View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.


From the Boardroom


National Scene


Western Business


Western Banking


Western Central Bank




Federal Reserve Bank
of San Francisco

MAR 0 6 1


Americans worked long and hard last
year to produce almost $2 trillion of
goods and services . Most business
firms encountered stiff competition
marketing their wares in domestic and
international markets, and all were
affected by surging costs of labor, ma­
chinery and material. But the nation's
solid record of growth could not be
gainsaid. Moreover, a larger propor­
tion of the working-age population
had jobs than at any other time in the
past generation, and household spend ­
ing increased markedly under the spur
of income gains which were un­
matched (even after adjustment for
inflation) since the boom years of the
early 1970's.
Financial markets reflected these
symptoms of a mature business expan ­
sion. Credit extensions sharply outran
GNP growth, rising about 30 percent
above year-ago levels . Given that
context, no one should have been
surprised-although many were-that
interest rates increased during the
year. Short-term rates rose ab out two
percentage points, reflecting both the
growing strength of credit demands
and a firmer Federal Reserve policy
designed to curb inflationary pres­
sures. Still, long-term rates on bonds
and mortgages remained virtually flat
throughout the year, indicating the
confidence of investors that inflation
expectations could be moderated over
the long run by effective policy
The Federal Reserve operated during
the year to encourage continued eco­
nomic expansion while discouraging
the development of new inflationary
pressures. This required aggressive ac ­
tion at times, such as on several occa­
sions when the money supply showed
signs of over -rapid growth, or when
foreign -exchange markets reacted in a
disorderly fashion to the depreciating
dollar. The effectiveness of policy
measures could be seen in the fourth­

John J. Balles

Joseph F. Alibrandi

quarter's reduced growth of the mone­
tary aggregates, and in the continued
success of the markets in financing an
upsurge of credit demands.
The vast regional economy served by
the Federal Reserve Ban k of San
Francisco exh ibited all of the pressure
symptoms evident elsewhere-and
t hen some . T he pa ce of expansion was
significantly faster in the West than in
the rest of the nation, following a
pattern set early in the decade. For
example, Western commercial banks
outpaced other banks wit h a 14-per­
cent gain in loans and investments, to
a year-end total of $130 billion. This
region experienced a phenomenal
growth in rea l-estate financing, a surge
in consumer borrowing, and strong
credit demands from smaller
bus inesses.
The San Francisco Reserve Bank met
the needs of a growing Western econo­
my by providing an expanded amount
of Reserve Bank services during 1977.
This growth in volumes processed and
services provided normally should
generate sharp increases in costs, yet
costs were offset to a significa nt degree
t hroug h gains in efficiency . Mention
need on ly be made of th e fact that this
Bank continued to be one of the lead­
ers of the Federa l Reserve System in
t he productivity of check processing,
currency processing, and other major
The ground was laid for further effi­
ciencies with the continued implemen­
tat ion of the Bank's long -range
automation plan, which in 1977
brought about the standardization of
all computers t hr oughout the District
as a means of stabilizing hardware
costs and prov iding commonality be­
twee n bran ch offices. While providing
for t he fut ur e in t his way, t he staff also
met the day -in, day-out financ ial
needs of the West through the contin­
ued provision of check, fiscal, coin,
currency and other services.
Management benefitted greatly during
the year from the broad -based exper­
ience and judgment of the Bank's di ­
rectors at Head Office and fou r

branches. The directors not only pro ­
vided guidance on major management
decisions and planning goals , but also
supplied key information on economic
and financial conditions as a support
to the formulation of monetary policy.
To obtain an even broader range of
advice, the Federal Reserve at yea r­
end expanded the membership of
branch-office boards at Portland,
Salt Lake City and Seattle, so that
each of those boards (like Los Angeles)
now has seven members. In the pro ­
cess, the Reserve Bank has obtained
greater representation from consumer,
labor, services and conservationist
We welcome these new members, and
we wish to t hank others who complet­
ed terms as directors during 1977:
Charles Raymond Dah l (Chairman
and Chief Executive Officer, Crown
Zellerbach Corporation) and Carl E.
Schroeder (Chairman of the Board,
First National Bank of Orange Coun ­
ty) at our San Francisco office; Ray­
burn S. Dezember (Cha irman of the
Board and President, American
National Bank of Bakersfield) at Los
Angeles; Theodore C. Jacobsen (Part­
ner, Jacobsen Construction Company)
at Salt Lake City; and Thomas Hirai
(Grower, Packer and Shipper of Pota­
toes) at Seattle. Finally, we wish to
express our appreciation to our offi­
cers and staff, whose dedication to the
efficiency of Bank operations has en ­
abled us to improve our services to the
financial community and to the gener­
al public.

Joseph F. Alibrandi
Chairman of the Board

John J . Balles




The $2-trillion national economy
advanced at a good pace duri ng 1977,
cont inuing one of the strongest and
most prolonged expansions of t he past
generation. T otal production of goods
and serv ices, in real terms, increased
4.9 pe rcent, and t his second st ra ight
larger-t han- normal increase broug ht
into play more of the reserves of labor
and cap ita l t hat had bee n left unem­
p loyed by the 1974-75 recessio n. T he
job less rate drop ped sha rp ly to t he
lowest level of th e past t hree years,
and employment increased faster th an
in any other year since World War II.
The nation st ru ggled wit h a number of
d ifficult pr oblems duri ng 1977. T hese
included a record deficit in our inter­
national transactions (along with its
coro llary , a substantial depreciati on of
the dollar aga inst several other major
currencies) , a continued upsur ge in
energy costs, a cost squeeze and weak­
ened markets in agr iculture and ot her
basic ind ustries , a severe stock-market
decline, and a continued sluggish ness
of business pro fits and business­
investment spending. Underlying most
of these other difficulties was t he
ominous prob lem of inflation, wh ich
continued to underm ine t he nati on's
economic health.

Repeating the 1976 pattern , real GNP
increased at a n outsized rate in t he
first quarter of 1977, but th en slowed
perceptibly in later quarters of the
year. This first-quarter surge reflected
the concentration in t hat period of t he
inventory restocking needed after a
surprisingly strong Ch ristmas season,
as well as substantial business and
consumer buy ing of autos in t he wake
of a late -1976 auto st rike. T he early­
year inventory build -up, followed by


moderate gains in later quarters , thus
tended to dominate th e overall pattern
of acti vity dur ing the yea r, ju st as had
happened in 1976. But in t he four t h
quarte r, real fina l sa les-all GN P
compone nts except inventories-rose
to th e highest level of the past five
years, aga in du e to heavy Christ mas
Consumer expe ndit ures for autos and
housin g helped explain 1977's st rong
performa nce, but t he pac e de celer ated
in both cases (espe cially au to s) over
t he course of t he yea r. Fede ral defic it
sp end ing, in the form of a $45-billion
defic it in fiscal 1977, aga in pr ovided
stim ulus for th e economy, alth ough its
st imulative impact was blun ted by
lar ge budgetary surpluses at the state
and local level. Business spe nding for
new plant and equipme nt meanwhile
grew at a steady yet gene ra lly un satis­
facto ry pace, esp ecially since much of
t he spe ndi ng-suc h as for polluti on ­
cont rol equipment-failed to meet the
expans ion needs of the econ omy.
Moreover, in view of t he connection
between pet roleu m imports an d t he
deteriorating merchandise -trade bal­
ance, bu sin ess investm ent appeared
ur gen tl y need ed to increase pr odu c­
ti on of ene rgy from do mestic sou rces
and to make facto ries more en ergy­
Ind ustria l production, wit h a solid 5.6­
percent gain over t he yea r, fina lly ex ­
ceeded the earlier peak achi eved on
t he eve of the steep 1974-75 recession .
P roduct ion increased apprecia bly for
construction supp lies, business equip­
men t, a nd furnit ur e a nd a pp lia nces.
Wit h fue l impo rts risin g, dome st ic
production of ene rgy materials re ­
main ed almost flat-despite increases
in energy prices an d in oil- and gas ­
well dri lling activ ity. P rod uctio n of
defe nse a nd space eq uipment also rose
only modestl y, cont inuing its post­
Viet na m pa t tern of sluggish growth.

