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Federal Reserve Bank of DaUas

Business Review
-

December 1975
Bicentennial PerspectiveEvolution of Money and Banking
In the United States
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

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Bicentennial Perspective-

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I Evolution of Money and Banking

i In the United States
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The development of monetary and
banking institutions in the United
States has followed neither a
Slllooth nor a completely logical
course. Most major changes in the
nation's monetary structure were
Precipitated by either war or economic crisis. A few were the products of forward-looking financial
leadership. Not all changes have
been progressive, but advances
have vastly outweighed reverses
,
creat' a strong and viable monemg
tary system for the country today.

value for tobacco as a means of
payment. Soon after, Massachusetts set an official price for corn
and made it legal payment, or legal
tender, for discharging debts. But
every farmer soon began growing his own "money" and, as more
was grown, the value of country
pay depreciated rapidly. Official
prices could seldom be maintained
for long.
The obvious disadvantages of
the barter system and country pay
led to widespread dissatisfaction
with the shortage of money. Several attempts were made to establish mints in the colonies to alleviate the coin shortage, but most

Empire. Other negotiable paper
such as bills of exchange and pr~m­
issory notes, had circulated in
the American colonies but had
never gained wide acceptance as
money. The Massachusetts bills
were standardized in amount and
had a specified legal value in payment of taxes-characteristics that
made them a convenient medium
of exchange and assured their use
as money.
The use of bills of credit quickly
spread to the other colonies. But
because of the ease with which bills
could be created, most colonies
eventually overissued them. As
more and more bills were issued

Barter and country pay
In the c~lonial period, very little
1ll0ney cll'culated in the American
colonies. Although settlers brought
gold and s~ver coins from Europe,
~ost of this specie flowed quickly
• There is a certain proportionate Quantity of Money requisite to
ack to England because the bal;
carryon the Trade of a Country freely and currently; More than which
ce of trade weighed heavily in
would be of no Advantage in Trade, and Less, if much less, exceedingly
hat direction. By the time of the
detrimental to it.
fmerican Revolution, there was
SS
-Benjamin Franklin
th than $12 million in coin in
April 1729
th e colonies-less than $5 each for
e roughly 2.5 million settlers.
Colonists developed imaginative
sol ut'
and as their redemption in coin
,
IOns to the problem of expand- of these were unsuccessful. Mints
became less and less likely, the
that gave indication of being suc~g trade and production despite
cessful were quickly closed by the value of paper money plummeted.
f e extremely limited circulation
English government to protect the In one extreme case, an issue of
o llloney. Barter, or the direct
bills printed by Rhode Island
e:g:change of goods, became so
royal prerogative of coinage.
depreciated within a few years to
~h!re,nched ~ early c?lonial days
Experiments with paper money
4 percent of its original value.
he t ~t was still practIced in some
Disputes in the colonies over the
Then, in 1690, Massachusetts
a avily agricultural areas as late
advantages and disadvantages of
printed bills of credit as a means of
c~I~8~0. In most areas, though,
bills of credit gradually developed
paying for King William',s war
III Ulsts found that certain cominto large-scale political controagainst the French colomes. Th~
fa O~~ties-so-called country payinscription on the face of each bill versies. The British Parliament
cilitated trade. Tobacco and
corn'
.
consistently sided with sound
declared it to be in value equal to
st ,In partIcular, were easily
money, passing several acts
1n~r~~ and relatively uniform com- money and acceptable in payments
to the Treasurer. This simple inno- designed to thwart the colonies'
a dihes that were widely used as
attempts to expand their money.
vation was a turning point in
~edium of exchange.
But the various limitations
American monetary history.
tio ou~try pay was legally sancimposed by Parliament and the
Bills of credit represented the
of V«;d ~n,1618, when the Governor
Crown were matched by the ingefirst paper money in the British
lrglUla specified an official

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banks. Soon after, cOlnmercial
banks patterned closely after the
Bank of North America were established in New York and'Boston.
The successful operation of these
three banks provided valuable
banking experience and helped lay
the groundwork for the Bank of
the United States.

Continental Currency, 1778

nuity of the colonists. By the time
Parliament prohibited the colonies
from issuing legal-tender bills of
credit in 1763, groups of colonists
had already formed land banks to
issue paper money secured by land.
Colonial experiments with paper
money established a precedent for
the financing of the American
Revolution in 1775. The Continental Congress at Philadelphia
was not empowered to directly tax
colonists, and it could not borrow
enough money from Britain's traditional enemies to cover all the
colonies' financial needs.
The most practical alternative
for raising funds was, therefore, to
issue paper money. Many congressmen recognized that the overissue
of paper money was nothing but a
form of disguised taxation, a procedure for transferring purchasing
power to the government from the
final holders of the depreciated currency. But it was the only "taxation" they had the power to levy.
In June 1775, Congress authorized
the issue of $2 million in bills of
credit, declaring that it would be
the only such authorization.
By 1779, in spite of its resolution
to limit issues of new bills, Congress had authorized $200 million in paper money. And after
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attempts to have the colonies provide the funds to redeem these
issues proved unsuccessful, depreciation, which had already started
in 1776, accelerated. By 178'0,$1 in specie was worth $80 in
Continental currency.
Congress attempted to deal with
depreciation by recalling much of
the outstanding paper money in a
complicated plan adopted in 1780.
The overall failure of that plan
spelled the end of Continentals. In
time, they became worthless, giving rise to the expression "not
worth a Continental."
The continuing need of Congress
for assistance in financing the war
eventually overcame resistance to
the establishment of a commercial
bank. In 1781, the Continental
Congress granted a charter to the
Bank of North America, which
aided in financing the rest of the
war-principally through a large
loan from France.
The Bank of North America was
successful as a commercial enterprise. It issued notes redeemable in
specie, provided credit for trade
and economic expansion, and gradually overcame the general suspicion and distrust the colonists had
developed from past experience
with paper currency and land

First Bank of the United States
Most of the important developments affecting the nation's financial structure have been in response
to the demands of war or economic
hardship. However, creation of the
Bank of the United States-largely
a personal achievement of Secretary of the Treasury Alexander
Hamilton-was an important exception. Working during a period of
peace and prosperity, Hamilton
designed the ban'k as part of his
overall plan for a sound financial
system, not only to assist the Treasury with receipts and expenditures but also to enhance the economic environment with a source
of credit and a convenient mediuIIl
of exchange.
Before Hamilton's plan was
adapted, it became the focal point
of a constitutional controversy that
lasted several years. The Constitution expressly forbade state governments to coin money, emit bills
of credit, or make anything but
gold and silver coin legal tender in
payment of debts. With respect to
banking, however, the Constitution
did not specify the powers of the
federal and state governments.
The Federalists, supporters of
strong central government and
broad interpretation of the Constitution, favored Hamilton's plan.
Strict constructionists, such as
J ames Madison, opposed the bank
as an infringement on rights properly reserved to the states. Hamilton and the Federalists ultimately
prevailed. President Washington
rejected the opinions of his Attorney General and Secretary of State
that the act was unconstitutional

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and signed the bill incorporating
the bank in 1791.
Th~ ba~k soon became a major
financIal Institution. Hamilton
gradually transferred the Treasury deposits to the bank. And
the bank began to issue notes that
were receivable in payments to
the federal government-a unique
legal prerogative over notes of
other banks.
h Most of the bank's transactions,
owever, were commercial loans for
financing domestic and foreign
State Bank Note, 1837
trade: Thus, although the bank had
prommence and in1luence nationWide, it was not what later came
to be called a central bank with
The War of 1812 added to the
authority over or responsibility for
severity of the developing financial
the country's monetary system.
crisis. Congress was reluctant
State banking
to levy taxes to pay for the war.
Instead, it borrowed mainly from
~st:abliShment of the Bank of the
the banks. With no central bank to
mted States did not represent a
control them, state banks accomlegal obstruction to the growth of
modated congressional demand
ot~er .banks. And though the Confor funds by creating a volume
stItutIOn prohibited state governof paper money that defied specie
~ent~ from participating in bankredemption.
Ing directly, it did .not forbid their
Bank notes in circulation rose
chartering private banks. By 1810,
from $28 million in 1811 to $68
state governments had chartered
million in 1816 as the number of
nearly 90 banks.
banks rose from 90 to 250. The
The Bank of the United States
value of the notes, which depended
~x:erted an important stabilizing
~nfiuence on state banks. By favor- solely on the confidence of the
noteholder in the issuing bank,
~n~ well-run, sound institutions
began depreciating. Within three
In Its dealings and by regularly
years of the closing of the Bank of
Presenting the notes of other
the United States, confidence had
banks for redemption the bank
deteriorated to such an extent that
restrained somewhat the tenbanks across most of the country
den' t oward speculative pract' Cles
stopped redeeming their notes.
Ices and overissue of notes by
Ironically, it had been hard~o~ntry banks. The importance of
money advocates that defeated the
his restraint became more apparbill to recharter the bank. Thus,
ent when it ended.
the inflationary situation that
A bill renewing the bank's 20developed left them in an unpleasY.ear charter was defeated by a
ant quandary. On the one hand,
~Ingle vote, and the bank was
they philosophically opposed a
orced to close. State governments
Con t·
central bank. On the other, they
th In~ed granting charters to fill
abhorred the overissue of paper
t' e VOId, and one of the most inflat IOnary periods in the nation's his- money, excessive expansion in the
number of state banks, and rambory followed. Banking practices
pant inflation. As the lesser of two
,ebcame more and more irresponevils, they chose to support the
81 le-even fraudulent.
llusiness Review I December 1975

