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F E D E R A L R E S E R V E B A N K O F N E W YO RK f Circular N o. 3 5 4 8 I March 24, 1950 Fiscal Agent o f the United States 1 I Public Notice o f Offering o f $900,000,000, or thereabouts, o f 91-Day Treasury Bills Dated March 30, 1950 Maturing June 29, 1950 T o all Incorporated Banks and Trust Com panies in the Second Federal R eserve District and Others C oncerned: Following is the text o f a notice today made public by the Treasury Department with respect to a new offering o f Treas ury bills payable at maturity without interest to be sold on a discount basis under competitive and non-competitive bidding. F O R R E L E A S E , M O R N IN G F riday, M arch 24, 1950. NEW SPAPERS, TREASURY DEPARTM ENT W a sh in g to n T h e Secretary o f the T reasury, by this public notice, invites tenders for $900,000,000, or bills, for cash and in exchange for T reasu ry bills m aturing M arch 30, 1950, to be issued on tive and non -eom petitive bidding as hereinafter provided. T h e bills of this series will be m ature June 29, 1950, when the face am ount will be payable w ithout interest. T h e y will be in denom inations o f $1,000, $5,000, $10,000, $100,000, $500,000, and $1,000,000 (m aturity va lu e). thereabouts, of 91-day T reasury a discount basis under com p eti dated M arch 30, 1950, and will issued in bearer form only, and T enders will be received at Federal R eserve B anks and Branches up to the closin g hour, tw o o ’clock p .m ., E astern Standard tim e, M on d ay , M arch 27, 1950. T en ders will not be received at the T reasu ry D epartm ent, W a sh in g to n . E ach tender m ust be for an even m ultiple of $1,000, and in the case of com petitive tenders the price offered m ust be expressed on the basis o f 100, with not m ore than three decimals, e. g., 99.925. F ractions m a y not be used. It is urged that tenders be m ade on the printed form s and forw arded in the special envelopes w hich will be supplied by Federal R eserve B anks or B ranches on application therefor. T en d ers will be received w ithout deposit from incorporated banks and trust com panies and from responsible and reco g nized dealers in investm ent securities, l enders from others m ust be accom panied by paym ent of 2 percent o f the face am ount of T re asu ry bills applied for, unless the tenders are accom panied by an express guaranty of paym ent b y an incorporated bank or trust com pany. Im m ediately after the closing hour, tenders will be opened at the Federal Reserve B anks and Branches, follow in g which public announcem ent w ill be made by the Secretary o f the T reasu ry o f the am ount and price range of accepted bids. T h o se subm itting' tenders will be advised of the acceptance or rejection thereof. T h e Secretary o f the T reasu ry exp ressly reserves the right to accept or reject any or all tenders, in w hole or in part, and his action in any such respect shall be final. Subject to these reservations, n on -com petitive tenders for $200,000 or less without stated price from any one bidder will be accepted in full at the average price (in three decim als) o f accepted com petitive bids. Settlem ent for accepted tenders in accordance w ith the bids m u st be m ade or com pleted at the Federal Reserve B ank on M arch 30, 1950, in cash or other im m ediately avail able funds or in a like face am ount of T reasu ry bills m aturing M arch 30, 1950. Cash and exchange tenders will receive equal treatm ent. Cash adjustm ents will be made for differences between the par value o f m aturing bills accepted in exchange and the issue price o f the new bills. T h e incom e derived from T reasu ry bills, w hether interest or gain from the sale or other disposition o f the bills, shall not have any exem ption , as such, and loss from the sale or other disposition o f T reasu ry bills shall not have any special treatm ent, as such, under the Internal Revenue Code, or law s am endatory or supplem entary thereto. T h e bills shall be subject to estate, inheritance, gift or other excise taxes, w hether Federal or State, but shall be exem p t from all taxation now or hereafter im posed on the principal or interest thereof by any State, or any of the p ossessions o f the U n ited States, or by any local taxin g authority. F or purposes of taxation the am ount of discount at w hich T reasu ry bills are originally sold by the U nited States shall be considered to be interest. U nd er Sections 42 and 117 ( a ) ( 1 ) o f the Internal Revenue C ode, as amended by Section 115 of the R evenue A c t o f 1941, the am ount o f discount at which bills issued hereunder are sold shall not be considered to accrue until such bills shall be sold, redeemed or otherwise disposed o f, and such bills are excluded from consideration as capital assets. A cco rd in gly , the ow ner o f T reasury bills (other than life insurance co m panies) issued hereunder need include in his incom e tax return on ly the difference betw een the price paid for such bills, w hether on original issue or on subsequent purchase, and the am ount actually received either upon sale or redem ption at m aturity during the taxable year for which the return is m ade, as ordinary gain or loss. T re asu ry D epartm ent Circular N o . 418, as am ended, and this notice, prescribe the term s of the T reasury bills and govern the conditions o f their issue. Copies of the circular m ay be obtained from any Federal R eserve Bank or Branch. In accordance with the above announcement tenders will be received at the Securities Department o f this bank (9th floor, 33 Liberty Street) New Y ork 45, N. Y ., or at the Buffalo Branch o f this bank (270 Main Street) Buffalo 5, N. Y ., up to two o’clock p.m., Eastern Standard time, on Monday, March 27, 1950. It is requested that tenders be submitted on special form printed on reverse side and returned in special envelope enclosed herewith. Payment fo r the Treasury bills cannot be made by credit through the Treasury T ax and Loan Account. Settlement must be made in cash or other immediately available funds or in maturing Treasury bills. A l l a n S p r o u l , President. (E xtract from Treasury Department statement released fo r publication March 21, 1950, announcing results after tenders w ere opened f o r 91-day Treasury bills dated March 23,1950 maturing June 22,1950) T o ta l applied f o r ............ $1,477,857,000 T o ta l a c c e p t e d .................$900,323,000 (includes $94,373,000 entered on a non-com petitive basis and accepted in full at the average price show n below ) A vera ge price . . . 9 9 .7 1 2 -f Equivalent rate o f discount approx. 1.138% per annum R ange of accepted com petitive bids: Equivalent rate o f discount ........................ 99.717 approx. 1.12 0 % per annum H ig h L o w .......................... 99.710 Equivalent rate o f discount approx. 1 .1 4 7 % per annum Total Applied fo r Federal Reserve District B oston ............ N ew Y ork . ' . . . . Philadelphia Cleveland ............ R ichm ond ............ A tlan ta ................. C hicago ................ S t. L o u i s .............. M inneapolis K a n sa s C ity . . . D allas ................... San Francisco $ 7,125,000 1,172,246,000 30,042,000 26,145,000 11,240,000 8,042,000 130,018,000 9,998,000 4,305,000 15,593,000 22,467,000 40,636,000 Total Accepted $ 6,770,000 667,236,000 16,492,000 26,003,000 11,240,000 8,042,000 79,693,000 8,946,000 4,305,000 15,593,000 18,917,000 37,086,000 (29 percent o f the am ount bid for at the low price was accepted) T o ta l ............ $1,477,857,000 $900,323,000 ^OTM) 23 A IM P O R T A N T — I f it is desired to bid on a com petitive basis, fill in rate per 100 and m atu rity value in paragraph headed "C om petitive Bid” . I f it is desired to bid on a non com petitive basis, fill in only the m atu rity value in paragraph headed "N on -com petitive B id” . D O N O T fill in both paragraphs on one form . A separate tender m ust b e used fo r each bid. N o ............ ......................... TENDER FOR 91 -D A Y TREASURY BILLS D ated M arch 30, 1950. M aturing June 29, 1950. ^ Dated a t .............................. .. . . V , . . . T o F ederal R eserve B a n k of N e w Y o r k , Fiscal A gent o f the United States. . .i. 1950 C O M PE TITIV E BID N O N -C O M P E T IT IV E BID Pursuant to the provisions o f Treasury Department Circular N o. 418, as amended, and to the provisions o f the public notice on March 24, 1950, as issued by the Secretary o f the Treas Pursuant to the provisions o f Treasury Department Circular No. 418, as amended, and to the provisions o f the public notice on March 24, 1950, as issued by the Secretary o f the Treas ury, the undersigned offers a non-competitive ury, the undersigned o ffe rs . (R ate per 100) tender fo r a total amount o f r . . . . .... . . . . fo r a total amount o f $ ............................................... (maturity value) o f the Treasury bills therein described, or for any less amount that may be awarded, settlement therefor to be made at your bank, on the date stated in the public notice, as indicated b elow : (maturity value) o f the Treasury bills therein described, at the average price (in three deci mals) o f accepted competitive bids, settlement therefor to be made at your bank, on the date stated in the public notice, as indicated below : □ □ By surrender of the maturing issue o f By surrender of the maturing issue o f Treasury b ills............. Treasury bills............. □ (N ot to exceed $200,000) (A m ount surrendered) By cash o r other immediately available funds □ (A m ount surrendered) By cash or other immediately available funds The Treasury bills for which tender is hereby made are to be dated March 30, 1950, and are to mature on June 29, 1950. This tender will be inserted in special envelope entitled “ Tender f o r Treasury bills” . N a m e o f B idder ............................................... (Please print) By (Official signature required) S treet A d d ress (T itle ) .......................................... (C ity, T ow n or V illage, P .O . N o., and State) If this tender is subm itted for the account o f a custom er, indicate the custom er’s nam e on line b e lo w : (N am e o f Customer) (C ity. T ow n o r V illage, P .O . N o., and State) U se a separate tender for each custom er’s bid. IM P O R T A N T IN ST R U C T IO N S: 1. N o tender fo r less than $1,000 w ill be considered, and each tender m ust be for an even m ultiple o f $1,000 (m atu rity va lu e). A separate tender m ust be executed for each bid. 2. I f the person m akin g the tender is a corporation, the tender should be signed b y an officer of the corpora tion authorized to m ake the tender, and the signing o f the tender by an officer o f the corporation will be construed as a representation b y him that he has been so authorized. If the tender is made by a partnership, it shou ld be signed by a m em ber o f the firm, w h o should sign in the form “ ........................................................................................................ ........................................................................................................................... , a copartnership, by , a m em ber o f the firm” . 3. T en d ers will be received w ithout deposit from incorporated banks and trust com panies and from respon sible and recognized dealers in investm ent securities. T enders from others m ust be accom panied b y paym ent o f 2 percent o f the face -a m ou n t o f T re asu ry bills applied for, unless the tenders are accom panied by an express guaranty of paym ent b y an incorporated bank or trust com pany. 4. I f the language o f this tender is changed in any respect, which, in the opinion o f the Secretary o f the T reasu ry, is material, the tender m a y be disregarded. Paym ent b y cred it th rou gh T reasury T a x and Loan A cco u n t tvill n ot be perm itted. T E N T B — 1030-a * P rice m ust be expressed on the basis o f 100, with not m ore than three decimal places. Fractions m ay not be used. (OVKR) qjgrst i- 1 1 ■ ■■ ■ — -■ --------- FEDERAL RESERVE BANK OF NEW YORK President’s Report to Directors for i949 .......■■■»6*u> FEDERAL RESERVE BANK OF NEW YORK President’s Report to Directors fo r i 949 CONFIDENTIAL CON TEN TS PAGE O pen M arket O perations .................................................................................................................................... .... 1 Sales o f United States Treasury b o n d s ..................................................................................................... .... 1 Transactions in short-term Government s e c u r itie s ................................................................................. .... 2 Repurchase agreements .................................................................................................................................. .... 3 Statistical summary ............................................................................................................................................. 3 F iscal A gency O p e r a t i o n s .................................................................................................................................. ....4 P u blic d e b t ...............................................................................................................................................................4 Transactions in Government securities ..................................................................................................... ....4 Safekeeping o f savings bonds ..................................................................................................................... ....5 Reconstruction Finance C o r p o r a tio n .......................................................................................................... ....6 Paym ent o f Treasury coupons ..................................................................................................................... ....6 D eposit o f Federal t a x e s ................................................................................................................................ ....6 F oreign Funds C o n t r o l......................................................................................................................................... 6 S afekeeping of S ecurities .................................................................................................................................. ....6 B a n k S upervision and B a n k R e l a t i o n s ..............................................................................................................7 System membership o f State b a n k s ................................................................................................................7 Classification o f uninvested trust f u n d s ................................................................................................... ....7 Bank relations a c t iv it ie s .................................................................................................................................. .... 8 P ublic I nform ation A c t i v i t i e s ......................................................................................................................... ....9 C heck Collection .................................................................................................................................................... ....10 A ir transportation ........................................................................................................................................... ....10 Change in sorting req u irem en ts....................................................................................................................... 10 County clearing arrangements .................................................................................................................... .... 10 Check R outing Sym bol p r o g r a m ................................................................................................................... ....11 D eferred posting legislation ............................................................................................................................. 