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FEDERAL RESERVE BANK
OF NEW YORK
F i s c a l A g e n t of the U n i t e d States

[* Circular N o . 2 5 9 1 . February 26, 1943 *
)
[.Reference to Circulars N o s . 2S8S and 2586.J

FOREIGN FUNDS CONTROL

To a % BawMMgr
%

tAe

awd 0%7ters ConcerKed,

Federal ^egerve DigtWc^ r

F o r your information we quote below f r o m a telegram received f r o m the Treasury
Department:
T h e f o l l o w i n g is text of P u b l i c Interpretation N o . 10:
TREASURY

DEPARTMENT

Foreign Funds Control
F e b r u a r y 25, 1943
P U B L I C I N T E R P R E T A T I O N N O . 10
U N D E R E X E C U T I V E O R D E R N O . 8389, A S A M E N D E D , E X E C U T I V E O R D E R N O . 9193,
S E C T I O N S 3(a) A N D 5(b) O F T H E T R A D I N G W I T H T H E E N E M Y A C T , A S A M E N D E D
B Y T H E F I R S T W A R P O W E R S A C T , 1941, R E L A T I N G T O F O R E I G N F U N D S C O N T R O L

SUBJECT:

EXAMINATION OF ENDORSEMENTS
DRAFTS RECEIVED F R O M ABROAD.

APPEARING

O N CHECKS A N D

I n q u i r y has been made as to whether a b a n k i n g institution w h i c h receives a check o r
draft f r o m a foreign c o u n t r y is required t o examine the endorsements thereon in order to
ascertain whether a n y of the endorsers are named o n T h e P r o c l a i m e d L i s t of C e r t a i n
B l o c k e d Nationals.
T h e T r e a s u r y has replied that a n y b a n k i n g i n s t i t u t i o n w h i c h henceforth receives a
check or draft f r o m abroad is required t o examine the instrument t o determine whether
the payee or a n y of the endorsers are named on the P r o c l a i m e d L i s t .

If it is f o u n d that

the check or draft is d r a w n i n favor or bears the endorsement of a person w h o there is
reason to believe is a P r o c l a i m e d

L i s t national, the instrument m a y not be endorsed,

presented, accepted, collected, paid, transferred, protested, returned, or otherwise

dealt

w i t h except pursuant t o license expressly r e f e r r i n g t o General R u l i n g N o . 11. H o w e v e r ,
the T r e a s u r y D e p a r t m e n t has stated that it w i l l entertain applications by b a n k i n g institutions for licenses authorizing, subject to certain conditions, the presentation, collection, etc.,
of such instruments.
J . W . PEHLE,

A d d i t i o n a l copies of this circular w i l l be furnished upon request.




ALLAN

SPROUL,

THE FEDERAL RESERVE BANK
OF NEW YORK
and

THE

WAR

February, 1943




FEDERAL RESERVE
OF

NEW

BANK

YORK

This booklet is intended to teH you h o w the
work of the Federal Reserve Bank of N e w Y o r k ,
and of the 4,000 members of its staf? (1,800 of
w h o m have come to the bank since December 7,
1941), contributes directly and indirectly to the
war effort. Y o u are working i n a real war industry.
Y o u r service to your country is less obvious than
building airplanes or ships or tanks, but it is none
the less important.
T h e Federal Reserve System has grave responsibilities i n this, the second world war i n which the
System has played a significant part. Y o u r bank has
correspondingly

grave

responsibilities.

It is the

biggest bank i n the Federal Reserve System; it is
the central bank in the principal financial center of
the country; it serves a district which is making a
heavy contribution to war production. D r a w i n g on
its experience in the last war, and during two decades of uneasy peace, the Federal Reserve Bank of
New York

is performing a variety of war-time

tasks, and carrying forward its peace-time work i n
the service of war-time commerce and industry and
agriculture.
Some of the things we are doing are outlined in
this booklet. They could not be carried through
without the understanding and the w i l l i n g work
of all members of the staff. Each of you in your
own job is making a vital contribution to the main
job of the bank — helping to w i n the war.
A L L A N SPROUL,
February 20, 1943-

TM.'0



THE FEDERAL RESERVE BANK OF
NEW YORK
A N D THE WAR
The Federal Reserve Bank of N e w York — your
bank — directly serves the Second Federal Reserve
District which includes New York State, Northern
New Jersey, and Fairfield County, Connecticut. In
a larger sense, it serves the whole country.
The staff of the bank, including the Buffalo
Branch, now numbers more than 4,000. It has
increased more than 75% during the last three
years; from 2,326 on January 1, 1940, to 4,092 on
February 15, 1943. 45% of the present staff has
come to the bank since December 7, 1941.
By February 15, 1943, 500 members of the staff
had entered military service. Federal Reserve Bank
men are serving in all branches of the service, at
home and overseas. Five of its women have joined
the W A A C S and seven have joined the W A V E S .
WAR FINANCING
The United States Government is now spending
about one and a half billion dollars a week —
$250,000,000 a day. T o meet these expenditures,
during the twelve months ending June 30, 1943,
the Treasury must raise about 84 billion dollars.
Taxes and other income are expected to provide
about 26 billion dollars. This leaves about 60 billion
dollars to be borrowed, almost two-thirds of which
has already been raised. In December 1942 we
helped to demonstrate how this borrowing can be
done. Almost 13 billion dollars was raised by the sale
of Government securities during that month. This is
the largest financing ever done by any country in




one financing operation. During the ArstWorldWar
the greatest amount raised in any one drive was
slightly less than 7 billion dollars. That was the
Fourth Liberty Loan in October, 1918.
Total expenditures of the Government, and total
moneys to be raised by taxes and borrowing,
during the twelve months beginning July 1, 1943
are expected to exceed substantially the corresponding amounts for the twelve months ending June 30,
1943.

Purchasers o/

Securtftes

The Government can endeavor to sell its securities to all types of investors or it can rely mainly on
the commercial banks to supply it with funds. The
latter would be much easier than selling securities
to individuals, corporations, insurance companies
and other non-bank investors, but it has great disadvantages. W h e n commercial banks purchase Government securities the purchasing power of the
people throughout the country is increased by the
amount of such purchases, whereas if the securities
are purchased by individuals or organizations other
than commercial banks there is no increase in purchasing power.
W h e n John Doe, American, buys a $100 Government bond, his cash on hand or on deposit in
his bank is reduced by $100, and he no longer has
that amount to spend. The Government soon pays
out the $100 it has borrowed from John Doe, and
it goes into the pocket or the bank account of
Richard Roe. M r . Roe now has $100 to spend but
this increase in his purchasing power merely offsets
the decrease in John Doe's purchasing power. There
is no increase in the purchasing power of the entire
country as a result of such Government borrowing
and spending.
Fo%r




If, however, a commercial bank buys a $100
Government bond, it ordinarily pays for it by
crediting the Treasury with that amount on its
books. This credit is drawn upon by the Government and the money is used to buy war materials,
or for other purposes. In this way Richard Roe
again gets $100 but without John Doe's having
put it up in the first place. As a result of the entire
transaction, therefore, the people of the United
States have $100 more than they had before. O n
the other hand, the supply of goods for civilian
consumption is rapidly diminishing because of the
conversion of production facilities to war purposes.
The increased use of bank credit in the purchase of
Government securities thus carries with it the threat
of inflation, which, putting aside technicalities,
means simply that demand — backed by the money,
the spending power in the hands of the people — is
outrunning the supply of things to be bought.
Every one knows what happens when demand outruns supply. Whether it is butter, eggs or tickets to
the World Series — prices go up. That is the way it
is with inflation, except that inflation is general. It
affects all prices.
T o lessen the threat of inflation the Government
wants to sell as many of its securities as possible to
individuals and organizations other than commercial banks. The Federal Reserve Bank of New York
is helping with this job through its direct participation in the work of the Victory Fund Committees
and through the services it performs for the War
Savings Staff of the Treasury Department.
Due to the vast Government financing program, a
large quantity of securities will, nevertheless, have
to be sold to the commercial banks which stand
ready to buy whatever amounts cannot be sold to
other investors. The reserves of these banks must be




maintained so that they can continue to perform this
underwriting function. Y o u r bank, as part of the
Federal Reserve System, helps to see to it that the
commercial banks have the reserves they need for
this purpose.
ISSUANCE A N D H A N D L I N G
GOVERNMENT

OF

SECURITIES

T h e Federal Reserve Bank of N e w Y o r k has
many other important jobs in connection with the
Government's financing. T h e issue, distribution and
redemption

of

Government

securities

are

done

largely through the tweive Federal Reserve Banks,
as fiscal agents of the United States. Government securities are printed by the Bureau of

Engraving

and Printing in Washington, D . C. Their wholesale distribution is the job of the Federal Reserve
Banks.
In the case of most Treasury issues, other than
Savings Bonds, 4 0 % or more of the dollar volume
of sales for the entire country are made in the
Second Federal Reserve District.

T h e Federal Re-

serve Bank of N e w Y o r k in due course delivers
most of these securities and also some securities sold
in other districts. T h e number of pieces (individual certificates, notes, bonds, etc.) delivered by the
bank in connection with original issue, and the total
issue price of such securities for the last three years
were approximately as fotlows:

pieces

14
90

14
91

14
92

Savings bonds
310,000
2,340.000
17,330,00
Other Treasury issues 107,000
556.000
848,00
Total pieces
417,000
2,896,000
18,178,00
ZssMe Prtce
Savings bonds $ 73,503,000 $ 674,232,000 $ 1,549,259,00
Other Treasury
issues
4,954,183,000 7,756,006,000 29,649,259,00
Total
issue price $5,027,686,000 $8,430,238,000 $31,198,518,00




The increase in number of pieces from 41*7,000
in 1940 to 18,178,000 in 1942 is one big reason
why the size of the bank's staff has increased so
rapid [y during the past three years.

ZssMance o/ SatMWgs Bonds
Savings Bonds were first offered for sale through
the post offices in 1935. Beginning in June 1936,
they were also issued by the Treasury Department
and the Federal Reserve Banks. Savings Bonds of
Series E, which were first announced in A p r i l 1941,
are now issued by the Treasury Department, the
Federal Reserve Banks, and post offices.
They
are also issued by many commercial banks and
other organizations which have been qualiAcd by
the Reserve Banks as issuing agents. These other
types of organizations include business corporations operating payroll allotment plans for their
employees, retail stores, radio stations, theatres and
newspapers.
The Federal Reserve Bank of N e w Y o r k issues
all Series F and G bonds sold in the district, and
handles all Series E bonds sold in the district except
those sold by post offices. It issues all Series E
bonds for which it receives orders, and it supplies
qualified issuing agents in the district with supplies of unissued Series E bonds and handles their
remittances and reports of bonds sold.
Sales of Savings Bonds have increased tremendously since the entry of the United States into the
war in December 1941, and the number of employees engaged in the sale, distribution and redemption of such bonds has shown a corresponding growth. O n May 1, 1941, the number of employees in the Government Bond Department was
approximately 75, but only a few of them were
working with Savings Bonds. O n January 1, 1943,




there were 747 employees in the Government Bond
Department and the newly created Savings Bond
Redemption Department, of w h o m more than 9 0 %
were engaged in work pertaining to Savings Bonds.
In spite of the increased staff, it has frequently been
necessary for these departments to work overtime (as
has also been the case in many places throughout the
bank), and in peak periods as many as 200 persons
have been borrowed at one time from other departments. T h e bank's job is to get these bonds out
without delay, and it prides itself on keeping this
work up to date. T h e amounts of Savings Bonds
issued by the bank and issuing agents qualified and
serviced by it, during the years these bonds have
been sold, have been as follows:

1936
(7mos.)
17,500 $ 6,743,600
1937
60,000
16,652,100
1938
96,700
22,578,500
1939
220,200
51,231,900
1940
309,900
73,503,300
1941
654,000 489,644,600
1942
2,686.000 742,966,100

1,685,700* $184,587,300'
14,644,300
806,293,000

* First issuing agents qualified in May 1941.
M o r e than 3,000 issuing agents had been qualified by the bank on January 1, 1943. Such agents
receive nothing for

their services but are reim-

bursed for actual out-of-pocket expenses in returning stubs and spoiled bonds to the Reserve Bank.
M o r e than 650 corporations operating payroll allotment plans for their employees are issuing agents
and, as these plans develop into f u l l operation, it is
expected the volume of sales by such agents, both
in pieces and in dollar amount, w i l l show further




substantial increases in relation to the volume of
direct sales by the Reserve Bank.
/ssunnce o/ CouemmeHt Securi^tcs
OtAer tAan Savings Bonds
Your bank prints and distributes announcements
describing all new Treasury issues, receives subscriptions for such issues, notifies purchasers of the
amount of securities they are to receive on allotment, receives payment for the securities, and makes
delivery of them.
Trans/ers a n d Payment o/
Government .Secnrittes
Your bank makes denominational exchanges of
various types of Government securities, handles
registered securities where there is a transfer from
one name to another, and pays matured Government securities and coupons.
Redemptions, Corrections and
Reissues o/ Savings B o n d s
The Savings Bond Redemption Department pays
most Savings Bonds presented for redemption; forwards the others to the Treasury for payment; and
makes changes in form of registration of Savings
Bonds which have been issued by the bank or by
other issuing agents. This department and its staff
of 400 now occupy five floors at 51 Pine Street,
one of the three annexes of the bank in N e w York
City.
FISCAL AND CREDIT POLICIES
One of our jobs is to keep constantly in touch
with the Government securities and money markets. The bank studies developments in these




markets, reports on them to the Treasury and the
Federa! Open Market Committee of the Federal
Reserve System (this Committee is composed of
the members of the Board of Governors of the Federa! Reserve System and Ave representatives of the
Federal Reserve Banks, always including the President of the Federal Reserve Bank of N e w Y o r k ) ;
and participates in the formulation and execution of
fiscal and credit policies.
Under the direction of the Federal Open Market
Committee, the Federal Reserve Banks buy and sell
Government securities in the open market. These
purchases and sales are undertaken primarily to help
maintain orderly market conditions and to assist
commercial banks in maintaining and adjusting
their reserves. Large open market purchases of
Government securities by the Federal Reserve Banks
in recent months have helped to provide the commercial banks with reserves, which has made it possible for them to continue to buy Government
securities in large amounts and to meet demands
for currency.
These open market operations are carried out by
your bank, on behalf of all the Federal Reserve
Banks, in what is called the System Open Market
Account. In addition to these operations for System
Account, your bank also deals in Treasury bills for
its own account, under the direction of the Federal
Open Market Committee. Any holder of Treasury
bills, which are a type of Government security sold
on a discount basis and usually maturing in 91 days,
may sell such bills directly to any Federal Reserve
Bank at a stated rate of discount, and the seller
may, if he wishes, obtain an option to repurchase
the bills at the same rate.
The actual purchases and sales of Government
securities for the System Account, and of Treasury

Tew



bills for account of the bank, are handled by the
Securities Department. This department maintains
a "trading room" from which there are direct wires
connecting with the principal Government security
dealers in New York City. It keeps constantly in
touch with the Government securities market both
here and out of town, studies market conditions,
maintains records regarding the securities purchased
and sold by it, allocates the securities held in the
System Account among the twelve participating
Federal Reserve Banks pursuant to the directions of
the Federal Open Market Committee, and does the
general bookkeeping for the System Account.
The amount of Government securities held by the
Federal Reserve Banks on January 1, 1943, was
$6,189,000,000 compared with $2,254,000,000 on
January 1, 1942. This large increase is one reflection of the need of the commercial banks for
additional reserve funds during this period.
GOVERNMENT ACCOUNTS
Just as John Doe, American, uses his local bank,
so member banks of the Federal Reserve System and
the United States Government use the Federal
Reserve Banks. The Federal Reserve Banks are the
principal bankers for the Government. When the
Government receives cash and checks resulting from
the payment of taxes, from the sale of securities and
from various other sources, it deposits the cash and
checks in the Federal Reserve Banks. By drawing
checks on these deposits, it pays its bills; bills for
war supplies and other materials, for the services of
its soldiers and sailors, for the services of its civilian
employees. It also pays the interest it owes on its
debts, and when the bonds and other obligations
representing these debts come due, it pays the
principal.




These transactions involve huge amounts. Incoming checks (excluding those in payment for
Government securities) deposited by the Government in the Federal Reserve Bank of N e w York
during 1942 numbered nearly 9 million and amounted to nearly 5 billion dollars. During the same
period the bank handled 21,600,000 checks drawn
by the Government. Included among them was a
new kind of Treasury check, in card form, in payment of allotments and allowances made by the
Army and Navy, to dependents of men in the
armed services.
CURRENCY
W i t h expanded employment, with higher wages,
and with the public holding and carrying more cash
than ever before, the amount of money in circulation has increased to record figures. The amount of
paper currency and coin outside the Treasury and
the Federal Reserve Banks, that is, in the hands of
the public and in the commercial banks, is now over
15 billion dollars. This is over $100 for every man,
woman and child in the United States as compared
with about $50 per person four years ago. The
Federal Reserve Bank of New York supplies the
money used in the Second Federal Reserve District,
takes it in, counts it, examines it for fitness, returns
it to circulation or retires it — a never ending process. This is the hand-to-hand currency used by the
public in carrying on much of its business, for
meeting war plant payrolls, for meeting Army and
Navy payrolls, and for many other purposes.

CHECK CLEARING AND

COLLECTION

One of the important peace-time functions of the
Federal Reserve Banks is the handling and clear-




ing of checks on behalf of the commercial banks of
the country. This is the unseen efficient mechanism
which permits business transactions in all parts of
the country to be settled on bank books without
actual shipments of coin and currency. Its peacetime importance is intensified in war. T h e greatly
expanded production and distribution of war goods
and foods move along as smoothly as in normal
times, in so far as financial payments are concerned, because of

the highly

developed

check

clearing and collection machinery of the Federal
Reserve Banks. T h e volume of this work has increased substantially as our production has doubled
and redoubled to meet our nation's military needs.
T h e number and dollar amount of checks handled
in the Check Department of the Federal Reserve
Bank of N e w Y o r k during the past three years are
as follows:

1940
1941
1942

$ 80,083,185,000
102,843,494,000
123,531,713,000

192,780,000
207,312,000
209,466,000
RATION

BANKING

T h e widening war-time rationing program has
placed a new task upon the banking system and
upon your bank. Commencing January 27, 1943,
there was put into effect a plan to clear ration coupons through banking channels on a country-wide
basis, just as checks have heretofore been cleared.
Only sugar, coffee and gasoline were initially included in the plan, but the clearing system may
readily

be

extended

to

other

articles.

sumers continue to turn over their

Con-

coupons to

retail merchants in the usual way in making purchases of rationed articles. A s such coupons are




received by larger retailers or are turned over by
retailers to wholesalers, the coupons are deposited
in special ration bank accounts in the commercial
banks throughout the country. It might be said
that a new unit of value, the ration coupon, is
taking its place alongside your dollars and is required to supplement your dollars.
A dealer in food, for example, has a special
ration account or accounts in the bank which
carries his regular dollar checking account. He may
have a ration bank account for sugar stated in
pounds and another in coffee, again stated in
pounds. Special checkbooks are provided so that the
dealer in replenishing his stock of sugar or coffee
can transfer to his supplier, simply by drawing a
check, the amount of ration coupons which he has
received from his customers, and has deposited in
his ration bank account. His supplier deposits
this check in his ration account at his own bank
and receives credit in that account for the number
of pounds of sugar or coffee represented by the
check.
These ration checks are cleared through the
Check Department of your bank in the same way
that ordinary checks are cleared.

CUSTODIAN AND OTHER SERVICES
Another job which has been performed by the
Federal Reserve Banks for many years, and which
has taken on certain war-time aspects, is the safekeeping of securities. The Federal Reserve Bank of
New York holds in safekeeping securities belonging to member banks located outside of N e w York
City and to various Government accounts, and it
purchases and sells securities for such accounts.




Such safekeeping services reheve the member
banks of the details of handling Government securities purchased and owned by them and thus further
facilitate the Government's financing program.
Maturing coupons are cut from securities held in
safekeeping and the proceeds are paid into
the account of the member bank for which the securities are held. Similarly, when the securities
become due, the proceeds are collected and are
paid into the member bank's account. If in the
meantime the member bank wishes to use the securities as collateral for a loan from the Reserve
Bank, the securities are instantly available for that
purpose.