Jobs and prices
The number of persons with jobs in ­
creased by 4.1 million over the course
of the year-the largest increase of the
past generation. Over the same period,
the proportion of the labor force with ­
out work dropped from 7.8 percent to
6.4 percent-the lowest level since late
1974. Growing labor-market pressures
could also be measured by the fact
that the volume of help -wanted adver­
tising jumped one -third over the
course of the year, and by the fact that
a record 58 percent of the working-age
population held jobs at year-end.
Accord ing to that standard, the nation
could be judged closer to "full employ­
ment" than in any of the other years of
the past two decades which boasted
lower jobless rates.
The inflation picture worsened in 1977
with a 5.6-percent rise in the GNP
price index, compared with a 5.3-per­
cent increase the previous year. Part
of the problem could be traced to last
winter's disruption of food and energy
supplies, caused by the Eastern freeze
and t he Western drought. Part of the
problem could be attributed to cost­
push pressures, which arose as labor
productivity gains lagged considerably
behind the wage increases recorded in
new labor contracts-which in turn
reflected the high rates of past and
expected inflat ion. More bas ically, the
worsening in the price situation
reflected the continuation of heavy
Federal deficit spending, as well as the
related difficulty of reducing money­
supply growth to levels compatible
with long -run price stability.

September on, the dollar declined
steeply and steadily against almost all
major currencies except the Canadian
dollar-ll percent against the Ger ­
man mark, the Japanese yen, and the
British pound, and even more against
the Swiss franc. The situation then
stabilized in earl v 1978, when the Fed­
eral Reserve and-the Treasury under­
took support operations in the foreign­
exchange market.
The steeply falling dollar could be
attributed in part to the rapid deterio­
ration in the U.S. merchandise-trade
balance, which shifted from a $9-bil­
lion surplus in 1975 to a $6-billion
deficit in 1976 and then finally to a
$27-billion deficit in 1977. Imports of
petroleum and products increased 70
percent over that two -year period, be ­
cause of sluggish domestic production
and a significant recovery in domestic
demand. Imports of other products
jumped 48 percent, again reflecting
the pace of the nation 's business ex­
pansion. In contrast, U.S. exports rose
only 14 percent above the 1975 level,
as overseas economies suffered from
sluggish growth rates which led to
weak demand for U.S. products. For
several years, this trade imbalance was
offset by substantial capital inflows,
associated with the high degree of for­
eign confidence in U.S. political and
economic stability-including its price
stability. But that asset demand for
dollars suddenly declined in late 1977
as market sentiment shifted against
the U.S. currency, perhaps reflecting
an expectation of worsening inflation
in this country.

Dollar problems
International problems aggravated the
nation's domestic problems late in
1977. Throughout most of the year
(except July), the dollar remained fair ­
ly stable in relation to a t rade-weigh t ­
ed basket of currencies. But from late

Perc ent Change _






19 1 7
19 7 5



Economy scores strong gain in output,
but inflation picture worsens somewhat


Perce nt

Expanding credit
Commercial-bank credit helped fi­
nance the strong business expansion
by rising 10.4 percent, considerably
more than in the preceding year. In
line with the normal pattern of a ma­
ture expansion, the loan share rose
from 66 percent to 90 percent of the
overall credit gain over the year. Busi­
ness borrowing recovered (at least out­
side the large money-center banks)
but stronger consumer borrowing for
home mortgages and instalment
buying accounted for most of the 14­
percent bank -loan increase. Banks
red uced the portfolios of Treasury
securities which they had built up for
liquidity purposes in the earlier stages
of the expansion, but they offset those
reductions by expanding purchases of
"other" securities, indicating portfolio
managers' growing confidence in the
state of the municipal-securi ties mar­
ket. Banks also recorded shifts in their
sources of funds, again reflecting the
normal pattern of a mature expansion.
As market interest rates increased,
smaller amounts of funds flowed into
those deposit categories affected by
rate ceilings, such as passbook savings
and small time deposits, while much
larger amounts flowed into large nego ­
tiable time certificates.

- 12	

- 4	
Tr easu ry Bills

- 0

long -term financ ing needs or to refi- .
nance short-term debt through the
bond market helped exp lain the slug ­
gishness of business -loan demand at
money-center banks, although other
factors were also involved, such as
higher corporate profits, good cash
flow and accessibility to the comm er ­
cial -paper market.

Financial markets generally exhibited
the same signs of strength visible in
bank lending activity. The U.S. Treas­
ury again was a major factor in the
market because of continued deficit
spending, and again relied on interme­
diate and long-term securities to meet
its heavy financing needs. The munici­
pal-securities market far surpassed its
1976 performance. Domestic corpora ­
tions meanwhile lagged only slightly
behind the record bond-financing pace
of the two previous years. The ability
of large corporations to meet their

Long-term interest rates meanwhile
showed little movement after an ea rly ­
year rise, in spite of the heavy volume
of financ ing in t he cap ita l ma rkets .
Indeed, yields on municipal bonds de­
clined throughout the year, because of
a very strong demand for tax exempts
as well as the improved financia l con ­
dition of state and local governments.


Short-term interest rates rise sharply,
but long-term rates remain fairly stable


Rising interest rate s
Short-term interest rates rose about
two full percentage points during
1977-reflecting the strength of busi ­
ness activity as well as some firming of
monetary policy-and then rose fur ­
ther in early 1978 in response to the
turbulence in foreign-exchange mar­
kets. In the four t h quarter, heavy
foreign purchases of Treasury bills
helped to br ing the bill rate consider ­
ab ly below t he rate on other money ­
market instruments. Banks increased
t heir prime business -loan ra te seven
times between May 1977 and January
1978-altogether from 6 1/ 4 to 8 per­
cent-but they experienced even
greater increases in t he cost of suc h
funds as large negotiable CD's and
Federal funds, and the result was a
nar rowing of t he hitherto-wide spread
between what banks earned on their
assets and what they paid for funds.

Policy problems
T he Federal Reserve's policy postur e
during 1977 was desig ne d to encoura ge
continued economic expa nsion while
restraining inflatio nary pr essur es. T he
Fed's task was aggravated, however ,
by several bu lges in the money sup ply
whic h occurred in Apr il, July and
October. The narrowly-defi ned mone y
supply, M " increased 7.4 percent over
th e course of t he yea r, while the
broader M 2 aggrega te rose by 9.6 pe r­
cent-in t he first case exceeding, and
in the second case approaching, t he
upper lim its of t he money -growth
ra nges established by t he Fe deral
Ope n Market Committee. (M, equals
currency plus bank dem and dep osits,
and M 2 equals M, plus ti me deposits
except large CD's.) In t he November­
December period, however, the growth
rates slac kened for both monetar y
aggregates, a nd once aga in fell wit hin
prescribed target ran ges.
The Federal Reserve raised its dis ­
count rate for member-bank bor row­
ing twice duri ng 1977 (in August and
Octob er ), lar gely to bring it into line
wit h earlier increases in mo ney ­
ma rke t rates. But the central ban k
then raised the rate aga in in ea rly
1978, from 6 to 6 ljz percent, as part of
t he st rategy to ste m the decline in th e
val ue of t he do llar.

Divergent loan growth
Ban k-credit growth slacken ed as mon ­
etary policy firmed in the lat ter par t of
the year, but the $82-b illion increase
st ill outpaced t he earli er (1973) record
by a considerab le ma rgin. Busi ness
loa ns increased 13 percent, com pared
wit h the 2 1/ 2 percen t gain of t he pre ­
ced ing year. The stre ngt h in t his cate­
gory again was more eviden t at
regiona l ban ks t ha n at the large mon ­
ey-center ban ks, whose la rge corpo rate
customers conti nued to find amp le fi­
nancing outside the banking system.