11 C a sh O perations .......................................................................................................................................................... 11 Counterfeits ......................................................................................................................................................... ... 11 Arm ored car service ......................................................................................................................................... ....12 Special coin and currency a rra n g em en ts................................................................................................... ....12 F oreign O perations ....................................................................................................................................................12 Assets held f o r foreign and international a ccou n t................................................................................. ....12 Change in status o f foreign a c c o u n t s ..............................................................................................................13 Loans on g o l d ...................................................................................................................................................... ....14 Gold movements ....................................................................................................................................................15 V isits to foreign central b a n k s ..................................................................................................................... ....15 F oreign central bank visitors ....................................................................................................................... ....15 Staff Group on F oreign I n t e r e s t s ................................................................................................................ ....15 L oans and Cr e d i t s ........................................................................................................................................................16 Consumer instalment c r e d i t ........................................................................................................................... ....16 R esearch A c t i v i t i e s ....................................................................................................................................................16 D omestic studies and p u b lic a tio n s .............................................................................................................. ....16 F oreign and international studies and p u b lic a tio n s ............................................................................. ....17 F oreign missions ................................................................................................................................................... 18 L itigation ....................................................................................................................................................................... 19 Arm and Sclimoll, Inc. v. The United S t a t e s ................................................................................................ 19 P ersonnel ....................................................................................................................................................................... 20 H ead Office salary l i a b i l i t y ............................................................................................................................... 21 Salary adm inistration ........................................................................................................................................ 21 Personnel Department o p e r a tio n s .................................................................................................................... 21 Blue Cross H ospital Plan and Surgical-M edical P l a n .............................................................................. 21 G roup lif e in s u r a n c e ............................................................................................................................................ 22 Red Cross blood donor service ..................................................................................................................... ... 22 Retirem ent System ........................................................................................................................................... ... 22 Leadership training ......................................................................................................................................... ... 22 P ayroll deductions fo r Series E Savings B o n d s ......................................................................................... 22 Federal Reserve Club .......................................................................................................................................... 22 B uffalo B ra n c h O perations ................................................................................................................................. 23 Personnel ............................................................................................................................................................. ... 23 Check collections ................................................................................................................................................... 23 Bank membership and bank r e la t io n s ........................................................................................................... 24 Loans to member banks .................................................................................................................................. ... 24 Cash operations .................................................................................................................................................. ... 24 A ccounting p r o c e d u r e .......................................................................................................................................... 24 FED ERAL RE SE R V E BANK O F NEW YORK March 14,1950. To the Directors o f the Federal Reserve BanTc o f N ew YorTc: I submit herewith a confidential report on the operations o f the Bank during 1949. This report serves to inform you of certain aspects o f the work o f the Bank which cannot be covered in the annual report to stockholders, and also serves as a part of the permanent records o f the Bank. There was little significant change in the volume o f our operations during 1949, compared with the two preceding years. Costs o f operation again rose reflecting chiefly increases in salaries. Im proved methods and machines were sought and used in various departments o f the Bank to combat this trend. These improvements, combined with a further falling off in our fiscal agency work, contributed to some decline in staff, and tended to offset the rising costs o f operation. W hat we deem to be growing public interest in Federal Reserve policies and operations has stimulated increased attention, within the System, to the whole problem of member bank relations and public information. A t this Bank, we have been attacking the problem by expanding and improving, in many small but cumulatively important ways, the services we render to our member banks (thus giving added direct evidence of the value o f m em bership); we have also embarked upon an affirmative program of public information which, as it develops, should result in a wider understanding o f the System and its policies, and o f the significance o f membership. Yours sincerely, President. P R E S ID E N T ’ S R E P O R T T O D IR E C T O R S F O R 1949 o f the Federal Reserve System, dur T hinge efforts the postwar period up to 1949, were directed primarily toward combatting inflationary pres sures and maintaining an orderly market for United States Government securities. In 1949, however, the character of this problem changed as inflationary pressures abated and deflationary ten dencies temporarily assumed greater importance. A s evidence o f economic readjustment accumu lated, the Federal Reserve System first modified and then reversed the earlier policies adopted to meet postwar inflationary problems. The first steps taken in this new phase of System policy in cluded a relaxation of the System’ s qualitative controls over credit used to purchase goods on the instalment plan and to buy securities. Later, as economic activity continued to recede and the vol ume o f bank credit contracted substantially, the supply and availability o f member bank reserves were increased on three successive occasions through reductions in reserve requirements. About $3.8 billion o f reserves were returned to member banks between May 1 and September 1, 1949, inclusive. OPEN M A R K E T O PER A TIO N S Open market operations to influence the supply, availability, and the cost o f credit played a critical role in carrying out this m ajor change o f Federal Reserve System policy. Operations on an exten sive scale throughout the year were necessary to maintain orderly conditions in the market and to execute current rate policies. A large part o f the funds freed through reductions in reserve require ments found their way into the Government security market, creating considerable downward pressure on market rates, as banks generally con tinued a policy o f full investment. At different times and under varying circumstances, Treasury obligations were supplied to the market through such operations. The Federal Open Market Com mittee, after consultation with the Treasury De partment, reformulated policy with respect to its operations along lines intended to increase flexi bility and to achieve closer coordination with other instruments o f Federal Reserve System policy. Toward this end, the Federal Open Market Committee made the following statement on June 28, 1949: The Federal Open Market Committee, after con sultation with the Treasury, announced today that with a view to increasing the supply o f funds available in the market to meet the needs o f commerce, business and agriculture it will be the policy o f the Committee to direct purchases, sales, and exchanges o f Govern ment securities b y the Federal Reserve Banks with prim ary regard to the general business and credit situation. The policy o f maintaining orderly condi tions in the Government security market, and the con fidence o f investors in Government bonds will be con tinued. U nder present conditions the maintenance o f a relatively fixed pattern o f rates has the undesirable effect o f absorbing reserves from the market at a time when the availability o f credit should be increased. This statement was significant as an expression o f peacetime credit policy aimed at reaching a more desirable balance between the occasionally conflicting System and Treasury responsibilities in the related areas o f debt management and of credit control. Late in 1949 the economic outlook shifted some what. W ith business activity holding at relatively high levels, a large budget deficit in prospect for the next eighteen months, and a resumption in the growth o f bank credit, the policy of monetary ease was modified. Mild restraint was applied on bank reserves through open market operations and rates were permitted to harden within the limita tions imposed by the large Treasury refinancing operations scheduled for December 15, 1949 and January 1, 1950. Snles o f U nited States Treasury bonds In contrast with 1948, when in all but the closing months the Federal Reserve Bank o f New York made large and continuous purchases of Treasury bonds, at the direction o f the Federal Open Market Committee, the Bank w^as an extensive seller of bonds during the first six months o f 1949. It with drew almost entirely from the market when the policy statement quoted above was made, however, since it was not consistent with general credit policy, at that time, to take reserve funds from the market by selling Government securities. The closing weeks o f 1948 were marked by a re versal in Treasury bond market conditions, as selling contracted and demand improved. Prices i 2 PRESIDENT’S REPORT TO DIRECTORS FOR 1949 at that time were entering the first hesitant stages of a rising trend which continued, with only minor interruptions, throughout 1949. The more im por tant factors exerting a downward pressure on rates varied in influence at different times. Basi cally, however, all stemmed from a changing economic situation and from the market’s inter pretation of changes, or anticipated changes, in Treasury and Federal Reserve policy. Am ong the more important market influences were a declin ing business demand fo r funds— both short and long term— in the face of a well-sustained supply available fo r investment, a significant increase in the availability o f bank credit resulting from the reduction in members ’ reserve requirements, and finally a tendency, under current Treasury refund ing policies, toward contraction in that portion of the public debt represented by Treasury bonds. These all combined to create, and later to main tain, a well-sustained demand fo r marketable Treasury bonds. Commercial banks, unable to find sufficient investment outlets elsewhere, turned to the Treasury bond market and made substan tial additions to their holdings o f these securities in an effort to bolster earnings. Nonbank in vestors were also sizable and persistent buyers of restricted Treasury bonds. Some offerings o f bank-eligible bonds became available in the mar ket from certain classes of nonbank investors, some o f whom were switching to Treasury bonds ineligible fo r bank ownership. Despite offerings o f this type and outright sales o f various taxable bonds by institutional investors, notably life in surance companies, the market supply fell con siderably short o f the demand and, as the attend ant pressure on rates mounted, the System found it advisable to supply bonds. It was, therefore, an almost continuous seller o f these issues over the first six months o f the year. A s a result o f these transactions, total holdings of United States Treasury bonds in the System Open Market A c count declined between December 29, 1948 and June 29,1949 by $3.2 billion. Owing largely to the ready availability o f Treasury bonds from the System, changes in yields fo r these issues were relatively small, with the more important changes occurring in the opening months o f the year. During the second quarter o f the year, it became increasingly apparent that these sales, which with drew funds from the market, were tending to nullify the general credit policy which the System was pursuing. W ith the reformulation o f open market policy on June 28, the System withdrew from the Treasury bond market and, except for modest transactions to maintain orderly condi tions, it abstained from further intervention over the balance of the year. The immediate result of this withdrawal was a sharp decline in yields for intermediate and long-term Treasury bonds as the market attempted to adjust to the new policy. Relative stability was soon achieved at the lower rate levels reached toward the middle o f July. By this time, the long-term rate had moved down from 2.44 per cent in June to 2.32 per cent, and there after rates again tended to move irregularly lower in an orderly way, which required only a nominal amount o f System intervention. A t the close of the year, long-term 2M> per cent restricted Treas ury bonds o f December 19G7-72 were selling to yield 2.23 per cent as against 2.47 per cent at the close of 1948. Y ie ld s on U . S. G overnm ent Securities Fully taxable issues * Breaks in lines represent changes in issues included. Transactions in short-term G overnm ent securities Because o f declining opportunities to lend to private business and the determination of most commercial banks to maintain fully invested posi tions, a large part of the investment demand released through reductions in reserve require ments converged on the market fo r short-term Treasury obligations. The Federal Reserve Banks met this demand by large net sales and redemp tions o f