DISCOUNT AND CREDIT

DEPARTMENTS

Bank borrowing from the Federal Reserve Banks
has been relatively small during the past several
years when the banks were amply supplied with reserve funds. N o w that their excess reserves are being
reduced, as a consequence of increasing investment
in Government securities, and of increased currency
circulation, such borrowing again may become necessary. The Federal Reserve Bank of New York has
kept the machinery oiled for this operation, and if
the financial needs of war make it necessary or desirable for this bank to lend reserve funds to the
commercial banks of the district, it is ready to do
so, at low rates of interest. In effect, the privilege
is already being used, of course, by reason of our
purchases and sales of Treasury bills at fixed rates.
O n Treasury bills commercial banks are now "borrowing" from your bank at % of one per cent.
O n other Government securities maturing within a
year, member banks may borrow at % of one per
cent. The regular discount rate is one per cent.




WAR LOANS GUARANTEED BY T H E WAR
DEPARTMENT, N A V Y DEPARTMENT,
AND T H E MARITIME COMMISSION
While our ordinary lending functions have not
been used to any great extent in recent years, a new
type of war lending has been given the Federal Reserve System to administer. Under an Executive
Order issued by the President of the United States
on March 26, 1942, the Federal Reserve Banks,
acting on behalf of the War Department, the Navy
Department and the Maritime Commission, assist
in arranging for loans by member banks and other
financing institutions to businesses engaged in war
production, and guarantee to the financing institutions the ultimate payment of a stated percentage
of such loans.
Members of the Credit Department interview
prospective applicants for such guarantees, receive
applications, investigate and analyze the financial
condition of the businesses, and transmit the applications, together with the recommendation of the
bank, to Washington for consideration. Upon receipt of authorization from the Government departments in Washington, the bank issues guarantees
and undertakes to service the loans in certain
respects.
By December 31, 1942, more than six hundred
applications for such loans had been received by
the bank, and more than four hundred of these
applications, covering loans totaling about one and
one-half billion dollars, had been approved. Included in this amount is one commitment to lend a
single concern up to one billion dollars. This credit
is participated in by almost four hundred commercial banks throughout the country. It is the largest
credit which has ever been arranged at one time for
a private concern. More than half of the loans,




however, are for $100,000 or less (one loan being
for $1,500), meeting the credit needs not only of
large primary contractors but also of small subcontractors who previously may have found it difficult to obtain adequate credit accommodation.
REGULATION W —CONSUMER

CREDIT

W e have talked about this bank's part in one
aspect of the fight against inflation, namely, the
sale of Government securities to the public rather
than to banks. Another aspect of this fight in
which we are all engaged, as part of the war
effort, is the control of installment debt. Under the
authority of an Executive Order of the President of
the United States made August 9, 1941, the Board
of Governors of the Federal Reserve System in
Washington on August 21, 1941, issued its Regulation W , placing restrictions upon installment
sales of a comprehensive list of durable and semidurable goods for civilian consumption, and upon
installment loans. In May 1942 the list of goods
subject to the regulation was greatly enlarged and
the regulation was extended to practically all types
of consumer credit, whether in the form of installment sales and installment loans, or in the form of
charge accounts and single-payment loans.
The Credit Department of the bank has the
responsibility of administering and enforcing the
regulation in this district. It answers inquiries regarding the regulation; receives registration statements from business concerns the activities of which
are subject to the regulation; issues registration certificates; conducts investigations; and carries on an
educational program designed to inform people
subject to the regulation regarding its terms. TTie
Research Department collects substantial statistical
material regarding consumer credit.




FOREIGN OPERATIONS
M a n y foreign central banks and a few foreign
governments maintain deposit accounts and security
and gold custody accounts at the Federal Reserve
Bank of N e w Y o r k . Ordinarily these accounts serve
international trade and finance; now they largely
serve the United Nations' war program. Since the
United States Treasury also maintains accounts at
the bank, a large volume of financial transactions
between our Government and other governments
can

be

readily

effected.

Nearly

every

day

Treasury Department, acting for the War,

the

Navy

and State Departments, instructs the Federal Reserve Bank to transfer funds to the accounts of
foreign central banks or governments for the purpose of making money available for the use of our
armed forces and the American consulates in various parts of the world. Similarly, the Federal Reserve Bank effects payment for various goods and
commodities which our Government is purchasing
throughout the world.
Y o u r bank has also assisted with procedures for
remittances by members of our armed forces abroad
to their dependents in the United States.

F O R E I G N FUNDS C O N T R O L *
One important weapon used in the economic war
against our enemies, which supports the war

of

* A more complete description of Foreign Funds Contro!, together with a statement of certain basic po!icies, is
contained in a pubhcation of the United States Treasury
entitled "Administration of the Wartime Financial and
Property Controls of the United States Government"
which was prepared especially for the Inter-American
Conference on Systems of Economic and Financiat Control
that convened in Washington on June 30, 1942, and
which was made generally available to interested persons
in December 1942.




arms, is the control of foreign property in this
country. By an Executive Order issued by the
President of the United States on A p r i l 10, 1940,
and amended from time to time, all property in the
United States in which any of the countries named
in the Order, or their citizens or residents, have
any interest is "frozen" or ' blocked," that is,
transactions involving such property are prohibited
except as permitted by licenses issued by the Secretary of the Treasury.
Freezing control extends to the Axis nations, to
all of Continental Europe except Turkey, and to
other countries which have been overrun by the
Axis. As an aggressive weapon of economic warfare, it has the following objectives:
(a) preventing the Axis from deriving any benefit from blocked assets;
(b) facilitating the use of certain blocked assets
such as patents, ships, factories, etc., in the
war effort of the United Nations;
(c) protecting American banks and business institutions in transactions involving blocked
assets;
(d) protecting Americans who have claims
against foreign governments and their nationals, having in mind post-war negotiations and settlements.
Your bank, as agent of the Treasury Department,
assists in the administration of the Executive
Order. Imported currency and securities, which are
required under the freezing control to be impounded in a Federal Reserve Bank pending investigation of ownership, are handled by the Cash
Department and the Safekeeping Department, re-




spectively. W i t h these and one or two other minor
exceptions the duties assigned to the bank as fiscal
agent are performed by the Foreign Funds Control
Department.
This department of the bank receives applications for licenses relating to transactions involving
blocked countries or their nationals.The applications
are reviewed by specialists in the kind of transaction
involved, are approved or denied directly by the
bank under authority of the Treasury Department,
or are referred to the Treasury. Over half a million
applications have been handled by the bank to date.
The bank receives and checks reports covering
transactions under licenses, and receives inventory
reports of property in the United States owned by
foreigners. The bank also assists the Treasury
Department in the detection and prevention of
financial transactions on the part of the Axis or
others which might interfere with the war effort.
The Foreign Funds Control Department occupies the fifth and sixth floors of 70 Pine Street.
It also uses the entire third floor of the Annex
Building at 95 Maiden Lane for the examination
and storage of certain records seized by the Treasury under the freezing control. The personnel of
the department is now about 270.
FISCAL AGENT, CUSTODIAN AND DEPOSITARY
FOR RECONSTRUCTION FINANCE CORPORATION AND ITS SUBSIDIARIES
The Reconstruction Finance Corporation and its
various subsidiaries are now engaged almost exclusively in war activities, including the construction of production facilities for the manufacture of
war materials, the procurement of stock piles of
strategic materials, the operation of the Government's war damage insurance program, and other




projects directly related to the war effort. The
Federal Reserve Banks, acting as fiscal agents, custodians, and depositaries for the Reconstruction
Finance Corporation and its subsidiaries, actively
participate in the administrative aspects of the
Corporation's program.
This bank disburses, by checks drawn on the
Treasurer of the United States, the amount of loans
and other payments made by the Reconstruction
Finance Corporation and its various subsidiaries, and
receives, examines, and holds borrowers' notes and
collateral.
The Defense Plant Corporation, a subsidiary of
the Reconstruction Finance Corporation, purchases
and leases plants for war production and makes
such facilities available to others engaged in war
work. The bank receives, examines, and holds
documents in connection with such activities and
makes and receives payments on behalf of the
Corporation.
The Defense Supplies Corporation, the Rubber
Reserve Company and the Metals Reserve Company, all of which are subsidiaries of the Reconstruction Finance Corporation, are primarily engaged in purchasing, holding and selling strategic
and critical material and supplies which include
scores of commodities and metals. The bank receives, examines, and holds documents in this connection and makes and receives payments on behalf
of the corporations.
In October 1942, the Defense Supplies Corporation undertook a program of purchasing new and
used tires and tubes from consumers. Vouchers
issued by representatives of the Defense Supplies
Corporation upon taking delivery of the tires and
tubes, are received by the bank and verified, and
the bank pays the seller for the tires by issuing a




T ^ f- M
M MyO F

check drawn on the Treasurer of the United States
or by sending him War Bonds or W a r Savings
Stamps. U p to February 1, 1943, the bank had
handled 198,000 such vouchers relating to approximate^ 420,000 tires and tubes.
In July 1942 the War Damage Corporation, a
subsidiary of the Reconstruction Finance Corporation, undertook to insure buildings and other
tangible property against loss or damage resulting
from enemy attack or action of our own armed
forces in resisting enemy attack. Subsequently,
coverage was also made available for money and
securities when shipped by registered mail or express and under certain other circumstances. This
insurance is written through the ofRces and facilities of hundreds of regular Are insurance, casualty
and surety companies throughout the country
which act as Aduciary agents of the corporation.
The bank receives from such companies statements
regarding insurance written by them and premiums
received in respect of such insurance less certain
commissions and service fees. The bank veriAes the
computations, collects the checks and reports with
respect thereto to the corporation. During the last
six months of 1942 the bank received for veriAcation and Aling approximately 2,500,000 tickets or
advices relating to approximately 1,250,000 war
damage insurance policies written in the Second
Federal Reserve District during that period.
A H of this work is performed through the
R. F. C. Custody Department, whose employees
number over 250. A little more than a year ago
the number of employees engaged in such work
was less than 100. Some of the work of the department is performed in the bank's Annex Building at
95 Maiden Lane as well as in the main bank
building.




VICTORY FUND COMMITTEE FOR T H E
SECOND FEDERAL RESERVE DISTRICT
The Victory Fund Committees were organized at
the request of the Secretary of the Treasury in May
1942 as a part of the war financing program. The
national Victory Fund Committee consists of the
Secretary of the Treasury, as Chairman, and the
Presidents of the twelve Federal Reserve Banks as
members. The Chairman of the Board of Governors
of the Federal Reserve System provides the liaison
between the Federal Reserve Banks and the Treasury. In each Federal Reserve District a district Victory Fund Committee has been organized with the
President of the Federal Reserve Bank in the district as Chairman. The Victory Fund Committee for
the Second Federal Reserve District has its headquarters at this bank.
The Second Federal Reserve District is divided
into 15 regions, each under a Regional Chairman,
assisted by a Regional Victory Fund Committee.
Most of the regional committees have a small fulltime staff engaged in the administration of the
affairs of the committee and a much larger number
of volunteer workers. Many of the regions are in
turn subdivided into smaller areas covered by local
committees and sales representatives. It is the purpose of the Victory Fund Committee to organize,
direct, and coordinate the combined efforts of a
large volunteer force of bankers, security dealers
and other public-spirited citizens of each community in the sale of Government securities.
The Victory Fund Committee gave full assistance
to the Secretary of the Treasury in the Victory Loan
Drive in December 1942, its first big job. The
amount initially announced as the goal of the drive
was nine billion dollars. Almost thirteen billion




dollars was obtained and over Ave billion dollars
of this amount was raised in the Second Federal
Reserve District. During the drive the volunteer
personnel of the committee numbered about 9,000.

OTHER FUNCTIONS OF T H E B A N K
Increased work in old departments and the warborn establishment of new departments, described
above, have meant that all of the employees of the
bank have felt the pressure of war work. This has
been true in the personnel, legal, research, accounting, disbursing, auditing, bank examinations, bank
relations, press and circular, service, mail, protection, building operating and other departments,
even though their work has not been discussed in
detail. W h i l e some of these departments are more
directly involved than others in the performance of
the work described above, all of them perform
functions which are necessary to enable the bank
to carry out its responsibilities. If the boilers in
the basement are not working, if the elevators are
not running, if the telephone switchboard is out of
order, the whole bank slows down or stops. This
is a community enterprise in which everyone plays
his part. This is a real war job. The Federal
Reserve Bank of N e w York is a war industry for
the duration.

B n( of N w Tor!; my b obtained, u o reque!t, from t e
a!
e
a e
pn
h
n
om
y h: h r
Pren a d Circutar Divinon. R o 54J. b t oe w o ae intere t d in a f M r discuMion of t e b n ' pa e in t e w r effort.
se
ue
h a^ ! c
$
h a







CONFIDENTIAL

FOR U S E ONLY W I T H I N
FEDERAL RESERVE SYSTEM

THE FEDERAL RESERVE BANK
OF NEW YORK
and
THE WAR

February,

1943

( T h i s paper supplements a p r i n t e d b o o k l e t h a v i n g t h e same
t i t l e , by d e s c r i b i n g i n g r e a t e r d e t a i l some o f t h e f u n c t i o n s
o f t h e bank r e f e r r e d t o i n t h e b o o k l e t . )

C O N T E N T S

Page

INTRODUCTION

1

RECENT INCREASE IN PERSONNEL

1

WAR FINANCING

2

P u r c h a s e r s o f Government S e c u r i t i e s
FISCAL AND CREDIT POLICIES

2
A

Open market o p e r a t i o n s

5

G e n e r a l t r a n s a c t i o n s i n t h e market

5

Transactions i n Treasury b i l l s

6

a t 3/8% r a t e

Method o f h a n d l i n g and volume o f open market
operations

6

D i f f e r e n t i a l d i s c o u n t r a t e o f l/2% f o r advances t o
member banks, s e c u r e d by Government s e c u r i t i e s
m a t u r i n g or c a l l a b l e w i t h i n one y e a r

8

War L o a n D e p o s i t A c c o u n t s

9

ISSUANCE AND HANDLING OF GOVERNMENT SECURITIES

10

T r e a s u r y i s s u e s o t h e r t h a n S a v i n g s Bonds

11

Exchanges and t r a n s f e r s

12

Redemptions

12

T r e a s u r y Tax Savings Notes

13

S a v i n g s Bonds

13

Redemptions, c o r r e c t i o n s and r e i s s u e s

16

U . S . TREASURER'S GENERAL ACCOUNT

17

GOVERNMENT CHECKS

18

GOVERNMENT COUPONS

19

CURRENCY

19

CHECK CLEARING AND COLLECTION

20

RATION BANKING

20




i

Page
CUSTODIAN AND OTHER SERVICES

-

21

WAR LOANS GUARANTEED BY THE WAR DEPARTMENT,
NAVY DEPARTMENT, AND THE MARITIME COMMISSION

22

REGULATION W - CONSUMER CREDIT

%

FOREIGN OPERATIONS

24

O p e r a t i o n s a t t h e r e q u e s t o f t h e Government

25

O p e r a t i o n s a t t h e r e q u e s t o f Government A g e n c i e s

26

R e m i t t a n c e s by m i l i t a r y p e r s o n n e l

26

O p e r a t i o n s f o r t h e c e n t r a l banks or governments
c e r t a i n o f the U n i t e d Nations

of

G e n e r a l e f f e c t o f w a r - t i m e c o n d i t i o n s on t o t a l
h o l d i n g s f o r f o r e i g n account

26

28

FOREIGN FUNDS CONTROL

28

FISCAL AGENT, CUSTODIAN AND DEPOSITARY FOR
RECONSTRUCTION FINANCE CORPORATION AND
ITS SUBSIDIARIES

33

BUFFALO BRANCH

35

H a n d l i n g o f Government s e c u r i t i e s

36

Payment o f Government o b l i g a t i o n s and m i s c e l l a n e o u s
services

36

War l o a n s under R e g u l a t i o n V and a s s i s t a n c e t o War
and Navy Departments

36

R e g u l a t i o n o f consumer c r e d i t

36

F i s c a l a g e n t , c u s t o d i a n and d e p o s i t a r y f o r R . F . C .

36

VICTORY FUND COI'MITTEE FOR THE
SECOND FEDERAL RESERVE DISTRICT

37

OTHER WORK OF THE BANK

38




ii

THE FEDERAL RESERVE BANK
OF NEW YORK
and
THE WAR

The most i m p o r t a n t j o b o f t h e U n i t e d S t a t e s i s

t h e w i n n i n g o f t h e war

in

a d e c i s i v e f a s h i o n as soon as p o s s i b l e and w i t h a minimum d i s l o c a t i o n o f t h e economic
system commensurate t h e r e w i t h .

The unprecedented e x p e n d i t u r e s i n c o n n e c t i o n w i t h

t h e war e f f o r t p l a c e on t h e F e d e r a l Reserve System and t h e F e d e r a l Reserve Bank o f
New Y o r k g r e a t r e s p o n s i b i l i t i e s

regarding the f i n a n c i n g o f those expenditures

t h e m i n i m i z a t i o n o f p o s s i b l e adverse e f f e c t s w h i c h t h e y might h a v e .
pose o f t h i s paper t o o u t l i n e
and t h e members o f i t s

It is

and

the p u r -

t h e way i n w h i c h t h e F e d e r a l Reserve Bank o f New Y o r k

s t a f f a r e c o n t r i b u t i n g t o t h e war e f f o r t .

The bank

directly

s e r v e s t h e Second F e d e r a l Reserve D i s t r i c t w h i c h i n c l u d e s t h e S t a t e o f New Y o r k ,
t w e l v e c o u n t i e s i n n o r t h e r n Ne^v J e r s e y , and F a i r f i e l d County, C o n n e c t i c u t .
l a r g e r sense, i t

serves t h e whole

In a

country.

RECENT INCREASE I N PERSONNEL
The s t a f f o f t h e bank, i n c l u d i n g t h e B u f f a l o B r a n c h , now numbers more t h a n
4,000.

I t has i n c r e a s e d more t h a n 75% d u r i n g t h e l a s t t h r e e y e a r s ;

J a n u a r y 1, 1940 t o 4,092 on F e b r u a r y 15, 1943.

from 2,326 on

O n l y about 1700 o f those employed

by t h e bank on t h e e a r l i e r date were s t i l l w i t h t h e bank on t h e l a t t e r d a t e .
more t h a n 55% o f t h e p r e s e n t s t a f f has come t o t h e bank s i n c e t h e outbreak o f
war i n E u r o p e .

the

45% o f t h e p r e s e n t s t a f f has come t o t h e bank s i n c e December 7 , 1941.

By F e b r u a r y 15, 1943,

500 members o f t h e s t a f f had e n t e r e d m i l i t a r y

F e d e r a l Reserve bank men a r e s e r v i n g i n a l l branches o f t h e s e r v i c e ,
overseas.

Thus

service.

a t home and

F i v e o f i t s women have j o i n e d t h e WAACS and seven have j o i n e d t h e WAVES.
F o r many y e a r s a l a r g e number o f employees have been engaged i n

t y p e s o f work o f the bank on b e h a l f o f t h e U n i t e d S t a t e s Government.



various

Many o f

these

t y p e s o f work, which c o n t i n u e t o be performed t o d a y , a r e d i r e c t l y r e l a t e d t o the war
effort.

In addition,

s e v e r a l new f u n c t i o n s have been u n d e r t a k e n by t h e bank

since

t h e outbreak o f t h e war i n E u r o p e .

WAR FINANCING
The U n i t e d S t a t e s Government i s now spending about one and a h a l f
d o l l a r s a week - $250,000,000 a d a y .

To meet t h e s e e x p e n d i t u r e s ,

billion

d u r i n g the

fiscal

year e n d i n g June 30, 1943? t h e T r e a s u r y must r a i s e about 84 b i l l i o n d o l l a r s .

