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MONTHLY REVIEW O f Credit and Business Conditions FEDERAL V olum e 40 RESERVE BANK MA R CH OF NEW YORK 19 5 8 No. 3 MONEY MARKET IN FEBRUARY An easier atmosphere prevailed in the money market during February. Reserve positions of member banks as a whole continued to be relatively comfortable during the four-week period ended February 26, as they were during the latter part of January. On February 19 the Federal Reserve Board of Governors announced a Vi per cent reduction in member bank reserve requirements against demand deposits. For central reserve and reserve city banks the new reserve ratios took effect on Febru ary 27, while for country banks the effective date was March 1. This reduction freed approximately 500 million dollars of reserves. The required reserve ratios against net demand deposits are now \9Vz per cent for central reserve city banks, \lV i per cent for reserve city banks, and IIV 2 per cent for country banks. Reserve requirements against time deposits of 5 per cent were not changed. At times during the early and middle portions of Febru ary, some temporary money market pressures developed in New York, partly in connection with the Treasury’s largescale refunding operation, as described below. These pres sures were short-lived, however, and over the month as a whole the money market was decidedly easier than in any month in recent years. On most days, Federal funds were readily available at rates well below the 23A per cent effec tive ceiling set by the discount rate prevailing in most Districts. Two Federal Reserve Banks reduced their dis count rates by Vk per cent to 2% per cent during the month, thus joining the nine Reserve Banks that had taken this step in January. The reductions took effect at the Minneapolis Reserve Bank on February 7 and at the Dallas Bank on February 14. At the month end, only the San Francisco Bank continued to post a 3 per cent rate. The net effects of market forces that influence re serves were in close balance during the February state ment weeks, following the major changes that had worked through by late January. The Federal Reserve System inter mittently released and absorbed reserves, showing little net change in its Government securities holdings. This was in sharp contrast to the System’s net sales of almost 600 million dollars of Government securities during February 1957. Reflecting the easier reserve position, on average, during the four statement weeks that ended in February, member bank borrowings from the Federal Reserve Banks dropped to a daily average of 245 million dollars. This was the lowest level for any comparable period in over three years. At the same time, average free reserves climbed to a three-year high of around 245 million dol lars, reflecting average excess reserves of 490 million. Treasury bill rates rose in the early part of February but then declined sharply to close the month well under the low level reached in late January. At the same time, a number of short-term rates such as those on commercial paper and bankers’ acceptances declined further, and at the month end were at the lowest levels since August 1955. In the market for longer term securities, prices of Treas ury issues strengthened over the first half of the month, paced by the favorable reception accorded the new 32year 3V2 per cent bond. There was some fluctuation in the latter part of the month, but the earlier gains were largely maintained. Even the Treasury’s announcement on February 20 that it would shortly seek to raise about IV4 billion dollars through a new bond of around nineyear maturity led to only a moderate and quickly reversed price decline. In corporate and municipal markets, inves tors offered some resistance to the heavy volume of Feb ruary offerings, especially of municipals, while prices of seasoned issues declined. CONTENTS Money M arket in F e b r u a r y .................................. International M onetary Developments ............. P uerto Rico’s M onetary System and Economic Grow th .................................................................... Earnings and Expenses of Second D istrict M em ber Banks in 1957 .................................... Selected Economic I n d ic a to r s .............................. 33 36 38 43 44 34 MONTHLY REVIEW, MARCH 1958 T abic I C hanges in F actors T en ding to Increase or D ecrease M em ber B ank R eserv es, February 1958 (In m illions of dollars; ( + ) denotes increase, ( — ) d e c r e a se in e x c e s s r e s e r v e s ) Daily averages—week ended Net changes Factor Feb. 5 Operating transactions Federal Reserve float....................................... Currency in circulation.................................... Gold and foreign accoun t.............................. Other deposits, etc............................................ T otal........ ..................................... Direct Federal Reserve credit transactions Government securities: Direct market purchases or sales.............. Held under repurchase agreements............ Loans, discounts%and advances: Member bank borrowings........................... Other.............................................................. Bankers’ acceptances: Bought outright........................................... Under repurchase agreements.................. 129 10 96 IS 103 + + — - 154 261 33 52 45 - 99 + 14 6 + 29 87 - 106 4- 97 - 4 + + 4— 159 116 46 10 73 + 27 -f- -1— - Feb. 26 Feb. 19 Feb. 12 12 - 102 4- 99 18 + 19 4- 122 + 33 4- 82 78 - 202 42 - 12 - 42 - 7 42 4- 95 88 4- 45 37 -f- 75 1 - 208 - 142 1 1 + - 1 4 - 138 4— — Total............................................... - 119 + 156 4- 26 - Total reserves......................................................... Effect of change in required reserves f .................. - 92 5 + f 44- 68 37 — 213 4 — ISO + 81 Excess reserves]..................................................... - 97 4- 110 4- 105 - - 189 410 286 520 361 625 Daily average level of member bank: Borrowings from Reserve Banks.................... Excess reserves t ............................................... 57 5b 201 217 153 408 99 247 ± 491? Note: Because of rounding, figures do not necessarily add to totals. * Includes changes in Treasury currency and cash, f These figures are estimated. Average for four weeks ended February 26. t B a n k R e s e r v e P o sit io n s As noted earlier, member bank free reserves rose to a daily average of about 245 million dollars during the four statement weeks ended February 26. The banks main tained average excess reserves of around 490 million dol lars, or somewhat less than in January, but they were able to cut their average borrowings by more than one half to 245 million dollars. As an additional measure of the banking system’s increased liquidity and greater credit potential, it may be noted that total member bank reserves during February averaged about 19,020 million dollars, compared with about 18,825 million a year earlier; in Jan uary total reserves averaged about the same as a year earlier. Early in the month, Treasury deposits with the Reserve Banks fell sharply, thus furnishing a sizable block of re serves to member banks. A further boost to bank reserves in early February was provided by the continued inflow of currency (the record post-Christmas inflow had already added about IV2 billion dollars to reserves in January). Later, toward the middle of the month, the Treasury mone tized 100 million dollars of its so-called free gold, using the proceeds of this transaction to bolster its balance with the Reserve Banks. Other factors, such as a decline in float and increases in “other” deposits, were withdrawing reserves over the first part of February, however. Thus, even though member banks cut their average borrowings from the Reserve Banks below 200 million dollars in the first week of the month, borrowings were increased again toward the middle of February. Simultaneously, an active demand developed for Federal funds and Treasury bill rates advanced. These money market pressures tended to be concentrated in New York, where banks were extending credit to Government securities dealers against “rights” to the midmonth Treas ury refunding. The exchange was generally successful, but the substitution in some cases of longer term issues for the maturing short ones resulted in considerable shifts in the ownership pattern. In turn, this led to active trading in “rights”, and to loans against rights that sometimes strained reserve positions of the money market banks. During the latter half of the month, member bank re serve positions continued easy for the country as a whole and the money market atmosphere also became easier again after a letup in the pressures on New York City banks. The midmonth increase in float, which was unusually large for February because snowstorms delayed the routing and processing of checks, more than offset the reserve effects of a replenishment of Treasury deposits, while renewed currency inflows also released reserves. (The lowering of reserve requirement ratios did not begin to apply until February 27 and thus did not affect reserve positions in the statement weeks covered here.) In the final week of February, member banks sharply reduced their debt to the Reserve Banks to a daily average of only 153 million dollars—the lowest for any week since late in 1954. G o v e r n m e n t S e c u r it ie s M a r k e t Market developments during the first half of February mainly reflected the favorable investor reaction to the Treasury’s exchange offering. Subscription books were open from February 3 to 5, and during this period the holders of 15.3 billion dollars of the 16.8 billion of eligible issues chose to exchange into the new securities. The 15.3 billion total included 9.8 billion dollars of the 2Vi per cent one-year certificate, 3.8 billion of the 3 per cent bonds of 1964, and 1.7 billion of the 3 Vi per cent bonds of 1990. In view of the size and complexity of the operation, the “attrition” on the exchange was quite low. A further measure of the success of the refunding was the fact that the new securities immediately moved to premium quotations in active “when-issued” trading. By February 14, the actual exchange date, the 32-year bond carried a premium of about 3 points. Paced by these ad vances, other bonds and notes also scored price gains over the first half of the month. 