The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MM' ..AX.''** Hlht August 1956 Volume X X X V III Number 8 OF FEDERAL RESERVE BANKS J.HE Reserve Bank Organization Committee faced a difficult task in designating Federal Reserve districts and Reserve cities. But only minor changes were afterward made in the framework of the System, except for the establishment of branches. The Federal Reserve Board at first authorized branches reluctantly. However, recognizing the “unity and paramount responsibility9 of parent banks, the Board in 1917 authorized ten branches, and by the end of 1920 the branch structure of the System was nearly complete, with two distinguishable groups of branches. Three Eighth District branches were formed: Louisville, Memphis, and Little Rock. Civic leaders of Louisville had been disappointed over their failure to get a Reserve Bank, but it was not until 1916 that an application for a branch was presented. After hearings in St. Louis and Washing- ton, at which economic reasons for the founding of a branch were urged, the Federal Reserve Board ap proved the branch in Louisville. Following the estab lishment of an agency in 1916, Memphis experienced little difficulty in securing a branch and Little Rock obtained one shortly thereafter. The branch system, cast in essentially its present form by 1921, underwent only a few structural changes in the 1920s and ’30’s. For two decades after 1921 some branches enjoyed a greater degree of autonomy than others. In 1942 the Board of Governors expressed a desire to increase the responsibilities of branches and strengthen their personnel. Accordingly, within the past decade or so branches have greatly increased their services and their participation in the two-way flow of information between the monetary authority and the business community. V F ederal R esrn c Bank df7St. Louis BRANCHES OF FE SERVE BANKS The Reserve Bank Organization Committee faced a difficult task in designating Federal Reserve districts and Reserve cities. more, the latter two cities going so far as to request the Federal Reserve Board to recognize their claims to a Reserve Bank as being superior to those of Cleveland and Richmond, respectively. T h e task of the Reserve Bank Organization Com mittee, which set to work soon after the passage of the Federal Reserve Act, was scarcely an enviable one. Assigned the duties of dividing die continental United States into not less than eight nor more than twelve Federal Reserve districts and designating a Federal Reserve city in each, the Committee went about its work under only the most general statutory guides. Throughout the country the Committee held public hearings, during which enthusiastic repre sentatives of more than 200 communities asked that a total of 37 cities be designated as the headquarters of a Federal Reserve Bank. With admirable dispatch, considering the magni tude of the problem, the Committee submitted its decision on April 2, 1914. Some observers had ex pected the Organization Committee to select only eight districts, but the maximum number of twelve districts and twelve Reserve cities was chosen. Even with the larger number of cities chosen, several major contenders for a bank were bound to suffer disap pointment. Perhaps the keenest sense of loss was felt in New Orleans, where interested citizens had con sidered selection certain. Scarcely less frustration was felt in Louisville, Denver, Pittsburgh, and Balti Page 90 Moreover, there was much dissatisfaction with the designation of district boundary lines, and the Board received requests from border-line sections for trans fer from one district to another. There was on the Federal Reserve Board itself a majority opinion that the number of districts should be reduced by at least four, and the matter was not finally settled until what Warburg has called “the re-districting intermezzo" ended in an Attorney General’s decision against the proposed reduction in the number of districts.1 But only minor changes were afterward made in the framework of the System, except for the establishment of branches. The framework of the System continued, with only minor alterations, as originally established by the Reserve Bank Organization Committee. In one major respect, however, the System underwent a structural change during the first half-dozen years of its exis tence. Section 3 of the Federal Reserve Act pro vided for the establishment of branches of Federal Reserve Banks, each branch to be operated by a i Paul M. Warburg, The Federal Reserve System, Its Origin and Growth, (New York: The Macmillan Company, 1930) Vol. 1, pp. 424-455. Sec also the Second Annual Report of the federal Reserve Board, p. 19. board of seven directors who were to possess the same qualifications as directors of the parent banks. Yet the Act said nothing about the functions of branches, nor did it specify the degree of autonomy which they should enjoy. In a preliminary report to the Organization Com mittee, H. Parker Willis had remarked that the prob lem of branches was likely to be "decidedly serious” and went on to point out that they might be estab lished in two ways. Branches, he thought, could be created as "mere local boards of directors” perform ing routine clerical functions or as "full-fledged branch banking institutions” charged with most of the re sponsibilities of the parent bank. In any case, Willis counseled against haste in resolving the prob lems of branches.2 Interested members of the bank ing community in the larger cities of the country were not disposed to such caution. During the hearings of the Organization Committee it became apparent that branches would be readily acceptable to those cities which failed to secure a Federal Reserve Bank, and in at least one instance it was argued that a branch would serve an area better than a parent bank.3 The Federal Reserve Board at first authorized branches reluctantly. During the early formative years, a majority of the members of the Federal Reserve Board was not in favor of structural additions which would result in decentralization of authority in the System. Yet rea sons for the establishment of branches, cogently argued, were compelling. In 1915, upon application of the Federal Reserve Bank of Atlanta, a branch at New Orleans was authorized, and the branch was Opened for business on September 10. However, in the Annual Report for 1915 the Board questioned whether the expense of fully equipped branches might not be too heavy for most Reserve Banks and suggested that local "agencies” might be a practicable substitute. In the Annual Report for 1916 it was re marked with some satisfaction that a number of Fed eral Reserve Banks were contemplating the estab lishment of agencies in areas requiring special serv ices, such as the collection of checks, and the estab lishment of such an agency in Memphis was noted. Late in the year, however, an application for a branch had come from the bankers in Louisville, and a hear ing on the matter had been held in Washington. 