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Federal Reserve lank el nuiadelphia

Review

Diversification, Supervision, and the Public Interest
Push-Pull Inflation
Third District B u sin ess and Banking Conditions in 1967

Diversification, Supervision, and the Public Interest
. . . Current regulations governing the operations of financial institutions may

be outdated for today's space-age economy. Reappraisal of the entire structure is
needed.

Push-Pull Inflation:
. . . Increasing wage costs and accelerating aggregate demand are seen exerting

upward pressures on prices in 1968.

Third District Business and Banking Conditions in 1967
. . . Business activity in the Third Federal Reserve District ends the year with a
healthy upswing, setting the stage for further expansion in 1968.

BUSINESS REVIEW is produced in the Department of Research. Evan B. Alderfer is Editorial Consultant; Clay J.
Anderson is Economic Consultant; Donald R. Hulmes prepared the layout and artwork. The authors will be glad to receive com
ments on their articles.
Requests for additional copies should be addressed to Bank and Public Relations, Federal Reserve Bank of Philadelphia,
Philadelphia, Pennsylvania 19101.

Banks and savings institutions are adapting to a changing environment by seeking to
diversify. Here, in broad brush strokes, is some perspective on the question of . . .

DIVERSIFICATION,
SUPERVISION, AND
THE PUBLIC INTEREST
by

C la y

A n d erso n

Banks and savings institutions have become

tudes of the people and the environment in which

restive. Savings institutions, facing more intense

it developed.

competition in their special fields, have been
striving for authority that would permit more

Era of specialization

Commercial banks have been

Once an economy advances beyond a subsistence

pressing for broader authority and more equita

level, specialization is usually an important fea

ble treatment in taxes and reserve requirements.

ture of economic development. Division of labor

The Justice Department has manifested renewed
interest in preserving competition in banking.

encourages mechanization, improved productiv
ity, and lower unit costs. It creates the need for

Academic economists have been devoting more

markets. Markets are enlarged by population

attention to public policies toward depository

growth, improved transportation facilities, and

institutions.
This growing ferment reflects doubt that regu

rising incomes.
For decades this process of growth and spe

latory policy is as well adapted to the current
environment as it should be. The near-crisis in

cialization, plus settlement and development of

credit in the fall of 1966 vividly demonstrated

With ample market opportunities and a scarcity

the problems

of capital, companies usually sought growth by

dynamic economy. More fundamentally, it rein

increasing output of the specialty rather than by

forced the view that there is need for a careful

launching new and dissimilar types of production.

diversification.

narrow

specialization

the West, broadened markets in the United States.

reappraisal of public regulatory policies toward

The evolving economic structure left its im

banks and savings institutions. The fact that most

print on the development of financial institutions.

of the maze of regulations was erected many

Specialization and the development of markets

years ago in periods of economic and financial

created the need for a common means of pay

crisis is further evidence of such need.

ment. A shortage of coins stimulated demand
for other kinds of money. The rising volume of

EVOLUTION OF OUR FINANCIAL STRUCTURE
The present financial system is the product of a

working capital required in production and
marketing created a demand for short-term credit.

long period of evolution. Its structure reflects atti

To meet this need, the first commercial bank

b u sin e ss r e v ie w

in the United States was organized in 1781. For

meet this growing need.

many years functions of commercial banks were

As discretionary income grew, manufacturers

confined to short-term loans to producers and
merchants, and the issue of notes payable in coin

began producing an ever-growing list of consumer
durables— automobiles, washing machines, refrig

on demand. This was typical of the situation in

erators, stoves, and other home appliances. But

a newly developing country in which economic

commercial bankers would have nothing to do

conditions contribute to a narrow concept of

with financing this type of expenditure. Their

commercial banking. The marketability of col

concept of banking was to extend credit for pro

lateral and mortgaged property is limited and
credit risks are great. The principal liabilities—

ductive purposes, not for living expenses. Neither
were savings institutions interested. Thus new

notes and deposits — are payable on demand.

institutions were established to extend credit to

Liquidity requirements emphasize the desirability
of restricting credit to self-liquidating loans that

consumers— personal finance companies, credit

will be repaid in a short time.

the 30’s did commercial banks, finding them

Typically, commercial bank services in devel
oping countries are confined to the top echelon
of the economy — the more profitable, betterknown businesses, farmers, and well-to-do indi

unions, and sales finance companies. Not until
selves with excess funds and declining demand
for their specialty of short-term business credit,
begin to move into the expanding consumer

viduals. This narrow concept of commercial

credit market.
In short, during most of our history emerg

banking persisted in the United States. But rising

ing financial needs have been met principally

incomes and a growing middle class created new

by the formation of new institutions instead of

needs and opportunities. More people could save

by broadening the services of existing institu

and more were interested in owning a home.

tions. The tendency toward specialization re

Instead of commercial banks broadening their

flected the advantages of division

services, new institutions developed to meet these
emerging demands. Savings banks and savings

abundant opportunities for growth, and regu
lations which prevented or deterred institutions

and loan associations were established in the

from offering new services.

of labor,

early part of the last century. They were spe
cialized institutions paying interest on savings

Shift toward diversification

deposits and share accounts, and lending most

A high degree of specialization gradually became

of their funds on mortgages for the purchase of

more hazardous. Disapppearance of the frontier

homes.

eliminated one source

Industrialization

and large-scale production

of market expansion,

thereby diminishing the opportunity for growth

created a demand for longer-term credit to

in a single field. Growing mechanization and the

finance the acquisition of plant and equipment.

huge investment in plant and equipment required

This was not considered a suitable type of credit

to produce efficiently in major industries en

for commercial banks, nor savings institutions

couraged the formation of large companies. A

oriented toward mobilizing personal savings and

rapid rise in expenditure for research and devel

making home loans. Once again a special insti

opment enlarged overhead expenses and accel

tution— the investment bank— was organized to

erated innovation and technological change. A

b u sin e ss re v ie w

rising ratio of fixed to total costs lifted break-even

ence a decline in demand for a particular service

points. These developments have made it increas

because of a shift in consumer preferences, in

ingly risky to “ put all of your eggs in one

creased competition from others moving into its

basket.”

field, and a cyclical decline in economic activity.

The response in the nonfinancial sector has

Savings institutions were confronted with grow

been a trend toward diversification.* Companies

ing competition from other lenders as well as

have been broadening their product lines in order

the cyclical decline in demand for housing.

to reduce vulnerability to innovations and new

Savers are becoming more sophisticated in

discoveries which may at any time render some

alternative uses of their savings. As savers be

product obsolete. An important reason for the

come more knowledgeable about financial mar

growing popularity of “ conglomerates” — com

kets, securities become a stronger competitor for

binations of companies producing dissimilar prod

savings, especially in periods of rising interest

ucts and services— is the desire to distribute risk.

rates. Many shift their savings to take advantage
of more attractive yields. More volatile savings

Diversify or perish

require a higher degree of liquidity.