35 FEDERAL RESERVE BANK OF NEW YORK Prices of the longer issues fluctuated during the latter part of the month, but in the intermediate and shorter range there were continued gains. The announcement of lower reserve requirements provided only a modest stimu lus to prices, mainly because such a move had been antici pated for some time and its magnitude was less than had been expected in some quarters. On the other hand, prices dropped only briefly on February 21, following the an nouncement of the Treasury’s new cash offering. Over the entire month, price increases for notes and bonds were mainly in the neighborhood of Vt. point to 1V2 points, with intermediate maturities showing some of the largest gains. The new 32-year bond closed the month at a premium of 25/s points. Detailed terms of the Treasury’s new cash offering for about IV4 billion dollars were announced after the close of the market on February 25. The maturity was set at just under 8 V2 years, and the interest rate at 3 per cent. Subscription books were open on February 28 and the de livery date is March 10. The new bonds may be paid for by credit to Treasury Tax and Loan Accounts, but sub scriptions by commercial banks for their own account were restricted to 25 per cent of the combined capital, surplus, and undivided profits of the subscribing bank. In late January and early February, Treasury bills were in heavy demand, partly reflecting reinvestment by sellers of “rights” in the midmonth refunding. In February’s first auction the average issue rate was 1.58 per cent— down sharply from 2.20 per cent a week earlier. Toward the middle of the month, demand for bills slackened some what. The closing of subscription books on the Treasury’s exchange offering removed sellers of “rights” as a source of demand, while the temporary tightening of reserve posi tions in New York caused some banks to sell bills. In the next two auctions, the average issuing rate was 1.73 per cent. Later in February, bill rates dropped abruptly again, broadly paralleling the trend in late January. The sharp rise in demand appeared to reflect a number of factors, including the renewed money market easiness and market reactions to the fact that the new Treasury offering was not in the short-term area. The average issue rate in the final auction of the month plummeted to 1.20 per cent. As shown in the chart, this marked a drop of more than 2 percentage points from last October’s peak. O t h e r S e c u r it ie s M a r k e t s In contrast to the net price gains recorded by longer term Government securities during February, the markets for corporate and municipal issues were fairly heavy over the month. New offerings continued in large volume, and deal ers experienced some difficulty from time to time in moving issues into investors’ hands. Even the announcement of lower reserve requirements stimulated only a moderate reduction in dealers’ holdings. No serious congestion de veloped, however, although price concessions were made in some cases. New corporate offerings in February totaled an esti mated 390 million dollars, not far below the 430 million in January. Investor response was mixed, depending on the yields available. Thus, a large sales finance com pany issue was well received when reoffered to yield 4.10 per cent, but two issues of Aa-rated utility bonds around midmonth moved slowly when reoffered to yield 3.80 per cent, even though this was 20 basis points above a similar offering in the second half of January. Later in the month, two other Aa-rated issues were marketed at reoffering yields of 3.95 and 4.00 per cent and these issues, too, did did not meet with much investor enthusiasm. Yields on seasoned issues showed comparatively little change during the month, however. Moody’s yield average for top-rated corporates was 3.61 per cent at the end of February, com pared with 3.58 per cent a month earlier. New issues by various State and local authorities during February totaled some 825 million dollars, This was a record for any month, topping the January figure by about 150 million and the year-earlier total by roughly 350 million. Here, too, market response was mixed as in vestors resisted offerings that were considered too low in yield. For example, a high-rated State issue maturing 1985-95 was well received early in the month at reoffering yields of 2.85-3.10 per cent, but this yield was appreciably higher than on a similarly rated State issue in January. Yields on seasoned high-grade municipal issues changed SHORT-TERM RATES Per c ent 1957-58 Pe r c en t 36 MONTHLY REVIEW, MARCH 1958 little during the first few weeks of the month but rose significantly in the latter part. Moody’s yield average moved up from 2.68 per cent in late January to 2.76 per cent near the end of February. Interest rates on short-term private debt instruments continued to drop sharply during February. On Febru ary 3, the day the Treasury bill issue rate fell to 1.58 per cent, major sales finance companies announced a Vi per cent reduction on rates for all maturities of directly placed paper, and a further V a per cent reduction was made a week later. On February 26, following a new downswing in Treasury bill rates, the rates on finance company paper were cut again, bringing the rate on 30 to 89-day paper to 1% per cent. Dealer rates on commercial paper were re duced by ¥s per cent on February 4, by another Vs per cent on February 10, and twice more by Vs per cent each on the 25th and 26th. The dealers’ offered rate on prime 4 to 6-month paper was thus pared to 2¥s per cent. As indicated in the chart, this rate has dropped by 1% per cent in the past few months. Dealers in bankers’ acceptances also announced further reductions in quoted rates: Va per cent on February 4, on February 21, and on February 28. These reductions placed the dealers’ offered rate on 1 to 90-day acceptances at 1% per cent (and the bid rate at 2 per cent). M e m b e r B a n k C r e d it During the four weeks ended February 19, loans and investments of the weekly reporting member banks in creased by 500 million dollars, principally reflecting addi tions of 750 million dollars to investment holdings, while loans declined on balance by 250 million dollars. The chief source of weakness in loans during recent weeks has been the continued decline in business borrow ing. Business loans of the weekly reporting banks de creased in three of the four latest weeks, and the net drop over the first seven weeks of this year, as indicated in Table II, was nearly 1,800 million dollars. To be sure, much of this drop was seasonal, but in the comparable Table II C hanges in P rin cip al A s s e ts and L iabilities o f th e W eek ly R eporting M em ber B anks (In m illions of dollars) Change Statement week ended Item 31, 1957 to Feb. 19, 1958 Jan. 29 Feb. 5 Feb. 12 Feb. 19 218 — 1 — 179 — 9 21 - - 214 + 10 + 584 12 + 119 - 100 4 + 66 + 6 15 + 126 5 - 281 1 95 - 428 + 481 - 47 - 257 - 2,236 + + 42 20 + 27 + 340 + 58 81 - 146 + 285 + 634 663 Other securities........................................ + + 62 32 + 367 + 31 + 23 + 114 + 139 11 + + 29 247 Total investments................................ + 94 + 398 + 137 + 128 + 276 - 334 + 879 + 80 - 129 - 1,960 Loans adjusted* and “other” securities 168 — 396 + 247 + 512 - 171 4- 67 - 100 268 -f 727 1,989 Liabilities Demand deposits adjusted.............................. Time deposits except Government................ U. S. Government deposits............................ Interbank demand deposits: 422 + 198 + 194 - 254 + 325 + 370 - 332 + 318 - 196 — 666 + 171 + 921 + 2,005 1,262 346 + 429 32 - - Assets Loans and investments: Loans: Commercial and industrial loans........... Agricultural loans.................................... Securities loans......................................... Real estate loans...................................... All other loans (largely consumer)........ Total loans adjusted*.......................... Investments: U. S. Government securities: Treasury bills........................................ Total loans and investments adjusted* . , _ _ 249 21 155 16 33 6 1,788 2 205 _ 24 213 - + 1,812 214 * Exclusive of loans to banks and after deduction of valuation reserves; figures for the individual loan classifications are shown gross and may not, therefore, add to the totals shown. period of 1957 the net decline was less than 800 million and in 1956 it wras 400 million. A sizable part of the sharp business loan decline this year reflects the larger-than-usual repayments of bank loans by sales finance companies. In turn, this was related to the fact that sales finance firms were able to obtain a larger volume of credit at lower rates through direct placement of short-term paper. Most other groups of business borrowers have also made larger-thanusual net repayments to the banks thus far in 1958. In ventory reduction is frequently mentioned as the reason for the decline, although in some cases the repayments may have resulted from a funding of short-term debt and other factors. INTERNATIONAL MONETARY DEVELOPMENTS M o n e t a r y T r e n d s a n d P o l ic ie s The maintenance of credit restraint has continued in recent weeks to dominate the monetary scene in a number of countries. U n ited K ingdom . The British authorities last month re affirmed their determination to retain their present restric tive policies as long as necessary. The Chancellor of the Exchequer declared that “tight control on money and credit at home must certainly continue for the present”, and that the government had limited its own demand “to a greater extent than has been realized”. He also predicted that restraints could be relaxed once it was evident that wage settlements were not going to drive up prices further. His views were echoed ten days later by the Governor of the Bank of England, who stated that the bank whole heartedly supported the Chancellor’s declaration “that the battle against inflation was only half won and that the FEDERAL RESERVE BANK OF NEW YORK general lines of policy laid down last September must be maintained until that half was converted into a whole”. Support of the government’s anti-inflationary measures of last September and stress on the need to contain exces sive wage demands are also apparent in the first report (published on February 21) of the Council on Prices, Productivity, and Incomes, which is under the chairman ship of Lord Cohen and also includes Sir Dennis Robertson. The report not only terms the government’s measures “justified and indeed overdue”, but also welcomes the emphasis laid on the importance of re-establishing effective control over the quantity of money. In discussing the steps taken last September, the most dramatic of which was the increase in the Bank of England’s discount rate to 7 per cent from 5, the report concludes that the authorities were right to emphasize that the object of these measures was not merely to correct the country’s international reserve position, but also to influence domestic prices and costs. At the same time, the authorities are continuing their policy of funding, in order to reduce the size of the floating debt and thus cut down the clearing banks’ liquidity. In mid-February the Treasury issued a 300 million pound, 5Vi per cent Funding Loan 1982-84, for cash payment at IVz per cent discount. Two special features of the loan that are of interest to foreign investors are the permission for nonresidents to purchase the issue with securities sterling and the exemption from British income taxes of the interest paid to such buyers. In floating this issue the authorities were taking advantage of a revival in the giltedged market that had lowered the yield of 2Vi per cent Consols to 5.13 per cent on February 6 and 7, from 5.17 on January 31 and 5.37 at the end of 1957; on February 28, the yield stood at 5.10 per cent. The market also continued to bid up the price of Treasury bills despite the fact that money market stringency forced the discount houses into the Bank of England on several occasions during the month. As a result, the average Treasury bill tender