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MONTHLY REVIEW
O f Credit and Business Conditions
FEDERAL
V
olum e
36
RESERVE
BANK
JU L Y
OF
NEW
YORK
19 54
No. 7
M O N E Y M A R K E T IN JU N E
The money market was easy during most of June, although
there was some temporary firming over the last ten days of the
month primarily as a result of a large increase in the Treasury’s
balance with the Federal Reserve Banks because of the acceler
ated collection of income taxes and as a result of efforts on the
part of commercial banks to establish a more liquid position
in anticipation of their June 30 statements. Announcement by
the Board of Governors on June 21 of a reduction in reserve
requirements, effective in stages from June 16 (retroactively)
through August 1, was an important factor in tempering the
tightening influences of the tax-date and statement-date adjust
ments. While member banks lost reserves over the month as
a whole through Treasury operations and other factors, these
losses were largely offset by the Reserve System s release of
additional funds. The aggregate volume of excess reserves held
by the member banks over and above their borrowings from
the Reserve Banks (free reserves) remained high in all five
statement weeks of the month and averaged 710 million dol
lars for the month as a whole, the highest figure for any month
since January.
Total loans continued to decline on balance, although the
increases occurring around the tax date were unusually large.
The relatively plentiful supply of reserves encouraged banks to
make substantial additions to their investment portfolios; in
the four weeks ended June 16 the weekly reporting member
banks purchased about 1.3 billion dollars of additional securi
ties, although they sold Treasury bills later in the month to
obtain reserves.
The money market ease and the banks’ investment programs
in turn had a favorable effect on the Government securities
market and, in contrast to May, prices of all Government
obligations except those with very short maturities rose.
The price rise was temporarily reversed late in the month, but
at the close of June prices were again generally firm. Over the
month as a whole, prices of intermediate and long-term bonds
were up % to 1V^ points. Interest rates on finance company
paper were reduced by Vs of 1 per cent again in the middle
of June to a range oi 1Vs per cent on short maturities and
IV2 per cent on nine-month paper, marking the seventh such
reduction since the beginning of the year.
The series of reductions in member bank reserve require
ments announced after the close of the securities markets
on June 21 are summarized in a table on page 90. The
Board of Governors estimated that the reductions, when they
are completed in August, will provide member banks with a
total of about 1,555 million dollars of additional reserves and
stated that the reduction ‘was made in anticipation of esti
mated demands on bank reserves during the summer and fall,
taking account of probable private financing requirements, in
cluding the marketing of crops and replenishment of retail
stocks in advance of the fall and Christmas sale seasons, as well
as the Treasury’s financing needs. . . . Changes in reserve
requirements supply or withdraw relatively large amounts of
bank reserves, even when effected on a gradual basis, as in the
present action. Accordingly, such changes are comparatively
infrequent. For more flexible and frequent adjustments to the
credit needs of the economy the System relies chiefly upon
open market operations to release or absorb reserve funds”.
Member Bank Reserve Positions
Treasury operations dominated money market developments
over the course of the month, to a large extent even absorbing
temporarily the reserves released through that part of the
reduction of reserve requirements effective in June. The vol
ume of funds flowing between the Treasury and the banks in
connection with debt operations and income tax payments was
extraordinarily large, and as is usual in quarterly months the
flow was unevenly spaced within the month. Although the
operation of the other market factors, at times, helped to offset
the effect of Treasury transactions to some degree, it was nec
essary for the Reserve System to purchase a substantial amount
CONTENTS
Money M arket in J u n e .........................................
The Changing Pattern of United States
Foreign A i d ..........................................................
Earnings and Expenses of Commercial Bank
Trust Departm ents in New York and New
Jersey ..........................................................
D epartm ent Store T ra d e ..............................
Selected Economic In d ic a to rs........................
89
93
96
99
100
90
M ONTHLY REVIEW, JULY 1954
Table I
W e e k ly C hanges in F a ctors Tending: to Increase or D ecrease
M em ber B ank R eserv es, June 1954
(In m illions o f d olla rs; ( + ) denotes increase,
(— ) d ecrease in ex cess res e rv e s)
Statement weeks ended
Factor
June
Five
weeks
ended
June
30
2
June
9
June
16
June
23
June
30
Treasury operations*..............................
Federal Reserve float..............................
Currency in circulation.........................
Gold and foreign account........................
Other deposits, etc...............................
+ 61
+ 43
-237
- 67
+ 8
+203
— 19
+ 61
— 42
+179
—195
+223
+ 70
+ 21
-119
-764
— 46
+ 68
+332
-1 84
-1 69
-363
+ 17
-2 0 7
- 88
-142
-
27
-1 0 1
Total.........................................
-191
+381
-883
-
48
-741
+ 75
+175
-
77
-
+
-
41
+229
+ 92
+473
- 92
-572
-165
Operating transactions
Direct Federal Reserve credit transactions
Government securities
Direct market purchases or sales.........
Held under repurchase agreements----Loans, discounts, and advances...........
27
2
-10 2
+300
Total.........................................
+ 48
+177
-118
+794
-7 66
+135
Total reserves...............................................
Effect of change in required reserves.............
-143
+ 72
+558
3
—118
- 57
- 89
+141
-814
+375
-6 0 6
+528
Excess reserves.............................................
-
71
+555
-175
+ 52
-439
-
193
640
147
957
117
984
178
903
138
839
Daily average level of member bank:
Borrowings from Reserve Banks.............
Excess reserves........................................
78
155
865
Note: Because of rounding, figures do not necessarily add to totals.
* Includes changes in Treasury currency and cash.
of securities in order to ease the market through the periods
of pressure.
In the week ended June 2, the first statement week of the
month, Table I indicates that the Treasury had only a minor
effect on the money market. But in the week ended June 9,
an increase in Treasury expenditures was not fully covered by
cash tax collections and calls on Tax and Loan Accounts at
commercial banks. As a result, the Treasury’s general account
balance with the Reserve Banks was drawn down to 250 mil
lion dollars, thus putting over 200 million dollars into the
money market. In the following statement week, the Treasury
withdrew 1.6 billion dollars from its Tax and Loan Accounts,
with roughly 1.0 billion of that called on the tax date. This
total proved to be somewhat larger than necessary to meet the
interest payments due on June 15 and other regular expendi
tures, with the result that on that day the market lost a sub
stantial part of its previous gains.
The pattern of tax receipts led to further money market
problems over the statement weeks ended June 23 and June 30.
Much the largest part of June income tax payments are nor
mally made by corporations. Under the Mills plan most cor
porations this year were required to pay 45 per cent of their
total tax liability on their 1953 incomes in June. Part of these
payments were made by tendering tax anticipation bills or
Savings notes, and 50 per cent of the proceeds of all income
tax checks of $10,000 or more received in June was deposited by
the Treasury in the commercial banks in special Tax and Loan
Accounts ("X” balances).1 Handling the tax payments in this
fashion reduced the inevitable strain of the tax period on the
money market, but a large amount of tax receipts remained to
l
For a fuller explanation of the operation of "X ” balances, see the
article on "Treasury Tax and Loan Accounts at Commercial Banks” in
the pamphlet The Treasury and the Money^ Market, the publication of
which is announced elsewhere in this Review.
be deposited in the Treasury’s general account with the Reserve
Banks. During the week ended June 23, roughly 2 billion dol
lars of income tax receipts were so deposited. While the
Treasury’s disbursements in that week were also abnormally
large, as it redeemed for cash the portion of the June 18 tax
anticipation bills that had not been turned in for taxes, these
redemptions served as only a partial offset to the tax receipts,
and the Treasury’s general account deposits increased by approxi
mately three quarters of a billion dollars. At the end of the
statement week, the balance in the general account was 1,220
million dollars. Although the Reserve Banks purchased a sub
stantial amount of securities both outright and under repur
chase agreements as additional offsets to the Treasury with
drawals, and although on June 22 roughly 180 million dollars
of reserves had been retroactively released to country banks by
the reduction of requirements as of June 16, member bank
reserve positions tightened appreciably, money market rates
firmed, and on the final day of the week ended June 23 bank
borrowing rose.
The money market became easier during the final statement
week of the month. Income tax receipts dropped off substan
tially, while expenditures continued at relatively high levels.
Also in this week, the Treasury had to redeem in cash that part
of the June 24 maturity of tax anticipation bills not turned in
for taxes. Since its deposits at the Reserve Banks were already
high, the Treasury made no withdrawals from Tax and Loan
Accounts during the week, and its balances with the Reserve
Banks, therefore, dropped back toward a more normal level.