Second Bank of the United States
which Congress chartered in
'
April 1816.
Second Bank of the United States
As fiscal agent for the U.S. Government and with a capital of $35
million, the Second Bank of the
United States was immensely powerful. In the course of business the
bank acquired a stream of stat~
bank notes that it could redeem in
specie at issuing banks. Thus as
creditor of state banks, the b~nk
could, at its discretion, reduce the
amount of money in circulation by
increasing the redemption of state
bank notes.
The bank facilitated repayment
of the public debt and the regional
transfer of Government deposits.
Treasury receipts were heaviest in
N ew York because customs receipts
were by far the most important
source of Treasury income. The
bank, with branches in all principal
cities, was in an excellent position
to transfer portions of these funds
to other parts of the country.
Notes of the bank provided a
uniform currency throughout the
country. Its loans were important
for agriculture and commerce on
the developing frontiers. And the
large volume of acceptances issued
by the bank spurred both national
and international trade. The
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bank also participated in foreign
exchange markets to alleviate temporary shortages and keep flows
of specie as small and as gradual
as possible.
Nevertheless, the bank fell into
disfavor. Its conservative behavior
did not please the easy-money
group, and the political faction
that favored hard money continued
to be opposed to all banks-even
one with its stabilizing influence.
Although its charter did not
expire until 1836, the bank's future
was doomed in 1828 with the election of Andrew Jackson-a hardmoney agrarian who looked on
banks as the cause of inflated currency, speculative booms, and
disastrous depressions. Ironically,
some supporters of the Jackson
party opposed the bank for exactly
the opposite reason. They believed
that the bank kept money and
credit in short supply and imposed
a check on economic expansion.
Before the bank's charter ran
out, a number of financial measures that were instituted virtually
assured a financial crisis and led to
the worst depression the country '
had experienced. First, the Treasury stopped making deposits in
the Bank of the United States and
transferred funds to designated
state depository banks. Without
the financial leverage of Treasury
deposits, the bank could exert little
influence on the country's financial markets and could no longer
effectively control note issues of
state banks.
Growth of state banking
As a consequence, and quite contrary to the wishes of Jackson and
the hard-money group, state banking burst into an era of unusual
growth. By 1837, there were at
least twice as many state banks as
in 1830. The volume of state bank
notes doubled, and loans and discounts increased 2 % times. This
stimulus produced rapid inflation
and an economic expansion that
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could not have been sustained in
any event.
The Treasury began running a
large surplus that it redistributed
among the states in direct proportion to the number of representatives in Congress. Had the bank
still been fiscal agent for the Treasury, it could have drawn the payments from the branches that
could most easily spare reserves.
But the Treasury gave no consider-

and other sectors of the economy.
In 1837, the economy suddenly
plunged from a boom prosperity
into a severe depression.
The depression was a direct consequence of the demise of the Bank
of the United States and the resulting excessive issues of bank paper
and disruptive financial measures
of the Treasury. Unfortunately,
this was not understood at the
time, and the economic turmoil of

• The lessons taught by the Bank of the United States can not well
be lost upon the American people. They will take care never again to
place so tremendous a power in irresponsible hands.
-Andrew Jackson
December 1836
ation to the ability of the state
banks to meet its withdrawals. And
in 1837, the demands of the Treasury helped put such pressure on
the New York banks that they
were forced to suspend specie payment entirely. Many banks in
other parts of the country were
then forced to suspend also.
Another cause of the banking
panic of 1837 was the Treasury's
new policy with respect to payments for public lands. In the
interest of hard money and in an
effort to stop the multiplication of
state banks and to dampen speculation, the Administration had
decreed in 1836 that only gold and
silver would be accepted in payment for public lands. This "Specie
Circular," as the Treasury called
its directive, produced a flow of
specie into the Treasury from
banks in the West where land sales
were taking place.
But the Treasury was limited by
law in the amount it could redeposit in any bank and could only
get specie back into circulation with
payments to employees and suppliers. Since there were few of the
latter in the West, the Specie Circular disrupted banking, land sales,

the depression produced a political
sentiment unfavorable to the formation of another Bank of the
United States.
President Martin Van Buren
rejected suggestions for a new
bank, proposing instead the creation of a sub-Treasury system
whereby the Treasury would
require payment in gold and silver
and collect its revenues directly,
rather than through financial intermediaries. Van Buren hoped to
advance the cause of hard money
by completely separating the federal government from the bankS.
The Independent Treasury Act
of 1846 separated the Treasury
from the banking system. The act
instructed the Treasury Department "to keep safely, without
loaning, using, depositing in
banks" all the money it collected.
All transactions with the TreasUrY
were to' be settled in either specie
or Treasury notes.
While Congress was establishin1
the Independent Treasury, most 0
the states, in the wake of the
depression of 1837, were making
far-reaching changes in state b~n~~
ing. Some states moved to prohl~
banks entirely, but most adopte

the other extreme of free banking
allowing anyone to form a bank '
without a special act of the state
legislature.
The experiments met with
mixed results. In Michigan, which
adopted the nation's first freebanking law in 1837, the system
was a momentous failure. By contrast, the free-banking system in
New York worked well enough
to form the model on which the
National Banking System was
later based.
Because of experiences with
excessive issues of paper money,
most states during this time
stressed the importance of hard
mone~ in their banking legislation.
Even m free-banking states, banks
usually were required to maintain
a specie reserve equal to a specific
per?entage (usually 25 percent) of
theIr notes.

National Bank Note, 1900

ated inflation that seriously aggra- Act of 1863. Although Congress
approved the act primarily because
vated the Treasury's already
it provided a means of raising
monumental problem. Inflation
enough money to pay for the war,
pushed the market price of gold
other benefits proved far more
above its official price. With that,
important in the long run.
gold was withdrawn from the
The act established provisions
nation's banks and hoarded in
for chartering national banks, siganticipation of further price
Greenbacks
naling the reemergence of dual
increases. Just eight months after
:rhe Civil War had an immense
the war began, rapid gold outflows banking after a lapse of almost 30
years. Under the provisions of the
Influence on the subsequent hisforced banks and the Treasury to
act, national banks became an
tory of banking and currency in
stop redeeming notes in specie.
impomnt market for Treasury
the United States. The federal govTreasury officials and congressbonds. Each national bank was
ernment again issued paper money men responsible for raising money
and reentered banking.
faced a dilemma. Almost everyone required to deposit, with the Treainvolved disliked paper money, but sury, Government bonds equal to
In the early stages of the war,
at least a third of its capital.
the need for funds was extreme.
ihe Treasury enforced rigid conTo speed the conversion of state
. Lacking an alternative, Congress
Onnity to the Independent Treabanks to national banks, Congress
~ury System, accepting only specie began issuing United States notes.
imposed a 10-percent tax on state
payment for Government bonds. This paper currency, later called
bank notes. Many state banks,
. ut When expenditures began rap- greenbacks, was the first legaldly outpacing receipts of gold from tender money ever issued by the
finding it unprofitable to issue
notes and pay federal taxes on
U.S. Government.
dond sales, the Treasury issued
them, gave up their state charters
mand notes to pay for its purAs opponents of the plan had
and joined the national system.
expected, another promise of only
cases. The notes, for all practical
A significant long-run contribuone issue was promptly broken. By
~urposes, were paper money. Nevtion of the act was the provision
1865, Congress had authorized
.;theless , the Secretary of the
$450 million in greenbacks. Depre- for national banks to issue notes.
reasury considered the demand
These national bank notes, secured
ciation began, and the value of
:ltes only a partial breach of the
by Government bonds on deposit
S es of t~e Independent Treasury $100 of greenbacks quickly sank
at the Treasury, were receivable by
stem smce the Treasury mainto $75 in gold and eventually to
the Government for all taxes except
$35. During this period, the term
Ined a policy of exchanging the
customs. At the time the law was
inflation was first used.
no~s for gold on demand.
passed, the value of existing bank
. he demand notes-or, more preNational Banking System
notes depended on the laws of 34
CIsely, the huge increase in Govseparate states and the indepenWhen greenbacks proved inade~~ent expenditures financed
quate for the financing effort, Con- dent operation of about 1,600
off~oU~h d~mand notes without an
gress passed the National Banking banks. The National Banking Act
ettmg mcrease in taxes-gener-