2 H. Parker Willis, The Federal Reserve System (New York: The Ronald Press Company, 1923), pp. 577*78. 3 Hearings of the Reserve Bank Organization Committee at St. Louis, pp. 1604-05. However, recognizing the "unity and paramount responsibilityof parent banks, the Board in 1917 authorized ten branches. . . . The year 1917 witnessed the first flurry of branch formation. In the Annual Report of that year the Board observed that questions relating to the estab lishment and operation of branches had been simpli fied by an amendment to Section 3, which provided that the Board might "permit or require” a Federal Reserve Bank to establish branches within its dis trict.4 The change provided an easier machinery for the establishment of branches and seemed to lessen the Board’s reluctance to approve them. In the late summer and fall of 1917 branches at Spokane, Seattle, Omaha, Portland, and Louisville were opened for business in that order, and by the end of the year branches had been authorized at Pittsburgh, Cin cinnati, Detroit, Baltimore, and Denver. By this time stated Board policy in the establishment of branches was . . to recognize the unity and para mount responsibility of the Federal Reserve Bank, while extending full facilities to the banks in the territory served by the branch.”5 The addition of ten branches in 1918 brought the total to sixteen in operation, among them a branch at Memphis which on September 3 had been changed from agency status. A branch at Little Rock, author ized in 1918, began business on January 6, 1919, and was followed in that year by Buffalo, Houston, and Nashville. In 1919 the Federal Reserve Bank of Atlanta also established an agency to take care of currency needs at Savannah. . . , and by the end of 1920 the branch structure of the System was nearly complete, with two distinguishable groups of branches. By the end of 1920 the branch structure of the Federal Reserve System was nearly complete, branches at Oklahoma City and Los Angeles opened in that year having brought the total to 22 plus the Savannah agency. Too, by 1920 the Board was dis tinguishing two main lines of branch development. It reported that . . branches located at Cincinnati, Pittsburgh, Birmingham, Jacksonville, Nashville, and Oklahoma City confine their operations largely to clearing and collection of checks, and to supplying currency, both paper and coin, to member banks in branch territories, while the remaining sixteen 4 Branches were to operate under a local board of not more than seven nor less than three directors, of whom a majority of one should be ap pointed by the Reserve Bank of the District and the rest by the Board. 5 Annual Report of the Federal Reserve Board, 1917, p. 25. Page 91 THE FEDERAL RESERVE SYSTEM Boundaries of Federal Reserve Districts and Their Branch Territories Map reprinted from the F e d e r a l R eserve B u l l e t in LEGEND — Boundaries of Federal Reserve Districts ----------- Boundaries of Federal Reserve Branch Territories © Board of Governors of the Federal Reserve System ® Federal Reserve Bank Cities # Federal Reserve Branch Cities ROM the establishment of the first branch of Federal Reserve Banks, the one at New Orleans in 1915, the branch structure of the Federal Reserve System rapidly developed to virtually its present form. The 12 Reserve banks and 24 branches of the system are shown on the map above. As ex plained in the article, agencies located at Havana, Cuba, for a number of years have since been dis continued so that system offices are now located entirely within limits of the continental United States. Branch territories of the Federal Reserve Bank of St. Louis are also shown on the map in color, page 90. Page 92 branches render practically the same services to mem ber banks in the branch territories as the parent banks render to member banks in other parts of the district.”6 Branches in the former group did not then engage in discount operations but transmitted applica tions to the parent bank, nor did they carry the reserves of the member banks within their territory. Branches in the latter group, on the other hand, dis counted paper (subject to head office review), carried the reserve balances of member banks on their own books, and, with the exception of Buffalo, participated in the daily clearing through the gold settlement fund. Size of operation was clearly not the criterion by which the type of branch activity was determined. Pittsburgh, from the point of view of items handled for collection and currency received and paid out, had done the most business during 1920, the volume of items handled running to nearly $6 billion as compared with a little over $0.5 billion each for Spokane and El Paso.7 Three Eighth District branches were formed; Louisville, Memphis, and Little Rock. By 1921, the year in which establishment of the Helena branch raised the total to 23, the Board seemed to accept branches as necessary and even valuable parts of the System. After 1922 there were no further references to the expense involved in their operation nor to the impracticability of establishing branches “merely to gratify civic pride.” That ac ceptance should have become a fact within so short a period of time is surprising in view of the original reluctance of the Board to establish branches. How had this reluctance been overcome? The best insights can be gained by tracing briefly the steps by which particular branches came into being. No more instructive examples can be found than the stories of the establishment of the Louisville, Mem phis, and Little Rock branches of the Federal Reserve Bank of St. Louis. Civic leaders of Louisville had been disappointed over their failure to get a Reserve Bank, . . . Civic leaders of Louisville, like those of New Orleans, were disappointed in the final selection of Reserve Bank cities and district boundary lines. They pointed out that Louisville had for 100 years stood with Baltimore and New Orleans as one of the three leading southern cities, and that close ties of friend 6 Annual Report of the Federal Reserve Board, 1920, p. 92. 