T he strongest loan demands came
from t he household sector, reflecting
growth in rea l household incomes and
t he increased willingness of consumers
to ass ume more debt to satisfy reces ­
sion-accumulated needs for hous ing
and consumer goods . Mortgage credit
and consumer instalment credit both
expanded about 17 percent, t he lar gest
increases occurring in such categories
as auto loan s an d credit -card debt.
Bank earnings improved considerably
during 1977. One major reason was the
large increase in the volume of earning
assets (especially loans), wh ich helped
expand ne t interest income despite a
narrowing of the sp read between the
rates banks earned and t he rates they
paid for funds. Income also improved
beca use of the slacken ing of certain
costs attributable to the earlier reces­
sion, evide nced by smalle r provis ions
for loan- loss reserves and a reduced
volume of non -accrual loans (that is,
loa ns on which interest cur rently is
not being pa id) . On th e ot her hand ,
earnings performance suffered be­
cause of t he shift from less-expensive
to mor e-expensive sources of funds .
Sav ings-deposit inflows slowed from
t he record $41-bill ion increase of 1976
to only $16 billion in 1977-with a
minima l increase in t he four t h quarter
of t he year-while CD funds , which
a re not affected by rate ceilings, in ­
creased $11 billion after a $19-billion
run-off t he yea r before .
Retail-oriented banks, wit h their
st rong repr esen tati on in cons umer
financia l ma rkets , aga in pos ted a
stronger earnings performan ce than
wholesa le banks, with the latter's clos­
er t ies to the slow-growing corporate­
loan mark et . Retai l ba nks also showed
greater abi lity to keep th eir costs in
line beca use of t heir depen dence on
less-costly sav ings depos its, whi le
wholesa le banks incurred large cost
increases as they expanded the ir issu­
a nce of negotia ble CD's.

Change (S BIllions)

66 . 1

Consumer Loans

Real Estate Loans

Change (S Bill ions)

30.3 _ -



Consumer loans



• Loenll

Business l oans




Bu siness lo an s rise, a lt hough st r onge st
demands come from hou sehold sector





Percent Change

The Western economy, despite
drought and farm recess ion, expanded
at an even faster pace than the rest of
the nation during 1977. (This region,
which is served by the San Francisco
Federal Reserve District, includes all
the n ine sta tes west of the Continental
Div ide.) Family incomes outpaced
inflati on by a substant ial ma rgin;
employment increased at one of the
fastest rates of recent decades; and
these developments helped stimulate
regional production and sales while
reducing the ranks of the unemployed.
Population growth stimulated this
economic growth, as 600,000 new resi ­
dents boosted the regional total to 34.3
million in 1977. This phenomenon re ­
presented the continuation of a long ­
term westward shift of the nation's
population-a shift which has become
especially evident during the present
decade. Between 1970 and 1977, mi ­
gration accounted for almost half of
the region's total population gain of
3.7 mill ion, creating double-digit
growth in all except the two largest
Western states (California and Wash ­
ington). The fastest growers-Arizona,
Nevada and Alaska-all reported
gains of 29 percent or mo re. But
slower -growing California, despite a
near-cessation of migration during t he
aero spa ce-re lated recess ion of the ear­
ly 1970's, still added more than 1.9
mill ion people between 1970 and 1977
to widen its lead as the nation's largest
state-and one-fifth of that increase
occur red in 1977 alone.



- 4

- 3

- 2

- 1
Other U.S .

- 0

- - 1


19 7 5
19 74


Employment expansion even stronger
in We st th an in rest of nation


Regional job boom
Civilian employment in th is nine -state
area increased almost 4 1 2 percent­
for the second straight year-to a new
peak of 14.3 million. T he pac e of ex­
pansion was signi ficantly faster in the
West t han in th e rest of th e nati on,
following a pattern set ea rly in t he
decade. Ma nu fact ur ing employme nt
finally returned to prerecession levels,
and construction employment in ­
creased more than 10 percent as bu ild ­
ing activity soared throughout th e
region . Jobs also continued to open up
in trade, in serv ices and (to a lesse r
extent) in government; those three
sectors accounted for almost 65
percent of all payroll employment,
compared to 59 percent a decade ago.
Reflecting this active job market, the
average jobless rate dropped from 9.0
percent in 1976 to 7.6 percent in 1977.
By year-end, the rate was down to
about 7.0 percent. The improvement
was especially noticeable in the large
Pacific Coast states. Indeed , the job
ma rket worsened significantly only in
Alaska, because of the completion of
the oil pipeline.
Foreign t rade remained active at Wes t
Coast ports, with abo ut an ll -percent
gain in total volume, but most of th e
traffic was in-coming rath er t han out ­
going. Imports increased 20 percent to
about $29.6 billion, encompassing all
the oil, raw materials, and industrial
and consumer goods necessary to sup­
ply the expanding Western economy.
In contrast, exports remained almost
stable at about $20.6 billion, partly
because of the sluggish growth of most
foreign economies, and partly because
of the oversupply conditions which
confronted Western producers of food
and other products in the intensely
competitive markets overseas.

Income, trade surge
Personal inco me increased more than
11 1/i percent to about $260 billion in
1977. Much of the gain was eaten away
by inflation as consumer prices rose
almost 7 percent during the year;
nonetheless, this left a solid gain of
more than 4 1/ 2 percent in rea l income.
(However, pr ices rose faster here t han
elsewhere for t he t hi rd straight year,
probably reflecting th e faste r pace of
business activity in the West.) Con ­
sume rs purchased al most 13 percent
more goods at ret ail t ha n d uri ng th e
preceding year, largely because of
boom ing sales of autos an d ot he r dura­
ble goods . New -car registrations in
Californ ia rose almost 35 percen t
above the 1976 pace, approaching t he
1973 peak level of sales .
State and local govern ments benefit­
ted from the upsurge in income and
sa les and , like their cou nterparts else­
where, boasted substantial budget sur ­
pluses as a resu lt. California's State
government, for example, projected a
$3-billion surplus for the comin g fiscal
year, in line with a 16-percent increase
in spending to $17.4 billio n. But in an
election year much of that surplus
would probably disappear, allocated to
court-mandated programs for school ­
finance reform or to voter-mandated
reductions in local property taxes.

Farm recession
Western farmers and ranchers were
beset by falling prices, falling exports,
and falling water tables during 1977.
With crop receipts declining, total
agri cultural sales dropped about one
percent to roughly $15 billion-and
the decl ine in net income was even
steeper because of rising production

costs. The drop in farm sales reflected
widespread pr ice weakness, broug ht
about partly by bumper crops in this
country, and partly by a slowdown in
demand from overseas customers and
an increase in sa les by overseas com ­
petitors. Agricu ltural exports from
West Coast ports dropped 22 percent
between t he first t hree quarters of
1976 and the comparable period of
1977. The impact of t he farm recession
was felt in many rural communities, as
farmers curtai led their spending for
tractors , t rucks and other pieces of
farm equ ipment .
Cattle producers' gross incomes rose
about 2'/2 percent above a yea r ago,
but their net incomes fell as they had
to contend with the effects of a second
straight year of drought-such as the
cost of hay to supplement parched
pastures and the cost of water to re ­
plenish dried -up ponds. Crop farmers
suffered a 2 112-percent drop in gross
incomes, and they too experienced
sharp rises in costs. Federal and state
agencies cut water de liveries 60 to 75
percent in California's Central Valley ,
and farmers in that area thus had to
spend considerable sums for digging
wells and pumping water.
Western farmers were troubled not
only by drought problems, but also by
confusion about the interpretation of
the National Reclamation Act of 1902,
which governs the greening of 12 mil­
lion acres throughout the West. In
response to a court order involving
water rights in the Westlands Water
District-a large semi -arid area locat­
ed on the west side of California's San


- 10




- 0





Jobless rate drops faster in West than
el sewhere, showing st ronge r expansion



D ollar s

Joaquin Valley-the U.S. Department
of the Interior issued proposed regula­
tions that interpreted the Reclamation
Act rather literally. The regulations
would have limited the numbe r of
acres eligib le for Federal water sup­
plies to 160 per fami ly member-wi th
a limit of 1,280 acres per fami ly hold ­
ing- and als o would have enfo rced
strict interpretation of ot her pro vi­
sions of the 1902 Act. At year's end,
however, further lit igat ion delayed im ­
plementation of th e new regulations,
and both the national and state ad ­
min istrations began cons idering a ma ­
jor overhaul of the basic legislation,
because of fears that a rigid 160-acre
limitation could restrict the efficien ­
cies possible under large-scale
irrigat ion.