rate fell to 5.97 per cent at the third February tender; it rose again to 6.01 per cent at the last tender of the month. F ran ce. The French National Credit Council on February 7 set a ceiling on the amount of short and medium-term credit that French banks may extend to the private sector. The ceiling was set, for each individual bank, at the average of the volume of short and mediumterm credit outstanding on September 30 and December 31, 1957. Within this ceiling, each bank will be permitted to open lines of credit at its own discretion; the banks, moreover, may exceed the limit by 3 per cent for credits extended to finance exports. In view of the level of credit at present outstanding, the council’s decision does not appear to involve an immediate contraction of credit, but 37 rather calls for greater selectivity in the banks’ lending policy in the future. The new restriction serves to supple ment last year’s anti-inflationary measures. These included a raise in the Bank of France’s discount rate, in two stages, from 3 per cent to 5, with simultaneous increases in the bank’s penalty rates; a 35 per cent reduction, in successive stages during July-December, in the banks’ discount ceil ings at the Bank of France; and a tightening of consumer credit regulations. N orw ay. The Bank of Norway and the Norwegian Finance Ministry, on the one hand, and the commercial and savings banks, on the other, in mid-January extended their gentlemen’s agreement on loans and advances; during 1958 these are not to exceed last year’s level. The central bank had declared itself well satisfied with the operation of the original agreement (which had been effective in 1956 and 1957), despite a slight increase in loans above the agreed amount. In announcing the renewal, the Bank of Norway noted that, when it was considering the need for continued restriction of bank-financed demand, it had taken account of the continued high level of economic activity in Norway, which has been accompanied by a shortage of labor, particularly in skilled occupations, and by a persistent upward trend in domestic prices. The bank stated, however, that the agreement was aimed, not at curtailing credit essential for current production, but rather at limiting new investment that might affect the balance of payments unfavorably. N ew Z ealand. The New Zealand trading banks last month were requested by the Minister of Finance to cut their advances by some 10 per cent by the end of June; the banks are to give preference to loans for essential pro duction and particularly for exports. The reduction, which would bring bank lending back to the level of June 1957, is intended to curtail domestic spending, and follows in the wake of the recent reimposition of quantitative import controls; the latter, in the words of the Finance Minister, are likely to remain “for some considerable time”. These restrictions on both domestic and import expenditures are a response to the recent drop in New Zealand’s inter national reserves and the prospects of reduced export earnings in 1958. Canada. In Canada, the trend toward monetary ease that had become apparent in the closing months of 1957 continued in January and February. The slower pace in Canadian economic activity, as evidenced by the slackening in nonresidential building and by sharply in creased layoffs in manufacturing, has led to a more-thanseasonal decline in the chartered banks’ business loans, which fell 74 million dollars or 2 per cent in the eight weeks ended February 19. This decline is clearly not attributable to any tightness in the banks’ reserve posi- MONTHLY REVIEW, MARCH 1958 38 lions, since their cash and liquid-asset ratios continue comfortably above the required minima and they have not borrowed from the Bank of Canada since August. In view of this easy liquidity position, the chartered banks have been channeling some of their available funds into govern ment bonds, the increase in their portfolios amounting to almost 200 million dollars or 11 per cent between the end of 1957 and mid-February. As a result, government bond yields declined somewhat in the second half of January. In the short end of the market, the average Treasury bill tender rate declined to 2.99 per cent at the first February tender, rose slightly in mid-February, and again fell to 2.86 on February 27, perhaps partly in response to the fall in the United States bill rate. In line with this decline, the chartered banks last month reduced their prime loan rate to 5 Vi per cent from 5 Vi, which had been in effect since early December. E xchange R ates Commercial demand and a favorable market reaction to the 131 million dollar increase in the United Kingdom’s gold and dollar reserves during January held the quotation for American-account sterling at the $2.81% level until February 6, when it moved down to $2.812% 2 on com mercial offerings. By February 10 and 11, however, gen eral covering in New York and offerings of United States dollars in London had firmed the rate to $2.81%, the highest level since June 1954. A subsequent weakening to $2.812% 2 on February 14 was attributed to commercial offerings of sterling, the reports of the widening of Britain’s trade gap, and the results of the Rochdale by-elections. The quotation then recovered to $2.81% on February 17. On February 21 it turned lower under pressure of sub stantial commercial demand for dollars in London, and by February 26 stood at $2.80%. At the month end it was quoted at $2.811% 2. The reported movement of short-term funds to London was associated with a widening in the discounts on three and six months’ sterling from 23/s and 4% 6 cents on February 3 to 25/s and 4 1%2 on February 10 and 14, re spectively. The discounts subsequently narrowed to 2 1% 2 and 4%2 but at the month end stood wider at 25/s and 4% cents. Transferable sterling, quoted at $2.79 on February 3, firmed steadily under Continental demand and reached $2.79Vi on February 19 and 20. After easing to $2.79%2, the rate recovered on February 28 to $2.79% 6. Investor interest, particularly in an offering of a British oil company and the 300 million pound British Treasury 5 Vi per cent Funding Loan 1982-84, firmed the securities-sterling quo tation from $2.74Vi early in February to $2.79Vi by the midmonth. The quotation dipped to $2.78 but at the month end was quoted at $2.79V4. The Canadian dollar steadily improved after touching a low of $1.01 Vi on February 4, following the announce ment of the calling of general elections in Canada. The recovery at first reflected demand from London and the Continent, and later, Canadian commercial offerings of United States dollars and demand for Canadian dollars in connection with several large Canadian securities issues. The rate reached $1.02Vi in the morning of February 17, but in the afternoon good commercial demand for United States dollars in Canada caused a rather sharp decline in the quotation, and on the following day Canadian dollars were offered in the New York market at $1.013% 2* The quotation subsequently improved, to close on February 28 at $1.02%4. PUERTO RICO’S MONETARY SYSTEM AND ECONOMIC GROWTH Since the beginning of this year, Puerto Rico has been a part, though a special and in some respects limited part, of the Second Federal Reserve District. This marks another important forward step in strengthening the Com monwealth’s monetary mechanism and in integrating the Puerto Rican banking system with that of the United States. The new arrangement follows upon a series of steps taken in recent years to adapt the island’s monetary and banking system to the rapidly changing needs of the economy. Notable among these measures are basic revi sions in Puerto Rico’s banking code, the extension of Federal Deposit Insurance to the island, the improvement of coin and currency-supply facilities, and the establish ment of a central clearing mechanism for intra-island checks. All of these measures have tended, directly or indirectly, to reinforce Puerto Rico’s financial relationships with the continental United States. These financial relationships are part of broader political and economic ties with the mainland that were formalized in July 1952 with the establishment of the Commonwealth of Puerto Rico in a free and voluntary association with the United States. Under this compact, Puerto Rico’s in ternal autonomy is safeguarded, while the people of the Commonwealth share with the mainland a common citizen ship and currency, a unified customs and defense area, and an interlocking judicial system. Under the long- FEDERAL RESERVE BANK OF NEW YORK honored principle of “no taxation without representation” Puerto Rican residents are, however, exempt from Federal taxation; at the same time, the island benefits from a variety of United States Government services and direct grants, and has access to certain Federal financial institu tions, such as the Federal Housing Administration and the Federal farm credit agencies. The pivotal importance of these special factors in Puerto Rico’s economic expansion is set forth below. It should be noted at the outset, however, that Puerto Rico could not have secured the full advantage of the association with the mainland if the Commonwealth Government had not itself shown initiative in pursuing appropriate economic and financial policies. The success of these policies is evi dent from the sustained expansion in output and employ ment recorded over the past decade, which has made possible a near-doubling of the island’s net income and a remarkable rise in living standards. All this has been achieved in an environment of economic freedom, which in turn has promoted rapid capital formation. M o n e t a r y R e l a t io n s h ip s w it h t h e M a in l a n d Puerto Rico’s monetary relationships with the conti nental United States have played an important role in enabling the island to share in the mainland’s postwar economic expansion. A key element in these relationships is Puerto Rico’s common currency with the United States. This, in itself, has greatly facilitated the movement of capital from the United States to the Commonwealth. Another important financial tie arises from the close relationships that the seven Commonwealth-chartered commercial banks maintain with their mainland corre spondents.1 These correspondent relationships are the principal channel through which the local commercial banks replenish their liquidity in case of need. It may also be noted that Puerto Rico’s Government Development Bank holds a sizable portfolio of United States Govern ment securities and is authorized to accommodate the locally chartered banks by rediscounting their eligible paper or making advances to them secured by such paper. Although this authority has not been used so far since the credit facilities provided by the mainland correspondents have been adequate, it furnishes a potential channel for providing liquidity to the Puerto Rican commercial banks. These financial links with the mainland have been an element of strength in the Commonwealth’s banking sys tem, and have aided in keeping the island’s currency and credit supply abreast of the needs of the growing economy. 