The credit squeeze in the latter part of 1966,

The plight of the savings institutions in 1966

which hit savings institutions particularly hard,

reflected, in part, a higher degree of specializa

highlighted the problem of narrow specialization.

tion than some competitors, such as commercial

Savings were being diverted into higher-yielding

banks, but it also reflected more basic under

market instruments and commercial bank time

lying economic forces. The space-age economy

deposits. Savings institutions were unable to pay
competitive rates because the bulk of their

encourages diversification of financial institu

resources was in long-term mortgages with a

tions, emphasizing the need for flexibility to
adjust to changing conditions. But flexibility has

fixed rate of interest, and raising rates to attract

been impaired by regulations designed to protect

savings would result in the payment of higher

the public interest.

rates on all of the institution’s time and savings
deposits.
The problem of the savings institutions is
more deepseated, however, than hardships im
posed by a temporary credit stringency. In an
ever-changing economy, the pattern of services
demanded of financial institutions is continually
being altered. A financial institution may experi
* An earlier development was horizontal and integrated
combinations. Horizontal combinations consisted of com
panies producing the same or similar products. The prin
cipal purposes were to achieve economies of large-scale
production and to reduce competition. Integrated com
binations brought under one management companies
engaged in various stages of producing a final product.
Important objectives were economies and greater effi
ciency deriving from better control of the flow of
materials.

REGULATION: ITS EVOLUTION
AND PHILOSOPHY
The framework of regulations governing deposi
tory institutions has been erected piecemeal over
a long period of time— in fact, well over a cen
tury. Much of the legislation was enacted as a
result of serious financial panics and crises. The
latest surge was in the 30’s.
A basic question is whether a financial struc
ture largely molded by regulations adopted many
years ago continues to be appropriate in the
current economic anc^ social environment. An
answer to this question requires a look at reasons
why regulations were imposed in the first place.

b usin e ss r e v ie w

Competition as regulator

ployees. For a large business corporation the

Competition is an integral part of a free enter

effects of failure are more widespread, embracing

prise economy. Entrepreneurs, to operate profit
ably, must produce what the public wants —

stockholders, employees, and possibly a number

preferences expressed by expenditures in the

failure of a bank or savings institution extends
far beyond that. The widespread effects of failure

market place.
Competition tends to weed out the inefficient.
Low profits or losses resulting from higher unit

of creditors and suppliers. But the impact of the

are a major reason why operations of deposit
institutions are of special public concern.

costs diminish ability to attract capital and labor,
and tend to drive inefficient producers out of
business. The successful, profitable firm will be

Evolution of regulation
This concern was first expressed early in our

one that operates efficiently and gears its produc

history. It soon became apparent that competi

tion to changing wants. Competition is also a

tion in banking sometimes produced results not

powerful force for innovation and improved
technology. In short, competition serves in these

in the public interest. Mismanagement and exces
sive zeal to expand and increase profits often

important respects as a regulator in the public

caused trouble. Sometimes expansion went so

interest.

far that a bank found itself with insufficient cash
to pay note holders and depositors on demand

Shortcomings of competition

as it had agreed. Temporary suspension of cash

But competition may not always produce desir

payments worked hardships on the bank’s cus

able results or be self-maintaining in all situa

tomers and the community. If failure resulted it

tions. Unrestrained competition may at times

usually inflicted substantial losses on innocent

lead to concentration and monopolistic practices,

note holders and depositors who, even though

even outright monopoly. If a company controls

acting prudently, would not know of the deteri

enough of the supply of a product it can “ ad
minister” the price, at times setting the price

orating financial condition of the bank.

higher than it would be under free competition.

cash payments and failure was the repercussions

In “ natural monopolies,” such as public utilities,

on the economy and the public. The tendency

experience has demonstrated that competition

was to undermine confidence and touch off runs

An even more serious aspect of suspension of

tends to result in higher instead of lower unit

on other banks. Once started, runs on banks

costs. Also, competition may not allocate re

spread and gathered momentum. The supply of

sources according to what is considered socially

currency was inelastic, so that the quantity could

desirable as, for example, low-cost housing.

not readily be increased to meet the soaring

“ Survival of the fittest” may operate in the

demand. Sound as well as unsound banks were

public interest in the long run, but the short-run

caught in the panicky scramble for cash and

effects may be harsh. The price of inferior man

were forced to close their doors.

agement and inefficiency is often failure of the

Prior to the Civil War several states passed

company. For many small, individually owned

laws establishing minimum reserve requirements

businesses the hardship of failure is confined to

for commercial banks, and the National Bank

the owner and perhaps a few creditors and em

Act of 1864 imposed minimum reserve require

busin e ss review

ments against notes and deposits for all national

ate cyclical booms and depressions. Competition

banks. Thus for a century or more commercial

and the profit motive failed to regulate credit

banks have been required to maintain minimum

and the money supply in the public interest.

reserves, the original purpose being to assure

Accordingly,

payment of notes and deposits on demand.*

Reserve System was enacted in 1913. The Sys

legislation

creating

the Federal

Experience soon demonstrated that reserve

tem was designed to provide a flexible supply of

requirements were not an adequate safeguard

currency so that currency could be issued as

against failure and depositor losses. Safety of

needed to meet rising depositor demands for

deposits depends primarily on the quality of bank

cash. The Federal Reserve was also given powers

assets, not the fractional cash reserve maintained

to regulate bank credit and the money supply

against deposits. Another type of legislation

in order to prevent excessive expansion and

designed to protect depositors and the public was

contraction, thus helping to smooth out instead

establishment of certain quality standards for

of aggravate fluctuations in business activity.

loans and investments. Periodic examinations by

The powers of the Federal Reserve were also

supervisory authorities were instituted to see

increased as a result of the experiences in the

that banks conformed to these standards.

late 20’s and early 30’s.

