Cavan Senior Vice President and Manager I Parker R. Smith E. Ronald Liggett Assistant Vice President Assistant Vice President Seattle Branch Frank L. Servoss Jam es H. Stanard John R. Howard President, Crater National Bank Medford, Oregon Execut ive Vice President First National Bank of McMinnville McMinnvilie, Oregon Chairman oftht' Board President, Lewis and Clark Co llege Portland , Oregon Directors LeRoy B. Staver Loran L. Stewart Chairman of the Board & Chief Executive Officer United States National Bank of Oregon Portland, Oregon President. Bohemia, Inc. I Willia m M. Brown Vice President and Manager I Maynard C. Petersen Assistant Vice President Portland Branch H. Will iam Penni ngton Accounting and Fiscal Officer Eugene, Oregon Directors Carl E. Schroeder James E. Phillips President The First National Bank President First National Bank in Port Angeles Port Angeles, Washington of Orange County Orange, California Wesley G . DeVries Senior Vice President , ..--_1_-... , John J. Carson William J. Sumner Angelo S. Carella Richard C. Dunn Vice President Vice President Personnel, fED Officer General Auditor Cash, Fiscal Vice President Checks, Payments Mechanism , I I Amedeo G. Conte Jane W. Langhorne William E. O'Donnell Claude Woessner Martin S. Depper Assistant General Auditor Assistant Vice President Assistant Vice President Assistant Vice President Examining Officer Robert H. Colfelt Check Officer Roy A. Karls Chief Examin. cler James E. Phillips A. W. Clausen Charles Raymond Dahl o. Mer edit h Wilson President lank First National Bank in Port Angeles President and Chief Executive Officer Bank of America National Trust and Savings Association San Francisco , California President and Chief Executive Officer Crown Zellerbach Corporation San Francisco, California Choiinnan of the Board & FtdtraI RiSatlt Agrnt President & Directo r Center for Advanced Study in the . Port Angeles, Washington Behavi ore , ~"l'"".": California John J. Balles Pres iden t I John B. Williams First Vice President Robert C. Dietz Henry B.Jamison Vice President Vice President Bank Relations E".:Iminattons. Credits , Martin 5. Depper Roy A. Karlsson J. Norman Aam odt Rob ert C. John sen Roy A. Remedios Examining Officer Chief Examiner Chief Examine r Assista nt Vice President Assistant Vice President J. joseph Rosenblatt Clair L. Peck joseph F. Alibrandi MasOji Honorary Chairman of the Board n Chairman of the Board C. L. Peck Contractor Los Angeles, California D~puly Ch>linnan President Whittaker Corporation Los Angeles. California President , Oji Bros. Farm. Inc. Yuba City, California The Eimco Corporation Salt wk. City, Utah n the lifomia t Donald V. Masten Senior Vice President james M. Brundy Thomas E. judge Louis E. Reilly Vice President D.lt.l Processing, Planning. Programming Vice President-Controller Vice President and I General Counsel Elwood E. Bernstein Ernest E. Livingston George P. Galloway William L. Cooper Assistant Vice President Assistant Vice President Assistant Vice President Associate General Counsel Vera j. Tayloe Assistant Secretary Robe S. Harold A. Rogers FEDERAL ADVISORY COUJ\:CIL President . Peoples National Bank of Washington Seattle. Washington Wilhelmine Stefansky Director of Research Statistics am l. Cooper te General Counsel ~ Michael W. Keran William M. Burke Warren H. Hutchins Director of Director of Research Economic Publications Vice President Ombudsman , Ernest C. Olson Herbert R. Runyon Senior Economist Senior Economist Federal Reserve Bank of San Fran cisco Post Office Box 7702 San Francisco , Calif ornia 94120