Treasury bills and by net sales of certi ficates o f indebtedness and Treasury notes. FEDERAL RESERVE BANK OF NEW YORK In line with the postwar objective o f a less rigidly controlled Government security market in which open market operations could be used to adjust more completely the supply o f credit to the needs o f business, the System continued to strive for greater flexibility in short-term market rates. In the early months of 1949, a greater measure of freedom was permitted in the movement o f the Treasury bill rate in relation to the coupon rate on one-year certificates of indebtedness, with the result that the spread between the yields on those two classes o f issues narrowed slightly. However, both rates generally held within a narrow range of fluctuation over the first six months o f 1949. The open market policy adopted in June opened the way to considerably greater flexibility in oper ations. W ith the introduction o f this policy, and the expiration at almost the same time o f the special statutory authority over reserve require ments (granted in August 1948), the Federal Reserve Banks withdrew entirely from the market for a time, so that the funds released to member banks would have their full effect on the market. Treasury bill and certificate rates moved rapidly lower, effective yields on Treasury bills declining within several days from 1.16 per cent to 0.90 per cent (with some bills trading as low as 0.78 per cent), and a similar drop occurred in the yields on certificates, which went from 1.23 per cent to slightly under 1.00 per cent. These declines in rates were so sharp and sudden that sales of short term Treasury obligations were soon resumed by the System to restore order in the market for these issues, and subsequently rates moved up slightly from the low points reached in early July. In view o f these developments and the downward economic trend, the interest rate on the one-year certificate of indebtedness issued September 15, 1949 was lowered from the 1% per cent rate established a year earlier to IVs per cent. Subse quent Treasury refunding operations were also based on this new level of short-term rates. The June policy statement, which initially brought about a rate decline, also involved a more basic change in the conduct of open market opera tions, however. This took the form o f a greater flexibility with respect to purchases and sales of short-term Treasury obligations, which were now undertaken within a wider range o f rates than had heretofore prevailed; within limits, the level of rates was left more to determination o f the mar ket. Under this policy, during the latter half of 1949, effective yields on Treasury bills and cer 3 tificates of indebtedness varied in accordance with short-run changes in money market conditions. Average rates on new issues of Treasury bills moved between 0.92 and 1.12 per cent, while the yields on the longest maturities o f certificates (nine to twelve months) showed a somewhat nar rower fluctuation. A t the same time, the average rate o f discount on three-month Treasury bills ap proached more closely the market rate on one-year certificates; and generally the spread between yields on these two issues held within a narrower range than had previously existed. R epurchase agreements During the year a number o f tight money situa tions developed, adversely affecting the cost and availability o f credit to dealers fo r purchasing or carrying short-term Government obligations. In anticipation o f developments of that sort, the Federal Open Market Committee had, in 1948, re instated the authority (which had not been used here since 1933, and wThich had been terminated in 1945) of the Reserve Banks to purchase short term securities from qualified dealers, under an arrangement allowing the dealers to repurchase the securities within 15 days. The 1948 authority contemplated that the discount rate would be ap plicable to those agreements; by August 1949, however, the squeeze on the dealers had tightened because o f the decline in market rates and the issuing rates on new short-term Treasury obliga tions, unaccompanied by a change in the discount rate. The Committee accordingly permitted the Reserve Banks to make repurchase agreements with non-bank dealers at a rate not less than 1% per cent, the discount rate being V/2 per cent. Use o f this instrument contributed to the gen eral implementation of open market policy during 1949, and was particularly effective during the latter half o f the year. Statistical summary During 1949, this Bank purchased in the open market fo r the twelve Federal Reserve Banks, under the direction o f the Federal Open Market Committee, Government securities having a total face value o f $9.4 billion and sold, or redeemed, securities having a face value o f $13.8 billion. Thus, the y ea r’s transactions resulted in a de crease of $4.4 billion in System holdings o f United States Government securities. The m ajor portion o f this decline in System holdings was related to 4 PRESIDENTS REPORT TO DIRECTORS FOR 1949 the release o f $3.8 billion o f reserves to member banks through reductions in reserve requirements during the year. Total System holdings amounted to $18.9 billion at the end o f 1949, compared with $23.3 billion at the end of 1948. The holdings o f Treasury bonds declined by $3.7 billion, Treasury notes by $0.2 billion, and Treasury bills by $0.7 billion ; certifi cates of indebtedness increased by $0.2 billion. This Bank’s share in total Government securi ties held by the System Open Market Account amounted at the year end to $4.5 billion, as com pared with $5.6 billion at the end of 1948. The Federal Reserve Bank o f New York, during 1949, bought and sold for its own account, under repur chase agreements, a total o f $0.3 billion of short term Treasury obligations. 17 issues totaling $35.5 billion which matured or were called. The chief factor in expansion o f non-marketable issues was an increase in Treasury Savings Notes outstanding o f $3 billion (par value) during the year. The redemption value (which includes in terest accruals) of savings bonds outstanding in creased $1.6 billion during the y e a r; there was an increase o f $2.4 billion in Series E, F and G bonds, while $0.8 billion o f Series D savings bonds ma tured during the year. Finally, there was an in crease o f $2.2 billion in special issues o f Treasury securities held by Government corporations and trust funds. G ross D e b t of the U n ited States G overnm ent B IL L IO N S O f D O LLA R S B IL L IO N S T R E A S U R Y OCPARTM CU T D A T A O f D O LLARS FISC A L A G E N C Y O PER A TIO N S P u b lic d ebt F o r the fourth consecutive year since the con clusion o f the war, there were no cash offerings o f marketable issues o f United States Govern ment securities, with the exception of the weekly offerings o f Treasury bills. Nevertheless, as a result o f sales o f non-marketable securities and special issues, there was a net increase of $4.3 bil lion in the gross public debt in 1949, compared with decreases o f $2.5 billion in 1947 and $4.1 bil lion in 1948. There was a net decrease o f $2.4 billion in the amount o f marketable issues outstanding, reflect ing the redemption o f the unexchanged portions o f issues which matured or were called for pay ment during the year. No marketable issues, ex cept Treasury bills, were redeemed fo r cash in their entirety by the Treasury. Only certificates o f indebtedness were issued in exchange for matured or called issues until December 1949, when a 4*4 year Treasury note was offered in ex change for three bond issues and one certificate of indebtedness issue. On balance, the refunding operations and cash redemptions during the year resulted in a reduction o f $6.7 billion in bonds and increases o f $3.1 billion in certificates o f indebted ness and $1.1 billion in notes outstanding. In 1949, eight issues of certificates o f indebtedness totaling $26.5 billion, one note issue amounting to $3.5 billion, and five issues o f bonds totaling $6.7 billion matured or were called; in 1948 there were Transactions in G overnm ent securities The physical volume of transactions handled by the Bank, as fiscal agent o f the United States, dur ing 1949 in connection with the issue, exchange, transfer and redemption o f marketable securities decreased slightly from the postwar high reached last year. During 1949, such transactions involved the receipt or delivery o f approximately 2.7 mil lion pieces, compared with approximately 3.0 mil lion the previous year. The aggregate par value o f such securities amounted to approximately $221 billion in 1949 compared with approximately $264 billion in 1948. The decrease is attributable primarily to market conditions prevailing in the respective years. On the other hand, as can be seen from the table below, the total volume of work at this Bank in connection with non-marketable securities, as measured by pieces handled, was approximately FEDERAL RESERVE BANK OF NEW YORK the same as in the previous year. W hile there was an “ Opportunity D rive” to sell savings bonds in the second quarter o f 1949, the campaign was not as intense as that of the “ Security Loan D rive” in 1948. There was, however, a substantial in crease in the sale of Treasury Savings Notes. The yields on these notes had been revised upward in August 1948 and, with the decline in yields on comparable marketable issues which took place in 1949, the Treasury Savings Notes became rela tively attractive. Pieces handled 1948 1949 U . S . S av in gs B o n d s : 9 ,2 3 0 ,7 3 0 1 0 ,4 0 8 ,8 4 2 ........................................... 1 2 ,5 0 6 ,7 2 8 1 1 ,6 0 5 ,9 9 3 Reissues and correction s............. 8 5 9 ,6 4 6 8 9 2 ,5 4 5 2 9 7 ,9 5 4 8 9 ,7 6 3 9 5 ,7 5 6 8 0 ,9 2 5 2 2 ,9 9 0 ,8 1 4 2 3 ,0 7 8 ,0 6 8 Issued ................................................... Redeem ed A rm ed F orces L eave B o n d s : Issues and re d em p tio n s............... S av in gs N o te s : Issu ed , redeemed and r e is s u e d .. D o lla r v o lu m e h a n d le d (P a r or m aturity value) 1949 1948 U . S . S av in gs B o n d s : Issued .............................................. $ 1 ,4 6 6 ,6 2 1 ,4 4 0 $ 1 ,2 0 0 ,6 4 4 ,2 1 0 R e d e e m e d ...................................... 8 6 6 ,2 1 3 ,4 1 0 8 0 5 ,8 9 9 ,4 8 0 Reissues and correction s. . . . 1 7 3 ,1 3 9 ,6 1 0 2 1 2 ,2 8 3 ,9 1 0 6 3 ,9 6 6 ,0 7 5 1 9 ,3 1 7 ,2 0 0 2 ,2 5 0 ,9 4 5 ,7 0 0 3 ,9 0 7 ,4 5 8 ,6 2 5 $ 4 ,8 2 0 ,8 8 6 ,2 3 5 $ 6 ,1 4 5 ,6 0 3 ,4 2 5 A rm ed F orces L eave B o n d s : Issues and re d em p tion s.......... S av in gs N o te s : Issu ed , redeemed and reissued .................................... In 1948 a pneumatic tube system was installed for the dispatch of telegrams between the W ife Transfer Division and the Safekeeping and Gov ernment Bond Departments, because of the very large volume of telegrams received and dispatched in connection with the wire transfer o f securities. This installation proved so successful that it was decided to install a similar but larger tube system for dispatching securities between our Safekeep ing Department and the Security Custody Depart ment. W e began to use this new system on No vember 7, 1949, and it resulted immediately in increased efficiency and a more rapid and even flow o f securities between the two departments. On an average day, about 450 transactions are dispatched by this means. 5 Safekeepin g o f savings bonds During the year the Bank streamlined the pro cedures for handling savings bonds held in safe keeping for the public. The Treasury Depart ment circulars regarding savings bonds have al ways provided that if the owner o f a savings bond so desires it will be held in safekeeping without charge by the Federal Reserve Banks as fiscal agent o f the United States. When savings bonds were first issued, the number of requests to hold the bonds in safekeeping was not great and we handled these bonds in the same way that we han dled securities held in safekeeping for account of member banks. This involved the issuance o f safe keeping receipts and the maintenance o f records by the Safekeeping Department; actual custody o f the bonds was in the Security Custody Depart ment, which has jurisdiction over the vault. A c counts were maintained in accordance with the inscription on the bonds and separate receipts were issued for each bond, except that two or more bonds issued as o f the same date were covered by one receipt. W ith the great increase in savings bonds our safekeeping business increased proportionately, and we found that our unit cost of handling these bonds was quite high. Accordingly, a new system was developed. The safekeeping operation is now handled entirely by the Savings Bond Depart ment. Passbooks and account cards similar to those used by savings banks have been prepared) and deposits and withdrawals o f bonds are re corded on the passbook and account card by ma chine in the same way that savings bank deposits and withdrawals are posted. The bonds them selves are kept in filin^cabinets in a form er book vault and are filed by account number. The transi tion from the old system to the new system in volved a great deal o f work because we endeavored to communicate with all persons having bonds in safekeeping to arrange for delivery of the pass books to them. A t the close of the year there were still more than two thousand persons who had deposited bonds with us, and whom we were not able to reach. A t that time we had 32,858 accounts, in which 560,994 bonds were held. The bonds are now filed in such a way that we can readily ascertain the bonds that are maturing within a particular period, and we are now render ing the depositors an additional service by advis ing them o f the maturity o f their bonds. Salary costs under the old system were about 70^ per PRESIDENT’S REPORT TO DIRECTORS FOR 1949 6 bond bandied; under the new system such costs are now about 20^. R econstruction Finance Corporation The character of the work perform ed by this Bank, as fiscal agent o f the Reconstruction Finance Corporation, continued practically un changed. Although there has been some increase in the Corporation’s lending activities, especially during the latter part o f the year, the increase in the volume o f work, in so far as the Bank is con cerned, has not been large enough to offset the gradual decrease in the volume o f work in connec tion with the liquidation o f wartime commitments and other non-lending activities of the Corpora tion. A s a result, the personnel assigned to the R.F.C. Custody Department decreased further during the year from 34 to 22. Disbursements and collections made fo r the account o f the Corporation during 1949 were $116 million and $294 million, respectively, compared with $161 million and $253 million, respectively, during the previous year. P aym ent o f Treasury coupons The Treasury Department has until recently required us to sort by issue and denomination, before shipment to the Treasury, the coupons from United States Government securities on which we had made payment. Member banks were, therefore, requested to sort the coupons accord ingly before presenting them to us. The Treasury Department revised this procedure, effective N o vember 1, 1949, so as to require that coupons be grouped only by denomination and certain interest due dates. A s a result, lu m b e r and nonmember clearing banks were able, when sending Govern ment coupons to us for payment, to make 30 per cent fewer sorts o f coupons maturing December 15 than in the previous comparable period. D eposit o f Federal taxes Up to January 31, 1950, income taxes withheld from wages had been deposited by employers with qualified local banks, and the deposits were either credited by the banks to their W ar Loan Deposit accounts or remitted regularly to the Fed eral Reserve Banks for account o f the Treasurer of the United States. During the latter part of 1949 the Treasury revised its system for the col lection of income taxes withheld by employers from wages and included, in the revised system, the collection of social security taxes. Under the new system, wThich became applicable to wages paid on or after January 1,1950, both types of tax (known as “ Federal taxes” ) may be deposited with