The wave of bank failures which began after

Another

facet

regulation

is legislation

World War I and reached a climax in the Great
Depression of the early 30’s incited another surge

that control of our private financial resources

of regulatory legislation. Over-banking and ag

might be concentrated in the hands of a few has

gressive competition which led to the payment of
high rates to attract deposits were believed to

existed from the beginning of this country.
Significant illustrations of this influence are state

be important sources of difficulty. Once again

and federal restrictions on new entry, branching,

legislation was enacted in an attempt to elimi
nate the major causes presumed responsible for

and mergers.

the wave of failures. Payment of interest on

periodic growth of a framework of regulations

demand deposits was prohibited, and authority

designed to achieve, among other things, three

designed to prevent excessive concentration. Fear

In summary, financial history

reveals the

was granted to establish ceilings on rates that

major objectives that competition failed to pro

could be paid on savings and time deposits.
Deposit insurance was introduced, regulations

vide. One objective — to prevent bank failures

governing loans and investments were tightened,
commercial banks had to give up investment
banking activities, and further restrictions were
imposed on chartering new banks.
Experience demonstrated that the cumulative
nature of expansion and contraction of bank
credit and the money supply tended to accentu
* It has been recognized for some time, however, that
the principal value of reserve requirements is to enable
monetary authorities to exert some control over the
volume of credit and the money supply.

and resulting hardships inflicted on depositors
and the general public— was met by regulations
such as those governing the quality of assets, pay
ment of interest on deposits, reserve require
ments, deposit insurance, and restrictions on new
entry. A second objective was to prevent undue
concentration of financial resources and acquisi
tion of monopoly power. A third aim, which the
Federal Reserve System was expected to achieve,
was to provide a source of liquidity in time of
crisis to prevent financial panics and to regulate

b u sin e ss re v ie w

total bank credit so as to mitigate instead of

environment; whether it gives us a financial

aggravate cyclical booms and depressions.

structure that contributes to efficiency and orderly

Shortcomings of regulation

a basic question will require comprehensive

Regulation has weaknesses, too. It creates as well

reviefw and analysis; however, some significant

growth. To form an intelligent judgment on such

as solves problems. Regulations confining an in

guidelines for study and reappraisal can be

stitution to certain activities and establishing

indicated.

standards for loans and investments may have
the undesirable effects of limiting competition
and stifling incentives for innovation and effi

Environmental change
One line of inquiry is whether economic changes

ciency. The resulting rigidity impairs flexible

have significantly altered the conditions regula

response to changing needs and the efficient
allocation of financial resources. Narrow spe

tion was designed to deal with. Several major
changes are relevant for regulatory policy.

cialization and rigidity, as already pointed out,

First, the danger of financial panics and severe

render an institution more vulnerable to change.
A second undesirable consequence of the regu
latory structure that has evolved is inequities

depressions has diminished.

Government and

monetary policies are being used much more
effectively to smooth out business fluctuations

among institutions. Commercial banks are sub

and to promote stable growth than before the

ject to legal reserve requirements, other deposi

Great Depression. The Employment Act of 1946

tory institutions are not; activities of savings

directed the Government to use its powers to

institutions are more narrowly constrained than

maintain full employment and a full use of

those of commercial banks; and the tax burden

other productive resources. Stable and sustained
economic growth is a major goal of fiscal and

varies among types of institutions. Differences
and inequities are an inevitable result of a.

other Governmental economic policies. The rela

regulatory framework erected periodically to

tive growth of the public and service sectors has

deal with particular problems at the time, and

tended to cushion the economy against sharp

in which

declines in total expenditures and employment.

regulatory

authority

distributed

among the states and the Federal Government.

Second, economic developments have encour

A third aspect that merits careful considera

aged more aggressive competition. Progress in

tion is the impact of regulation on mobility of

transportation and communications has enabled

credit and economic progress. National economic

depository institutions to serve a larger area.

development and growth are best promoted by

Availability of more complete credit information

geographic mobility of financial resources — a

and insurance and guarantees of some loans have

free flow from surplus to deficit areas. Some

also tended to enlarge credit markets. Shifting

kinds of regulation tend to hamper this flow.

patterns of demand and a growing need to dis
tribute risk have prompted banks and savings

GUIDELINES FOR REAPPRAISAL

institutions to undertake new services, and to

The crucial issue now is whether the mix of

strive for legislation that will make possible

competition and regulation resulting from a long

further diversification. Thus the trend is toward

period of evolution is appropriate in the current

keener competition in extending credit and in

b usin e ss re v ie w

soliciting deposits.

savings in something safe and with stable value.

Third, the structure of the credit market is

Depository institutions have afforded an attrac

becoming more complex and the extent of com

tive outlet, over one-half of all consumer financial

petition more difficult to measure. Banks and

saving going to these institutions in recent years.

savings institutions, as pointed out previously,

fifth development of significance is an

are tending to increase the range of services

accelerated pace of innovation and change. A

offered. The degree of competition may differ

vast increase in expenditures for research and

tor each type of service. For example, the market

development has stimulated new discoveries and

for business loans is highly competitive for the

technological advance. One result has been swift

larger business firms. Such firms have access to

changes in the pattern of demand and in tech

credit at a relatively large number of banks, to

niques of production. New products and new

insurance companies for term credit, and in the

industries emerge and grow, old ones decline

commercial paper and securities markets. Com

and disappear. The more dynamic the economy

petition in lending to small business firms is

the greater the need for flexibility and mobility

much more restricted; the market is usually

in order that institutions may adapt their services

confined to local banks and possibly trade credit

to a shifting structure o f demand.

from suppliers. Competition for real-estate mort
gages includes not only commercial banks in the
area but also savings banks, savings and loan
associations, insurance companies, and possibly
individuals. For consumer loans there is compe
tition among banks, finance companies, and
credit unions. For time and savings deposits

Implications for regulation
Environmental changes have modified the con
ditions that were mainly responsible for the
enactment of regulatory legislation.
With the range of business fluctuations nar
rower, the danger of financial panics and a large

there is competition among banks, savings insti

number of failures of depository institutions has

tutions, and securities. Thus it is becoming in
creasingly difficult to determine the impact of

been substantially diminished. Recessions are
still likely, but the probability of severe deflation

structural changes, such as mergers and new

and economic paralysis, such as the Great De

entry, on competition. Simple devices such as

pression, is much less than a few decades ago.

the number of depository institutions in the

It is significant in this connection that recent

community and the ratio of deposits to the com
munity’s total deposits are inadequate indicators

studies have led to the conclusion that the wave
of bank failures in the 20’s and early 30’s was

of competition.

mainly the result of cyclical fluctuations and the

Fourth, the role of financial institutions as

post-World War I deflation instead of over

intermediaries between savers and borrowers has

banking, excessive competition and unsound prac

grown rapidly. In the 1920’s over one-half of

tices, as was generally believed at the time.

the net increase in household financial savings

balance,

lending

risks

have

probably

went directly into securities; the average for

diminished. Rising real incomes and loan terms

1962-1965 was about 2.5 per cent. The marked

tailored to borrower needs have facilitated repay

rise in incomes of the “ masses” has created a

ment; a larger quantity and higher quality of

multitude of small savers who want to put their

available information enable a more accurate

b usin e ss re v ie w

appraisal of credit risks; and improved manage

among competing borrowers, regulation is of

ment and loan supervision, together with a higher

even greater economic significance. It influences

degree of marketability of collateral, increase the

the allocation of savings flowing into deposit

probability that otustanding loans can be col

institutions both directly and indirectly. Directly,

lected. On the other side of the coin, a more rapid

it imposes limitations on loans and investments

pace of economic change has tended to increase

deposit institutions may make. For example,

risk. Access to liquidity in time of need has been
increased by broadening of securities markets,

savings and loan associations are restricted
mostly to mortgages. Indirectly, it affects ability

loan insurance and guarantees, and development
of secondary markets for some types of loans.

to respond to changing conditions, with the
result that strong credit demands and restrictive

In the event of failure, insurance now protects

monetary policy hit mortgage and municipal

depositors and shareholders against loss up to a

borrowers especially hard.

maximum of $15,000 per account. Deposit insur
ance materially reduces the hazard that one or a

CONCLUDING COMMENTS

few failures will touch off runs on other insti

Both competition and regulation are means to

tutions.
The threat of undue concentration of control

ends. They are instruments that can and should

over financial resources appears to be less than
formerly believed. Increased competition and a

tributes to attainment of our general economic

trend toward diversification have led many finan

tive reappraisal of the present mix of competi

be employed in whatever combination best con
objectives. There are good reasons for an objec

cial institutions, in so far as regulations permit,

tion and regulation to determine whether it

to introduce new services and enter new markets.

meets this test.