In the process, approximately 332 million dollars net was
DECREASE IN RESERVE REQUIREMENTS
The following is an excerpt from a statement issued by
the Board of Governors of the Federal Reserve System for
publication Monday, June 21, 1954:
The Board of Governors has reduced the reserves required
to be maintained by member banks of the Federal Reserve
System. The reduction will become effective on a gradual
basis over the next six weeks.
The reductions will become effective according to the
following schedule:
On net demand deposits
Effective
June 24
July 29
July 29
August 1
For
Central reserve city banks
Central reserve city banks
Reserve city banks
Country banks
June 16*
June 24
Country banks
Central reserve and
reserve city banks
Percentage
From 22 to 21 per cent
From 21 to 20 per cent
From 19 to 18 per cent
From 13 to 12 per cent
On time deposits
From 6 to 5 per cent
From 6 to 5 per cent
* Retroactive, so as to apply to the average balance in each
country bank’s account with its Reserve Bank for the period
June 16 through June 30.
FEDERAL RESERVE BAN K OF NEW YO R K
returned to the money market. Over the five statement weeks
as a whole, net Treasury withdrawals from the market totaled
363 million dollars.
Other factors beside Treasury operations absorbed reserves
during June. When Memorial Day and Independence Day fall
on three-day week ends, as they did this year, the publics
demand for currency over the holiday periods becomes un
usually large. Thus member banks withdrew 237 million and
169 million dollars, net, from the Reserve Banks during the
statement weeks ended June 2 and June 30, respectively.
While they returned some excess cash to the Reserve Banks
during the middle of the month, net withdrawals for the five
weeks totaled about 207 million dollars. The market also lost
funds through a continued rise in foreign deposits with the
Reserve Banks and through an increase in "other Federal
Reserve accounts”. There was little net change in float for the
month as a whole. Thus the market’s net loss of reserves
through all the regular factors totaled about 741 million dol
lars in June.
Required reserves fluctuated widely within the month, and
the total probably would have shown a moderate increase for
the five weeks as a whole if the Board had not reduced member
bank reserve requirements. During the month the reduction
in required reserves that stemmed from the Boards action is
estimated to have been about 640 million dollars. A 182 mil
lion dollar reduction in the reserves which country banks are
required to maintain against their time deposits took effect
retroactively to June 16 (without the change the increase in
required reserves shown in Table I for the week ended June 16
would have been 239 million instead of the 57 million increase
indicated). A cut of approximately 195 million in the time
deposit reserve requirements of reserve city and central reserve
city banks and a reduction of about 265 million in the reserves
against demand deposits in the central reserve city banks was
made in the statement week ended June 30.
To offset the realized and anticipated losses of reserves
through Treasury operations and other factors during June, the
Reserve System put nearly half a billion dollars net into the
market in the four weeks ended June 23: 402 million through
outright purchases of Treasury bills and an additional 92 mil
lion through short-term Treasury securities acquired under
repurchase agreements. In the last statement week of the
month, after the announcement of the reserve requirement
reduction, however, the System reduced its bill holdings by
102 million and all repurchase agreements were paid off. Thus,
the net provision of Federal Reserve credit through Govern
ment security operations was 300 million dollars for the five
weeks ended June 30.
Member bank borrowing declined moderately during the
first three weeks of June (on a Wednesday-to-Wednesday
basis) but rose sharply, as noted earlier, at the close of the
week ended June 23 when the impact of tax payments upon
the banks reached its peak and when the banks were beginning
to prepare their June 30 statements. Repayments of borrow
ing in the final week of the month were larger than the previ
91
ous weeks increase, thus reducing Reserve Bank discounts and
advances for the five weeks by 165 million to a negligible level
of 37 million dollars. Since banks customarily publish a con
dition statement on June 30, borrowing is often largely elimi
nated on that date as part of a "window-dressing” operation.
As a net result of all these various developments during
June, member bank excess reserves declined approximately 78
million dollars. Free reserves, however, rose 87 million dollars
over the five weeks and on a daily average basis increased 134
million from the May average of 576 million.
T he Market for G overnment Securities
The tone of the Government securities market was con
siderably more optimistic in June than it had been a month
earlier, and the price decline that had characterized May was
reversed shortly after the turn of the month. This reflected
primarily some moderation of earlier concern over the inter
national situation, the continuing decline in commercial loans
of reporting member banks, as well as the improvement in
the market for high-grade corporate and municipal obligations,
stimulated in part by several very successful large flotations
which lightened the calendar of pending financing at least for
the summer months. A further strengthening influence was
the reaffirmation of the Systems easy money policy through
substantial purchases of Treasury bills by System Open Market
Account and, later in the month, the announced reduction in
member bank reserve requirements.
Prices of short-term Government obligations remained fairly
steady at relatively low yields throughout June, despite the
firming of the money market in the latter part of the month.
Most market observers regarded the tightening as a temporary
development, especially after the announcement of the reduc
tion in required reserves and, as a result, were unwilling to sell
short-term securities at yields consonant with those quoted for
Federal funds and rates on dealer loans. Average rates on the
weekly issues of new Treasury bills continued at the lowest
levels since the wartime rate of Vs of 1 per cent was freed in
THE TREASURY AND THE MONEY MARKET
A new booklet, The Treasury and the Money •Market, is
now available from this Bank free of charge. This booklet
is the third of a series of pamphlets— Bank Reserves, Some
Major Factors Affecting Them (revised 1953) and Money
Market Essays (1952) are the others—designed to furnish
the student of banking with information not readily avail
able elsewhere. The new booklet contains articles on the
financial operations of the Government, including public
debt transactions, and their effects on the money market.
All of the articles first appeared in the Monthly Review
of Credit and Business Conditions of the Federal Reserve
Bank of New York and have been revised to bring them
up to date. Requests for copies should be addressed to the
Publications Division, Federal Reserve Bank of New York,
New York 45, N. Y.
92
MONTHLY REVIEW, JULY 1954
1947. The June 3 issue of new bills was sold at an average rate
of 0.714 per cent, the June 10 issue at 0.616 per cent, and the
June 17, 24, and July 1 issues for 0.633, 0.635, and 0.646 per
cent, respectively. Rates on outstanding bill issues seldom rose
above 0.70 per cent or fell below 0.50 per cent. Prices of
both the August and the September certificates moved down
% 2, while the two longer certificates were fractionally higher
over the month as a whole, probably reflecting a tendency for
some investors to prefer these issues to bills at current rates.
Short-term bonds showed little net change. The volume of trad
ing in short issues was fairly substantial during June, although
bids and offers were not always evenly matched. Some corpo
rations were selling to raise funds for June 15 tax payments,
while banks and other investors absorbed short-term Treasury
issues.
Interest in the longer Treasury issues during June was cen
tered in the intermediate area. Secondary distribution of the
1% per cent notes of February 1959, which were issued in
May, proceeded at a moderate pace early in the month. Out
right bank interest in these notes as well as in the surrounding
issues was fairly extensive, and a fair amount of switching also
took place as banks and other investors sought to lengthen
maturities. Prices of intermediate issues in general rose fairly
steadily during the first three weeks of the month and then
were marked up sharply on the morning of June 22. The
V/s per cent notes, which closed May at a bid quotation just
below par, traded briefly on the morning after the announce
ment of the reserve requirement reduction at a premium of
almost three quarters of a point. However, the tighter posi
tion of member bank reserves in the latter part of the month,
even after the first reserve requirement reductions went into
effect, limited bank buying interest, and the market was unable
to sustain the price markups that followed the announcement.
The appearance of some profit taking also put pressure on
prices. Over the next four or five days, therefore, quotations
gradually dropped back close to or below the levels prevailing
just before the reserve announcement. At the very end of
June, however, a firm tone again developed. Over the month
as a whole, the intermediate issues were up from Ys to more
than 1 1 4 points.
Interest in long-term bonds during June was limited, and
although prices of these issues also firmed over the month as
a whole, the rise reflected the general improvement in tone
of the Government securities market rather than any particu
lar investor buying in this area. In fact, profit taking and the
liquidation of some of the longer issues from time to time
during the month, partly by insurance companies, tended to
dampen price increases in the long end of the list. Neverthe
less, the 3Ws of 1978-83 rose IV2 points over the month and
the other issues were up % of a point or more.
Aside from the regular weekly bill offerings and the redemp
tion of the unexchanged portion of the June 1 certificates, the
June 15 bonds, and the tax anticipation bills, the Treasury did
not engage in any financing operations during June.