1 In addition to the seven Commonwealth-chartered commercial banks operating in Puerto Rico, there are also the branches of two mainland banks as well as the branches of two Canadian banks. 39 The total amount of dollar notes and coin circulating in Puerto Rico cannot, of course, be determined, but the expansion of commercial bank deposits and loans and dis counts provides some indication of the broad movement in the means of payment. During the fiscal years 1950-57,2 for example, private deposits in Puerto Rico’s eleven commercial banks doubled to a total of 303 million dollars; this expansion is attributable in part to the increas ing use of checking deposits on the island. Over the same period, loans and discounts rose more than two and a half times to 291 million. The growth in deposits, however, was accompanied by a sharp decline in commercial bank excess reserves. While such excess reserves at the end of the 1950 fiscal year were more than twice as large as the reserves required under Puerto Rican law, they had dropped to only about one quarter of total required re serves by the end of last September. It may be noted that the Puerto Rican reserve requirements are mainly designed to safeguard commercial bank liquidity; at present, they are fixed at 20 per cent of private demand deposits and do not apply either to time deposits or to government deposits. The legal reserves may include vault cash, bal ances in other banks, and checks in process of collection and thus, in effect, represent active funds. This contraction in excess reserves, brought about by the pressure of expanding credit demand, also reflects the reduced need to maintain as high a degree of liquidity as in earlier postwar years. This, in turn, has been the result of the significant steps taken since 1950 to strengthen further the island’s banking and currency mechanism and reinforce the financial links with the mainland. Perhaps the most important step has been the extension of Federal Deposit Insurance to Puerto Rican banks in 1950. The insurance of individual deposits up to $10,000 against loss due to bank failure has considerably bolstered confi dence in the Commonwealth’s banking system, and thus has contributed both to the marked growth in deposits and to a fuller utilization of the banks’ resources. Another important improvement has been the establish ment, at Puerto Rico’s request, of a United States Treasury cash depot on the island. This depot, set up in 1952, has assured a ready and adequate supply of currency and coin for the community. As a result, the previous need for Puerto Rican banks to carry large reserves of vault cash has been substantially reduced. Much progress has also been made since 1952 in stream lining the island’s check-clearing mechanism, which has diminished the volume of “float”, i.e., uncollected bal ances. As a result of the joint efforts of the Puerto Rican Government and Federal Reserve technicians, the Com~ 2 The Puerto Rican fiscal year runs from July 1 to June 30. 40 MONTHLY REVIEW, MARCH 1958 monwealth commercial banks devised a clearing system that draws heavily on the experience and techniques de veloped on the mainland. An agreement has been con cluded among Puerto Rican banks setting forth the pro cedures to be followed in the collection of intra-island checks, and the Government Development Bank has been designated as Settling Agent. An important tie-in with the Federal Reserve System was effected when the Government Development Bank was granted permission to establish a nonmember clearing account with the Federal Reserve Bank of New York. This has greatly facilitated the settle ment of balances and their transfer to and from the Puerto Rican banks’ New York correspondents. While there is still room for various improvements in these arrangements, the basic clearing mechanism has thus far been found to function effectively and to meet the island’s needs. Funda mental revisions have also been made since 1950 in the Commonwealth’s banking statute, resulting in improved bank supervision and examination, stronger bank-capital structures, and better safeguards against unsound and speculative banking practices. In 1950, too, the locally chartered banks were specifically authorized to affiliate themselves with the Federal Reserve System, and recently legislation has been introduced in Puerto Rico amending the Commonwealth’s banking code so as to exempt the locally chartered banks from local reserve requirements in the event of Federal Reserve membership. A significant step linking Puerto Rico with the Second Federal Reserve District was taken last January 1 when the island became part of the District for purposes of check collection. This step, which followed the adoption of par clearance of checks by the Commonwealth banks, enhances the mobility of funds between the mainland and Puerto Rico, and makes an additional Federal Reserve service available to the Puerto Rican banking system. The Puerto Rican banks’ previous practice of levying exchange charges on checks involving the transfer of funds between the Commonwealth and the mainland, while representing a lucrative source of bank earnings, not only barred the collection of checks through the Federal Reserve System, but also marked Puerto Rico as a “foreign” area. While the elimination of exchange charges involves an estimated loss in gross bank earnings of some $500,000 annually, this reduction is likely to be offset at least in part by the “repatriation” of deposits previously kept with mainland banks in order to avoid these charges. A c c e s s to t h e M a in l a n d C a p it a l M a r k e t The close tie-in of Puerto Rico’s monetary and banking structure with the mainland, along with the integrated legal and judicial system of the two areas, has greatly facilitated the Commonwealth’s access to the United States capital market. Thus, Puerto Rican Government obligations are traded in the United States on the same tax-free basis as the obligations of the State and local authorities, and pri vate Commonwealth borrowers may enter the United States market for long-term funds on the same basis as mainland borrowers. This access to the mainland capital market has been a pivotal factor enabling Puerto Rico to finance a very high rate of capital formation, which has averaged about 19 per cent of the gross national product in recent years, and last year reached a peak of 21 per cent. Because of the inadequacy of domestic savings, nearly half of Puerto Rico’s annual gross investment expenditures have had to be financed in recent years from external sources, a pro portion that compares with an average of about one tenth for the Latin American republics. The Puerto Rican Government and the island’s public authorities have been the principal Commonwealth bor rowers in the United States capital market. With the sale of a 10 million dollar government bond issue to a syndicate of New York banks during fiscal 1957, Puerto Rico’s net public debt rose to 48.6 million dollars, more than double the amount outstanding in June 1950. While this increase has been significant, the Commonwealth’s net outstanding debt is still only 45 per cent of the legal debt limit. Outside this debt limit, Puerto Rican public authorities— notably the Water Resources Authority, the Aqueduct and Sewer Authority, and the Ports Authority—floated long-term issues in the United States during 1956-57 totaling 41.5 million dollars, which brought their aggregate indebtedness to 178 million dollars last June 30. In addition to the sale of securities in the mainland mar ket, Puerto Rico has also had access to Federal long-term lending agencies operating in Puerto Rico. Thus, the Fed eral farm credit system has played an active part in extend ing mortgage and other medium and long-term loans to Puerto Rican farmers. Other long-term credit facilities for the industrial and commercial sector have been provided by the Small Business Administration, which has func tioned in Puerto Rico since 1953, and which last year made sizable disaster loans to finance repairs of damage caused by Hurricane Betsy. Moreover, a key factor in attracting a massive inflow of private mainland funds into the financing of private construction has been the Federal Housing Administration, which has made mort gage insurance facilities available in Puerto Rico. In view of the island’s heavy dependence on external capital, efforts are currently being made to develop a local capital market in order to stimulate and mobilize domestic savings, which have been consistently inadequate. Puerto Rican banks have therefore carried on an aggressive and generally successful promotional campaign to encourage FEDERAL RESERVE BANK OF NEW YORK and attract savings. The mobile banking units that have recently been put into operation in order to service the remoter regions of the island may also significantly aid in this direction. Another hopeful development was the for mation last December of a Puerto Rican investment com pany, which will specialize in underwriting and marketing Puerto Rican securities; this company, together with the branch of a mainland investment company that has been established on the island since 1952, is expected to help familiarize the Puerto Rican public with the opportunities of investment in securities. U n it e d S t a t e s G o v e r n m e n t D i s b u r s e m e n t s United States Government disbursements have also played a vital part in augmenting the island’s income and capital resources. These disbursements arise mainly out of Puerto Rico’s special links with the mainland, and con sist chiefly of United States Government expenditures on wages and salaries for a wide variety of activities in Puerto Rico, and of veterans’ benefit payments, Federal grants-inaid, and Federal excise tax and customs duty collections, which by agreement revert to the Commonwealth Treasury. The direct impact of Federal expenditures for the main tenance of defense installations, agricultural and scientific services, and other programs can be gauged by the fact that in fiscal 1957 such payments generated about 7 per cent of the island’s net income. These Federal Govern ment disbursements, however, have tended to decline since 1953 when they accounted for about 14 per cent of aggre gate Commonwealth income and surpassed both the pro portions contributed by manufacturing and by the entire Puerto Rican Government sector. The principal reason for this decline has been the curtailment of United States defense activities. Such expenditures during the last fiscal year dropped about 16 per cent to 75 million dollars. Federal grants-in-aid have been extended directly to the Puerto Rican Government, and have financed a wide range of outlays, notably road construction, agricultural exten sion services, and educational and social welfare programs. These grants are extended to Puerto Rico on the same basis as to the mainland States, even though Federal taxes are not levied in Puerto Rico. Such United States Govern ment payments, moreover, have expanded steadily over the past decade, climbing sixfold from about 4 million dollars in fiscal 1947 to nearly 24 million in fiscal 1957. The rising importance of these grants in the Common wealth budget is evident from the fact that they now account for more than 12 per cent of aggregate