There

a r e two methods by which t h e T r e a s u r y can g e t t h e needed f u n d s :
(2) b o r r o w i n g .

and

I n t h e c u r r e n t f i s c a l y e a r o n l y about 23 b i l l i o n d o l l a r s a r e

pected from t a x e s .
and t r u s t

( l ) taxes,

About 3 b i l l i o n d o l l a r s o f the r e c e i p t s o f Government

funds w i l l be i n v e s t e d i n Government s e c u r i t i e s .

borrowed from t h e p u b l i c about 60 b i l l i o n d o l l a r s ,
a l r e a d y been r a i s e d .

ex-

agencies

T h i s l e a v e s t o be

almost t w o - t h i r d s

o f w h i c h has

I n one month - December 194-2 - l a r g e l y t h r o u g h t h e

Victory

Loan D r i v e , almost 13 b i l l i o n d o l l a r s was r a i s e d by t h e Government through t h e
of i t s

securities of a l l

types.

This i s

c o u n t r y i n one f i n a n c i n g o p e r a t i o n .

sale

t h e l a r g e s t f i n a n c i n g ever done by any

T o t a l Government o b l i g a t i o n s o u t s t a n d i n g

rose

from 77 b i l l i o n d o l l a r s on June 30, 1942 t o 112.5 b i l l i o n d o l l a r s on December 31,
1942.

D u r i n g t h e f i r s t W o r l d War t h e g r e a t e s t amount r a i s e d i n any one d r i v e was

s l i g h t l y l e s s than 7 b i l l i o n d o l l a r s j
1918.

That was the F o u r t h L i b e r t y Loan i n

October,

T o t a l b o r r o w i n g o f t h e U n i t e d S t a t e s Government d u r i n g t h e t h r e e war y e a r s

ended June 30, 1919, was o n l y s l i g h t l y more than 24 b i l l i o n

dollars.

T o t a l e x p e n d i t u r e s o f t h e Government, and t o t a l money t o be r a i s e d by taxes
and b o r r o w i n g d u r i n g the f i s c a l y e a r b e g i n n i n g J u l y 1 , 1943 a r e expected t o

exceed

s u b s t a n t i a l l y t h e c o r r e s p o n d i n g amounts f o r t h e f i s c a l y e a r ending June 30, 1943.
P u r c h a s e r s o f Government

Securities

The Government can endeavor t o s e l l i t s
or i t

securities

to a l l

types o f

can r e l y m a i n l y on t h e commercial banks t o s u p p l y i t w i t h f u n d s .

would be much e a s i e r than s e l l i n g s e c u r i t i e s




2

to i n d i v i d u a l s ,

The

corporations,

investors
latter

insurance

companies and o t h e r non-bank i n v e s t o r s ,

but i t

has g r e a t d i s a d v a n t a g e s .

When com-

m e r c i a l banks purchase Government s e c u r i t i e s t h e p u r c h a s i n g power o f t h e p e o p l e
throughout the c o u n t r y i s i n c r e a s e d by t h e amount o f such p u r c h a s e s , whereas i f
s e c u r i t i e s a r e purchased by i n d i v i d u a l s

the

or o r g a n i z a t i o n s o t h e r t h a n commercial banks

t h e r e i s no i n c r e a s e i n p u r c h a s i n g power.
When John Doe buys a $100 Government bond, h i s

cash on hand or on d e p o s i t

i n h i s bank i s r e d u c e d by $100, and he no l o n g e r has t h a t amount t o spend.
Government soon pays o u t t h e $100 i t

has borrowed from John Doe, and i t

the p o c k e t or t h e bank a c c o u n t o f R i c h a r d R o e .

The

goes

into

M r . Roe now has $100 t o spend b u t

t h i s i n c r e a s e i n h i s p u r c h a s i n g power m e r e l y o f f s e t s t h e decrease i n John D o e ' s
c h a s i n g power.

There i s no i n c r e a s e i n t h e p u r c h a s i n g power o f t h e e n t i r e

pur-

country

as a r e s u l t o f such Government b o r r o w i n g and s p e n d i n g .
I f , h o w e v e r , a commercial bank buys a $100 Government bond, i t
pays f o r i t b y c r e d i t i n g t h e T r e a s u r y v d t h t h a t amount on i t s b o o k s .

This

drawn upon by t h e Government and t h e money i s used t o buy war m a t e r i a l s ,
purposes.
it

As a r e s u l t o f t h e e n t i r e t r a n s a c t i o n ,

p e o p l e o f t h e U n i t e d S t a t e s have $100 more t h a n t h e y had b e f o r e .
t h e s u p p l y o f goods f o r

t o war p u r p o s e s .

c r e d i t i n t h e purchase o f Government s e c u r i t i e s
i n f l a t i o n , which, putting

is

other

aside t e c h n i c a l i t i e s ,

s u p p l y o f t h i n g s t o be b o u g h t .
Yfhether i t
t h e way i t

is

the

On t h e o t h e r hand,
the

thus c a r r i e s w i t h i t

the t h r e a t

means s i m p l y t h a t demand outrunning

of

backed
the

E v e r y one know what happens when demand o u t r u n s

b u t t e r , eggs or t i c k e t s t o t h e W o r l d S e r i e s - p r i c e s

i s with i n f l a t i o n ,

except t h a t i n f l a t i o n i s

prices.




therefore,

The i n c r e a s e d use o f bank

by t h e money, t h e spending power i n the hands o f t h e p e o p l e - i s

all

or f o r

c i v i l i a n consumption i s r a p i d l y d i m i n i s h i n g because o f

conversion o f production f a c i l i t i e s

That i s

credit

I n t h i s way R i c h a r d Roe a g a i n g e t s $100 but w i t h o u t John D o e ' s h a v i n g put

up i n t h e f i r s t p l a c e .

supply.

ordinarily

3

general.

It

go u p .
affects

To l e s s e n the t h r e a t o f i n f l a t i o n t h e Government wants t o s e l l as many o f
its

s e c u r i t i e s as p o s s i b l e t o i n d i v i d u a l s and o r g a n i z a t i o n s o t h e r t h a n commercial

banks.

The F e d e r a l Reserve Bank o f New Y o r k i s h e l p i n g w i t h t h i s

j o b through

its

d i r e c t p a r t i c i p a t i o n i n t h e work o f the V i c t o r y Fund Committees and through t h e
services i t

performs f o r t h e War Savings S t a f f o f t h e T r e a s u r y Department.

Due t o t h e v a s t Government f i n a n c i n g program, a l a r g e q u a n t i t y o f

securi-

t i e s v r i l l , n e v e r t h e l e s s , have t o be s o l d t o t h e commercial banks w h i c h s t a n d r e a d y
t o buy whatever amounts cannot be s o l d t o o t h e r i n v e s t o r s .

Holdings of

Government

s e c u r i t i e s by commercial banks i n c r e a s e d from $26 b i l l i o n on June 30, 1942 t o $41
b i l l i o n on December 31, 1942 and i t

is

q u i t e l i k e l y t h a t by June 30, 1943 t h e i r

h o l d i n g s w i l l be tvdee as l a r g e as t h e y were on June 30, 1942.

FISCAL AND CREDIT POLICIES
Because o f i t s d u t i e s and l o c a t i o n i n t h e p r i n c i p a l f i n a n c i a l c e n t e r
the country,

the bank keeps i n t o u c h w i t h t h e Government s e c u r i t y bankers

and money markets, and i s

of

acceptance

f r e q u e n t l y c o n s u l t e d by t h e T r e a s u r y Department, t h e Board

o f Governors o f t h e F e d e r a l Reserve System i n Washington and t h e F e d e r a l Open Market
Committee w i t h r e s p e c t t o m a t t e r s r e l a t i n g t o T r e a s u r y f i n a n c i n g , market
and g e n e r a l monetary and c r e d i t m a t t e r s a f f e c t i n g t h e n a t i o n ' s economy.
nection, a staff

of substantial size i s

conditions
In this

con-

c o n s t a n t l y engaged i n c o l l e c t i n g and a n a l y z -

i n g i n f o r m a t i o n and o p i n i o n r e g a r d i n g such m a t t e r s .
On December 8, 1941, t h e day f o l l o w i n g t h e Japanese a t t a c k on P e a r l H a r b o r ,
t h e F e d e r a l Reserve System s t a t e d t h a t i t was p r e p a r e d t o use i t s powers t o
t h a t an ample s u p p l y o f funds i s a v a i l a b l e a t a l l

times f o r f i n a n c i n g t h e war

The banks t h r o u g h o u t the c o u n t r y need have no f e a r , i f
securities,

assure
effort.

t h e y i n v e s t i n Government

t h a t t h e y w i l l r u n t h e r i s k o f i n a b i l i t y t o meet demands on them f o r

and f o r t h e maintenance o f t h e i r r e s e r v e s a t t h e r e q u i r e d l e v e l s .

cash

S e v e r a l measures

have been t a k e n by t h e F e d e r a l Reserve System t o m a i n t a i n adequate r e s e r v e s i n comm e r c i a l banks and t o p r o v i d e




facilities

by w h i c h i n d i v i d u a l banks can a d j u s t

their

reserve p o s i t i o n s .

These i n c l u d e decreases i n t h e r e q u i r e d r e s e r v e s o f banks

c e n t r a l reserve c i t i e s

e f f e c t e d by t h e Board o f Governors l a s t

open market o p e r a t i o n s by t h e F e d e r a l Reserve banks,

summer,

in

substantial

the e s t a b l i s h m e n t by t h e

F e d e r a l Reserve banks o f a f i x e d b u y i n g r a t e o f 3/8% f o r T r e a s u r y b i l l s ,

the

es-

t a b l i s h m e n t by t h e F e d e r a l Reserve banks o f a p r e f e r e n t i a l d i s c o u n t r a t e on s h o r t term Government s e c u r i t i e s ,
Deposit

and t h e p o p u l a r i z a t i o n o f t h e use o f t h e War L o a n

Account.

Open market
1.

operations

G e n e r a l t r a n s a c t i o n s i n t h e market.

F o r many y e a r s t h e F e d e r a l Reserve banks have purchased and s o l d b a n k e r s '
a c c e p t a n c e s and Government s e c u r i t i e s i n t h e open market as an i n s t r u m e n t o f
policy.

credit

Such o p e r a t i o n s a f f o r d t h e F e d e r a l Reserve System an o p p o r t u n i t y t o expand

or reduce bank r e s e r v e s depending on whether t h e System buys or s e l l s and t h i s
t r u e whether t h e o t h e r p a r t i e s
bank

is

t o t h e t r a n s a c t i o n s a r e commercial banks or m e r e l y

depositors.
Under p r e s e n t c o n d i t i o n s open market o p e r a t i o n s a r e c o n f i n e d almost

c l u s i v e l y t o Government s e c u r i t i e s .

I n r e c e n t months t h e F e d e r a l Reserve banks have

made l a r g e purchases and s a l e s o f Government s e c u r i t i e s
t o h e l p m a i n t a i n o r d e r l y market c o n d i t i o n s t o a s s i s t
and a d j u s t i n g t h e i r

ex-

i n t h e open market

commercial banks i n

primarily

maintaining

reserves.

The p o l i c i e s pursued by t h e F e d e r a l Reserve System w i t h r e s p e c t t o

open

market o p e r a t i o n s a r e determined by t h e F e d e r a l Open Market Committee which i s

com-

posed o f t h e members o f t h e Board o f Governors o f t h e F e d e r a l Reserve System, t h e
P r e s i d e n t o f t h e F e d e r a l Reserve Bank o f New Y o r k and t h e P r e s i d e n t s
o t h e r e l e v e n F e d e r a l Reserve banks.

of four of

Such p o l i c i e s a r e c a r r i e d out by t h e

Reserve Bank o f New Y o r k on b e h a l f o f a l l t h e F e d e r a l Reserve banks under
a u t h o r i z a t i o n s and d i r e c t i o n s g i v e n t o i t

/




Federal
general

by t h e e x e c u t i v e committee o f t h e

Open Market Committee.

5

the

Federal

2.

Transactions i n Treasury b i l l s

a t 3/3% r a t e .

As a means o f b r i n g i n g about a f u l l e r employment o f bank f u n d s , and t h e r e f o r e a more complete u t i l i z a t i o n o f r e s e r v e s , by a s s u r i n g t h e l i q u i d i t y o f
ments i n T r e a s u r y b i l l s

invest-

(a type o f Government s e c u r i t y s o l d on a d i s c o u n t b a s i s

u s u a l l y m a t u r i n g i n 91 d a y s ) ,

and

t h e F e d e r a l Open Market Committee i n A p r i l 1942

d i r e c t e d t h e F e d e r a l Reserve banks t o purchase a l l T r e a s u r y b i l l s
on a d i s c o u n t b a s i s a t t h e r a t e o f 3/8% p e r annum.

o f f e r e d t o them

S i n c e August 1942 s e l l e r s

of

such b i l l s have, upon t h e i r r e q u e s t , been g i v e n an o p t i o n t o r e p u r c h a s e a t any time
before maturity Treasury b i l l s o f a l i k e

amount and m a t u r i t y a t t h e same r a t e

of

discount.
3.

Method o f h a n d l i n g and volume o f open market

operations.

A l l Government s e c u r i t i e s w h i c h a r e purchased by t h e F e d e r a l Reserve Bank
o f New Y o r k under t h e d i r e c t i o n o f t h e F e d e r a l Open Market Committee,
Treasury b i l l s

except

purchased s u b j e c t t o a r e s a l e o p t i o n , a r e h e l d i n an account

designated

as t h e System Open Market A c c o u n t i n w h i c h a l l o f t h e t w e l v e F e d e r a l Reserve banks
participate.

The Manager o f t h e System A c c o u n t i s

Bank o f New Y o r k .

Treasury b i l l s

an o f f i c e r

o f t h e F e d e r a l Reserve

purchased s u b j e c t t o a r e p u r c h a s e o p t i o n by t h e

s e l l e r a r e purchased by t h e i n d i v i d u a l F e d e r a l Reserve banks f o r t h e i r ovm a c c o u n t
and n o t f o r t h e System A c c o u n t , i n o r d e r t o f a c i l i t a t e

the d e l i v e r y of b i l l s

q u i c k l y t o t h e s e l l e r upon t h e e x e r c i s e o f h i s r e p u r c h a s e o p t i o n .

The a c t u a l

p u r c h a s e s and s a l e s o f Government s e c u r i t i e s f o r t h e System A c c o u n t , and o f
bills

f o r a c c o u n t o f t h e bank, a r e h a n d l e d by t h e S e c u r i t i e s Department.

partment m a i n t a i n s a " t r a d i n g room" from which t h e r e are d i r e c t w i r e s
w i t h the p r i n c i p a l Government s e c u r i t y d e a l e r s i n New Y o r k C i t y .

more

Treasury

This

de-

connecting

I t keeps

s t a n t l y i n t o u c h w i t h t h e Government s e c u r i t i e s market b o t h h e r e and out o f

contown,

s t u d i e s market c o n d i t i o n s , m a i n t a i n s r e c o r d s r e g a r d i n g t h e s e c u r i t i e s purchased and
s o l d by i t ,
t

a l l o c a t e s t h e s e c u r i t i e s h e l d i n t h e System Account among the

twelve

p a r t i c i p a t i n g F e d e r a l Reserve banks p u r s u a n t t o t h e d i r e c t i o n s o f t h e F e d e r a l Open
Market Committee, and does t h e g e n e r a l bookkeeping f o r the System A c c o u n t .




/

The amount o f Government s e c u r i t i e s h e l d by the F e d e r a l Reserve banks on
J a n u a r y 1 , 1943, was $6,189,000,000 compared w i t h $2,254,000,000 on J a n u a r y 1 , 1942.
The t o t a l h o l d i n g s f l u c t u a t e d r e l a t i v e l y s l i g h t l y d u r i n g the f i r s t

f o u r months o f

t h e year i n v i e w o f t h e p r e v a i l i n g l e v e l o f excess r e s e r v e s and g e n e r a l l y

orderly

c o n d i t i o n s which c h a r a c t e r i z e d t h e Government s e c u r i t y market i n t h i s p e r i o d .

With

t h e r a p i d a c c e l e r a t i o n i n t h e r a t e o f war e x p e n d i t u r e s , however, l a r g e r and more
f r e q u e n t b o r r o w i n g o p e r a t i o n s by t h e T r e a s u r y became n e c e s s a r y .

Such o p e r a t i o n s

were accompanied by a more complete a b s o r p t i o n o f excess r e s e r v e s and by i n c r e a s i n g l y f r e q u e n t adjustments i n p o s i t i o n s o f i n v e s t o r s , w h i c h n o r m a l l y might have a d i s r u p t i n g i n f l u e n c e upon t h e m a r k e t .

As a r e s u l t , t h e r o l e o f t h e System A c c o u n t

in-

c r e a s e d i n a c t i v i t y and importance t h r o u g h o u t t h e y e a r .
Changes i n F e d e r a l Reserve System h o l d i n g s by major i s s u e
are i n d i c a t e d q u a r t e r l y i n the f o l l o w i n g

classifications

table:

Net Changes i n H o l d i n g s o f T r e a s u r y D i r c c t and
Guaranteed O b l i g a t i o n s by Q u a r t e r s o f Y e a r 1942
F e d e r a l Reserve System
( I n thousands o f d o l l a r s )
1942
1 s t Quarter
Treasury B i l l s *
Treasury
Certificates
Indebtedness

2nd Q u a r t e r

3rd Quarter

4th Q u a r t e r

Year

- 10,370

+ 243,475

+ 413,322

+

353,199

+

+

66,252

+ 437,593

+

537,155

+1,041,000

655,144

+

999,626

of
^

T r e a s u r y and
Guar. O b l i g a t i o n s
Notes

- 84,800

+

24,775

-

27,360

+

Bonds

+ 84,931

+

66,495

+

98,504

+1,075,846

+1,325,776

- 10,239

+ 400,997

+ 922,059

+2,621,344

+3,934,161

Total

* I n c l u d i n g t r a n s a c t i o n s i n t h e System Open Market Account and
a t t h e 3/8% r a t e .
^ None

567,759

transactions

outstanding.
These changes r e p r e s e n t o p e r a t i o n s by t h e F e d e r a l Reserve System on a

s c a l e o f g r e a t magnitude and i t



has been p r i m a r i l y t h r o u g h them t h a t the System has

7

succeeded i n f a c i l i t a t i n g t h e n e c e s s a r y market-adjustments a t t e n d a n t upon huge
borrowing operations not o n l y by d i r e c t i n f l u e n c e i n s t a b i l i z i n g p r i c e s

o f Government

s e c u r i t i e s b u t by s u p p l y i n g t h e money market w i t h the funds n e c e s s a r y t o b r i n g
about t h e o r d e r l y a b s o r p t i o n o f t h i s

debt.

D i f f e r e n t i a l d i s c o u n t r a t e o f l/2% f o r advances
t o member banks, secured by Government s e c u r i t i e s
m a t u r i n g or c a l l a b l e w i t h i n one y e a r .
When commercial banks draw o n t h e i r r e s e r v e a c c o u n t s t o pay f o r a new
i s s u e o f Government s e c u r i t i e s t h e amount p a i d t h e Government becomes a d e p o s i t
f a v o r o f t h e Government.

This deposit i s

s h o r t l y p a i d o u t by t h e Government

goods and s e r v i c e s and t h e funds a r e r e d e p o s i t e d by t h e r e c i p i e n t s
banks throughout t h e c o u n t r y .

i n the

for

commercial

Thus t h e amount p a i d by t h e banking system as a whole

f o r a new T r e a s u r y i s s u e s h o r t l y comes back t o t h e banking system and t h e f u n d s
by t h e banks a r e r e p l e n i s h e d by t h a t amount.

Although the reserve balances

i n c r e a s e d by t h e f u l l amount, r e q u i r e d r e s e r v e s a r e i n c r e a s e d by o n l y a
s m a l l p o r t i o n o f t h a t amount.

in

If all

held

are

relatively

banks were t o be a f f e c t e d e q u a l l y by such

t r a n s a c t i o n s t h e y would be i n a p o s i t i o n t o use a l l
balances, l e s s the increase i n required reserves,

o f the i n c r e a s e i n t h e i r

reserve

f o r t h e purchase o f new Government

issues.
R e c o g n i z i n g , however,

t h a t t h e r e u n d o u b t e d l y w i l l be i n d i v i d u a l banks

w h i c h w i l l n o t share p r o p o r t i o n a t e l y o r i m m e d i a t e l y i n t h e i n c r e a s e i n d e p o s i t s
s u l t i n g f r o m Government d i s b u r s e m e n t s ,

o r i n t h e i n c r e a s e i n r e s e r v e funds

resulting

from F e d e r a l Reserve open market o p e r a t i o n s , and t h a t such banks may be s u b j e c t
l o s s e s o f r e s e r v e s through c u r r e n c y w i t h d r a w a l s or o t h e r t r a n s a c t i o n s ,

the

re-

to

Federal

Reserve banks announced i n O c t o b e r 194-2 t h a t t h e y a r e p r e p a r e d t o make l o a n s

to

member banks, s e c u r e d by Government s e c u r i t i e s m a t u r i n g o r c a l l a b l e w i t h i n one y e a r ,
a t a d i s c o u n t or i n t e r e s t r a t e o f l / 2 p e r cent per annum.