M ember Bank Credit
The total increase in the earning assets of the weekly report
ing banks in the five weeks ended June 23 was only 172
million dollars. Total loans dropped 513 million, while invest
ments rose 685 million, a much more moderate increase than in
other recent months. Commercial, industrial, and agricultural
loans showed a moderate net decline as substantial commercial
borrowing over the June 15 tax date partly offset declines in
the rest of the period (see Table II). Loans on securities and
loans to banks were down 245 million and 274 million,
respectively. In the first four weeks of the period (through
June 16) total investments of all the weekly reporting member
banks rose by more than 1.3 billion dollars, but in the final
week of the period under review, these banks sold a substantial
volume of Government obligations, primarily bills. Over the
five weeks as a whole, the New York City banks added 815
million dollars of securities to their portfolios while those out
side the City reduced theirs by 130 million, net.
From the beginning of the year through June 23, as Table II
shows, total loans of the weekly reporting banks declined 1.9
billion dollars. The contraction in commercial, industrial, and
agricultural loans accounted for 1.5 billion of the total and
that in "all other” or consumer loans for an additional 278
million. In the comparable period last year, total loans were
up 339 million; commercial loans were off only 593 million
and "all other” loans were up 685 million. On the other hand,
total investments this year to date have risen by more than
1.3 billion dollars, whereas in the comparable period of 1953
they declined by 3.8 billion.
Table II
Weekly Changes in Principal Assets and Liabilities of the
Weekly Reporting Member Banks
(In m illions o f dolla rs)
Change
from
Dec. 30,
1953 to
June 23,
1954
June 16 June 23
Statement weeks ended
Item
June 2
June 9
-151
+ 8
+ 87
+ 10
-255
+ 10
+ 2
+ 42
+ 2
- 28
-299
+ 6
-167
May 26
Assets
Loans and Investments:
Loans:*
Commercial, industrial, and agri
cultural loans.........................
Security loans...........................
Real estate loans.......................
Loans to banks.........................
All other loans (largely consumer)
402
254 —
25 +
13 —
10 -
77
59
18
194
+ 12
+
+
+
+
+
-203
-531
+
705 -
317 -1 ,9 4 4
- 23
+106
+ 51
+104
- 58
+ 79
+
+
587 539
302 — 92 +
Other securities.........................
+ 83
+ 56
+155
+ 65
+ 21
+142
+ 841 _
— 14 +
Total investments.................
+139
+220
+163
+
+1,532
Total loans, net*...................
Investments:
U. S. Government securities:
Treasury bills........................
-12 1
-2 2 2
827 -
-1 ,4 8 4
164
+ 160
154
2 278
679 +
15 +
247
826
579
765
664 +1,344
981 -
600
Total loans and investments............
-
+ 17
-368
Loans, net, and “ other” securities..
-1 1 1
-1 38
-389
+
+643
+ 63
-3 97
-428
+ 37
-167
+848
+ 64
-6 87
+1,388 -2,050 - 2 ,1 0 1
38 +1,251
81 +
+
— 313 +1,208 + 596
-3 72
- 46
+391
+ 4
+213
+ 8
+
+
28
-
691 -
302 -1,179
Liabilities
Demand deposits, adjusted..............
Time deposits except Government..
U. S. Government deposits..............
Interbank demand deposits:
436 _
16 +
821 -1,354
34
7
* Figures for various loan items are shown gross (i.e., before deduction of valuation reserves);
they therefore may not add to the total, which is shown net.
93
FEDERAL RESERVE BAN K OF NEW YO R K
T H E C H A N G IN G P A T T E R N OF U N IT E D STATES F O R E IG N A ID
Since the end of World War II, foreign aid has been one of
the major instruments of United States foreign economic policy
which has sought to restore the economic and military strength
of friendly countries and to promote an expanding world
economy with a minimum of barriers to the free international
flow of trade and capital. Until the end of 1951, the bulk of
this assistance had been in the form of economic aid to
Western Europe to help the countries of that area recover from
the ravages wrought by the war. W ith the launching of the
Mutual Security Program in fiscal year 1952, however, an in
creasing part of our aid appropriations was directed to the
provision of essential military weapons and supplies in order
to expedite and expand the defense efforts of our allies, while
economic aid was continued to help provide a sound economic
base for rearmament.1 During the past two years, military
assistance has increased sharply as the sizable appropriations
of earlier years have been translated into shipments of finished
military end-items.
Steady advances in European industrial and agricultural
production, as well as substantial gains in that areas gold and
dollar reserves since early 1952, have gradually reduced the
need for United States economic assistance. Now, in mid-1954,
economic aid to Europe in the form of nonmilitary commodity
shipments seems to be coming virtually to an end as deliveries
of goods still in the pipeline are being completed. In fact, the
3.5 billion dollar aid program for fiscal year 1955, now before
Congress, contains only a negligible amount of new economicaid funds ("mutual defense support”) for European countries,
such as Spain, Yugoslavia, Greece, and Turkey. On the other
hand, in addition to a large amount for military aid ( "mutual
defense assistance”), a substantial sum has been earmarked for
contributions to the military build-up of friendly nations
("direct forces support”). Furthermore, a somewhat larger
amount than in previous years is projected for technical assist
ance and economic development in non-European areas.
The program for fiscal year 1955 foreshadows significant
changes in the pattern of United States foreign aid, both with
respect to its nature and, to a lesser extent, its geographical
distribution. The present article will discuss some of the
major characteristics of our aid in the more recent past and
some of the changes that are now getting under way.
T he R ise of M ilitary A id
The amounts of United States foreign aid extended under
Government grants during the past eight years are shown in
the accompanying table. The data are broken down into the
two main categories of economic aid (including technical
assistance) and military aid; they also single out Europe, which
has been and still is accounting for the major share of United
States aid expenditures.
The decline, since 1949, in economic aid and the increase
in transfers of military supplies and equipment to foreign
countries are brought out clearly by the table. Particularly
striking is the rapid fall in economic assistance to Western
Europe: whereas in 1949 this segment of our aid constituted
over three quarters of all United States Government grants,
by 1953 it had fallen to less than one fifth of the global
total. Military aid to all countries, on the other hand, had risen
from a negligible share in 1949 to account for 70 per cent of
all grant aid in 1953; over four fifths of all military assistance
has gone to Western European member countries of the North
Atlantic Treaty Organization (NATO).
Despite the rapid rise in military aid during the past few
years, aggregate expenditures by the end of 1953 had used up
only about half of the 19 billion dollars appropriated for this
type of aid from the first appropriation for the Mutual Defense
Assistance Program in the fall of 1949 through the Mutual
Security appropriations for fiscal year 1954. The rest of the
funds, although largely obligated, still remained to be disbursed
at the beginning of calendar year 1954. This assistance includes
the furnishing of both military end-items and services as well
as purchases of military equipment abroad under the Defense
Department’s offshore procurement program, to be discussed
below.
Within the past ten months, several new country programs
have come into prominence. An agreement reached with Spain
last September provides for the development and use of Spanish
bases jointly by the United States and Spain and for military
and economic assistance by this country. Similarly, the 100
million dollar aid pact with Japan, signed in March, calls for
the furnishing of military end-items as well as for stepped-up
offshore procurement in Japan by the United States. Military
assistance to Pakistan is planned, and an increase in such assist
ance to Turkey has recently been announced.
Economic A id and R earmament
In recent years, as has been pointed out, economic aid to
Europe has been geared to European rearmament. Early in
1951, well before the European Recovery Program (ERP) had
run its originally scheduled course, the NATO countries had
United States Foreign-Aid Grants, Calendar Years 1946-53
(In m illions o f d olla rs)
Type of aid
1949
1950
1951
1952
1953
1,252
1,307
3,961
1,049
2,761
708
2,100
869
1,438
497
1,126
647
T o ta l...................
2,559
5,010
3,469
2,969
1,935
1,773
Military aid:
E urope.........................
Other areas.................
141
24
166
36
513
61
1,111
351
2,143
450
3,464
820
T o ta l...................
165
202
574
1,462
2,593
4,284
Total grant aid..............
2,724
5,212
4,043
4,431
4,528
6,057
Econom ic aid:
Europe.........................
Other areas.................
1946-48*
l
For a discussion of this phase of United States foreign aid, see N ote: All data are on a net basis, i.e., taking into account “ reverse”
as reverse lend-lease and a certain part of counterpart funds.
‘'The Mutual Security Program” in the January 1952 issue of this * Annual
average.
Review,
Source: United States Department of Commerce.
grants, such
94
M ONTHLY REVIEW, JULY 1954
been advised that any further economic aid would be directly
related to, and even conditioned on, the degree to which
they devoted their own resources to the common defense
effort. Later that year, the Economic Cooperation Administra
tion (ECA) officially stated that the main objectives of
economic aid now would be "to build and maintain the de
fenses of the participating countries against aggression” and
"to bring the economies of these countries to the point where
they can independently sustain the necessary defense effort”.