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Iness Review I December 1975

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established a framework for the
first uniform paper currency and
made possible the elimination of
the confusing array of state bank
paper that was distinctly inferior
for the conduct of trade.
Another significant aspect of the
act was its recognition that, as
bank liabilities, deposits were at
least as important as bank notes.

as credits with authorized banks in
New York and other reserve cities.
In the summer and winter, when
loan demand was slack, country
banks deposited part of their
reserves in New York City banks,
receiving interest on the deposits.
The New York banks counted
specie deposited by country banks
as part of their own reserves, which

• It is the misfortune of war that we are compelled to act upon
measures of grave importance without that mature deliberation secured
in peaceful times . ... We are about to choose between a permanent
system [the National Banking System], designed to establish a
uniform national currency based upon the public credit, limited in
amount, and guarded by all the restraints which the experience of men
has proved necessary, and a system of paper money without limit as
to amount, except for the growing necessities of war.
-Senator John Sherman
February 1863
The act required banks to hold
cash reserves of 15 to 25 percent
against both deposits and notes,
effecting a notable change in banking practice. Bank loans, particularly in cities, had come more and
more to be made by crediting the
demand deposit accounts of borrowers rather than by issuing notes
or paying out coin. Thus, deposit
creation was little different from
bank note creation and involved
the same risk of overissue by
banks. Nevertheless, as late as
1879, only six states required
banks under their charter to keep
such reserves.
Along with its many improvements, the new National Banking
System had some defects. For
many years, the banking system
under state regulation had suffered
seasonal fluctuations as bank funds
moved to New York to take advantage of Wall Street's call-money
market. Instead of correcting such
fluctuations, the National Banking
Act encouraged them by permitting national banks to keep a considerable amount of these reserves
6

allowed the New York banks to
expand security loans in the callmoney market. Then, when country banks needed funds for making
agricultural loans in the spring and
fall, they withdrew deposits from
N ew York and put pressure on the
money market.
In most years, the banks managed to survive the temporary
credit stringency. But when the
economy was expanding rapidly
and the volume of security loans
in New York City was large, the
scramble for liquidity often created
a money market panic and, in turn,
an economic recession.
Another deficiency of the banking structure under the National
Banking Act was the inelasticity
of the currency supply. The act
limited the volume of national
bank notes to $300 million, originally divided among the states in
proportion to population. The
supply of currency could not be
increased in response to variations
in demand.
Moreover, the actual amount of
national bank notes in circulation

depended on conditions in the
Government bond market, since
the notes had to be secured by a
deposit of Government bonds equal
to their face value. When bond
yields fell relative to the return on
other investments, banks were less
willing to hold bonds as security
and the amount of bank notes outstanding tended to decline.
Silver versus gold
When Hugh McCulloch became
Secretary of the Treasury in 1865,
he proposed a return to the gold
standard by using the Government's surplus to retire the greenbacks. In the Funding Act of 1866,
the Secretary received authority to
retire $10 million of greenbacks
within six months and $4 million
a month thereafter.
Secretary McCulloch wasted no
time in putting this deflationary
program into effect. The combined
effect of the Treasury surplus and
the decrease in money sent the
economy into a recession and precipitated one of the most intense
and dramatic struggles in the history of money. In the controversy,
which continued intermittently for
30 years, advocates of easy money
pressed various plans.
One of the first proposals called
for the Government to refund all
outstanding Government bonds
with additional issues of greenbacks. The Greenback party
formed to give the public the
chance to vote for easy money and
entered candidates in three presidential campaigns, but without
success. On the contrary, national
sentiment continued to favor a
return to the gold standard.
In 1875, Congress passed the
Resumption Act, directing the
Treasury to redeem in coin any
greenbacks presented for redemption after January 1, 1879. According to the act, the Treasury was
to retire $80 of greenbacks for
every $100 of national bank notes
issued after 1875. The deflationarY

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effects of this were made more
mint price. Silver miners and inflaThe Treasury's gold holdings
severe by the fact that greenbacks
tionists began talking about the
decreased rapidly, as people in
served not only as currency but
"Crime of '73" and demanded an
increasing numbers presented
also as bank reserves.
immediate restoration of bimetalpaper notes for redemption and
The Resumption Act helped
lism. Farmers and other debtors
then hoarded the gold. The crisis
convince the easy-money bloc that that would have benefited from an
cuhninated in the panic of 1893.
expanded money supply joined in
~reenbacks did not offer a promisPresident Grover Cleveland
mg way of increasing money in cir- the crusade for a return to the free believed in strict adherence to the
gold standard. When the panic
culation. The public distrusted
coinage of silver.
broke out, he immediately called
Congress bowed to the pressure
paper currency. Experiences with
Congress to a special session to
of silverites by adopting the SherContinental currency, state bank
repeal the Sherman Silver Purman Silver Purchase Act in 1890.
notes, and Confederate paper had
chase Act. With this step, the
left indelible impressions. So, easy- The act required the Treasury to
money advocates turned to silver
coins as the means of increasing
• If they dare to come out in the open field and defend the gold
money in circulation.
standard as a good thing, we will fight them to the uttermost. ... We
Until 1873, the country's monetary system was legally bimetallic- will answer their demand for a gold standard by saying to them: You
shall not press down upon the brow of labor this crown of thorns, you
that is, the U.S. mint was oblishall not crucify mankind upon a cross of gold.
gated to coin any gold or silver
presented to it. But bimetallism
-William Jennings Bryan
did not exist in practice because
July 1896
~he price of silver was much higher
m the open market than at the
panic gradually receded, but unrest
purchase 4.5 million ounces of
mi~t. Mineowners, therefore, sold
and danger to the gold standard
silver each month and to make
theIr output to bullion dealers
remained until the presidential
this purchase with a new type of
ra~her than the mint. Realizing
election of 1896, when William
money-a Treasury note that was
~hIS, Congress discontinued mintMcKinley defeated William Jenlegal tender and redeemable in
mg of the standard silver dollar
nings Bryan. Bryan had won the
in 1873.
gold or silver at the discretion of
the Treasury. The public was skep- presidential nomination with his
At about the same time, howtical of the new note because silver famous "Cross of Gold" speech to
ever, large new deposits of silver
the Democratic National Convenhad been falling in price. Partly to
were discovered. As the supply of
tion. His defeat in the 1896 eleccounter this skepticism, the Treathe metal rose, the price fell. And
tion brought an end to the free
sury decided to redeem the new
by 1874, the open market price
silver movement.
notes in gold.
Was considerably lower than the
Fulfilling his campaign promise
of a return to the gold standard,
McKinley signed the Gold Standard Act into law in 1900. Although
the act ended bimetallism and
established gold as the official legal
standard, it did not prove to have
a deflationary effect.
Easy-money blocs had advocated expansion of coin and currency as the primary means of
increasing money in circulation.
But by 1900, demand deposits had
become the fastest growing component of the money supply. Furthermore, gold discoveries in
Alaska, South Africa, and ColoSilver Certificate, 1891
rado combined with the invention
of new mining and refining meth-

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BUSiness Review I December 1975