This rate

supplements

t h e 1 per cent r a t e f o r l o a n s secured by l o n g e r term Government o b l i g a t i o n s and f o r
r e d i s c o u n t s o f e l i g i b l e p a p e r , and i s i n t e n d e d t o encourage t h e banks, as




8

occasion

r e q u i r e s , t o o b t a i n a d d i t i o n a l r e s e r v e s a g a i n s t t h e pledge o f some o f t h e i r
thus a v o i d i n g t h e n e c e s s i t y o f s e l l i n g

such a s s e t s t o meet temporary

assets,

situations.

The d e t a i l s i n c i d e n t t o such l e a n s by t h e F e d e r a l Reserve Bank o f New York a r e
h a n d l e d by t h e C r e d i t Department and t h e D i s c o u n t Department.
War Loan D e p o s i t

Accounts

Upon a p p r o v a l o f t h e T r e a s u r y Department, any i n c o r p o r a t e d bank or
company may pay f o r
by i t

or i t s

c e r t a i n Government s e c u r i t i e s

( i n c l u d i n g Savings Bonds)

trust
purchased

customers by c r e d i t i n g t h e purchase p r i c e t o an a c c o u n t o n i t s books

t h e name o f t h e F e d e r a l Reserve bank o f i t s

district

as f i s c a l agent of t h e U n i t e d

S t a t e s , w h i c h i s known as a War L o a n D e p o s i t A c c o u n t .
t h e form o f Government s e c u r i t i e s ,
secure such d e p o s i t , and c a l l s

Collateral,

generally

in

i s d e p o s i t e d w i t h t h e F e d e r a l Reserve bank t o

f o r payment from t h e a c c o u n t a r e c u s t o m a r i l y made i n

i n s t a l m e n t s by t h e F e d e r a l Reserve bank under d i r e c t i o n o f the

Treasury,

The use o f War Loan D e p o s i t Accounts i n p a y i n g f o r new i s s u e s o f

Govern-

ment s e c u r i t i e s m i n i m i z e s t h e e f f e c t o f t h e purchases on t h e r e s e r v e p o s i t i o n s
the commercial b a n k s .

in

F o r example, i f

new i s s u e o f Government s e c u r i t i e s

of

a New Y o r k C i t y bank, h a v i n g s u b s c r i b e d t o a

and h a v i n g r e c e i v e d an a l l o t m e n t o f

$1,000,000,

were t o pay foY t h e s e c u r i t i e s by a u t h o r i z i n g a d e b i t o f $1,000,000 i n i t s

reserve

b a l a n c e a t t h e F e d e r a l Reserve bank, t h e commercial b a n k ' s r e s e r v e s would be imm e d i a t e l y reduced by $1,000,000.

On t h e o t h e r hand, i f

t h e New Y o r k C i t y bank were

t o c r e d i t $1,000,000 t o t h e War L o a n D e p o s i t Account on i t s books, t h i s would m e r e l y
i n c r e a s e i t s r e q u i r e d r e s e r v e s a t t h e F e d e r a l Reserve bank by 20% o f such d e p o s i t

or

$200,000, and t h e f u l l e f f e c t o f t h e purchase on the b a n k ' s r e s e r v e p o s i t i o n w o u l d
be postponed u n t i l t h e f u l l amount o f t h e d e p o s i t had been c a l l e d f o r payment under
d i r e c t i o n o f the Treasury.

By t h e time such payment i s made a d d i t i o n a l d e p o s i t s may

come t o t h e bank from Government disbursements and o t h e r sources and thus

replenish

t h e b a n k ' s r e s e r v e s t o some e x t e n t .
The F e d e r a l Reserve Bank o f New Y o r k has r e c e n t l y t a k e n s p e c i a l s t e p s
e x p l a i n t h e use o f War Loan D e p o s i t Accounts t o commercial banks i n t h e Second



9

to

F e d e r a l Reserve D i s t r i c t ,

and has recommended t h a t banks which a r e n o t presently-

q u a l i f i e d t o m a i n t a i n such a c c o u n t s a p p l y f o r d e s i g n a t i o n and t h a t banks now q u a l i f i e d make e f f e c t i v e use o f t h e i r

accounts,

ISSUANCE AND HANDLING OF GOVERNMENT SECURITIES
The i s s u e ,

d i s t r i b u t i o n and redemption o f T r e a s u r y b i l l s ,

certificates

i n d e b t e d n e s s , n o t e s , bonds and o t h e r o b l i g a t i o n s o f t h e U n i t e d S t a t e s and o f
tions of certain of i t s

agencies,

territories

and i n s u l a r p o s s e s s i o n s a r e

of

obliga-

effected

l a r g e l y through t h e t w e l v e F e d e r a l Reserve banks, as f i s c a l agents o f the U n i t e d
S t a t e s . Government s e c u r i t i e s

a r e p r i n t e d by t h e Bureau o f E n g r a v i n g and P r i n t i n g

in

Washington, D. C . , and a r e s h i p p e d by t h e Bureau t o t h e F e d e r a l Reserve banks w h i c h
keep on hand s u b s t a n t i a l s u p p l i e s o f many i s s u e s .
I n t h e case o f most T r e a s u r y i s s u e s ,

o t h e r than Savings Bonds, 40% or more

o f t h e d o l l a r volume o f s a l e s f o r t h e e n t i r e c o u n t r y a r e made i n t h e Second F e d e r a l
Reserve D i s t r i c t .
tial

Most o f t h e s e c u r i t i e s

s o l d i n t h i s d i s t r i c t and a l s o a

q u a n t i t y o f the s e c u r i t i e s s o l d i n other d i s t r i c t s

by t h e F e d e r a l Reserve Bank o f New Y o r k .

a r e i n due c o u r s e

The number o f p i e c e s

(individual

substan-

delivered
certifi-

c a t e s , n o t e s , bonds, e t c . ) d e l i v e r e d by i t i n c o n n e c t i o n v d t h o r i g i n a l i s s u e , and t h e
t o t a l i s s u e p r i c e o f such s e c u r i t i e s

f o r the l a s t t h r e e y e a r s were a p p r o x i m a t e l y as

follows:
1940

Issue

1942

2,340,171
555,794

17,330,379
848,381

416,930

Total pieces

1941

309,930
107,000

Pieces
Savings bonds
Other T r e a s u r y i s s u e s

2,895,965

18,178,760

674,231,929
7,756,006,323

$ 1,549,259,121
29,649,258,933

$8,430,238,252

$31,198,518,054

Price

Savings bonds
Other T r e a s u r y i s s u e s
Total issue price

$

73,503,300
4,954,183,200

$5,027,686,500

$

Other t r a n s a c t i o n s i n c o n n e c t i o n v d t h such s e c u r i t i e s
growth, and i t




is

have shown a c o r r e s p o n d i n g

a n t i c i p a t e d t h a t a l l o f the bank's operations i n t h i s r e s p e c t

10

will

c o n t i n u e t o i n c r e a s e i n v i e w o f the unprecedented s i z e o f t h e p r e s e n t and p r o s p e c t i v e
f i s c a l o p e r a t i o n s o f the Government.
The bank m a i n t a i n s voluminous r e c o r d s w i t h r e s p e c t t o t h e p u b l i c d e b t and.
makes p e r i o d i c r e p o r t s t o t h e T r e a s u r y .

I t a l s o compiles v a r i o u s

statistical

r e p o r t s w i t h r e s p e c t t o s a l e s o f v a r i o u s t y p e s o f Government s e c u r i t i e s ,

including

a g e o g r a p h i c a l breakdown o f s a l e s o f Savings Bonds which i s used by t h e T r e a s u r y

in

d e t e r m i n i n g whether t h e S t a t e and l o c a l quotas have been f i l l e d each month.
The o p e r a t i o n s o f t h e bank i n t h e s a l e , d i s t r i b u t i o n and r e d e m p t i o n o f
Government s e c u r i t i e s a r e o u t l i n e d b e l o w .
first

U n i t e d S t a t e s Savings Bonds, which were

i s s u e d i n 1935, a r e h a n d l e d by t h e bank i n a manner somewhat d i f f e r e n t

that, i n w h i c h o t h e r T r e a s u r y i s s u e s a r e handled and w i l l ,

from

t h e r e f o r e , be c o n s i d e r e d

separately.
T r e a s u r y i s s u e s o t h e r t h a n Savings Bonds
Under i n s t r u c t i o n s

f r o m t h e S e c r e t a r y o f t h e T r e a s u r y , t h e F e d e r a l Reserve

Bank o f New Y o r k p r i n t s announcements d e s c r i b i n g each new T r e a s u r y i s s u e o t h e r

than

Savings Bonds and d i s t r i b u t e s

and

such announcements anong a l l b a n k i n g i n s t i t u t i o n s

o t h e r s i n t e r e s t e d i n t h e Second F e d e r a l Reserve D i s t r i c t .
scriptions,

receives.sub-

r e p o r t s t h e number and amount t o t h e T r e a s u r y Department, makes

ments i n accordance w i t h T r e a s u r y i n s t r u c t i o n s
allotment.

The bank

If

and n o t i f i e s

allot-

each s u b s c r i b e r o f

his

t h e new i s s u e c a r r i e s t h e p r i v i l e g e o f making payment by exchange,

t h e bank r e c e i v e s c a l l e d o r matured s e c u r i t i e s

t e n d e r e d i n payment.

If,

as i n most

c a s e s , t h e T r e a s u r y r e q u i r e s t h a t payment be made i n c a s h , t h e bank r e c e i v e s
funds and c r e d i t s

the

t h e amount t h e r e o f t o t h e g e n e r a l a c c o u n t m a i n t a i n e d w i t h t h e bank

by t h e T r e a s u r e r o f t h e U n i t e d S t a t e s ,

except where payment i s made by a

d e p o s i t a r y by c r e d i t t o i t s War Loan D e p o s i t A c c o u n t .

qualified

A f t e r payment has been r e -

c e i v e d , t h e new s e c u r i t i e s a r e d e l i v e r e d by t h e Reserve Bank i n accordance w i t h t h e
instructions

of the s u b s c r i b e r s .

i n another F e d e r a l Reserve D i s t r i c t




Where a s u b s c r i b e r who has e n t e r e d a

subscription

d e s i r e s t h a t t h e s e c u r i t i e s purchased by him be

11

d e l i v e r e d i n t h e Second F e d e r a l Reserve D i s t r i c t ,

t h e bank d e l i v e r s t h e s e c u r i t i e s

accordance w i t h t h e i n s t r u c t i o n s o f t h e F e d e r a l Reserve bank o f t h e d i s t r i c t

in

i n which

t h e s u b s c r i p t i o n was p l a c e d .
Exchanges and t r a n s f e r s
The F e d e r a l Reserve Bank o f New Y o r k a l s o performs on b e h a l f o f t h e U n i t e d
S t a t e s numerous o t h e r f u n c t i o n s r e l a t i n g t o Government s e c u r i t i e s .
n o m i n a t i o n a l exchanges;
and i t

it

exchanges i n t e r i m c e r t i f i c a t e s

I t makes d e -

for definitive

securities;

i s s u e s b e a r e r s e c u r i t i e s i n exchange f o r r e g i s t e r e d s e c u r i t i e s where such

exchanges are p e r m i s s i b l e .

The bank r e c e i v e s b e a r e r s e c u r i t i e s p r e s e n t e d f o r

change f o r r e g i s t e r e d s e c u r i t i e s and f o r w a r d s t h e i n s t r u c t i o n s
t i o n t o the Treasury.

regarding

The bank r e c e i v e s and f o r w a r d s t o the T r e a s u r y

s e c u r i t i e s presented for t r a n s f e r

from one name t o a n o t h e r ,

securities

registra-

registered
incorrectly

i n s c r i b e d p r e s e n t e d f o r c o r r e c t i o n , and m u t i l a t e d s e c u r i t i e s p r e s e n t e d f o r
ment w i t h new s e c u r i t i e s .

I n such cases t h e new s e c u r i t i e s

ex-

replace-

a r e p r e p a r e d by the

T r e a s u r y Department and a r e e i t h e r s e n t d i r e c t l y t o t h e owner or forwarded t o the
F e d e r a l Reserve bank f o r

delivery.

I n order t o f a c i l i t a t e
term Government s e c u r i t i e s

t h e e s t a b l i s h m e n t o f a u n i f o r m market f o r

on a n a t i o n a l b a s i s ,

short-

t h e F e d e r a l Reserve banks f o r many

y e a r s have e f f e c t e d t e l e g r a p h i c t r a n s f e r s o f o u t s t a n d i n g unmatured T r e a s u r y
certificates

bills,

o f i n d e b t e d n e s s and n o t e s w i t h o t h e r F e d e r a l Reserve banks and the

T r e a s u r y Department f o r a c c o u n t o f t h e owners i n c o n n e c t i o n w i t h t h e s a l e o f

such

securities.

make

These t r a n s f e r s , w h i c h a r e made w i t h o u t charge t o t h e s e l l e r s ,

p o s s i b l e to a v o i d shipping the s e c u r i t i e s

from one d i s t r i c t

t o another and enable

t h e s e l l e r s t o o b t a i n payment i m m e d i a t e l y .
Redemptions
The F e d e r a l Reserve Bank o f New Y o r k r e c e i v e s o b l i g a t i o n s o f t h e
S t a t e s when t h e y have become due and makes payment by check drawn by i t
Treasurer o f the United States.




United

on t h e

I n t h e case o f a few i s s u e s which the F e d e r a l

12

it

1

Reserve banks a r e n o t a u t h o r i z e d t o p a y , the bank r e c e i v e s s e c u r i t i e s p r e s e n t e d
redemption and f o r w a r d s them t o t h e T r e a s u r y Department f o r payment.

As

for

stated

above, when new i s s u e s c a r r y the p r i v i l e g e o f making payment by exchange, t h e bank
r e c e i v e s c a l l e d o r matured s e c u r i t i e s t e n d e r e d i n payment f o r such i s s u e s .
T r e a s u r y Tax Savings Notes
I n August 1941, t h e T r e a s u r y o f f e r e d f o r

s a l e two s e r i e s o f

nontransferable

T r e a s u r y Tax S a v i n g s Notes w h i c h were d e s i g n e d f o r purchase by i n d i v i d u a l s

and c o r -

p o r a t i o n s d e s i r i n g t o i n v e s t funds i n a n t i c i p a t i o n o f f u t u r e F e d e r a l t a x e s .

Such

n o t e s bore i n t e r e s t when t e n d e r e d i n payment o f t a x e s and were redeemable by the
h o l d e r i n cash a t t h e purchase p r i c e i f

n o t used i n t h e payment o f t a x e s .

September 1942 two new s e r i e s o f such n o t e s were o f f e r e d ,

one o f w h i c h ,

In

designated

as S e r i e s C, b e a r s i n t e r e s t a t t h e same r a t e whether used i n payment o f t a x e s
redeemed f o r c a s h .
notes,

or

The F e d e r a l Reserve Bank o f New Y o r k i n s c r i b e s and i s s u e s

such

e f f e c t s d e n o m i n a t i o n a l exchanges t h e r e o f t o t h e e x t e n t p e r m i t t e d by T r e a s u r y

regulations,

and makes payment o f such n o t e s p r e s e n t e d t o i t

The s a l e o f Tax Savings Notes has been v e r y s u c c e s s f u l .

f o r cash r e d e m p t i o n .

D u r i n g the c a l e n d a r y e a r

194-2, $6,-410,2^8,650 was r e a l i z e d t h r o u g h o u t t h e c o u n t r y from t h e s a l e o f n o t e s
all

series,

38% b e i n g i s s u e d by t h e F e d e r a l Reserve Bank o f New Y o r k .

I n the

o f a n t i c i p a t e d f u r t h e r i n c r e a s e s i n F e d e r a l t a x e s payable by i n d i v i d u a l s
t i o n s , and t h e a t t r a c t i v e n e s s

Notes w i l l

light

and c o r p o r a -

o f t h e S e r i e s C Notes as a s h o r t - t e r m i n v e s t m e n t

i d l e funds o f c o r p o r a t i o n s and o t h e r s , i t

of

for

i s e x p e c t e d t h a t s a l e s o f Tax Savings

c o n t i n u e t o grow.

S a v i n g s Bonds
As s t a t e d above, t h e s a l e and d i s t r i b u t i o n o f Savings Bonds by t h e F e d e r a l
Reserve Bank o f New York a r e h a n d l e d somewhat d i f f e r e n t l y from o t h e r T r e a s u r y

issues.

Savings Bonds a r e unique i h t h a t more bonds have been s o l d , both i n p i e c e s and i n
aggregate d o l l a r v a l u e , and t h e bonds o u t s t a n d i n g a r e h e l d by a g r e a t e r number o f
p e r s o n s , t h a n any o t h e r i s s u e o f s e c u r i t i e s w h i c h has ever been s o l d .




13

A t t h e end o f

1942, t h e T r e a s u r y e s t i m a t e d t h a t Savings Bonds h a v i n g a t o t a l c u r r e n t v a l u e o f
$15,000,000,000 were h e l d by f i f t y m i l l i o n p e r s o n s .

over

The s a l e o f t h e s e bonds has a

v e r y c l o s e r e l a t i o n s h i p t o t h e war e f f o r t , n o t o n l y because o f the revenue

derived

by the Government ( c u r r e n t l y more t h a n $800,000,000 a month) b u t a l s o because t h e
purchase o f such bonds by i n d i v i d u a l s

out o f c u r r e n t income and t h e i r

r e t e n t i o n has

a definite anti-inflationary effect.

The proceeds o f s a l e o f Savings Bonds d u r i n g

t h e c a l e n d a r y e a r 1942 p a i d f o r o n e - f i f t h o f t h e t o t a l war e x p e n d i t u r e s d u r i n g t h e
year.
S a v i n g s Bonds were f i r s t
1935.

o f f e r e d f o r s a l e through the post o f f i c e s

in

B e g i n n i n g i n June 1936, t h e y were a l s o i s s u e d by t h e T r e a s u r y Department

and t h e F e d e r a l Reserve b a n k s .

I n A p r i l 1941, however, c o n c u r r e n t l y w i t h

the

n o t i c e o f the o f f e r i n g on and a f t e r May 1 , 1941 o f S e r i e s E , F and G S a v i n g s
t h e T r e a s u r y announced arrangements whereby banks, s a v i n g s and l o a n

Bonds,

associations,

and c e r t a i n o t h e r o r g a n i z a t i o n s , might q u a l i f y as i s s u i n g agents o f S e r i e s E bonds
and o b t a i n b l a n k bond s t o c k from t h e F e d e r a l Reserve banks o f t h e i r
districts.

respective

T h i s p r o p o s a l met w i t h an immediate f a v o r a b l e response and i n

course o f t h e n e x t s e v e r a l months v a r i o u s o t h e r t y p e s o f o r g a n i z a t i o n s ,

the

including

c o r p o r a t i o n s o p e r a t i n g p a y r o l l a l l o t m e n t p l a n s f o r t h e i r employees, were d e s i g n a t e d
as e l i g i b l e f o r q u a l i f i c a t i o n by t h e F e d e r a l Reserve banks as i s s u i n g a g e n t s .
r e c e n t l y o t h e r types o f o u t l e t s ,

such as r e t a i l s t o r e s , r a d i o s t a t i o n s ,

and newspapers have been made e l i g i b l e

for qualification.

theatres,

Accordingly, Series E

bonds a r e now i s s u e d by t h e T r e a s u r y Department, t h e F e d e r a l Reserve banks,
o f f i c e s and many other q u a l i f i e d i s s u i n g a g e n t s .

