View original document

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

November 8,1974

Sixty years ago, the Wall Street
Journal commented on the advent
of the Federal Reserve System with
what must have been the most
dubious mixed metaphor of 1914—
"changing financial horses in mid­
stream while the world is struggling
to keep its feet in the rapids." Other
newspaper editorials, although
using less picturesque language,
adopted the same quizzical tone
regarding the nation's new central
bank, and for a while revived some
of the controversy which had pre­
ceded the passage of the Federal
Reserve Act in 1913. Nonetheless,
the actual opening of the twelve
regional Reserve Banks on Novem­
ber 16, 1914 passed almost
uneventfully.

Regional orientation
The task of constructing the regional
central-bank network was given to a
"Reserve Bank Organization Com­
mittee." After completing nation­
wide hearings in early 1914, the
committee set up the twelve
Reserve Banks along with the Fed­
eral Reserve Board in Washington,
D.C. The organizing group included
California, Oregon, Washington,
Idaho, Utah, Nevada and all but the
southeastern corner of Arizona
within the new Twelfth District, and
in May 1914 it designated five com­
mercial banks within those states to
execute a certificate of incorpora­
tion for the new Reserve Bank.
Alaska and Hawaii were included
after they attained statehood.

The Federal Reserve Act was
designed to provide the nation with
a flexible system of money and
credit, and designed also to improve
check-clearing and other types of
commercial-banking operations.
The new system had some unique
features, as President Wilson noted
when he signed the new law. "W e
have devised a system which,
though novel in particulars, is clearly
adjusted to the circumstances of
American industrial and commercial
life. It has an element of local self­
government . . . and it is regional
. . . for we have developed by
regions and there is reason why we
should function by regions if drawn
together in a common organization
and with a common spirit and
guidance."

The concentration of financial
resources in San Francisco made
that city the obvious choice for the
head office of the District, but the
District's immense geographical size
also led to the development of
substantial branch operations fairly
early in the Bank's history. The first
branch was opened in Spokane in
mid-1917, and four others were
subsequently established— Seattle
and Portland (both 1917), Salt Lake
City (1918), and Los Angeles (1920).
The Spokane branch was closed in
1938, and its operations were trans­
ferred to the Portland and Seattle
offices.

1




Federal Reserve operations have
expanded sharply since 1914,
reflecting in part the national (and

(continued on page 2)

Opinions expressed in this newsletter do not
necessarily reflect the views of the management of the
Federal Reserve Bank of San Francisco, nor of the Board
of Governors of the Federal Reserve System.

regional) upsurge in population.
There are 212 million Americans
today (twice as many as 60 years
ago), and 32 million of them (five
times as many as in 1914) live in
the area west of the Continental
Divide.
Over the past sixty years, commer­
cial-bank deposits in the area served
by the San Francisco Reserve Bank
have grown from $1.4 billion to $100
billion. Thus, Western banks have
seen their share of the nation's total
deposits increaseJrQm^Jte .percent
in 1914 to 141 percent today.
/2
Expanding the old
In 1914, the San Francisco Reserve
Bank opened with a staff of just 21
people— officers, tellers, book­
keepers, stenographers, messen­
gers, one guard and one janitor.
Today there are 2,200 employees
working in the Bank's five offices.
At times the Bank's staff has been
considerably larger— 2,800 at the
height of World War II, for example
— but the dropping of wartime
credit controls, the development of
internal processing by commercial
branch-banking systems, and
(above all) the exploitation of new
technological advances have given
a smaller staff the capability of
handling the Bank's present heavy
workload.
Last year, the San Francisco Fed's
staff did the following:
• Counted 1 billion bills and
2 billion coins;

2



• Destroyed over 350 million
worn-out bills amounting to
about $2 billion;
• Processed about 325 million food
stamps received from the 2 mil­
lion stamp recipients in this area;
• Issued $9 billion in Treasury
securities;
• Processed 1 billion checks valued
at nearly $250 billion.
Nowhere has the expansion in
the Federal Reserve's workload
been more evident than in the
. West. The San Francisco Reserve
Bank's check processing activity has
increased more than 40-fold since
that World War I era, and check
volume continues to increase be­
cause of the growth of the regional
economy and the growth in the
number of check users. This heavy
workload has led the System to
search for ways to increase the
efficiency of check-handling, most
recently through the institution of
regional check-processing centers
(RCPC's) at Reserve Bank offices
here and elsewhere throughout the
nation. These highly computerized
operations achieve overnight pro­
cessing and settlement for checks
payable in specific geographic
areas.
Developing the new
This type of activity, complex as it
may be, still would not appear
totally unfamiliar to the Federal
Reserve employee of 1914. How­
ever, some of the newer Fed activi­
ties would have been undreamed-of
in that earlier day— principally the