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ods to produce a rapid increase in
monetary gold. With ample gold
to serve as reserves, the quantity
of money expanded at roughly 6
percent a year from 1900 to 1912,
effectively quieting the clamor for
easier money. Banking once again
became the focus of the financial
reform movement.
Federal Reserve Act
By 1900, the weaknesses of the
national banking system were
widely recognized, as was the primitive nature of American banking
relative to the banking systems
developing in Europe. But once
again, only a dramatic crisis-the
1907 money market panic-could
focus the attention of legislators
on bank reform.
An economic boom had ended in
early 1907 and was followed by a
recession that remained relatively
mild for about six months. Then,
in late October, the failure of the
Knickerbocker Trust Company
triggered a concerted run on other
trust companies and banks. Banks
were forced to contract their loans,
interest rates soared, and reserves
began to run down. The pyramiding of reserves that was permitted
under the National Banking Act
seriously compounded the difficulty, as country banks withdrew
deposits at the first sign of a crisis
and impaired the liquidity of large
city banks.
To alleviate the crisis, the Secretary of the Treasury deposited
$36 million in N ew York banks in
a single two-week period. But
before the panic eased at the end
of the year, banks and savings
institutions were forced to restrict
deposit withdrawals. The panic
brought into sharp relief the
defects of the banking system.
In the wake of the crisis, Congress passed the Aldrich-Vreeland
Act to provide emergency relief in
the event of another panic. The
act also created a National Monetary Commission to study banking
8

and its problems and to help prepare a permanent banking act.
Studies by that commission led
eventually to a comprehensive bill
introduced by Carter Glass, chairman of the House Banking and
Currency Committee. This bill,
signed shortly after Woodrow
Wilson became president in 1913,
was the Federal Reserve Act.
Under provisions of the act, the
country was divided into 12 districts with a Federal Reserve bank

in reserves, causing the total
money supply to fall.
Inelasticity of the nation's currency was corrected by the act's
provision for a rediscount mechanism and authorization for Federal
Reserve banks to issue notes. Member banks in need of funds were
permitted under the act to rediscount their commercial paper
at Reserve banks, and Federal
Reserve notes could be issued to
meet their demands. The notes,

• The American banking system has had some very serious defects.
The principal defect of our system has been that the country has had
no adequate protection against panics, so that from time to time the
country has been shaken to its foundations by the severest financial
panics, throwing into chaos our commerce, our manufactures, and our
industries, from which the recovery in some cases has taken as much
as four or five years. This [Federal Reserve] bill is intended to correct
the chief defects in our system.
-Senator Robert Owen
December 1913

serving each one. All national
banks were compelled to become
members, and state banks were
allowed to join. Member banks
were required to maintain reserves
against time and demand deposits
in their own vaults and at Federal
Reserve banks-not at other commercial banks. This feature was a
response to the instability of the
old system that permitted the
pyramiding of reserves.
Maintenance of the gold standard was not questioned in the
Federal Reserve Act. Gold served
as a basis for the member bank
reserves that were deposited
at Federal Reserve banks and
continued to be a backing for
currency as well.
Past financial crises had frequently been aggravated by
attempts on the part of the public
to convert deposits into currency.
Without an elastic currency, withdrawals forced banks to contract
deposits by a multiple of the loss

like greenbacks, were made obligations of the Treasury. They were
to be backed 100 percent by commercial paper and an additional 40
percent by gold.
Federal Reserve System
Details of organization and procedure occupied monetary authorities in the early years of the Federal Reserve System. But these
issues were soon dwarfed by the
problems caused by the entry of
the United States into World
War 1.
Although the Independent Treasury System was not formally dissolved until May 1920, the Federal
Reserve was made fiscal agent of
the TreasQ.ry in 1915, and Reserve
banks took on the job of handling
certificates of indebtedness and
bonds in the Treasury effort to
finance the war. When gold produCtion failed to provide adequate
expansion of money and credit,
Congress lowered reserve require-

ments by amending the Federal
Reserve Act in June 1917.
The Board of Governors of the
Federal Reserve System gave
me~ber banks the privilege of borrowmg at Reserve banks, using
Government securities as collatera~. This assurance of liquidity for
theIr bond purchases helped induce
banks to invest in Government
obligations as earning assets. By
the end of the war, commercial
banks held a fifth of the total GovFederal Reserve Bank Note, 1914
ernment debt.
The large volume of outstanding
Treasury debt resulting from the
war was an important prerequisite
permitted banks to invest heavily
notes as the major component of
for the development of open marthe money supply, the tax on state in illiquid assets but did not libket operations as a policy instrueralize the borrowing privilege
bank notes, imposed by Congress
ment. In the early years of the
under which banks could obtain
shortly after enactment of the
System, the discount mechanism
relief at the discount window only
National Banking Act, no longer
wa~ the major policy tool. Credit
by pledging liquid obligations.
deterred the formation of state
policy was expressed in terms of
In a time of heavy demand for
banks. Eventually, a weak and
the level of the discount rate and
money, this structure limited the
poorly run system of state banks
the volume of discounted paper
degree of help available from the
developed. Between 1921 and
held by Federal Reserve banks.
Federal Reserve System.
1933, more than half of all banks
But following a recession in 1921
In the late 1920's, conflicting
in the United States failed. Most
a rapid repayment of borrowings'
goals complicated the conduct of
of these were state banks that
by member banks induced Reserve
monetary policy. From early 1928
banks to purchase sizable amounts were not members of the Federal
through most of 1929, the System
Reserve System. And they were,
of Treasury securities, assuring
attempted to curb a stock market
in general, banks that were least
themselves sufficient earnings to
boom by discouraging loans for
regulated and had the smallest
meet expenses.
security speculation. At the same
capital.
Since the purchase of securities
time, it wanted to accommodate
In February 1927, Congress
by the Reserve banks provided
the economic expansion that had
passed the McFadden Banking
funds to the banking system, it
resumed after the 1927 recession.
Act encouraging growth of the
soon became evident that open
The Board attempted to achieve
Fed~ral Reserve System by giving
market purchases would have to be
these goals by denying discount
national banks some of the advancoordinated with discount policy.
window facilities to banks borrowtages of state banks. The act
In 1923, the Board established a
allowed national banks to establish ing for the purpose of malting specSpecial committee to carry out
branches where permitted by state ulative loans and by moderating
open market policy and declared
increases in the discount rate.
law. It also broadened the power
that purchases or sales of secuAs a result, the discount rate
of national banks to make real
rities by Reserve banks would be
rose more slowly than market
estate loans, increased the limit on
ma~e primarily with regard to
the amount that could be loaned to rates, giving banks an incentive
theIr effects on credit conditions.
one borrower, and allowed national to borrow from the System. This
This marked the beginning of
banks to purchase corporate bonds combination of policies was too
what is now the Federal Reserve
weak to break the speculative
and investment securities.
~ystem's most powerful policy
boom but too restrictive to permit
These features increased the
Instrument.
continued economic expansion. As
attractiveness of national banks
The primary weakness of the
and stimulated membership in the the economic outlook deteriorated,
Federal Reserve Act was that it
panic erupted in the stock market
System. However, they created
~acked provisions for strengthenin October 1929, initiating a selfa dichotomy that later proved
Ing the state banking system.
reinforcing downward spiral as
troublesome. The McFadden Act
When demand deposits replaced
Business Review I December 1975

9

falling security prices forced brokers to sell customer collateral.
Depression and bank reforms
The stock market crash occurred
without any major disruptions of
banking. A year later, however, a
growing number of bank failuresparticularly in agricultural areasled to a major banking crisis': 256
banks failed in November 1930,
and 352 failed a month later. This
first banking crisis lasted only
three months.
But a second crisis followed in
early 1931, partly as a result of
attempts by banks to protect
themselves. In their search for
liquidity, banks sold bonds at
lower and lower prices. And the
liquidation of assets at distress
prices rendered insolvent banks
that otherwise might have survived. In the seven months from
February to September 1931, commercial bank deposits contracted
nearly 10 percent.
Britain's abandonment of the
gold standard in 1931 compounded
the difficulties of U.S. banks. When
Britain suspended gold payments,
foreign demands for gold shifted
to the United States. Gold exports
in a single two-month period offset all the net inflows of gold since
1929. In an attempt to protect the
gold standard, most of the Reserve
banks raised their discount rates,
making credit more expensive and
discouraging investment during
the depths of the Depression.
Through two banking crises,
Federal Reserve operations had
been largely defensive, with no vigorous action to stimulate economic
activity. And international developments had evoked a contractionary response. Political pressure
began to build in Congress for
stimulative measures.
In January 1932, Congress
passed the Glass-Steagall Act,
which permitted Reserve banks to
count Government bonds as security against Federal Reserve notes.
10

Under the Federal Reserve Act,
notes required 100-percent backing in commercial paper or gold.
But by early 1932, commercial
paper backing had dropped to less
than 40 percent of the volume
of outstanding notes, and the
availability of gold depended on
foreign flows.
It is not certain to what extent
the Glass-Steagall Act relieved the
concern of monetary authorities
over note collateral or, for that
matter, whether a scarcity of col-

Reserve Act gave the Government
permanent title to all monetary
gold. This put the United States
on a limited gold standard, meaning redemption of dollars in gold
was restricted to foreign central
banks and licensed private users.
In 1933 and 1935, two of the
most important banking acts in
the financial history of the United
States were enacted. These acts
struck directly at the defects in
the banking system that had contributed to speculative excesses