7 Ibid., pp. 92-93. Other branches toward the top of the list in 1920 volume of operations were Baltimore, Cincinnati, Detroit, and Buffalo. ship bound together the commercial relations exist ing between Louisville and the territory it served. Less than two days before the announcement of the boundaries of the districts, Louisville bankers had been told unofficially that their city was one of the twelve selected for a Reserve Bank, so that their disappointment was especially keen when the final announcement was made. Finally, injury was com pounded when the state of Kentucky was split in two in the setting of district boundaries, the eastern half being placed in the Fourth District with the Reserve Bank at Cleveland, the western half in the Eighth District with the Reserve Bank at St. Louis. . ., but it was not until 1916 that an application for a branch was presented. * For a year or so after the beginning of System activity, Louisville national banks made no move to obtain a branch in their city, but on July 3, 1916, seven national banks in Louisville made formal ap plication to the Federal Reserve Bank of St. Louis for a branch bank in Louisville.9 The application was re ceived without enthusiasm, both in St. Louis and, upon transmittal to the Board, in Washington. The Federal Reserve Bank of St. Louis wrote Governor Harding of the Federal Reserve Board that in its opinion what Louisville needed was a collection agency. The records of the St. Louis office, it was remarked, showed that Louisville banks and many of those in the surrounding area had done practically no re discounting with the St. Louis Federal Reserve Bank and that, furthermore, it seemed unwise at the time to increase the expenses of the St. Louis bank by the establishment of a branch. Governor Harding agreed that he could see no good reason for the establish ment of a full-fledged Louisville branch. Only a few days later, however, Vice Governor Delano wrote the chief officer of the Federal Reserve Bank of St. Louis, commenting on the general dissatisfaction of Louisville bankers at having been put in the St. Louis rather than in the Chicago district and at having had the state cut in two. He added that an ordinary col lection agency was not what Louisville bankers wanted, that they were insisting on a full-fledged branch so that the paper of local banks could be rediscounted by a committee experienced with local conditions. The Federal Reserve Bank of St. Louis replied that the need for care in handling the applica tion of the Kentucky banks was appreciated, but that on purely economic grounds there was no need for the establishment of a branch. 9 Signers of the petition were the National Bank of Kentucky, AmericanSouthern National IBank, Citizens, National Bank, National Bank of Com merce, Louisville National Banking Company, First National Bank, and Union National Bank. Page 93 over, checks drawn on banks in the Louisville area were unnecessarily sent to St. Louis during the col lection process. It was urged that men preferred to deal with their friends and neighbors, that bankers would take a personal and not a theoretical interest in a branch, and that merchants would not fear the rediscount of their paper with a branch located close to home. Finally, and this argument was intended to cap them all, the establishment of a branch would remove friction and attract new members to the Sys tem. Louisville bankers were prepared to back up their assertion with a guaranty of the expenses of the proposed branch. . . . the Federal Reserve Board approved the branch in Louisville. The new Louisville branch building, now under construction After hearings in St. Louis and Washington, at which economic reasons for the founding of a branch were urged, . , . Two months later a committee of Louisville bank ers earnestly presented their case before the board of directors of the Federal Reserve Bank of St. Louis, arguing that the establishment of a Louisville branch would increase the amount of rediscounting done by the banks of the area. The Louisville representatives contended that a branch would be profitable and would, moreover, attract state banks into the System. The latter contention especially was calculated to influence the Federal Reserve Board, as will be noted presently, but at the time no one either in St. Louis or in Washington seemed to be especially impressed by the arguments. It was finally agreed, however, that a hearing should be held before the Federal Reserve Board in Washington on the afternoon of December 21, 1916, at which the Louisville petitioners could be heard. Having learned that both the Board and the St. Louis Reserve Bank were not disposed to establish a branch in Louisville or, for that matter, in any other city, the Louisville bankers presented their case with great force and vigor. Whiskey paper and tobacco paper, they contended, should be judged by men familiar with the industries involved. The establish ment of the Federal Reserve Bank in St. Louis had diverted deposits of state banks and trust companies in Kentucky and southern Indiana to their St. Louis correspondents, the result being that deposits in Louisville were not growing as they should. More Page 94 At the conclusion of the hearing the Federal Re serve Board made plain its difficulties in deciding upon a general policy for the establishment of branches of Reserve Banks, and no definite opinion was expressed regarding the merits of the Louisville petition. Six months later, however, Vice Governor Delano of the