More

post

S e r i e s F and G bonds, however,

are

i s s u e d o n l y by t h e T r e a s u r y and t h e F e d e r a l Reserve banks.
The F e d e r a l Reserve Bank o f New Y o r k i s s u e s a l l S e r i e s F and G bonds
i n the d i s t r i c t ,

and h a n d l e s a l l S e r i e s E bonds s o l d i n the d i s t r i c t

s o l d by p o s t o f f i c e s .
and i t

I t i s s u e s a l l S e r i e s E bonds f o r w h i c h i t

except t h o s e

receives

s u p p l i e s q u a l i f i e d i s s u i n g agents i n t h e d i s t r i c t w i t h s u p p l i e s o f




14

sold

orders,
unissued

S e r i e s E bonds and h a n d l e s t h e i r r e m i t t a n c e s and r e p o r t s o f bonds s o l d .
from a l l S a v i n g s Bonds s o l d by the bank and i t s

Stubs

i s s u i n g agents a r e r e c e i v e d by t h e

bank, s o r t e d and l i s t e d i n n u m e r i c a l o r d e r , and f o r w a r d e d t o t h e T r e a s u r y .

Proceeds

o f bonds s o l d by i s s u i n g agents r e p r e s e n t e d by such s t u b s a r e r e c e i v e d by t h e bank
and c r e d i t e d t o the g e n e r a l account m a i n t a i n e d w i t h i t b y t h e T r e a s u r e r o f t h e U n i t e d
States.
S a l e s o f Savings Bonds have i n c r e a s e d tremendously s i n c e t h e e n t r y o f

the

U n i t e d S t a t e s i n t o t h e war i n December 1941, and t h e number o f employees engaged i n
the s a l e ,

d i s t r i b u t i o n and redemption o f such bonds has shown a

corresponding

grovfth.

On May 1 , 1941, t h e number o f employees i n the Government Bond Department

was a p p r o x i m a t e l y 75, b u t o n l y a few o f them v-rere w o r k i n g w i t h Savings Bonds.

On

January 1 , 1943, t h e r e were 747 employees i n t h e Government Bond Department and t h e
newly c r e a t e d Savings Bond Redemption Department, o f whom more than 90% were e n gaged i n work p e r t a i n i n g t o Savings Bonds.

I n s p i t e of the i n c r e a s e d s t a f f , i t

f r e q u e n t l y been n e c e s s a r y f o r t h e s e departments t o work o v e r t i m e

has

(as has a l s o been

t h e case i n many p l a c e s throughout t h e bank), and i n peak p e r i o d s as many as 200
p e r s o n s have been borrowed a t one time from o t h e r d e p a r t m e n t s .
g e t t h e s e bonds out w i t h o u t d e l a y , and i t
date.

prides i t s e l f

The b a n k ' s j o b i s

on k e e p i n g t h i s work up t o

The amounts o f Savings Bonds i s s u e d by t h e bank and i s s u i n g agents

and s e r v i c e d by i t ,

qualified

d u r i n g t h e years t h e s e bonds have been s o l d , have been as

follows:

Period
19%
(7 mos.)
1937
1938
1939
1940
1941
1942

I s s u e d by Reserve Bank
Pieces
Dollars
17,500
60,000
96,700
220,200
309,900

654,000
2,686,000

$

-

22,578,500
51,231,900
73,503,300
489,644,600
742,966,100

15

-

-

-

-

16,652,100

x F i r s t i s s u i n g agents q u a l i f i e d i n May 1941*




I s s u e d by Agents
Pieces
Dollars

6,743,600

to

-

i

-

1,685,700*
14,644,300

-

-

$184,587,300*
806,293,000

I t i s apparent from t h e s e f i g u r e s t h a t , l a r g e as has been t h e number o f
bonds i s s u e d d i r e c t l y by t h e F e d e r a l Reserve Bank o f New Y o r k , t h e War Savings Bond
program would p r o b a b l y have bogged down from t h e sheer magnitude of t h e
were i t

operations

n o t f o r t h e s p l e n d i d c o o p e r a t i o n r e c e i v e d from q u a l i f i e d i s s u i n g

agents.

More t h a n 3,000 i s s u i n g agents had been q u a l i f i e d by the bank on January 1 ,
Such agents r e c e i v e n o t h i n g f o r t h e i r

1943.

s e r v i c e s but a r e reimbursed f o r a c t u a l

p o c k e t expenses i n r e t u r n i n g s t u b s and s p o i l e d bonds t o the Reserve Bank.

out-ofMore

t h a n 650 c o r p o r a t i o n s o p e r a t i n g p a y r o l l a l l o t m e n t p l a n s f o r t h e i r employees a r e
i s s u i n g agents and, as t h e s e p l a n s d e v e l o p i n t o f u l l

operation,

it

i s expected t h e

volume o f s a l e s by such a g e n t s , b o t h i n p i e c e s and i n d o l l a r amount, w i l l
further

show

s u b s t a n t i a l i n c r e a s e s i n r e l a t i o n t o the volume o f d i r e c t s a l e s by t h e

Reserve Bank.
Redemptions, c o r r e c t i o n s and r e i s s u e s
The bank t h r o u g h i t s S a v i n g s Bond Redemption Department pays

certain

Savings Bonds p r e s e n t e d f o r redemption and f o r w a r d s o t h e r s t o t h e T r e a s u r y Department
f o r payment;

i s s u e s new S a v i n g s Bonds o f s m a l l e r denominations i n r e s p e c t

Savings Bonds p r e s e n t e d f o r p a r t i a l redemption;
S a v i n g s Bonds w h i c h have been i s s u e d by i t

of

corrects errors i n r e g i s t r a t i o n

or by o t h e r i s s u i n g a g e n t s ;

and m o d i f i e s

t h e form o f r e g i s t r a t i o n by t h e a d d i t i o n o f a co-owner o r b e n e f i c i a r y d e s i g n a t e d
r e c e i v e payment upon d e a t h o f t h e r e g i s t e r e d owner.

to

I s s u i n g agents other t h a n t h e

T r e a s u r y and t h e F e d e r a l Reserve banks a r e n o t a u t h o r i z e d t o c o r r e c t bonds

after

t h e y have been i s s u e d and r e m i t t e d f o r nor a r e t h e y a u t h o r i z e d t o pay bonds
for

of

presented

redemption.
The number o f t r a n s a c t i o n s i n c o n n e c t i o n w i t h t h e redemption o f

Savings

Bonds has shown a s t e a d y i n c r e a s e each month w h i c h , o f c o u r s e , i s t o be expected as
t h e t o t a l volume o f bonds o u t s t a n d i n g has been growing r e c e n t l y a t t h e r a t e o f
one b i l l i o n d o l l a r s

a month.

However, redemptions a r e n o t i n c r e a s i n g

i n r e l a t i o n t o the t o t a l amount o f bonds o u t s t a n d i n g .




16

nearly

substantially

A r e c e n t s t u d y by the T r e a s u r y

Department i n d i c a t e d t h a t 98% o f a l l bonds i s s u e d s i n c e May 1 , 1941 were s t i l l
t h e hands o f t h e

purchasers.

The Savings Bond Redemption Department and i t s
f i v e f l o o r s at

in

s t a f f o f about 400 occupy

51 P i n e S t r e e t , one o f the t h r e e annexes o f t h e bank i n New Y o r k

City.

U . S . TREASURER'S GENERAL ACCOUNT
J u s t as John Doe uses h i s l o c a l bank, so member banks o f t h e

Federal

Reserve System and t h e U n i t e d S t a t e s Government use t h e F e d e r a l Reserve b a n k s .
Treasurer of the U n i t e d States c a r r i e s h i s p r i n c i p a l

checking accounts w i t h

The

the

F e d e r a l Reserve banks, and one o f h i s l a r g e s t a c c o u n t s i s m a i n t a i n e d a t t h e F e d e r a l
Reserve Bank o f New Y o r k .

Even i n normal t i m e s ,

the Government t r a n s a c t s

an

enormous amount o f b a n k i n g b u s i n e s s , and t h e tremendous r e c e i p t s and disbursements
i n c i d e n t t o t h e war e f f o r t have r e s u l t e d i n a l a r g e i n c r e a s e i n the a c t i v i t i e s
the T r e a s u r e r ' s account.

The Government i s

c o n t i n u o u s l y r e c e i v i n g funds i n

p a r t s o f t h e U n i t e d S t a t e s and spending them i n a l l p a r t s .
from t a x p a y e r s and p u r c h a s e r s

o f Government s e c u r i t i e s ,

F e d e r a l Reserve banks t o the c r e d i t o f t h e T r e a s u r e r ' s

Its receipts

all

come m a i n l y

and a r e d e p o s i t e d i n
account.

of

the

These funds a r e

g e n e r a l l y d i s b u r s e d by c h e c k .
The d e p o s i t s made by Government o f f i c i a l s
Reserve Bank o f New York f o r

c r e d i t t o the T r e a s u r e r ' s General Account

p r i n c i p a l l y o f paper c u r r e n c y ,

c o i n and c h e c k s .

counted, v e r i f i e d as t o genuineness and s o r t e d .
p a r e d f o r c i r c u l a t i o n and t h a t ivhich i s
Washington f o r r e d e m p t i o n .

and a g e n c i e s i n t h e F e d e r a l
consist

The paper c u r r e n c y and c o i n must be
The f i t

paper c u r r e n c y must be p r e -

u n f i t must be m u t i l a t e d and s e n t

to

The checks must be c o l l e c t e d and the c o l l e c t i o n o f

items i s a c o n s i d e r a b l e t a s k .

D u r i n g t h e c a l e n d a r year 1942 a monthly average

such
of

about 720,000 checks t o t a l i n g more t h a n $400,000,000 were h a n d l e d by the bank and
c r e d i t e d to the T r e a s u r e r ' s General Account.

The volume o f checks i s much h e a v i e r

a t t h e t i m e o f t h e q u a r t e r l y income t a x payment d a t e s w i t h a p a r t i c u l a r l y
volume a f t e r t h e f i r s t payment d a t e .




large

D u r i n g t h e month o f March 1942 t h e r e were

17

1,877,260 such checks t o t a l i n g

$818,700,000.

Through t h e f a c i l i t i e s

o f t h e I n t e r d i s t r i c t S e t t l e m e n t Fund i n Washington,

the Treasurer o f the U n i t e d States i s
private wire f a c i l i t i e s ,

a b l e t o t r a n s f e r by t e l e g r a p h o v e r t h e System's

money f r o m h i s a c c o u n t a t one F e d e r a l Reserve bank t o h i s

a c c o u n t a t a n o t h e r F e d e r a l Reserve b a n k .

GOVERNMENT CHECKS
The m i l l i o n s o f checks drawn by v a r i o u s Government d i s b u r s i n g
t h r o u g h o u t the c o u n t r y i n c o n n e c t i o n w i t h t h e p r o d u c t i o n and purchase o f
battleships,

officers
airplanes,

submarines, guns, m u n i t i o n s , u n i f o r m s , t a n k s and o t h e r war s u p p l i e s

a l l h a n d l e d through t h e F e d e r a l Reserve banks, as w e l l as Government checks

are

issued

i n payment f o r nonwar

e x p e n d i t u r e s , i n t e r e s t on t h e p u b l i c d e b t , r e d e m p t i o n o f

Government bonds, e t c .

Due p r i n c i p a l l y t o t h e l a r g e i n c r e a s e i n e x p e n d i t u r e s

c i d e n t t o t h e war e f f o r t , t h e number o f Government checks handled by t h e

in-

Federal

Reserve Bank o f New York i n c r e a s e d from 15,000,000 i n 1941 t o 21,600,000 i n 1942.
A Government check i s s u e d by a d i s b u r s i n g o f f i c e r i n payment, f o r
o f c e r t a i n war goods manufactured i n the Second F e d e r a l Reserve D i s t r i c t i s
by t h e payee i n h i s l o c a l b a n k .

The l o c a l bank sends t h e i t e m f o r

correspondent bank.

deposited

collection,

g e t h e r w i t h o t h e r Government c h e c k s , t o t h e F e d e r a l Reserve Bank o f New Y o r k
or t h r o u g h i t s

example,

to-

direct

The F e d e r a l Reserve bank g i v e s t h e member bank

immediate c r e d i t f o r such checks i n i t s r e s e r v e a c c o u n t .

The Reserve Bank t h e n

s o r t s a l l Government checks r e c e i v e d t h a t day as t o k i n d and by symbol number a c *

-

;

c o r d i n g t o each d i s b u r s i n g o f f i c e r ' s

a c c o u n t , photographs the c h e c k s , l i s t s

them on

T r e a s u r y Department schedules and f o r w a r d s them t o Washington, and charges t h e

total

amount o f t h e checks t o t h e T r e a s u r e r ' s G e n e r a l A c c o u n t .
I n r e c e n t months a new T r e a s u r y check, i n c a r d form, has come i n t o

use.

Not o n l y does t h e check c o n t a i n t h e customary t y p e w r i t t e n i n f o r m a t i o n but a l s o
e s s e n t i a l i n f o r m a t i o n i s r e c o r d e d by h o l e s punched i n t h e c a r d which p e r m i t s o f




18

the
their

b e i n g s o r t e d and t a b u l a t e d by machine.

I t i s used p r i n c i p a l l y f o r Army and Navy

A l l o w a n c e and A l l o t m e n t s t o dependents o f men i n t h e armed s e r v i c e s ,
c i v i l i a n p a y r o l l and i n t e r e s t on VsTar Savings Bonds of S e r i e s G.

Navy Y a r d

D u r i n g t h e months

o f December 1942 and January 1943, t h e bank h a n d l e d 563,000 and 656,000 o f
checks r e s p e c t i v e l y ,

such

a g r e a t e r p a r t o f them h a v i n g been r e c e i v e d i n t h e f i r s t

half

o f t h e month.

GOVERNMENT COUPONS
Matured coupons c u t from Government o b l i g a t i o n s and o t h e r s e c u r i t i e s
c e r t a i n Government a g e n c i e s a r e r e c e i v e d by t h e bank and a r e p a i d by i t
t o t h e account o f t h e T r e a s u r e r o f t h e U n i t e d S t a t e s .

of

and charged

The coupons must be a c -

companied by an ownership c e r t i f i c a t e i n form p r e s c r i b e d by t h e T r e a s u r y Department,
whenever t h e s e c u r i t i e s

from w h i c h t h e coupons have been c u t a r e owned b y a non-

r e s i d e n t a l i e n or a n o n r e s i d e n t f o r e i g n c o r p o r a t i o n .

The Reserve Bank examines

such

c e r t i f i c a t e s and, pursuant t o t h e F e d e r a l income t a x l a w s , w i t h h o l d s f o r a c c o u n t
t h e T r e a s u r e r o f the U n i t e d S t a t e s 30% (15% where t h e owner i s an i n d i v i d u a l

of

resid-

i n g i n Canada o r a Canadian c o r p o r a t i o n ) o f t h e amount o f each such coupon c u t from
a s e c u r i t y w h i c h was i s s u e d on o r a f t e r March 1 , 1941.

CURRENCY
One o f t h e i m p o r t a n t f u n c t i o n s o f t h e F e d e r a l Reserve banks o f
i n g has been s u p p l y i n g the c u r r e n c y r e q u i r e m e n t s o f t h e p u b l i c .

long stand-

W i t h expanded em-

ployment, w i t h h i g h e r wages, and w i t h t h e p u b l i c h o l d i n g and c a r r y i n g more cash t h a n
ever b e f o r e ,

t h e amount o f money i n c i r c u l a t i o n has i n c r e a s e d t o r e c o r d f i g u r e s .

The

amount o f paper c u r r e n c y and c o i n o u t s i d e t h e T r e a s u r y and t h e F e d e r a l R e s e r v e banks,
that i s ,

i n t h e hands o f t h e p u b l i c and i n t h e commercial banks, i s now o v e r 15 b i l -

lion dollars.

This i s

over $100 f o r e v e r y man, Yeoman and c h i l d i n t h e U n i t e d S t a t e s

as compared w i t h about $50 per p e r s o n f o u r y e a r s a g o .

The F e d e r a l Reserve Bank o f

New Y o r k s u p p l i e s t h e money used i n the Second F e d e r a l Reserve D i s t r i c t ,




19

takes i t

in,

counts i t ,

examines i t

ending p r o c e s s .
much o f i t s
rolls,

for fitness,

This i s

business,

returns i t

t o c i r c u l a t i o n or r e t i r e s i t

- a never

t h e hand-to-hand c u r r e n c y used by t h e p u b l i c i n c a r r y i n g on

f o r meeting war p l a n t p a y r o l l s ,

and f o r many o t h e r

f o r meeting Army and Navy pay-

purposes.

CHECK CLEARING AND COLLECTION
One o f t h e i m p o r t a n t p e a c e - t i m e f u n c t i o n s

o f t h e F e d e r a l Reserve banks

t h e h a n d l i n g and c l e a r i n g o f checks on b e h a l f o f t h e commercial banks o f t h e

country.

T h i s i s t h e unseen e f f i c i e n t mechanism w h i c h p e r m i t s b u s i n e s s t r a n s a c t i o n s i n
p a r t s o f t h e c o u n t r y t o be s e t t l e d on bank books w i t h o u t a c t u a l shipments o f
and c u r r e n c y .

I t s peace-time importance i s i n t e n s i f i e d i n w a r .

The g r e a t l y

p r o d u c t i o n and d i s t r i b u t i o n o f war goods and f o o d s move a l o n g as smoothly as
normal t i m e s , i n so f a r as f i n a n c i a l payments a r e concerned, because o f t h e

is

all
coin

expanded
in
highly

d e v e l o p e d check c l e a r i n g and c o l l e c t i o n machinery o f t h e F e d e r a l Reserve b a n k s .

The

volume o f t h i s work has i n c r e a s e d s u b s t a n t i a l l y as our p r o d u c t i o n has d o u b l e d and r e d o u b l e d t o meet our n a t i o n ' s m i l i t a r y n e e d s .

The number and d o l l a r amount o f

checks

h a n d l e d i n t h e Check Department o f t h e F e d e r a l Reserve Bank o f New Y o r k d u r i n g t h e
p a s t t h r e e y e a r s a r e as
Year
1940
1941
1942

follows:
Number o f Cheeks
192,780,183
207,311,980
209,466,384

D o l l a r Amount
$ 80,083,135,430
102,8^3,493,877
123,531,712,615

RATION BANKING
The w i d e n i n g war-time r a t i o n i n g program has p l a c e d a new t a s k upon t h e
b a n k i n g system and upon your bank.

Commencing January 27, 1943, t h e r e was p u t

into

e f f e c t a p l a n t o c l e a r r a t i o n coupons through banking channels on a c o u n t r y - w i d e
basis,

j u s t as checks have h e r e t o f o r e been c l e a r e d .

O n l y s u g a r , c o f f e e and g a s o l i n e

were i n i t i a l l y i n c l u d e d i n t h e p l a n , but t h e c l e a r i n g system may r e a d i l y be extended
to other a r t i c l e s .




Consumers c o n t i n u e t o t u r n over t h e i r

20

coupons t o r e t a i l merchants

i n t h e u s u a l way i n making purchases o f r a t i o n e d a r t i c l e s .
r e c e i v e d by l a r g e r r e t a i l e r s

As s u c h coupons a r e

or a r e t u r n e d over by r e t a i l e r s

to wholesalers,

the

coupons a r e d e p o s i t e d i n s p e c i a l r a t i o n bank a c c o u n t s i n t h e commercial banks
t h r o u g h o u t the
coupon, i s
one's

country.

taking i t s

I t m i g h t be s a i d t h a t a new u n i t o f v a l u e ,

p l a c e a l o n g s i d e o n e ' s d o l l a r s and i s

the

required to

ration

supplement

dollars.
A d e a l e r i n f o o d , f o r example, has a s p e c i a l r a t i o n a c c o u n t or a c c o u n t s

the bank w h i c h c a r r i e s h i s r e g u l a r d o l l a r

checking account.