The grain farmers of the Northwest
were heavily affected by the farm sec­
tor's multiple ills, for wheat prices
reached a five-year low during the
summer, while the drought reduced
yields and thus the size of crops. Cali ­
fornia rice growers reduced output of
that very water-intensive crop by 17
percent, but they benefitted from
prices that were higher by half t han a
yea r ago. Potato growers st ill overpro­
duced, alt hough they reduced their
ou tp ut modestly below last year's re­
cord , so that prices continue to slide.
In contrast, Arizona and California
cotton growers increased acreage 31
percent in response to the tight sup ­
plies and high prices of 1976, on ly to
see prices reduced under the pressure
of worldw ide overproduction.








Cattle (lb)





Weakening f a rm price s reduce receipts
of W e stern f armers and ranchers


Housing boom
A mass ive boom in homebuilding, al ­
though nationwide in scope, was most
evident in the Western ma rket, wh ich
followed up its 49-perce nt incr ease in
1976 housing starts wit h a furthe r 35­
percen t increase in 1977. Speculative
activity in th e single-fa mily en d of t he
market acce nt ua ted the boom during
t he first hal f of t he year , but the
speculat ive excesses were gradually
wrung out of t he market, with lit tle
damage to t he industry. Even so,
heavy demand and cost pressures
pushed the median pr ice of new homes
to $53,400 at midyear-13 percent
above the year-ago figure and also 13
percent above the current price of
homes elsewhere in t he nation.
While single-family housing boomed,
the long -depressed multi-family sector
of the ma rket began to recover, and
industrial and commercial construc­
tion also expanded. Moreover, future
homebuilding plans looked solid,
based upon a 30-percent increase in
new permit activity during 1977. On
t he other hand, savings flows into
mortgage-lendi ng institutions dece ler ­
ated in the lat ter part of t he year, as
save rs foun d it possi ble to ea rn higher
rat es on Treasury bills and oth er mar ­
ket instruments. T hr ift -ind ustry lead ­
ers no nethe less rem ained confident
that funds would still be ava ilab le to
meet a reco rd level of loan
Here as elsewhere, the housing boom
benefitted not only from easy financ ­
ing conditions, but also from t he de ­
mographic fact that more and more
families were moving into age brackets
which normally provide the bulk of all
home buyers. Many of these families
included two wage earners , and for
that reason were able to pay the sharp­
ly rising home prices noted above. Be­
sides, many were able to use the

inflation-bloated prices of their former
homes to meet the large downpay­
ments required . All these factors were
also present in the national housing
market, but the regional boom was
accentuated by a vast inflow of mi­
grants, who came to take advantage of
the better climate and more plentiful
job opportunities available in the

Forest problems
T he nationwide upsurge in residential
construction put heavy pressure on
the Western lumber industry, wh ich
because of strikes and timber short­
ages increased production only about 3
percent during the year. Despite some
easing of prices during the last few
months, softwood lumber prices at
year -end remained 63 percent above
their late-1974 low. The pulp and pa­
per segment of the industry showed
considerable strength during the early
part of the year, but market conditions
later weakened as slow overseas de­
mand led t o stiff competition from
foreign prod ucers in both domestic
and export markets. Pulp and paper
pr ices rose an ave rage 4 percent for
the year, but costs rose at an even
faster rate, narrowing profit margins
for many import a nt items.
The forest -products industry showed
growing concern about policy ques­
tions relating to the management and
use of National Forests and other
publicly -owned forest lands-such as
proposals to prohibit timber harvest­
ing in National Forest lands designat­
ed as wilderness areas. In th is
situation, forest -product firms depen­
dent upon public lands became in­
creasingly worried about the cost and
avai lability of timber to meet their
long-term raw material requirements.

Mixed manufacturing
Manufacturing production overall
expanded at a faster-than-national
pace, sparked by considerable strength
in aerospace-equipment and other
durable-goods manufacturing. (Still,
aerospace employment lagged behind
its pre -recession level and remained 29
percent be low the Vietnam -War
peak.) Military prime -contract awards
rose nearly 7 percent during the year
ending in June, on the hee ls of sharp
gains in the two preceding years, and
increased funding for such projects as
the cruise missile and the F -15 fighter
plane helped keep spending high even
after the cancellation of the B-1 bomb­
er program. Space-agency awards also
strengthened during this period,
primarily for the space -shuttle pro ­
gram. Meanwhile, foreign and domes­
tic orders for Boeing jet transports
expanded in line with the improved
financial position of the world airline
industry. Larger military and consum ­
er purchases of electronic products
also contributed to the industry's or­
der flow.




- 400

Other W••I

Regional steel production continued in
the doldrums, reflecting the gradual
weakening in demand from consumer ­
goods producers and the continued
sluggishness in demand from capital ­
goods manufacturers. The domestic
industry's problems were aggravated
by the aggressive marketing of foreign
producers, who increased their pene­
tration (from 31 to 34 percent) of the
Western market in an expanded effort
to sell here what they could not sell in
sluggish markets overseas. In fact,




Massive homebuilding boom centered
in California and other Western states


major regional producers were forced
to close a number of small fabricating
facilities because of th eir ina bilit v to
pass on higher costs in t he face of
seve re import competition.
The Northwest aluminum indust ry
experienced st rong demand bu t was
forced to ope rate well below capacity
becau se of a drought -related shortag e
of hyd ropower- an d in these circu m­
stances, the industry was able to rais e
prices by about 10 per cent over the
course of th e year. The copper indus ­
try, in contrast, found itse lf faced with
a problem of excess supply, and thus
had to cut back mine and refinery
output during the secon d half of t he
year. Producers boosted the price of
refined metal 13 percent in early 1977,
when hedge buying against a poss ible
strike added a temporary element of
strength to the market. Subsequently,
they were forced to lower prices by an
even greater amount as demand weak ­
ened and inventories continued to
accumulate at copper refineries
throughout th e world .

Rising o il supply
Western consumption of petroleum
products increased sharply du ring t he
yea r, pa rt ly beca use of the industrial
needs generated by t he continued
business expansion, but also becau se
of regional uti lities' increased reliance
on fuel oil as a result of natura l-gas
and hyd ropower shortages. Refinery
output rose nearly 16 percent to meet
th is demand . However, the impo rt
share of the Western market declined
slightly from the 1976 peak of 48 per­
cent, as regional production of crude
oil increased for the first time since
1970, because of the opening of the
Alaskan pipeline and the expansion of
output at California's Elk Hills


A $400-million Fede ra l sale of offshore
oil an d gas leases in th e Lower Cook
Inlet region of Alaska held fort h t he
prom ise of new drilling acti vity in t hat
area , while t he Adm inistration' s
endorsement of the $10-billion Alcan
natural-gas pipel ine project for deli ­
vering Nort h Slope gas t hrough
Ca nada to markets in the contiguous
48 states brought t hat project a ste p
closer to rea lity . Mea nwhile, public
a nd privately-owned electric uti lit ies
and industrial customers in t he Pacific
Northwest pus hed for Congr ess ional
legislation to reorganize the region's
electric-power system. Through a
coordinated program of Federal an d
private power development and mar­
keting, the pla n would help assur e
adequate suppl ies of reasonably­
priced electricity for all powe r users in
the Northwest as the area moves from
primary reliance on hydro -power to a
therma l-electric power bas e.

Maturing boom
Altogether, 1977 ma rked the second
straight year of solid recove ry from t he
steep 1974-75 recession, which sug ­
gests that furthe r ga ins may be hard to
come by as the regional expansion
enters a mor e mature ph ase in 1978.
Fr om recen t indicat ions, auto buying
an d sing le-fa mily home const ruction­
the st rongest supports of t he curre nt
expansion-may decline from their
ea rlier headlong pace. Steel, copper
and other bas ic indust ries meanwh ile
could remain in the doldru ms, reflect­
ing the sluggishness of the worldw ide
markets in which they operate.
Other sectors still could take up the
slack, such as apartment, commercial
or industrial construction-or defense
spending, which is already half again
as large as it was five years ago. The
farm sit uation also may show some
improvement, on the basis of the
recent evidence of falling ra in and
rising prices. On balance , slower but
more sustainable growth may be the
most likely outlook-and the best pre ­
scription-for the regional economy in
1978. 1'

J ust as the Western region led the
nation in economic growth, Western
commercial banks outpaced their na ­
t ional counterparts with a faste r
expansion of bank cred it and bank
lending. T he highlights of the year
included a phenomenal growth in real­
estate financing, a surge in consumer
borrowing, and a simi lar acceleration
in credi t demand by smaller busi­
nesses. Tota l loans and inve stments
reac hed $130 billion at year-end, for a
$15.7-billion (14 percent) increase.
This increase, which surpassed even
the record expansion of 1973, was due
almost entirely to a $14.8-billion (17
percent) upsurge in loans. Yet despite
their massive lending gains and their
already strong liquidity positions,
Western banks added nearly a billion
dolla rs to t heir securities portfolios.
Like other banks, t hey reduced t heir
holdings of short-term T reasury secu ­
rit ies but expanded their portfolios of
short-term municipals.