Board wired the Federal Reserve Bank of St. Louis that the Louisville request would shortly be taken up, and he intimated that action would be favorable in the hope that a branch would attract state bank membership. It is a fair inference that stimulation of interest in the System on the part of nonmember banks was the chief motive leading to Board approval of branches in 1917.10 In any case, on July 3, 1917, the board of directors of the Federal Reserve Bank of St. Louis granted the petition for a branch bank in Louisville, and in August Board au thorization was received to open the Louisville branch as soon as the necessary quarters and fixtures could be secured. Although the branch did not open for business until December 3, well after some other branches had commenced operations, there is no question that the efforts of Louisville bankers were largely instrumental in overcoming the obstacles to branch establishments generally. One other point is of interest in connection with the early Louisville operation. The territory to be served by the Louisville branch consisted of the part of Kentucky located in the Eighth District and thirteen counties in southern Indiana. In a letter addressed to member banks in this territory, Gov ernor Wells of the St. Louis Bank wrote that no member bank would be required to deal with the 10 The.Board explicitly noted the stimulating effect on state bank mem bership which the establishment of a branch had had in Omaha, Detroit, and other cities. See for example, Annual Report of the federal Reserve Board, 1917, p. 511, p. 437, branch. "The branch will be established/' he said, "upon the theory that it is an office of the Federal Reserve Bank of the district opened for the con venience of such member banks as may desire to use it.” Member banks were to have the option of send ing paper either to St. Louis or to Louisville for dis count and could treat either the Federal Reserve Bank of St. Louis or the branch bank as the Federal Reserve office with which they would deal on most matters. Only in the matter of transfers of funds, currency shipments, and cash deposits and with drawals were banks located in the Louisville zone required to deal with the branch and not with the Federal Reserve Bank of St. Louis. Following the establishment of an agency in 1916, Memphis experienced little difficulty in securing a branch, , , . Unlike their counterparts in Louisville, bankers in Memphis for a time showed little enthusiasm for the establishment of a branch in their city. However, in the fall of 1916 the Federal Reserve Bank of St. Louis deemed it wise to establish an agency during the cotton season to facilitate the exchange of cotton ft K * ^^ H ill) r-.-sjasa-11* the authorization of a Memphis branch. The Federal Reserve Bank of St. Louis was favorably inclined to the proposal, and on June 5 its board of directors approved the formal application of the Memphis banks. Federal Reserve Board authorization was quickly forthcoming. Directors were appointed, rented quarters were quickly obtained, and the Mem phis branch started operations on September 3. . .. and Little Rock obtained one shortly thereafter. Meanwhile, agitation had begun for a branch in Little Rock. A tentative inquiry in 1915 from Com missioner John M. Davis of the Arkansas State Bank ing Department had elicited an unfavorable response from the Federal Reserve Bank of St. Louis, and nothing further was done for nearly three years. But when wind of the Memphis petition reached Little Rock, member and nonmember banks alike began an insistent campaign for a branch in that city. After negotiations extending over several weeks, both the St. Louis Bank and the Federal Reserve Board were agreeable to a branch which would be operated on a limited scale, the Board suggesting a facility which might be operated at an expense not to exceed $7,500 a year as compared with budgets of from $40,000 to $50,000 a year for the larger branches. Such a reduced operation was not acceptable to Little Rock banks; nothing less than a branch in all respects like that of Memphis would do. A lengthy correspondence followed in which most of the argu ments of the Louisville petitioners were advanced with some effect. Once again, the contention that a branch would induce reluctant state banks to join the System was especially telling, though the guar anty of the Little Rock Clearing House Association that annual expenses would not exceed $25,000 may have influenced the outcome. The result was the authorization early in September of a branch with the same powers and functions as those of the branches at Louisville and Memphis, and on January 6,1919, the Little Rock branch opened for business. The Memphis branch building warehouse receipts that were held as collateral to the loans made by the St. Louis Bank. Again during the 1917 season the agency proved useful, and by the spring of 1918 nearly all of the eligible state banks in Memphis had entered the System. When it appeared that the Board would be favor ably disposed to the formation of branches throughout the country, the banks in Memphis began to secure letters from their country correspondents requesting The branch system, cast in essentially its present form by 1921. under went only a few structural changes in the 1920’s and ’lO’s. As suggested earlier, the branch system had taken approximately its present form by 1921. Moreover, the status of branch responsibility to the parent in stitution was clearly settled by that year. As the Board succinctly remarked in the Annual Report for 1921: "The branches are in no sense independent banks, but are, as is implied in the official title of Section 3, ‘branch offices’ ” This statement meant Page 95 opposed the plan, it was finally arranged that an agency of the Federal Reserve Bank of Boston would buy and sell paper, and that an agency of the Fed eral Reserve Bank of Atlanta would handle the money function. This arrangement persisted for several years, the agencies so established being the only for eign ones ever authorized by the Federal Reserve Board.11 The Little Rock branch building that the work of the branches was largely to be con fined to performance of the service