qualified local banks or Federal Reserve Banks and, in either case, the deposits may be car ried as deposit credits on the books o f local banks in their Treasury Tax and Loan accounts (fo r merly W ar Loan Deposit accounts). The scope and volume o f the work o f this Bank, as fiscal agent o f the United States under this re vised system, are expected to increase. Foreign Funds Control On May 31, 1949, this Bank ceased its fiscal agency function for the Office of Alien Property o f the Department of Justice in the administration of foreign funds control. SA FE K E E PIN G OF SECURITIES During the year, we introduced two types of safekeeping service which have proved o f con siderable benefit to our member banks in the State o f New Jersey. The New Jersey Banking A ct o f 1948 provides that securities pledged with the Superior Court, fo r the purpose o f qualifying banks to do a fiduci ary business in New Jersey, may be deposited with the Federal Reserve Banks. Theretofore, such se curities were required to be lodged with the Regis ter of the Prerogative Court located at Trenton, N. J., and our New Jersey member banks incurred considerable shipping expense in sending securi ties to, or receiving them from, Trenton. Consider ing it a worthwhile service, our officers, in Novem ber 1948, decided that we should accept Govern ment securities for safekeeping from our member banks located in New Jersey. A s o f the close of business December 31, 1949, we had 59 of these accounts and held Government securities with a par value of $7,837,000. A second safekeeping service was inaugurated in December 1949, to aid our member banks in New Jersey in the handling of their pledged accounts. Authority is given to the State Treasurer o f New Jersey to leave in safekeeping with either the Federal Reserve Bank of New York or o f Philadel phia those securities pledged with him as security fo r State funds. Consequently, in December 1949, this Bank began accepting United States Govern FEDERAL RESERVE BANK OF NEW YORK ment securities in bearer form deposited with the State Treasurer by any of our member banks located in the State of New Jersey. B y the close of business December 31, 17 ac counts had been opened, with a par value of $4,205,000 o f Government securities. A further service which we have offered to our member banks for several years is the acceptance fo r safekeeping of securities which are pledged by the banks as security for funds o f bankrupt estates held by our member banks under the juris diction o f the various District Courts o f the United States. Our authority for handling these accounts is provided for in Section 61 o f the Bankruptcy A ct (Chandler A ct). Previously these deposits were secured by surety bonds, the cost o f which was quite expensive to our member banks. W e had 126 o f these accounts, with Government securi ties having a par value o f $60,826,500, at the end of the year. Our member banks prefer to concentrate the safekeeping o f their portfolios with this Bank, and the extension of these services is of consider able financial value to them. It is also good bank relations. B A N K SU PERVISION AN D B A N K R E LA TIO N S System m em bership o f State banks On January 1,1949 there were 251 State member banks in this District. During the year, three State banks were admitted to membership in the Federal Reserve System, seven were taken over by other institutions, and three withdrew from member ship. Of the total number o f State banks in the District at the end of the year (exclusive of savings banks, private bankers, and industrial banks), there were 244 members and 116 nonmem bers. There were no applications for membership pending on December 31, 1949. Most eligible non member banks based their objections to member ship specifically on the financial cost involved. They estimated that, as members, they would reduce their earnings approximately $1,000 per annum per $1,000,000 o f deposits, chiefly by the exclusion as reserves o f both vault cash and bal ances maintained with correspondent banks. The three withdrawals from membership were fo r other reasons, however. These banks desired to operate out-of-town branches with less than the 7 minimum capital required of member banks. They had sufficient capital stock, however, to meet the minimum capital requirements o f New York State and, therefore, withdrew from the System in order to open out-of-town branches. Two of the banks stated they withdrew reluctantly from the Federal Reserve System and assured us they would return to membership as soon as the Federal law was amended to bring minimum capital requirements for establishment o f out-of-town branches more nearly in line with State law. Except for the Fed eral requirement, each o f these banks, in our opinion, had adequate capital in relation to aggre gate deposit liabilities and other corporate responsibilities to merit our approval o f out-oftown branches. In two other cases, member banks contemplating mergers and the establishment o f out-of-town branches will be unable to meet present capital re quirements under Federal law ; if these mergers take place we may therefore expect further with drawals from membership unless there is an inter vening change in the law, easing those require ments. W e have long felt that the capital requirements of the Federal law fo r establishment of out-oftown branches are unnecessarily high and should be reduced to more reasonable and realistic pro portions. W ith System approval, bills have been introduced in Congress to effect such a reduction on several occasions during the past few years, but they have not been acted upon. W e have brought these developments in this District to the attention of the Board o f Governors to reempha size the need for such legislation. Classification o f uninvested trust funds In December, the Board o f Governors issued a ruling which represented the successful culmina tion of more than a yea r’s effort on the part of the Bank’s counsel and Trust Examiner. The rul ing confirms the practice o f several o f the larger member banks in New Y'ork State under which uninvested trust funds, consisting of the com mingled funds of various trust estates, are de posited by the trust departments of the banks in their own banking departments as time deposits for purposes of the B oard ’s Regulation D, relating to reserves o f member banks, and Regulation Q, relating to the payment o f interest on deposits. PRESIDENT’S REPORT TO DIRECTORS FOR 1949 8 The practice had been established many years ago with this Bank’s approval. As a result o f some publicity given to* the adoption of the practice by one o f the New Y ork banks in the spring o f 1948, and numerous inquiries from banks in various sec tions o f the country, the Board made a preliminary review o f the legal aspects o f the practice. Upon submission o f the matter by the Board to the Federal Reserve Banks for their views, a majority o f them disapproved of the practice. The Board thereupon submitted to the Federal Reserve Banks a proposed amendment to its Regulation D, the effect o f which would have been to eliminate the practice. A fter further efforts by this Bank’s counsel and Trust Examiner, including the presen tation o f argument before a member o f the Board and nine members of its staff in August 19-49, the Board issued a ruling which authorizes the deposit o f trust department funds as time deposits in the commercial department o f a bank without identifi cation o f the amount of the funds o f each trust included in such deposits, when the practice is not inconsistent with the terms o f any applicable law or court order. The ruling is important to the member banks doing a trust business, particularly to those with a substantial volume, since, to the extent that the classification o f deposits o f uninvested trust funds as time deposits enables the banks to carry lower reserves, earning assets are increased, and the trust departments o f many institutions are able to show an operating profit when they otherwise might show a loss. function, and generally one other officer o f the Bank, were invited to this luncheon. The luncheon was followed by a discussion of current economic conditions under the leadership of a senior econo mist of our Research Department, and, following this discussion, Mr. Clarke, Assistant Counsel, spoke about some o f the legal aspects o f the de ferred posting technique, which was then a matter o f current interest. In the fall, we substituted a talk on Federal Reserve services by Mr. Rounds for the latter part o f the program. During the year, bankers from 112 banks in 11 counties attended these meetings. A ll expressed enthusiasm fo r the program. 2. Salary survey. During the first half o f the year, our Bank Relations representatives distrib uted salary questionnaires, devised by the Bank Relations Department in cooperation with the Research Department, to the member banks out side of New York and the larger industrial cities. About 74 per cent o f those banks returned com pleted questionnaires, the percentage o f return be ing higher for the smaller banks. Our Research Department collated the returns by size o f insti tution responding. The summary of this material was mailed in October to a senior officer o f each member bank in the District, whether his bank had participated or not, thus enabling the bank to compare the salaries it pays with those paid by banks of similar size. This survey was perhaps more comprehensive than any similar survey made in recent years and member bankers generally have been pleased with this undertaking on our part. Bank relations activities 3. Check operations survey. F or many years our Check Department has sent a member o f its staff to visit those banks indicating a desire to forward checks to us fo r collection. These visits are especially useful in explaining our check sort 1. Group meetings. Beginning in A pril we held ing requirements, which are based on the volume small group meetings with member bankers ap of checks sent to us. This service gradually broad proximately twice a month. The meetings were ened in scope, as the Check Department represen arranged through the various county bankers or tative, John J. Knox, was able in many banks to ganizations, with each limited to 12 or 15 bankers, make suggestions not only with respect to sorting, no more than one from a bank. Those who wished but to improving the bank’ s check operations gen to see our operations were conducted on a morning erally. Early in the spring, we began offering the tour o f the Bank by the staff member who regu services o f this representative to member banks larly visits them. Luncheon was then served to whether they wished to send checks to us or not, the group in the Bank. An officer of the Cash and telling them that we had a man thoroughly experi Collections function, an officer from the Loans and enced in check operations o f country banks, whose Credits or Government Bond and Safekeeping services we would gladly make available fo r the A number of new practices were developed in the Bank Relations Department during 1949 to improve our relationships with member banks. Am ong the m ajor innovations were: F E D E R A L R E SE R V E B A N K O F NEW Y O R K purpose of offering some helpful suggestions. W e were able to be helpful to most of the banks visited, and early in the fall we began to offer his services more widely. A fter each visit, he rendered a re port to the bank visited, summarizing his sug gestions. A t the year end, this program was accelerated and our representative was visiting three to five banks a week. Out o f this experience grew a proposal, which the Board o f Directors approved last fall, to en gage the services of a top-flight management con sultant to assist us in establishing, if possible, basic check operation standards and procedures for banks of varied size. W e have since discussed the project with committees of both the New York and New Jersey State bankers associations, have engaged a consultant, and are about to get under way with our preliminary field work. 4. Credit file installations. E arly in the fall we intensified our efforts to install the model Farm Credit File in member banks. The file con sists o f a special folder containing forms for credit statements, live stock appraisals, machinery and equipment inventories, and similar purposes. We found that there was a real need fo r this file as well as for credit files in connection with other types of loans. In the past few months, Mr. Johnston o f our Credit Department has made Farm Credit File installations in eight banks, spending approximately a week at each. Numerous other banks requested this service after the first of the year. In the meantime, we have been follow ing closely the efforts of the New York State Bankers Association to develop a simplified com mercial file comparable with the Farm Credit File and have indicated our willingness to furnish the file and its inserts at cost. 5. Distribution o f National Summary of Busi ness Conditions. About mid-year, we began offer ing to member banks the “ National Summary o f Business Conditions” prepared by the Board o f Governors, a reprint of which is included each month in our Monthly Review. W e felt that this concise summary would be o f interest to many businessmen and, therefore, suggested to our member banks that they might distribute reprints of it to a selected number of their customers. Our initial mailing o f the reprint was made in Septem ber, when we sent approximately 2,500 copies to 39 banks. By the beginning of 1950 we were send 9 ing about 15,000 reprints to more than 300 banks, and we expect further increases. 6. New visiting techniques. During the course o f the year, we developed a number o f new tech niques in connection with our periodic visits to all banks in the District. Am ong these a r e : (a) Display o f counterfeit notes: Each o f our representatives carried with him samples o f counterfeit notes furnished by the United States Secret Service. These counterfeits were samples of those most prevalent in our District during the year. W e made it a point to display them to the tellers in all o f the banks visited, and upon re quest, we also displayed them to Chambers of Commerce and merchant groups at meetings sponsored by member banks. (b) Display o f pictures: During the last half o f the year, each o f our representatives carried with him a portfolio of photographs o f our check operations. These pictures illustrate the manner in which the commercial banks’ operations tie in with ours and show the use to which we and other collecting banks put the Check Routing Symbol. These pictures created considerable interest and enabled our representatives to make the acquaint ance of the operating people in the check depart ments o f the banks visited. In 1950, we expect to display similar pictures o f our cash operations. (c) Instruction in the use of the Check Rout ing Sym bol: In the latter months o f the year, our representatives made a special effort to instruct the transit clerks o f member banks in the use of the Check Routing Symbol. Some banks told us that use of the symbol speeds up the sorting o f checks by as much as 25 per cent. W e are now de veloping, for distribution early in 1950, sample chart material which will be an important visual aid to the use o f the symbol in smaller banks. PU BLIC IN F O R M A T IO N A C T IV IT IE S Following study during 1949 by the directors and officers o f the need for expanding our work in the field of public information, the Bank estab lished in the Secretary’s Office the post o f Director o f Public Information as o f January 1, 1950, and engaged for that job Thomas O. Waage, formerly associate financial editor of The Journal o f Com merce. 