An institution may now safely and conveniently
operate over a larger market area than a few

Most of the regulations governing banks and
savings institutions were enacted when condi

decades ago. Recent studies of market structure

tions were much different from those prevailing

and institutional performance indicate no strong

in the space-age economy of today. Economic

inherent tendency toward monopoly. Although

developments of the past few decades have sig

studies of the effect of size on efficiency differ in

nificantly reduced the hazard that panics and

their findings, available evidence indicates that

severe deflation will result in many failures and

economies of scale are not sufficient to provide

large deposit losses. Studies of market structure

and institutional performance have not revealed

financial resources in a few large institutions.

any strong, inherent tendencies toward undue

Neither is the investment required for efficient

concentration and monopoly. Regulations evolv

any strong inducement for

concentration

operation so large as seriously to restrict new

ing over the years have produced competitive

entry. In other words, there appears to be' no

inequities among depository institutions, thereby

strong natural forces leading to monopoly or

tending to contravene the basic principle that

oligopoly as in public utilities and some major

success should go to the institution rendering most

manufacturing industries.

efficiently the services society demands. Finally,

Now that depository institutions play the major

narrow constraints on services an institution may

role in mobilizing savings and allocating them

render appear inconsistent in an economy pro

b u sin e ss re v ie w

viding strong inducements for diversification.

funds market. But the market may not be a

On the other hand, to the extent the objectives

reliable source of funds for all institutions when

of full employment and a high rate of growth

there is a credit squeeze. What are the implica

are achieved there will be less slack in the

tions of these likely developments for liquidity

economy. There may be more danger that grow

and regulation?

ing demand will at times generate inflationary

Perfection should not be expected in dealing

pressures, inducing monetary restraint and tight

with such complicated questions. The problem is

credit. Yet banks and others, with newly devel

to weigh the advantages and disadvantages of

oped sources of funds, have tended to operate

competition and regulation in order to achieve

pretty close to the margin. If more funds are

the blend that will best promote the public

needed they can sell C.D.’s or turn to the federal

interest in today’s economy.

New Release
Forecasts for 1968. The Department of Research has
compiled and analyzed a number of predictions made by
businessmen, economists, and Government officials. This
compilation includes a summary of forecasts for the econ
omy as a whole and particular sectors of the economy. The
more important indicators are presented in chart form.
Copies of this release are available on request from
Bank and Public Relations, Federal Reserve Bank of
Philadelphia, Pennsylvania 19101.

PUSH-PULL INFLATON
by

S h e ld o n

W .

S tah l

Of all the problems which may plague the econ

finally, to rising costs or prices of factors of

omy in 1968, probably the one most analysts of

production. In addition, the theory assumed that

the business scene rank uppermost is inflation.
Although the outlook is far from certain, both

both product markets and factor markets were
competitive and that prices and costs were deter

cost-push and demand-pull elements appear likely
to put prices under severe pressure. Before look

mined by the operation of demand and supply
in the market.

ing ahead to prices in 1968, however, it may

The experience of the economy during the

prove useful first to re-examine these two views

1950’s— a period characterized by two recessions

of inflation.

and a low rate of economic growth— led many
observers to question this theory. Prices and costs
TWO EXPLANATIONS1

rose even in the absence of strong demand. Sup

Prior to the end of World War II there seemed

ply factors rather than demand factors took the

to be little reason to question what had long

spotlight and the term

been regarded as the essentially correct view of
the cause of inflation. Inflation was simply “ too

gained prominence. This newer explanation of
inflation singled out wage earners and profit

many dollars chasing too few goods.” Although

takers as the initiating forces of inflation.

“ cost-push”

inflation

there was more than one variant of this theme,

The crucial assumption at variance with earlier

the core of it was that when the level of aggregate
money demand exceeded real output capabilities

explanations was that wage earners — notably

of the economy at full employment the general
level of prices would rise as buyers bid up prices

business firms possessed a degree of market
power which permitted them to establish both

of available goods and services. Since demand

wages and prices at levels independent of demand

workers in strong unions — and profit-making

for the factors of production was derived from

for either factors of production or goods and

demand for goods and services they produced,

services.

Business

firms

could

“ administer”

factor prices would also tend to be bid up. Thus,

prices, boosting profit margins by posting an

demand operated to pull up prices of goods and

increase in the price of their products. At the

services as well as prices of productive factors.
The line of causation, however, ran from an

same time, powerful labor unions could, through

increase in demand through to increased prices;

rates largely unrelated to the demand for labor

collective bargaining, bring about a rise in wage
and well above the rates which might have been

1 Neither cost-push nor demand-pull explanations of
inflation should be regarded as mutually exclusive.
Rather, they usually complement each other in that both
forces operate in varying degrees to bring about price
increases. The term “ cost-push” inflation relates to
periods when cost or supply factors play the dominant
role; “demand-pull” inflation describes price increases
resulting largely from excess demand pressures.

arrived at in a freely competitive factor market.
Thus, to the push from profits was added the
further push on prices from wages.
To be sure, a certain kind of institutional or
politico-economic environment had to exist in

b usin e ss re v ie w

WHAT IS INFLATION?

CHART 1

Inflation, although widely discussed and feared by
much of the public at large, still is many things to
many people. To some, inflation is rising prices—
any prices— pure and simple. Others may regard
rising prices as a sign of inflation only when the
rate of increase exceeds some specified level sub
jectively determined by the individuals themselves.
Fixed-income recipients, seeing their real incomes
shrink in the face of rising prices for goods and
services they buy have little difficulty in defining
inflation. Workers whose salaries include periodic
cost-of-living adjustments based on escalator
clauses in their employment contracts might be
slower in judging the presence of inflation or in
showing the same degree of concern over it.
Despite such differences, a common element is
that prices must be rising. However, rising prices,
while necessary for the existence of inflation, are
not sufficient. When some prices are rising and
others falling, only if the net effect is a rise in the
general level of prices, with a concurrent depre
ciation in the value of money, is this inflation.