revenues, compared with only 4 per cent a decade ago. Federal excise taxes and customs duties, which under special arrangements between Puerto Rico and the United States are almost entirely turned over to the Common 41 wealth Government, last year totaled some 19 million dol lars, equivalent to about 10 per cent of the total budget. These receipts, too, have expanded significantly in recent years, and have been derived chiefly from excise taxes on Puerto Rican rum sold on the mainland. In recent years, this tax has added about 15 million dollars a year to Com monwealth Government revenues. Moreover, the fact that Puerto Rico does not have to pay Federal excise taxes on products sold locally, enables the Commonwealth Govern ment to impose taxes on consumption, notably on liquor and tobacco, and thus to increase its revenues. The same holds true for Puerto Rico’s exemption from Federal in come taxes. Such taxes, if applied, would have drawn substantial funds out of the island, and thus considerably reduced the tax base on which the Commonwealth Govern ment could have relied. I n d u s t r ia l P r o m o t io n a n d T a x E x e m p t i o n These substantial benefits accruing to Puerto Rico from Federal disbursements, grants, and tax exemptions have to a large extent been matched by the Commonwealth’s own fiscal inducements to prospective local and mainland investors. These inducements are part of a broad program, inaugurated in 1948 under the banner of “Operation Boot strap”, which was designed to promote industrialization. The core of this program has been the tax incentives that the government has offered prospective foreign investors and the special assistance it has provided in planning and setting up new enterprises. The focus throughout the pro gram has been on the promotion of private enterprise, the government confining its activities chiefly to the mainte nance of political and financial stability, improving the quality of the labor supply, creating an efficient public administration, constructing factory buildings, and devel oping basic utilities, notably power and water resources and transportation and communications facilities. Tax exemptions have been the most potent incentive for both local and other investors, and in their present form relieve qualified enterprises of all insular income and prop erty taxes for ten years. For this purpose, qualified enter prises are defined as those producing items that were not in commercial production on the island prior to January 1, 1947. Since very little manufacturing activity was carried on in the Commonwealth previous to that date, most in dustries can in practice qualify. A notable exception, however, is that firms that close down their mainland operations in order to establish plants in Puerto Rico are ineligible to benefit from the tax-incentive program; more over, the exemption privilege may be revoked by the authorities where firms have failed to live up to their stated commitments under the program. The tax induce ments are further enhanced by the fact that, in certain 42 MONTHLY REVIEW, MARCH 1958 cases, government-constructed factory buildings are leased to enterprises at low rents or are sold to them on very favorable terms. In addition, the Government Develop ment Bank extends medium-term credits to prospective investors for the purpose of acquiring machinery and equipment; and the government frequently finances the cost of training labor for new undertakings. In order to render these incentives most effective, moreover, a vigor ous promotional campaign has been carried on by Puerto Rico’s Economic Development Administration to bring these advantages before the public eye. The tangible signs of Puerto Rico’s industrialization effort are the more than 500 new factories established on the island since 1947. These firms last year represented an aggregate investment of more than 300 million dollars and employed an estimated 36,000 persons, about 6 per cent of the employed labor force. This process of indus trialization has also been marked by an increase in the rate at which new plants have been established. The fact that these industries are largely oriented toward the external market has been of particular importance to Puerto Rico’s economic expansion, and such sales have enabled the Com monwealth to pay for an increasing volume of imports, mainly from the United States. In addition, the new indus trial undertakings have tended to absorb an increasing number of the Commonwealth’s large underemployed labor pool, which has enhanced significantly the general level of productivity and wages. The continuing expansion of manufacturing, moreover, may also reduce the need for Puerto Rico’s surplus labor force to move to the main land in search of employment opportunities. In the earlier years of “Operation Bootstrap” the firms coming to Puerto Rico had been relatively small, with a heavy concentration in light manufacturing. More recently, however, the program has been attracting larger and more basic industrial undertakings, notably in the fields of chemicals, plastics, and electronics. The recent establish ment of two oil refineries, moreover, promises to lay the foundation for petrochemical and related industries based on imported crude oil. The Puerto Rican authorities have recognized that economic development need not necessarily take the form of industrialization and a proliferation of new factories, but may rather call for improvements in agricultural productivity and a diversification of crops. In the case of Puerto Rico, however, poor soils, climatic con ditions, and competition of duty-free imports from the mainland have considerably limited the opportunities for expanding agricultural output; in addition, the Common wealth’s principal export crop, sugar, has been subject for many years to import quotas in the mainland market. Although there has been some progress in recent years in developing new crops, introducing new methods of farm ing, and improving marketing facilities, the difficulties in developing agriculture contrast sharply with the existing opportunities for promoting industry. These opportunities lie, quite apart from fiscal inducements, in the island’s abundant and adaptable labor supply, the low wage rates, and the tariff-free access to the United States market. Puerto Rico’s economic progress is well evidenced by the near doubling of its net national income over the past decade to more than 1 billion dollars. Adjusted for price changes, this expansion represented a “real” gain of more than 50 per cent. What is even more important, however, is that the increase exceeded the population growth, thus making possible a climb in “real” per capita income to $424 during the 1957 fiscal year from $293 ten years earlier, a rise in excess of 40 per cent. At this figure, Puerto Rico’s “real” income per head was surpassed in Latin America by only two countries, Venezuela and Argentina. C o n c l u d in g C o m m e n t s Puerto Rico’s economic expansion thus owes much to its particular financial, commercial, and political relation ships with the mainland. The advantages of these relation ships, however, would have been of little significance without Puerto Rico’s own efforts to spur economic devel opment. A vital aspect of these efforts has been the stress on attracting private investment, local and external, and on stimulating private initiative. This stress reflects efforts not only to expand physical productive capacity in a variety of fields, but also to promote the transmission to the island of skills, technology, and enterprise, which are a key to self-sustaining economic growth. A major ele ment in this program has been the creation of a favorable investment climate, based on generous tax exemptions and a wide range of other inducements to new enterprises. Equally important have been the Commonwealth’s efforts to strengthen its financial system and to attune the monetary and banking structure more effectively to that of the mainland. These measures have enabled Puerto Rico to share more fully in the economic expansion and the high level of prosperity that have prevailed in the United States in the postwar period. The closer financial relationships with the mainland, in particular, have aided Puerto Rico in safeguarding its monetary stability and in removing some of the elements that until recently still marked the Commonwealth in some respects as a “foreign” monetary area. In addition, the closer tie-in with Federal financial institutions has promoted a better utilization of liquid bank resources for meeting the needs of the expand ing economy. These programs and policies, although admittedly aided FEDERAL RESERVE BANK OF NEW YORK by special factors, have tended to transform Puerto Rico from a “stricken land” into an increasingly dynamic economy, with a progressively more diversified productive structure. Despite these notable forward strides, however, much still remains to be accomplished to attain fuller and more broadly based economic development, as well as to 43 raise further the living standards of the rapidly expanding population. Nevertheless, there can be little doubt that over the past decade Puerto Rico has begun to break loose from the proverbial vicious circle of low income, low capital formation, low income, and to lay a foundation for sustained economic growth and social progress. EARNINGS AND EXPENSES OF SECOND DISTRICT MEMBER BANKS IN 1957 Net profits of Second District member banks during 1957 moved into closer alignment with the earnings rates of banks in the rest of the country. The over-all result in this District amounted to a 7.7 per cent return on average capital invested in 1957, compared with 6.7 per cent in 1956. For all member banks in the country as a whole, 1957 net profits amounted to a return of 8.3 per cent on capital, against 7.7 in 1956. Net operating income for all Second District member banks rose to 710.1 million dollars in 1957, and net profits to 309.1 million, an increase in the latter over 1956 of 56.6 million dollars. The sustained demand for loans plus higher rates of interest on loans and investments played an important role in the better earning performance of the banks, but the more marked improvement in net profits than in net operating earnings resulted from smaller net charge-offs on loans and smaller additions to loan valua tion reserves than in 1956. The New York City banks showed a somewhat better percentage increase in net current operating earnings than did the other member banks in the District as a group, and both groups showed a greater increase in net profits during 1957 than did the average for all member institutions throughout the country. Total current operating earnings of both groups of Second District banks were up approxi mately 12 per cent, but the City banks were able to hold E arn ings and E x p en ses of Second D istr ict M em ber B anks, S elected Y ears (I n m illio n s o f d o lla r s) C entral reserve N ew York C ity banks R eserve city and country banks Item 1945 1950 1956 1957 1945 1950 1956 1957 37 23 18 18 777 728 569 542 2 4 .2 1 0 5 .8 7 .5 4 0 .7 3 2 .1 1 4 4 .6 3 1 .3 2 1 5 .1 1 6 .3 5 7 .5 4 7 .4 1 3 2 .9 4 6 .9 6 3 3 .3 2 4 .6 1 0 4 .9 7 1 .5 1 3 7 .0 4 6 .9 7 2 7 .9 2 5 .6 1 1 4 .6 8 5 .2 8 1 .5 1 0 .3 4 5 .2 9 .0 5 .3 1 2 .9 7 2 .9 1 6 .0 1 4 2 .2 1 9 .6 8 .5 1 6 .3 8 7 .0 2 8 .9 3 1 9 .7 3 7 .0 2 3 .3 9 4 .8 3 4 .3 3 6 1 .4 4 2 .2 15 1 2 4 .3 4 3 2 .2 5 1 2 .2 1 ,0 1 4 .1 1 ,1 3 7 .2 1 6 4 .2 2 7 5 .5 5 0 8 .8 5 7 2 .1 1 1 6 .8 5 .6 1 6 9 .7 9 .7 1 .9 1 6 4 .6 3 .5 1 0 1 .3 1 6 4 .9 3 .7 3 2 .3 8 7 .4 3 1 .7 0 .3 8 .3 5 .6 5 6 .3 1 5 2 .0 8 1 .1 4 .2 7 8 .6 2 9 3 .7 7 9 .7 1 4 .8 1 5 .6 1 1 .5 1 7 8 .3 4 6 .4 2 3 .8 11.8 2 7 4 .5 5 9 .1 1 3 .3 1 4 .2 9 3 .2 1 3 .4 1 3 .0 1 0 1 .3 T otal current exp en ses.............. ........................................................... N e t current operating earnings before incom e ta x e s ....................................... 