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Operations of the Federal Reserve Bank of St. Louis—1969 HE FEDERAL RESERVE BANK OF ST. LOUIS is one of twelve banks which, along with the Board of Governors in Washington, D. C., make up the Federal Reserve System. The St. Louis Bank’s geographic responsibility, the Eighth Federal Reserve District, includes Arkansas and portions of Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee. Branches in Little Rock, Louisville, and Memphis aid the St. Louis bank in its operations. The operations of each Federal Reserve Bank can be divided into three major classes. First, it provides a variety of services for commercial banks (mainly member banks), the Federal Government, and the public. Second, it supervises certain banks in the Eighth District. Third, it aids in the formulation of national monetary policy. This report of the past year’s operations discusses these three areas and related functions. Service Operations Each Federal Reserve Bank provides five major service operations: lending money to member banks; furnishing currency and coin for circulation; maintaining facilities for the collection and clearing of checks; maintaining the legal reserve accounts of member banks; and acting as a fiscal agent of the U. S. Treasury. The volume of most service operations at this bank’s four offices increased in 1969. reflecting growth in economic activity in the Central Mississippi Valley. The increased volume of operations is reflected by an increase in employment in this bank’s four offices from 1,193 on January 1, 1969 to 1,289 on January 1, 1970, an increase of 8 per cent, Lending Federal Reserve Banks are “bankers’ banks.” For example, under certain circumstances, commercial banks borrow from the Reserve Banks in much the same way that individuals and corporations borrow from theft banks, This is done through advances and discounting. Although advances are the usual means by which credit is extended, a custom has developed of calling these loans discounts and the interest charged the discount rate. Lending through this mechanism is initiated by the borrowing bank, but the frequency and amount of borrowing by any one member bank is limited by the Federal Reserve Banks. Daily borrowing from the St. Louis Federal Reserve Bank averaged $42 million in 1969, compared with $17 million in 1968, $6 million in 1967, and $32 million in 1966. In 1969, 22 per cent of the member //~+\~~r2~ :~ ~ > :~j~ ~9 r’~”i-’,n-,irr’----’,-,,,,,r-,---— 4\\/ Page 8 ~ / / FEDERAL RESERVE BANK OF ST. LOUIS FEBRUARY, 1970 In 1969, coin handling continued the sharp rise of the past VOLUME OF OPERATIONS’ Do’Iur AmounI Pa’ Cert several years, demonstrating furtMIIiOns) Lhanae ther recovery from the severe 1969 1968 968 69 coin shortage which occurred in 2 Cl’~ckscoliacted 140,348 6 135,73/ 9 3.4 the inid-1960’s. The demand for Noncosi, collect,o, i~cms 450.7 556 2 19.0 coins nationally has been fed in coin counted 70.5 58.2 21.1 C.rrency courted I .715.9 1,577.5 8.8 part by the inflation of recent T’on,ferc of funds 244,64 8.5 169,1/3.1 44.6 years, and there has probably U. S. Saving, Bondc hondlc& 595.4 600 2 0.8 3 been some positive influence from Orhar Government sect.rities handled 21,639.0 20,250.3 7.8 U. S. Government coupons paid 172.3 1572 9.6 the increasing use of coin-operNumber Ps:r ~ert ated vending machines. The nurnChange (1housands~ ber of pieces counted at the Bank 1968 1968 69 rose from 227 million in 1964 to 2 344.068 311,416 10 5 ~h,.cks collected 636 million in 1969, an average Nor.ca,n collection items 914 882 3.6 Coin counted 636,317 539,’62 18.0 annual increase of 23 per cent. O.rrency counted 236,842 219,297 80 Meanwhile, the dollar value inTrons!ers of funds 300 268 11.9 1 creased from $25 million to $71 U. S. Savings BondC herded’ 11,219 10,608 5.8 Other Government ,ecur,ties hondlcd~ 953 690 38.1 million. U. S. Government coupons paid 736 724 1.7 A total of 237 million pieces of 1’’. J.,,’’. sstiit’~ ar,,E ‘is,’ L:,sh’ Ruc,.. 