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Operations of the Federal Reserve Bank
of St. Louis—1968
HE FEDERAL RESERVE BANK UF ST. LOUIS
is part of the Federal Reserve System, which includes the Board of Governors in Washington, D.C.,
the 12 Federal Reserve Banks, and their 24 branches.
The Eighth Federal Reserve District includes all of
Arkansas and portions of Illinois, Indiana, Kentucky,
Mississippi, Missouri, and Tennessee. In addition to
the head office, branch offices are located in Little
Rock, Louisville, and Memphis.
The operations of the Federal Reserve Bank of St.
Louis and its branches fall principally within three
functional areas: participation in the formulation and
administration of monetary policy; supervision of certain commercial banks; and provision of a variety of
services for the public, the United States Government,
and commercial banks. These areas are closely interrelated, and specific activities of the Bank may serve
more than one function. For example, member bank
borrowing from the Federal Reserve is one of the
privileges of membership, and extension of such
credit involves some aspects of supervision, while establishment of the discount rate is a part of monetary
policy formulation.
Reserve Banks through advances and discounts. Advances are the usual form of credit to member banks,
and the only form of credit to others. Nevertheless, a
custom has developed of referring to Reserve Bank
lending as discounting, and the interest charge applicable to such lending as the discount rate. The
discount rate is established by directors of each of
the twelve Reserve Banks, subject to review and
determination by the Board of Governors. The rate
was adjusted four times during 1968. It was increased
from 4½to 5 per cent in March and to 5½per cent
in April. The discount rate was then reduced to 5¼
per cent in August, but restored to 5½per cent in
December
Loan, to Memher Bonks
Of
Milton e3Dol~
4~
M
._._
ons of Deft,, s
.—
40
43
35
35
Lending and the Discount Rate
Member banks and, under certain circumstances,
others may receive credit assistance from Federal
~
1956
1953
19 0
1962
1964
1966
Borrowing by member banks from the Federal Reserve Bank of St. Louis during 1968 rose sharply from
1967 levels but remained substantially below the level
of 1966. Average credit outstanding to Eighth District member banks was $17 million, compared with
$6 million in 1967 and $32 million in 1966.
A Federal Reserve System Committee has made
a number of proposals for the redesign of the discount
1
Under present law, when a member bank borrows from its
Reserve Bank on collateral other than U.S. Government
obligations or limited types of paper that meet certain “eligibility” requirements, it must pay interest at a rate one-half
of 1 per cent higher than the Reserve Bank’s normal discount rate. The Board of Governors has recommended legislation that would pemmit a member hank, in appropriate
circumstances, to borrow on any collateral saflsfactory to its
Reserve Bank without the necessity of paying a “penalty”
rate of one-half of 1 per cent.
Page
7
FEDERAL RESERVE BANK OF ST. LOUIS
mechanism.2 The chief objective of the proposals is
to stimulate nse of the discount windosv for the purpose of facilitating short-term adjnstments in hank
reserve positions. According to the Committee report,
a more liberal and convenient mechanism should
enable individual member banks to adjust to changes
in fund availability in a more orderly fashion and, in
so doing. lessen some of the causes of instability in
financial markets without hampering overall monetary management.
Two major and interrelated changes included are:
(1) more objective definitions of terms and conditions
for discounting; and (2) inclusion of several complemnentary arrangements for borrowing, each designed to provide credit for a specific need. As a
result of these changes the Federal Reserve System
anticipates a generally higher level of borrowing by
member banks. however, a higher level of borrowing does not necessarily imply a corresponding
increase in total reserves, since increased borrowing
can be offset by smaller System holdings of securities.
The first of these changes would he accomplished
by introducing specific quantity and frequency limitations on certain types of borrosving by member
hanks, and by increasing reliance on the discount
window through consistently maintaining the discount
rate at levels reasonably close to rates on alternative
instruments of reserve adjustment. These proposals
are designed to permit a clearer amid more unequivocal communication of discounting standards and
limitations to member banks, and to help insure
uniformity of window operation among clistrictsancl
among banks.