CONSUMER PRICES
Index (1 9 5 7 -5 9 = 1 0 0 )

CHART 2

Which prices?
But if the idea of rising price levels is accepted,
the question arises: which price levels are being
referred to? Currently, there are three major price
indexes: the Implicit Price Index (I.P.I.)— known
also as the Gross National Product (G.N.P.) De
flator, the Consumer Price Index (C.P.I.), and the
Wholesale Price Index (W.P.I.). The I.P.I. is con
ceptually the most comprehensive measure of
price changes in that it attempts to measure the
over-all price behavior of all goods and services.
But it is probably the least familiar to the general
public. From 1961 through the third quarter of
1967, this index shows that prices have risen by
about 13 per cent, with the rate of increase
markedly accelerating in the past two years or so.
Behavior of the other two price indexes during
roughly the same span of time is shown in Charts
1 and 2.
( Continued on Page 14)

WHOLESALE PRICES
Index (1 9 5 7 -5 9 = 1 0 0 )

order to validate these attempts to increase

together with increased public concern with un

income shares. This newer view of inflation held
that:

employment, had increased the likelihood (in

. . . The strength of economic pressure groups

wage increases being validated by expansive

(including but not confined to, trade unions),

monetary and fiscal policies, resulting from or-

many countries) of ‘disequilibrium’ price and

b usin e ss re v ie w

The All Items Index of consumer prices rose by
about 12 per cent from 1961 through the third
quarter of 1967, or at about the same rate of in
crease as in the I.P.I. The pattern of acceleration
in the C.P.I. is also similar, and the performance
of the services component of the C.P.I. is espe
cially striking. From 1961 through the third
quarter of 1967 the average price for services
rose by nearly 18 per cent, or half again as fast
as the over-all C.P.I. and nearly one-half of this
increase occurred during the past two years.
Rising food prices at the consumer level have also
paced the over-all rise in the C.P.I.
The behavior of the W.P.I., shown in Chart 2,
tells a somewhat different story of inflation from
1961 on than does either the I.P.I. or C.P.I. The
All Commodities index of wholesale prices showed
virtual stability from 1961 through 1964. The
entire 7 per cent rise in wholesale prices from
1961 through third-quarter 1967 was compressed
into a period of about 18 months. Beginning in
1965, wholesale prices moved upward— paced
very largely by a sharp run-up in both farm
products and processed foods and feeds— reach
ing a peak about mid-1966. Following an equally

sharp turnaround in the price of farm products
and, to a lesser extent in processed foods, the
wholesale price index receded from its 1966 high
and has remained below the earlier peak level.
The prices of industrial commodities, on the other
hand, have risen since 1964, except for a pause in
the first half of 1967. Recent months have shown
an acceleration in the rate of increase as price
rises in the industrial sector have become more
numerous and pervasive.
This summary description of price develop
ments since 1961 as measured by three different
indexes points up some of the difficulties in un
equivocally appraising the behavior of “ price
levels.” Nonetheless, it serves also to suggest
that the indexes do corroborate the generally held
view that the past several years have been marked
by inflationary pressures. In the case of wholesale
prices, only the reversal of earlier price movements
in nonindustrial commodities prevented rising in
dustrial prices from being manifested in the over
all W.P.I. If the degree of inflation still remains
subject to question, at least the data are suffi
ciently persuasive to allow us to acknowledge its
presence.

ganized pressure on monetary and fiscal author

1961 points up the shifting influence of supply

ities. These same factors had also, in this view,

and demand on prices and may help to shed light

decreased substantially the likelihood of ‘equili

on price prospects in 1968.

brating’ price and wage reductions except in the
most drastic of depressions.2
In the more than two decades since passage of

A LOOK AT THE RECORD
The year 1965 marked the end of four years of

the Employment Act of 1946, and especially in

relative price stability. Wholesale prices, in fact,

more recent years, growing concern over main

had changed little from 1958 through most of

taining a high rate of economic growth and full

1964. However, in 1965 they rose by 3.4 per

employment makes the above quotation partic

cent. At the same time, consumer prices advanced

ularly significant.

by 2 per cent. Although wholesale prices peaked

While either cost-push or demand-pull pres

in mid-1966, consumer prices accelerated their

sures may raise prices, interaction of the two

rate of advance and for 1966 their rise was more

reinforces inflationary price movements. A look

than half again as fast as in the preceding year.

at the current economic expansion dating from

As the economy moved into the fourth quarter
of 1967, announced price increases had become

2 M . Bronfenbrenner and F. D. Holzman, “Survey of
Inflation Theory,” The American Economic Review,
September, 1963, p. 614.

more numerous at wholesale levels, with indus
trial prices rising at an annual rate of nearly 3

b u sin e ss re v ie w

per cent— a marked acceleration over price rises

CHART 4

in the preceding year. During most of 1967,

RESOURCE PRESSURES

consumer prices continued to advance at about

Per cent

the same pace as in 1966— about 3 per cent a
year.
What were the demand and supply forces
operating to make prices behave the way they
did?
Moderation
The period of relative quiescence on the price
fronts from 1961 through 1964 was also a period
marked by a reasonably sustainable rate of
growth in gross national product. Recovery from
recession was proceeding satisfactorily as unem
ployment moved steadily downward and capac

Index (1 9 5 7 -5 9 = 1 0 0 )

ity utilization in manufacturing moved upward
from its very low level of the first quarter of
1961. Productivity in manufacturing made good
gains, more than keeping pace with employees’
compensation. Accordingly, by the end of 1964
CHART 3
WAGE PRESSURES ON COSTS
Index (1 9 5 7 -5 9 = 1 0 0 )

unit labor costs were actually lower than in early
1961. (See Charts 3 and 4.)
Through this period, then, demand was not
pressing the limits of either human or plant
resources. The combination of increasing capac
ity utilization and an available supply of experi
enced labor increased productivity growth enough
so that moderate wage increases could occur
without pushing prices upward. The mix of
steady growth in demand and stable unit labor
costs was reflected in relatively stable prices and
rising profits. Chart 5 shows the growth in manu
facturing profits per dollar of sales from 1961
through 1964, along with only a moderate rise

b u sin e ss re v ie w

in the ratio of prices-to-unit-labor-costs over the

CHART 5

four-year period.

THE PROFIT PICTURE
Dollars

Acceleration
Beginning in 1965, demand picked up sharply.
The early surge was largely due to a sizable
build-up in steel inventories in anticipation of a
strike several months earlier. In the first quarter
of 1965 alone, G.N.P. grew by more than $17
billion— or nearly twice as fast as the rate of
growth in the preceding four years. Following
this came growing defense outlays for the war
in southeast Asia and high rates of investment
spending which combined to keep G.N.P. grow
ing at a rapid rate through the end of 1966.

♦Unadjusted.

