Annual Report of the Federal Reserve Board, 1971

Dfnnual 'Report X_»/971 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Jitter of Transmittal BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Washington, April 20, 1972 THE SPEAKER OF THE HOUSE OF REPRESENTATIVES. Pursuant to the requirements of Section 10 of the Federal Reserve Act, as amended, I have the honor to submit the Fifty-Eighth Annual Report of the Board of Governors of the Federal Reserve System. This report covers operations of the Board during the calendar year 1971. Yours respectfully, Arthur F. Burns, Chairman. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Contents Part 1—Monetary Policy and the U.S. Economy in INTRODUCTION PRINCIPAL FEDERAL RESERVE POLICY ACTIONS, 1971: DIGEST 11 WAGES, PRICES, AND PRODUCTIVITY 11 Wages 13 Productivity and unit labor costs 14 Prices 15 Effect of the new economic program 19 DEMANDS FOR GOODS AND SERVICES 21 Residential construction 22 Consumer income and outlays 24 Business investment 26 Government 28 Manpower utilization 31 MONETARY AGGREGATES AND INTEREST RATES 33 Developments prior to August 15 38 Later developments 43 TOTAL CREDIT FLOWS AND THE FINANCING OF PRIVATE INVESTMENT 43 Sources of credit supply 46 Private domestic financing 48 Saving and investment 49 Liquid assets 51 U.S. BALANCE OF PAYMENTS 52 Measures of August 15 53 Merchandise trade 56 Capital flows 57 Year-end perspective Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Part 2—Records, Operations, and Organisation 61 RECORD OF POLICY ACTIONS—BOARD OF GOVERNORS 103 RECORD OF POLICY ACTIONS—FEDERAL OPEN MARKET COMMITTEE 203 FEDERAL RESERVE OPERATIONS IN FOREIGN CURRENCIES 205 VOLUNTARY FOREIGN CREDIT RESTRAINT PROGRAM 209 LEGISLATION ENACTED 209 Purchase of Government obligations by Federal Reserve Banks 209 Interest on deposits 209 Emergency Loan Guarantee Act 209 Export Expansion Finance Act of 1971 209 Economic Stabilization Act 209 Farm Credit Act of 1971 210 State taxation of national banks 211 LEGISLATIVE RECOMMENDATIONS 211 Lending authority of Federal Reserve Banks 211 Reserve requirements 212 Loans to bank examiners 212 Purchase of obligations of foreign governments by Federal Reserve Banks 212 Interlocking bank relationships 213 Federal Reserve Bank branch buildings 213 Bank investments for community development 214 Miscellaneous amendments relating to bank holding companies 217 LITIGATION 217 Bank holding companies: Antitrust actions 218 Review of Board actions 219 Bank merger 219 Margin requirements on securities credit transactions Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

221 BANK SUPERVISION AND REGULATION BY THE FEDERAL RESERVE SYSTEM 221 Examination of member banks 223 Federal Reserve membership 224 Bank mergers 225 Bank holding companies 225 Foreign branches of member banks 227 Acceptance powers of member banks 227 Foreign banking and financing corporations 228 Actions under delegation of authority 228 Bank Examination Schools 229 Truth in Lending 229 Fair Credit Reporting Act 231 FEDERAL RESERVE BANKS 231 Examination of Federal Reserve Banks 231 Miami office opened 231 Earnings and expenses 232 Holdings of loans and securities 233 Volume of operations 234 Payments mechanism developments 234 Loan guarantees for defense production 235 Foreign and international accounts 236 Bank premises 237 BOARD OF GOVERNORS 237 Income and expenses STATISTICAL TABLES: 242 1. Detailed statement of condition of all Federal Reserve Banks combined, Dec. 31, 1971 244 2. Statement of condition of each Federal Reserve Bank, Dec. 31, 1971 and 1970 248 3. Federal Reserve Bank holdings of U.S. Government and Federal agency securities, Dec. 31, 1969-71 249 4. Federal Reserve Bank holdings of special short-term Treasury certificates purchased directly from the United States, 1954-71 250 5. Open market transactions of the Federal Reserve System during 1971 251 6. Bank premises of Federal Reserve Banks and branches, Dec. 31, 1971 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

STATISTICAL TABLES—Cont. 252 77.. Earnings and expenses of Federal Reserve Banks during 1971 254 8.Earnings and expenses of Federal Reserve Banks, 1914-71 256 9.Volume of operations in principal departments of Federal Reserve Banks, 1968-71 256 10.Number and salaries of officers and employees of Federal Reserve Banks, Dec. 31, 1971 257 11.Fees and rates under Regulation V on loans guaranteed pursuant to Defense Production Act of 1950, Dec. 31, 1971 257 12.Margin requirements 258 13.Member bank reserve requirements 259 14.Federal Reserve Bank interest rates, Dec. 31, 1971 260 15.Maximum interest rates payable on time and savings deposits 261 16. Principal assets and liabilities, and number of commercial and mutual savings banks, by class of bank, Dec. 31, 1971, and Dec. 31, 1970 262 17. Member bank reserves, Federal Reserve Bank credit, and related items—end of year 1918-71 and end of month 1971 266 18. Changes in number of banking offices in the United States during 1971 268 19. Number of par and nonpar banking offices, by Federal Reserve district, Dec. 31, 1971 268 20. Number of par and nonpar banking offices, by State and other area, Dec. 31, 1971 270 21. Description of each merger, consolidation, acquisition of assets or assumption of liabilities approved by the Board of Governors during 1971 292 MAP OF FEDERAL RESERVE SYSTEM—DISTRICTS FEDERAL RESERVE DIRECTORIES AND MEETINGS: 294 Board of Governors of the Federal Reserve System 296 Federal Open Market Committee 297 Federal Advisory Council 298 Federal Reserve Banks and branches 322 INDEX Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