However, this shift in objectives from the earlier goals of
economic recovery (exemplified also by the new label of
"defense support”) did not cause a very drastic change in the
commodity composition of our economic assistance to Europe.
Given the small margin of unemployed resources in the
Western European countries at the time of Korea, continued
assistance to the civilian sector of their economies was deemed
necessary in order to safeguard the degree of economic re
covery achieved by then and to compensate for the relative
reduction in private consumption and investment which re
armament would bring in its wake. Thus, the United States
continued to provide some of the resources in which European
economies were deficient and, even during the defense-support
period, furnished considerable amounts of civilian-type goods.2
This reflected the fact that defense support was intended pri
marily to facilitate and expedite the shift of a relatively large
amount of European resources to the support of rearmament.
Within the framework of economic aid to Europe, some
direct dollar disbursements have taken place in recent years
in connection with the operations of the European Payments
Union (EPU). In fiscal year 1951, the ECA contributed 350
million dollars to the EPU capital fund. The ECA and its suc
cessor agencies also have made dollar payments to the EPU
(the so-called "special resources”) to cover all or part of the
deficits incurred by chronic debtor members; by December 31,
1953, 353 million dollars had been supplied in this way.3
While a substantial recovery in European production has
gradually diminished the need for economic aid, that area’s
gold and dollar position has also benefited by large United
States Government purchases abroad (mostly for installations,
supplies, and services required by our overseas forces) as well
as by expenditures in foreign countries by United States mili
tary personnel. Such dollar disbursements totaled approxi
mately 2.3 billion dollars in 1953, as against about 1.9 billion
the previous year, with almost half of the yearly totals being
expended in Western Europe. These military expenditures
abroad have been a powerful offset to the decline in economic
2 In 1953, for instance, out of total aid-financed commodity ship
ments to Europe of over 900 million dollars, 170 million represented
cotton; 110 million was for bread and feed grains, with a like amount
for nonferrous metals; machine tools and metalworking machinery
accounted for slightly over 100 million, while another 80 million
represented petroleum.
3 An additional 92 million dollars was paid directly to the United
Kingdom in 1951 and 1952 under the so-called "Katz-Gaitskell
Agreement”, to reimburse that country for gold and dollar losses to
the EPU as a result of the use of previously accumulated sterling
balances by debtor members.
aid; without these dollar receipts many European countries
(and Japan) might have been forced to adopt much tighter
restrictions of a discriminatory nature against the dollar area
or other dollar-saving measures or, alternatively, might have
required larger amounts of economic assistance.
D irect D ollar D isbursements
A further important factor reducing the need for economic
assistance has been the gradual emergence of various forms of
defense aid involving straight dollar payments to foreign coun
tries, chiefly NATO members. Under the United States offshore
procurement program, the Defense Department has placed arms
contracts with foreign munitions manufacturers; upon delivery,
the equipment is paid for out of military-aid funds and trans
ferred either to the producing country or to a third country.
Offshore procurement thus takes advantage of unutilized pro
ductive capacity abroad and assists in the building-up of a
foreign military production base which, it is hoped, will
ultimately be kept operating by the foreign governments
themselves. At the same time, unlike economic aid given in
the form of specific commodities, this type of assistance is
extended in the form of dollars that are freely spendable by the
recipients.
By the end of 1953, an aggregate of 2.2 billion dollars in
offshore procurement orders had been placed with Western
European firms; France had received nearly half of these con
tracts,4 with the United Kingdom and Italy together accounting
for slightly under 40 per cent. Since by December 31, 1953
only 375 million dollars’ worth of deliveries had been made,
there remained approximately 1.8 billion to be disbursed in
1954 and after against these orders.
Similar to offshore procurement in its effects on the recipient,
although different in concept, is a type of grant aid first
authorized for the fiscal year ended June 30, 1954, namely,
dollar contributions to the defense programs of certain coun
tries. Thus, aid appropriations for the past fiscal year included
assistance of 85 million dollars for aircraft production in the
United Kingdom and an equal sum to finance part of the
French military output. Furthermore—and more importantly—
under the same appropriation an amount of 400 million dollars
was made available to help France defray the costs of the fight
ing in Indochina; through the shifting of other aid funds this
amount was subsequently raised to 785 million. It was ex
plicitly stated that these funds would not be tied to the ship
ment of specific aid goods from the United States, but rather
would be used "to reimburse the French Government in con
nection with its expenditures in support of the war”. Since no
disbursements had been made by December 31,1953 out of the
aggregate 955 million dollars provided in this manner for direct
financing in the United Kingdom and France, this type of aid
transaction is not yet reflected in the accompanying table. In
the early part of this year, France received an initial 80 million
dollars of the funds earmarked for Indochina.
4
During 1952 and 1953, the Export-Import Bank advanced 254
million dollars to France to prefinance part of United States offshore
orders.
FEDERAL RESERVE B AN K OF NEW YO RK
Economic A id to N on -European A reas
Economic and technical aid to non-European areas, while
constituting only a relatively small part of our total foreign-aid
expenditures, has nevertheless played a role of very considerable
importance in meeting the needs of underdeveloped countries.
United States economic-aid activities in these areas may be
roughly classified under three headings: technical assistance,
economic development, and relief.
Under the United States technical cooperation program,
American technicians and specialists are at present active in
about 35 countries in Latin America, the Near East, Africa,
Southeast Asia, and the Pacific. Through the dissemination of
technical knowledge, primarily in the fields of agriculture,
health, and education, these specialists are helping the under
developed countries attack the basic problems of under
nourishment, disease, and illiteracy. During the past three
fiscal years, the cost of the program has averaged 125 million
dollars annually; the Administration has requested 132 million
for technical assistance in fiscal year 1955, characterizing the
technical-assistance type of aid as of "the greatest significance
in the long pull over the decades ahead”. This amount includes
also the United States contribution to the technical assistance
program of the United Nations.
While technical cooperation merely covers the services of
technicians, the training abroad of nationals of the aid-receiving
countries, and the furnishing of supplies and equipment for
demonstration purposes, this type of assistance has been inte
grated with some economic aid in certain countries of South
east Asia, Formosa, and the Philippines. This aid involves
chiefly capital goods and other materials needed in the coun
tries’ development programs, e.g., in the fields of transportation
and communication. The foreign-aid appropriation for fiscal
year 1954 for the first time provided funds for "special economic
assistance” to the Near East (chiefly Israel), India, and Paki
stan; for the fiscal year beginning July 1, about 225 million
dollars is proposed to supplement technical cooperation with
the necessary capital equipment.
Finally, relief operations of various kinds have in recent
years figured prominently in United States aid operations in
Asia and the Near East. Korean relief shipments by the Army
Department, contributions to the United Nations Korean
Reconstruction Agency, a 200 million dollar program for
rehabilitation in Korea approved last August, and assistance,
through the United Nations, to Arab refugees—all were in
response to the dislocations and sufferings caused by war.
Conditions or threats of famine were alleviated by special
wheat loans to India (190 million dollars) and Pakistan
(15 million dollars); Pakistan, in addition, received over
600,000 tons of wheat on a grant basis.
T he Export -Import Bank
In our foreign-aid activities a prominent role has been
played by the Export-Import Bank, both through its own lend
ing operations and as agent for various other Government
loans. Prior to 1953, the Bank had been quite active in the
95
field of development loans. As examples may be cited the
135 million dollars advanced to the State of Israel since its
creation, the 150 million dollar development loan extended
to Mexico in 1950, and credits of various amounts granted
from time to time to private and public entities in Brazil.
Aside from such loans for economic development, the ready
availability of uncommitted funds and the possibility of quickly
providing these funds in a variety of circumstances have made
the Bank a highly flexible instrument for supplying loan assist
ance in a host of individual cases. In recent years, for instance,
Export-Import Bank credits have financed the sale of United
States cotton and the export of United States equipment and
services required to develop foreign sources of strategic mate
rial, principally for the United States stockpile. Through the
125 million dollar credit to Argentina in 1950 and the 300
million dollar credit to Brazil early last year, the Bank enabled
these countries to liquidate their commercial indebtedness to
United States exporters. As mentioned in footnote 4, a total
of 254 million was advanced to France in 1952 and 1953
in prepayment on dollar earnings under offshore procure
ment contracts. Finally, the Bank has functioned as disbursing
agent for certain loans authorized by Congress and financed by
specific appropriations, such as that part of Marshall Plan aid
extended on a credit basis, the Indian and Pakistani wheat
loans, and the 62.5 million dollar loan granted to Spain after
that country came within the scope of United States aid. The
recent 100 million dollar United States credit to the European
Coal and Steel Community likewise will be administered by the
Export-Import Bank.