In the face of this sharp step-up in economic
growth, pressures on resources and on prices
and costs had almost inevitable consequences.

opportunities for profit-taking occasioned by an

The above-normal gains in productivity of 1961

overheated economy.

through 1964 gave way to a slackening in pro
ductivity increases in 1965 and 1966. Plant

A mixture

capacity utilization soared to over 90 per cent

The first half of 1967 was characterized by an

early in 1966. At the same time, unemployment

opposing tug between demand and supply. In

fell sharply during 1965 to 4 per cent at yearend and stayed consistently below that level

the second half, emergence of stronger demand
reinforced the upward push that costs were
exerting on prices. Despite the very slow growth

throughout 1966.
The combination of tightening labor markets
which pushed up wages at the same time the

in the economy during the first half of 1967,
consumer prices continued to rise and prices of

reservoir of skilled workers was being eliminated,

industrial commodities

and the pressures of production against capacity,
forced firms to resort to the use of less efficient

plateau.
On the demand side, manufacturers were un

plant and equipment, additional shifts and over

able to offset sharply rising unit labor costs by

remained

a high

time, and less skilled workers. In addition, supply

raising prices at a time of general slack in de

bottlenecks became more and more common.

mand for their products. On the supply side, the

The stability which unit labor costs had exhibited

accelerated rise in unit labor costs resulted from

through 1964 persisted through most of 1965,

continuing growth in wages and a slower increase

but 1966 saw this pattern of stability broken by

in productivity as output declined. Given this set

the relentless pressures both on demand and

of circumstances, almost the entire increase in

supply. Prices could not fail to react to the under

wages and supplements was translated into rising

lying shift in unit labor costs and the growing

unit labor costs in manufacturing. This shows

b u sin e ss re v ie w

in the months ahead seems likely to put added

up clearly in Chart 3.3
Another unusual characteristic of 1967 was the

pressure on employment and hours of work.

paradox of growing slack in utilization of manu

Gains in production might for a while be achieved

facturing capacity at the same time labor mar

with little added resort to more workers or longer

kets generally remained tight. A partial explana

hours. However, the tightness of labor markets

tion might be that firms were, in effect, “ hoard

and relative smallness of the unused plant-capac

ing” workers in anticipation of a rapid turn

ity buffer when compared to earlier periods in

around in economic activity. If there is any merit

this upswing would suggest that, before long,

in this explanation, then a look at possible cost-

productivity gains are likely to fall behind wage

price developments in 1968 would suggest that

increases. This problem is compounded by a

manufacturing productivity may exhibit fairly

further rise in minimum wages which is likely

impressive recovery

if and when production

to spill over into wages paid for trade, service,

picks up. Evidence already at hand indicates that

and low-wage manufacturing workers. From the

manufacturing productivity in the third quarter

cost side, then, upward pressures in 1968 would

of 1967— although still lagging behind the post

seem to abound.

war trend rate of increase— did show some im

The demand side is less clear. The pattern of

provement over the disappointing first-half gains.

economic events in 1967 was one of accelerating
demand. Resurgence of production to recover

LOOKING AHEAD

output lost in the auto strike, plus the build-up

In looking at what may reasonably be expected

in steel inventories, should swell the growth in

on the cost-price front in 1968, the following
considerations should be kept in mind. The trend

output during the first half of the year. In addi
tion, the contract settlement by General Motors

of wage rates in 1968 will continue to exert
upward pressure on costs. Recent settlements at

without a protracted strike will further boost
manufacturing output during the first half of

Ford and Chrysler, and subsequent acceptance

the year, as will growth in spending for new

of essentially similar terms by General Motors
Corporation, have pattern-setting implications.

plant and equipment now anticipated for early
1968. As in 1967, government spending may be

The wage calendar for 1968 covers well over 2
million organized workers including such indus

expected to provide further stimulus to demand.
The key to demand pressures in 1968, however,

tries as fabricated metals, glass, construction,

rests with consumers who for the past six quar

aluminum, steel, aircraft, airlines, maritime, and

ters have been an enigma. In the face of rising

shipbuilding. Even in the absence of these nego

prices and incomes, they have chosen to save

tiations, continued recovery in aggregate demand

large portions of their incomes. With likely fur
ther increases in income in 1968, consumers may
decide to step up their rate of spending, partic

3 It should be noted, though, that while negotiated
wage-rate and fringe-benefit increases in 1967 were well
above gains won a year earlier, their impact on average
hourly earnings was tempered in 1967 by declining over
time work at premium pay as well as by some layoffs
among highly paid manufacturing workers in the face of
relatively weak aggregate demand through the first half
of 1967.

ularly if prices continue to rise. If this turn
around should occur in the environment de
scribed above, aggregate demand pressures would
strongly reinforce cost-push, and 1968 may well
witness push-pull inflation.

THIRD DISTRICT BUSINESS
AND BANKING
CONDITIONS DURING 1967
by

H enry

A. W a tson

Business. The forces slowing down the econ

Increased productivity and capacity helped

omy during the first half of 1967 subsided dur
ing the fourth quarter and indicators showed

offset the pressure of rising demand for goods
and services. But labor cost per unit of output

signs of renewed vigor. During much of the
year the slackening of pressure on key economic

continued to rise during the year and although
factories worked shorter hours, pay raises in

resources such as employment and manufactur

creased the wage incomes of workers. The cost

ing output was evident, although all District
activities remained at relatively high levels. The
prevailing 1966 tight labor market eased during

of living in Philadelphia as measured by the
consumer price index, rose by more than 3 per
cent for 1967 and threatens to go higher during

the first part of the year but shortages continued

1968.
Construction activity reversed 1966 direction,

in some key occupations.
help-

pushing the overall level of activity up over 8

wanted index, however, indicated new pressure

per cent. The advance was reflected in both resi

building. Although unemployment continued to

dential and nonresidential categories. Strength

Year-end

upward

movement

the

be a problem in some labor market areas, in all

in final demand during the last quarter was evi

fifteen major labor areas it ended the year at
the low January 1967 levels.

dent with increased checkbook spending, con

BUSINESS INDICATORS
THIRD FEDERAL RESERVE DISTRICT
PER CENT CHANGE 1966 TO 1967*
Manufacturing employment
Factory payroll
Factory working time
Electric power consumed by
manufacturers
Construction contracts
Residential
Nonresidential
Public works and utilities
Consumer Price Index
Bank debits (15 SMSA’s) (s.a.)
* First 11 months

+ 2
+ 2
— 2
2
8
10
13
—
6
+ 3
+ 6
+
+
+
+

sumer credit outstanding and auto registrations.
Banking. The determining force in commercial
banking during 1967 was a changing economy
and an accommodating monetary policy. District
loan activity, while forging ahead at a rate faster
UNEMPLOYMENT IN MAJOR LABOR
MARKET AREAS— THIRD FEDERAL
RESERVE DISTRICT
Per cent of
Labor Force
Unemployed