i --------- 3
electronic-payments system which
is slowly being adopted because of
the present overloaded system of
check payments. A forerunner to a
21st-century system already exists
in the California Automated Clear­
ing House Association, which pro­
vides a computerized clearing sys­
tem for payrolls, dividend payments
and pre-authorized charges. An­
other significant advance is the
automation of government transfer
payments, now being developed as
a pilot project for Air Force payrolls.
During the next few decades, the
financial system could encompass a
single, integrated, nationwide
mechanism for the transfer of
funds, covering all types of trans­
actions from automatic payroll de­
posits to pre-authorized debiting of
current transactions as well as regu­
larly recurring payments. There
could be a comprehensive series of
computer-directed communications
networks, involving all types of fi­
nancial institutions, which would be
linked to point-of-sale terminals in
retail establishments, to computers
in business firms, and possibly to
terminal devices in homes. Through
the use of a card to activate trans­
actions, transfers of funds may be
effected so that the creditor's ac­
count will be credited at the same
time the payor's account is debited.
Changing policy tools
Finally, the Federal Reserve in its
first 60 years has witnessed many
changes in the structure of the
economy and in the functions of

credit institutions. Not surprisingly,
the nation's central bank has ex­
panded and modified its instru­
ments of monetary control to fit
changing conditions. To cite one
major example, the discount rate
was originally envisaged as the prin­
cipal instrument of monetary policy,
but it has long since assumed a sec­
ondary role to open-market opera­
tions as the principal weapon for
implementing policy.
Even more striking than the shift in
Federal Reserve policy tools has
been the revised orientation of
policy. In the beginning the empha­
sis was simply upon the accommo­
dation of the credit needs of com­
merce, industry and agriculture.
This idea of accommodation was
based upon the theory that the
economy's needs for credit were
essentially self-regulating, with the
Federal Reserve providing only a
nudge or a check through the ad­
ministration of the discount
window. But the emphasis has
gradually shifted overtime. In
particular, with the adoption of the
Employment Act of 1946, the Fed
has assumed a commitment to help
promote full employment, price
stability, and a sustainable rate of
economic growth. The area of dis­
cretionary action has been widened,
and the System has taken a more
positive stand in the furtherance of
these goals— taking the initiative
rather than simply accommodating
itself to the credit needs of the
economy.
William Burke

3




uo}8uiqsB/v\ • ijB in • uo Sb j o • epeASN • ogepi
M EM BH
.
EjUJOp|B3 . B U O Z IJy . B>]SB|V

u ja a r a s a ^ ji

BANKING DATA—TWELFTH FEDERAL RESERVE DISTRICT
(Dollar amounts in millions)

Selected Assets and Liabilities
Large Commercial Banks

Amount
Outstanding
10/23/74

Change
from
10/16/74

Change from
year ago
Dollar
Percent

-

+ 7,387
+ 8,873
+ 173
+ 3,931
+ 2,160
+ 692
-1 ,528
+
42
+ 6,408
+ 846
- 424
+ 5,877
+ 277
+ 5,479
+
21
+ 3,565

Deposits (less cash items)— total*
Demand deposits adjusted
U.S. Government deposits
Time deposits— total*
Savings
Other time I.P.C.
State and political subdivisions
(Large negotiable CD's)

83,087
66,620
1,119
24,059
19,986
9,588
4,146
12,321
80,381
22,645
307
56,162
17,970
28,658
6,110
15,154

Weekly Averages
of Daily Figures

Week ended
10/23/74

Loans (gross) adjusted and investments*
Loans gross adjusted—
Securities loans
Commercial and industrial
Real estate
Consumer instalment
U.S. Treasury securities
O t h e r S e c u ritie s

-

802
788
768
11
32
8
46

+
+
+
+
60
- 1,120
— 852
— 51
+
38
+
24
+
17
—
60
+
43

+
+
+
+
+
+
-

+
+
+
—
+
+
+
+
+

9.76
15.37
18.29
19.53
12.12
7.78
26.93
0.34
8.66
3.88
58.00
11.69
1.57
23.64
0.34
30.76

Week ended
10/16/74

Comparable
year-ago period

Member Bank Reserve Position
Excess Reserves
Borrowings
Net free ( + ) / Net borrowed ( —)

2
51
+ 53

+

102
257
155

46
189
+ 143

+ 918

+ 1,175

-3 0 3

+ 770

+ 1,585

+ 83

-

Federal Funds— Seven Large Banks
Interbank Federal fund transactions
Net purchases ( + ) / Net sales ( - )
Transactions: U.S. securities dealers
Net loans ( + ) / Net borrowings ( —)
* Includes items not shown separately.

Information on this and other publications can be obtained by calling or writing the
Administrative Services Department, Federal Reserve Bank of San Francisco, P.O. Box 7702,
San Francisco, California 94120. Phone (415) 397-1137.