The proposed redesign contains varied arrangements by which the Federal Reserve \vouid provide
short-term adjustment credit, seasonal credit, and
emergency credit. Short-term adjustment credit is
further divided into a “basic borrowing privilege
amid other adjustment credit. The former provides
credit on an automatic basis within specified limits
on amount amid duration to all member banks meeting specified conditions; the latter is available, under
administrative control, to meet needs larger in amount
or longer in duration than can be accommodated
under the basic borrowing privilege. Seasonal credit
would lie provided to accommodate recurring demnands as deterniined by observed seasonal patterns,
for such amounts and duration as the applying member hank demonstrates a need. Credit would continue
2
See “Report of a System Committee,” Reappraisal of the Federal Reserve Discount Mechanism, Board of Governors of the
Federal Reserve System, July 1968.
Page 8
FEBRUARY.
1969
to he provided to member banks in general or isolated
emergency situations and in its role as lender of last
resort to other sectors of the economy tile Federal
—
—
Reserve would stand ready, under extreme conditions,
to provide credit assistance to financial institutions
other than mnemher banks.
Research
Research activities at the Federal Reserve Bank of
St. Louis’ are directed toward national and regional
business and financial problems. Analyses are conducted of both current and longer run basic stabilization issues. Also, economic developments in the
Eighth Federal Reserve District are measured and
interpreted. Such analyses are used to assist the
President of tile Bank in discharging his responsibilities as a participant in the deliberations of the
Federal Open Market Committee, and in formulating
his recommendations to the Bank’s Board of Directors. In addition. the research staff engages in activities to provide economic information to the public.
This is accomplished through publication of this
Review and other recurring releases which are available to the public without charge.
Supervision and Examination
The Federal Reserve System is one of tile agencies
responsible for supervising commercial banks, with
the objective of fostering and maintaining a sound
banking system.
A major supervisory responsibility is evaluation of
the assets, operations, policies and effectiveness of
mnanagement of the banks subject to review. Examinations provide the basic information which enables each supervisory authority to help prevent or
correct situations that might adversely affect the
economy or the general pmmblic interest. Supervision
by the Federal Reserve Bank of St. Louis is exercised
principally through examination of state member
banks. All state member banks in the district were
exammecl imi 1968,
Other supervisory functions of the Federal Reserve
System include admission of state banks to membership in the. .S)’stem, approval of the establishment of
branches, approval for merger or absorption of other
banks 1w state mnemher banks, and granting permission to establish registered bank holding companies
and for such companies to acquire stock in banks.
Much of the investigation involved in these supervisory functions is conducted at the Reserve Banks,
In addition, authority to approve domestic branches of
state member banks and certain other supervisory
fmuictions is delegated to Reserve Banks.
FEDERAL RESERVE BANK OF ST. LOUIS
FEBRUARY,
Service Operations
Tab
VOLUME OF OPERATIONS1
Doiks, Amount
fM Ilsons)
1968
1357379
5 62
he ks coDe ted~
CRC
ci
I
hcole ton it me
counted
ncy counted
net
at funds
a srsgs Sods handted
OS er Go ernment ecurities benched
U
Gov rnmen coupon paid
r
T
I o
St
d
Go n
I and
chn d
our of,
andtm,
chits
ndmo
mmcd ni
~tI
a
1967
120 8600
6,1
21,3
1 5775
1691731
6002
20,2503
1572
1,5147
147,0 75
668
162 28
1669
1
150
42
247
58
Numbs
1968
3 1416
882
539, 62
219,297
268
0608
690
724
fThou ends)
1967
286069
868
44 ,3 9
217,358
247
98 4
603
759
Rock,
~l
and
‘~______
.
Milan
‘~80
240
hmbe of Ch cks
240
00
-- --~
200
160
-
- ::
F
6
Is
\Q58
a
‘as,
95Ø\
tI,
962
a
1964
166
98
Per Cent
Change
196768
89
1 6
21 1
09
85
75
144
46
Among its service operations.
the four offices of this hank maintain facilities for the collection
and clearing of checks and other
items, furnish currency for circulation, handle tile legal reserve
accounts of member banks, and
act as a fiscal agent for the Coyernmemit. Most of these service
operations at the bank’s offices
increased in 1968, reflecting the
growth in economic activity in
time Central Mississippi Valley.3
Collection Items
Federal Reserve Banks participate in collecting checks and
provide a mechanism thmrough
which commercial banks settle for
Mmphis branch
the checks collected. These activities facilitate the use of demnand deposits by individuals, businesses, and governments in mnaking payments. The four offices of
this bank receive checks from district member banks,
otbmer Federal Reserve offices, and Government
agencies for collection. In order to increase the speed
of collections, the Reserve Bank in some cases receives
checks directly from mnemher banks of other Federal
Reserve Districts. Checks received are eitlmer drawn
on banks in the Eighth District that remit at par,’ parremitting banks in other districts, or the United States
Treasury.