functions of the central bank with only indirect contribution to the monetary control functions. And these service func tions were extremely important. Indeed, the volume of business done by the branches was annually in creasing at a rapid rate, and with the closing of the sub-treasuries in 1920 and 1921, branches of Federal Reserve Banks, like the parent institutions, took on additional fiscal agency operations. During the 1920’s and ’30’s a few structural changes in the branch system occurred, one of them of special interest to historians of the Federal Reserve System. In 1923, two agencies in Havana, Cuba, were estab lished by the Federal Reserve Banks of Boston and Atlanta. Boston banks played an important part in the financing of trade with Cuba, and it was felt that the establishment of an agency of the Federal Re serve Bank of Boston, authorized to buy and sell cable transfers and to buy, sell, and collect bankers acceptances and bills of exchange, would serve both American and Cuban interests by stabilizing the rate of exchange and enabling banks in Cuba to operate on lower cash reserves. There was the further prob lem of issuing and withdrawing United States cur rency, which was legal tender in Cuba and used in a considerable volume. But it was the notes of the Sixth, or Atlanta, District which circulated for the most part, and the commercial and business relation ships between Cuba and the Sixth District were close. After hearings before the Federal Reserve Board, during which the Federal Reserve Bank of New York Page 96 Only a few structural changes affecting Reserve Bank branches have taken place since inauguration of the Havana agencies. In 1927, two additional branches were created, one at San Antonio, Texas, and the other at Charlotte, North Carolina. Beginning on January 1 of that year the Boston agency in Havana was discontinued, and its functions were taken over in part by the Atlanta agency. No further changes occurred until 1938 when, with the approval of the Board of Governors, the agency of the Federal Re serve Bank of Atlanta in Havana was discontinued. In the same year the Spokane Branch of the Federal Reserve Bank of San Francisco ceased operations, the only time in the history of the System that a domestic branch has been discontinued. For two decades after 1921 some branches enjoyed a greater degree of autonomy than others. For two decades after 1921 the activities of Fed eral Reserve Bank branches were unexciting and without incident. As late as 1925 the Board was still making the previously mentioned distinction between Group I and Group II branches, the former perform ing practically all of the functions of a Federal Re serve Bank and the latter executing only certain rou tine functions under specific instructions from the parent bank. Not until 1943, however, when this dis tinction was removed, was any public mention again made of differences in branch functions. In general all branches seemed to slip into the comfortable routine of performing service functions for the banks of their territory under the direction of the parent Reserve Bank. In 1942 the Board of Governors expressed a desire to increase the responsibilities of branches and strengthen their personnel. In 1942, the Board of Governors took a renewed interest in the functions of Federal Reserve branches. In large part the resurgence of interest was prompt ed by the increasing work loads imposed upon branch banks as a consequence of the war. In the 1942 ll For further details see Joseph H. Taggart, The federal Reserve Bank of Boston, (Boston-New York: Bankers Publishing Company, 1938) pp. 91-96. See also Annual Report of the Federal Reserve Board, 1923, pp. 44-47. Annual Report the Board stated that it sought “. . . to increase the services rendered by branches of the Federal Reserve Banks . . .” and “. . . to adjust the services of each branch to the increasing requirements of the territories it serves rather than to develop a uniform pattern of expansion for all branches.” The immediate preoccupation was with increasing the wartime services of branches, but the Board was also concerned with “. . . ways in which the public inter est would be served by a decentralization of peace time functions/’ As a first step in carrying out this change in policy, the Board corresponded with in dividual Reserve banks concerning a program for increasing the responsibilities of branches and strengthening their personnel. The Annual Report of 1943 told of progress in the expansion of operations and functions of branches. For one thing the old distinction between Group I and Group II branches was removed, as the branches at Cincinnati, Pittsburgh, Birmingham, Jacksonville, Nashville, and Oklahoma City began to carry on their books the reserve accounts of member banks in their territories. Of more significance was the designation by several Federal Reserve Banks of vice presidents to serve as resident heads of their branches, eight of the twenty-four branches being under the direction of vice presidents at the end of 1944. Effective January 1, 1946, the officers in charge of the Louisville, Memphis, and Little Rock branches of the Federal Reserve Bank of St. Louis were desig nated as vice presidents of the Reserve Bank and as Managers of their respective branches, and at the end of 1946 twelve branches were headed by vice presi dents. Within another year the chief officers of all branches, save the one at Buffalo, were resident vice presidents, and in 1952 all chief officers of branches held this title. Accordingly, within the past decade or so branches have greatly increased their services . . . Branches of Federal Reserve Banks have in the past decade or so greatly increased their services to their territories. Indeed, with respect to the service functions such as check collection, non-cash collec tion, and money handling, some branches carry on a greater volume of operations than do many parent banks. With respect to the monetary and credit con trol function, however, the historic position of Federal Reserve branches, forged in the first seven years, has remained essentially unchanged. Insofar as vice presidents and managers participate in the councils