2 1 6 .4 2 1 5 .8 2 9 7 .9 2 1 4 .3 5 3 6 .0 4 7 8 .1 5 9 3 .6 5 4 3 .6 1 1 2 .4 5 1 .8 1 8 9 .6 8 5 .9 351 7 1 5 7 .1 4 0 5 .6 1 6 6 .5 N e t recoveries ( + ) or charge-offs ( —) on lo a n s................................................ S ecurities profits and recoveries ( + ) or charge-offs ( —) ............................... A ll other recoveries (-1- ) or charge-offs ( —), n e t ............................................... N e t additions to ( —) or deductions from ( + ) valuation reserves for: Loan lo sse s................................................... .................................... ...................... Securities lo s s e s .......................................................................... ........................... 1 .3 * + 1 0 0 .2 f — 1 2 .4 — 2 .7 + 1 3 .5 — 3 .8 ~ 2 9 .0 — 53 0 + 1 7 .1 — 8.1 — 6 1 .6 + 1 .3 — + - 1 2 6.8 0.6 — 5 7 ~ 1 9 .1 — 1 .7 — 6.2 - 19^9 + 3 .2 + - + — + 12.1 0.2 — 3 1 .0 + 1.2 — 23 1 0 .4 N e t profits before incom e ta x e s ................................................................................ T axes on n et in co m e...................................................................................................... 3 0 4 .9 9 0 .7 2 1 4 .0 100 68.6 N e t profits after incom e ta x e s ............................................................ 2 1 4 ,2 Cash dividends paid or declared............................................................................... R etain ed ea rn in g s........................................................................................................... 7 3 .0 14 1 .2 N um ber of b a n k s........................................................................................................ Earnings: On U nited S tates G overnm ent secu rities......................................................... On other secu rities..................................................................................................... On loans (including service charges and fees on lo a n s).............................. Service charges on deposit a cco u n ts................................................................... T rust departm ent earn in gs.................................................................................... Other current earn in gs............................................................................................. T otal current operating ea rn in g s...................................................... E xpenses: Salaries and w ages— officers and e m p lo y e es................................................... Interest on tim e deposits (including savings d e p o sits).............................. Interest and d iscou n t on borrow'ed m o n e y ...................................................... T axes other than on net in co m e .......................................................................... R ecurring depreciation on banking house, furniture, and fixtu res. . . . Other current operating ex p en ses. ...................................................................... 222.1 1.0 10.2 __ 1 4 .2 6 .9 10.0 6 5 .3 0.2 6.0 + 1 .2 * + 2 6 .lt — 2 .7 3 6 .2 3 .4 __ 3 4 5 .7 1 5 6 .7 4 4 2 .4 2 0 8 .8 7 6 .4 1 6 .0 7 9 .0 2 3 .2 1 4 5 .4 1 8 9 .0 2 3 3 .6 6 0 .4 8 9 .4 5 6 .0 1 3 3 .2 5 5 .8 1 5 1 .7 8 1 .9 1 3 .9 4 6 .5 2.2 12.9 2.2 12 0 11.2 8 111.2 2 1 120.1 3 7 .3 4 4 .6 5 5 .8 6 3 .5 7 5 .5 20.2 3 4 .3 2 9 .2 41 8 3 3 .7 3 5 .6 * Includes transfers to or from valuation reserves for loan losses, Includes transfers to or from valuation reserves for losses on securities. Sources: Board of Governors of the Federal R eserve S ystem , 1945-56; figures for 1957 are prelim inary and are com piled b y th e Federal R eserve Bank of N ew York. t MONTHLY REVIEW, MARCH 1958 44 the increase in their operating expenses to 10.7 per cent, compared with a rise of 15.3 per cent for the rest of the District. The bigger percentage jump in the operating expenses of the reserve city and country banks was due primarily to a larger percentage increase in salaries and wages paid to employees and interest paid on time deposits. Net current operating earnings of all member banks were 6.0 per cent above those of 1956, while those of the District members were 11.8 per cent higher. Net profits, after taxes and all other charges, of the District banks increased by 56.6 million dollars during 1957, compared with an increase of 142 million dollars for the country as a whole. Both the central reserve and reserve city and country institutions increased their dividend payments in 1957 (as the accompanying table indicates), but the New York City banks cut the proportion of net profits paid out from 70.5 per cent of the total in 1956 to 64.9 per cent in 1957, while the other District member institutions increased the proportion of net profits paid to stockholders from 54.0 per cent to 55.4 per cent. A more detailed analysis of the earnings and expenses of Second District member banks and additional statistical material may be obtained from the Publications Division, Federal Reserve Bank of New York, New York 45, New York. SELEC TED ECONOMIC INDICATORS U nited S ta te s and Second Federal R eserve D istr ict Percentage change 1957 1958 Item U nit January D ecem ber N ovem ber January L atest m onth L atest m onth from previous from year m onth earlier U N IT E D STATES Production and trade Ind u strial p rod u ction *............................................................................. E lectric power o u tp u t* ............................................................................ T on -m iles of railw ay freig h t* ............................................................... M anufacturers’ sa les* ............................................................................... M anufacturers' in v en to ries* .................................................................. M anufacturers’ new orders, t o ta l* ..................................................... M anufacturers’ new orders, durable g o o d s* ................................... R etail sa le s* ................................................................................................. R esidential construction contracts* f t ............................................ N onresidential construction contracts* f f ..................................... Prices, wages, and em ploym ent B asic com m odity prices f ........................................................................ W holesale p r ic e s!....................................................................................... Consumer prices f ....................................................................................... Personal incom e (annual r a te )* ........................................................... C om posite index of wages and sa la ries* ........................................... N onagricultural em p loym en t*......................................... , .................. M an u factu rin g em p lo y m e n t* ................................................................ A verage hours worked per w eek, m anufacturing | ....................... U nem ploy m ent %.......................................................................................... U n em p loym en t...................... ..................................................................... B anking and finance T o ta l in vestm en ts of all com m ercial b a n k s.................................... T otal loans of all com m ercial b a n k s.................................................. T o ta l dem and deposits a d ju sted .......................................................... C urrency outside the T reasury and Federal R eserve B an k s*. . B ank deb its (337 ce n ter s)* .................................................................... V elocity of dem and deposits (337 ce n ter s)* ................................... Consum er instalm ent credit outstanding f l f ................................... U nited States Government finance (other than borrowing) Cash in co m e................................................................................................. N ation al defense exp en d itu res.............................................................. 1 947-49 = 1 947-49 = 1 947-49 = billions of billions of billions of billions of billions of 1 947-49 = 1 947-49 = $ $ $ $ 100 100 133 p — — — — — — 17. Op n.a. n.a. 1 947-49 = 100 1 9 4 7 -4 9 = 1 0 0 1947-49 = 100 billions of $ 1947-49 = 100 thousands thousands hours thousands thousands 8 4 .8 1 1 8 .7p 12 2 .3 3 4 3 .6p — 5 1 ,7 3 5 p 1 5 ,9 7 3 p 3 8 .7 p 4,49-4 n.a. m illions m illions m illions m illions m illions 1947-49 m illions 100 100 100 $ of $ of $ of $ of $ of $ = 100 of $ m illions of $ m illions of $ m illions of $ 7 5 ,4 5 0 p 92, H O p 1 0 7 ,520p 3 0 ,9 0 4 p 8 4 ,4 0 9 143.1 __ 4 ,8 9 1 5 ,9 4 0 4 ,4 2 8 136 227 94 26 .7 p 5 3 .6p 2 5 .2 p 1 1 .6p 1 6 .9p n.a. n.a. 139 229 96 2 7 .2 5 3 .9 2 6 .1 1 2 .4 1 6 .6 n.a. 269 146 227 101 3 0 .0 5 2 .4 2 8 .9 1 4 .2 1 6 .3 n.a. 297 8 4 .7 1 1 8 .5 1 2 1 .6 3 4 3 .6 160p 51, 930p 1 6 ,2 7 6 p 3 9 .4 3 ,3 7 4 3 ,1 4 0 8 4 .5 118.1 1 2 1 .6 3 4 6 .2 160 5 2 ,2 1 8 1 6 ,4 6 3 3 9 .3 3 ,1 8 8 2 ,9 8 9 9 1 .7 11 6 .9 11 8 .2 3 3 8 .3 154 5 2 ,4 9 3 1 7 ,0 5 3 4 0 .2 3 ,2 4 4 2 ,9 4 0 7 5 ,5 6 0 p 9 4 ,2 8 0 p 1 0 8 ,900p 3 1 ,0 9 3 8 0 ,8 2 6 146.3 | 3 4 ,1 2 7 7 4 ,2 6 0 p 9 3 ,0 1 0 p 1 0 7 ,190p 3 0 ,9 6 3 7 8 ,5 6 7 139.4 3 3 ,5 9 6 7 3 ,8 8 0 8 8 ,9 3 0 1 0 9 ,5 1 0 3 0 , 886r 8 3 ,3 7 3 1 4 1 .9r 3 1 ,5 6 8 6 ,4 6 3 6 ,5 5 3 3 ,2 7 7 4 ,8 8 6 5 .5 9 9 3 ,6 5 1 6 ,6 2 2 7 ,2 0 3 3 ,6 9 4 — 2 - 1 — 2 — 2 - 1 - 3 - 6 4 1 n.a. n.a. + if fr 1 & # # — 2 - 2 + 33 4 5 _ 44 - 9 + 1 -1 6 - 7 + 2 -1 3 -2 0 + 4 n.a. n.a. + 444 - 8 2 3 2 5 1 6 4 439 427 2 + + 2 4 T i 4 2 2 4 4 + 1 1 7 # _ 25 -1 8 4- 20 + 6 + 21 S E C O N D F E D E R A L R E S E R V E D IS T R IC T E lectric power ou tpu t (N ew Y ork and N ew J e r s e y ) * .................. R esid en tial construction contracts* f t ......................................... N onresid en tial construction contracts* f f ................................... C onsum er prices (N ew Y ork C it y ) f ........................... ........................... N onagricultural em p lo y m en t* ................................................................... M anufacturing e m p lo y m e n t* .................................................................... B ank debits (N ew York C ity )* .................................................. ............. B an k deb its (Second D istrict excluding N ew Y ork C it y )* .......... V elocity of dem and d ep osits (N ew York C ity ) * ............................... D ep artm en t store sales* § .......................................................................... D ep artm en t store stock s* § ........................................ ............................. 1947-49 = 100 1 947-49 = 100 1947 -4 9 = 100 1947-49 = 100 thousands thousands m illions of $ m illions of $ 1 947-49 = 100 1947-49 = 100 1 9 47-49 = 100 — — — 1 2 0 .0 — — 8 1 ,8 9 8 5 ,2 4 4 2 0 7 .3 125 137 158 n.a. n.a. 1 1 8 .7 7 ,6 6 8 . l p 2,5 1 9 .3 j> 75 ,0 7 1 5 ,0 5 7 1 9 8 .9 12S 138 157 n.a. n.a. 1 1 8 .6 7 ,7 2 8 .1 2 ,5 4 7 .4 7 6 .2 4 1 4 ,9 8 4 1 9 7 .3 124 138 160 n.a. n.a. 1 1 5 .6 7 ,8 5 8 .0 2 ,6 9 6 .0 7 4 ,2 3 3 5 ,470 1 8 3 .6 123 138 + 1 n.a. n.a. + 1 - 1 - 1 + 9 _j_ 4 + 4 _ 2 - 1 + 1 n.a. n.a. 4~ 4 - 3 — 7 + 10 - 4 + 13 + 2 - 1 N ote: L atest d ata available as of noon, M arch 3, 1958. r R evised . J N ew basis. U nder a new C ensus B ureau definition persons laid off tem porarily and th ose p Prelim inary. n.a. N o t available. w aiting to begin jobs w ithin th irty d ays are classified as u nem ployed; form erly th ese * A dju sted for seasonal variation. persons were considered as em ployed. B o th series are available for 1957. t Seasonal variation s b elieved to be minor; no ad justm en t m ade. § R evised series. Back d ata available from th e F inan cial and T rade S ta tistics D iv isio n , § Change of less th an 0 .5 per cent. Federal R eserve Bank of N ew York. f t Series discontinued. 11 R evised series. B ack d ata published in Federal Reserve B ulletin , D ecem b er 1957. Source: A d escription of these series and their sources is available from the D om estic Research D ivision , Federal R eserve B an k of N ew Y ork, on request. Earnings and Expenses of Second District Member Banks in 1957 (Supplement to the article entitled "Earnings and Expenses of Second District Member Banks in 1957” printed in the March 1958 issue of the Monthly Review of Credit and Business Conditions, Federal Reserve Bank of New York) Net profits of Second District member banks during 1957 moved into closer alignment with the earnings rates of banks in the rest of th# country. The over-all result in this District amounted to a 7.7 per cent return on average capital invested in 1957, compared with 6.7 per cent in 1956. For all member banks in the country as a whole, 1957 net profits amounted to a return of 8.3 per cent on capital, against 7.7 in 1956. Net operating income for all Second District member banks rose to 710.1 million dollars in 1957, and net profits to 309.1 million, an increase in the latter over 1956 of of 56.6 million dollars. The sustained demand for loans plus higher rates of interest on loans and investments played an important role in the better earning performance of the banks, but the more marked improvement in net profits than in net operating earnings resulted from smaller net charge-offs on loans and smaller additions to loan valuation reserves than in 1956. The New York City banks showed a somewhat better percentage increase in net current operating earnings than did the other member banks in the District as a group, and both groups showed a greater increase in net profits dur ing 1957 than did the average for all member institutions throughout the country. Total current operating earnings of both groups of Second District banks were up approxi mately 12 per cent, but the City banks were able to hold the increase in their operating expenses to 10.7 per cent, compared with a rise of 15.3 per cent for the rest of the District. The bigger percentage jump in the operating ex penses of the reserve city and country banks was due primarily to a larger percentage increase in salaries and wages paid to employees and interest paid on time deposits. Net current operating earnings of all member banks were 6.0 per cent above those of 1956, while those of the Dis trict members were 11.8 per cent higher. Net profits, after taxes and all other charges, of the District banks increased by 56.6 million dollars during 1957, compared with an increase of 142 million dollars for the country as a whole. Both the central reserve and reserve city and country institutions increased their dividend payments in 1957 (as the accompanying table indicates), but the New York City banks cut the proportion of net profits paid out from 70.5 per cent of the total in 1956 to 64.9 per cent in 1957, while the other District member institutions increased the proportion of net profits paid to stockholders from 54.0 per cent to 55.4 per cent. O p e r a t in g I n c o m e A high level of loans outstanding throughout 1957 was in part responsible for the new peak in current operating earnings of 1,709.3 million dollars achieved last year by Second District member banks (see Chart I). In addition, the general level of interest rates in 1957 was higher than at any time since the early 1930’s. The rate of increase in the average amount of loans of member banks outstand ing in the Second District was slower, however, during 1957 than in 1956. In 1956 the average amount of loans on the books of the City banks increased by 1.9 billion dollars for a gain of 14.3 per cent, but in 1957 they in creased by only 764 million (4.9 per cent). Reserve city and country banks increased their average loans out standing by 700 million (13.7 per cent) and 483 million dollars (8.0 per cent), respectively. The slower rate of increase last year in the average amount of loans was accompanied by a smaller decline in investments, 465 mil lion dollars for 1957, compared with 2.3 billion dollars for 1956. During 1957, reserve city and country banks, which added 483 million dollars to their average loan volume, increased their average investments by 88 million dollars. The increase in the average amount of outstanding loans at all Second District member banks in 1957 was due primarily to the expansion (1) of 1.4 billion dollars in commercial and industrial loans, (2) of 129 million in consumer loans, (3) and of 114 million in real estate loans. Loans to dealers and brokers in securities were reduced for the second consecutive year. The 1957 decline amounted to 444 million dollars (19.2 per cent). The continuing demand for loans together with the rela tive scarcity of funds available for them brought a rise in the loan rates. New York City banks raised their rates to “prime” borrowers in August 1956 from 3% to 4 per cent and in August 1957 from 4 to AV2 per cent (the high- Chart I EARNINGS, EXPENSES, AND NET PROFITS OF SECOND DISTRICT MEMBER BANKS, 1950-57 M illio n s of d o lla r s M illio n s of d o lla r s S o u rc e s : B o a rd of G o v e rn o rs , F e d e ra l R e s e rv e S y s te m , 1 9 5 0 -5 6 . F ig u re s fo r 1 95 7 a re p r e lim in a r y a n d a re c o m p ile d b y the F e d e r a l R e s e rv e B a n k of N e w Y o rk . _______________________________________________ est since 1930). Consequently, the City banks’ effective rate of return on loans moved upward from 4.06 per cent in 1956 to 4.45 per cent in 1957. Other banks in the District showed effective rates of 5.56 per cent in 1957, up from 5.32 per cent in 1956. Reserve city and country banks do not have as many “prime” borrowers as City banks, and loan rates for these banks, therefore, tend to be above the ones charged by the City banks. Relative to total earnings, income from loans (including interest, discount, and service charges) of all groups of Second District banks has attained new highs in almost every year since the Second World War. Chart II indicates that income from loans as a percentage of total current operating earnings reached 63.6 per cent for 1957 in con trast to 45.4 per cent for 1950 and 28.7 per cent for 1946. The chart also reveals that for the same period the relative contribution of income from securities (interest on United States Government securities plus interest and dividends on all other securities) to total current operating earnings has declined from a high of 51.5 per cent for 1946 to 18.4 for 1957. Contrary to 1956, income from securities in absolute terms rose 5.9 per cent in 1957. The earnings of 313.0 million dollars from this source were exceeded only in 1946 and 1955. Contributing to the improvement in earn ings on investments was a reduction in the rate of secu rity liquidation. In addition, the higher yields on short-term and long-term issues, available throughout most of 1957, offered the banks an opportunity to sell securities in order to establish tax losses and then to transfer the funds into issues offering a higher coupon rate, and to replace matur ing obligations with issues bearing a higher interest rate. The ratio of total income from securities to the average amount of securities held by the member banks of the Second District rose from 2.25 per cent in 1956 to 2.46 per cent in 1957. The City banks raised their rate of return from 2.22 per cent to 2.44 per cent and the reserve city and country banks raised theirs from 2.29 per cent to 2.50 per cent. Income from trust departments increased last year for both the City and the combined reserve city and country banks, but it represented a much more significant source of earnings to the former than to the latter. In 1957 the City banks received about 10 per cent of their total cur rent earnings from their trust departments, compared with only 2.6 per cent for the balance of the banks in the District. On the other hand, income from service charges on deposit accounts, which increased 10.2 per cent for all banks in the District combined, remained a relatively more important source of earnings for reserve city and country banks than for the central reserve city banks. Last year, service charges on deposit accounts at the reserve city and country banks increased by 14.4 per cent to an amount equal to 7.4 per cent of total current income. The City banks, showed a gain of 4.1 per cent in income from this source, providing 2.3 per cent of total earnings. Chart II indicates that although income from service charges on deposit accounts has increased in absolute terms since 1946, relative to other sources of earnings, no significant gain has occurred. C h a r t II PERCENTAGE DISTRIBUTION OF TOTAL CURRENT OPERATING EARNINGS OF SECOND DISTRICT MEMBER BANKS, 1946-57 P e rce n t P e rce n t * In c lu d in g U n ite d S ta te s G o v e rn m e n t a n d other s e c u ritie s . * In c lu d in g s e r v ic e c h a rg e s a n d fe e s o n lo a n s . So u rce s: B o a rd of G o v e r n o r s , F e d e r a l R e se rv e S y ste m , 1 9 4 6 -5 6 . F ig u r e s fo r 1957 a r e p r e lim in a r y a n d a re c o m p ile d b y th e F e d e r a l R e se rv e B a n k of N e w Y o r k . O p e r a t in g E x p e n s e s C h a r t III Total current operating expenses reached a new high of 999.2 million dollars for all member banks in the Second District during 1957. While in the last six years the annual increases in total earnings have exceeded those in total operating expenses, only a slight difference existed between the percentage increases in operating expenses and current operating earnings. Between 1951 and 1957 earnings in creased