10
I
I
I
196768
123
524.1
480
Ch cks Coflected4
8 1 one
Per Cent
Change
582
toted d’
o s
a tett’on sterns
oin counted
Cr n
ounted
to
let
of
ends
U S Saving Bond handi d
3
O her Go ernment ec nties handled
U
Gevernment coupon paid
1
1969
The number of cheeks collected through the four
offices of the hank rose fromn 286 million in 1967 to
311 million in 1968, an increase of 8.9 per cent. Reflecting both the greater number of checks and their
larger average size, dollar volume rose to $136 billion,
12 per cent above a year earlier.
In addition to maintaining facilities for check collection, Federal Reserve Banks handle numerous
:mFor an analysis of economic trends in the region, see the
January 1969 issue of this Review.
‘All checks collected and cleared through the Federal Reserve Banks must be paid in full by the banks on which
they are drawn, without deduction of a fee or charge, that
is, they must be payable at par. National banks and state
member banks must remit at par as a condition of membership. In addition, most state non-member banks agree to
remit at par.
Page
9
FEDERAL RESERVE BANK OF ST LOUIS
other, noneash items for collection, such as drafts,
promissory notes, bonds and bond coupons. The number of noncash collection items rose 1.6 per cent from
1967 to 1968 while their dollar value rose 6,1 per cent.
Money Operations
Just as individuals and businesses obtain coin and
currency from commercial banks by withdrawing deposits, member banks obtain coin and currency by
withdrawals from their accounts at the Reserve Banks.
Nonmember banks may obtain coin and currency
from memnber banks or directly from Reserve Banks,
with charges made to a designated member bank’s
reserve account. When commercial banks receive
an excess of coin and currency from their customers,
it may be deposited in the Federal Reserve Bank,
where it is counted and sorted and the usable money
is redistributed.
Coin handling rose sharply in 1968, continuing the
rapid increases of the previous three years. The
number of pieces counted totaled 539 million, up
from 445 million in 1967 and 227 million in 1964 (a
year of severe coin shortage). The dollar value of
coins handled also has risen sharply, totaling $58 milPage 10
FEBRUARY, 1969
FEDERAL RESERVE SANK OF ST. LOUIS
FEBRUARY. 1969
U.S. Savings Bonds
Issued, Exchanged, and Redeemed
Million
Milkan,
850
850
800
800
DoIlor Volume
700
~k
550
7-—~
600
—
550
700
.6’
650
~—,
---
600
50
--—-—
-
--
- -
—-
F
ni__
Milk, ,ns
_____________
____________
10
Mt ken
_________________________________________
10.5
105
II 10.0
300
95
95
on
d5
_____
1
Number oI Notes
8.
8.0
/-----
6C
7’
7.~--
~7.O
-
10
1956
2
1964
1966
1968
19 8
1960
Wire transfers of funds are largely movements of
member bank balances bet~veen Federal Reserve
Banks. Such transfers result primarily from transactions in the Federal funds market, check collection
settlements, and transfers in connection with U.S.
Treasury obligations. The number and dollar value
of such transfers have risen sharply in recent years.
This bank participated in 268 thousand transfers in
1968, 8.5 per cent above the previous year. Dollar
value, totaling $169 billion in 1968, was up 15 per cent.
Fiscal Agency Operations
Each Federal Reserve Bank acts as depository and
fiscal agent of the United States Government. In, this
capacity the Reserve Banks carry the principal check-
1966
1968
and Retired
22 5
_____
Billion,
225
-
20.0
200
j
m7:
150
——
-
~.-
32 5
175
55.0
12.5
-~-
—
—
10 0
300
‘F
yr
75
r
-
1k:.
750
700
SC
SOC
—
Dollar Vol .mo/
—
--
Transfers of Funds
1964
Other Government Securifies Issued, Serviced,
Billions
lion in 1968, compared with $48 million in 1967 and
$25 million in 1964.