December
1967

December
1966

1.5 to 2.9%
3.0 to 5.9
6.0 to 8.9
9.0 to 11.9
12.0 or more
Total

6
6
1
0
0
13

December
1965

6
3
4
0
0
13

December
1964

2
6
4
1

0
13

b u sin e ss re v ie w

MEMBER BANKS
( billions of dollars)
November
1965

November
1966

NATION
Loans
Investments
Time deposits
Demand deposits

163,597
80,663
119,325
141,305

179,106
78,935
127,283
147,393

THIRD DISTRICT
Loans
Investments
Time deposits
Demand deposits

7,808
3,883
5,705
6,592

8,604
3,818
6,430
6,721

Change
in 1966

November
1967

Change
in 1967

9.48
2.14
6.67
4.31

190,515
95,185
147,968
154,721

+ 6.37
+20.59
+ 16.25
+ 4.97

+ 10.19
- 1.67
+ 12.71
+ 1.96

9,349
4,626
7,413
7,184

+ 8.66
+ 21.16
+ 15.29
+ 6.89

+
+
+

than that of the nation, lagged the 1966 per-

year, with attractive interest rates producing an

formance. The reduced loan demand, coupled

increase in time deposits for all member banks

with ample bank reserves, enabled member banks

in the District of 15 per cent.

to acquire U.S. Governments and other securities
in substantial amounts. Holdings of securities by

Clearly, as the year closed, the District was
entering 1968 on an upturn and all categories of

District member banks increased by 21 per cent.

business and banking activities were in phase for

Total deposits continued to climb during the

another period of expansion.

DIRECTORS AND OFFICERS

In a special election on April 5, 1967, Mr. Henry A. Thouron, Chairman of the
Board and President, Hercules Incorporated, Wilmington, Delaware, was elected
by member banks in Electoral Group 2 as a Class B Director of this Bank to fill
the unexpired term of Mr. Ralph K. Gottshall who resigned on December 31, 1966.
At regular elections held later in the year, Mr. H. Lyle Duffey, Executive Vice Presi
dent, The First National Bank of McConnellsburg, McConnellsburg, Pennsylvania,
was elected by member banks in Electoral Group 3 as a Class A Director for a
three-year term beginning January 1, 1968. He succeeds Mr. Lloyd W. Kuhn.
Mr. Philip H. Glatfelter, III, President, P. H. Glatfelter Co., Spring Grove, Pennsyl
vania, was re-elected as a Class B Director for a like term by member banks in
Electoral Group 1.
In December, the Board of Governors of the Federal Reserve System reappointed
Dr. Willis J. Winn, Dean, Wharton School of Finance and Commerce, University
of Pennsylvania, as a Class C Director for a three-year term ending December 31,
1970. Dr. Winn also was redesignated Chairman of the Board of Directors and
Federal Reserve Agent for the year 1968. Mr. Bayard L. England, Chairman of
the Board, Atlantic City Electric Company, was reappointed Deputy Chairman of
the Board of Directors for 1968.
The Board of Directors of this Bank selected Mr. Harold F. Still, Jr., President,
Central-Penn National Bank of Philadelphia, Pennsylvania to serve again during
1968 as the member of the Federal Advisory Council from the Third Federal
Reserve District.
During the year 1967, three reductions occurred in the officer staff of the
Bank: Mr. Clay J. Anderson, Economic Adviser, retired on January 31. Mr.
Richard G. Wilgus, Vice President and Secretary, died on May 21, and Mr. Fred
A. Murray, Director of Plant, passed away on August 14, following retirement in
June.
Effective June 15, 1967, three promotions occurred within the officer staff:
Mr. Edward A. Aff and Mr. William A. James, formerly Assistant Vice Presidents
became Vice Presidents, and Mr. Lawrence C. Murdoch, Jr., formerly Assistant
Vice President and Assistant Secretary became Vice President and Secretary.
Three promotions to officer status were made during the year: on June 15, Mr.
Samuel J. Culbert, Jr., formerly Administrative Assistant became Bank Services
Officer, and Mr. D. Russell Connor, formerly Regional Analyst became Assistant
Secretary. Effective January 1, 1968, Mr. David P. Noonan, Assistant Department
Head in Personnel was promoted to Assistant Personnel Officer, and Mr. Connor
became Assistant Secretary and Building Officer. Two new officers were appointed
to the Research function in 1967 as Research Officer and Economist: Mr. Warren
J. Gustus, formerly with Drexel Institute of Technology, effective July 10, and
Mr. Sheldon W. Stahl, formerly with the Federal Reserve Bank of Kansas City,
effective August 21.

DIRECTORS AS OF JANUARY 1, 1968

Term expires
December 31

Group
CLASS A

HOWARD C. PETERSEN
Chairman of the Board
The Fidelity Bank,
Philadelphia, Pennsylvania

1968

ROBERT C. ENDERS
President, Bloomsburg Bank-Columbia Trust Co.,
Bloomsburg, Pennsylvania

1969

H. LYLE DUFFEY
Executive Vice President,
The First National Bank of McConnellsburg,
McConnellsburg, Pennsylvania

1970

CLASS B
1

PHILIP H. GLATFELTER, III
President, P. H. Glatfelter Co.,
Spring Grove, Pennsylvania

1970

HENRY A. THOURON
Chairman of the Board and President,
Hercules Incorporated,
Wilmington, Delaware

1968

EDWARD J. DWYER
President, ESB Incorporated
Philadelphia, Pennsylvania

1969

CLASS C
WILLIS J. WINN, Chairman
Dean, Wharton School of Finance and Commerce,
University of Pennsylvania
Philadelphia, Pennsylvania

1970

BAYARD L. ENGLAND, Deputy Chairman
Chairman of the Board,
Atlantic City Electric Co.,
Atlantic City, New Jersey

1969

D. ROBERT YARNALL, JR.
President, Yarway Corporation
Blue Bell, Pennsylvania

1968

OFFICERS AS OF JANUARY 1, 1968

KARL R.BOPP
President
ROBERT N. HILKERT
First Vice President

WARREN R. MOLL
Assistant Vice President

EDWARD A. AFF

HENRY J. NELSON

Vice President

Assistant Vice President

HUGH BARRIE
Vice President

KENNETH M. SNADER
Assistant Vice President

JOSEPH R. CAMPBELL
Vice President

SHELDON W. STAHL
Research Officer and Economist

NORMAN G. DASH
Vice President

RUSSELL P. SUDDERS
Assistant Vice President

DAVID P. EASTBURN
Vice President

JAMES P. GIACOBELLO
Chief Examining Officer

WILLIAM A. JAMES
Vice President

THOMAS K. DESCH
Examining Officer

DAVID C. MELNICOFF
Vice President

WILLIAM L. ENSOR
Examining Officer

G. WILLIAM METZ
Vice President and
General Auditor

JACK H. JAMES
Examining Officer

LAWRENCE C. MURDOCH, JR.
Vice President and Secretary
HARRY W. ROEDER
Vice President
JAMES V. VERGARI
Vice President and
General Counsel

LEONARD E. MARKFORD
Examining Officer
JAMES A. AGNEW, JR.
Assistant Cashier
WALTER J. BROBYN
Assistant Counsel

JACK P. BESSE
Assistant Vice President

D. RUSSELL CONNOR
Assistant Secretary and
Building Officer

JOSEPH M. CASE
Assistant Vice President

SAMUEL J.CULBERT, JR.
Bank Services Officer

WARREN J. GUSTUS
Research Officer and Economist

A. LAMONT MAGEE
Assistant General Auditor

RALPH E. HAAS
Assistant Vice President

DAVID P. NOONAN
Assistant Personnel Officer

STATEMENT OF CONDITION
Federal Reserve Bank of Philadelphia
End of year
(000’s omitted in dollar figures)

1967

1966

ASSETS
Gold certificate reserves:
Gold certificate a c c o u n t..........................................
Redemption fund— Federal Reserve n o te s .........