Diverse lending
Bus iness loans rose more than 12 per ­
cent duri ng the year, but almost all of
t he increase took place outside the
large metropolitan centers. Still, large
Western banks were ab le to take
advant age of their widespread branch
struct ures to channel funds that might
have gone into bus iness loans into
increased mortgage and cons umer
lendi ng. Business-loan growth picked
up somew hat at the branch systems'
metropolitan offices during the second
half of the year, but large corporations
continued to limit their loan demands
because they had ot her sources of
funds available (frequently at lower
rates) in the commercial-paper and
cap ita l markets. Smaller banks as well
as the regional offices of larger ba nks
meanwhi le met the expanded loan
demand from th e small and "midd le
market" firms t hat could not gain ac­
cess to the alternative sources of funds

available to larger corporations . Busi ­
ness firms engaged in metal fabrica­
tion, chemical manufacturing,
wholesale trade and construction
sharply increased their reliance on
bank borrowing.
Western banks broke all records for
real-estate finan cing , reflecting the
soa ring demand for new and upgraded
housing facilities. Mortgage loans
increased 29 percent-an especially
large gain for such a mature stage of
the business expansion. Mortgages ac­
counted for one -third of all bank loans
at year-end, replacing business loans
as the largest single loan category.
Part of the upsur ge represented
aggressive bank marketing of second
mortgages, which permitted home ­
owners to borrow against the sharply
increased value of t heir equity as
home pr ices escalated.



Pe rcent C hange

28 .5

Consumer borrowing also increased at
a headlong pace, reflecting consumer
willingness to take on more debt in an
expanding economy. As auto sales
strengthened in the early part of the
year, auto financing accelerated. Later
in the year , as spending increased for
other consumer goods and services,
banks recorded dramatic gains under
credit-card and check -credit plans.

Increased deposits
Total deposits at District commercial
banks increased $15.0 billion (12 per­
cent) , providing a major part of the
funds necessary for the record expan ­
sion in bank cred it. Western banks
recorded greater -than -national gains
both for private demand deposits and
for time and savings deposits, again
reflecting t he more rapid expansion of
t he regional economy. Savings depos­
its, the major source of funds during
th e 1975- 76 period, peaked at the end
of the first quarter and then began to
decline, as households and domestic
government un its sh ifted thei r funds
to money-market inst ruments offer ing
higher rates. Throughout t he year, and
especially during the final quarter,

14 .6

Percent Cha nge





U.S .


Business Loans

Mortgage Loans

Stronger regional loan growth due
mostly to boom in mortgage sector


banks began to turn again to negotia ­
ble CD 's as a source of funds, because
of the lack of ceiling rates on such
Required reserves of Federal Reserve
member banks averaged $441 mill ion
more in 1977 than in 1976. This re­
flected not only an increase in total
deposits, but also a sh ift in deposit
composition towards demand deposits
and other time deposits, which are
affected by h igher marginal reserve
requirements than savings deposits.

Percen t Change

Perce nt Change




Othe r







Ba nks made rather limit ed use of the
Federa l Reserve Bank of San Francis­
co's disco unt facil ities d uring the first
half of th e year, because of their
strong liquidity positions and the
avai labi lity of interbank loans through
th e Federal- funds ma rke t. But bor­
rowings later rose significantly as the
d iscount rate (despite several in ­
creases) lagged substantially behind
t he fast -rising Fed -funds rate. For the
year as a whole, borrowings averaged
$37 million a day-compared to only
$5 million in 1976. In contrast, net
Fed-funds purchases (borrowings) by
the largest Western banks dropped
slight ly below year -ago levels , on a
daily average bas is.

Stronger e a r n in gs
The rapid expansion in the volume of
ea rning assets, primari ly loans , he lped
to boost regional banks' earnings
d uring 1977. As in the two preceding
years , Western banks genera lly record ­
ed a stronge r earnings performa nce
tha n th eir nati ona l coun terparts,
partly because of their relat ively larger
volume of mortgage and consumer
loan s, wh ich boast wide interest -ra te
spreads over the cost of bank funds .
Again, regional ban ks be nefitted more
t han ot hers from their close relat ion ­
ship wit h sma ll and medi um-sized

- 1 1.3

U.S. Govt. Secu rities

Other Securities

Banks reduce Treasury portfolios
while buying other securities


business firms , whose credit needs
expanded more than that of large
corporate borrowers. Western banks,
like their national counterparts, also
benefitted from reductions in loa n-loss
provisions and in non -accr ual loans.
For some of the larger banks, foreign
operations continued to account for a
significant portion of earnings.
Yet in t he West as elsewhere, intense
competition among banks placed
downward pressure on the terms of
business lending, including compen ­
sating -balance req uirements. Pressure
on profits also arose from the cost side
because of rising market rates, espe ­
cially since banks increased the ir issu ­
an ce of large CD 's when the inflow of
less -expensive savings deposits

Mixed prospects
The prospects for Western banking
appear fairly solid at this early stage of
1978, although not quite so bright as a
year ago. Less strength may be
provided by the twin supports of the
1977 loan expansion-mortgage and
consumer lending- in the one case
because of the slowdown of savings
funds that would normally flow into
home mortgages , and in the other case
because of the massive size of the debt
burden already assumed by consum ­
ers . But the likelihood of further
strength in bus iness activity, especial ­
ly in the context of tighten ing finan­
cial markets, suggests that many
bus iness firms will increase t heir reli­
ance on the banks for financ ing plant ,
equipment and invent ories. Banks
generally may experience a rising
volume of loans at higher rates, wh ich
should help offset a possib le narrowing
of the "spread" as interest rates on
fund s and other costs increase. West­
ern banks in particular may aga in
profit from a faster -than -national
expansio n of business activ ity, and
hence from a broader range of lending
opportunities t han their national
counterparts can expect. iii'

The Federal Reserve Bank of San
Francisco d ur ing 1977 provided an
expanded pac kage of central-banking
services- such as chec ks, coin, curren ­
cy, fisca l and electronic funds trans ­
fers-fo r a regio na l economy wh ich
cont in ued t o grow fas te r tha n t he rest
of t he na tion . T he Twelfth District,
with its five location s in Sa n Fra ncis­
co, Los Angeles, Portland , Sa lt La ke
City and Seattle, is t he largest Federa l
Rese rve District in terms of both pop ­
ulation and geograph ic size. It includes
t he states of Alaska, Arizona, Ca lifor ­
nia, Hawaii (wit h Guam a nd Samoa),
Idaho, Nevada, Oregon, Utah and
Was hington, wit h 34 million people as
well as 541 ban ks and 6,808 banking
The sco pe of ope rations in 1977 re ­
flect ed th e vast size of t he Ba nk 's
service area. Fo r exa mp le, Ba nk staff
handled over 1.3 billion paper checks,
not to mention 1.8 billion coins and
over 1.1 billi on pieces of currency. At
the same time, the Bank conti nu ed to
extend its electronic payments capa ­
bility, through such means as auto ­
mat ed clearing houses, Government
d irect -deposit programs, and t he Fed ­
eral Rese rve wire -tra nsfe r network .
T he San Francisco Rese rve Bank,
along wit h ot her compone nts of the
Federal Rese rve Syste m, helped ma in­
ta in a continued flow of fun ds t hro ugh
th e nati on 's payments system du rin g
th e New Yor k blackou t last summer,
demonstrat ing t he efficacy of eme r­
gency processi ng proce d ures for ha n ­
dling the checks a nd electron ic
payments normally destined for New

