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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) I I Bicentennial Perspective- 1 I Evolution of Money and Banking i In the United States r I I ~ 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 :n nUs' lIless Review I December 1975 1 J 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 2 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 r j I I I I i I i r '/ I r { 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 3 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 4 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- B b h t1 SUs' Iness Review I December 1975 5 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 -J 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- - - BUSiness Review I December 1975 7 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.