1..,s.i~Cll si.,l Me:r,j.h’,’ ‘ss,rss’.,he’. currency was handled in 1969, 8 I’, I. ‘,,‘t’.,;s.’,l. st,,,l ,‘r,is.’cn,s’u’. per cent above the previous year. The dollar value of currency hanbanks in the district borrowed from the Federal Redied amounted to $1.7 billion, an increase of 9 per serve, compared with 13 per cent in 1968. While cent from a year earlier. The increase in currency market interest rates rose rapidly in 1969, the disprobably reflects the increase in personal income and count rate was raised only once on April 4, from the related rise in transactions, along with the increase 1 5½to 6 per cent. Incentive to borrow from the Fedin the price level. eral Reserve was increased with the enlarged spread between the market rate and the discount rate. Tr,blc I ‘ — Coin and Currency Operations Just as businesses and individuals obtain coin and currency from commercial banks, commercial banks obtain them at Federal Reserve Banks. Member banks withdraw directly from the Federal Reserve Bank, while nomnember banks withdraw from member banks or with permission from the accounts of member banks at the Federal Reserve Bank. When banks receive an excess of coin and currency from their customers, it is deposited with the Federal Reserve Bank. There it is sorted and counted, the usable money is held for redistribution, and the nonusable money is destroyed. present law, when a member bank borrows from its Reserve Bank on collateral that does not meet certain “eligibility” requirements, it must pay interest at a rate onehalf of 1 per cent higher than the Reserve Bank’s normal discount rate. The Board of Governors has recommended legislation that would permit a member bank, in appropriate circumstances, to borrow on any collateral satisfactory to its Reserve Bank, without the necessity of paying a “penalty” rate of one-half of 1 per cent. Page 9 FEDERAL RESERVE BANK OF ST. LOUIS FEBRUARY, 1970 Check Clearing Federal Reserve Banks participate in collecting checks and provide a mechanism through which commercial banks settle for checks collected. The four ofilces of this bank receive checks from district member banks, other Federal Reserve Banks, and Government agencies for collection. A Federal Reserve Bank also sometimes receives checks directly from member banks in other Districts to increase the speed of collections. Checks received are drawn either on banks in the Eighth District which remit banks in other disu’icts, or the United States Treasury. The dollar volume of checks collected rose from $136 million in 1968 to $140 milat par, par remitting lion in 1969, an increase of 3,4 per cent. The number of checks collected rose from 311 million in 1968 to 344 million in 1969, an increase of 10.5 per cent. The number of checks collected in all of the banks in the Federal Reserve System increased 10 per cent from 1968 to 1969, The fact that the number of checks collected has increased more rapidly than the dollar amount probably indicates that more people are using checks for purchasing. Two possible reasons for the Page 12 FEDERAL RESERVE BANK OF ST. LOUIS FEBRUARY. 1970 increased popularity of paying by check are that many banks have eliminated or lowered service charges on demand deposits. Transfers of Funds \Vire transfers of hInds are largely movements of member hank balances among 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 was party to 300 thousand transfers in 1969, 12 per cent above the 268 thousand transfers in ~968. - Dollar Volume * Dollar value was $245 billion, up 45 per cent over 1968. Fiscal Agency Operations Each Federal Reserve Bank acts as a depository and fiscal agent of the United States Treasury. In this capacity the Federal Reserve Banks carry the principal checking accoun~ of the Treasury, issue and Page 13 FEDERAL RESERVE BANK OF ST. LOUIS FEBRUARY. 1970 redeem Government securities, administer the Treasury tax and loan accounts with commercial banks, and perfonn various other Government financial duties. The four offices of this bank in 1969 issued, exchanged, and redeemed 11 million U. S. Savings Bonds valued at $595 million, The number of bonds handled rose 6 per cent from 1968, while the dollar value declined 1 per cent. Other government securities issued, serviced, and retired totaled 953 thousand, 38 per cent above a year earlier, while dollar value was up 8 per cent to $22 billion. Supervision and Examination The Federal Reserve System, along with state tem, with the objective of fostering and maintaining a sound banking system. Supervision includes annual examinations which provide the information for eva] uation of the assets, operations, policies, and management of the banks subject to review. This enables the supervisory authorities to help prevent or correct situations that might adversely affect the soundness of the banks, and the public interest, All state member banks in the district were