Conclusion
As the economy of the free world, and especially of Europe,
has gained strength, foreign-aid appropriations have declined
and the need for the Marshall Plan type of economic assistance
has ceased or dwindled in many countries. Economic aid now
serves primarily to supplement our military aid to countries in
Europe and Asia whose economies have to support a dis
proportionate defense burden. At the same time, in line with
our foreign-policy objectives, we are increasing somewhat our
expenditures for economic development in non-European areas.
Meanwhile, shipments of military supplies and equipment from
the United States have continued at high levels.
All these aid activities have been supplemented in the recent
past by large expenditures by and for our armed forces abroad,
reflecting our vast military commitments overseas. While these
expenditures on foreign goods and services may drop somewhat
in the near future, offshore procurement disbursements are
certain to increase as deliveries under contracts placed sometime
ago are made. At the same time, direct dollar disbursements
to finance certain budgetary expenditures of France are now
taking place, while similar payments to the United Kingdom
are in the offing. During the current year and also in 1955, the
aggregate of these outlays will probably continue to provide
an important source of foreign dollar receipts.
96
MONTHLY REVIEW, JULY 1954
E A R N IN G S A N D EXPENSES OF C O M M E R C IA L B A N K T R U S T
D E P A R T M E N T S IN N E W Y O R K A N D N E W JER SEY
Commercial banks operating trust departments have always
been able to determine profits earned or losses incurred by
those departments through the application of accepted account
ing procedures. But an individual bank has not been able to
test its trust department profit and loss experience against that
of other, comparable banks, because data for other banks have
not been available. To make such data available, and to make
possible comparisons of an individual banks trust department
operating ratios with those of a comparable group of com
mercial bank trust departments, the New York State Bankers
Association, the New Jersey Bankers Association, and the
Federal Reserve Bank of New York jointly undertook a survey
of trust department income and expenses. The survey was
initiated at the request of the member banks in the Second
Federal Reserve District that operate trust departments and
was conducted with their cooperation.
Trust department income and expense data were sought from
all the 464 member and nonmember banks operating trust
departments in the States of New York and New Jersey.1
Detailed returns (summarized in Table I) were received from
107 banks, including ten banks in New York City. These
banks handle 26,600 personal trust accounts with 2.8 billion
dollars of assets and 560 corporate trust accounts with out
standing bonds of 2.6 billion, and they have 2,070 corporate
agency accounts.2 The 97 reporting banks outside New York
City normally handle about two thirds of the trust business
done by banks in their area, but the ten reporting New York
City banks do only a relatively small amount of the total New
York City trust business. The New York City banks that
handle the major part of the City’s trust business did not report
detailed figures. However, eleven of these banks did report
total income and expense data, and this is summarized in
Table II.
The 107 reporting banks are divided in Table I into two
groups—those with profitable trust operations in 1953 and
those with net losses on trust operations during the year. The
97 banks outside New York City are also arranged into four
classifications by size of trust department income. Table I
includes, in addition, a section detailing income and expense
by type of trust account—personal and corporate—for 22 banks
located in the larger cities of the New York Federal Reserve
District.
The ratios shown in Table I are not averages of individual
1 Banks in Fairfield County, Connecticut, that operate trust depart
ments were also included in the survey. The three banks in Fairfield
County that submitted data are grouped with banks in the State of
New York in Table I. Similarly, two mutual savings banks in New
Jersey that operate trust departments are grouped with New Jersey
commercial banks in Table I.
2 Personal trust accounts include such accounts as estates, testa
mentary and living trusts, guardianships, pension and profit-sharing
trusts, and agency and custody accounts. Corporate trusts are all bond
trusteeships. Corporate agency functions include acting as registrar,
transfer agent, coupon and bond-paying agent, and dividend disbursing
agent for corporate security issues.
bank ratios but are derived from aggregate dollar totals. This
method of ratio derivation was used because the extreme range
of some of the ratios would have biased average ratios unduly,
especially those for the smaller trust departments.
Of the 107 trust departments surveyed, 51 had profitable
operations in 1953 and 56 showed net losses, and these pro
portions of profitable and unprofitable operations were approxi
mately maintained in three of the five groups of banks in
Table I for which the number of banks with profitable and
unprofitable operations is shown. However, as a percentage of
total commissions and fees, losses of unprofitable trust depart
ments were greater than profits of profitable trust departments
in all five groups. Consequently, if figures for profitable and
unprofitable trust departments are combined, all five groups of
banks show net losses. On the other hand, when trust depart
ment net earnings are adjusted by the addition of "allowed
credit for deposits” (income credited to the trust department,
at rates that may vary from time to time and bank to bank, as
earnings on uninvested trust balances deposited with the com
mercial banking department), the consolidated operating re
sults of trust departments earning commissions and fees of
$50,000 or more become profitable, and the combined losses
of trust departments earning less than $50,000 are consider
ably reduced.
The data submitted by 22 banks showing earnings on, and
expenses of, personal and corporate trust accounts indicate that
corporate accounts are more profitable to handle than personal
ones. Corporate accounts provided net earnings of 4.3 per cent
of total commissions and fees for the 22 reporting banks,
compared with a net loss of 17.3 per cent of total commissions
and fees incurred on personal accounts. The addition of allowed
credit for deposits raises profits on corporate accounts to 27.9
per cent of total commissions and fees, while the loss on per
sonal accounts is converted to a 3.7 per cent profit.
The better net earnings on corporate trust accounts than
on personal accounts resulted from a lower ratio of direct ex
pense to total income. Total direct expense of handling cor
porate trust accounts amounted to less than two thirds of total
commissions and fees earned on corporate accounts, while the
same ratio for personal accounts was 98.7 per cent.
Income earned in 1953 from servicing various types of trust
accounts, and expense incurred stated as a percentage of in
come, are shown in Table II for eleven large New York City
banks that handle the larger part of the City’s commercial bank
trust business. These income and expense distributions indi
cate one interesting aspect of large-scale trust operations. As
measured by "trust department net earnings”, the eleven banks
made a profit in 1953 amounting to but 0.2 per cent of gross
trust department income. After addition of allowed credit for
deposits, however, profit on trust operations increased to 8.3
million dollars, or 14 per cent of total commissions and fees.
Similarly, after including allowed credit for deposits, the eleven
97
FEDERAL RESERVE BAN K OF NEW YO RK
New York City banks showed adjusted net earnings of 17 per
cent of their total commissions and fees from corporate trusts,
and 9 to 17 per cent of the fees from estates, personal agen
cies, and personal trusts. All categories of personal trust busi
ness carried on by the eleven banks show net earnings after
account is taken of allowed credit for deposits, though the
earnings rate for pension trusts (1.2 per cent) is small. Finally,
the six banks reporting corporate trust and corporate agency
figures separately had net earnings, after adjustment for allowed
credit for deposits, of 44 per cent of the corporate trust fees
and 9 per cent of the corporate agency fees they collected.
Variations in the effective rates of return to 94 New York
T a b le I
Percentage Distribution of Expense, Income, and Related Items for Commercial Bank Trust Departments
in New York State and New Jersey, 1953
97 banks in New Jersey and New York State* outside New York City
10 New York City
banksf
By size of trust department income—total commissions and fees of:
Item
Under $20,000
$20,000 to $49,999
$50,000 to $99,999
22 banks reporting
expense and income
by type of account
$100,000 and over
"flTrust departments with
Trust departments with Trust departments with Trust departments with Trust departments withf
Net profits Net losses Net profits Net losses Net profits Net losses Net profits Net losses Net profits Net losses Corporate
Number of banks
26
24
10
10
22
Personal
Per cent of total direct expense
Direct expense:
Salaries and wages
Officers.........................................
Employees....................................
Pensions and retirements................
Other expenses related to salaries...
Occupancy of quarters....................
Furniture and equipment................
Stationery, supplies, and postage. ..
Telephone and telegraph.................
Advertising......................................
Legal and professional fees.......^----Periodicals and investment services.
Examinations...................................
Other direct expense........................