"Part 1 cMbnetary policy and the r .£. Sconomy in 1971 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Principal Federal Reserve Policy Actions, 1971: Digest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Principal Federal Reserve Policy Actions, 1971: Digest Period, or announcement date Action Purpose January 7 Reduced the discount rate from 5Vi per cent To bring the discount rate to 5lA per cent at 10 Reserve Banks, effective into better alignment with January 8. (By January 15, the 5V4 per cent short-term interest rates, which rate was in effect at all Reserve Banks.) had declined further since the previous reduction in the discount rate was announced on November 30. January Directed that System open market operations To foster financial condibe conducted with a view to maintaining bank tions conducive to the resumpreserves and money market conditions consist- tion of sustainable economic ent with the objective of promoting accommo- growth, while encouraging an dative conditions in credit markets and mod- orderly reduction in the rate erate expansion in monetary and credit aggre- of inflation and the attaingates. ment of reasonable equilibrium in the country's balance of payments. January 15 Amended Regulation M to permit U.S. banks A further step to temper the to count toward maintenance of their reserve- adverse impact of Euro-dollar free Euro-dollar bases any funds invested by outflows on the U.S. balance their overseas branches in Export-Import Bank of payments. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

securities offered under the program announced on January 15 by the Export-Import Bank. For those banks that have had a minimum (3 per cent of deposits) reserve-free base, postponed for 4 weeks, through the computation period of February 17, 1971, the application of the automatic downward adjustment of their bases. January 18 Reduced the discount rate from 5lA per cent To take into account the to 5 per cent at 6 Reserve Banks, effective further declines that had taken January 19. (By January 29, the 5 per cent place in short-term market rate was in effect at all Reserve Banks.) rates. Early February Directed that System open market operations To foster financial condithrough early be conducted with a view to maintaining pre- tions conducive to the resump- April vailing money market conditions while accom- tion of sustainable economic modating downward movements in long-term growth, while encouraging an rates, with a provision for modification of op- orderly reduction in the rate erations if it appeared that the monetary and of inflation and the attainment credit aggregates were falling short of (after of reasonable equilibrium in early March, deviating significantly from) the the country's balance of paygrowth paths expected. ments. February 12 Reduced the discount rate from 5 per cent to To accord with the System's 4% per cent at 11 Reserve Banks, effective recent practice of making small February 13. (By February 19, the 4% per changes in the discount rate to cent rate was in effect at all Reserve Banks.) keep it in closer alignment with short-term market rates. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Principal Federal Reserve Policy Actions, 1971: Digest—Continued Period, or announcement date Action Purpose April 1 Amended Regulation M to permit U.S. banks To temper the adverse imto count toward maintenance of their reserve- pact of Euro-dollar outflows free Euro-dollar bases any funds invested by on the U.S. balance of paytheir overseas branches in U.S. Treasury se- ments. curities offered under the program announced on April 1 by the Treasury. Early April Directed that System open market operations To foster financial condithrough early be conducted with a view to attaining tempo- tions conducive to the resump- May rarily some minor firming in money market tion of sustainable economic conditions, while continuing to meet some part growth, while encouraging an of reserve needs through purchases of coupon orderly reduction in the rate issues in the interest of promoting accommo- of inflation, moderation of dative conditions in long-term credit markets, short-term capital outflows, with a provision for modification of opera- and attainment of reasonable tions if it appeared that the monetary and equilibrium in the country's credit aggregates were deviating significantly balance of payments. from the growth paths desired. Early May through Directed that System open market operations To foster financial condilate August be conducted with a view to maintaining bank tions conducive to the resumpreserves and money market conditions consist- tion of sustainable economic ent with the objective of achieving more mod- growth, while encouraging an Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

erate growth in monetary aggregates over the orderly reduction in the rate months ahead, while taking account of devel- of inflation, moderation of opments in capital markets. short-term capital outflows, and attainment of reasonable equilibrium in the country's balance of payments. July 15 Raised the discount rate from 4% per cent To bring the discount rate to 5 per cent at 4 Reserve Banks, effective July into better alignment with 16. (By July 23, the 5 per cent rate was in short-term rates, which had effect at all Reserve Banks.) increased, and to reflect the Board's concern over the continuation of substantial costpush inflation in the economy. Late August Directed that System open market operations To foster financial condithrough late be conducted with a view to achieving bank tions consistent with the aims September reserve and money market conditions consist- of the Government's new ecoent with the objective of achieving more mod- nomic program, including suserate growth in monetary and credit aggregates. tainable real economic growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. August 24 Amended the continuing authority directive To widen the base of System with respect to domestic open market opera- open market operations and at tions to authorize outright operations in Fed- the same time add breadth to eral agency securities. the market for agency issues. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Principal Federal Reserve Policy Actions, 1971: Digest—Continued Period, or announcement date Action Purpose Late September Directed that System open market operations To foster financial condithrough mid- be conducted with a view to achieving bank tions consistent with the aims November reserve and money market conditions consistent of the new governmental prowith the objective of achieving moderate growth gram, including sustainable in monetary and credit aggregates, taking ac- real economic growth and incount (through mid-October) of developments creased employment, abatein capital markets. ment of inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. November 10 Reduced the discount rate from 5 per cent to To bring the discount rate 43A per cent at 7 Reserve Banks, effective into better alignment with November 11. (By November 19, the 4% per short-term rates generally, in cent rate was in effect at all Reserve Banks.) recognition of the reductions that had taken place in those rates. Mid-November Directed that System open market operations To foster financial condithrough mid- be conducted with a view to achieving bank re- tions consistent with the aims December serve and money market conditions consistent of the new governmental prowith the objective of promoting somewhat gram, including sustainable Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

greater growth in monetary and credit aggre- real economic growth and ingates over the months ahead. creased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. December 3 Reduced the margin requirement for pur- To be less restrictive in chasing or carrying stocks from 65 per cent to view of the moderate level of 55 per cent, effective December 6. outstanding stock market cred- Reduced the required deposit on short sales it and the absence of indicafrom 65 per cent to 55 per cent, effective tions of the excessive use of December 6. such credit. December 10 Reduced the discount rate from 434 per cent To recognize the prevailing to 4Vi per cent at 4 Reserve Banks, effective levels of market interest rates December 13. (By December 24, the 4Vi per and to assist the progress of cent rate was in effect at all Reserve Banks.) economic expansion. Mid-December Directed that System open market operations To foster financial condithrough year-end be conducted with a view to promoting the tions consistent with the aims degree of ease in bank reserve and money mar- of the new governmental proket conditions essential to greater growth in gram, including sustainable monetary aggregates. real economic growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Introduction In 1971 monetary policy encouraged further substantial growth in bank reserves, money, and bank credit in helping to stimulate economic recovery from the mild recession of 1969-70. Monetary aggregates in general expanded somewhat more rapidly than they had the year before. Interest rates fluctuated widely—reflecting, among other things, shifts in inflationary expectations and large flows of funds between the United States and foreign countries. After the President's mid-August announcement of new economic policies, which included a program of wage and price restraint and far-reaching international, measures to combat inflation and the deterioration in the balance of payments, interests rates showed a declining trend, and at the end of the year they were down somewhat, on the average, from their beginning-of-1971 levels. For 1971 as a whole the real gross national product rose only 2.7 per cent from the year before. Greatly increased spending for residential construction and larger expenditures by State and local governments helped to sustain economic activity. But economic recovery was hampered by domestic and international economic uncertainties and generally cautious attitudes on the part of both businesses and consumers. Unemployment remained at about 6 per cent of the labor force throughout the year. And prices, as measured by average prices of the goods and services that make up the GNP, rose about as much in the first half of the year, prior to the new economic program, as they had in 1970. During the first half of the year, surveys of consumer attitudes suggested that concern about rising prices, as well as fear of unemployment, was causing consumers to hold back on spending. Consumer outlays for goods and services didmise rather substantially, but the increase reflected in large measure the first-quarter bulge in disposable personal income and auto sales following settlement of the late-1970 auto strike, a Federal pay raise, and retroactive increases in social security benefits. The personal saving rate remained exceptionally high. With the strength of consumer spending uncertain, businessmen pursued conservative inventory policies, although there was some Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