• After all, there is an element in the readjustment of our financial
system more important than currency, more important than gold, and
that is the confidence of the people . ... We have provided the machinery
to restore our financial system; it is up to you to support ,and make
it work.
It is your problem no less than it is mine. 'Together we cannot fail.
-Franklin D. Roosevelt
First "Fireside Chat"
March 1933

lateral had really deterred largescale open market purchases of
securities. Congressional concernrather than new collateral provisions-may have been the dominant
force in prompting a policy change.
In any case, after passage of the
Glass-Steagall Act, the Federal
Reserve undertook large-scale open
market purchases. Although the
purchases produced an increase in
excess reserves of banks and probably contributed to a decline in
interest rates, they were largely
offset by an outflow of gold and a
reduction in discounts. With no
immediate evidence of the effectiveness of the operations, open
market purchases were prematurely discontinued.
A third banking panic gripped
the country in 1933. The Roosevelt Administration declared a
national banking holiday and,
apparently as a temporary measure, prohibited the private holding
of gold. Then, in 1934, the Gold

in security markets and panicky
runs on banks.
The Banking Act of 1933 widened the authority of the Federal Reserve Board so that credit
could be refused to banks making too many speculative loans.
It authorized the Board to limit
the amount of loans secured by
stock or bond collateral. And it
prohibited payment of interest
on demand deposits, which had
attracted large seasonal flows of
funds from country banks to New
York for investment in broker
loans. Because so many of the
closed banks were small, the act
raised the minimum capital of
national banks and liberalized the
law governing branch banking. '
The most important accomplishment of the Banking Act of 1933and, oddly enough, the most
strongly opposed by banks-was
establishment of the Federal
Deposit Insurance Corporation.
The deposit insurance was funded

by assessments on insured banks
was marketed without any major
Even before the war, many small
and safeguarded by careful bank
changes in the monetary system.
banks that had failed during the
examination. Unfortunately, most The Federal Reserve assured the
1920's and 1930's were replaced by
of, the weakest banks had already
success of the financing by fixing
branch banks better able to meet
failed by the time FDIC was
high and stable prices for Treaneeds of businesses for more extene~tablished, and their depositors
sive and diversified banking sersury securities.
did not share in the benefits of
vices. The movement was accelIn the postwar era, most of the
the plan. But in later recessions,
important innovations in commer- erated by postwar legislation
deposit insurance stabilized financial banking have come from banks liberalizing requirements regarding
branching by national banks and
cial markets by stemming runs on
themselves, rather than from any
other members of the Federal
weak banks and preventing rumors major legislative or regulatory
Reserve System, putting them on
of weakness at one bank from
changes. Commercial banks have
a more competitive basis with noncausing runs on other banks and,
remained the leading financial
member state banks.
thus, a banking crisis.
intermediary, but they have faced
.T~e other structural change,
. The Banking Act of 1933 had
increasing competition from a wide
still ill progress, is the formation of
Just become law when Marriner
variety of other institutions. Savbank holding companies. In 1965,
Eccles, governor of the Federal
ings and loan associations and life
there were only 53 bank holding
insurance companies have become
Reserv~ Board, sponsored a bill
that became the Banking Act of
more important intermediaries for companies in the United States.
Now, there are over 1,700, con1935. In this bill, Eccles-an early
savings. Mutual savings banks,
trolling nearly 70 percent of the
spo.kesman for compensatory fiscal credit unions, personal finance
assets of all commercial banks.
companies, investment bankers,
policy and centralized credit and
Most of these holding companies
and government lending institumonetary control-proposed meaown only one bank. However,
sures to strengthen monetary man- tions have also taken a greater
nearly 300 are multibank holding
agement and increase the power of share of the nation's borrowing
companies, controlling about a
the Federal Reserve.
and lending.
third of all commercial bank assets.
To attract funds and maintain
The act gave the Board new
Many of the holding companies
their competitive position, banks
authOrity to regulate reserve
were formed to find new sources
have designed new money market
requirements and authority to
of funds during periods of high
instruments. For example, in the
regulate the rate of interest paid
interest rates. Others were formed
by member banks on time deposits. early 1960's, banks began issuing
as a vehicle for geographic expanThe law also broadened the lending negotiable certificates of deposit
sion, particularly in states that proto attract funds businesses and
POwers of Federal Reserve banks.
hibited branch banking but did not
In addition, it removed the Comp- investors were unwilling to hold
prohibit the ownership of several
in demand deposit accounts that
troller of the Currency and the
banks by a single bank holding
Secretary of the Treasury from
yielded no interest. Banks have
company. Still others were formed
membership on the Federal
also sought funds by borrowing
to acquire nonbank firms.
Eurodollars (dollars on deposit
Reserve Board. According to
Recent economic history tesabroad) and by issuing commercial
~ccles, this last provision was
tifies to the successful evolution of
paper and finance bills. Demand
InclUded at the insistence of Senthe nation's financial structure.
ator Glass, who had been Secretary deposits have remained the most
The yearly output of goods and
important bank liability, but all
?f the Treasury and believed the
other liabilities combined now pro- services in the nation has more
Influence of that office should be
than doubled since 1950, and the
eliminated.
vide well over half of bank funds.
Two important changes in bank- expansion has been financed for
the most part by its financial
World War II and after
ing structure have taken place in
institutions.
the postwar era. One striking
The nation's financial system met
Even more significant is the fact
am.aJor test when, without any
.
change is that the number of
that although economic expansion
branch offices has increased from
major legislative changes the Fedhas been interrupted by recessions
eral Reserve and the Tre~sury suc- less than 4,000 in 1945 to almost
five times since 1950, the reces30 000 in 1975. This change reflects
Lessfully financed World War II.
sions did not produce panics in
not only the growing acceptance
ess than half the total war costs
the nation's financial markets. On
~ere ?overed by taxation. Treasury and trust of banks by the public
the contrary, improvements in
but also the dictates of a changing
$ebt Increased from $50 billion to
bank management, bank regulaeconomic structure.
270 billion during the war, and it
BUSiness Review I December 1975

11

tion, and monetary policy have
fostered a level of confidence in
banks that has allowed them to
become a stabilizing rather than
destabilizing influence on the
economy.
-Edward E. Veazey

New member bank

Commerce National Bank of Conroe, Conroe, Texas, a newly organized institution
located in the territory served by the Houston Branch of the Federal Reserve
Bank of Dallas, opened for business November 3,1975, as a member of the
Federal Reserve System. The new member bank opened with capital of $800,000,
surplus of $300,000, and undivided profits of $200,000. The officers are: W. S.
Pebworth, Jr., Chairman of the Board; Robert N. Jones, President; Barrett L.
Willett, Vice President; and Lola M. Babin, Cashier.
New par bank

Commonwealth Bank of Houston, Houston, Texas, a newly organized insured
nonmember bank located in the territory served by the Houston Branch of the
Federal Reserve Bank of Dallas, opened for business October 23, 1975, remitting
at par. The officers are: David Tripplehom, President; Gus Comiskey, Jr., Vice
President; and James Treptow, Cashier.

12

-

Research Department
Federal Reserve Bank of Dallas
Station K, Dallas, Texas 75222