of officers of the parent banks, they contribute to policy discussions, but their influence is neither greater nor less than this. . . . and their participation in the two-way flow of information between the monetary authority and the business community. In another and highly significant respect branches of the Federal Reserve Banks participate in the whole work of the American central bank. The directors of the branches, men of position in their communi ties, possessed of personal charm and proven capabili ties, are a continuing source of information and coun sel. They, with the officers and employees of the branches, contribute to the vast network of economic intelligence which has become one of the great strengths of the Federal Reserve System. At the same time the directors and officers of branches do much to familiarize the people of their communities with the rationale of Federal Reserve policy and with the broad objectives of the central bank. In an economy as complex as that of the United States, the faithful performance of these functions is a necessary contribution to the practice of central banking. Ross M. R obertson SUBSCRIPTIONS to the Monthly Review are available to the public without charge. For information concerning bulk mailings to banks, business organizations and educational institutions, write: Research Department, Federal Reserve Bank of St. Louis, St. Louis 2, Missouri. Articles or excerpts may be reprinted. A credit line would be ap preciated. Page 97 OF CURRENT CONDITIONS IjH E PACE of business in the Eighth District mod erated slightly during July, reflecting the balance of nationwide and district forces. While employment and production in most areas were close to record levels, there was noticeable easing in durable manu factures—autos, metal products and machinery—and an air of uncertainty over the possible effects of the steel strike. Despite a moderate trend toward a shorter workweek over the first six months of the year, the rise in average weekly earnings of production workers has sustained purchasing power. Retail sales have held up well, department store sales running about 2 per cent ahead of a year ago in July. The cumula tive rainfall deficit in much of the district has been made up by recent showers, and crops are reported to be in good condition. A strong demand continues for business loans at district banks. « « « Total economic activity in Eighth District metro politan centers appeared to hold close to or above y e a r-a g o levels in July, reflecting the con tin u ed strength of demand throughout the nation and the district’s consequent contribution to the “$400-billionplus” gross national product. Employment gains in May and June over a year ago in St. Louis, Little Rock, Louisville and Memphis totaled about 26,000 workers, though about 4,000 fewer are at work in the Evansville area. From this near-record level in May and June, a slight business decline in durable manufactures and seasonal slow ness in a number of other industries created a summer lull in July. Production of automobiles and certain other consumer durables continued to slacken as man ufacturers and dealers worked off excess inventories; in the Eighth District, St. Louis, Evansville and Louis ville were most affected by this trend. Southern pine lumber production this year has been at the highest level since 1948 but showed usual seasonal slowing in June and July. Hardwood mill operating rates in the first half-year also have exceeded year-ago rates but likewise probably turned down seasonally in July. Pine lumber prices weakened slightly in response to Page 98 slower residential construction. District steel mills, however, continued operations during the steel strike under agreement to make retroactive wage adjust ments, following the general settlement both in tim ing and pattern. Local mills raised product prices $8.50 to $12.00 a ton, with prices subject to further review. Operations were at 95 per cent of capacity in June, according to final figures, and averaged 91 per cent (preliminary) during July. Few strike influences were apparent in the district in July with the possible exception of slight effects in coal mining and trans portation. The pinch of strike-caused shortages was beginning late in the month, despite virtually com plete settlement of the strike, with first effects in heavy construction and light sheet metal products. Among nondurable manufacturing industries and nonmanufacturing activities, coal mining, besides pos sible strike effects, was in its summer doldrums. Crude oil output, which jumped in 1954 and 1955, has apparently stabilized at the high level of 380,000 barrels per day. Livestock slaughter at district meat packing plants has been especially heavy in recent months and in June and early July was 20-25 per cent above a year ago. The apparel and shoe indus tries began their fall pickup in July. The gain in shoe production followed some cutback in June for inven tory adjustment. Construction activity in the district has been fol lowing the national pattern, with commercial build ing strong. In the St. Louis suburban area, commer cial construction tripled its year-ago rate the first six months of the year. District construction contract awards during the first six months of 1956 averaged about one-eighth higher (in value) than a year ear lier; the margin of lead was about one-third for the month of June alone. However, employment in con struction in June was only 5 per cent higher than a year ago in St. Louis and Memphis, showed no change in Louisville, and was down about 6 per cent in Evansville and Little Rock. Growth of the economy over the year has resulted in higher total employment and lower unemployment now than a year ago. As might be expected, there was some variation within the district; unemployment rates have been below a year ago in St. Louis, Mem phis, and Little Rock, but higher in Evansville, which was harder hit by auto and refrigerator cutbacks. However, unemployment recently turned upwards, primarily as a result of entry of students into the labor market, the drop in production of automobiles and fabricated metal products and the aforementioned seasonal slowness. Weekly