56.0
15.9
3.4
48.3
19.8
2 .6
2.3
7.7
1.9
3.5
2 .2
5.9
1.5
2 .0
0.6
1.1
42.0
28.5
3.3
37.9
29.6
3.6
1 .8
2 .8
7.0
7.2
2 .0
2 .0
1.1
2 .2
18.1
51.5
4.5
5.6
1 .6
1 .6
1.2
2 .0
2.7
2.5
3.4
1.5
2.5
1.3
8 .8
1 .8
2 .2
1 .0
2 .2
2 .2
0.5
0.4
0.7
0.7
1 .1
0.6
0.8
0.8
1 .0
0 .2
0.8
0.9
5.7
0.9
3.4
0 .8
1.8
6.9
4.2
10 0.0
100.0
100.0
10 0.0
10 0.0
10 0.0
1 .0
1 0 .1
1.7
29.3
_
10.4
2.9
9.1
9.1
10 .0
8.8
109.8
111.3
1 1 1 .1
131.0
110.4
1 1 2 .0
2.3
2.3
2 .6
1.2
7.1
2.9
0.6
2 .0
4.1
—
104.9
107.8
10 1.1
128.4
106.3
3.7
2 .6
2 .6
4.2
100.0
100.0
0 .1
1.3
9.7
Total direct expense plus additions...
Deductions from direct expense:
Services for other departments...............
Other credits.........................................
1 .0
26.6
42.8
4.0
4.4
5.6
1.7
2.5
1.5
2 .2
2 .8
0.4
3.0
0.7
2.3
—
14.9
54.7
3.7
5.5
8.7
1.9
1.5
0.3
0 .8
5.3
1.3
1.3
1.7
2.4
3.4
0.9
1.7
3.8
2.3
21.7
47.4
3.4
5.7
6.3
1.7
1.7
0.7
1 .1
5.4
2.9
2.3
Total trust department expense (net)..
25.9
44.1
3.4
3.2
6.3
33.9
40.8
3.9
2.4
5.0
1.1
0.3
3.0
Total direct expense.
35.7
35.3
1.9
2.9
5.7
4.3
5.1
0.5
1.3
Additions to direct expense:
Services by other departments___
Overhead........................................
33.4
34.0
4.3
3.6
7.6
1 .6
0.6
1 .0
6 .1
0.5
4.9
0.7
7.0
10 0.0
10 0.0
10 0 .0
10 0.0
8.9
14.6
12.3
8 .0
28.7
16.0
25.6
13.9
15.7
14.0
117.9
123.5
120.3
144.7
139.5
129.7
2.4
4.0
0 .8
1.9
—
13.1
7.1
3.1
2.4
—
6 .6
5.0
3.2
105.6
117.1
1 2 1 .6
107.2
134.5
130.5
121.5
1.6
_
1
Per cent of total commissions and fees
Commissions and fees from :
Estates......................................................
Pension trusts...........................................
Personal trusts..........................................
Personal agencies......................................
Corporate trusts.......................................
Corporate agencies....................................
46.1
2 1 .6
32.4
1.3
46.3
17.1
0 .1
0.8
2 .1
32.8
3.1
42.0
0.6
27.6
0.5
56.4
10.9
1.9
2.7
1.1
42.6
9.6
0.4
38.6
0.3
41.7
15.7
3.5
43.7
25.1
0.9
0 .2
19.1
3.0
39.1
23.4
8 .1
24.0
1.5
46.1
25.6
0.5
2.3
14.2
2 1 .0
1 .2
5.9
1.1
1 .2
16.1
3.2
39.2
41.5
3.7
0.8
8 .1
12 .6
23.5
51.0
15.5
31.2
16.9
29.7
30.0
70.0
Total income from commissions and fees.
100.0
100.0
10 0.0
10 0.0
100.0
10 0.0
10 0.0
10 0.0
10 0.0
10 0.0
10 0.0
Total direct expense.....................................
Net income after direct expense...............
Net indirect expense....................................
Net earnings before income taxes.............
Income tax charges or credits(+)..............
62.6
+ 37.4
3.1
+ 34.3
166.4
- 66.4
13.0
- 79.4
70.2
+ 29.8
69.1
+ 30.9
93.5
+ 6.5
11 .8
2 0 .2
+ 29.0
-
28.9
—
+ 19.1
10 .0
87.6
+ 12.4
30.2
- 17.8
+ 1.7
65.4
+ 34.6
1.8
76.2
+ 23.8
4.8
+ 19.0
2.7
1 2 2 .1
- 2 2 .1
6.8
10 .0
123.7
- 23.7
35.1
- 58.8
+ 4.2
Trust department net earnings.............
+ 24.3
81.2
+ 19.0
-
54.6
+ 16.3
-
-
Allowed credit for deposits.........................
6.3
21.5
9.0
1 2 .2
6.7
59.7
+28.0
42.4
- f 23.0
1.80
1.92
2.37
Trust department net earnings (adjusted
for deposit credits)...........................
+ 30.6
Belated item s:
Average rate allowed on deposit credit.......
Dollar amount of total direct expense
(thousands)...........................................
Dollar amount of total commissions and
fees (thousands)....................................
Average number of officers and employees:
Officers—full time.................................
part time................................
Employees—full time........................ ..
part time.........................
1.80
-
-
0.8
-
+ 14.6
10.3
- 20.0
+ 2.7
+
-
8.5
6.4
+ 18.8
1.8 8
1.99
1.82
1.67
1.90
1.97
2.16
2.16
844
1,270
2,405
1,160
2,767
2,008
3,999
2,572
1,544
3,158
3,068
4,051
6.7
7.3
7.0
48.9
4.0
2.5
2.3
2.5
3.8
5.8
3.6
3.0
-
326
191
157
315
263
338
690
1,839
1 .0
1.1
1 .8
1 .1
1.3
2.5
1.3
3.9
2 .6
1 .0
3.0
4.0
1.5
2 .0
1 .8
1 .0
3.3
4.7
9.4
3.2
5.1
3.4
18.7
16.5
* Includes three banks in Fairfield County, Connecticut.
t Total expense and income data for eleven other New York City banks that did not report In detail are distributed in Table II.
+
98.7
1.3
21.3
+
+ 10.3
2 21
1.3
14.6
20 .0
28.9
261
2 .0
-
10 0.0
22.5
119
1 .0
13.7
0.9
8.8
257
1.7
-
75.1
+ 24.9
5.4
- f 19.5
10.3
-
9.2
16.1
4.3
13.9
19.4
29.0
23.6
0.7
+ 28.6
+ 12.9
+ 27.9
9.9
—
45.9
1 .0
55.3
4.7
17.3
2 1 .0
+
3.7
2 .0
MONTHLY REVIEW, JULY 1954
98
and New Jersey banks for servicing trust accounts of different
types and sizes are shown in Table III.3 The rates were com
puted by taking aggregate trust income in each group of banks
as a percentage of the aggregate carrying value of trust assets
as of December 31, 1953.4 For the four types of personal
trust accounts shown, only the income and asset value of
accounts carried at inventory or book value were used.5 For
corporate accounts, total income was related to the total par
value of bonds outstanding under the trust indentures.
The average rates shown in Table III, which are based on
gross fees and commissions collected, indicate that the highest
returns were yielded on estates and personal trusts; these were
slightly higher in New Jersey than in New York. Rates on
corporate trusts appear extremely low. As indicated above,
however, trust department income from corporate trusts is
related to the total par values of the bond issues outstanding
under trust indentures. These values are often large, but the
work of the trustee is fixed in the main by the terms of the
trust indentures, and does not increase proportionately with
the dollar volume of bonds outstanding under them.
3 New York City banks are excluded from the table, because com
plete data on rates were not available for them. The three Fairfield
County (Connecticut) banks, included with New York State banks in
Table I, are also excluded.
4 Rates thus obtained are influenced by fiduciary account turnover.
Some estates and trusts existing at the beginning of the year were
terminated during the year and were not in existence at the year end.
Other estates and trusts were established during the year and had
existed for less than a full year at the year end. Trust account turnover,
together with income fluctuations resulting from record keeping on a
"cash basis”, yielded extreme rates for individual banks in some in
stances. These extremes were eliminated from the results shown in
Table III.
5
Assets of personal trust accounts were reported on three different
bases: (1) inventory or book value, (2) unit or par value, and (3) a
combination of (1) and (2). Inventory or book value is the most
widely used method of valuing personal trust account assets and pro
vides the most meaningful base for rate comparisons.
Table II
Distribution of Income and Expense on Various Types of Trust Accounts
Handled by Eleven Large New York City Banks, 1953
(R atios in per ce n t o f to ta l com m ission s and fe e s )
|
Item
Total per
sonal and
corporate
accounts
Total
personal
accounts
Pension
trusts
Estates
Personal
trusts
Total
corporate
accounts
Personal
agencies
11
6
6
100.0
9 2.9
7 .1
3 .7
3 .4
13.7
100.0
97.7
2.3
1.3
1.0
43.2
100.0
93.6
6 .4
3 .5
2 .9
6 .4
Number of banks reporting item ...............................