strike-related inventory-building during the first half of the year. In addition, outlays for new plant and equipment were held down by the sizable amount of excess manufacturing capacity already in place and by the sluggishness of new orders for the output of these plants. Defense and nondefense orders from the Federal Government remained at a reduced pace. The cumulative effect of rising costs and prices limited the ability of U.S. industries to compete in foreign markets, and in many cases to compete in domestic markets with goods produced abroad. During 1971 the U.S. balance of payments worsened dramatically. The trade balance was only marginally in surplus in the early months of the year; then it slipped into monthly deficits, making increasingly evident the extent to which the competitive position of the United States had eroded. The worsening of the over-all balance of payments reflected also the very large outflows of capital from the United States to foreign countries that occurred in response to interest rate incentives and expectations of changes in currency values. In the early part of the year U.S. interest rates declined much faster than those in leading financial centers abroad, and U.S. banks continued to repay Eurodollar borrowings. Foreign official reserves were swollen by these and other recorded and unrecorded flows of capital. German reserve gains were especially large until the German mark was permitted to float upward in May. As evidence of deepening difficulties for the U.S. balance of payments mounted, international traders and investors shifted out of dollar assets into other currencies on a large scale. From the end of 1970 to the end of July 1971, U.S. liabilities to foreign official accounts increased by $12.5 billion to a level of $37 billion, while U.S. reserve assets fell by a little more than $1 billion to $13.3 billion. In the first 2 weeks of August reserve liabilities grew by a further $4.5 billion, while reserve assets dropped by another $1 billion. The worsening in the balance of payments situation heightened public concern about the effectiveness of policies being pursued to contain inflation—a concern that was related to the continuation of large wage settlements and to the lack of evidence that price increases were abating to any significant extent. Interest rates—which had declined further in the very early months of the year—began to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1. SELECTED ECONOMIC DEVELOPMENTS CHANGE, PER CENT -440 -400 300 360 PER CENT PER ANNUM 10 CORPORATE Aaa 1970 1971 1 Excludes SDR allocations. NOTE.—GNP and price data are based on seasonally adjusted annual rates data from Bureau of Economic Analysis, Dept. of Commerce; changes from preceding quarter at compounded annual rates; fixed-weight price index is for gross private product. For definitions of measures of money and credit, see Chart 12, p. 34; for Treasury bills and Aaa bonds, see Chart 11, p. 32. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

rise. Long-term rates in particular were affected by renewed resistance to fixed-income securities on the part of investors who feared that the value of such securities would be eroded over time through inflation. The decline in short- and long-term market interest rates early in the year had been accompanied by three successive reductions of XA percentage point in the Federal Reserve discount rate, to a level of 434 per cent by mid-February. And the monetary aggregates expanded at rapid rates in the first quarter, with growth in M (curx rency and private demand deposits) reflecting increased transactions demands and the lagged effects of previous declines in interest rates. Expansion in the broader monetary aggregates was even more rapid as low levels of market interest rates relative to offering rates on time and savings accounts, together with the high rate of personal saving, led to a very large rise in time and savings deposits at banks and nonbank thrift institutions. These inflows, and the accompanying easing of over-all credit conditions, supported a substantial rise in private housing starts and in expenditures for new residential construction; starts rose from 1.4 million units in 1970 to more than 2 million units in 1971 and exceeded a 2.2-million-unit annual rate in the fourth quarter. Residential construction outlays, along with rising expenditures by State and local governments, were important forces contributing to economic recovery during the year. Growth in the monetary aggregates continued to be rapid in the second quarter; growth in M accelerated to an annual rate of t around 10.5 per cent from its 9 per cent first-quarter pace. This, together with the disappointing performance of prices, was causing some concern at home and abroad about the adequacy of public economic policies then in effect to contain inflation. At the same time, the slack in the domestic economy made it clear that monetary policy needed to remain expansive. Under the circumstances, the Federal Reserve continued to provide reserves at a substantial rate, but in the spring and early summer it did so less readily than earlier in the year. This policy contributed to the rise in short-term rates that developed during the second quarter. To bring the discount rate into better alignment with market rates, the rate was raised by VA of a percentage point in mid-July to 5 per cent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In an effort to maintain accommodative capital market conditions, in view of the comparatively weak expansion of the economy, the Federal Reserve stepped up its purchases of longer-term Treasury securities during the first quarter. Later in the year, it extended its outright purchases of securities in the open market to include Federal agency issues. These operations were adopted within the over-all objectives of System open market operations, and they did not contribute, net, to faster growth in the System's total portfolio of securities or to expansion in bank reserves. Developments over the first 7 months of the year brought increasingly into question whether conventional monetary and fiscal policies alone were adequate to combat the cost-push inflation and the deterioration in the U.S. balance of payments, while at the same time continuing to promote more vigorous recovery in the domestic economy. The new economic policies initiated in mid-August broadened the mix of public policy measures with a view to dealing more effectively with the Nation's diverse and, in the short run, partly conflicting objectives. The basic elements of the new program were a temporary 90-day freeze on wages and prices, to be followed by a more flexible system of restraints in the second phase; suspension of the convertibility of the dollar into gold or other reserve assets; imposition of a temporary surtax of up to 10 per cent on dutiable imports; and certain fiscal measures designed to stimulate spending, including proposed elimination of the excise tax on autos and an investment tax credit to encourage business capital outlays. The program of tax incentives, with some modifications, was enacted by Congress late in the year, as was legislation authorizing the continuation of a program of restraint on wages, prices, rents, dividends, and interest. The 10 per cent surtax was rescinded following the international monetary agreement reached on December 18 in Washington. The new economic program recognized the need for a sizable and broadly based revaluation of foreign currencies vis-a-vis the dollar to help restore the international competitiveness of U.S.-produced goods. But in addition the new program was intended to encourage improvements in the Bretton Woods Agreements and to eliminate at least some of the major foreign trade practices injurious to U.S. exports. After August 15 all major countries allowed their currencies Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

