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.