10 PRESIDENT’S REPORT TO DIRECTORS FOR 1949 C H ECK C O LLE CTIO N The volume of checks collected by this Bank has been increasing from year to year. In 1949 we handled approximately 332 million checks, com pared with slightly more than 320 million in 1948 and 290 million in 1947. Despite this continued ex pansion in volume, we have made marked progress in providing improved services to our member banks and in effecting operating economies. In the 1946 report, it was stated that the use o f I. B. M. punch-card and tabulating equipment in the pre paration o f cash letters had not worked to the satisfaction o f either this Bank or the member banks and, therefore, that its use was being discon tinued. The conversion of equipment used in pro cessing checks, and the accompanying revision o f the procedures, advanced steadily throughout 1948 and was completed in May 1949. The com pletion o f our conversion program and the trans fer o f practically all check handling operations to one floor have increased the efficiency of the Check Department staff and made it possible to reduce the number of employees assigned to that department from 928 at the end o f 1948 to 734 at the end o f 1949. The cash letters now prepared by the Check Department meet the desires o f our member banks. Federal Reserve Bank and Branch cities. A s a consequence, the maximum period of deferment o f credit for checks drawn on banks in other Federal Reserve Bank and Branch cities is now two days. Our use o f air transportation facilities in the collection of checks has increased proportionately with the greater volume o f check collections. Con solidated shipments, consisting o f our own cash letters and those of 34 direct-sending banks, reached a new peak on November 15, 1949, when 3,637 pounds, or approximately 1,200,000 checks, were shipped by air. The special shipping container (commonly re ferred to as a “ crash b ag” ), developed in 1946 and since used by this Bank and other Reserve Banks to protect checks in air transit against the impact o f a plane crash and any resultant fire, was sub jected to a severe test when an American Airlines plane crashed and burned at Dallas, Texas, November 29, 1949. This plane carried two such bags, one containing 6,232 checks dispatched by this Bank to the Federal Reserve Bank o f Dallas, and another containing 1,012 checks enroute to the El Paso Branch o f the Federal Reserve Bank o f Dallas. The larger Dallas shipment sustained the greater damage, and it was returned to us at our request. Examination showed that thirteen of the twenty-three packages o f checks (including the rubber bands securing them) making up this ship ment had been damaged only slightly and that about 3,800 or 61 per cent o f the items were legible. The bag addressed to the E l Paso Branch was reforwarded from Dallas and that Branch found the condition o f all but 39 checks to be such that they could be processed in the usual manner. Change in sorting requirem ents A ir transportation Because o f the consistent performance o f air transportation in making faster collection of checks possible, we revised our Head Office time schedule on July 1, 1949 to provide earlier availa bility o f credit for cash items payable in thirteen W e revised our check sorting requirements on September 1, 1949 to permit any member or nonmeml>er clearing bank which deposits with us a daily average o f not more than 250 cash items to forward the items unsorted in one cash letter for credit on the day after receipt. Prior to that time these small deposits required at least one sort. B y the end o f the year, 10 banks in the Head Office territory had applied for and received per mission to deposit their cash items with us unsorted. C ounty clearing arrangements County clearing arrangements, which enable participating member banks to mail checks direct FEDERAL RESERVE BANK OF NEW YORK to each other for settlement on our books the next business day, were further expanded during 1949. Two new county clearing arrangements were formed during the year and two were sub stantially enlarged. A s o f December 31, 1949, there were 275 participant banks in 18 arrange ments covering 25 counties. C heck R outing Sym bol program The Check Routing Symbol program sponsored by the American Bankers Association and the Federal Reserve Banks continued to make pro gress during the past year. A nation-wide survey in December of checks in circulation throughout the country, drawn on par remitting banks, re vealed that 67 per cent o f such checks bore the symbol in the approved location— the upper right hand or “ northeast” corner. This was an increase o f 9 per cent fo r the year. The Second Federal Reserve District again held the lead with 80 per cent, although all districts advanced over the year with the exception of the Ninth Federal Reserve District (Minneapolis), which fell back 1 per cent. As an aid to the promotion of the pro gram in the several Federal Reserve districts, an “ Outline o f Suggested Procedures for Promoting Check Routing Symbol P lan” was prepared under the auspices o f the System’s Committee on Col lections and made available to the President of each Reserve Bank. The jjrogram was further ad vanced by the dispatch o f a letter from the Am eri can Bankers Association over the signature o f its president to all of its members, asserting the wholehearted support of that Association in the program and urging the full cooperation of banks in bringing it to completion. Early in 1950, the last serious opposition to the program collapsed, when one o f the country’s largest suppliers of checks (which had previously resisted placing the symbol in the approved position on the checks it supplied) agreed to conform to the program. D eferred posting legislation In 1948 it was reported that in the fall of that year a Special Committee of Counsel, appointed by the Committee on Operations o f the Presidents Conference, of which Mr. Logan, Vice President and General Counsel o f the Bank, was chairman, participated with counsel fo r the American Bankers Association in the preparation of a model deferred posting statute which was accepted by the Board o f Governors and which the American 11 Bankers Association then transmitted to the State bankers association in each State with the re quest that it be submitted to the State legislature. This statute was enacted without change by the New Jersey and Connecticut legislatures and was also enacted, with minor changes in some cases, by 32 other State legislatures holding sessions in 1949. The Legislative Committee o f the New York State Bankers Association took no action prior to the 1949 session of the New York legis lature. During 1949, counsel for this Bank had considerable correspondence and a number of discussions with members o f the Legislative Com mittee and interested bankers and bank lawyers. A group o f bank lawyers and bank operating officers prepared a draft of a deferred posting statute consistent with the objectives o f the A.B.A. model statute but covering additional matter not included in the model statute. Counsel for this Bank also participated in a number of discussions relating to this draft and made suggestions re garding it. This draft, in the form which our counsel considers satisfactory, was approved by the Legislative Committee. The bill has been passed by both houses of the 1950 State legislature, and is now awaiting action by the governor. CASH O PER A TIO N S C ounterfeits The increase in counterfeits noted during the year 1948 continued during 1949. Whereas the 1948 influx consisted largely of counterfeit notes in the $10 and $20 denominations o f the Federal Reserve Bank of Chicago, the past year has seen a wide circulation of counterfeit Federal Reserve Bank of New York notes in the same two denomi nations. During 1949, 2,750 counterfeits in the amount o f $39,005 were detected by our currency counters. Both in number and amount this repre sented more than double the totals discovered in our work during 1948. W e sent a letter to all banks in this District in September, with the approval o f the United States Secret Service, giv ing a complete description of the two counterfeit notes o f this Bank, and took other measures (de scribed elsewhere in this report) to bring these notes to the attention of the banks. During the latter part o f the year there was a marked decline in the number of counterfeits appearing in the deposits we received. P R E SID E N T’ S R E P O R T T O D IR E C T O R S F O R 1949 12 A rm ored car service Our program fo r transporting currency and coin by armored car at our expense to and from sub urban member banks and branches has been in operation two years. The banks, without exception, have been pleased with this service primarily be cause it has eliminated the risk to their employees in transporting money shipments to and from an express office or post office, and also because in most cases it has eliminated the loss o f reserve account credit for the additional day or days such shipments were form erly in transit through post office or express channels. W e are now operating 9 different routes which serve 317 banking offices o f member banks located within a radius o f ap proximately 25 miles, an increase of one route and 37 banks over a year ago. The cost o f this service to us is approximately $115,000 less per year than it would have been if we had continued to absorb the expense o f shipping currency and coin to and from these same banks by mail or express. Special coin and cu rren cy arrangements During the past year several arrangements have been instituted which have reduced our expense in handling coin and currency shipments to and from us and facilitated to some extent the flow o f money between us and our member banks. One such arrangement developed as an outgrowth o f the extension o f our armored car service to banks in Newark, New Jersey. B y agreement with several Newark banks, the sizable amount o f sur plus coin that we would regularly receive from the Fidelity Union Trust Company o f Newark is paid out directly to the other banks in that city. The Syracuse Trust Company, Syracuse, New York, also consistently accumulates an excess supply o f coin. W e therefore inaugurated an arrangement in March whereby The Syracuse Trust Company makes direct shipments o f coin to other banks in the district on our order. A similar arrangement was put into effect in June with the State Bank o f Albany, Albany, New York. In July, a currency interchange arrangement was developed with banks in Binghamton, Johnson City, and Endicott, whereby the currency require ments o f the smaller banks are supplied by the larger banks in those communities through ar mored car facilities at our expense. All o f these arrangements have been well received by the banks affected and have resulted in an estimated annual saving to us of approximately $18,000. FO RE IG N O P E R A TIO N S Assets h eld fo r foreign and international account During 1949 the total of earmarked gold, deposits, United States Government securities, and other assets held at the Federal Reserve Bank o f New Y ork fo r both foreign and inter national account (International Bank and Inter national Monetary Fund) rose to over $8 billion, or close to the previous peak reached in February 1947. Although gold and dollar assets held here fo r the International Bank and Fund declined $81 million net to $3,073 million, assets held for foreign account increased by $702 million net to $4,956 million, continuing the upward trend which has been in evidence since the latter part o f 1947, as may be seen in the accompanying chart. A s the table below indicates, the net increase in foreign assets, while distributed among all types, was largely in the form of earmarked gold. The accounts showing the greatest net increases in total assets were those o f the central banks o f the United Kingdom, Italy, Belgium, Argen tina, and Switzerland. Few foreign accounts showed any reduction in assets, the greatest re ductions being in those o f Portugal, Poland, Yugoslavia, China, and France. T o ta l G o ld and D o lla r A sse ts H e ld at the F ederal R eserve B ank o f N e w Y o r k for F oreign A cco u n ts and for International F u n d and B ank B IL L IO N S OF D O L L A R S B IL L IO N S o r D O LLARS 1939 *40 10 *41 *42 V3 *44 *45 *46 *47 *48 *49 F E D E R A L R E SE R V E B A N K O F N E W Y O R K 13 Total Assets H eld at Federal Reserve Bank o f New Y ork fo r Foreign and Certain International Accounts ( I n m illions) E nd of 1948 End o f 1949 Net Change in 1949 $2,969 (a) 642 593 $3,451(b) 766 669 +$482 + 124 + 76 50 70 $4,254 $4,956 +$702 $ 809 296 1,604(c) 445(d) $ 822 317 1,454 (c) 480(d) + $ 13 + 21 — 150 + 35 $3,154 $3,073 — $ 81 $7,408 $8,029 +$621 Foreign Accounts Earmarked g o l d ...................................................... D e p o s its .................................................................... United States Government securities.................. Miscellaneous securities, commercial paper, and bankers’ acceptances ........................................ Total— Foreign Accounts ............................ + 20 International Accounts (International Fund and Bank) Earmarked g o l d ...................................................... D ep osits .................................................................... United States Government securities.................. Miscellaneous secu rities........................................ Total— International A ccou n ts.................... G rand T o ta l ........................................................... (a ) Includes $8,020,000 held as collateral to loans made by domestic commercial banks to Bolivia and Nicaragua and $197,074,000 held as collateral to foreign loans on gold made by Federal Reserve Banks. (b ) Includes $38,169,000 held as collateral to loans made by domestic commercial banks to Bolivia, France and Nicaragua and $75,477,000 held as collateral to foreign loans on gold made by Federal Reserve Banks. (c ) Includes non-interest-bearing non-negotiable demand notes as follows: 1948— $1,176,000,000 1949— $1,008,000,000 (d ) Does not include bonds having face value o f 17,000,000 Swiss francs and 45,355,000 Belgian francs. Change in status o f foreign accounts In March 1949, this Bank, as principal, and as agent for the other Federal Reserve Banks, opened an account for the newly organized Cen tral Bank of the Philippines. A regular account was also opened for the National Bank of Egypt on January 11,1950, and for Caisse Centrale de la France d ’Outre-Mer on January 18, 1950. This Bank, as fiscal agent of the United States, had maintained an account for Caisse Centrale since July 1944; when its regular account was opened, the fiscal agency account was closed. A s to in ternational accounts, a fiscal agency account was opened in March 1949 for the W orld Health Organization, an agency of the United Nations. The wartime account of the Government of Yugoslavia was formally closed in November 1949. W e continue, however, to maintain an ac count for Yugoslavia’s central bank. There has been no change in the dormant status o f the ac counts on our books for the central banks of Hungary, Bulgaria, and Rumania. During 1949 counsel collaborated with the Foreign Department in conducting extended ne gotiations with the State Department for the cer tification, pursuant to section 25(b) of the Fed eral Reserve Act, of the authority of officials of the Central Bank o f China to operate its accounts on the books of this Bank; these negotiations re sulted in the issuance of a certification in Decem PRESIDENT’S REPORT TO DIRECTORS FOR 1949 14 ber. The matter was somewhat complicated by the transfer o f the head office o f the Central Bank of China, first from Shanghai to Canton, and then to Chungking. Immediately following the issuance o f the certification, negotiations were opened with the State Department to obtain a further certifica tion of the account by reason of the removal o f the head office of the Central Bank of China to Taipeh, Form osa, and the cancellation o f the authority of form er signing officers and the appointment o f new ones. Contemporaneously with the transfer of sov ereignty over Indonesia from the Kingdom of the Netherlands to the Republic o f the United States of Indonesia in December 1949, the power of attorney (granted in 1942) in favor of the Nether la n d s Ambassador to the United States to operate the account on the books of this Bank in the name of De Javasche Bank was revoked. This compelled us to request the Secretary o f State to certify, pursuant to section 25(b) of the Federal Reserve Act, the authority of officials o f De Javasche Bank to operate its account on the books o f this Bank. Th