to rise somewhat in price relative to the dollar, although foreign official institutions added substantially more to their holdings of dollars. The monetary agreement signed in Washington in mid-December allayed international uncertainties that had threatened to impede the flow of trade and to hinder U.S. economic recovery. Major foreign countries agreed to an adjustment of exchange rates, the over-all effect of which was to produce a substantial appreciation, on the average, of foreign currencies in relation to the dollar. The settlement also included a widening of intervention bands to 2V\ per cent on either side of the new exchange rates (or parities) as well as an increase of 8.57 per cent—from $35 to $38 per ounce—in the dollar price of gold to be requested from Congress. The new domestic and international economic program was immediately reflected in renewed confidence in credit markets. After mid- August, interest rates declined as inflationary expectations abated and as fears eased that the worsensing balance of payments might lead to tighter financial conditions in the United States. The new wage-price program effectively constrained wage and price increases during the freeze period. After the freeze ended in mid-November, some catch-up of wage and price increases developed. The Phase II program of wage and price restraint is being administered by a Pay Board and a Price Commission. The activities of these two bodies, composed of private citizens, are coordinated by the governmental Cost of Living Council. The objective of the Phase II program is to hold average price increases to no more than 2.5 per cent per year, in conformity with the Council's goal of reducing the rate of inflation to a range of 2 to 3 per cent by the end of 1972. Such an achievement would halve the rate of inflation that had prevailed in 1970 and the first half of 1971. A Committee on Interest and Dividends was also formed as part of the Phase II program to see that the behavior of dividends and interest rates—particularly those that affect the American family, such as on mortgages and consumer loans—is consistent with the program of wage and price restraint. The initial effects of the new economic program appear to have been stimulative. Immediately after announcement of the price freeze, there was a surge in purchases of new domestically produced Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

autos, and consumer purchases of other goods and services, in real terms, also quickened. Employment gains accelerated as did the over-all rate of economic activity. In the final quarter of the year, real GNP rose at an annual rate of around 6 per cent, notably faster than in the second and third quarters and the highest rate of gain, except for the strike-recovery period in the first quarter of 1971, since the first half of 1968. Monetary developments in the latter part of 1971 were highlighted by moderation in the growth rates of the monetary aggregates. In particular, the level of the narrowly defined money stock (M ) 3 showed only a very minor increase from August to December. Following the sharp build-up earlier in the year, when economic uncertainties were pervasive, the public's demand for cash balances leveled off, reflecting in part reductions in precautionary demands for liquidity as confidence increased. The broader measures of money continued to expand at substantial rates in the latter part of the year, although in these too the rate of growth moderated somewhat from the rapid rates that had occurred in the first half. At the same time sufficient bank reserves were being provided to encourage the interest rate declines initially set in motion by the wage-price freeze. By the year-end longer-term interest rates were about 1 percentage point below their mid-August levels, and shortterm rates were down by about 1.5 percentage points over the same period. And in mid-December the discount rate was reduced to AVi per cent in recognition of the lower levels of market interest rates and to assist in encouraging a more rapid economic expansion. Developments in 1971 laid the basis for an accelerated rate of economic recovery in 1972 and for further moderation of wage and price pressures. To be sure, effective administration of the Phase II wage and price program will be critical in maintaining public confidence in the containment of inflation. But this result should be encouraged also by basic economic forces, including continuation of an ample supply of labor and materials, the absence of demand-induced inflation generally, and the prospect that faster growth in productivity is likely to accompany more vigorous expansion in over-all economic activity. The outlook for a strengthening in demands for goods and services appears highly favorable. Plant and equipment surveys suggest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

greater capital outlays by business in 1972 than in 1971. Moreover, the realignment of exchange rates should make domestically produced goods more competitive, thus enhancing the potential for exports by U.S. firms and perhaps shifting investment plans toward the United States. And corporations are now in good financial positions to expand operations—having worked over the past 2 years to restructure their debt and to improve their liquidity positions. Residential construction outlays should increase somewhat further in 1972, given the rising rate of housing starts in the latter part of 1971. The currently ample liquidity of banks and other financial institutions and the continuation of large net inflows of time deposits suggest that credit will be available to finance construction activity —even if there is a pick-up in business loan demands at banks. State and local governments are also likely to increase their spending for construction; these governments issued very sizable amounts of securities in 1971, and according to preliminary indications their demands for funds will continue to be large in early 1972. Furthermore, the Federal budget indicates a stimulative fiscal policy during 1972. An acceleration of economic recovery will depend importantly on a strengthening in consumer demands. The saving rate declined somewhat in the latter part of 1971, suggesting an increased consumer propensity to spend and greater confidence in the longer-run economic outlook. Increases in consumption together with increases in construction, investment, and net exports would be likely to stimulate increased holdings of inventories since businesses have followed comparatively conservative policies in this type of investment over the past 2 years. Such a pick-up in inventory accumulation has been a major feature of past cyclical recoveries, when it has played a significant role in inducing gains both in employment and in consumption expenditures. Other sections of this report analyze developments in certain key areas of the economy in 1971. A digest of the principal Federal Reserve policy actions in 1971 appears on pages I-VII following page 24. • 10 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Wages, Prices, and Productivity On the basis of past experience, the continued slack in labor and product markets that typified the year 1971 should have generated a pronounced slowdown in the rate of inflation. However, that did not happen. Whereas the rate of price increase did moderate in some sectors early in the year, much of the improvement reflected the influence of special factors instead of the usual forces of demand and supply. In general, wages and prices continued to increase at a rapid rate throughout the first half of the year. Workers sought higher wage increases to make up for past reductions in real purchasing power and to protect future gains in wages from expected further inflation. But businessmen too expected that inflation would continue, and since their profit margins were already low, they passed the higher labor costs on in the form of higher prices, where possible. WAGES Despite the relatively large amount of unemployment, compensation per manhour continued to grow at a rapid pace in the first half of 1971. Average hourly compensation in the private nonfarrn economy increased at an annual rate of 7.2 per cent in this period, slightly higher than the 7.0 per cent increase for 1970 as a whole. Relatively large wage gains occurred in most industries, with the greatest being in contract construction and in transportation and public utilities. In manufacturing, average hourly earnings-—after allowance for changes in the industrial composition of factory employment and for overtime —increased at a rate of 7.0 per cent in the first 6 months of 1971. One factor contributing to the high rate of wage increases was the disproportionately large number of major long-term contracts expiring and new settlements negotiated in the latter part of 1970 and in the first half of 1971, including contracts in such highly visible and pattern-setting industries as autos,.railroads, containers, and communications. Another factor was that wage increases of many union workers, particularly in the manufacturing sector, had lagged behind price in- 11 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2. COMPENSATION PER MANHOUR Changes in Recent Business Cycles r57-'58 CYCLE NOTE.—Bureau of Labor Statistics data, seasonally adjusted, for private nonfarm economy. Periods covered are as follows: 1957-58 Cycle 1960-61 Cycle 1969-70 Cycle Year before peak 1956 III-1957 III 1959 11-1960 II 1968 1V-1969 IV Peak to trough 1957 III-1958 II 1960 11-1961 I 1969 IV-1970 IV Year after trough 1958 11-1959 II 1961 1-1962 I 1970 IV-1971 IV creases in the late 1960's. Consequently, there was strong pressure by union members to catch up on their wages. As a result, contracts were front-loaded—that is, they had larger increases in the first year than in following years. In manufacturing, first-year increases averaged 8.7 per cent in the first half of 1971; in nonmanufacturing, they were smaller than in 1970 but were still considerably larger than in manufacturing. Contract settlements in the construction industry, which had been exceptionally high in recent years, moderated somewhat during 1971; this apparently reflected the efforts of the Construction Industry Stabilization Committee, which was set up in March 1971. Nevertheless, wage increases allowed in the construction industry continued to be much higher than the average for all workers. A slowing in wage increases did become evident in some sectors. In trade and services, which are typically not unionized, the rate of advance in wage rates declined somewhat; among nonunion workers 12 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