by 88.2 per cent and expenses by 85.1 per cent. The percentage increase in operating expenses from 1956 to 1957 was higher for the reserve city and country banks (15.3 per cent) than for the City banks (10.7 per cent). Salaries of officers and wages of employees last year were up 5.4 per cent and 8.2 per cent, respectively, in the District as a whole. The increases represent in part an expansion of staffs and in part pay increases. Total employment of officers and employees at District banks was up 1.9 and 3.5 per cent, respectively. The percentage gain in officers’ salaries was uniform for all groups of banks in the District, but the percentage increase in wage pay ments was slightly higher at the reserve city and country banks than at the City banks. In order to attract and hold present personnel, banks outside the City have in creased their wage scales at a faster rate in recent years. Higher wage scales continue to be paid, however, at City banks. Salaries and wages remain the most important expense items of member banks, but relative to total current operat ing expenses both have declined in significance, salaries of officers somewhat more than salaries and wages of em ployees. In 1951 these payments accounted for a high of 54.2 per cent of total operating expenses and in 1957 for 45.8 per cent. The percentage drop was only slightly higher for the City banks than for other banks in the District. Interest paid on time deposits, on the other hand, has become a more important expense item, according to Chart III. In 1957, interest on time deposits was up 36.2 per cent and accounted for 19.1 per cent of total current operating expenses in contrast to 8.5 per cent for 1951. Inasmuch as time deposits are a higher proportion of total deposits for banks outside the City and rates at these banks until recently generally were lower than they were in New York City, the percentage increase in interest expenses on time deposits has been more pronounced for this group of banks. Encouraged by the demand for loans and consequently their need for funds, as well as a change in Regulation Q which was announced in December 1956 and which permitted commercial banks to offer an interest rate as high as 3 per cent on savings accounts, many com mercial banks became more active solicitors for time de posits. During 1957 the City banks added nearly 8.1 per PERCENTAGE DISTRIBUTION OF TOTAL CURRENT OPERATING EXPENSES OF SECOND DISTRICT MEMBER BANKS, 1946-57 P e rce n t P e rc e n t So u rce s: B o a rd o f G o v e r n o r s , F e d e r a l R e s e rv e S y s te m , 1 9 4 6 -5 6 . F ig u r e s fo r 195 7 a re p re lim in a ry a n d a r e c o m p ile d b y the F e d e r a l R e se rv e B a n k o f N e w Y o rk . cent to their total average time deposits and other banks in the District nearly 8.4 per cent. For all member banks in the District combined, interest paid on time deposits as a percentage of the total average time deposits rose from 1.73 per cent in 1956 to 2.17 per cent in 1957. The effective rate paid by both the City banks and banks else where last year was similar. Prior to 1956 City banks paid a lower effective rate on time deposits than other banks. Because of the relative scarcity of reserves during most of 1957, member banks continued to buy funds in the “Federal funds” market and to borrow from the Federal Reserve Bank of New York. Also, the “Federal funds” rate and the discount rate were higher in 1957 than in 1956. Both factors were reflected in the figures on ex penses incurred for interest and discount on borrowed money. For all member banks in the District these amounted to 16.9 million dollars, 9 per cent above 1956. Borrowings of City banks accounted for 87.6 per cent of the total. For the City institutions, interest and discount paid on borrowed money last year amounted to 2.5 per cent of total operating expenses, compared with V2 of 1 per cent for all other banks in the District. N o n r e c u r r in g I t e m s Second District member banks decreased their net charge-offs on loans from 34.7 million dollars in 1956 to 14.3 million in 1957. While recoveries amounted to 1.7 million dollars more in 1957 than in 1956, losses and charge-offs on loans were 18.7 million dollars less in 1957. With a smaller loan increase in 1957 than in 1956, mem ber banks added a net of only 59.3 million dollars to their loan valuation reserves last year, compared with 96.3 mil lion in 1956. The City banks showed proportionately larger declines in both the net additions to loan valuation reserves and net charge-offs than reserve city and country banks. All member banks in the Second District had net secu rity losses of 81.5 million dollars in 1957, compared with 72.1 million dollars in 1956. These losses represent new highs for the post-World War II period. Net security losses were up 16.2 per cent in the City and 4.2 per cent elsewhere. These losses reflect in part the liquidation of securities, primarily by City banks, to provide loan funds. But since average investment portfolios declined only slightly in amount in 1957, the security losses are also an indication of securities switches to establish tax losses. by all member banks in the District were up by 30.6 per cent. Since 1952, income taxes on the earnings of member banks in the Second District have increased by 50.4 per cent, while net profits after taxes have improved by 35.3 per cent. Cash dividends paid by the City banks increased by nearly 14 per cent during 1957 and those by other District banks by 22 per cent. The reserve city and country banks paid out 55.4 per cent of earnings to their stockholders, compared with 54.0 per cent in 1956. City banks were somewhat more conservative, reducing their percentage cash payout from 70.5 per cent to 64.9. The ratio of net profits to average capital accounts increased from 6.7 to 7.7 per cent for the District. The rate of return on capital for District member banks, however, continued to lag be hind the rate for all member banks. Although the rate of increase was smaller, the ratio of profits to capital for all member institutions on the average rose from 7.7 to 8.3 per cent. Within the District the ratio of net profits to average total capital accounts improved more for the City banks than for the others, rising from 6.7 per cent to 7.9 per cent. The gain for reserve city and country banks was from 6.5 per cent in 1956 to 7.3 per cent in 1957. i T a x e s , D iv id e n d s , a n d R e t a in e d E a r n in g s District banks increased their net profits after taxes, but before dividends, by 56.6 million dollars, a gain of 22.4 per cent over 1956. A larger gain in net profits was achieved by the City banks (23.6 per cent) than by other banks in the District (18.9 per cent). Income taxes paid E arn ings and E x p en ses o f Second D istrict M em ber B an k s, S elected Y ears (I n m illio n s o f d o lla r s) C entral reserve N ew Y ork C ity banks R eserve city and country banks Item Number of banks........................................................................................... Earnings: On United States Government securities............................................... On other securities........................................................................................ On loans (including service charges and fees on loans)...................... Service charges on deposit accounts........................................................ Trust department earnings......................................................................... Other current earnings................................................................................. Total current operating earnings............................................ Expenses: Salaries and wages—officers and employees.......................................... Interest on time deposits (including savings deposits)...................... Interest and discount on borrowed m oney............................................ Taxes other than on net incom e............................................................... Recurring depreciation on banking house, furniture, and fixtures. Other current operating expenses............................................................. 1950 1956 1957 1945 1950 1956 1957 37 23 18 18 777 728 569 542 222.1 2 4 .2 1 0 5 .6 7 .5 4 0 .7 3 2 .1 1 4 4 .6 3 1 .3 2 1 5 .1 1 6 .3 5 7 .5 4 7 .4 1 3 2 .9 4 6 .9 6 3 3 .3 2 4 .6 1 0 4 .9 7 1 .5 1 3 7 .0 4 6 .9 7 2 7 .9 2 5 .6 1 1 4 .6 8 5 .2 8 1 .5 1 0 .3 4 5 .2 9 .0 5 .3 1 2 .9 7 2 .9 1 6 .0 1 4 2 .2 1 9 .6 8 .5 1 6 .3 8 7 .0 2 8 .9 3 1 9 .7 3 7 .0 1 2 .9 2 3 .3 9 4 .8 3 4 .3 3 6 1 .4 4 2 .2 1 5 .1 2 4 .3 4 3 2 .2 5 1 2 .2 1 ,0 1 4 .1 1 ,1 3 7 .2 1 6 4 .2 2 7 5 .5 5 0 8 .8 5 7 2 .1 1 1 6 .8 5 .6 1.0 2 7 4 .5 5 9 .1 1 3 .3 1 4 .2 1 6 4 .6 2.2 12.0 111.2 2.1 3 .7 3 2 .3 8 7 .4 3 1 .7 0 .3 8 .3 5 .6 5 6 .3 1 5 2 .0 8 1 .1 11.2 1 6 4 .9 2 9 3 .7 7 9 .7 1 4 .8 1 5 .6 1 1 .5 1 7 8 .3 4 6 .4 2 3 .8 4 .2 7 8 .6 1 6 9 .7 9 .7 1 .9 11.8 3 .5 1 0 1 .3 9 3 .2 1 3 .4 1 3 .0 1 0 1 .3 2 1 6 .4 2 1 5 .8 2 9 7 .9 2 1 4 .3 5 3 6 .0 4 7 8 .1 5 9 3 .6 5 4 3 .6 1 1 2 .4 5 1 .8 1 8 9 .6 8 5 .9 3 5 1 .7 1 5 7 .1 4 0 5 .6 1 6 6 .5 + - 2 .7 1 3 .5 3 .8 - 2 9 .0 - 5 3 .0 - f 1 7 .1 1. 2 6.8 0.6 5 .7 1 9 .1 1 .7 - 1 4 .2 - 12.1 3 1 .0 10.2 Total current expenses............................................................... N et current operating earnings before income taxes............................... N et recoveries ( + ) or charge-offs ( —) on loans....................................... Securities profits and recoveries ( + ) or charge-offs ( —) ....................... All other recoveries ( + ) or charge-offs ( —), n e t..................................... N et additions to ( —) or deductions from ( + ) valuation reserves for: Loan losses.................................................................................................. Securities losses.......................................................................................... 1945 + 1 .3 * + 100.2f - 1 2 .4 10.0 - 6 5 .3 2.2 - 8.1 + 6 1 .6 1 .3 + 3 6 .2 3 .4 0.2 6.0 + + - 1 . 2* 2 6 .lt 2 .7 + - + 0.2 - + 6.2 1 9 .9 3 .2 1. 2 -23.1 0. 4 120.1 N et profits before income taxes........ ............................................................ Taxes on net income......................................................................................... 3 0 4 .9 9 0 .7 2 1 4 .0 68.6 3 4 5 .7 1 5 6 .7 4 4 2 .4 2 0 8 .8 7 6 .4 1 6 .0 7 9 .0 2 3 .2 100.8 3 7 .3 4 4 .6 N et profits after income taxes.................................................. 2 1 4 ,2 1 4 5 .4 1 8 9 .0 2 3 3 .6 6 0 .4 5 5 .8 6 3 .5 7 5 .5 Cash dividends paid or declared................................................................... Retained earnings.............................................................................................. 7 3 .0 1 4 1 .2 8 9 .4 5 6 .0 1 3 3 .2 5 5 .8 1 5 1 .7 8 1 .9 1 3 .9 4 6 .5 20.2 3 4 .3 2 9 .2 4 1 .8 3 3 .7 3 5 .6 * Includes transfers to or from valu ation reserves for loan losses, t Includes transfers to or from valu ation reserves for losses on securities. Sources: Board of Governors of th e Federal R eserve S ystem , 1945-56; figures for 1957 are prelim inary and are com piled b y th e Federal R eserve B ank of N ew Y ork.
@FedFRASER