requisite documentation and certification from the Secretary of State are expected shortly; the officials o f De Javasche Bank will then be able to operate the account directly. Loans on gold During 1949 there was a decline in the demand fo r loans on gold by foreign central banks. The total o f such loans outstanding, which had risen to a record high o f $259.7 million in August 1948, had receded by the end of 1949 to $69.5 million. In all, 57 advances (including renewals) were made in 1949 and interest earned on these loans amounted to $1.7 million, as compared with $2.5 million in 1948 and $620 thousand in 1947. A t the close o f 1948 loans aggregating $190.1 million were outstanding to the central banks of Poland, France, the Netherlands, Yugoslavia, and Brazil. The loan to Poland, in accordance with the program o f repayment calling for gradual liquidation, was reduced from $14.1 mil lion to $2.5 million during the year and to $500 thousand by the end o f January 1950; the remain ing $500 thousand was paid in February. Simi larly the loan to France, which reached a maximum o f $100 million in February 1948, now amounts to $30 million and, under the present plan, final liquidation is scheduled for August 1950. Liqui dation of our loan to France has been aided, in considerable measure, by funds advanced to the French government under a $75 million loan agreement concluded last year with a group of New York commercial banks; advances under this agreement are secured by gold held at this Bank for the New York banks. The loan to the Nether lands, amounting to $10 million, was repaid in full during the first week o f January 1949. The loan to Brazil, the proceeds of which had been used to repay that country’s obligation under the United States-Brazil Stabilization Agree ment, was liquidated in June in accordance with the original fixed schedule o f repayments. The loan to Yugoslavia was also repaid in full. During the year we made five separate loans aggregating $13.6 million to E cuador’s central bank; three o f these loans in the amount of $8.5 million were still outstanding at the year-end. Loans up to $40 million were also authorized for Turkey’s central bank; up to the year-end $35 million had been advanced under this arrange ment, o f which $13.5 million was outstanding. In May 1949 the arrangement originally made with the Bank for International Settlements in November 1948 for advances up to $5 million was extended for another six months to November 1949; at that time it expired without having been used. During the year somewhat similar agree ments were also in effect with the central banks o f Costa Rica and the Netherlands East Indies, but these arrangements also expired without hav ing been used. In November we agreed in prin ciple to make $15 million available under gener ally similar conditions to Australia’s central bank, but were subsequently informed that the bank did not expect to have need for these fa cilities in the immediate future and no drawings have so far been made. Shortly before the end of the year we made a new arrangement with Costa R ica’s central bank to lend approximately $2 mil lion for seasonal requirements; however, no part o f this facility has as yet been used. Our policy with respect to loans on gold re mains unchanged, i.e., short-term loans to foreign central banks to take care of temporary (usually seasonal) dollar deficiencies. Because it did not fall into this category, we declined to make a loan o f $7 million requested by the Central Bank o f China in May 1949. The following schedule summarizes our experi ence with respect to all loans against gold which were outstanding at any time during 1949: FEDERAL RESERVE BANK OF NEW YORK (Am ounts in millions o f dollars) C en tr a l B an k o f P oland ........... F ra n ce ............ N eth erlands .. B razil ............. Y u g o s la v ia .... E cu a d or ......... T u rk e y ........... O u ts ta n d - M a x im u m O u ts ta n d in g D a te o f in g en d o f 1948 o u ts ta n d in g 1 9 4 9 end o f 1949 fin a l rep a ym en t D a te o f fir s t a d v a n c e A p ril Dec. A pril June A ug. M arch June 1947 1947 1948 1948 1948 1949* 1949 14.1 100.0 10.0 60.0 6.0 —• — 14.1 2.5 — 100.0 45.0 — 10.0 — Jan. 1949 60.0 — J u n e 1949 6.0 — F eb. 1949 8.5 8.5 (3 a d v a n ces ) — 18.5 13.5 — 190.1 69.5 * D ate o f first o f five separate advances Gold, m ovem ents The net purchases of foreign-owned gold by the United States during 1949 amounted to less than $200 million, as compared with about $1.5 billion in 1948 and $2.8 billion in 1947. The net gain during 1949 reflected purchases by the Treasury o f $728 million o f foreign-owned gold, offset in part by sales o f $541 million of gold by the Treasury to foreign central banks. The largest foreign sellers of gold were the United Kingdom and South A frica, while purchases were primarily fo r account of Italy, Switzerland, Argentina, Venezuela, Belgium, and Thailand. The total volume o f all gold transactions handled during the year continued the decline which began after attaining the record peak of 1947; it continued, however, to be sizable, notably in the case o f the purchases of foreign-owned gold. In addition to the gold transactions effected during 1949, we also handled many details in connection with the coinage and shipment of silver and nickel coins, which were manufactured at United States mints for Venezuela and China. A total of 32.5 million pieces was consigned in four shipments to Caracas from San Francisco, and 30 million pieces were consigned in eight ship ments to Hong K ong from Los Angeles, San Francisco, and Philadelphia. Visits to foreign central banks In the summer of 1949, Mr. Knoke, Vice Presi dent in charge o f the Foreign function, visited the central banks o f Austria, Belgium, France, the Western Zones of Germany, Italy, the Nether lands, Switzerland and the United Kingdom, and the Bank fo r International Settlements. During part o f this trip, Mr. Knoke was accompanied by Mr. Wallich, Chief of the Foreign Research Division o f the Research Department, and on the remainder by Mr. K riz o f the same division. The 15 purpose of these visits was to renew or establish personal contacts with the officials of the central banks and, at the same time, to obtain first-hand information on economic conditions and problems in the countries visited. Mr. Sanford, Assistant Vice President in the Foreign function, and Mr. Moore, Manager of the Research Department, attended the Second Conference of Experts o f the Central Banks o f the American Continent held in Santiago, Chile, De cember 2-15, 1949. En route to and from the con ference, they made brief visits to the central banks of Argentina, Brazil, Peru, and Uruguay. Mr. Davis, Assistant Vice President in the Foreign function, in the course of a special mis sion to Tokyo on behalf o f the Department o f the Army, called on the Governor o f the Bank of Japan and met other members of that bank’s staff. He later visited Manila, where he studied the operations o f the Central Bank of the Philip pines and the local econom y; on his return trip to the United States, he also visited the Bank of Thailand, the State Bank o f Pakistan, and the National Bank o f Belgium. Foreign central bank visitors During 1949 there was a marked increase in the number o f representatives o f foreign central banks who visited at this Bank in order to ob serve and study our methods and operations. Such visitors came from the central banks o f Bolivia, Colombia, Finland, France, India, Italy, New Zealand, Norway, Pakistan, Turkey, and the United Kingdom, and also from the central banks which are now being organized in Cuba and Korea. In addition to these visitors, we received the senior officials o f a number of central banks, in cluding the Governors (or Presidents) of the central banks of Belgium, Canada, Denmark, Greece, India, Iran, Italy, Mexico, New Zealand, Norway, Poland, Sweden, Switzerland, the United Kingdom, Venezuela, and Western Germany. Staff G roup on Foreign Interests The Staff Group on Foreign Interests, includ ing representatives o f the Foreign, Legal and Research functions o f this Bank and of the Board of Governors, held further meetings during 1949 dealing with such questions as the financing of B razil’s current needs (including a possible gold loan), United States gold policy, the price of gold, 16 PRESIDENTS REPORT TO DIRECTORS FOR 1949 stabilization credits by Federal Reserve Banks, and proposals for a European monetary au thority. The Group also, at meetings and by means of telephone conversations and correspond ence, considered current questions dealing with System foreign missions. LO AN S A N D CRED ITS The volume o f advances made to member banks decreased, and fewer banks made use o f our credit facilities during 1949, as compared with the preceding year. Average daily advances out standing, however, showed a substantial increase over 1948, principally by reason o f large tempor ary borrowings by the New Y ork City member banks. A total of 2,257 advances, aggregating ap proximately $12.6 billion, were made to 308 mem ber banks, all secured by obligations o f the United States, compared with 2,715 advances o f some $7.8 billion to 354 banks in 1948. Daily average borrowings last year were $58.2 million against $45.4 million the previous year. Outstanding ad vances in 1949 ranged from $1.4 million on December 30, a new low since June 30, 1943, to a high o f $438.3 million on May 18. This peak com pares with a high in 1948 of $493.1 million re corded on December 23 o f that year. As in the previous year, the 1949 peak borrowings lasted for only one day and resulted largely from the borrowings of the New Y ork City banks fo r the purpose of adjusting their reserve positions, which were under considerable temporary strain as the result o f Treasury withdrawals and other money market influences. Outstanding borrowings o f member banks outside o f New York City reached a high of $52.5 million last year, com pared with $38.3 million in 1948. No applications were received during 1949 for industrial loans or commitments under section 13b o f the Federal Reserve Act. C onsum er instalment credit The authority under which the Board of Governors o f the Federal Reserve System issued Regulation W expired June 30, 1949. The regu lation, made effective September 20, 1948, was directed at controlling certain classes of con sumer instalment credit in the principal amount o f $5,000 or less. The permissible maximum ma turities prescribed b y the regulation fo r all extensions o f consumer instalment credit and the minimum down payment requirements on all articles subject to the regulation, except auto mobiles, were eased on two occasions through amendments adopted by the Board o f Governors and made effective March 7, and A pril 27, 1949. Total registration with this Bank of those busi nesses covered by the regulation amounted to 14,779 as o f June 30, 1949. During the period of enforcement, a total o f 4,635 investigations were made by our Head Office and Buffalo Branch o f all classes o f registrants. Investigation o f registrants was well ahead of the original goal of 25 per cent coverage. On the whole, compliance by registrants in the District was satisfactory. R E SE A R C H A C T IV IT IE S The changes in business trends which took place in 1949 required more than the usual amount o f attention by our Research Department to the over all economic situation and prospects and to prob lems concerned with the determination of appro priate monetary policies. The research staff was also particularly concerned during the past year with problems relating to the devaluation o f the pound sterling and some 30 other foreign cur rencies. Research officers and staff participated in the preparations made for the visit to this Bank of 11 professors of money and banking from the Minneapolis District (under a scholarship pro gram instituted by the Minneapolis Reserve Bank) and took part in conferences with the group dur ing its two-day visit. They participated in a similar conference with a group o f professors of money and banking, who attended the December convention in New Y ork o f the American Finance Association. D om estic studies and publications The Vice President of the Research function and members o f the staff participated in the prepara tion o f joint replies by the 12 Federal Reserve Bank Presidents to a questionnaire on money, credit, and fiscal policies, which was sent to each Federal Reserve Bank President by a special Sub committee o f the Joint Congressional Committee on the Economic Report. Our Research Depart ment undertook editorial responsibility for the entire project. A number o f special studies o f the United States monetary and banking system was made by wav o f preparation fo r the more FEDERAL RESERVE BANK OF NEW YORK comprehensive work along these lines which will be called for if recent proposals fo r a National Monetary Commission or similar body are adopted. In addition to several independent studies of the national business outlook, the domestic re search staff cooperated with the Bank Relations Department in the preparation of quarterly re ports and in the formulation o f replies to several special questionnaires o f the Board of Governors concerning business conditions in the Second District. Considerable work was also done in the fields of national income and savings, Treasury finance, consumer credit, and business finance. In antici pation of a revision in the B oard ’s index of in dustrial production, several memoranda were prepared on problems relating to the purpose and the construction o f indexes o f industrial produc tion. A s the results o f the Census of Manufactures became available, tabulations of Second District data were undertaken and analytical studies of changes since the last (prew ar) Census were initiated. Estimates o f Second District income were refined further and an attempt was made to develop quarterly estimates of savings in our District. In the field o f department store statistics, two new reports were added during the year. During the year, research staff members made a number of appearances before college classes and seminars. Although not a part o f the Bank’s official organization, a seminar of our own research staff was held at irregular intervals (once or twice a month) to discuss current economic prob lems ; at each meeting, some well-known economist or banker gave a talk on a designated topic. Among the special jobs carried out during the year at the request of the Board o f Governors w ere: (1) a sample survey of single-pavment loans to individuals by member banks in this District, fo r the purpose o f determining whether the pres ent classification o f such loans as consumer credit is justified; (2) a compilation of the balance sheet figures of J. P. Morgan & Co. and Brown Bros. Harriman & Co. for the years 1863-1928, and 18981927, respectively, in order to make possible the inclusion of private banking firms in the compila tion of a national series o f back data fo r “ All Banks’ Assets and Liabilities.” Special statistical charts drawn during the year totaled 119, some of these accompanying the var ious special research studies completed during the year, and others being furnished for officers 17 and for other departments. Sets o f charts (10 each) showing loans, investments, and deposits by geographic areas within this District were sent to those banks which report asset and liability items monthly. Sixteen charts were drawn at the request of the E C A fo r the use o f the AngloAmerican Council on Productivity. In conjunction with the annual compilation of member bank operating ratios in the Second Dis trict, a special study was undertaken to measure the effect upon 1948 net profits of the charges arising out of setting up reserves fo r bad debt losses on loans, as permitted by a Treasury ruling in December 1947. A few o f the research papers which were pre pared on domestic topics during 1949 are listed below : Population in the Second Federal Reserve District, 1940-48 Individual Trust Funds Recent Changes in Personal Savings W eekly Analysis o f Gains and Losses in Member Bank Reserve Funds. Second Federal Reserve D istrict (a technical description) A