3. AVERAGE HOURLY EARNINGS PERCENTAGE CHANGE 10 CONTRACT CONSTRUCTION MANUFACTURING 1967 1969 1971 NOTE.—Change from corresponding quarter a year earlier, calculated from BLS data without seasonal adjustment. in manufacturing also, wage increases moderated and were less than for union workers. Still, movements in wage rates in 1971 generally continued to respond less to slack demands for labor than in previous periods of relatively high unemployment. PRODUCTIVITY AND UNIT LABOR COSTS Despite continued rapid increases in wages, pressures on unit labor costs eased somewhat in the first half of 1971 as a result of a faster growth in productivity. Output per manhour in the private nonfarm economy rose at an annual rate of about 3.5 per cent in the second half of 1970 and the first half of 1971, after showing no gain in late 1969 and early 1970. Productivity increases for the manufacturing sector of the economy were slightly higher. The higher rate of productivity gains stemmed mainly from cost-cutting efforts by business, which sought to restrict increases in employment even after demand and output had started to expand. Hence, increases in unit labor costs slowed from a peak annual rate of more than 6 per cent for the private nonfarm economy in 1970 to about 3.5 per cent during the first half of 1971. Even though cost pressures were reduced, 13 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

4. OUTPUT PER MANHOUR AND RELATED DATA PERCENTAGE CHANGE OUTPUT PER MANHOUR COMPENSATION PER MANHOUR UNIT LABOR COSTS 1969 1970 1971 NOTE.—Changes, expressed at annual rates, are based on half-year averages of BLS data for the private nonfarm economy. they were still strong enough to generate unacceptably high rates of price increase—since business was experiencing unusually low profit margins and was unwilling or unable to absorb higher costs. PRICES Against this background, only a few signs of abatement in the rate of price inflation were apparent during the first half of 1971. A significant reduction did occur in the rate of increase of consumer prices in the first quarter of 1971, but this improvement reflected in large part a decline in mortgage rates. In the second quarter the general level of consumer prices resumed a more rapid upward movement, increasing consumer and business doubts that inflation would be brought under control in the near future. Wholesale prices of farm products and food began to rise again in early 1971. Inflationary tendencies were further intensified by a resurgence in the second quarter of price increases for industrial prod- 14 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

5. PRICES IN 1971 INDUSTRIAL WHOLESALE COMMODITIES I I I I l I I I I I NOTE.—Month-to-month changes at compounded annual rate. ucts included in the wholesale index; prices of these products had leveled off in the second half of 1970 and in early 1971. The resurgence reflected in part an upturn in the prices of materials. Prices of construction materials accelerated sharply as the housing boom gained momentum, and steel prices were increased in response to the build-up in inventories and in anticipation of higher labor costs. The fixed-weighted deflator for gross private product—the broadest measure of the prices of goods and services produced in the private economy—also showed a continued rapid rate of increase. In the first half of the year the rise was at an annual rate of 5.4 per cent, more than the increase in 1970. EFFECT OF THE NEW ECONOMIC PROGRAM The acceleration of price increases in the second quarter was a factor in the re-evaluation of economic policy. The new economic program announced by the administration in mid-August included, as noted earlier, measures that temporarily stabilized wages and prices as part of a package to restrain inflation while promoting faster economic growth and restoring the basis for balance of payments equilibrium. The 90-day wage-price freeze included in the program was quite effective. Gross hourly earnings of private nonfarm workers rose at an average annual rate of only 2.3 per cent between August and November. Wholesale prices of industrial commodities actually declined 15 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

during this period, while the rise in consumer prices slowed to a 1.7 per cent annual rate. Moreover, since some price changes in the consumer price index are recorded with a time lag, it is likely that the rise in consumer prices slowed even more than suggested by the published figures. Before the end of the freeze in mid-November, a Price Commission with seven public members and a Pay Board composed of five representatives each from labor, management, and the public were established. The goal of the Pay Board was to reduce increases in annual wage rates to an average of 5.5 per cent, and the objective set by the Price Commission was to reduce price increases on the average to a rate of no more than 2.5 per cent—a rate consistent with the Pay Board's guideline, given the expectation of a growth in productivity at the long-term average rate of about 3 per cent per year. The Price Commission stated that price increases generally would be allowed to cover cost increases, but only after productivity gains had been taken into account, and only so long as profit margins did not rise above the average of any two of the previous three fiscal years. It was expected that after the end of the freeze there would be a period of transition—one in which wage and price increases would exceed the guidelines in part because of a bunching of increases deferred during the freeze. Also, in the early months the Pay Board was expected to have difficulty holding wage increases within the guideline because of wage contracts previously negotiated that called for either deferred or retroactive increases of more than 5.5 per cent. In December, the first full month after the freeze, average gross hourly earnings for private nonfarm workers increased at an annual rate of 6.8 per cent. By the end of the year only a few decisions had been announced by the Pay Board. In the decisions covering coal miners and railway signalmen, wage increases well above the guideline were allowed because the contract settlements had occurred prior to the end of the freeze. For aerospace workers, the Board rejected a 12 per cent, first-year wage increase negotiated in a new contract concluded after the freeze and limited any increase in a new contract to 8.3 per cent. The contracts considered by the end of 1971 covered only a minor portion of the work force. Moreover, a vast majority of workers are employed by small companies that are excluded from the prenotifica- 16 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