He may have a r a t i o n

bank a c c o u n t f o r sugar s t a t e d i n pounds and another i n c o f f e e , a g a i n s t a t e d
pounds.

in

S p e c i a l checkbooks a r e p r o v i d e d so t h a t t h e d e a l e r i n r e p l e n i s h i n g h i s

o f sugar or c o f f e e can t r a n s f e r t o h i s s u p p l i e r ,

s i m p l y b y drawing a c h e c k ,

amount o f r a t i o n coupons v^hich he has r e c e i v e d from h i s customers, and has
i n h i s r a t i o n bank a c c o u n t .

stock

the
deposited

H i s s u p p l i e r d e p o s i t s h i s check i n h i s r a t i o n

account

a t h i s own bank and r e c e i v e s c r e d i t i n t h a t account f o r t h e number o f pounds
sugar or c o f f e e r e p r e s e n t e d by t h e

in

of

check.

These r a t i o n checks a r e c l e a r e d through t h e Check Department o f your bank
i n t h e same way t h a t o r d i n a r y checks a r e

cleared.

CUSTODIAN AND OTHER SERVICES
Another j o b w h i c h has been performed by t h e F e d e r a l Reserve banks f o r many
y e a r s , and w h i c h has t a k e n on c e r t a i n war-time a s p e c t s , i s
ties.

the safekeeping o f

The F e d e r a l Reserve Bank o f New Y o r k h o l d s i n s a f e k e e p i n g s e c u r i t i e s

t o member banks l o c a t e d o u t s i d e o f New Y o r k C i t y and purchases and s e l l s
for their

a c c o u n t upon t h e i r

belonging

securities

request.

Such s a f e k e e p i n g s e r v i c e s r e l i e v e t h e member bank o f t h e d e t a i l s o f
Government s e c u r i t i e s p u r c h a s e d and owned by i t
Government's f i n a n c i n g program.

and thus f u r t h e r f a c i l i t a t e

handling

the

M a t u r i n g coupons a r e c u t from s e c u r i t i e s h e l d

s a f e k e e p i n g and t h e proceeds a r e p a i d i n t o t h e account o f t h e member bank f o r




securi-

21

in

which

the s e c u r i t i e s are h e l d .

Similarly,

when t h e s e c u r i t i e s

a r e c o l l e c t e d and a r e p a i d i n t o t h e member b a n k ' s a c c o u n t .
member bank w i s h e s t o use t h e s e c u r i t i e s

If

i n t h e meantime the

as c o l l a t e r a l f o r a l o a n from t h e Reserve

Bank, t h e s e c u r i t i e s a r e i n s t a n t l y a v a i l a b l e
I n accordance w i t h i n s t r u c t i o n s

become due, t h e proceeds

for that

purpose.

from t h e S e c r e t a r y o f t h e T r e a s u r y t h e

F e d e r a l Reserve Bank o f New Y o r k h o l d s s e c u r i t i e s i n s a f e k e e p i n g f o r v a r i o u s
ment a c c o u n t s such as t h e P o s t a l Savings System and t h e Government L i f e
Fund.

Under i n s t r u c t i o n s

Insurance

from t h e S e c r e t a r y o f t h e T r e a s u r y t h e bank purchases and

s e l l s Government s e c u r i t i e s i n t h e open market f o r t h e a c c o u n t o f v a r i o u s
accounts,

Govern-

Government

such as t h o s e mentioned above.

WAR LOANS GUARANTEED BY THE WAR DEPARTMENT, NAVY DEPART?<ENT,
AND' THE MARITIME COMMISSION
W h i l e our o r d i n a r y l e n d i n g f u n c t i o n s have n o t been used t o any g r e a t

ex-

t e n t i n r e c e n t y e a r s , a new type o f war l e n d i n g has been g i v e n the F e d e r a l Reserve
System t o a d m i n i s t e r .

Under E x e c u t i v e Order No. 9112 i s s u e d by t h e P r e s i d e n t

of

t h e U n i t e d S t a t e s on March 26, 1942, a c t i n g under t h e a u t h o r i t y v e s t e d i n him by t h e
F i r s t War Powers A c t , 1941, t h e B o a r d o f Governors i s s u e d R e g u l a t i o n V
A p r i l 6 , 1942) w h i c h r e c i t e s

t h a t t h e o b j e c t i v e o f the F e d e r a l Reserve System i n

c a r r y i n g out the purposes o f t h e E x e c u t i v e Order i s
production,

(effective

t o f a c i l i t a t e and e x p e d i t e war

i n c l u d i n g the o b t a i n i n g or conversion o f f a c i l i t i e s

ranging f o r the f i n a n c i n g o f c o n t r a c t o r s ,

therefor,

s u b c o n t r a c t o r s and o t h e r s engaged i n

nesses o r o p e r a t i o n s deemed by t h e War Department,

half

busi-

the Navy Department o r t h e U n i t e d

S t a t e s M a r i t i m e Commission t o be n e c e s s a r y , a p p r o p r i a t e o r c o n v e n i e n t f o r
p r o s e c u t i o n o f the war.

by a r -

the

Under t h e O r d e r , t h e F e d e r a l Reserve banks, a c t i n g on be-

o f t h e War Department, t h e Navy Department and t h e M a r i t i m e Commission,

assist

i n a r r a n g i n g f o r l o a n s by member banks and o t h e r f i n a n c i n g i n s t i t u t i o n s t o

businesses

engaged i n ivar p r o d u c t i o n ,

ultimate

and guarantee t o t h e f i n a n c i n g i n s t i t u t i o n s t h e

payment o f a s t a t e d p e r c e n t a g e o f such l o a n s .




22

Members o f t h e C r e d i t Department i n t e r v i e w p r o s p e c t i v e a p p l i c a n t s f o r

such

g u a r a n t e e s , r e c e i v e a p p l i c a t i o n s , i n v e s t i g a t e and a n a l y z e t h e f i n a n c i a l c o n d i t i o n
t h e b u s i n e s s e s , and t r a n s m i t t h e a p p l i c a t i o n s ,
t h e bank, t o Washington f o r c o n s i d e r a t i o n .

t o g e t h e r w i t h t h e recommendation o f

Upon r e c e i p t o f a u t h o r i z a t i o n from the

Government departments i n W a s h i n g t o n , t h e bank i s s u e s guarantees and undertakes
s e r v i c e the loans i n c e r t a i n

of

to

respects.

By December 31, 1942, more t h a n s i x hundred a p p l i c a t i o n s
had been r e c e i v e d by t h e bank, and more t h a n f o u r hundred o f t h e s e

for

such l o a n s

applications,

c o v e r i n g l o a n s t o t a l i n g about one and o n e - h a l f b i l l i o n d o l l a r s , had been a p p r o v e d .
I n c l u d e d i n such amount a r e

(1) a commitment t o G e n e r a l Motors C o r p o r a t i o n t o l e n d

it

up t o $1,000,000,000, w h i c h c r e d i t i s p a r t i c i p a t e d i n by a l m o s t 400 commercial banks
throughout the country,

(2) a r e v o l v i n g c r e d i t o f $75,000,000 t o a l a r g e

o f communications equipment i n w h i c h 35 banks p a r t i c i p a t e ,

manufacturer

(3) f o u r c r e d i t s i n

a g g r e g a t e amount o f $117,000,000 t o a i r c r a f t m a n u f a c t u r e r s , and

(4) two

revolving

c r e d i t s i n t h e aggregate amount o f $45,000,000 t o m a n u f a c t u r e r s and assemblers
ordnance m a t e r i a l .

The G e n e r a l Motors c r e d i t i s

a t one t i m e f o r a p r i v a t e
$100,000 or l e s s ,

concern.

t h e l a r g e s t c r e d i t ever

found it* d i f f i c u l t

t o o b t a i n adequate bank

subcon-

credit.

The bank a l s o a s s i s t s t h e Army and Navy Departments by answering
o f c o n t r a c t i n g o f f i c e r s o f both departments, and s u p p l y i n g them w i t h
regarding the f i n a n c i a l
Government c o n t r a c t o r s .

inquiries

information,

c o n d i t i o n and r e s p o n s i b i l i t y o f e x i s t i n g and p r o s p e c t i v e
I n response t o such an i n q u i r y t h e C r e d i t Department o f

bank makes a thorough i n v e s t i g a t i o n and p r e p a r e s a r e p o r t c o n t a i n i n g
m a t e r i a l and d e t a i l e d f i n a n c i a l i n f o r m a t i o n .
contracting o f f i c e r

and another copy i s

A copy o f such r e p o r t i s

f u r n i s h e d the

forwarded t o t h e Board o f Governors

23

the

historical

for

t r a n s m i t t a l t o t h e War Department or t h e Navy Department, as t h e case may b e .




for

T h i s shows t h a t t h e program has met

t h e c r e d i t needs o f n o t o n l y l a r g e prime c o n t r a c t o r s but a l s o t h e s m a l l
t r a c t o r s who, h e r e t o f o r e ,

of

arranged

More t h a n h a l f o f t h e l o a n s , however, a r e

one l o a n b e i n g f o r $1,500.

the

REGULATION W - CONSUMER CREDIT
Under E x e c u t i v e Order No.

i s s u e d by t h e P r e s i d e n t o f the

United

S t a t e s on August 9 , 1941, a c t i n g under t h e a u t h o r i t y v e s t e d i n him by s e c t i o n 5(b)
o f t h e T r a d i n g w i t h t h e Enemy A c t , as amended, t h e Board o f Governors o f t h e F e d e r a l
Reserve System on August 21, 1941; i s s u e d i t s R e g u l a t i o n W p l a c i n g

restrictions

upon i n s t a l m e n t s a l e s o f c e r t a i n goods f o r c i v i l i a n consumption and upon i n s t a l m e n t
loans.

The r e g u l a t i o n was r e v i s e d e f f e c t i v e May 6 , 1942, i n compliance w i t h

that

p a r t o f t h e P r e s i d e n t ' s S p e c i a l Message t o Congress on A p r i l 27, 1942 w h i c h r e a d s ,
i n part,

as f o l l o w s :

"To keep t h e c o s t o f l i v i n g from s p i r a l i n g upward we must

courage c r e d i t and i n s t a l m e n t b u y i n g and encourage t h e payment o f d e b t s ,

dis-

mortgages,

and o t h e r o b l i g a t i o n s f o r t h i s promotes s a v i n g s , r e t a r d s e x c e s s i v e b u y i n g and adds
t o t h e amount a v a i l a b l e t o t h e c r e d i t o r s f o r t h e purchase o f war bonds."
As r e v i s e d ,

the r e g u l a t i o n a p p l i e s t o a comprehensive l i s t

o f d u r a b l e and

s e m i - d u r a b l e goods f o r c i v i l i a n consumption and extends t o p r a c t i c a l l y a l l
consumer c r e d i t ,

whether i n the form o f i n s t a l m e n t s a l e s and i n s t a l m e n t l o a n s ,

i n t h e form o f charge a c c o u n t s and s i n g l e - p a y m e n t

and e n f o r c i n g t h e r e g u l a t i o n i n t h i s

district.

I t answers i n q u i r i e s

regarding the
activities

issues r e g i s t r a t i o n c e r t i f i c a t e s ;

carries

on an e d u c a t i o n a l program d e s i g n e d t o i n f o r m p e o p l e s u b j e c t t o t h e r e g u l a t i o n
garding i t s

terms;

and makes i n v e s t i g a t i o n s

complying w i t h t h e r e g u l a t i o n .

re-

t o see whether merchants and o t h e r s

The R e s e a r c h Department c o l l e c t s

s t a t i s t i c a l m a t e r i a l r e g a r d i n g consumer

or

administering

r e c e i v e s r e g i s t r a t i o n statements from b u s i n e s s concerns the

of which are subject t o the r e g u l a t i o n ;

of

loans.

The C r e d i t Department o f t h e bank has t h e r e s p o n s i b i l i t y o f

regulation;

types

are

substantial

credit.

FOREIGN OPERATIONS
Many f o r e i g n c e n t r a l banks and a fevf f o r e i g n governments m a i n t a i n d e p o s i t
a c c o u n t s and s e c u r i t y and g o l d c u s t o d y a c c o u n t s a t t h e F e d e r a l Reserve Bank o f




24

New Y o r k .

O r d i n a r i l y t h e s e a c c o u n t s s e r v e i n t e r n a t i o n a l t r a d e and f i n a n c e ;

t h e y l a r g e l y s e r v e t h e U n i t e d N a t i o n s ' war program.

now

Since the United States

Treasury

a l s o m a i n t a i n s a c c o u n t s a t t h e bank, a l a r g e volume o f f i n a n c i a l t r a n s a c t i o n s
tween our Government and o t h e r governments can be r e a d i l y

be-

effected.

O p e r a t i o n s a t t h e r e q u e s t o f t h e Government
N e a r l y e v e r y day t h e T r e a s u r y Department, a c t i n g f o r the War or Navy
Departments, i n s t r u c t s t h e bank t o t r a n s f e r

funds t o t h e a c c o u n t s o f f o r e i g n

banks or governments f o r t h e purpose o f making funds a v a i l a b l e
armed f o r c e s i n v a r i o u s p a r t s o f t h e w o r l d .

central

f o r t h e use o f

our

Such a t r a n s a c t i o n i s a c c o m p l i s h e d by

a d e b i t t o the a c c o u n t o f t h e U n i t e d S t a t e s T r e a s u r e r ' s G e n e r a l Account w i t h t h e
bank, by a c r e d i t t o t h e a c c o u n t m a i n t a i n e d on i t s

books f o r t h e c e n t r a l bank or

government o f t h e c o u n t r y i n w h i c h t h e payment i s t o be made, and by t h e

transmis-

s i o n o f c a b l e a d v i c e (by p r i v a t e code) o f such c r e d i t t o t h e f o r e i g n c e n t r a l bank
with instructions

t o make t h e f u n d s a v a i l a b l e

s p e c i f i c Army or Navy o f f i c e r .

Similarly,

( g e n e r a l l y on a d o l l a r b a s i s ) t o a

t r a n s f e r s o f funds a r e a r r a n g e d f o r

c o n s u l a r and d i p l o m a t i c o f f i c e r s l o c a t e d throughout the

our

world.

P u r s u a n t t o arrangements which have been e s t a b l i s h e d by our T r e a s u r y

for

s e t t l e m e n t f o r U n i t e d S t a t e s c u r r e n c y and T r e a s u r y checks n e g o t i a t e d and d e l i v e r e d
t o A m e r i c a n c o n s u l a t e s i n many f o r e i g n c o u n t r i e s and f o r t h e e s t a b l i s h m e n t

of

U n i t e d S t a t e s T r e a s u r y c r e d i t s a b r o a d , t h e bank, upon r e c e i p t o f a p p r o p r i a t e

advice

from t h e T r e a s u r y , passes c r e d i t s t o t h e a c c o u n t s o f t h e r e s p e c t i v e f o r e i g n

central

banks or governments and., i n a few i n s t a n c e s , makes payments t o t h e a c c o u n t s
c e r t a i n f o r e i g n banks w i t h t h e i r New Y o r k C i t y

correspondents.

Almost d a i l y t h e bank f u r n i s h e s a d i v i s i o n o f t h e T r e a s u r y w i t h
t i o n or a d v i c e w i t h r e s p e c t t o f o r e i g n exchange r a t e s , t h e s i l v e r market
w h i c h a t t h e p r e s e n t time i s
filiated

r e l a t e d t o t h e war p r o d u c t i o n e f f o r t ,

matters.




25

of

informasituation,

and o t h e r

af-

O p e r a t i o n s a t t h e r e q u e s t o f Government A g e n c i e s
Funds r e c e i v e d by t h e F e d e r a l Reserve Bank o f New Y o r k from t h e R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n , Rubber Reserve Company, M e t a l s Reserve Company, Defense
Supplies Corporation,
tions,
bank.

and Commodity C r e d i t C o r p o r a t i o n a r e c r e d i t e d , under

instruc-

t o the a c c o u n t s o f f o r e i g n c e n t r a l banks o r governments on t h e books o f t h e
These c r e d i t s have, f o r the most p a r t ,

f l o w e d t o L a t i n American

countries

i n c o n n e c t i o n w i t h t h e s e v e r a l development and p u r c h a s i n g programs o f cur Government,
but payments t o t h e a c c o u n t s o f o t h e r c o u n t r i e s a r e a l s o b e i n g made, i n

increasing

volume, i n c o n n e c t i o n w i t h our Government's commodity r e q u i r e m e n t s t h r o u g h o u t t h e
world;

f o r example, i n New Zealand and C e y l o n .

under c a b l e a d v i c e t o a f o r e i g n c e n t r a l bank o r

A l l of these c r e d i t s are

effected

government.

The bank f u r n i s h e s t h e U . S. Commercial Company (a s u b s i d i a r y o f

the

R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n ) and the O f f i c e o f S t r a t e g i c S e r v i c e s , w i t h
f o r m a t i o n and a d v i c e i n c o n n e c t i o n w i t h c e r t a i n f o r e i g n exchange m a t t e r s .
has a s s i s t e d i n p r o v i d i n g f o r e i g n exchange f o r t h e use o f t h e U. S.

in-

The bank

Commercial

Company i n c o n n e c t i o n w i t h t h e purchase o f goods i n s e v e r a l c o u n t r i e s ,
T u r k e y , P o r t u g a l and S p a i n , and has a l s o a s s i s t e d i n t h e procurement,

such as
importation

and subsequent d i s p o s i t i o n o f c e r t a i n f o r e i g n g o l d c o i n s needed by t h e U. S.
Commercial Company and t h e O f f i c e o f S t r a t e g i c S e r v i c e s i n f u r t h e r a n c e o f t h e i r vfork.
R e m i t t a n c e s by m i l i t a r y

personnel

The bank has a s s i s t e d w i t h p r o c e d u r e s f o r r e m i t t a n c e s by members o f

our

armed f o r c e s abroad t o t h e i r dependents i n t h e U n i t e d S t a t e s .
O p e r a t i o n s f o r t h e c e n t r a l banks or governments
c e r t a i n o f the U n i t e d Nations

of

I n a d d i t i o n t o t h e u s u a l p e a c e - t i m e c e n t r a l bank t r a n s a c t i o n s ,

the

Reserve Bank o f New Y o r k h a n d l e s a number o f e x t r a o r d i n a r y t r a n s a c t i o n s f o r
f o r e i g n c e n t r a l banks and governments a r i s i n g from t h e w a r .
funds which may a c c r u e t o A u s t r a l i a n ,

F o r example,

certain
dollar

I n d i a n , and B r i t i s h n a t i o n a l s a r e paid, i n t o

a c c o u n t s a t t h e F e d e r a l Reserve Bank o f New Y o r k and t h e d o l l a r s




Federal

26

thus become a v a i l a b l e

t o t h e governments o f the B r i t i s h Empire t o meet t h e i r d o l l a r n e e d s .

The M i s s i o n

i n t h e U n i t e d S t a t e s r e p r e s e n t i n g t h e B r i t i s h M i n i s t r y o f Supply pays f o r

purchases

o f war s u p p l i e s and o t h e r expenses o f t h e M i s s i o n by checks drawn on t h e b a n k .
Prior

t o t h e o p e r a t i o n o f t h e Lend-Lease Agreement w i t h G r e a t B r i t a i n ,

were i n much l a r g e r volume.
other B r i t i s h m i n i s t r i e s ,

these payments

Payments a r e a l s o made by t h e bank upon the o r d e r

such as t h e S h i p p i n g and Supply M i n i s t r i e s ,

of

particularly

f o r w o o l t r a n s a c t i o n s i n t h e case o f t h e S u p p l y M i n i s t r y .
Moneys p a y a b l e by t h e U n i t e d S t a t e s i n c o n n e c t i o n w i t h U n i t e d S t a t e s
Government purchases i n Canada a r e d e p o s i t e d i n t h e Canadian Government's a c c o u n t on
t h e books o f t h e bank, and purchases by t h e Canadian Government i n t h i s

country are

p a i d by checks drawn on such a c c o u n t .
Payments by t h e U n i t e d S t a t e s S u r p l u s M a r k e t i n g A d m i n i s t r a t i o n f o r

certain

I c e l a n d i c p r o d u c t s a r e d e p o s i t e d i n t h e a c c o u n t o f t h e N a t i o n a l Bank o f I c e l a n d on
t h e books o f t h e F e d e r a l Reserve Bank o f New Y o r k .
The F e d e r a l Reserve Bank o f New Y o r k , i n c o n j u n c t i o n w i t h t h e

Federal

R e s e r v e Bank o f San F r a n c i s c o , has e n t e r e d i n t o an arrangement w i t h t h e Commonwealth
Bank o f A u s t r a l i a t o r e c e i v e from U n i t e d S t a t e s Army and Navy d i s b u r s i n g
A u s t r a l i a n c u r r e n c y brought back t o t h i s
Such c u r r e n c y i s

c o u n t r y by members o f our armed f o r c e s .

c a n c e l e d and cut i n h a l f , and, upon t h e shipment o f o n e - h a l f t o

Commonwealth Bank o f A u s t r a l i a , i s d e b i t e d t o i t s
m a i n i n g hal-f o f such c u r r e n c y i s d e s t r o y e d .

account.