n Analysis o f Movements o f Federal Reserve Float Business Lending Practices o f L ife Insurance Companies Causes o f the Liquidation o f Bank Loans, 1929-35 The Excess Profits T ax and Various Alternatives Structure and Growth o f Income Payments in the Second Federal Reserve District, 1919-48 Disposable Income and the Analysis o f Consumer Behavior. F oreign and international studies and publications In the foreign and international field, our re search staff was predominantly concerned in 1949 with foreign exchange problems (rates, controls, and reserves of foreign countries), with the col lection and analysis of data on international capital movements and the United States balance of payments in general, and with the international financial problems and policies o f the United States. Much attention was devoted to various aspects o f the sterling question— notably the British balance-of-payments position; the case for and against, and (later) the repercussions of, the devaluation o f the pound sterling; and the special problem of the blocked sterling balances. During the summer, the staff assisted a team of United States Treasury investigators in a survey o f the comparability o f British and American prices for types o f goods imported from the United Kingdom and o f the potential effect of European currency devaluations on the foreign purchases o f New P R E SID E N T ’S R E P O R T T O D IR E C T O R S F O R 1949 York retail establishments. Assistance was also given to the British-American Productivity Coun cil in organizing and presenting material on pro ductivity changes in selected American industries, for use in the guidance o f similar British indus tries. Follow ing the currency devaluations of September, a survey involving periodic interviews with some 40 large exporters was begun in order to appraise the effects of the devaluations upon American exports. Another field which required much o f the Research Department’s attention dur ing the year was the progress o f the European Recovery Program. Studies were made, in partic ular, of the intra-European payments plan, the activities o f the OEEC, and the counterpart funds. Other subjects o f special study during the year included the position o f gold, the ITO program, the outlook for various commodities, “ Point I V ” , and the work o f the National A dvisory Council. Conditions in individual countries continued to require much attention, with especial regard to their central banking and monetary problems. Special studies were prepared concerning, among others, Britain, France, Sweden, Belgium, Bizonal Germany, China, and Japan. E arly in the year the Department completed its sampling o f data from commercial banks in other Reserve Districts on the volume and promptness of export collections on Latin America. As a re sult of this sampling, our monthly survey of Latin American export credit experience, which had been based on reports from 12 New Y ork City banks, was broadened to include three banks in the Boston, Chicago, and San Francisco Districts. During 1949 the Department initiated the col lection of detailed information from banks in the Second Federal Reserve District on international assets and liabilities of all member countries o f the International Monetary Fund. This informa tion was compiled in connection with a request made by the International Monetary Fund to the United States Treasury. Similar requests were made to all member countries in order to imple ment the repurchase provisions o f the Articles of Agreement and to cross-check general balance-ofpayments information submitted by each member to the Fund. The Department also cooperated in a revision o f the T reasury’s monthly and quarterly foreign exchange report forms in order to provide perma nently more detailed information concerning in ternational capital movements through banking, brokerage and commercial channels in the United States. The revised forms, which distinguish be tween dollar assets and liabilities of foreign offi cial institutions (including central banks), other banks, and “ others” , were used fo r the first time fo r the reports due at the end o f January 1950. Selected items from the many research papers completed during the year on foreign and inter national topics are listed below: The International W heat Agreement Current Foreign Gold Developments B elgium ’s Long-Term E conom ic Problems Present Status o f the IT O Proposals Some General Reflections on the Cuban Econom y A Reappraisal o f Swedish Econom ic Policy The Im pact o f the Rise in Coffee Prices on the Economies o f Brazil, Guatemala, and Colombia B ritain ’s Dollar Deficit with the W estern Hemisphere The Effects o f the Devaluation o f Foreign Currencies on Am erican Foreign Trade Tax Stimulants to Provide Foreign Investment in Connection with Point IV The Concept o f V iability A n Estimate o f Future D irect Investment in, U nder developed Areas The Dollar Gap and American Foreign Econom ic Policy Objectives Foreign missions Research officers and staff members carried out numerous foreign missions in 1949, in addition to participating with the Foreign Department in visits to foreign central banks. Mr. Roelse, Vice President, went to Brazil fo r several weeks early in the year (follow ing his four-month stay there in the latter part o f 1948) in order to participate in the final stages o f the work o f the Joint BrazilUnited States Technical Commission (o f which he was a member), including the writing and editing o f the Commission’s report. Mr. Glaessner con tinued in this period to serve as a member o f the technical staff of the Commission, and partici pated in the writing of the report. Mr. Wallich, Chief of the Foreign Research Division, and later Messrs. Schlesinger and Adler, visited Guatemala to make preparations for and give guidance to a monetary and fiscal study of that country which the Bank o f Guatemala is undertaking. Mr. W al lich also visited Havana to discuss the internal organization o f the new Cuban central bank, and went to E l Salvador in connection with the com pletion of a study of that country’s public finances, and to Mexico to deliver a series of talks before the National School o f Economy in Mexico City. Mr. Bloomfield, Chief o f the Balance o f Payments FEDERAL RESERVE BANK OF NEW YORK Division, was loaned to the E C A in August for a six-month mission to Korea, accompanied by Mr. Jensen o f the Auditing Department, fo r the pur pose of drafting new monetary and banking legis lation fo r that country. Mr. Coombs represented the Board o f Governors and this Bank at the Twelfth Congress o f the International Chamber o f Commerce at Quebec; and spent seven weeks in Beirut as financial adviser to the United Nations Economic Survey Mission for the Middle East. Mr. Klopstock was on leave in March and April at Washington as a consultant with the State De partment on the Berlin currency problem, and at the end of the year was preparing to leave for Germany to serve fo r a six-month period as con sultant to the Finance Division o f the American High Commissioner’s Office of Economic Affairs. L IT IG A T IO N A t the end o f 1949 litigation involving claims on forged endorsements to which this Bank was a party had reached the lowest point in many years. W hile there was one potential claim involving up wards o f $400,000 arising out o f the frauds per petrated against the Mergenthaler Linotype Com pany several years ago, that claim has not ripened into litigation against this Bank, although related claims against other banks are now in the courts. As of December 31, 1949, there were only five forged endorsement actions against this Bank, in volving claims aggregating $12,720, in three of which our prior endorser had affirmatively agreed to indemnify us and assume all burdens o f defense; the fourth has since been dismissed; in the fifth, there has been no activity for ten years, and the matter may properly be considered closed. These statistics o f current actions compare with an average aggregate o f nearly $100,000 in claims and from 12 to 18 actions pending at the times o f the last five examinations o f the Bank. During 1949 claims of $81,000 were disposed o f without loss to the Bank and without recourse to our in surance coverage. Our Legal Department has been extensively in volved in an alien property matter arising out o f the proposed return to an Italian insurance company o f assets vested by the Office o f Alien Property. The Trading W ith the Enemy A ct pro vides that vested property may be returned to the foreign national from whom it was taken. A notice of intent to return must be published at least 30 days prior to return, so that creditors o f the fo r 19 eign national may attach property described in the notice as an incident to suits against the owner. In August 1949 the first such notice was published and promptly gave rise to attachments. This Bank held securities described in the notice aggregating some $510,000, and, between August and December 15th, several actions were started by the attach ment o f these securities. In addition, several judgment creditors sought to examine the Bank in supplementary proceedings. Opposition was asserted and these attempts were unsuccessful. One o f the creditors attempted to attach moneys in the hands of the Bank described as “ in the Treasury o f the United States” , apparently taking the position that the Treasurer’s General Account on the books of this Bank might be subjected to attachment. The problems involved were, how ever, satisfactorily adjusted, and it is anticipated that arrangements will be made in the near future to release all attachments, substituting therefor surety bonds, and to return the securities to the owner under an order of return promulgated Jan uary 18, 1950. Arm and Schmoll, Inc. v. T h e United States Pursuant to its function under section 522(c) o f the T ariff Act of 1930 o f certifying rates of foreign exchange fo r use in the conversion of foreign currencies to determine dutiable value in the collection o f customs duties, this Bank in 1935 certified one rate, namely, the “ official” rate, for the Brazilian milreis. Armand Schmoll, Inc., an importer o f hides from Brazil, claimed that a lower “ fre e ” rate should have been certified in place o f the “ official” rate. In March 1939 that Corporation brought an action against this Bank in the Supreme Court o f the State o f New York seeking an order to compel this Bank to certify the “ fre e ” rate fo r the Brazilian milreis. Judg ment was entered in favor o f the Bank on the ground that a State court could not direct it in the manner in which it should perform its Federal functions. An appeal was taken to the Appellate Division of the Supreme Court where the judgment o f the lower court was affirmed. This judgment was in turn affirmed by the Court of Appeals, and the Supreme Court o f the United States declined to review the matter. Following the decision by the Supreme Court of the United States, in another case, that this Bank had author ity under section 522(c) to certify more than one rate fo r a single foreign currency and that its 20 PR E SID E N T’S R E P O R T T O D IR E C T O R S F O R 1949 certification o f rates is not subject to review by the courts, the Corporation sought a reargument in the Court of Appeals which, on motion of counsel fo r the Bank, was denied. Following this series o f defeats, the Corpora tion protested the action o f the Collector at the port of New Y ork in determining duties upon a shipment o f hides from Brazil in 1935 by using the “ official” rate for the milreis certified by this Bank. In A pril 1946 the United States Cus toms Court issued a subpoena to this Bank in that action directing this Bank to produce all o f its records and correspondence involving the rate certified by this Bank fo r the Brazilian milreis. The Bank’s motion to quash the subpoena was granted by the court upon the ground that the certification o f rates by this Bank was not subject to review by the courts, a point which had already been dealt with by the Supreme Court. A fter trial the court, on March 24,1949, affirmed the action of the Collector. It was indicated in the opinion that the decision in favor o f the Government was pri marily based upon the success of the Bank’s motion to quash the subpoena. The Corporation appealed to the United States Court of Customs and Patent Appeals. Counsel fo r the Bank appeared, filed an exhaustive brief and argued, as amicus curiae. In December 1949 the court affirmed the decision o f the lower court and held that the rates of foreign exchange certi fied by this Bank were final and conclusive. It is believed that this decision will terminate the liti gation which has been vigorously contested for more than a decade. large measure, curtailment in staff during the past five years has been the product o f voluntary separations. However, dismissals in 1949 were greater than they were in 1948 because o f further reductions in our fiscal agency operations and the increased efficiency in check operations. Even in times when overstaffing exists, there is, o f course, always some hiring to fill particular jobs unsuit able fo r excess employees or requiring skills so specialized that we must at infrequent intervals go outside the Bank to find them. W e have been extremely careful, however, to hire no new em ployee to fill a job which could be filled by an excess employee, and for this reason hiring in 1949 fell sharply. Another development o f the last five years has been the marked reduction in the ratio o f female to male employees. W omen employees totaled 3,050, or 64.4 per cent o f staff, on the peak employment date in 1944, but the number had declined to 1,696, or 49.1 per cent o f staff, by December 31, 1949. The fact that many women voluntarily left our staff minimized the need for involuntary separations. The following table, covering the years 1945 through 1949, presents some basic statistics on Head Office employment. E m p lo ye es, close o f ness D ec. 3 1 .......................... 1947 1948 1949 4 ,2 9 4 4 ,1 4 2 3 ,7 5 5 3 ,77 1 3 ,44 1 1,58 4 1,21 8 824 690 590 2 ,6 6 2 2 ,94 9 3 ,06 6 3 ,14 1 3 ,05 0 6 ,0 0 2 8 ,3 4 6 7 ,4 0 5 8 ,05 0 4,531 im bursable b y U . S . G ovt, and its ag en cies.................. The number o f employees at the Head Office declined by 330, or about 8.7 per cent, during 1949. Fiscal agency operations again required fewer employees, continuing the contraction begun in 1944, but, fo r the first time since 1939, there was also a reduction in the number o f employees en gaged in all other work. A large share o f the curtailment in staff during 1949 took place in the Check Department, where personnel was reduced 194, or 20.9 per cent, through more efficient oper ations. A t the close o f business December 31, 1949, there were 3,441 employees at the Head Office, a reduction o f 1,296, or 27.3 per cent, from the peak employment o f 4,737 reached on July 27, 1944. In 1946 E m p lo y e es, average num ber, engaged in w ork re E m p lo y e es, average PERSON N EL 1945 busi num ber, all o t h e r ....................... A p p lic a n ts ............................... H i r e d ........................................... 1,043 9 48 5 65 7 67 2 82 Sep arations* 1 .1 1 6 1,10 0 9 52 751 612 120 246 4 02 158 210 .......................... D ism issals (included in S ep aration s) ..................... * Includes those who became officers, were dismissed, resigned, retired, or died. It is gratifying to be able to report that of all employees at the Head Office, about 800, or 23 per cent, have been with the Bank for 20 years or more, and almost 400 have 10 to 19 years of service. While 2,250 employees have been with the Bank for less than 10 years, it should be noted that there has been a net increase o f 1,200 employees in the past decade. F E D E R A L R E SE R V E B A N K O F N E W Y O R K N u m b er of E m p lo y e es L e n g th o f Service P ercentage of T o ta l N um ber o f E m p lo yees 2 .0 6 % 3 0 years to 3 4 years inclusive 268 7 .8 5 % 2 5 years to 2 9 years inclusive 153 4 .4 8 % 20 years to 2 4 years inclusive 374 1 0 .9 5 % 1 5 years to 1 9 years inclusive 236 6 .9 1 % 3 5 years o r m o re .......................... 