tion requirement. Thus, it is still too early to judge the ultimate effectiveness of Phase II in limiting wage rate increases. The Price Commission requires that large firms give notification of intended price increases, and by the end of December a large number had filed such applications. The Commission appears to have had some success in reducing requested price increases. Moreover, in some instances where price increases were approved by the Commission, they have not been put into effect, due to competitive pressures. However, as expected, an acceleration of price increases occurred in the immediate postfreeze period. In December, the increase for consumer prices was 4.7 per cent at a compounded annual rate (Table 1); and for all commodities excluding food, it was 4.2 per cent. Wholesale prices of industrial commodities advanced at an annual rate of 3.2 per cent, with about half of the increase reflecting a rise in prices of autos and trucks. The implicit deflator for GNP rose at an annual rate of only 1.5 per cent in the fourth quarter—reflecting mainly the effects of the freeze. In the second half of 1971, productivity rose at a 3.0 per cent annual rate in the private nonfarm economy while the rise in compensation per manhour slowed to a 5.5 per cent annual rate. As a result, the increase in unit labor costs was reduced to a 2.5 per cent annual rate. As economic activity continues to expand, productivity gains at least as large as those experienced in 1971 seem likely. Table 1: PRICE CHANGES Per cent Year 1971, compounded annual rate Series 1968 1969 1970 1971 Dec- Aug.- Nov.- Aug. Nov. Dec. Wholesale prices, total 2.5 3.9 3.7 3.2 5.1 -0.8 8.9 Industrial commodities 2.6 3.3 3.8 3.6 4.9 -1.3 3.2 Farm products, processed foods, and feeds 2.4 5.4 3.4 2.0 5.9 28.2 Consumer prices, total 4.2 5.4 5.9 4.3 3.8 1.7 4.7 Food 3.6 5.1 5.5 3.0 4.7 1.7 8.3 Other commodities (less food) 3.6 4.2 4.2 3.8 2.4 4.2 Services 5.2 6.9 8.1 5.6 4.5 3.1 3.7 NOTE.—Based on Bureau of Labor Statistics data. 17 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

18 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Demands for Goods and Services The expansion in demands for goods and services was quite modest during 1971. The year began with an upsurge in real GNP, which increased at an 8 per cent annual rate in the first quarter following a 4 per cent decline in the preceding quarter. But this rise reflected in considerable measure a rebound in auto output and sales after the end of the auto strike in late 1970. In the second quarter the increase in real GNP was less than half as large as that in the first quarter despite an impressive gain in residential construction activity and stockpiling of steel inventories in anticipation of a possible strike in midsummer. Federal defense spending continued to be cut, and a further deterioration in U.S. foreign trade eliminated the positive balance in net exports of goods and services. 6. CHANGE IN GNP BILLIONS OF DOLLARS CURRENT-DOLLAR 20 .1 CONSTANT-DOLLAR I I I I Ql Q2 Q3 Q4 1969 1970 1971 1971 NOTE.—Based on quarterly data (seasonally adjusted annual rates) from BE A, Dept. of Commerce. 19 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Gains in industrial production were slight, growth in employment was slow, and unemployment remained at around 6 per cent of the civilian labor force. Furthermore, prices continued to increase rapidly during the first half. The new economic program introduced on August 15 led to an improvement in the outlook for economic activity. There were signs that consumer confidence improved in response to the strong measures taken to control inflation. The prospect for consumer spending was favorably affected by this as well as by fiscal measures included in the program, such as proposals to remove the excise tax on autos and to advance to the beginning of 1972 certain personal tax reductions previously scheduled for 1973. Prospective business spending on capital goods was encouraged by a proposed investment tax credit. The fiscal elements of the program were enacted, with some modifications, by Congress in December. Final sales, measured in real terms, rose somewhat more rapidly in the third quarter than in the second, spurred by a sharp increase Table 2: GROSS NATIONAL PRODUCT 1971 Item 1969 1970 1971 III IV In billions of dollars l GNP, current dollars 929.1 974.1 1,046.8 1,020.8 1,040.0 1,053.4 1,072.9 Inventory change 7.4 2.8 2.2 3.1 4.6 -1.2 2.4 Final sales 921.7 971.3 1,044.5 1,017.7 1,035.4 1,054.6 1,070.4 Private 2 8 9 2 9 2 . . 2 6 8 9 7 7 4. . 1 2 94 9 6 7 . . 9 6 9 9 2 6 1. . 4 4 9 9 3 6 9 . . 0 4 9 9 5 7 7. . 0 6 9 1 7 0 0 0 . . 1 3 Federal GNP, constant dollars 724.7 720.0 739.4 729.7 735.8 740.7 751.3 Percentage change from preceding period (at annual rates) GNP in current dollars 7.5 4.8 7.5 13.7 7.8 5.2 7.6 GNP in constant (1958) dollars. . . 2.6 -.6 2.7 8.0 3.4 2.7 5.8 GNP implicit deflator (1958 = 100). 4.8 5.5 4.6 5.4 4.2 2.5 1.7 1 Quarterly data are seasonally adjusted annual rates. 2 Adjusted to include State and local governments. NOTE.—Basic data from Department of Commerce, BE A. 20 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in purchases of domestically produced autos after announcement of the new economic program. However, liquidation of inventories, particularly excess steel stocks, resulted in a further slowing of the growth in GNP (Table 2). Late in the year over-all economic activity accelerated as inventory accumulation was resumed, as outlays for residential construction continued to rise, and as the rate of real business capital spending picked up. Surveys made late in the year indicated that businesses planned a sizable increase in outlays for plant and equipment in 1972. Although the economy was showing increased evidence of upward momentum late in the year, this momentum was not yet reflected in a significant reduction in the unemployment rate or in an increase in the rate of capacity utilization in manufacturing. The unemployment rate remained at 6 per cent as growth in new jobs was offset by an increase in the number of new jobseekers. RESIDENTIAL CONSTRUCTION Residential construction continued to expand vigorously throughout 1971, as mortgage funds were in ample supply and interest rates were declining. Private housing starts rose from an average annual rate of 1.3 million units in early 1970 to an average rate of 2.2 million units in the final quarter of 1971. For the year as a whole, such starts approached 2.1 million units—a new high, which surpassed by 7 per cent the record that had stood since 1950. There was some shift in the mix away from the smaller, less expensive single-family homes that had characterized the market in 1970 when subsidized units had accounted for a larger proportion of the total. But builders continued to feature a high proportion of townhouses and apartments in an attempt to offset higher land and construction costs. In addition to the reqord number of housing starts, shipments of mobile homes reached one-half million units, which also represented a new high. The improvement in housing starts was reflected in strong increases in residential construction expenditures, which were still rising as the year drew to a close. Spending for new homes also helped to keep consumer outlays for such durable goods as furniture and appliances on a generally upward path. For 1971 as a whole overall expenditures for residential construction were some $10 billion, 21 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