Subsequently, the

The bank has a l s o r e c e i v e d

peso notes from t h e Commonwealth Bank o f A u s t r a l i a ,

amount t o t h e a c c o u n t o f t h e Commonwealth Bank o f
Due t o t h e need f o r a d d i t i o n a l c o i n s f o r
because o f t h e presence o f American f o r c e s ,

re-

these

and has c r e d i t e d the

Australia.
circulation i n Australia,

largely

t h e F e d e r a l Reserve Bank o f New Y o r k ,

t h e r e q u e s t o f t h e Commonwealth Bank o f A u s t r a l i a , has purchased a

substantial

amount o f bar s i l v e r f o r m i n t i n g i n t o A u s t r a l i a n c o i n s a t U n i t e d S t a t e s

27

the

Philippine

has o b t a i n e d payment o f

n o t e s f r o m t h e P h i l i p p i n e Government i n U n i t e d S t a t e s d o l l a r s ,




officers

mints.

at

G e n e r a l e f f e c t o f war-time c o n d i t i o n s on t o t a l
f o r f o r e i g n account

holdings

The t o t a l funds and o t h e r a s s e t s h e l d t y t h e bank f o r f o r e i g n a c c o u n t have
been s t e a d i l y r i s i n g d u r i n g the war p e r i o d t o s u c c e s s i v e new h i g h l e v e l s .

Earmarked

g o l d h o l d i n g s , - w h i c h amounted t o $2,673,800,000 on December 31, 1942 have r i s e n

from

$1,135,000,000 a t t h e end o f A u g u s t , 1939 and $2,138,000,000 on December 6 , 1941.
Such i n c r e a s e d g o l d h o l d i n g s r e f l e c t e d a t f i r s t

t h e l a r g e shipments o f g o l d t o

c o u n t r y f o r s a f e k e e p i n g , and more r e c e n t l y p u r c h a s e s o f g o l d i n t h i s

this

c o u n t r y by a

number o f L a t i n American c o u n t r i e s w i t h money r e c e i v e d i n payment f o r raw m a t e r i a l s
and o t h e r goods s h i p p e d h e r e , and a l s o purchases o f g o l d by n e u t r a l c o u n t r i e s ,
as S w i t z e r l a n d , Sweden, P o r t u g a l and T u r k e y , w i t h money t h e y had on d e p o s i t

such

here.

D e p o s i t s h e l d by t h e bank f o r f o r e i g n a c c o u n t now amount t o about $800,000,000,
h a v i n g r i s e n f r o m about $350,000,000 a t the end o f A u g u s t , 1939.

In addition,

bank h o l d s U n i t e d S t a t e s Government s e c u r i t i e s and o t h e r m i s c e l l a n e o u s a s s e t s

the
for

f o r e i g n account.

FOREIGN FUNDS CONTROL
On A p r i l 10, 1940, f o l l o w i n g t h e i n v a s i o n o f Denmark and Norway by Germany,
E x e c u t i v e Order No. 8389 was i s s u e d by the P r e s i d e n t o f t h e U n i t e d S t a t e s under
S e c t i o n 5(b) o f t h e T r a d i n g i v i t h the Enemy A c t .
or " b l o c k i n g "
citizens

T h i s had the e f f e c t o f

"freezing"

a l l p r o p e r t y i n t h e U n i t e d S t a t e s i n w h i c h Denmark or Norway o r

or r e s i d e n t s had any i n t e r e s t ,

that i s ,

of prohibiting transactions

i n g such p r o p e r t y e x c e p t as p e r m i t t e d b y l i c e n s e s i s s u e d by t h e S e c r e t a r y o f
Treasury.

As other c o u n t r i e s were i n v a d e d or came under A x i s d o m i n a t i o n ,

c o n t r o l was a p p l i e d t o them.

t h e s p e c i f i c r e q u e s t o f G e n e r a l i s s i m o Chiang K a i - S h e k ,
possessions o f a f f e c t e d countries,




involvthe

freezing

I n June and J u l y , 1941, t h e c o n t r o l was extended t o

Germany, I t a l y and Japan, t o t h e n e u t r a l European c o u n t r i e s

are subject t o the c o n t r o l ,

their

(except Turkey) and,

to China.

embracing s u b s t a n t i a l p a r t s

Colonies

or

o f A f r i c a and Oceania

and, s i n c e our e n t r y i n t o t h e war, t e r r i t o r y i n t h e

28

at

F a r E a s t o c c u p i e d by our enemies has a l s o been i n c l u d e d ,

so t h a t t h e

princioal

a r e a s now e x c e p t e d a r e o n l y t h e B r i t i s h Commonwealth o f N a t i o n s , R u s s i a and t h e
American R e p u b l i c s .
I n t h e case o f c o u n t r i e s i n v a d e d by, or coming under t h e d o m i n a t i o n
the A x i s ,

t h e p r i m a r y o b j e c t i v e o f f r e e z i n g c o n t r o l was t h e p r o t e c t i o n o f

property i n the United S t a t e s .

of,

their

The e x t e n s i o n o f t h e f r e e z i n g c o n t r o l t o t h e A x i s

n a t i o n s and t o n e u t r a l European c o u n t r i e s i n June and J u l y , 194-1, t r a n s f o r m e d i t
an o p e n l y a g g r e s s i v e weapon o f economic w a r f a r e and emphasized t h e f o l l o w i n g
t i o n a l o b j e c t i v e s o f the

into

addi-

control:

(a)

P r e v e n t i n g t h e A x i s from d e r i v i n g any b e n e f i t
blocked assets;

from

(b)

F a c i l i t a t i n g t h e use o f b l o c k e d a s s e t s i n t h e war
e f f o r t of the United Nations;

(c)

P r o t e c t i n g American banks and b u s i n e s s i n s t i t u t i o n s
transactions i n v o l v i n g blocked assets;
and

(d)

P r o t e c t i n g Americans who have c l a i m s a g a i n s t f o r e i g n
governments and t h e i r n a t i o n a l s , h a v i n g i n mind p o s t war n e g o t i a t i o n s and s e t t l e m e n t s .

in

A f u r t h e r i m p o r t a n t s t e p t o o k p l a c e i n J u l y , 1941, w i t h t h e i s s u a n c e , by t h e
P r e s i d e n t , o f t h e P r o c l a i m e d L i s t o f C e r t a i n B l o c k e d N a t i o n a l s w h i c h now i n c l u d e s
t h e names o f many thousands o f persons and f i r m s i n t h e American R e p u b l i c s and i n
o t h e r p a r t s o f t h e w o r l d , whose a c t i v i t i e s
terests

o f the U n i t e d N a t i o n s .

This

a r e b e l i e v e d t o be u n f r i e n d l y t o t h e

so-called "black l i s t "

has t h e e f f e c t o f

in-

ex-

t e n d i n g f r e e z i n g c o n t r o l t o persons and f i r m s who might n o t o t h e r w i s e be s u b j e c t

to

it.
In certain respects,

the f r e e z i n g r e g u l a t i o n s a f f e c t n o t o n l y p r o p e r t y

of

b l o c k e d n a t i o n a l s b u t a l s o p r o p e r t y i n w h i c h t h e r e may be no i n t e r e s t o f a b l o c k e d
national,

t h e p r i n c i p a l examples o f t h i s

being:

1.
R e s t r i c t i o n s on d e a l i n g , except under l i c e n s e , i n
s e c u r i t i e s b e a r i n g t a x or o t h e r stamps o f any o f t h e b l o c k e d c o u n t r i e s ,
or i s s u e d by such c o u n t r i e s o r by companies o r g a n i z e d under t h e i r l a w s .




29

2 . The p r o h i b i t i o n a g a i n s t any one i n t h i s c o u n t r y a c q u i r i n g ,
e x c e p t under l i c e n s e , an i n t e r e s t i n s e c u r i t i e s s i t u a t e d o u t s i d e
the country.
3.
The s e i z u r e by t h e Customs a u t h o r i t i e s and t h e impounding
w i t h t h e F e d e r a l Reserve banks o f s e c u r i t i e s and c u r r e n c y i m p o r t e d
i n t o the U n i t e d S t a t e s f r o m any c o u n t r y , except c e r t a i n p a r t s o f t h e
B r i t i s h Commonwealth o f N a t i o n s , p e n d i n g t h e d e t e r m i n a t i o n by t h e
T r e a s u r y Department as t o whether any b l o c k e d n a t i o n a l has, s i n c e t h e
a p p l i c a b l e b l o c k i n g d a t e s , h a d any i n t e r e s t i n such s e c u r i t i e s or
currency.
The F e d e r a l Reserve Bank o f New Y o r k , as agent o f t h e T r e a s u r y Department,
a s s i s t s i n the a d m i n i s t r a t i o n o f t h e E x e c u t i v e Order*

With the exception o f

the

p h y s i c a l h a n d l i n g by t h e Cash Department and S a f e k e e p i n g Department o f impounded
c u r r e n c y and s e c u r i t i e s ,

respectively,

and t h e p h y s i c a l h a n d l i n g by t h e S a f e k e e p i n g

Department o f s e c u r i t i e s

b e a r i n g t a x stamps p r e s e n t e d f o r l i c e n s i n g ,

the

a s s i g n e d t o t h e bank as f i s c a l agent a r e performed by the F o r e i g n Funds
Department

duties

Control

(known as t h e F o r e i g n P r o p e r t y C o n t r o l Department p r i o r t o J a n u a r y 8 ,

1943).
The work was h a n d l e d by t h e F o r e i g n Exchange D i v i s i o n o f t h e
Department from t h e i s s u a n c e o f t h e E x e c u t i v e Order i n A p r i l ,

Foreign

1940, u n t i l t h e

Foreign

P r o p e r t y C o n t r o l Department was e s t a b l i s h e d on June 28, 1940, a t w h i c h time t h e
number o f employees was a p p r o x i m a t e l y 120.

W i t h t h e expanding scope o f t h e

c o n t r o l and t h e d e l e g a t i o n by t h e T r e a s u r y Department t o t h e bank o f g r e a t e r
t o a c t on a p p l i c a t i o n s ,
on December 18, 1941.

the personnel increased m a t e r i a l l y ,
The number o f a p p l i c a t i o n s

freezing
authority

r e a c h i n g a t o t a l o f 369

f o r l i c e n s e s r e a c h e d a maximum o f

about 2,000 a day d u r i n g a b r i e f p e r i o d i n 1941, as compared w i t h a maximum o f 800 a
day i n 1940.

A f t e r our e n t r y i n t o t h e war, t h e number o f a p p l i c a t i o n s

due, p r i n c i p a l l y ,

t o the c o n s i s t e n t d e n i a l o f a p p l i c a t i o n s

decreased,

f o r licenses to

transact

b u s i n e s s w i t h enemy c o n t r o l l e d c o u n t r i e s and t o t h e c e s s a t i o n o f t r a d e w i t h t h o s e
parts of

the F a r E a s t o c c u p i e d by the enemy.

of a p p l i c a t i o n s




averaged a p p r o x i m a t e l y 400.

30

I n J a n u a r y , 1943, t h e d a i l y number

I n J a n u a r y , 1941, t h e department was moved i n t o t h e Annex B u i l d i n g
95 Maiden l a n e ,

and was moved i n O c t o b e r , 1941, t o 70 P i n e S t r e e t where i t

o c c u p i e s t h e f i f t h and s i x t h f l o o r s .

at

now

I t a l s o uses t h e e n t i r e t h i r d f l o o r

o f the

Annex B u i l d i n g f o r t h e e x a m i n a t i o n and s t o r a g e o f c e r t a i n r e c o r d s s e i z e d by t h e
T r e a s u r y Department under t h e f r e e z i n g c o n t r o l .

The p e r s o n n e l o f t h e F o r e i g n Funds

C o n t r o l Department i s now about 270.
The f o l l o w i n g paragraphs g i v e i n some d e t a i l t h e d u t i e s and procedure
the

of

department.
The bank r e c e i v e s a p p l i c a t i o n s

for licenses relating to transactions

v o l v i n g blocked countries or n a t i o n a l s thereof,
ness e n t e r p r i s e s i n t h i s c o u n t r y ,

such a s :

l i c e n s e s t o operate

t o engage i n f o r e i g n t r a d e and s h i p p i n g

t o make r e m i t t a n c e s abroad, t o purchase o r s e l l s e c u r i t i e s ,
ceives a p p l i c a t i o n s

etc.

b e a r i n g a t a x stamp o f a b l o c k e d c o u n t r y , and a p p l i c a t i o n s
pounded c u r r e n c y and

The bank a l s o

or t o

re-

issued

securities

f o r the r e l e a s e o f im-

securities.

The a p p l i c a t i o n s
involved,

busi-

operations,

t o a t t a c h T r e a s u r y Department Form TFEL-2 t o s e c u r i t i e s

by a b l o c k e d c o u n t r y or company o r g a n i z e d under t h e l a w s t h e r e o f ,

in-

a r e r e v i e w e d by s p e c i a l i s t s i n the k i n d o f

transaction

are approved o r d e n i e d i n cases w h i c h come w i t h i n t h e scope o f t h e

c o n f e r r e d on t h e bank, and a r e r e f e r r e d t o t h e T r e a s u r y Department i n o t h e r
A t f i r s t i t was n e c e s s a r y t o r e f e r most a p p l i c a t i o n s

authority
instances.

t o t h e T r e a s u r y Department

a c t i o n , b u t a u t h o r i t y now d e l e g a t e d t o the bank p e r m i t s t h e e x e r c i s e o f
judgment and t h e d i s p o s i t i o n o f a p p r o x i m a t e l y 80% o f a l l

for

considerable

cases on t h e d e c i s i o n s

of

employees o f t h e bank a r r i v e d a t t h r o u g h t h e i r knowledge o f T r e a s u r y Department
policy.

Copies o f a l l a p p l i c a t i o n s ,

t h e T r e a s u r y Department.

licenses,

and other r e c o r d s a r e f o r w a r d e d t o

Over h a l f a m i l l i o n a p p l i c a t i o n s o f v a r i o u s k i n d s have

been h a n d l e d by t h e bank t o d a t e .
C e r t a i n kinds of t r a n s a c t i o n s ,

frequent i n occurrence, are of a nature

w h i c h o b v i o u s l y g i v e no b e n e f i t t o t h e A x i s c o u n t r i e s .




31

Accordingly,

the

Treasury

Department has, from time t o t i m e , commencing on A p r i l 30, 194-0, i s s u e d g e n e r a l
l i c e n s e s p e r m i t t i n g the execution o f c e r t a i n types o f t r a n s a c t i o n s without
f i l i n g of

the

s p e c i f i c a p p l i c a t i o n s b u t i n some cases r e q u i r i n g t h a t r e p o r t s on the

t r a n s a c t i o n s be f i l e d w i t h the F e d e r a l Reserve b a n k s .

These g e n e r a l l i c e n s e s

m a t e r i a l l y r e d u c e d t h e d e t a i l work o f t h e F e d e r a l Reserve banks as w e l l as o f
T r e a s u r y Department and have p e r m i t t e d g r e a t e r c o n c e n t r a t i o n on a p p l i c a t i o n s
ranting careful

have
the

war-

investigation.

The bank r e c e i v e s and checks r e p o r t s c o v e r i n g t r a n s a c t i o n s under

licenses,

and r e c e i v e s i n v e n t o r y r e p o r t s o f p r o p e r t y i n t h e U n i t e d S t a t e s owned by " n a t i o n a l s "
of foreign countries.

I t f o r w a r d s t o t h e T r e a s u r y Department c o p i e s o f t h e s e

r e p o r t s , and m a i n t a i n s c o p i e s i n i t s

own f i l e s .

A C o n s u l t i n g S e c t i o n i n t h e department answers i n q u i r i e s r e g a r d i n g t h e
f r e e z i n g c o n t r o l , r e c e i v e d by m a i l or by t e l e p h o n e o r made i n p e r s o n .
periods t h i s

D u r i n g some

s e c t i o n has h a n d l e d over 500 p e r s o n a l i n t e r v i e w s and over 2,000

telephone c a l l s

daily.

The bank a s s i s t s

t h e T r e a s u r y Department i n t h e d e t e c t i o n and e r a d i c a t i o n

o f f i n a n c i a l a c t i v i t i e s w h i c h a r e by o r on b e h a l f o f t h e A x i s or w h i c h a r e
i n i m i c a l t o t h e war e f f o r t ,

and i n a s s e m b l i n g i n f o r m a t i o n r e g a r d i n g t h e

activities

o f f o r e i g n e r s and o f persons w i t h i n t h e U n i t e d S t a t e s f o r or on b e h a l f o f
Special investigations

otherwise

foreigners.

a r e conducted i n c o o p e r a t i o n w i t h t h e T r e a s u r y Department

t o d i s c o v e r the nature o f the f o r e i g n i n t e r e s t s

connected w i t h p a r t i c u l a r

transac-

t i o n s and t o p r e v e n t t r a n s a c t i o n s w h i c h might g i v e a i d or comfort t o the enemy.
Upon our e n t r y i n t o t h e war t h e T r e a s u r y Department c l o s e d a l l
b u s i n e s s e n t e r p r i s e s and conducted i n v e s t i g a t i o n s

Japanese

t o determine whether t h e y s h o u l d

be p e r m i t t e d t o resume o p e r a t i o n s e i t h e r w i t h or w i t h o u t T r e a s u r y

supervision.

Somewhat s i m i l a r s t u d i e s have been made f r o m time t o time o f c e r t a i n German and
I t a l i a n companies.

Quantities

o f merchandise d e s t i n e d f o r t h e F a r E a s t and i n -

t e r r u p t e d i n t r a n s i t by our wartime s h i p p i n g needs o v e r t a x e d dock and warehouse




32

facilities

e a r l y i n 1942.

The T r e a s u r y Department has used t h e f r e e z i n g c o n t r o l

f o r c e t h e removal and s a l e o f such merchandise as belonged t o b l o c k e d n a t i o n a l s
t o d i v e r t t o our own war e f f o r t t h a t p a r t c o n s i s t i n g o f s t r a t e g i c m a t e r i a l s .
bank has a s s i s t e d t h e T r e a s u r y Department i n a l l
The o f f i c e r s

also.

o f t h e department and members o f t h e L e g a l Department

consult

f r e q u e n t l y w i t h the T r e a s u r y Department r e g a r d i n g t h e f o r m u l a t i o n o f p o l i c i e s

licenses,

r u l i n g s , and o t h e r p u b l i c

and

The

o f these s p e c i a l a c t i v i t i e s

i n many i n s t a n c e s , have a s s i s t e d t h e T r e a s u r y Department i n the d r a f t i n g o f

to

and,

general

documents.

A more complete d e s c r i p t i o n o f F o r e i g n Funds C o n t r o l o p e r a t i o n s
T r e a s u r y , t o g e t h e r w i t h statements o f c e r t a i n b a s i c p o l i c i e s ,

of the

i s contained i n a

p u b l i c a t i o n e n t i t l e d " A d m i n i s t r a t i o n o f t h e Wartime F i n a n c i a l and P r o p e r t y
o f t h e U n i t e d S t a t e s Government" w h i c h was p r e p a r e d e s p e c i a l l y f o r t h e

Controls

Inter-American

Conference on Systems o f Economic and F i n a n c i a l C o n t r o l t h a t convened i n Washington
on June 30, 1942, and w h i c h was made g e n e r a l l y a v a i l a b l e t o i n t e r e s t e d persons

in

December 1942.