During the year, 3 new state member
banks, 3 national banks, 27 state
nonmember banks, and 1 trust com ­
pany were organized in the District.
The number of Federal Reserve mem­
ber banks increased from 144 to 148
banks , and the number of member ­
bank offices increased 2 percent to
4,976 offices. T his Bank th us regis­
tered a net gain in membership in the
face of an unfavorable national trend.
In th is connection, the Bank's direc­
tors played an important role in deve l­
op ing new solutions for the member­
ship problem through the formation of
a special d irectors' Committee on Sys­
tem Membership. The Committee ini­
tiated a comprehensive opinion survey
of District member banks, which ad ­
d ressed such key issues as NOW ac ­
counts, interest payments on rese rves,
a nd the q uality of Federal Reserve
Bank services.
To provide improved services to its
commercial-bank ing publ ic, the Bank
reorganized its Bank Relations staff as
a separate department in 1977. This
department became responsible for
ana lyzing various types of service
problems, planning new bank-rela­
tions programs for the Distr ict , and
providing staff support to the District­
wide effor t in th is area . As a means of
inf orming member and nonmember
ba nks ab out t he wide range of Federal
Reserve serv ices, the unit conducted
meetings and sem inars for bankers,
cost -of-members hip surveys, and
va rious technical surveys-includ ing a
Functional Cost Analys is program
which provided member banks with
detailed infor mat ion on the costs
incurred for var ious functions by their
peer group of competitors.


Federal Reserve Bank of San Francisco
Organization Chart
January 1, 1978

Senior Vice President

District Departments

Kent O. Sims

District Departments
Admin. Officer
Adelle Foley


Vice President
Bank Examinations
Eugene A. Thomas

Vice President
Bank Relations
Robert C. Dietz

Vice President
Super., Reg., & Credit

Vice President &
Director of Research
Michael W. Keran

Vice President
Statistical & Data Servo
Wilhelmine von Turk

Henry B..Jamison

Director of
Economic Analysis
Joseph R. Bisignano

Director BUC
Harry W. Green

Asst. Vice Pres.
& Economist
Hang-Sheng Cheng

Asst. Vice Pres.
Bank Relations
Robert A. Johnston

Examining Officer
Wayne L. Rickards

Examining Officer
Rodney E. Reid

Credit & Consumer
Affairs Officer
W. Gordon Smith

Research Officer
Pete r Hsieh

Director of
Public Information
William M. Burke
Asst. Vice Pres.
& Economist
John H. Beebe

Research Officer
Herbert R. Runyon

Examining Officers

Merle E. Borchert


G. Ross Varoz

San Francisco


Senior Vice President
San Francisco
Wesley G. DeVries

Vice President

Vice President

Warren H. Hutchins

Claude Woessner

Asst. Vice Pres.
Michael J. Murray

Asst. Vice Pres.
Roy A. Remedios


Cash Officer
Benjamin B. Gillespie

Senior Vice President
Gerald R. Kelly


Asst. Vice Pres.
Adm in. Services
Kenneth L. Peterson

"Temporary Special Assignment-Quality Assurance Implementation


Asst. Vice Pres.
E. Ronald Liggett

Analysis and
Control Officer
A. Richard Tidwell



Board Of Directors


John .J. Balles


General Auditors

Beverly .J. Adams

Bruce H. Thompson

General Auditor
.James F. Leyman

Jane W. Langhorne

First Vice President

John B. Williams

Secretary's Office

Corporate Staff
Senior Vice President
Computer Services
Richard T. Griffith

Senior Vice President
Corporate Staff
.Iohn J . Carson

Senior Vice President
Secretary's Office
Donald V. Masten

Facilities Planning Staff
Vice President

& General Counsel

Louis E. Reilly

Vice President
Budget & Control
Thomas E. Judge

Vice President

Facilities Planning

Rix Maurer, Jr.

Vice President
Walter G. Woodbury

Facilities Planning
Oren L. Christensen

Assoc. General


William L. Cooper

Assl. Vice Pres.

Facilit. Planning

William K. Ginter

lranch Operations

Branch Operations
H. Peter Franzel

Computer Systems
Kenneth A. Grant
Asst. Vice Pres.

Corp. Planning

William S. Thurlow

Computer Operations

Hector M. Martin

Assl. Vice Pres.

Computer Support Services

William V. Ott

Asst. Vice Pres.

Legis. Analyst

Verle B. .Johnston

District Security
George P. Galloway
Asst. Vice Pres.

System Coord.

Elwood E. Bernstein

.Los Angeles

Senior Vice President

Los Angeles

Richard C. Dunn

Vice President

James M. Davis

Asst. Vice Pres.


John R. Cola

~ s st.

Vice Pres.
Robert H. Colfelt

Admin. Services
Jon G. Chasse




Vice President
Angelo S. Carella

Asst. Vice Pres.
Admin. Services
Maynard C. Petersen

Asst. Vice Pres.

Richard L. Rasmussen

Cash Officer
Brent M. Duxbury

Salt Lake City
Assl. Vice Pres.
H. William Pennington

Fiscal Officer
Patsy L. Haynes

Employee Relations

Raymond E. Kriese . Jr.

Vice President
Salt Lake City
A. Grant Holman

Asst. Vice Pres.
Don W. Sheets
Analysis and
Control Officer
Douglas O. Knudsen

M. Timothy Carr


Admin. Services
.J. W. Williams ..Jr .

Supervision activities
The number of ba nk hold ing compan ­
ies supervised by t he San Fra ncisco
Res erve Bank increased slightly , fro m
71 to 74, over the course of t he year.
The Ba n k's staff analyzed 160 applica ­
tions to ini tia te or expa nd hold ing­
company activit ies-up fro m 107 the
previous year . The Federal Reserve
continue d its policy of perm itting
orderly growth of holding compan ies
by approving applications whic h will
permit sou nd ly fina nce d expans ion of
financia l serv ices , whi le improving
compet it ion and meeting the needs of
t he public. To stre ngthe n its supe rvi­
sion of ba nk holding com panies an d
t he ir subsidiaries, the Rese rve Ba nk
began conduct ing an nual inspecti ons
of all suc h companies registered in t he
District , and provided holding
company managements wit h forma l
reports of t he cond it ions foun d in
these examinations. T he Board of
Governors subseq uently has extended
t he esse ntial fea t ur es of this app roac h
to hold ing company supe rvis ion na ­
t ionwide for larger bank ho lding com ­
panies an d/ or their cred it-gra nt ing
su bsidiaries.
T he Reserve Ba nk discharged its in ­
ternational responsi biliti es by super­
vising both the intern at ional d ivisions
of state -cha rtered member ba nk s and
th e 23 Edge Act Corpora ti ons loca te d
in t he District. (An Edge corporation
is a ba nk hold ing-com pany subs idiary
which is authorized to engage in
fore ign-ban king activities from an of ­
fice loca ted outside the state in which
its pa rent is loca ted. ) T he Bank's staff
analyzed and processed 45 applica ­
t ions involving new or expanded
overseas operations by entit ies un der
its supe rvision. Ba nk exa mi ne rs con ­
du cted exami nations in Europe of one
branch office and severa l subs id iaries
of mem ber banks and Edg e Act
corporations. Staff membe rs also par ­
t icipated in a pilot progra m, under th e
Sys te m Com mittee on Fore ign Le nd ­
ing, des igned to test a pr oposed new
a p proach for eva luating foreign

Management Committee
John J. Ba lles, President, (seated , left )

John B. Williams, First Vice President (seated , right)

Ke nt O. S ims, Senior Vice Pres ide nt (stand ing, left )

John J . Carson, Sen ior Vice Pres ident (standing , right)


T he Bank's Financial Analysis Un it
continued to monitor current bank
and hold ing -company developments
between on -site examinations, as a
means of detecting dete riorating
t rends a nd prob lems at an early stage.
To facilita te this activity, the Bank
implemented a comp ute r-based su r­
veilla nce sys te m during t he first q uar ­
ter of 1977. Th is sys te m was designed
to ut ilize current data reports which
t he Reserve Ban k collects for a var iet y
of other purposes, and it pro ved capa ­
ble of rapidly screening these data for
evidence of problem situations. The
early identification of the need for a
complete yet flexible system of this
type pe rmitted this Reserve Bank to
respond immediately when the Board
of Governors mandated the de velop ­
ment and implementation of a
System -wide "min imal surveillance


Consumer protection
The Bank's Consumer Affairs Unit
dramatica lly increased its scope of
operations d uring 1977, largely in
response to a new program instituted
by t he Boa rd of Governors to achieve
broad -based com pliance with consum ­
er-pro tec t ion statu tes a nd regula t ions
t hrougho ut t he banking ind ust ry.
Conseq uen tly, th e Un it added a team
of spe cially t rain ed exam iners to con­
d uct consumer-complia nce examina ­
t ions of all state member banks, and in
add it ion, it offered an educational and
advisory service to all member banks
in th e District. The advisory ser vice,
provided on site and tailored to each
individ ua l ba nk 's needs, ranges from a
brief meeting with commercial -bank
personnel to a complete review of a
bank's form s, policies, instruction
manuals and other materials affect ed
by consumer -banking laws and
regulations .