7. PRIVATE HOUSING ACTIVITY MILLIONS OF UNITS 2.5 2.0 STARTS 1.5 1.0 ^ I I ^ 0 1969 1970 1971 NOTE.—Bureau of the Census monthly data at seasonally adjusted annual rates, converted to quarterly averages by Federal Reserve. or 34 per cent, larger than in 1970; in real terms this represented a gain of about 27 per cent. CONSUMER INCOME AND OUTLAYS Because of tax cuts, a Federal pay raise, and an increase in wages and salaries that reflected the resumption of auto production and related activities following the strike, disposable personal income rose by more than $20 billion in the first quarter of 1971, almost twice the average quarterly increase in 1970. The rise in consumption almost equaled that in disposable income, with more than half of the increase being attributed to renewed auto buying. Sales of domestictype autos in the first quarter were at an annual rate of 8.4 million units—up sharply from the 5.4 million annual rate of the strike-depressed fourth quarter of 1970. According to surveys, however, consumers continued to be concerned about inflation and unemployment. For the most part, therefore, they remained cautious, and the saving rate remained above 8 per cent. Growth in consumer spending tapered off in the second quarter despite a sizable further rise in disposable income. In real terms such spending increased at an annual rate of about 4 per cent, but this was less than half the rate in the preceding quarter. 22 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

8. CONSUMER INCOME, OUTLAYS, AND SAVING PERCENTAGE CHANGE 15 1970 NOTE.—Based on seasonally adjusted annual rates data from BEA, Dept. of Commerce. Income and expenditures are change from preceding quarter. Saving rate is percentage of disposable personal income. In response to the new economic program, sales of new domestictype autos, which had leveled off after the first quarter, spurted sharply to an average annual rate of 9.7 million units during the 90-day period, mid-August to mid-November, when the price freeze and the import surcharge were in effect and the proposal to remove the excise tax on autos was being considered. Sales of foreign auto models fell during this period, in part because newly imported autos (subject to the import surcharge) became more expensive relative to domestic cars during the freeze, and later because of limitations on supply as a result of the dock strikes. In late November and in December, after the price freeze had ended, sales of domestic units dropped back to an average rate of 8 million units. Purchases of durable goods other than autos and of nondurable goods and services rose moderately in the latter half of the year (Table 3), and in real terms increases in total consumer spending continued at about the 4 per cent rate of the second quarter. The saving rate remained above 8 per cent until the fourth quarter when it edged down to about 7.8 per cent as gains in consumption ex- 23 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table 3: CHANGES IN MAJOR COMPONENTS OF GROSS NATIONAL PRODUCT In billions of dollars, except for saving rate 1971 i Item 1969 1970 1971 I II III IV Gross national product 64.9 45.0 72.7 32.4 19.2 13.4 19.5 Personal consumption expenditures 43.4 36.2 46.3 20.2 12.5 11.4 8.4 Durable goods 5.9 -1.3 11.9 11.7 2.5 3.7 .8 Nondurable goods 16.8 17.1 13.9 2.3 4.6 2.4 3.1 Services . 20.8 20.4 20.5 6.1 5.5 5.3 4.5 Saving rate {level, in per cent) 6.0 7.9 8.2 8.1 8.6 8.1 7.8 Fixed investment 11.5 2.1 16.8 6.6 8.1 3.7 5.0 Residential structures -1.4 10.2 2.6 4.6 2.7 1.7 Nonresidential. 9^8 3.5 6.6 3.9 3.6 1.0 3.3 Inventory change .3 -4.6 -.6 -.6 1.5 -5.8 3.6 Net exports of goods and services -.5 1.6 -3.6 2.0 -4.6 -.1 -4.6 Exports 5.0 7.3 2.4 3.0 .3 1.7 -7.8 Imports 5.5 5.7 6.0 1.0 4.9 1.8 -3.2 Govt. purchases of goods and services 10.1 9.7 13.6 4.2 1.7 4.2 7.0 Federal .4 -2.0 .4 .5 4 1.6 2.7 Defense .1 -3.0 -4.0 - 6 -1.2 -1.2 1.2 Other .2 1.2 4.3 1.0 .9 2.8 1.5 State and local. 9.8 11.6 13.3 3.7 2.0 2.6 4.3 1 Seasonally adjusted annual rates. NOTE.—Based on data from BE A, Dept. of Commerce. ceeded those in income and the increase in consumer instalment debt accelerated. BUSINESS INVESTMENT The relatively small increases in 1971 in business spending for new plant and equipment and for inventories were among the most important reasons for the sluggish economic growth during much of the year. Business investment in new fixed capital, while increasing by more than 6 per cent in current dollars, showed little change over 1970 in real terms. Businessmen's continued cautiousness in regard to capital investment reflected several factors: the lack of ebullience of consumer and business sales; the continued low rate of manufacturing capacity utilization—less than 75 per cent; and the continuation of before-tax corporate profits at levels significantly below those of 1968-69, although such profits did show a notable improvement through midyear. 24 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Attempts were made to stimulate capital investment early in the year through liberalization of depreciation allowances, but the measures proposed were subject to legal challenges until near the yearend when the allowances, in considerably reduced form, were included in the Revenue Act of 1971. This Act also included a 7 per cent retroactive investment tax credit. Investment was particularly weak in the manufacturing sector. Declines in spending were pronounced in the primary metals, machinery, and transportation equipment industries; these industries suffered not only from cutbacks in spending for defense and for aerospace but also from sluggish demands generally. Investment was also cut by railroads, where cyclical problems predominated, and by airlines, where seating capacity was well in excess of passenger traffic. Capital spending by electric utilities, communications, and commercial firms, however, remained relatively strong throughout the period. 9. BUSINESS INVESTMENT AND CAPACITY UTILIZATION BILLIONS OF DOLLARS BUSINESS FIXED INVESTMENT 110 100 90 80 70 0 1969 1970 1971 NOTE.—Fixed investment: Seasonally adjusted annual rates data from BEA, Dept. of Commerce. 25 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The relatively low rate of inventory investment, which totaled only $2 billion for the year 1971, reflected the relatively high ratio of inventories to sales with which businesses had started the year. In contrast to experience in previous cyclical downturns, total inventories had not been reduced in 1970, and sluggish consumer demand, lack of ebullience in capital spending, and the decline in spending for defense purposes contributed to holding down inventory investment in 1971. Steel was stockpiled early in the year in anticipation that there might be a strike in the steel industry when labor contracts expired on July 31, but after that date steel stocks were sharply reduced, resulting in an over-all net inventory liquidation during the third quarter. Thus, stock/sales ratios, which had been declining irregularly throughout 1971, ended the year at appreciably lower levels than had prevailed at the beginning. Although inventory investment remained modest in the fourth quarter, the swing from liquidation to accumulation contributed importantly to the acceleration of growth in GNP. GOVERNMENT Federal Government purchases of goods and services showed relatively little net change from 1970 to 1971. Increased purchases for nondefense purposes were about offset by further declines in defense outlays. The average size of the Armed Forces was cut by nearly 371,000 from 1970, while civilian employment was little changed. However, Federal spending was sustained by a Government-wide pay increase early in the year and a further increase in pay of the armed services in November; the latter increase was designed to facilitate the building of an all-volunteer service. On the other hand, purchases of military hardware declined further. The cumulative effects of such cutbacks were severe on the defense products industries and their suppliers. Production of defense and space equipment edged down through April and remained sluggish thereafter, and at the year-end employment in defense products industries was more than 100,000 below year-earlier levels. In contrast to purchases of goods and services, total Federal Government expenditures rose substantially in the calendar year 1971 (Table 4). Grants-in-aid to State and local governments, which ran 26 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table 4: FEDERAL GOVERNMENT RECEIPTS AND EXPENDITURES Federal Sector NIA Accounts In billions of dollars Calendar year 1971 i Item 1969 1970 1971 I II III IV Receipts 196.9 191.5 198.7 196.5 197.7 197.8 2 202.8 Expenditures 189.5 205.1 221.4 212.7 221.4 224.6 228.7 Purchases of goods and services 99.2 97.2 97.6 96.4 96.0 97.6 100.3 Other 90.3 107.9 124.3 116.3 125.4 127.0 128.4 Surplus or deficit 7.3 -13.6 -23.1 -16.2 -23.7 -26.7 2 -25.9 1 Seasonally adjusted annual rates. - Implied in calendar year totals. NOTE.—Based on data from Dept. of Commerce, BEA. The Federal sector in the national income accounts (J^JIA) measures Federal receipts and expenditures as they directly affect private incomes in the national accounts. Thus it excludes all Federal lending, which affects private debt but not incomes. Also the timing in some transactions is on an accrual basis; in others, on a delivery basis. $5 billion more than in 1970, together with higher social security benefits and increases in other transfer payments, boosted Federal Government expenditures by about $17 billion from 1970. At the same time, additional tax reductions enacted during the year—including the auto excise tax reduction and the retroactive investment tax credit—and a slower-than-anticipated rate of economic growth caused increases in receipts to fall short of original expectations. Consequently, the Federal budget deficit (national-income-accounts basis) was $23 billion in calendar year 1971, nearly $10 billion larger than in 1970. The strong growth trend of recent years in purchases by State and local governments continued in 1971; such purchases rose by over $13 billion, nearly $2 billion more than the increase in 1970. Wages paid by these governments continued to move up at a brisk pace, but the gain in employment was somewhat less than the average for other recent years. This slowing reflected in large part resistance by taxpayers to higher costs and reduced needs for hiring new teachers because of a smaller rise in school enrollments. New Federal legislation subsidizing specific kinds of public service employment in State and local government had only a limited impact, mainly because the program was operational only in the last few months of the year. 27 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Although State and local government borrowing was facilitated by easier conditions in financial markets and lower interest rates, a large portion of the additional funds so obtained were apparently used to strengthen financial positions, and construction expenditures appear to have increased relatively little over the year as a whole. MANPOWER UTILIZATION The labor market continued slack in 1971 and unemployment remained relatively high (Table 5). After a year of decline, nonfarm payroll employment began to rise in early 1971, but the gains were small and they were concentrated in the nonindustrial sectors of the economy—particularly in services and in State and local government. Manufacturing employment, which had fallen sharply throughout 1970, continued to edge down, and prior to the introduction of the new economic program it was 1.8 million below the peak reached in 1969. Employment of both production and nonproduction workers was cut as businesses continued to take measures to limit increases in labor costs. Nor was there any indication at midyear that employers were lengthening the workweek, as was typical of previous recovery periods. The unemployment rate, which had risen to slightly over 6 per cent at the end of 1970, went no higher in the first half of 1971 because there was little growth in the civilian labor force. Many workers who might normally have sought jobs were discouraged from Table 5: LABOR MARKET INDICATORS Changes in thousands of persons, except for unemployment rate, which is rate in final quarter of each year. Year ending fourth quarter of— Item 1969 1970 1971 Total labor force 2,339 1,330 1,268 Armed Forces -53 -444 -352 Civilian labor force 2,392 1,774 1,620 Total civilian employment 2,168 1,428 Unemployment rate (per cent).... 3.6 5.8 5.9 Nonfarm employment: Total 2,033 -719 893 Manufacturing 187 -1,473 -81 NOTE.—Based on BLS data not adjusted for seasonal variation. 28 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