560,613
101,189

698,902
96,258

Total gold certificate reserves .........................
Federal Reserve notes of other Federal Reserve Banks
Other cash ......................................................................
Loans and securities:
Discounts and a d va n ce s..........................................
United States Government s e c u ritie s .....................

661,802
48,728
8,610

795,160
48,058
6,773

1,430
2,525,715

545
2,289,202

Total loans and securities ................................
Uncollected cash items ..............................................
Bank p re m is e s ...............................................................
All other assets ............................................................

$2,527,145
631,426
2,433
98,935

$2,289,747
541,950
2,510
64,123

Total assets ..........................................................

$3,979,079

$3,748,321

$2,444,268

$2,305,967

853,005
76,536
7,280
26,460

896,033
505
8,640
8,599

LIABILITIES
Federal Reserve notes .................................................
Deposits:
Member bank reserve a c c o u n ts ..............................
United States G o vernm e nt.....................................
Foreign ......................................................................
Other deposits ..........................................................
Total deposits .....................................................
Deferred availability cash it e m s ................................
All other lia b ilitie s ..........................................................
Total lia b ilitie s .....................................................
CAPITAL ACCOUNTS
Capital paid i n ..........................................................
Surplus ......................................................................

963,281
493,311
14,568

913,777
456,785
11,934

$3,915,428

$3,688,463

31,826
31,826

29,929
29,929

Total liabilities and capital a c c o u n ts ................

$3,979,079

$3,748,321

Ratio of gold certificate reserve to
Federal Reserve note liability ..............................

27.1%

3 4.5%

EARNINGS AND EXPENSES
Federal Reserve Bank of Philadelphia
(000's omitted)

1967

1966

Earnings from:
United States Government securities .......................
Other s o u rc e s ...................................................................

$110,223
1,440

$ 95,513
1,862

Total current e a rn in g s ..............................................

$111,663

$ 97,375

Net expenses:
Operating expenses* .....................................................
Cost of Federal Reserve c u rre n c y ................................
Assessment for expenses of Board of Governors . . . .

8,742
1,016
567

8,501
1,295
483

Total net e xpe nse s.....................................................

$ 10,325

$ 10,279

Current net earnings ..........................................................

101,338

87,096

Additions to current net earnings:
Profit on sales of U.S. Government securities (net) . .
All o th e r .............................................................................

40
77

—
93

Total a d d itio n s ............................................................

Deductions from current net earnings:
Loss on sales of U.S. Government securities (net) . .
Miscellaneous non-operating e xp e n se s.......................
Total d e d u ctio n s..........................................................

117

—
2
$

127
3
$

130

Net a d d itio n s ........................................................................

115

— 37

Net earnings before payments to U.S. T re a s u ry ............

$101,453

$ 87,059

Dividends p a id ......................................................................
Paid to U.S. Treasury (interest on Federal Reserve notes)

1,854
97,703

1,790
84,886

Transferred to or deducted from ( —) S u rp lu s ..............

1,896

383

* A fte r d e d u c tin g r e im b u rsa b le o r re c ove rab le e x p e n se s.

VOLUME OF OPERATIONS
Federal Reserve Bank of Philadelphia
1967
Number of pieces (000’s omitted)
Collections:
Ordinary checks* .....................................................
Government checks (paper and c a r d ) .....................
Postal money orders ( c a r d ) .....................................
Non-cash ite m s ..........................................................
Food stamp c o u p o n s .................................................
Clearing operations in connection with direct sendings
and wire and group clearing p la n s * * .....................
Transfers of fu n d s ..........................................................
Currency counted ..........................................................
Coins c o u n te d .................................................................
Discounts and advances to member b a n k s ................
Depositary receipts for withheld ta x e s .......................
Postal receipts (re m itta n ce s).......................................
Fiscal agency activities:
Marketable securities delivered or redeemed . . . .
Savings bond transactions—
(Federal Reserve Bank and agents)
Issues (including reissues) ................................
R ed em p tion s..........................................................
Coupons redeemed (Government and agencies) . . . .
Dollar amounts (000,000’s omitted)
Collections:
Ordinary checks ........................................................
Government checks (paper and c a r d ) ..................
Postal money orders ( c a r d ) .....................................
Non-cash ite m s ..........................................................
Food stamp c o u p o n s .................................................
Clearing operations in connection with direct sendings
and wire and group clearing p la n s * * .....................
Transfers of fu n d s ..........................................................
Currency counted ..........................................................
Coins c o u n te d .................................................................
Discounts and advances to member b a n k s ................
Depositary receipts for withheld taxes .....................
Postal receipts (re m itta n c e s ).......................................
Fiscal agency activities:
Marketable securities delivered or redeemed . . . .
Savings bond transactions—
(Federal Reserve Bank and agents)
Issues (including reissues) ................................
Redemptions ........................................................
Coupons redeemed (Government and agencies) . . . .

1966

1965

283,400
32,700
17,300
846
17,391

276,600
30,800
18,200
832
9,766

262,900
29,500
17,800
836
3,685

706
248
305,200
560,700
(a)
799
282

697
233
297,500
403,800
1
662
280

679
208
268,400
159,400
1
609
286

536

621

538

9,934
7,260
1,070

9,512
6,956
1,072

8,867
6,745
1,074

$ 94,422
7,983
248
1,104
23

$ 88,836
6,993
254
827
13

$ 79,445
6,004
246
563
5

54,568
219,815
2,258
63
323
3,935
929

49,908
192,718
2,205
45
1,806
3,348
914

47,649
167,181
2,003
12
2,086
2,593
891

13,571

14,913

13,845

459
385
435

464
381
342

431
362
225

* C h e c k s h a n d le d in se a le d p a c k a g e s co un ted a s units.
D e b it a n d credit item s.
(a) L e s s th a n 1,000 rou nd ed .

Full text of Business Review (Federal Reserve Bank of Philadelphia) : January 1968

FRASER