Federal Reserve Bank of Dallas
December 1975

Statistical Supplement to the Business Review
Rising oil prices in recent years
however, may have problems devel- tion, total farm and ranch output in
have triggered a massive search for
oping alternative product lines.
Texas in 1975 is expected to be submore petroleum reserves. This
stantially higher than in 1974.
quest, in turn, has led to a boom in
Growth in total business loans at
Based on November 1 conditions
~he output of oil field equipment,
weekly reporting banks in the Elev- total agricultural output in the '
mcluding offshore drilling rigs.
enth District has been sluggish in
state was projected at more than a
1975: Analysis of the composition of fifth higher than a year earlier.
. A recent slump in offshore drillmg worldwide, however, has
total commercial and industrial
Crop production this year could
decreased demand for rigs. New
loans indicates borrowings by most
exceed output last year by a fourth
types of businesses have been weak, since problems with drouth did not'
orders have slowed and cancellawith the petroleum refining, mintions have pared the backlog of
recur in 1975. In addition to a
unfilled orders.
ing, and transportation industries
record winter wheat crop this
spring, most of the gain reflects
In November, world construction being the major exceptions.
The failure of business loans to
higher output of corn and grain
of offshore rigs was 25 percent
expand in the first half of the year
sorghum. And despite reduced
?elow the January 1975 peak. Still,
acreage, the cotton crop should be
reflected the deepening recession.
It was five times higher than the
But even after economic activity
slightly higher than a year before.
previous peak in 1965.
Livestock production, meanwhile,
picked up after midyear, business
~f the 36 offshore drilling rigs
is likely to exceed 1974 levels nearly
loans remained sluggish. That was
bemg built in the United States, 33
a fifth. Sharply higher rates of
largely because of a reluctance to
were being assembled in Gulf Coast
slaughter, including a 42-percent
rebuild inventories.
yards. These and other projects
gain for cattle and calves, have
One reason that firms have kept
which will keep manufacturers'
pushed livestock production well
their stocks low is that materials
busy for the next 12 to 18 months
above a' year before. Through Seph~ve special implications for indu~­ and unfinished goods have been
tember, liveweight beef production
readily available from suppliers.
tnal production in Texas.
Thus, businesses have had less need was a substantial 30 percent ahead
Production of oil field equipfor bank credit to carry inventories. of the same period in 1974.
ment-which in addition to domesWith fed cattle marketings
Many commercial and industrial
~ic rigs includes equipment that is
through September having dropped
borrowers have also repaid a large
mstalled on rigs built abroad25 percent from a year before, the
amount of their outstanding shortcomprises a large part of the nongain in beef production in 1975 has
term debt with proceeds from
electrical machinery industry in
resulted from higher slaughter of
longer-term bond and equity offerTexas. And nonelectrical machingrass-fed animals. And it has more
ings. Short-term borrowings had
ery, the state's largest durable
than offset a significant drop in
goods industry, accounts for 6.5 per- reached near-record levels in 1974.
pork production and declines for
Use of bank credit lines by the
cent of Texas' industrial output .
all other livestock products except
. Despite fewer new orders, produc- transportation industry this year
turkeys.
has exceeded the 1974 rate and bortIon of nonelectrical equipment
rowings by petroleum refining and
should remain high, bolstering the
Other highlights:
mining industries have lagged
recovery in industrial output in
• Labor markets in Eleventh Disrecord rates of 1974 only slightly.
Texas. But once the rigs under contrict states were much improved in
ir~c~ are completed, the strength of Strength in borrowing by these
October. The seasonally adjusted
Important industry will largely industries-which account for
nearly a third ofthe total volume of unemployment rate fell to 6.9 perepend on whether manufacturers
cent, as the number of unemployed
business loans-has largely offset
can find other work.
workers declined for the first time
weakness in loan demand from
th ~arge firms possibly can switch
since June.
most other industries this year.
Ii elr output to other product
The fastest growth in employnes, such as oil field production
ment was in the construction
On the strength of increased crop
platforms that are used onshore
(Continued on back page)
production and livestock producOr barges. Small, specialized firms,

lIS

CONDITION STATISTICS OF WEEKLY REPORTING COMMERCIAL BANKS
Eleventh Federal Reserve District
(Thousand dollars)

Federal funds sold and securities purchased
under agreements to resell
Other loans and discounts. gross
Commercial and Industrial loans
Agricultural loans. excluding CCC
certificates of Interest
Loans to brokers and dealers for
purchasing or carrying :
U.S. Government securities
Other securities
Other loans for purchasing or carrying:
U.S. Government securities
Other securities
Loans to nonbank flnencial lnstltutlons:
Sales finance . personal finance . factors .
and other business credit companies
Other
Real eslate loans
Loans to domestic commercial banks
Loans to foreign banks
Consumer Instalment loans
Loans to foreign governments. official
Institutions. central banks. and International
Institutions
Other loans
Total investments
Total U.S. Government securities
Treasury bills
Treasury certificates of Indebtedness
Treasury notes and U.S. Government
bonds maturing:
Within 1 year
1 ltear to 5 years
A ter 5 years . .
Obligations of states and political subdivisions:
Tax warrants and short-term notes and bills
All other
Other bonds. corporale slocks. and securities:
Certificates representing participations In
federal agencr, loans
All other (Includ ng corporate stocks)
Cash Items In process 01 collection
Reserves with Federal Reserve Bank
Currency and coin
Balances with banks In Ihe United Siaies
Balances with banks In lorelgn countries
Other assets (Including Investments In subsidiaries
nol consolidated)

Oct. 15.
1975

Nov. 20.
1974

1.499.930
10.512.830

1.600.663
10.603.502

t .625.941
10.515.988

5.051 .000

5.122.340

4.969.419

216.627

207.079

246.832

200
88.613

200
66.222

1.233
35.918

681
374.809

869
370.889

4.902
424.748

168.613
556.403
1.474 .907
64 .936
74 .511
1.134.859

201 .652
595.344
1.494 .279
53.595
87.883
1. 122.261

154 .549
584 .425
1.537.998
42.278
72.633
1.122.052

2.849
1.323 .822
5.175.363

2.053
1.278.836
5.115.462

13
1.318.988
4.260.600

1.656.296
323.461
0

1.545.788
273.779
0

935.736
90.676
0

274 .166
879.935
178.734

267.266
836.094
160.627

162.965
471 .723
210.152

271 .280
2.925.370

298.365
2.964 .604

152.323
2.847.716

9.710
312.707
1.619.272
1.208.778
141 .616
492.666
136.947

9.745
296.960
2.191 .031
920.207
130.787
584.958
106.564

20.342
304 .483
1.541 .116
1.176.656
131 .605
411 .899
28.461

Nov. 19.
1975

Oct. 15.
1975

Nov. 20.
1974

16.722.016

---8.166.941

16.941 .598

15.229.261

6.029.635
389.485
97.877
1.237.096

7.153.74 4
5.115.717
565.322
108.080
1.186.282

4.002
66.344
102.595
8.977.899
1.366.805
7.589.094
5.007.369
2.109.075
27.395
419.710

5.854
324.203
104.791
8.752.657
1.362.045
7.390.612
4.898.946
2.094 .893
28.047
347.842

2.522
63.565
112.256
8.075.517
1.142.447
6.933.070
4.675.637
2.086.974
10.713
126.091

14.202
11 .343

18.260
2.824

15.368
18.287

2.875.837
18.865
728.059
203.319
27.492
1.554.743

3.055.406
19.641
704 .336
202.890
27.651
1.525.105

3.010.309
147.365
637.521
166.209
21 .445
1.394 .334

22.130.331

22.476.627

20.628. : :

To tal demend depoSits
Individuals. partnerships. and corporations
States and political subdivisions
U.S. Governmenl
Banks In the United Siai es
Foreign:
Governments. offlclallnslltutlons. cen tral
banks. and Inlernatlonal InStllutlons ..
Commerclel banks
Certified and officers' checks elc.
Totel time and savings deposits
TOlal savings deposlls'
TOlaltlme deposits'
Individuals. parlnershlps. and corporations ..
States and political subdivisions'
U.S. Government (Including postal savings)
Banks In Ihe United S1
81es
Foreign:
Governments . offlclallnstl1utlons. central
bonks. and Internallonallnstltutlons
Commercial banks
Federal funds purchased and socurltles sold
under agreements 10 repurchase
Other liabilities for borrowed money
Other liabilities
Reserves on loans
Reserves on securities
Total capital accoun ts
TOTAL LIABILITIES. RESERVES. AND
CAPITAL ACCOUNTS

1.342.929

1.223.453
22.476.627

1. Week and year aHo figures oro not comparable since savlnHs deposits of domestic

Pr0vernmenlal un ts were previously Included In time depos ts and are now Included
n savings deposits.

DEMAND AND TIME DEPOSITS OF MEMBER BANKS
E l e v e nth F e d e r a l R eserve D ist ri ct
(Averages of dally figures. Million dollars)

20.628.444

DEMAND DEPOSITS
Dal e

Eleven t h Fed e r al R eserve D ist r ict
(Million dollars)

ASSETS
Loans and dlscounls. gross
U.S. Government obligations
Other securities
Reserves with Federal Reserve Bank
Cash In vault
Balances with banks In the United States
Balances with banks In foreign countrlese
Cash Itoms In process of collection
Other assets e
TOTAL ASSETSe
LIABILITIES AND CAPITAL ACCOUNTS
Demand deposits of banks
Other demand deposits
Time deposits
TOlal deposits
Borrowings
Other lIabllltlese
TOlal capital accounlSe
TOTAL LIABILITIES AND CAPITAL
ACCOUNTS e
e-Estlmated

-

Oct. 29.
1975

Sept. 24 .
1975

Oct 30.
1974

21 .851
3.173
7.449
1.662
417
1.474
133
1.834
2.277

21 .775
3.054
7.439
1.762
400
1.351
123
1.711
2.055

21 .337
2.057
6.946
1.690
374
1.239
37
1.803
1.720

40.270

39.670
1.702
12.569
17.671

1.642
11.926
16.009

32.684
3.144
1.685
2.777

31 .942
3.194
1.783
2.751

29 .577
3.514
1.664
2.628

40.270

39.670

37.403

U.S.
Adlusled '