hours of work are generally about equal to a year ago when recovery from reces sion was in full swing but have shown a slight de cline since January. Hourly and weekly earnings of factory workers show a favorable over-the-year rise, stimulating personal consumption and hence retail and service business. Department store sales in the district registered a 2 per cent gain over a year ago in the four weeks ending July 21. New car sales continue to lag, how ever, with May registrations 20 to 25 per cent lower than a year ago, though June probably showed some improvement. Generally favorable crop growing conditions con tinued to prevail over most of the district during the month of July. The north and northwest portions of Missouri, which had suffered rather severely from lack of moisture during June, received rainfall in July at the critical period resulting in excellent corn and soy bean prospects. Corn and tobacco crops continue to look good over most of Kentucky. Pasture and hay crops are also doing satisfactorily. The major por tions of Tennessee and Arkansas have received ample rainfall with the result that cotton is growing and fruiting satisfactorily with only moderate weevil in festation. Mississippi is the only district state where generally dry weather has caused substantial damage. Corn has suffered rather severely. Pastures are also drying up rapidly, causing a number of farmers to start early feeding of silage. Cotton, however, has not deteriorated to any great extent. Most district livestock and livestock products prices rose slightly in the four-week period ending July 20, while crop prices were mixed. Compared to a year ago, crop prices were generally higher, as were milk and eggs, but livestock prices were slightly lower. In finance, total loans (except interbank) at dis trict weekly reporting banks, now 10 per cent above year-ago levels, rose $29 million or nearly 2 per cent from June 20 through July 18, a normal expansion for this time of year. However, bankers report that the strength of loan demand would have pushed outstand ing loans even higher but for several special circum stances which held the expansion to “seasonal” pro portions. Although limited availability of funds has forced bankers to screen loan applications closely and interest rates are at or near the postwar peak, most major types of commercial and industrial firms in creased their indebtedness more than usual in the four weeks ending July 18. Advances to processors of food, liquor and tobacco were especially large for this time of year; outstanding loans in this category jumped $15 million compared to an average $5 mil lion in recent years. This advance probably arises from higher operating costs as well as from slightly more production volume. Other relatively heavy net borrowers were produc ers of textiles, apparel, leather, rubber, petroleum, coal and chemicals as well as retail outlets, wholesale firms and public utilities. These loan increases were brought about partly for temporary capital financing as well as to finance fall season inventories in some lines. Despite the added loan demand of the foregoing industries, loan expansion was held to seasonal pro portions by net repayments by other borrowers. Sales finance companies made sizable net repayments to weekly reporting banks of the district during the fourweek period ending July 18, reportedly from pro ceeds of sales of commercial paper. Manufacturers of metal and metal products who had been substantial net borrowers through the first half year began re ducing loan balances after the Fourth of July as steel inventories accumulated during the earlier months of the year were drawn down. Contractors matched new loans with repayments in contrast to normal seasonal increases in loans, perhaps reflecting a slight restric tion of operations due to reduced availability of cer tain types of structural steel. Advances secured by real estate continued to expand but at a rate much less rapid than in earlier postwar years, in keeping with the lower house construction rate. However, "other” (mainly consumer) loans increased about the usual amount for late June and the first two weeks of July. Page 99 VARIOUS INDICATORS OF INDUSTRIAL ACTIVITY June 1956* compared with May 1956 June 1955 June 1956 Industrial Use of Electric Power (thousands of KWH per working day, selected industrial firms in 6 district cities).............................................................................. .. Steel Ingot Rate, St. Louis area (operating rate, per cent of capacity).................... Coal Production Index— 8th Dist. (Seasonally adjusted, 1 9 4 7 -4 9 = 1 0 0 ).................... Crude Oil Production— 8th Dist. (Daily average in thousands of bb ls.)............... Freight Interchanges at RRs— St. Louis. (Thousands of cars— 25 railroads— Terminal R. R. Assn.)................................................................................. Livestock Slaughter— St. Louis area. (Thousands of head— weekly average)......... Lumber Production— S. Pine (Average weekly production— thousands of bd. ft.) . Lumber Production— S. Hardwoods. (Operating rate, per cent of capacity)........... N.A. 95 97 p 381.4 N.A. —2 —5 - 0- 102.7 102.4 215.2 94 —7 —6 —4 + 2 N.A. — 5 + 20 4- 2 — 3 + 29 + 2 + 2 * Percentage change is shown in each case. Figures for the steel ingot rate, Southern hardwood rate, and the coal production index, show the relative percentage change in production, and not the dop in index points or in percents of capacity. p Preliminary. N.A. Not available. BANK DEBITS1 June 1956 (In millions) Six Largest Centers: East St. Louis— National Stock Yards, 111. ............................. Evansville, Ind. Little Rock, Ark. Louisville, Ky. . . . . . . Memphis, Tenn. St. Louis, M o .......... Total— Six Largest Centers .................. $ 133.0 174.4 189.1 875.8 669.5 2,349.6 Total— 22 Centers — 5% —2 + 16 — — 5 — $4,391.4 Other Reporting Centers: Alton, 111........................ $ 45.2 Cape Girardeau, Mo. 17.2 El Dorado, Ark. 31.6 57.1 Fort Smith, Ark.......... Greenville, Miss. 26.8 Hannibal, Mo. 10.9 Helena, Ark................. 8.5 29.4 Jackson, Tenn............... Jefferson City, Mo. 68.4 Owensboro, Ky............. 47.9 Paducah, Ky. ............. 