Branch Mana g ers
Wesl ey G. DeV ries, Se nior Vice Presiden t, Sa n Francisco
Richard C. Du nn, Sen ior Vice P reside nt, Los Angeles
Gerald R. Kelly, Se nior Vice P resident , Seattle
Ange lo S. Ca rella, Vice Preside nt, P ort land
A. Grant Holm an , Vice P res ident, Sal t La ke City

Foll owing a revision of Regulation B
(Equal Credit Opportunity) and an
amendment to Regulation Z imple­
menting the Consumer Leasing Act,
the Consumer Affairs Uni t conducted
seminars on the new regulations in all
major Western cit ies. The Unit ha n­
dled nearly 500 consumer complaints
against commercial banks, and also
responded to over 1,500 inquiries
concerning vari ous facets of the con ­
sumer-credit laws and regu lations .



S Trillions

19 76

standardizing cur rent branch comput­
er programs until they are replaced
with the centralized systems now be­
ing developed. The cornerstone of the
long-range automation plan is the cen­
tralization of majo r systems at th e San
Francisco Data Center, wit h serv ice to
the branches via teleprocessi ng facili­
ties . Although only in t he second year
of t he plan , all efforts to date have
been very succe ssful and implemented
in a timely manner.

Internal improvements
In its internal operat ions, the Bank
implemented a Planning and Control
System (PACS) at the beginning of
1977 to prov ide an improved approach
to budgeting and expense reporting.
This accounting system, which was
introduced concurrently throughout
the entire Federal Reserve System,
established a service st ruct ur e for clas ­
sification of budgeted and actual ex­
penses. It also introduced the concept
of full-costing as well as improved
measures of bank performance. At the
sam e time, the Bank installed a
revised resp onsibility accounting and
budgeting system, designed to
improve accountability for results and
reduce the clerical effort below what
was required under the former
accounting system.

Payments activities
In chec k-processing activities , Bank
staff handled over 1.3 billion paper
checks during the year. This repre ­
sented a sharp increase of 11 percent
in commercial-check deposits. The
increase was much higher than exper­
ienced elsewhere in the country, and
resulted mainly from improvements in
transportation arrangements an d a
shift in the use of correspondent­
banking channels. Almost all of the
checks Rowed through the Bank's net­
work of check-processing centers,
which mak e possible one-day check
clearing as well as lower check ­
handling costs for commercial banks.
Check performance benefitted cons id ­
erably from the Bank's installation of
the most advanced computer-software
systems and "reader/sorter" mac h ines ,
which are comp uter-driven docu me nt
processors for handling checks . The
Bank also made plans to reduce costs
by "truncating" Treasury checks; that
is, by sh ipping magnetic tapes and
microfilm copies of checks, instead of
the original paper checks in bulk, to
the Treasury computer operations

The Computer Services Group , in ac ­
cordance with its long -range (1977-81 )
automation plan, adopted the previous
year , reorganized the delivery of auto­
mation ser vices within the entire San
Francisco District. All computers
throughout the District were st an ­
dardized to sta bilize hardware costs
and to pr ovide commonality between
branch offices, which will allow for

District member banks send $6.3 trillion
through Fed's wire-transfer system


In electronic payments activities, Dis­
trict member banks settled $6.3 tril ­
lion through the Federal Reserve wire­
tr ansfer system- a 16-percent
increase over 1976. The Bank institut­
ed a new computer-interface facili ty
which enables member banks to con ­
nect their computers directly to this
nationwide Fed Wire network. By pr o­
vid ing this direct link, the Federal
Reserve made it possible for banks to
conduct increasingly sophisticated
cas h-ma nagement systems for them ­
selves and their customers. In auto ­
mated clearing house (ACH ) activities ,
District banks cleared 2.2 mill ion com­
mercial items and 15.2 million govern ­
ment items during the year. The
number of government items almost
quadrupled , reflecting t he expansion
of the direct deposit of checks (such as
social -security checks) under var ious
Federal recurring-payment programs.

The Bank's four offices outside San
Fra ncisco made not able progress in
1977 in a nu mber of different areas.
For exa mp le, Los Angeles, P ortland
and Seattle installed new check sys ­
tems dur ing th e year, an d Seattle an d
Salt Lake City brought new automat­
ed clearinghouse operations on stream.
This District has tak en a pos ition of
leadersh ip in interconn ecting regional
ACH centers. T he San Francisco
Bran ch has coordi nated the Interre­
gional P ilot Program which switches
ACH items between terri tories. Salt
Lake Cit y was especially su ccessful in
bringing new memb er banks into t he
System, wit h 4 ban ks from that area
ad opting mem bershi p. And the Port­
land office achieved nati on wide pub­
licity with its success in p ersuading
large retail chai ns an d supermarkets
to increase util izati on of the two-dollar
bill in making cha nge.

Despite the increase in th e use of
checks and electronic transfers, the
Bank continued to handle ma ssive
am ounts of coin and currency, receiv­
ing and counting 1.8 billion coins and
1.1 billion piece s of cur rency during
the year .

As for the bottom line, t he San Fran ­
cisco Reserve Bank cont inued among
th e leaders in t he Federal Reserve
System in output per hour in both
check an d currency services-two
a reas which accou nt for more than 40
per cent of bra nch -operating expenses.
Where man agem ent unco vered oper­
at ing proble ms, it moved quickly to
reme dy th em, espec ially through a
new Qua lity Assurance P rogram. This
program was des igned to identi fy and
ana lyze t he causes of any cur ren t
problems, to deve lop means for
permanently correcting identified
defici encies, and to dev elop a syste m
for spo tting pote nt ial pro blems and
moni tor ing ongoing performance. •

Greater efficiencies
In its role as fiscal agent for the U.S.
government, the Res erve Bank contin ­
ued to handle substantial am ounts of
paper-in the form of savings bonds,
marketable Treasury securities, and
food stamps-while achieving new ef­
ficiencies through computer handling
of securities. The Federal Reserv e and
the Treasury Department colla borated
during t he year to introduce a "boo k
entry" system for Treasury bills. Un ­
der this system, T rea sur y secur it ies
are recorded in the accounts of banks
or other financial institutions acting as
custodians for investors. Instead of a n
engraved certificate, the purcha ser
receives a receipt as evidence of

Millio ns

- 2,000

- 1,500

- 1,000

- 700

-- 0
19 77

19 76



Fed handles 1.3 billion checks plus
massive amounts of currency


Summary of Operations
Value (m illions)

Number (thousands)

Currency and Coin

$ 9,976


1,888,624 **














695 ,461






354,26 9







5.440 ,009




Curre ncy received and counted
Coin received and counted

Check Collections
Commercial checks
Government checks "?"
Re t urn it ems
Noncash Collections

Discounts and Advances
T otal d iscounts and advances
Number banks accommodated

Fisca l Agency
Savings Bonds & Savings Notes
Other Treasury Issues
Other Fiscal

Curre ncy ver ified and destroyed
Food sta mps received and

E lectr onic Funds Transfer
Wire t ra nsfers
Automated clearinghouse
Government deposits

* Include s 416,186 notes verified by weighing without counting, therefore not comparable wit h chart dat a

** Doe s not include weighed coin, so 1977 figure is not comparable

*** In cludi ng postal money orders


Twelfth Federal Reserve District



Salt Lake CIty




The Federal Reserve carries out its
central-banking functions through a
nationwide network of 12 Federal Re ­
serve Banks and their 25 branches,
under the policy guidance, coordina­
tion and gene ral supervision of the
Board of Governors in Wash ington,
D.C. The Head Office of t he Federal
Reserve Ban k of Sa n F rancisco has a
nine-me mber Boa rd of Directors. Each
of the Bank's ot her offices at Los
Angeles, Portland, Salt Lake City and
Seattle has a seven -member Boa rd,
following a recent (January 1978)
change which brought all Branch
boards up to the size of the Los Ange­
les Board.
Federal Reserve directors br ing man ­
agement expertise to the task of over ­
seeing Reserve Bank operations. They
also provide first -hand information on
key economic deve lopments in various
areas of the District, complementing
the Ban k's internal research efforts. In
addition, Board members give advice
on the general direction of monetary
policy, especially with regard to the
Bank's disco unt rate. T he Head Office
Board has specific responsibility for
initiating changes in the d iscou nt rate,
subject to review and approval by the
Boa rd of Governors.