132 3 .8 6 % 9 years inclusive 1,248 3 6 .5 3 % L ess than 5 y e a r s ....................... 1,00 3 2 9 .3 6 % T o ta l (J a n . 3 1 , 1 9 5 0 ) ............ 3,41 6 1 0 years to 1 4 years inclusive 5 years to 1948 was proportionately less than the decline in personnel because the curtailment of staff took place chiefly in the lower salary grades. Salary administration The chart appearing below illustrates the fluc tuations in yearly average Head Office employment during the past twenty years, and shows the pro portion of employees assigned to reimbursable work performed for the United States Govern ment and agencies thereof. F luctuations in Y e a r ly A v e ra g e H e a d Office E m p lo y m e n t 1930-1949 THO U SAND S OF EM PLO YEES THO USAND S OF E M P LO Y E E S 21 W e made a salary survey in the Metropolitan Area of New Y ork City during September 1949 which assured us that a proper relationship con tinued to exist between the salary rate structure at the Head Office and the rates paid in the com munity fo r comparable jobs. The community rate structure appeared to be slightly higher than in the preceding year. Rates paid fo r clerical jobs evidenced a firm tone while increases were re flected in rates paid fo r some non-clerical jobs, particularly in the building service and mainten ance fields. In addition to the salary survey, we reviewed and evaluated, on a continuous year-round basis, all jobs perform ed in the Bank in order to assure a proper internal alignment o f such jobs. Changes in methods and procedures, and expansion or contraction of functional activities, frequently made necessary a revision o f job descriptions in order to reflect properly the scope and level of the actual duties performed. This maintenance phase o f the Job Evaluation Program required the review and evaluation o f 196 jobs, or approxi mately 29.6 per cent of the total number o f filled jobs at the Head Office. P ersonnel D epartm ent operations During 1949 the organization and operations of the Personnel Department were reviewed and some changes were made. A number of personnel records were converted from hand to mechanical operations fo r greater efficiency. The staff of the Personnel Department declined by 14 persons, or about 12 per cent, during the year. H ead Office salary liability B lu e Cross H ospital Plan and Surgical-Medical Plan The following figures, covering the years 1945 through 1949, show employee salary liability (in cluding reimbursable salary) as of the close of business on December 31 o f each year. 1945 1946 1947 1948 1949 $ 9 ,5 1 5 $ 1 1 ,2 4 2 $ 1 0 ,6 2 1 $ 1 1 ,4 9 6 $ 10 ,9 29 S alary liability (in thousands o f dollars) The reduction of about $567,000, or some 4.9 per cent, in salary liability fo r 1949 as compared with A t the year end, 3,102 persons, or 88.7 per cent, of our Head Office staff held membership in the Blue Cross H ospital and Surgical-Medical Plans, which provide hospitalization and medical-surgical benefits. In 1949 the expense to the Bank, which pays two-thirds o f the total cost, was $93,992, and to the employees $49,385. This expense was a little higher than last year because of a moderate in crease in rates, effective in May 1949, under the hospitalization plan, and, in addition, an increase PRESIDENT’S REPORT TO DIRECTORS FOR 1949 22 in the percentage o f staff participation, offset to some extent by a reduction in the number o f our employees. During the year, members o f our Head Office staff filed 593 claims fo r hospital care (4,907 days) which would have cost the insured $68,026; and 582 claims fo r medical and surgical care amounting to $35,753. W e have received favorable comments about these benefits from many staff members. G rou p life insurance The staff continued to avail itself o f the oppor tunity to participate in our Group Life Insurance Plan, which provides coverage o f $1,000 to $6,000, depending upon sex and salary, at a cost o f 60^ per month per $1,000 o f coverage. A t the year end, 2,593 persons, or 74.1 per cent, of the Head Office staff, had group life insurance policies, com pared with 2,822 or 74.5 per cent on December 31, 1948. O f the sixteen Head Office staff members who died during the year, fourteen were insured and their beneficiaries received a total o f $64,500 from the group life policies. R ed Cross b lood don or service The Bank’ s staff, through the Federal Reserve Club, has cooperated with the New York Red Cross Chapter’s peacetime blood donor service since its inception in June 1947. The purpose of this service is to make blood available without charge to the sick and injured in the five boroughs. During 1949, members o f the staff withdrew 183 units (500 c.c. per unit) from the accumulated blood donations made by them. The 183 units represented a saving o f about $5,500 in expense for blood and blood derivatives, neither of which is covered by Blue Cross contracts. Our partici pation in the program has resulted in a sizable dollar saving fo r some members o f the staff, an extreme example being that o f a woman employee who was spared about $900 in expense last year because of blood made available to her husband through our participation in the program. R etirem en t System Since the Retirement System of the Federal Reserve Banks was organized in 1934, its benefits have been liberalized from time to time; another such liberalization took place in 1949. The chief changes were adoption o f the best consecutive five (rather than ten) year average salary, known as “ final average salary” , as a basis fo r computing all normal pension benefits, and a change from % o f 1 per cent of final average salary on a cash refund basis to 1 per cent o f such salary on a straight life basis fo r computing the pension portion o f service retirement benefits. The Fed eral Reserve Banks bear some 60 per cent o f the cost o f the benefits provided by the Retirement System, including all of the cost o f the most recent change in benefits. During the year 21 members of our staff retired, thereby raising the number of retired employees to 281 (165 on service retire ment at age 65, 89 on special service retirement, and 27 on disability retirement). Leadership training Our in-bank training programs again empha sized conference sessions in leadership training. Covering virtually every level o f supervision, the leadership sessions stimulated a keener apprecia tion o f the substantial benefits derived from good human relationships. W ith the completion o f the current group o f conferences, now under way, 39 officers and 391 employees will have taken part in the program at the Head Office; similar con ferences were also arranged at the Buffalo Branch. Payroll deductions fo r Series E Savings Bonds The Bank continued to present to the staff the merits o f purchasing savings bonds by means of payroll deductions. In particular, we promoted vigorously the United States T reasury’s “ Op portunity D rive” which covered the period May 15-June 30, 1949. A t the year end, 2,157 Head Office staff members, or 61.5 per cent of the total, were participating with an average deduction of 3.50 per cent of salary; the corresponding figures for a year earlier were 2,024 persons, or 52.7 per cent o f the staff, and the average deduction was 3.2 per cent o f salary. Federal R eserve Club The Federal Reserve Club, which had its 31st anniversary in 1949, continued to afford members o f our staff an exceptionally diversified program o f social and recreational activities and special services. The employee publication, which is one of these services, was changed in form at during 1949 and under its new name, “ T h e F e d ” , is now published bi-weekly instead o f weekly. Through F E D E R A L R E SE R V E B A N K O F N E W Y O R K the years the Club has had the interest and sup port o f most of our employees, and, at the present time, 89 per cent o f our men and women are mem bers. Its leadership has shown a keen perception o f the interests of our staff and has altered the Club’s program to conform to the members’ desires. B U F FA LO B R A N C H O PER A TIO N S The volume of work handled at the Branch dur ing 1949 was higher than during 1948. Current expense and cost o f Federal Reserve currency totaled $797,050 in 1949 as compared with $735,850 in 1948. Fiscal agency and other reimbursable work aggregated $30,553 as against $28,355 in 1948. Im proved operating procedures installed during 1949 partially offset the increases in operating expenses caused by the greater volume o f work handled, the higher costs o f rented equipment and supplies, and the 10 per cent salary increase granted on November 1, 1948. P ersonnel During 1949 the number of employees at the Branch decreased from 176 to 170. There were 40 separations from service, and 34 new employees were engaged. The following tabulation, as of the close o f 1949 and of the preceding four years, shows the number of employees at the Branch and the total employee salary liability: Number of employees.......... Salary liability (in thousands o f dollars) . . . 1945 1946 1947 1948 1949 221 211 164 176 170 $398 $467 $390 $455 $448 All 170 employees have signed authorizations fo r deductions from payroll fo r the purchase o f Series E bonds, the total deductions amount ing to 6.13 per cent of the payroll at the end o f the year. In addition, 56 employees are par ticipating in a special payroll savings plan, to the extent of 3.73 per cent of the total payroll, providing fo r deposits in a local savings bank. A ll but seven employees are enrolled in the Blue Cross and Blue Shield plans fo r hospitalization and surgical benefits. Some o f the seven, however, are covered under a similar plan through other members o f their families. A total o f 134 employ ees, or 79 per cent, are participating in the new group life insurance plan as revised in 1948. 23 In the latter half o f 1949 a survey was conducted o f wage and salary rates paid to clerical, super visory, building maintenance and service employ ees, and personnel practices in five banks, two insurance companies, and twelve industrial con cerns in the Buffalo area. Results o f the study assured us our pay schedules compared favorably with salary rates fo r similar jobs. Leadership training sessions were conducted during A pril 1949 at the Branch by William E. Marple o f our Head Office staff. They were attended by all four officers and 25 supervisory employees. C heck collections The Branch collected 26.1 million checks totaling over $7.1 billion during 1949 as compared with 24.8 million checks amounting to $7.5 billion in 1948. The gain in volume reflects an increased use o f Federal Reserve collection facilities by banks which had previously collected their checks through correspondent banks. This is further re flected in the increased reimbursements made to member banks during the year fo r postage cover ing their cash letters sent direct to other Federal Reserve Banks and Branches, and in the increased charges absorbed fo r Buffalo member banks in connection with the consolidated shipments of checks which the Branch sent by air express to various Federal Reserve Banks and Branches daily. Further progress was made during 1949 in the Branch territory in improving poorly designed checks and in employing the new check routing symbol. A survey completed in December 1949 disclosed that 82.6 per cent of the checks which passed through the Branch’s Check Division, drawn upon banks located in the Buffalo Branch territory, bore the new routing symbol and transit number in the approved location, as compared with 74.8 per cent in December 1948. During the first quarter o f 1949 additional IBM sorting and listing machines were delivered to the Branch, making it possible to revise methods of operation so as to process all New Y ork State checks through these machines. The Branch also adopted a new method o f sorting checks through these machines according to the transit number and routing symbol, instead of the previous method of sorting by bank name and location. During the latter half o f the year, a constant study o f air transportation schedules and facilities, the devel 24 PRESIDENTS REPORT TO DIRECTORS FOR 1949 opment o f a larger night force to concentrate on handling other Federal Reserve District checks as promptly as they are received, and an arrange ment fo r special transportation of Buffalo Branch air mail to the Buffalo A irport post office station in time fo r dispatch on afternoon planes, have helped to speed up substantially the collection o f checks payable in other Federal Reserve Districts. The last mentioned step has eliminated the holding o f air mail cash letters at the Buffalo Branch until other mail was ready fo r dispatch, and has avoided a further delay of two to four hours which occurred previously when the air mail cash letters were deposited in the central post office fo r sub sequent delivery to the airport. A study of the results accomplished through these changes and improvements during the last six months of 1949 provided the basis fo r issuing a new time schedule on February 1, 1950, advancing by one day the credit availability for items payable in 20 Federal Reserve cities. A similar advance o f one day in credit availability fo r items payable in three Fed eral Reserve cities was made on July 1, 1949. Bank m em bersh ip and bank relations The University Bank, Alfred, New York, applied fo r membership and was admitted to the System in December 1949. The W yom ing County Bank and Trust Company, Warsaw, New York, withdrew from membership in June 1949, largely because of the capital requirements fo r operating out-oftown branches. Bank relations activities included 364 visits to banks and attendance at 73 meetings. Substantial assistance was given to seven banks during the year in installing adequate farm credit files, and additional supplies fo r the files were provided to 36 banks already using this seivice. The Branch also cooperated with the Head Office in making a survey o f salaries paid to officers and employees o f member banks in the Branch territory (the survey is described elsewhere in this report). Loans to m em ber banks A total of 261 loans aggregating $207.1 million was granted to 34 member banks, as compared with 263 loans amounting to $145.2 million to 38 mem ber banks in 1948. Discount earned amounted to $21,768 as compared with $20,906 in 1948. The highest amount of loans outstanding at any one time during 1949 was $19,880,000 on December 29, and the longest period o f borrowing of any one bank was 57 days. A t the end of the year no banks were in our debt. Cash operations The volume o f paper currency flowing in and out of the Branch increased modestly above that handled in 1948. A total o f 47,705,514 pieces o f paper currency was counted in 1949 as compared with the previous peak o f 47,143,214 pieces counted in 1948; 51,331,400 pieces o f coin were counted as against 47,408,573 in the previous year; and 8,235,000 pieces of coin were wrapped, this total representing a decline of approximately 1,100,000 below the number of coins wrapped in 1948. A total o f 158 counterfeit notes and one raised bill aggregating $2,170 were detected by the Branch money counters, as compared with 58 counterfeits totaling $686 discovered in 1948. Accounting p roced u re During the latter part o f 1949 a study was made by our Head Office and the Branch to develop a more complete accounting procedure at the Branch. A s a result of this study the Branch started operating its own general ledger and han dling all the payments o f its expense items on January 3, 1950. The change in procedure, which should involve little additional cost, will place on the officers of the Branch the prim ary responsi bility fo r supervision and control o f the Branch’s accounts and expenses. It will make readily avail able at the Branch information regarding trans actions and expenses which has heretofore been obtainable only after communication with the Head Office, and it should result in more prompt payment o f the Branch’s bills and clearing up of suspense items. In addition, the new procedure will place the Branch accounting methods on a basis similar to the practice in all o f the other 23 Federal Reserve Branches.
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