A total of 219 million pieces of currency were handled in 1968, 1 per cent above the previous year.
The dollar value of currency handled totaled approximately $1.6 billion, an increase of 4.1 per cent
from a year earlier.
1962
ood,
_________
Thou, and
______
—
—
-~—~
-
5cr’
450
-
-~
350
—
300- I 250 ,1
200
-I1956
—J
450
400
—
—-~-
1960
•~5i~
962
350
300
250
—200
—-
-—
1964
600
.,00
Sr
I
1958
I NY
———
Number ol Pieres
--——
~—
40C-
~‘~—
750
700
—2550
1966
1968
Page 11
FEDERAL RESERVE BANK OF ST. LOUIS
FEBRUARY. 1969
agent. Although the securities remain at the Neu York
bank each Reserve Bank participates in the holdings
and earnings of the System &eeount.
Net earnings hefor paymnents to the United States
Freasury increased to $84 million in 1968 up 31 per
cent from a year earlier. ‘I his sharp rise in Ci rnings
was due to larger holdings of loan and s curities
as well as much higher interest rates on these assets
whil’ expenses increased only moderately. After
dividends to member banks and increase in surplus
to equal paid-in
capital
net earnings
are set aside
for the U S. Freasury as interest on Fede al Reserve
notes. Such pa~ments totaled $81 million in 1968, up
30 per cent from a year earlier,
Table II
COMPARATIVE STATEMENT OF CONDITION
(Thousands of Dollars)
December
December
31, 1968
352 955
31, 1967
437 041
Federal Reserve notes of other banks
33,010
Other cash
,
24,589
Discounts and advances .
.
.
770
U S Government Se ritie .
1,868,829
34,379
ASSETS
Gold certificate reserv s
Uncollected item
Other asset
198
ing accounts of th
ernment seeuritic ,
loan accounts of
other Government
60
192
Total A sets.
196
Ti asusy, issue and redeem Gova ninster the Treasury tax and
commercial hanks, and perform
financial duties,
The four offices of this bank issued, exchanged or
redeemed
10.6 million United States Savings Bonds
valued at $600 million in 1968. The number of savings bonds handled rose 7.5 per cent from 1967 to
1968, although the dollar value fell 4.2 per cent. Other
Government
securities
issued,
serviced,
.
.
.
,
.
.
.
.
573,768
95,438
2,949 359
3 ,588
1,100
1,768 480
500,594
76 250
2851,432
LIASILIT1ES AND CAPITAL ACCOUNTS
Federal Re erve notes (net)
.
1 676,649
1,569,186
783,570
726,684
599
16,086
70,721
39312
Deposits
Member banks — reserve occounts
o & Trea urer — general account
Other
.
Deterred availability cash item
414,762
Other liabilities and accrued dividends 13,693
Total capital account
.
.
44,000
394,394
10,435
40,700
Total Liabilities and
Cap tat Accounts
2,949 359
.
2 851,432
Table Ill
COMPARATIVE PROFIT AND LOSS STATEMENT
(Thousands of Dollars)
$20 billion.
Statements
Total assets of the Federal Reserve Bank of St.
Louis were $2.9 billion on December 31, 1968, an
increase of 3.4 per cent from a year earlier. Most of
the rise in assets was clue to increased holdings of
U.S. Government securities, which resulted from the
operations of the System Open Market Account. These
open market operations, which are the major instrument of monetary policy, are authorized by the Federal
Open Market Committee and are undertaken at the
Federal Reserve Bank of New York by the Committee’s
.
,
or retired
totaled 690 thousand, which was 14 per cent above a
year earlier, while dollar value rose 25 per cent to
Page 14
.
Total earnings
Net expenses
.
.
.
.
Current net earnings
Net addition (+) or deductions {
Net earnings before payments
to U S Treasury
Distribution of Net Earnings’
Dividends
.
Interest on Federal Reserve note
Trans erred to surplus . . .
Total
.
.
,
-
.
.
.
1968
1967
97,649
13,962
77,024
12,868
83687
+291
64,156
+56
83,978
64,212
1,273
81,055
1,650
83.978
1,208
62,402
602
64,212
@FedFRASER