San Francis co
Chairman of the Board and
Federal Res erve Agent
Joseph F. Alibrandi
President and Chief Executive Officer
Whittaker Corporation
Los Angeles, California
Cornell C. Maier, De p uty Chairman
President an d Ch ief Exec utive Officer
Ka iser Alum inum and Chemical Corp .
Oakland, California
Ronald S. Ha nson
President and Chief Executive Officer
First National Bank of Logan
Logan, Utah
Frederick G. Larkin , J r.
Chairma n of the Boa rd and Chief
Executive Officer
Security Pac ific National Bank
Los Angeles , California
Ole R. Mettler
President and Chai rman of the Boa rd
Farmers & Merchants Bank of Central
Californ ia
Lodi, California
Dorothy Wrig ht Nelson
Dean and Professor of Law
University of Sout hern California Law
Los Angeles, Califo rn ia
Clair L. Peck
Chairman of the Board
C. L. Peck Contractor
Los Angeles, California
Malcolm T. Stamper, President
The Boeing Company
Seattle, Washington
J . R. Vaughan
Chairman, President and Chief
Executive Officer
Knudsen Corporation
Los Angeles, Cal ifornia
Federal Advisory Council
Gilbert F. Bradley
Cha irman of t he Boa rd and Ch ief
Executive Officer
Valley National Ban k of Arizona
Phoenix, Arizona












Federal Advisory Council

Los Angeles
Chairman of the Board
Caroline Leonetti Ahmanson
Chairman of the Board
Caroline Leonetti Ltd.
Hollywood , California
W. Gordon Ferguson, President
National Bank of Whittier
Wh ittier, California

Fern Jellison , General Manager
Social Services Department
City of Los Angeles
Los Angeles , California
James D. McMahon, President
Santa Clarita National Bank
Newhall, California
Joseph J. Pinola
Chairman and Chief Executive Officer
Western Bancorporation
Los Angeles , California



Harvey A. Proctor
Chairman of the Board
Southern California Gas Company
Los Angeles , California
Armando M. Rodriguez, President
East Los Angeles College
Monterey Park, California






Chairman of the Bo a rd
Loran L. Stewart, Dire ctor
Bohemia, Inc.
Eugene, Oregon
Merle G. Bryan, P resident
Fores t Grove National Bank
Forest Grove, Oregon
Jean Mater
Partner and General Manager
Mater Engineering
Corvallis, Oregon

Ste wart

Phillip W. Sch neider
Northwest Regional Executive
National Wildlife Federation
Portland , Oregon
Kenneth Smith, General Manager
The Confederated T ribes of Warm
Warm Springs, Oregon
Robert F. Wallace
Chairman of t he Board
First Nationa l Ba nk of Orego n
Portland, Oregon


Robert A. Young, P resident
Northwest National Bank
Vancouver , Washington



Wall ace



Salt Lake City
Chairman of the Board
Sam H. Bennion
President and Chief Executive Office
V-I Oil Company, Inc.
Idaho Falls, Idaho

'j .

Robert E. Bryans
Chairman of the Boar d and
Chief Executive Officer
Walker Bank & Trust Company
Salt Lake City, Utah


. ~

Robert A. Erkins
Geothermal Agri/Aquaculturist
White Arrow Ranch
Bliss, Idaho
David P. Gardner, President
University of Utah
Salt Lake Cit y, Utah

Bry a ns


Mar y S. Jensen, Chairman
of the Board
Idaho State Bank
Glenns Ferry, Idaho
Fred H. Stringham, President
Valley Bank and Trust Company
South Salt Lake , Utah
Joseph L. Te rte ling
Chief Executive Officer
J.A. Terteling & Sons , In c.
Boise, Idaho

Ga r d ner





Chairman of the Board
Lloyd E. Cooney
President and General Manager
KIRO - Rad io & Te levision
Seattle, Wash ington
Merle Adlum, President
Inlandboatmen 's Union of the Pacific
Seattle, Washington
Coon ey

Douglas S. Gamble
President and Chief Executive Officer
Pacific Gamble Robinson Company
Seattle, Washington
Harry S. Goodfellow
Chairman of the Board and Ch ief
Executive Officer
Old National Bank of Washington
Spokane, Washington
Donald L. Mellish
Chairman of the Board
National Bank of Alaska
Anchorage, Alaska


Virgin ia L. Parks
Vice Preside nt for Fi nance and
Bus iness
Sea ttle University
Seattle, Washington
Rufus C. Smith
Chairman of the Board
The First National Bank of Enumclaw
Enumclaw, Washington

.....,.- ­






Comparative Statement Of Condition
(thousands of dollars)
December 31 ,


Gold certificate account
Special Dr awing Rights certificate account
Federal Reserve notes of other Federal Reserve banks
Other cash


$ 1,298,964

Loans to Member Banks:

Secured by Un ited State s Govern ment and Agency obligations
Other eligible paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other paper



Federal Agency obl igations




United States Govern ment securities:



6,522 ,586





. Total United S tates Go v e r n m e nt secur ities
Total lo a n s and securities


$ 1,325,273







Cash items in process of collection
Bank prem ises
Operating equipment



8,8 11

Other assets:
Denominated in foreign currencies
All other


$ 1,515,692

$ 2,378,325





6,050 ,317

6,121,5 19

$ 6,901,496

S 7,904,826


670, 242




1; 5,364



Total assets

Federal Reserve notes
Member bank-reserve accou nts
United States Treasurer-general account
Other deposits



Total deposits
Deferred availability cash item s
Other liab ilities


Total liabilities

Capital accounts
Capital paid in


Total liabilities and cap ital acco unts
Contingent liability on accep tances purchased for fore ign corr espondents




Earnings and Expenses
(th ousands of dollars)
December 31,


Cu rren t earnings
Discounts and advances
United States Government securities
Foreign currencies
All other


$ 2,091




$ 61,863


$ 56,568










$ 20,201


$ 27,001


Total current earnings

Current expenses
Total cur rent expenses
Less reim bursement for certain fiscal agency and ot her expenses

Net expenses





Profit and loss
Current net earnings
Additions to current net earnings:
Profit on sales of Un ited States Government securities (net)
Profits on foreig n exchange transactions
All other

Total additions


Deductions from current net earnings:
Loss on foreign exchange transactions (net)
Loss on sales of United States Government securities (net)
All other



Total deductions


Ne t addit ions (+ ) deductions (- )
Assessments for expe nditures of Boa rd of Governors
Ne t earnings before payments to United States Treasury
Dividends paid
Payments to United States Treasury (interest on Federal Reserve notes)


- 24,565
- 6,575


Transferred to surplus
Surplus January 1
Surplus December 31


$ 9,234




San Francisco Branch
P . O. Box 7702, Sa n Francisco, California 94120
Los Angeles Branch
P . O. Box 2077, Terminal Annex, Los Angeles, California 90051
Portland Branch
P . O. Box 3436, Portland, Orego n 97208
Salt Lake City Branch
P . O. Box 780, Sa lt Lake City, Utah 84110
Seattle Branch
P . O. Box 3567, T ermina l Annex , Seattle, Washington 98124
Prod uced by William Burke and Karen Rusk
G raph ics designed by William Rosenthal