Government

Tolal

Savings

13.289
13.687
13.843
14.351
14.180
13.956
14.114
14.247
14.106
14 .333
14.501
14.514
14.748
14.725

9.461
9.976
10.148
10.355
10.353
10.245
10.349
10.572
10.374
10.529
10.698
10.745
10.608
10.752

239
149
138
208
166
150
165
213
195
199
164
129
196
171

13.795
15.714
16.016
16.177
16.842
17.052
17.177
17.196
17.303
17.273
17.315
17.452
17.563
17.715

2.863
2.977
3.009
3.049
3.079
3.124
3.226
3.325
3.348
3.409
3.480
3.493
3.513
3 .561

-

37 .403

1.865
12.845
17.954

TIME DEPOSITS

TOlal

1973: October
1974: Oclober
November
December
1975: January
February
March
April
May
June
July
Augusl
Seplamber
Oclober

CONDITION STATISTICS OF All MEMBER BANKS

Item

7.744 .117
5.622.482
453.393
112.630
1.382.671

936.178

22.130.331

TOTAL ASSETS

LIABILITIES
Total deposits

Nov. 19.
1975

ASSETS

Olher lhan Ihose of U.S Government and domestic commercial banks. less cash
Items In process of collection

RESERVE POSITIONS OF MEMBER BANKS
E l e v e nth F ed e r a l Re serv e Di s tri ct
(Averages of dally figures Thousand dollars)

Item
Tolal reserves held
With Federal Reserve Bank
Currency and coin
Required reserves

Excess reserves
Borrowings
Free reserves

5 weeks ended
Nov. 5. 1975

4 weeks ended
Oct. t . 1975

2.225.903
1.876.200
349.703
1.996.198
229.705
8.666
221 .039

2.044.653
1.683.597
361 .056
2.025.253
19.400
11 .302
8.098

-

5 weeks ended
Nov . 6 . 1 9~
1.976.880
1.644 .676
332.204
1.969.566
7.314
113.426
- 106.1 1 ~

BANK DEBITS, END-OF-MONTH DEPOSITS, AND DEPOSIT TURNOVER

SMSA's in Eleventh Federal Reserve District
(Dollar amounls In Ihousands. seasonally adJusled)
DEBITS TO DEMAND DEPOSIT ACCOUNTS'
DEMAND DEPOSITS'
Percenl change

ARIZONA: Tucson
LOUISIANA: Monroe
Shrevepon
NEW MEXICO: Roswell '
TEXAS: Abilene
Amarillo
AuSlin
Beaumonl·Pon Anhur. Oranj,e
Brownsvllle-Harlingen·San enllo
Bryan,Coliege Sialion
Corpus ChrlSIl
CorSicana'
Dallas
EI Paso
FonWonh
Galveston· Texas Clly
Houslon
Kllleen.Temple
Loredo
Lubbock
MCAllen.Pharr. Edlnburg
Midland
Odessa
Son Angelo
Son Anlonlo
Sherman·Denfson
Texarkana (Texas.Arkansas)
'J'/,Ier
aco
Wloh lla Falls
T 0101-30 cenlers

Sepl
1975

OCI.
1974

$27.488.155
6.245.929
24 .180.979
1.687.884
4.364.560
11 .848.169
28.685.608
11 .103.439
4.207.457
2.042.310
12.227.018
760.952
249.764.335
14.599.630
42.512.798
5.2,18.632
273.252.232
3.061 .435
2.287.487
10.712.812
5.039.902
6.127.135
6.055.501
3.499.415
37.702.133
1.964.501
2.548.542
4.301 .926
6.650.357
5.204,760

Siandard melropollian
slallsllcal area

Annual rOle

1%
2
1
9
- 10
3
12
- 6
11
1
- 4
- 5
- 5
- 13
1
3
- 5
- 6
3
5
8
1
8
1
- 3
3
- 2
- 2
- 1
- 5

88%
6
10
39
11
13
54
0
24
22
8
6
- 11
- 7
13
3
12
23
29
24
28
52
17
23
24
8
21
19
27
- 11

10 monlh •.
1975 from
1974

OC1.31 .
1975

32%
8
18
11
11
3
15
4
5
12
6
7
- 2
8
7
15
19
12
13
0
25
32
48
15
14
5
14
12
19
5

7%

- 3%

$815.345.993

0' turnover

Ocl. 1975 from

Ocl.
1975
(Annual·rale
basis)

9%

$392.826
131 .571
375.067
57.252
157.188
263.215
517.542
388.849
128.560
88.872
326.002
42.921
3.266.128
380.097
1.019.251
157.087
4.151 .157
134.863
76.213
248.704
179.766
236.148
147.343
102.062
995.039
89.088
102.024
164.785
181 .231
189.028
$14 .649.659

OCI,
1975

SOPI,
1975

OCI
1974

70.3
47.6
64.3
28.7
275
44.4
52.1
297
32.4
29.7
38.9
17.3
789
39.4
417
33.0
65.2
22.3
29.1
43.2
28.4
25.7
418
34.0
378
21 .5
24 .8
25.8
36.6
27.6

68.3
46.4
64 .3
26.1
30.2
43.0
47.6
322
29,8
29.8
38.0
18.0
80.3
47.0
417
316
88.8
238
28.2
40.5
26.9
26.3
38.8
334
39.2
20.6
25.6
274
38.1
29.3

41.3
47.7
59.3
23.6
270
44 .7
43.3
34 .7
28.7
28.8
379
19.0
897
497
40.5
35.5
63.4
203
26 .3
388
25.2
18.9
22 .5
31 .1
34 .0
21 .1
21.9
25.4
33.2
33.9

554

573

567

1. Deposlls of Individuals. partnerships. and corporallons and of slales and polilical subdivisions
2. Coun ly basis

CONDITION OF THE FEDERAL RESERVE BANK OF DALLAS
BUILDING PERMITS

(Thousand dollars)
Nov. 19.
1975

422.062
17.596
0
295.934
4.259.960
4.573.510
1.667.068

678.602
57.711
0
193.603
3.477.141
3.728.455
1.890.415

2.863.435

2.609.971

VALUE OF CONSTRUCTION CONTRACTS
(Million dollars)

-

January-Oclober
Area and Iype

FIVE SOUTHWESTERN
STATES'
Resldenllal building
Nonresidenllal building
Nonbulldlng conslrucllon
UNITED STATES
Residenllal building
Nonresldenllal building
~onbullding conslrucllon
:

-

Ocl.
1975
913
409
315
190
7.767
3. 189
2.629
1.949

f~P5

1975

1974

992
373
386
233
10.037
2.784
2.666
4.587

10.541
3.462
4.027
3.052
79.275
26.625
26.846
25.803

10.359r
3.783r
4.071r
2.505
80.645r
30.025r
28.359r
22.262r

~;f~
841
369
267
205
7.692
2.966
2.526
2.200

~rizona. LouiSiana. New Mexico. ,and Texas
Oklahoma
eVised

~gG~c Delolls may nol odd 10 1010 Is because of rounding .
E: F. W. DOdge. McGraw.HIII, Inc.

VALUATION (Dollar amounls In Ihousands)

Nov. 20.
1974

2.890.651

T 0101 gold cenUlca le reserves
Loons 1 member bonks
0
Olher loans
Federal agency obllgallons
U.S. Governmenl securilies
TOlal earning assels
Member bonk reserve deposlis
Federal reserve noles In aclual
clrculallon

Ocl. 22.
1975

422.062
1.878
0
310.420
4.309.527
4.621 .823
1.865.225

lIem

Perc en I chango
Ocl. 1975
from

NUMBER

Area
ARIZONA
Tucson
LOUISIANA
Monroe·
Wesl Monroe
Shrevepon
TEXAS
Ablleno
Amarillo
Auslln
Beaumonl
Brownsville
Corpus Chflsll
Dallas
Denison
EI Paso
Fon Wonh
Galveslon
Houslon
Loredo
Lubbock
Midland
Odessa
pon Arlhur
Son Angelo
Son Anlonlo
Sherman
Texarkana
Waco
Wichlia Falls
TOlal-26 cilies

10 monlhs.
1975 from
1974

OCI
1975

10 mos
1975

Del.
1975

10 mos
1975

SOPI
1975

OCI.
1974

351

4.770

$4 .308

$73.811

- 8%

- 17%

88
644

738
7.295

2.815
5.141

14.159
58.022

44
32

188
- 46

- 15
- 35

1.099
106
2.785
297
4.637
548
2.184
253
1.170
107
2.420
263
15.718
1.427
378
28
4.817
521
3.739
432
556
78
19.119
2.310
675
87
1.841
190
1.148
113
1.194
142
953
68
709
69
14.111
991
318
22
655
59
2.143
212
1.015
130