29.0 Pine Bluff, Ark............. 35.9 Quincy, 111.................... 40.3 Sedalia, M o.................. 17.1 Springfield, Mo............ 90.2 Texarkana, Ark. . . ______ 23.0 T otal— Other Centers . . . . . . . A June 1956 compared with May June 1956 1955 + + — -0-% — 3 + I + 5 — 5 4~ 2 2% + 1% 2 7% 4 2 + 1 1 + 2 2 + 4~ 1 —18 — 1 + 7 —11 + 1 + i + 2 + 2 — + 3% +14 + + + + + 6 + 2 + 11 8 + 9 + 8 + 11 + (In thousands May of dollars) 1956 Arkansas . . ! 23,288 Illinois. . . 137,492 Indiana. . . 68,290 Kentucky 26,495 Mississippi . 21,410 Missouri . . . 62,126 Tennessee 30,527 $ 578.5 2% $4,969.9 2% + 2% 7% INDEX OF BANK DEBITS— 22 Centers Seasonally Adjusted (1 9 4 7 -1 9 4 9 = 1 0 0 ) 1956 1955 May June June 169.2 159.3 162.7 1 Debits to demand deposit accounts of individuals, partnerships and corporations and states and political subdivisions. Percentage Change Jan. thru May May ’56 1956-R from compared with May >55 1955 1954 + 11% + 3 6 % + 2 2 % -0— 5 —12 — 8 — 15 + 3 —22 — 27 + 35 + 18 ± 3 — 9 — 18 + 10 — 8 + 8 7 States . . $369,628 — 3 + 3 — 8 8th District $151,790 — 1 + 6 — 5 Source: State data from USDA preliminary estimates unless otherwise indicated. R— January-May 1956 Revised. Assets Loans1 ...................................... Business and Agricultural . Security ............................... Real Estate ........................ Other (largely consumer) . U. S. Government Securities Other Securities .................... Loans to Banks ......... ......... Cash Assets ............................. Other Assets ........................... Total Assets ...................... Unadjusted T otal........... Residential A llO th er . 278.4 p 315.4 p 261.2 p 260.3 350.1 218.6 220.1 315.2 175.9 Seasonally adjusted T otal........... 246.4 p Residential 279.1 p AllOther . 231.2 p 237.9 318.3 200.6 194.8 278.9 155.7 * Based on three-month moving average (centered on mid-month) of value of awards, as reported by F. W. Dodge Corporation. p Preliminary ±8 All Member Banks Change from June 27, May 30, 1956 1956 $2,566 $ + 13 1,789 486 + 2 — 3 1,391 69 $6,301 — 2 $— 31 Liabilities and Capital $ 676 $ + 24 $ + 58 Demand Deposits of Banks . . . $ 695 3,838 Other Demand Deposits ........... —68 — 35 2,054 1,243 - 0574 Time Deposits ........................... 4~ 5 65 — 26 + 28 81 Borrowings and Other Liabilities 479 - 0275 Total Capital Accounts ............. 4- 1 $6,301 $— 31 $ + 18 $3,679 Total Liabilities and Capital 1 For weekly reporting banks, loans are adjusted to exclude loans to banks; the total is reported net; breakdowns are reported gross. For all member banks loans are reported net and include loans to banks; breakdown of these loans is not available. RETAIL FURNITURE STORES Stocks on Hand Percentage of Accounts Stocks- and Notes Receivable Sales Outstanding June 1, ’56, Ratio collected during June. Excl. Instal. Instalment Accounts Accounts 8th F.R. District Total . 16 47 7% + 11 % 3% 42 Fort Smith Area, Ark.1 . 3 — 14 4- 5 Monthly stocks and 12 41 Little Rock Area, A rk.. . 7 — 21 + - 0§ stocks-sales ratio data 6 — 3 Quincy, 111..................... not available in time 5 — 3 Evansville Area, In d .. . . + 12 for publication in the 43 6 18 —6 Louisville Area, Ky., Ind. + 9 Monthly Review. Data 4 -0- + 23 Paducah, K y ................... 57 will be supplied upon 9 18 — 6 + 12 St. Louis Area, Mo., 111. request. 4 + 9 Springfield Area, Mo. . . 4" 2 12 29 5 —20 4- 8 Memphis Area, T enn.. . + 12 + 19 All Other Cities2 ........... 4- 2 1 In order to permit publication of figures for this city (or area), a special sample has been con structed which is not confined exclusively to department stores. Figures for any such nondepartment stores, however, are not used in computing the district percentage changes or in computing depart ment store indexes. 2 Fayetteville, Pine Bluff, Arkansas; Harrisburg, Mt. Vernon, Illinois; Vincennes, Indiana; Dan ville, Hopkinsville, Mayfield, Owensboro, Kentucky; Chillicothe, Missouri; Greenville, Mississippi; and Jackson, Tennessee. Outstanding orders of reporting stores at the end of June, 1956, were 5 per cent larger than on the corresponding date a year ago. INDEXES OF SALES AND STOCKS— 8TH DISTRICT June 1956 116 119 N.A. N.A. May 1956 129 129 135 135 Sales (daily average), unadjusted3 ............................................... Sales (daily average), seasonally adjusted3 ............................... Stocks, unadjusted4 ........................................................................ Stocks, seasonally adjusted4 ........................................................ 3 Daily average 19 4 7 -4 9 = 100 4 End of Month average 1 9 4 7 -4 9 = 1 0 0 N. A. Not available. Trading days: June, 1956— 26; May, 1956— 26; June. 1955— 26. (1947-1949 = 100) May 1956 Apr. 1956 May 1955 Weekly Reporting Banks Change from June 20 July 18, 1956 1956 $ + 29 $1,623 + 19 836 __ i 55 + 1 280 475 860 226 — 7 9 — 17 +21 915 - 046 $3,679 $ + 18 (In Millions of Dollars) DEPARTMENT STORES Net Sales June, 1956 6 mos. ’56 compared with to same May, ’56 June, ’55 period ’55 INDEX OF CONSTRUCTION CONTRACTS AWARDED EIGHTH FEDERAL RESERVE DISTRICT* ASSETS AND LIABILITIES EIGHTH DISTRICT MEMBER BANKS i 9 6 8 + 14 + 28 + 11 — CASH FARM INCOME Apr. 1956 115 123 144 137 June 1955 106 108 116 126 Net Sales June, 1956 compared with May, ’56 June, ’55 + 12% 8th Dist. Total1 ___ 5 % + 21 St. Louis Area . . — • 6 — 1 Louisville Area . . + 1 — 5 Memphis Area . . + 9 Little Rock Area + 1 + 5 Springfield A rea. 11 + 1 Inventories June, 1956 compared with May, ’56 June, ’ 55 — 4% —3 —5 * —6 —3 + 4% + 6 + 4 - 0—1 * Not shown separately due to insufficient coverage, but included in Eighth District totals. 1 In addition to the cities shown separately in the table, the total includes stores in Blytheville, Fort Smith, Pine Bluff, Arkansas; Owensboro, Kentucky; Greenwood, Mississippi; Evansville, Indiana; and Cape Girardeau, Missouri. Note: Figures shown are preliminary and subject to revision. PERCENTAGE DISTRIBUTION OF FURNITURE SALES Cash Sales ............. Credit Sales ............. Total Sales ........... June, *56 14% 86 100% May, ’56 13% 87 100 % June, ’55 15% 85 100%
@FedFRASER