11
11
Com missions and fees..................................................
Total expense— direct and indirect...........................
Net earnings before income taxes.........................
Income tax charges or credits(-j-)..................................
Trust department net earnings..............................
Aillowed credit for deposits.........................................
Trust department net earnings (adjusted for
deposit credit)........................................................
100.0
98.4
1.6
1.4
0 .2
13.8
100.0
102.2
2 .2
- f 0 .1
2.1
13.8*
14.0
11.7
8 .6
1.2
10.4
16.5
17.1
Commissions and fees (thousands)...........................
$59,736
$35,406
$4,086
$3,430
$13,692
$14,198
$24,330
11
11
11
100.0
117.9
- 17.9
+
5 .4
- 12.5
13.7
100.0
99.7
0 .3
3 .2
2 .9
11.5
11
100.0
98.9
1.1
1.2
0 .1
10.5
100.0
102.3
2 .3
+
1.1
1.2
17.7
Corporate
agencies
Corporate
trusts
44.2
9 .3
$ 2 ,l l l f
$11,6031
* A small amount of deposit credit reported in total for personal accounts was allocated by type, according to the distribution in the other banks.
f Since income and expense data for corporate trust and corporate agency accounts were reported separately b y only six banks, the commissions and fees figures shown
for these categories will not add to “ total corporate account commissions and fees” , which includes data from eleven banks.
Table III
Average Rates of Return* Earned on Trust Accounts of Different Types and Sizes
by 94 New York and New Jersey Banks, 1953
Size of trust department income— total commissions and i
Type of account
Under
$10,000
Average
size of
accounts
Average
rate of
return
$10,000
to
$20,000
to
$19,999
$49,999
Average
size of
accounts
Average
rate of
return
Average
size of
accounts
Average
rate of
return
$100,000
and
$50,000
to
$99,999
Average
size of
accounts
Total
over
Average
rate of
return
Average
size of
accounts
Average
rate of
return
Average
size of
accounts
Average
rate of
return
Estates:
New Y o r k ...........
New Jersey.........
% 32,900
36,100
0.04
0 .83
$ 33,100
38,100
1.71
1.36
$ 67,100
40,200
1.23
0.97
$ 75,900
67,100
0.77
0 .4 2
$ 85,900
212,700
0 .36
0.87
$ 78,500
87,800
0.47
0 .73
Personal Trusts:
New Y o r k ...........
New Jersey.........
16,700
21,800
0.36
0.34
31,200
46,300
0 .3 8
0.31
41.000
49.000
0.31
0 .4 5
39,900
76,200
0 .3 5
0 .3 5
59,100
92,900
0.31
0.41
47,900
72,600
0 .32
0.39
Pension T rusts:
New Y o r k ...........
New Jersey.........
156,900
36,600
0.25
0.02
76,100
68,400
332.500
115.500
0 .1 4
0.17
38,600
30,300
0 .2 5
0 .3 5
282,000
73,700
0.15
258,900
72,800
0 .1 5
Personal Agencies
New Y o r k ...........
New Jersey.........
39,400
301,600
0.19
0.12
58,100
63,700
0 .17
0 .2 6
83,700
44,200
0.20
0 .14
35.000
94.000
0 .4 0
0.20
149,100
0.02
0.20
114,400
75,100
0.02
0.21
0 .19
Corporate Trusts:
New Y o r k ...........
New Jersey
57,800
118,900
0.06
0.03
125,600
0.09
267,300
26,600
0 .0 8
0 .13
106,500
993,300
0.07
0 .08
534,100
19,800
0.07
0 .17
317,700
404,000
0.07
0.08
* Rates of return represent total commissions and fees as a percentage of the carrying value of trust account assets. See footnotes 4 and 5 to the accompanying text,
t N o income shown, banks probably on a “ cash basis” .
99
FEDERAL RESERVE B AN K OF NEW YO RK
D E P A R T M E N T STO RE T R A D E
Sales at department stores in the Second Federal Reserve
District rose 3 per cent in June, on a seasonally adjusted basis,
and preliminary data indicate that this June’s sales were 1 per
cent higher than sales in June of last year. The year-to-year
increase in June, combined with earlier increases in February
and April, offset sales decreases in January, March, and May,
and brought total sales for the January-June period to a level
just equaling the first six months of 1953.
Consumer buying at Second District department stores has
been more stable than at stores in the rest of the country in
the first five months of this year. Sales at Second District
department stores were 1 per cent under the first five months
last year, a more favorable record than was achieved in any
other Federal Reserve District except Boston. The remaining
Districts experienced year-to-year declines in department store
sales ranging from 2 per cent in the Minneapolis District to
11 per cent in the Cleveland District, while sales for the country
excluding the New York District fell almost 5 per cent below
those of 1953.
The relatively favorable 1954 sales experience of Second
District stores is in contrast to the record of the last period
of recession in economic activity, in 1948-49. In 1949, for
example, Second District sales declined more than sales for
the rest of the country, both during the first five months and
during the year as a whole. The contrasting 1954 experience
may indicate that recent declines in economic activity have
been more marked elsewhere than in this District, and that the
trend of department store sales here has consequently reflected,
at least in part, a greater degree of income stability in the
Second District than in the rest of the country. There is other
evidence tending to confirm this hypothesis. In the first four
months of this year, nonagricultural employment declined at
a somewhat slower rate in the District than in the country.
Also, the impact of declining farm prices on total income
appears to have been slighter in this District than in any other.1
In both the District and the country, basement sales have
shown greater strength in 1954 than main store sales, in com
parison with a year ago, possibly reflecting more "bargain
consciousness” on the part of consumers in a period of 'softer”
economic conditions. Both basement and main store sales,
however, have declined more elsewhere, on the average, than
in the Second District, where basement store sales were at
about the 1953 level in the first five months of 1954 and main
store sales were down slightly over 1 per cent, giving a decline
of about 1 per cent from last year in total sales for Second
District department stores for the period January through May.
Among major main store categories, sales increases were
registered by Second District stores in piece goods and house
hold textiles and in "miscellaneous” main store departments,
such as toys, sporting goods, candy, and cameras. But for the
1 See "The Economy of the Second Federal Reserve District:
Part I— Where Does the Second District Get Its Income?”, this
Review, November 1953, pp. 169-72.
country as a whole, preliminary figures indicate that every
important merchandise group showed sales below year-ago
figures. Moreover, Second District sales declines were moderate
in most cases—only 1 per cent for homefurnishings, and rang
ing around 2 per cent below January-May 1953 for small wares,
women’s and misses’ accessories, and men’s and boys’ wear—
and were marked only in women’s and misses’ apparel, where
sales declined over 3 per cent.
In the homefurnishings group, declines in sales of furniture
and bedding and domestic floor coverings slightly more than
offset increased sales of housewares, phonographs, records,
radio and television sets, and major household appliances,
giving a modest decrease in sales for the group as a whole.
Appliance sales were up only slightly from last year for the
January-May period. However, after declining sharply in
January, they showed moderate year-to-year gains in each of
the next four months. This has led to some speculation as to
whether department store appliance sales—which have fallen
steadily and substantially in recent years as a result of compeDepartment and Apparel Store Sales and Stocks, Second Federal Reserve
District, Percentage Change from the Preceding Year
Net sales
Area
Jan.through Feb. through
May 1954 May 1954
May 1954
Department stores, Second District..........
New York—Northeastern New Jersey
Metropolitan Area..........................
New York City..................................
Nassau County...................................
Westchester County...........................
Northern New Jersey.........................
Fairfield County....................................
Bridgeport..........................................
Lower Hudson River Valley..................
Poughkeepsie......................................
Upper Hudson River Valley..................
Albany-Schenectady-Troy
Metropolitan Area.......................
Schenectady....................................
Central New York State........................
Utica-Rome Metropolitan Area.........
Syracuse Metropolitan Area...............
Northern New York State.....................
Southern New York State......................
Binghamton Metropolitan Area.........
Elmira................................................
Western New York State.......................
Buffalo Metropolitan Area.................
Niagara Falls............................
Rochester Metropolitan Area..........
Apparel stores (chiefly NewYork City)...