FISCAL AGENT, CUSTODIAN AND DEPOSITARY
FOR RECONSTRUCTION FINANCE CORPORATION
AND ITS SUBSIDIARIES
The R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n and i t s v a r i o u s s u b s i d i a r i e s
now engaged a l m o s t e x c l u s i v e l y i n war a c t i v i t i e s ,
production f a c i l i t i e s
piles of

i n c l u d i n g the c o n s t r u c t i o n

f o r t h e manufacture o f war m a t e r i a l s ,

strategic materials,

stock

t h e o p e r a t i o n o f t h e Government's war damage i n s u r a n c e

banks, a c t i n g as f i s c a l a g e n t s ,

The F e d e r a l Reserve

c u s t o d i a n s , and d e p o s i t a r i e s f o r t h e

subsidiaries,

aspects o f the C o r p o r a t i o n ' s

of

the procurement o f

program, and o t h e r p r o j e c t s d i r e c t l y r e l a t e d t o t h e war e f f o r t .

F i n a n c e C o r p o r a t i o n and i t s

are

a c t i v e l y p a r t i c i p a t e i n the

Reconstruction
administrative

program.

T h i s bank d i s b u r s e s , by checks drawn on t h e T r e a s u r e r o f t h e U n i t e d S t a t e s ,
t h e amount o f l o a n s and o t h e r payments made by t^e R e c o n s t r u c t i o n F i n a n c e
and i t s v a r i o u s s u b s i d i a r i e s ,




and.receives,

examines, and h o l d s b o r r o w e r s '

33

Corporation
n o t e s and

collateral.
The Defense P l a n t C o r p o r a t i o n , a s u b s i d i a r y o f t h e R e c o n s t r u c t i o n
Corporation,

purchases and l e a s e s p l a n t s f o r war p r o d u c t i o n and makes such

t i e s a v a i l a b l e t o o t h e r s engaged i n war w o r k .

The bank r e c e i v e s ,

h o l d s documents i n c o n n e c t i o n w i t h such a c t i v i t i e s
b e h a l f o f the

Finance
facili-

examines, and

and makes and r e c e i v e s payments on

Corporation.

The Defense S u p p l i e s C o r p o r a t i o n , t h e Rubber Reserve Company and t h e
M e t a l s Reserve Company, a l l o f w h i c h a r e s u b s i d i a r i e s o f t h e R e c o n s t r u c t i o n
Corporation,

Finance

a r e p r i m a r i l y engaged i n p u r c h a s i n g , h o l d i n g and s e l l i n g s t r a t e g i c

and

c r i t i c a l m a t e r i a l and s u p p l i e s w h i c h i n c l u d e s c o r e s o f commodities and m e t a l s .
bank r e c e i v e s ,

examines, and h o l d s documents i n t h i s

c e i v e s payments on b e h a l f o f t h e

The

c o n n e c t i o n and makes and r e -

corporations.

The bank a l s o performs s i m i l a r

s e r v i c e s f o r t h e Commodity C r e d i t

t i o n w h i c h purchases and h o l d s domestic and f o r e i g n a g r i c u l t u r a l
q u i r e d by the U n i t e d S t a t e s and t h e a l l i e d n a t i o n s .
a r e b e i n g t r a n s f e r r e d under l e n d - l e a s e o p e r a t i o n s .

Corpora-

commodities

re-

C e r t a i n s u p p l i e s so accumulated
In order to effectuate

the

program f o r h e m i s p h e r i c s o l i d a r i t y o u t l i n e d i n the R i o de J a n e i r o Conference

of

J a n u a r y , 1942, L a t i n American a g r i c u l t u r a l commodities w h i c h can no l o n g e r be e x p o r t e d because o f t h e war a r e p u r c h a s e d by t h e c o r p o r a t i o n and s t o r e d i n

those

countries.
I n October 1942, t h e Defense S u p p l i e s C o r p o r a t i o n undertook a program o f
p u r c h a s i n g new and used t i r e s and t u b e s from consumers.

Vouchers i s s u e d b y r e p r e -

s e n t a t i v e s o f t h e Defense S u p p l i e s C o r p o r a t i o n upon t a k i n g d e l i v e r y o f t h e t i r e s
t u b e s , a r e r e c e i v e d by the bank and v e r i f i e d ,
tires

and t h e bank pays the s e l l e r

for

and

the

by i s s u i n g a check drawn on t h e T r e a s u r e r o f t h e U n i t e d S t a t e s or by sending

him War Bonds o r War Savings Stamps.

Up t o F e b r u a r y 1 , 1943, t h e bank had h a n d l e d

198,000 such vouchers r e l a t i n g t o a p p r o x i m a t e l y 420,000 t i r e s and t u b e s .
I n J u l y 1942 t h e War Damage C o r p o r a t i o n ,




34

a s u b s i d i a r y of the R e c o n s t r u c t i o n

F i n a n c e C o r p o r a t i o n , undertook t o i n s u r e b u i l d i n g s and o t h e r t a n g i b l e
against loss

property

or damage r e s u l t i n g from enemy a t t a c k o r a c t i o n o f our own armed f o r c e s

i n r e s i s t i n g enemy a t t a c k .

Subsequently,

coverage was a l s o made a v a i l a b l e

money and s e c u r i t i e s when s h i p p e d by r e g i s t e r e d m a i l o r express and under
other circumstances.

certain

T h i s i n s u r a n c e i s w r i t t e n through t h e o f f i c e s and

o f hundreds o f r e g u l a r f i r e i n s u r a n c e ,

facilities

c a s u a l t y and s u r e t y companies t h r o u g h o u t

c o u n t r y w h i c h a c t as f i d u c i a r y agents o f the c o r p o r a t i o n .

The bank r e c e i v e s

such companies statements r e g a r d i n g i n s u r a n c e w r i t t e n by them and premiums
i n r e s p e c t o f such i n s u r a n c e l e s s
v e r i f i e s the computations,
the c o r p o r a t i o n .

c e r t a i n commissions and s e r v i c e f e e s .

During the l a s t

received

The bank

s i x months o f 1942 t h e bank r e c e i v e d f o r

m a t e l y 1 , 2 5 0 , 0 0 0 war damage i n s u r a n c e p o l i c i e s ,

or a d v i c e s r e l a t i n g t o

aggregating

the

from

c o l l e c t s t h e checks and r e p o r t s w i t h r e s p e c t t h e r e t o

c a t i o n and f i l i n g a p p r o x i m a t e l y 2,500,000 t i c k e t s

to

verifi-

approxi-

approximately

$49,000,000,000 i n amount, w r i t t e n i n t h e Second F e d e r a l Reserve D i s t r i c t
that

for

during

period.
A l l o f t h i s work i s performed t h r o u g h t h e R . F . C . Custody Department,

whose employees number over 250.

A little

more than a y e a r ago t h e number o f em-

p l o y e e s engaged i n such work was l e s s t h a n 100.

Some o f t h e work o f t h e

department

i s performed i n t h e b a n k ' s Annex B u i l d i n g a t 95 Maiden Lane as w e l l as i n t h e main
bank b u i l d i n g .

BUFFALO BRANCH
The B u f f a l o Branch has f o r many y e a r s m a i n t a i n e d t h e a c c o u n t s o f
member banks l o c a t e d i n t h e Branch t e r r i t o r y ,

made them advances,

collected

the
checks

and o t h e r items f o r them, h e l d s e c u r i t i e s i n s a f e k e e p i n g f o r them, and f u r n i s h e d
them w i t h c u r r e n c y .
w i t h t h e war e f f o r t
i t was f e l t

The s e r v i c e s o f t h e Branch have been expanded i n

connection

and a d d i t i o n a l d u t i e s have been u n d e r t a k e n by t h e Branch where

t h a t t h e y would n o t i n v o l v e u n n e c e s s a r y d u p l i c a t i o n o f t h e work performed

by t h e head o f f i c e .




The number o f o f f i c e r s

35

and employees o f t h e Branch i n c r e a s e d

f r o m 119 on January 1 , 1940 t o 157 on J a n u a r y 1 , 1943.
have j o i n e d t h e s t a f f

o f t h e Branch s i n c e t h e f i r s t

H a n d l i n g o f Government

Several a d d i t i o n a l

of the y e a r .

securities

The Branch h a n d l e s s u b s c r i p t i o n s f o r Government s e c u r i t i e s
Treasury b i l l s

employees

and purchases

p u r s u a n t t o t h e e s t a b l i s h e d b u y i n g r a t e o f 3/8%.

The Branch i s s u e s a l l s e r i e s o f S a v i n g s Bonds and Tax Savings

Notes.

R e c e n t l y t h e Branch has u n d e r t a k e n t h e redemption o f S e r i e s E Savings Bonds and i n
this

c o n n e c t i o n has l e a s e d q u a r t e r s i n t h e E l l i c o t t Square B u i l d i n g i n

Payment o f Government o b l i g a t i o n s and m i s c e l l a n e o u s

Buffalo.

services

The Branch pays Government coupons and m a t u r i n g o b l i g a t i o n s ,

receives

de-

p o s i t s and a c t s as c u s t o d i a n f o r v a r i o u s Government a g e n c i e s , and h a n d l e s Government
checks.
War l o a n s under R e g u l a t i o n V and a s s i s t a n c e
t o War and Navy Departments
The Branch r e c e i v e s a p p l i c a t i o n s

f o r l o a n s under R e g u l a t i o n V , makes

v e s t i g a t i o n s w i t h r e s p e c t t h e r e t o and f o r w a r d s i t s
final

r e p o r t s t o t h e head o f f i c e

infor

disposition.
The Branch answers i n q u i r i e s

by c o n t r a c t i n g o f f i c e r s

o f such departments

and s u p p l i e s i n f o r m a t i o n c o n c e r n i n g t h e f i n a n c i a l c o n d i t i o n and r e s p o n s i b i l i t y
e x i s t i n g and p r o s p e c t i v e Government
R e g u l a t i o n o f consumer

of

contractors.

credit

The Branch performs p r a c t i c a l l y a l l

services i n connection w i t h the ad-

m i n i s t r a t i o n o f R e g u l a t i o n W.
F i s c a l agent,

c u s t o d i a n and d e p o s i t a r y f o r R . F .

C.

The Branch a c t s as c u s t o d i a n and makes disbursements i n t h e

Buffalo

t e r r i t o r y on b e h a l f o f t h e Defense P l a n t C o r p o r a t i o n and t h e M e t a l s Reserve Company,
s u b s i d i a r i e s o f the R e c o n s t r u c t i o n Finance




36

Corporation.

VICTORY FUND COMMITTEE FOR THE
SECOND FEDERAL RESERVE DISTRICT
The V i c t o r y Fund Committees were o r g a n i z e d a t the r e q u e s t o f t h e S e c r e t a r y
o f t h e T r e a s u r y i n May 1942 as a p a r t o f t h e war f i n a n c i n g program.

The n a t i o n a l

V i c t o r y Fund Committee c o n s i s t s o f t h e S e c r e t a r y o f t h e T r e a s u r y , as Chairman, and
the P r e s i d e n t s o f t h e t w e l v e F e d e r a l Reserve banks as members.

The Chairman o f

the

Board o f Governors o f t h e F e d e r a l Reserve System p r o v i d e s t h e l i a i s o n between t h e
F e d e r a l Reserve banks and the T r e a s u r y .

I n each F e d e r a l Reserve D i s t r i c t a

district

V i c t o r y Fund Committee has been o r g a n i z e d w i t h t h e P r e s i d e n t o f t h e F e d e r a l Reserve
bank i n t h e d i s t r i c t

as Chairman.

The V i c t o r y Fund Committee f o r t h e Second F e d e r a l Reserve D i s t r i c t

con-

s i s t s o f s i x t e e n persons i n a d d i t i o n t o t h e Chairman.

E i g h t o f t h e s e members a r e

commercial b a n k e r s ,

f i v e are investment bankers,

a s a v i n g s banker, one i s

president of a l i f e

i n s u r a n c e company and another i s

Stock Exchange.

committee a r e l o c a t e d a t t h e bank and t h e

o f t h e committee i s

The

chief

t h e E x e c u t i v e Manager a p p o i n t e d by t h e Committee.

The Second F e d e r a l Reserve D i s t r i c t

i s d i v i d e d i n t o 15 r e g i o n s ,

a R e g i o n a l Chairman, a s s i s t e d by a R e g i o n a l V i c t o r y Fund Committee.
r e g i o n a l committees have a t o t a l membership o f more t h a n 1 6 0 .
committees have a s m a l l f u l l - t i m e

the

t h e p r e s i d e n t o f the New Y o r k

The S e c r e t a r y o f t h e bank i s a l s o S e c r e t a r y o f t h e Committee.

headquarters o f the d i s t r i c t
executive o f f i c e r

one i s

each under

These

fifteen

Most o f the

regional

s t a f f engaged i n the a d m i n i s t r a t i o n o f t h e

o f t h e committee and a much l a r g e r number o f v o l u n t e e r w o r k e r s .

Many o f t h e

affairs
regions

a r e i n t u r n s u b d i v i d e d i n t o s m a l l e r areas covered by l o c a l committees and s a l e s
representatives.

I t i s t h e purpose o f t h e V i c t o r y Fund Committee t o o r g a n i z e ,

and c o o r d i n a t e t h e combined e f f o r t s o f a l a r g e v o l u n t e e r f o r c e o f b a n k e r s ,
d e a l e r s and o t h e r p u b l i c - s p i r i t e d
ment s e c u r i t i e s .

Particular

c i t i z e n s o f each community i n t h e s a l e o f

direct,

security
Govern-

emphasis i s p l a c e d upon t h e s a l e o f s e c u r i t i e s t o non-

bank i n v e s t o r s i n o r d e r t o h e l p a v o i d t h e i n f l a t i o n a r y i m p l i c a t i o n s o f an u n r e s t r a i n e d
i n c r e a s e i n bank




credit.

37

The V i c t o r y Fund Committee gave f u l l a s s i s t a n c e t o t h e S e c r e t a r y o f
T r e a s u r y i n t h e V i c t o r y L o a n D r i v e i n December 1942, i t s

first

big job.

The amount

i n i t i a l l y announced as t h e g o a l o f the d r i v e was n i n e b i l l i o n d o l l a r s .

Almost

t h i r t e e n b i l l i o n d o l l a r s was o b t a i n e d and over f i v e b i l l i o n d o l l a r s o f t h i s
was r a i s e d i n t h e Second F e d e r a l Reserve D i s t r i c t .

the

amount

During the d r i v e the v o l u n t e e r

p e r s o n n e l o f t h e committee numbered about 9 , 0 0 0 , o f w h i c h about 4,000 were i n New
Y o r k and Bronx C o u n t i e s i n New Y o r k C i t y .

D u r i n g t h e p e r i o d from November 30 t o

December 31, 1942, about 72,000 s e p a r a t e s u b s c r i p t i o n s vfere o b t a i n e d i n t h i s
trict.

I t has g e n e r a l l y been e s t i m a t e d t h a t a s c o r e o f

every s a l e o f a l o n g term i s s u e .

c a l l s are required

disfor

T h i s g i v e s some i d e a o f the magnitude o f the

job.

The a u d i t i n g and d i s b u r s i n g work i n b e h a l f o f t h e Committee, t h e engagement o f head o f f i c e

c l e r i c a l p e r s o n n e l , arrangements f o r t h e p r i n t i n g o f

and t h e d i s t r i b u t i o n o f c i r c u l a r s

circulars,

a r e performed by t h e bank, and t h e s t a f f

of

the

Committee c o n s u l t s c l o s e l y w i t h , and r e c e i v e s t h e c l o s e c o o p e r a t i o n o f , t h e s t a f f
t h e bank

(including i t s

counsel) i n connection w i t h the p r e p a r a t i o n o f

m a t e r i a l f o r use t h r o u g h o u t t h e D i s t r i c t

of

printed

and i n c o n n e c t i o n w i t h p r a c t i c a l l y

every

phase o f t h e Committee's w o r k .

OTHER WORK OF THE BANK
I n c r e a s e d work i n o l d departments and t h e w a r - b o r n e s t a b l i s h m e n t o f new
departments, d e s c r i b e d above, have meant t h a t a l l o f the employees o f
felt

t h e p r e s s u r e o f war w o r k .

T h i s has been t r u e i n t h e p e r s o n n e l , l e g a l ,

accounting, disbursing, auditing,
circular,
divisions,

the bank have

bank e x a m i n a t i o n s ,

service, mail, protection,

bank r e l a t i o n s ,

research,

p r e s s and

b u i l d i n g o p e r a t i n g and o t h e r departments and

even though t h e i r work has n o t been d i s c u s s e d i n d e t a i l .

W h i l e some o f

t h e s e departments a r e more d i r e c t l y i n v o l v e d t h a n o t h e r s i n t h e performance o f
work d e s c r i b e d above, a l l o f them p e r f o r m f u n c t i o n s which a r e n e c e s s a r y t o
t h e bank t o c a n y out i t s

enable

responsibilities.

The volume o f c i r c u l a r s




the

and o t h e r p u b l i s h e d m a t e r i a l i s s u e d by or

38

through

t h e bank has i n c r e a s e d c o n s i d e r a b l y ,
operations,

Treasury o f f e r i n g s ,

due p a r t i c u l a r l y t o F o r e i g n Funds

Control

and i n g i v i n g a s s i s t a n c e t o t h e V i c t o r y Fund

Committee.
There has been a tremendous i n c r e a s e i n the m a i l o f t h e bank due p a r t i c u l a r l y t o t h e ?7ar f i n a n c i n g .

I n December 1939 t h e number o f p i e c e s o f

m a i l o u t g o i n g was 27,765 and i n c o m i n g 10,685;
t o t a l e d 286,283 and t h e incoming 94,884.

registered

i n December 194-2 the o u t g o i n g p i e c e s

Most o f t h e i n c r e a s e i n o u t g o i n g

regis-

t e r e d m a i l r e p r e s e n t s shipments o f War S a v i n g s Bonds and Tax Savings Motes.

The

o u t g o i n g r e g u l a r m a i l i n c r e a s e d f r o m 174,625 p i e c e s i n December 1939 t o 449,526
p i e c e s i n December 1942.
W i t h t h e g r e a t i n c r e a s e i n the amount o f s e c u r i t i e s h a n d l e d by the bank
g r e a t e r demands have been p l a c e d upon t h e p r o t e c t i o n f o r c e and the messenger
servicej

and t h e number o f guards and messengers has been i n c r e a s e d

considerably.

The i n c r e a s e o f 70% i n t h e number o f employees o f t h e bank i n t h e
t h r e e y e a r s has had i t s r e p e r c u s s i o n s

on t h e o p e r a t i o n s o f t h e c a f e t e r i a .

last
The

average number o f employees f e d p e r day i s now over 2500 compared w i t h 1,660 t h r e e
years ago.

Of c o u r s e , a number o f employees, such as t h o s e on t h e n i g h t f o r c e ,

aminers and o t h e r s vfho a r e out of

town, and messengers who f i n d themselves a d i s t a n c e

f r o m t h e bank a t noon a r e n o t i n a p o s i t i o n t o use t h e c a f e t e r i a a t
I f t h e b o i l e r s i n the basement a r e n o t w o r k i n g , i f
running, i f
stops.

the telephone switchboard i s

This i s

ex-

out o f o r d e r ,

all.

the e l e v a t o r s are not

t h e whole bank slows down or

a community e n t e r p r i s e i n w h i c h everyone p l a y s h i s

part.

The F e d e r a l Reserve System had h a r d l y been s t a r t e d when t h e w o r l d was
p l u n g e d i n t o the f i r s t W o r l d W a r .

New r e s p o n s i b i l i t i e s

n o t e n v i s a g e d a t t h e time o f

t h e enactment o f t h e F e d e r a l Reserve A c t were t h r u s t upon t h e System but i t
meet t h o s e

responsibilities.




39

rose

to

Today t h e System has grave r e s p o n s i b i l i t i e s
a generation.

The f o r e g o i n g pages o u t l i n e

some o f t h e t h i n g s b e i n g done by t h e

F e d e r a l Reserve Bank o f New Y o r k a t t h i s t i m e .
complished were i t

These t h i n g s c o u l d n o t be a c -

n o t f o r t h e u n d e r s t a n d i n g , t h e w i l l i n g work and t h e z e a l o f

members o f t h e s t a f f ,

each o f whom makes a v i t a l

c a r r y i n g out o f the f u n c t i o n s o f the bank.




i n t h e second W o r l d Ytfar w i t h i n

40

c o n t r i b u t i o n i n h i s own way t o

all
the


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102