examined in 1969.2 - Other supervisory functions of the Federal Reserve System include admission of state banks to membership in the System, approval for the establishment of domestic and foreign branches, approval for merger or absorption of other banks by state member banks, and 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 by the Federal Reserve Banks. Number of Bank by Typt Netlonat State Member State Insured Nann*mber tgt.Ih United Eighth Dj~trtct States Oistrict 12/31 69 12 SI 48 12 31/oS 348 4714 350 I,~03 117 1~257 124 7596 891 7,504 1,019 2 198 16 197 14 Four agencies have the authority to supervise private com~ mercial banks. The Comptroller of the Currency’s major supervisory responsibility is National Banks; the Federal Reserve, for the most part, examines state member banks; the Federal Deposit Insurance Corporation mainly supervises state insured nonmember banks; and the state supervisory authorities examines all state banks (including both insured and noninsured). Page 14 tem; for instance, research into the structure of banking markets aids in determining the advisability of mergers and holding company applications. Statements Total assets of the Federal Reserve Bank of St. Louis were $3.2 billion on December 13, 1969, an increase of 9 per cent from a year earlier. Most of the rise in assets was due 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 instrumerit of monetary policy, are authorized by the Federal Open Market Committee and are undertaken at the Federal Reserve Bank of Ne’~ York by the Tobie III COMPARATIVE STATEMENT OF CONDITION (Thousands of Dollars) December ~ ASSETS Gold certificate reserves 345,289 Federal Reserve notes of other banks. 29,347 . . . ... . . 9,828 15,200 2,105,524 621,658 ~ Other assets Total Assets December 31, 1968 352,955 33,010 24,589 770 1,868,829 573,768 95,438 20,8 2.949,359 1,796,579 1,676,649 824,090 67,998 15,866 449,575 21,02 I 45,682 783,570 599 16,086 414,762 13.693 44,000 LIABILITIES AND CAPITAL ACCOUNTS Federal Reserve notes Inet) State Notunsured The second function of the research staff is to provide economic infonnation to the public, principally through the monthly Review and other recurring releases, The research staff also provides data and Other casts Discounts and advances . U. 5. Gayernment securities Uncallectea items . . . Table It States 12 31 49 4469 The research staff of the bank performs two Inajor roles, One is to analyze national and regional financial situations \vith a view to formulation of monetary policy recommendations. These recommendations are used by the President of the Bank in the deliberations of the Federal Open Market Committee. analyses which facilitate other operations of the Sys- authorities, exercise supervision over state-chartered banks which are members of the Federal Reserve Sys- United Research . . . Deposits: Member banks— reserve accounts U. S. Treasurer — general account Other Deterred availability cash items . . Other liabilities and accrued dividends Total capital accoLnts . . . . Toto! Liabilities and capital Accounts ... 2,220,811 2.949,359 FEDERAL RESERVE BANK OF ST. LOUIS rEBRUARY, Table IV COMPARATIVE PROFIT AND LOSS STATEMENT (Thousands of Dollars) Per Cent Change 1968 1968-69 1969 Total comings . Net ezpenses Cur, ent net earnings .. Net addi’ian ( ‘, ) or deductions ( ) Net ea-nings betore payments to U. S. Treasury . . . Distribution a’ Net Earnings: D’vidersde Interest an Federal Reserve notes’ . . Transferred to surplus Total — Inrissist. r;L ntivrreit Si’ ir, i 7,877 1 5.515 102,362 , . ‘ 2 102.360 97,649 13,962 83,687 29 f’ I 83,976 20.7 11.1 22.3 —- 21.9 1.35? t,273 6.? 100,168 841 81,055 1,650 236 49,9 2,360 83.978 21.9 1970 Committee’s agent. Although the securities remain at the New York Bank, each Reserve Bank participates in the holdings and earnings of the System Account. Net earnings before payments to the United States Treasury increased to $102 million in 1969, up 22 per cent from a year earlier. This sharp rise in earnings was due to larger holdings of loans and securities, as well as higher interest rates on these assets, while expenses increased only moderately. After dividends to member banks and increases in surplus, the remaining portion of net earnings are transferred to the U. S. Treasury as interest on Federal Reserve notes. Such transfers totaled $100 million in 1969, up 24 per cent from a year earlier,
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