1.884
5.842
8.992
3.726
1.653
1.911
22.918
459
7.791
9.933
1.027
72.357
762
13.190
3.213
3.691
512
1.351
7.467
169
332
1.350
1.698

24.5 11
66.688
130.844
36.134
15.768
45.960
222.358
2.873
95.696
156.419
7.733
504 .250
12.224
103.292
24 .133
27.670
4.090
18.148
123.702
3.847
5.069
17.152
13.974

- 53
26
0
113
180
- 58
20
9
16
128
143
38
-56
152
- 23
- 57
24
- 58
- 62
- 33
- 65
- 33
- 14

72
10
- 16
149
21
10
45
194
- 17
- 48
32
17
429
230
423
108
- 75
110
- 14
- 88
- 6
55
60

80
22
- 40
1
- 37
- 10
- 17
81
- 35
20
- 75
- 9
51
- 9
- 10
65
1
55
- 21
- 32
- 27
- 47
15

11 %

11 %

- 14%

9.556

96.167

$184 .292 $1 .806.547

4%

DAILY AVERAGE PRODUCTION OF CRUDE OIL

LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT

(Tho usand barrels)

Five Southwestern States'
Percent change from
Oct.
1975

Area
FOUR SOUTHWESTERN
STATES
Louisiana
New Mexico
Oklahoma
Texas
Gulf Coast
West Texas
East Texas (proper)
Panhandle
Rest of state
UNITED STATES

Sept.
1975

Oct.
1974r

5.783.7
1.776.0
255 .0
449 .3
3.303 .5
636.7
1.784.8
211 .5
54.4
616.1
8.326 .3

5.763.0
1.735.7
255 .0
447 .7
3.324 .6
641 .8
1.786.8
215.6
58.0
622.4
8.284 .2

6.054.9
1.900.9
269 .6
470 .2
3.414 .2
667.8
1.823.3
194.2
51 .6
677.3
8.567 .7

Sept.
1975
0.4 %
2.3
.0
.4
- .6
- .8
-. 1
- 1.9
- 6.2
-1.0
.5%

(Seasonally adjusted)

Oct.
1974
-4.5%
-6 .6
-5.4
- 4.4
-3.2
-4 .7
-2. 1
8.9
5.4
-9.0
- 2.8%

r-Revlsed
SOURCES :' American Petroleum Institute
U.S. Bureau of Mines
Federal Reserve Bank of Dallas

Percent change
Oct. 1975 from

Thousands of person s
Oct.
1975p

Sept.
1975

Oct.
1974r

Sept.
1975

Oct.
1974

9.329.2
8.687.3
641 .8
6.9%

9.292 .5
8.626.6
665.9
7.2%

8.981 .9
8.519.5
462.4
5.2%

0.4%
.7
- 3.6

3.9%
2.0
38.8

J -.3

21.7

7.662.8
1.268.9
706.1
562.9
6.393.9
270 .8
487.7

7.618.2
1.263.1
703.7
559.4
6.355.2
270.4
480.3

7.592.2
1.312.2
743 .7
568.5
6,280.0
264.1
502.5

.6
.5
.3
.6
.6
.1
1.5

.9
- 3.3
- 5.1
- 1.0
1.8
2.5
- 2.9

502 .5
1.836.3
423.6
1,314.0
1.558.9

498.6,
1.829.9
421.9
1.307.0
1.547 .0

513.9
1.810.9
413.8
1.286.5
1.488.3

Item
Civilian labor force
Total employment
Total unemployment
Unemployment rate
Total nonagricultural wag e
and salary employment
Manufacturing ..
Durable .........
Nondurable .
Nonmanufacturing
Min ing
Co nstruction
Transport ation and
public utilities ..
Trade
Finance
Service
Governmen't'

.8
.3
.4
.5
.8%

-2.2
1.4
2.4
2.1
4.7%

1. Arizona , Louisiana , New Mexi co , Oklahoma . and Tex as
2. Actual c hange
p- Prellmlnary
r- Revised
NOTE : Details may not add to totals because of rounding .
SOURCES : State employment agencies
Federal Reserve Bank of Dallas (seasonal adjustm en t)

CROP PRODUCTION
(Thousand bushels)
FIVE SOUTHWESTERN STATES'

TEXAS

Crop

Cotton'
Corn .................
Winter wheat.. .
Oats ..
Barley .
Rye
Rice' .
Sorghum grain ..
Flaxseed .
Hay' .......
Peanuts' ..... ,......
Irish potatoes' ......
Sweet potatoes' ..

Pecans&...
Soybeans

1975,
estimated
Nov. 1
2.819
115.500
131 .100
19.500
2.380
760
24 ,332
387.600
480
4.860
474 ,300
2.433
950
55 ,000
9.100

1974
2.487
73.600
52.800
8.100
1.350
200
25,258
312.000
374
5,106
413 ,280
3,206r
850
38 ,000
7.830

1975.
estimated
Nov. 1

1973
4.699
60,800
98,600
26 ,650
3.510
648
20 ,530
417.000
80
5,808
471 ,225
3,778r
855
20,000
8.500

4.075
131,046
326.484
24,394
15.825
1.408
48.057
439,198
480
11,453
735.735
5.388
3.585
122.000
58.340

r-Revised
1. Arizona . Louisian a, New Mexico, Oklahoma, and Texas
2. Thousand bales
3. Thousand hundredweight
4. Thousand tons
5. Thousand pounds
SOURCE: U.S. Department of Agriculture

industry, where work has resumed
after a series of strikes. But there
were 15,000 fewer construction jobs
than in October 1974. The rate of
recovery in construction employment was shared about equally
among the District states.
• Total credit at weekly reporting
banks in the Eleventh District fell
in the five weeks ended November 19, as total loans declined substantially. In line with the trend
for most of the year, these banks
increased their holdings of Government securities through sizable net
acquisitions of Treasury bills and

INDUSTRIAL PRODUCTION AND TEXAS
MANUFACTURING CAPACITY UTILIZATION
(Seasonally adjusted Indexes. 1967 = 100 for production)

1974
4.565
88.315
206.145
12.449
12,750
965
49,978
356,707
374
11 ,371
644.054
6.534r
4.525
56,700
57.747

1973
6,446
73,398
280.442
34.948
21.825
1.981
41,924
478.164
80
12,964
743,867
6,880r
3.825
96.500
47.860

Area and type of index
TEXAS
Total Industrial production
Manufacturing .....
Durable ..
Nondurable ...
Mining .. ... , .... , ..........
Utilities ................
Capacity utilization
In manufacturing (1972 - 100) .
UNITED STATES
Total industrial production
Manufacturing
Durable .
Nondurable ...
Mining ........ ,., .............................
Utilities .......................... ..

Oct.
1975p

Sept.
1975

Aug.
1975r

Oct.
1974r

125.1
130.0
129.8
130.1
107.6
171 .8

125.3
129.9
130.4
129.5
108.5
171 .8

125.2
129.9
131.7
128.5
108.0
171 .8

127.3
132.1
134.1
130.5
111.4
162.8

95.1

95.4

95.6

100.8

114.0
11 2.6
105.4
123.1
104.8
154.5

124.8
124.6
121 .6
128.9
110.5
151 .2

116.5
114.7
106.7
126.3
106.3
156.6

116.0
114.2
106.9
124.9
106. 1
156.0

p- Prellmlnary
r-Revlsed
SOURCES : Board of Governors of th e Federal Reserve System
Federal Reserve Bank of Dallas

intermediate-term notes. Holdings
of municipal issues, however,
declined considerably.
• The seasonally adjusted Texas
industrial production index turned
downward in October, after five
consecutive months of increase.
The decline primarily stemmed
from a drop in crude petroleum
mining. Manufacturing output
showed little change, as a gain in
nondurable goods production offset
a decline in durable goods output.
The capacity utilization index for
Texas manufacturers also reflected
the slowdown in production. A

-

-

slight drop in October-the index
fell to 95.1 percent of the 1972
base-represented the second
consecutive month of decline .
• Cattle on feed in Texas and
Arizona on November 1 numbered
2.2 million head, 19 percent more
than a month earlier and 17 percent
more than a year before. Placements during October were a substantial71 percent higher than in
October 1974, but marketings were
22 percent lower. The increase in
placements resulted from lower
feed costs and stronger prices for
slaughter cattle.