-
4
-
Stocks
on hand
May 31,
1954
1
0
-
2
4
3
—
- 4
- 8
- 7
-1 1
-1 1
- 9
- 9
- 6
0
0
—
-j- 3
- 3
- 3
- 8
- 8
0
0
—
+ 3
- 2
- 2
- 8
- 8
-
3
4
0
-
1
4
0
0
- 6
- 7
- 4
- 7
- 8
- 4
- 7
- 6
- 6
- 5
-1 4
—
-
3
4
2
3
-
6
3
2
-1 2
+
+
+
-
2
4
1
+
+
-
4
-
0
2
3
0
6
-
3
-
-
2
3
1
3
5
1
— 6
-1 1
2
-11
- 2
- 2
2
8
1
+ 4
- 1
0
-2 3
—
+ 3
0
+
+
+
+
+
1
4
6
3
2
3
G
4
7
_
1
+ 5
+ 1
+ 1
3
3
1
3
+
+
3
3
3
3
+ 12
2
-
2
-
5
Indexes of Department Store Sales and Stocks
Second Federal Reserve District
(1 9 4 7 -4 9 averagerrlO O per ce n t)
1954
1953
Item
M ay
April
March
M ay
Sales (average daily), unadjusted.................
Sales (average daily), seasonally a d ju sted ..
98
100
101
102
85
99
101
103r
Stocks, unadjusted............................................
Stocks, seasonally adjusted............................
118
115
118
113
116
111
120r
117r
r Revised.
M ONTHLY REVIEW , JULY 1954
100
tition from other appliance outlets and the discontinuation,
reduction in size, and leasing of many appliance departments—
may not finally have "bottomed out”.
Sales decreases were general in departments in the small
wares group, with only the silverware department showing a
significant gain in sales. Similarly, in womens and misses’
accessories lines, only handbags and small leather goods sales
registered much improvement. The increases in both silver
ware and handbag sales probably reflected the effect of the
excise tax reductions on April 1.
Men’s and boys’ wear sales, which had shown a small (about
1 per cent) increase through April of this year compared with
1953, fell sharply—by about 14 per cent—in May, bringing
sales for 1954’s first five months slightly below the correspond
ing period a year ago. Sales of women’s and misses’ apparel for
the five months fell over 3 per cent from the 1953 level, with
the largest declines coming in furs (almost 8 per cent) and
dresses (over 7 per cent). Girls’ wear, and blouses, skirts, and
sportswear showed moderate sales gains.
The reduction on April 1 in rates of the Federal retail excise
tax had an expected favorable effect in April and May on sales
of furs, handbags, jewelry, luggage, silverware, and toilet arti
cles. Sales of these items in April showed increases ranging
from 6 to 34 per cent over April last year. Fur sales are par
ticularly notable in this respect. They showed year-to-year
losses of 15, 6, and 42 per cent in January, February, and
March, before the tax was reduced, but gained by 34 and 33
per cent in April and May, after the reduction took place.
Part of the increases in sales of items on which the tax was
reduced reflect, of course, the influence of the Easter shopping
season (which fell mostly in March last year but mostly in
April this year). This influence may be eliminated to some
extent, however, by combining March-April sales and com
paring the total with a similar aggregate for last year. Such a
comparison indicates that the tax reduction provided a notice
able initial stimulus to sales, and reports for May suggest that
this sales stimulus has continued to be felt.
SELECTED ECONOMIC INDICATORS
United States and Second Federal Reserve District
Percentage change
Item
1954
Unit
M ay
April
1953
March
M ay
Latest month Latest month
from previous
from year
month
earlier
U N IT E D STATE S
Production and trade
Industrial production*......................................................................
Electric power output*.....................................................................
Ton-miles of railway freight*..........................................................
Manufacturers’ sales*.......................................................................
Manufacturers’ inventories*...........................................................
Manufacturers’ new orders, tota l* ................................................
Manufacturers’ new orders, durable good s*................................
Retail sales*........................................................................................
Residential construction contracts*..............................................
Nonresidential construction contracts*........................................
Prices, wages, and employment
Basic com m odity p ricesf..................................................................
Consumer p ricesf.............................*................................................
Personal income (annual rate)*......................................................
Composite index of wages and salaries*.......................................
Nonagricultural employment*JJ....................................................
Manufacturing em p loy m en t*^ ...................... ...............................
Average hours worked per week, m anufacturing^ J.................
Unemployment**...............................................................................
Banking and finance
Total investments of all commercial banks.................................
Total loans of all commercial banks..............................................
Total demand deposits adjusted.....................................................
Currency outside the Treasury and Federal Reserve Banks*.
Bank debits (338 cen ters)*!............................................................
Velocity of demand deposits (338 centers)*§. ............................
Consumer instalment credit outstandingf...................................
United States Government finance (other than borrowing)
National defense expenditures........................................................
+
+
+
-
2
3
3
1
1
#
+ 1
+ 3
+ 3
- 7
_
+
88.1
109.8
114.0
284.7
248
49,781
17,531
4 0.7
1,306
#
#
#
#
#
#
- 1
+ 1
- 5
+
+
+
75,740p
6 7 ,050p
96,700p
30,010
64,116
122.5
20,900
72,660
65,440
97,490
30,110
61,281
120.0
20,213r
+ 2
+ 1
#
+
+
+
-
3
2
#
—
3,036
5,303
3,619p
12,260
6,231
4 , 125p
5,294
6 , 643r
4,215r
+ 61
+ 17
- 4
—
_
138
204p
215p
112.5
7 ,5 1 3 .8 p
2 ,6 3 9 .6p
60,479
4,313
159.9
137
195
191
112.4
7 ,5 0 0 .6
2 ,6 6 7 .0
64,069
4,450
166.0
141
172
196
111.4
7 ,6 5 4 .0
2 ,8 3 3 .7
51,281
4 , 132r
139.3
+ 1
+ 5
+ 13
#
#
- 1
#
- 7
+ 3
_
100
100
100
$
$
$
$
$
100
100
125 p
169
—
24. lp
4 4 .8 p
23. lp
10. lp
—
219p
172 p
123
165
89p
2 4.4
45.2
23.0
10.0
1 4 .2p
213
184
1947-49= 100
1947-49-= 100
1947-49 ** 100
billions of $
1 9 3 9 - 100
thousands
thousands
hours
thousands
92.8
110.9p
115.0
—
—
4 8 ,162p
16,034p
39.3 p
3,305
9 2.5
111.0
114.6
282 .Op
255p
48,247
16,145
39.0
3,465
8 9.8
110.5
114.8
282.9
254
48,427r
16,276r
39.5
3,725
millions of $
millions of $
millions of $
millions of $
millions of $
1 94 7 -4 9- 100
millions of $
78,570p
6 7 ,120p
98,700p
30,013p
60,854
119.4p
20,932
7 7 ,360p
66,750p
9 8 ,600p
29,995
62,918
121.3r
20,909
1947-49 1947-49 *
1947-49 «
billions of
billions of
billions of
billions of
billions of
1 9 4 7 -4 91947-49 -
millions of $
millions of $
millions of $
4,882
6,228
3,477p
123
165
87
24.1
45.8
22.9
10.2
1 3 .9r
205
182
137
161
106
2 5 .8
45.7
2 5.9
13.1
14.4
164
159
9
5
13
_
7
__
2
_ 11
_ 23
#
+ 34
+
8
+
_
_
_
+
-
5
1
1
#
3
3
9
3
8
3
1
#
1
1
4
8
7
18
SEC O N D F E D E R A L R E S E R V E D IS T R IC T
Electric power output (New York and New Jersey)*...................
Residential construction contracts*...................................................
Nonresidential construction contracts*............................................
Consumer prices (New York C it y )f..................................................
Nonagricultural em p loym en t*ff........................................................
Manufacturing em p loy m en t*ff..........................................................
Bank debits (New York City)*1f.......................................................
Bank debits (Second District excluding New Y ork C ity )* .........
Velocity of demand deposits (New Y ork C it y ) * !..........................
1947-49 ** 100
1947-49 =» 100
1947-49 - 100
1947-49= 100
thousands
thousands
millions of $
millions of $
1 9 4 7 -4 9- 100
140
—
—
112.9
—
—
60,750
4,016
164.1
1
10
11
1
2
—
7
+ 18
3
+ 18
+
+
+
N ote: Latest data available as of noon, July 2, 1954.
p Preliminary.
r Revised.
H The seasonal adjustment factors for this series have been revised.
* Adjusted for seasonal variation.
** Unemployment figures for M ay 1953 are on the basis of the old sample and, therefore, not
t Seasonal variations believed to be minor; no adjustment made,
necessarily comparable with the figures shown for 1954 which are on the new sample
t Series revised 1943 to date.
basis; consequently, a percentage change from a year ago is not shown.
f t Series revised back to January 1952.
§ Previously reported for United States outside New York City. Now
excludes New York C ity and six other leading financial centers.
i t Employment and hours data have been revised as a result of adjusting employment
levels to a more recent benchmark.
Change of less than 0.5 per cent.
Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.
@FedFRASER