10. EMPLOYMENT AND UNEMPLOYMENT CHANGE, MILLIONS OF PERSONS NONFARM EMPLOYMENT 1969 1970 1971 NOTE.—Quarterly data, seasonally adjusted, from BLS. doing so by high unemployment and by the lack of new hiring. At midyear the unemployment rate of white workers was 5.5 per cent, about the same as at the start of the year, but for Negroes and other races combined it had reached a rate of about 10 per cent. Nonfarm employment, after declining slightly in the third quarter, began to rise again in the closing months of the year, as manufacturing employment stabilized and service-type industries continued to add workers. By the year-end employment in service-type industries had risen by 1.1 million from a year earlier, with both trade and State and local governments showing sizable gains. But as economic prospects improved in the second half, strong increases in total employment were matched by stepped-up growth of the civilian labor force. As a result the unemployment rate continued at about the 6 per cent level. However, an increase in the average workweek after September and a reduction in insured unemployment toward the yearend indicated some strengthening in the labor market. • 29 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Aggregates and Interest Rates The money and bank credit aggregates expanded substantially in 1971 (Table 6), while market interest rates receded further from the already reduced levels of late 1970. During the year, however, both interest rates and rates of growth in the aggregates varied over a wide range. Table 6: SELECTED MONETARY AGGREGATES, 1971 Change, in per cent Money stock: Mi 6.2 Mi 11.1 Mz 13.3 Adjusted credit proxy 9.5 Total reserves 7.3 Nonborrowed reserves. 8.1 NOTE.—For definitions of the three measures of the money stock and the credit proxy, see Chart 12, p. 34. Total reserves are required reserves held against member bank deposits and nondeposit items subject to reserves, plus excess reserves. Nonborrowed reserves are total reserves less member bank borrowings from F.R. Banks. In the early weeks of 1971 the cyclical decline in interest rates that had accompanied the 1970 recession continued. And for a while growth of the narrowly defined money stock (M ) was slugx gish. In the course of the first quarter, however, both of these tendencies were reversed. Money and bank credit aggregates showed rapid growth until midsummer, and some interest rates—influenced in part by disappointment as to progress in curbing inflation—rose as much as 200 basis points to levels well above those that had prevailed at the end of 1970. After the mid-August announcement of the new economic program, inflationary expectations abated and interest rates declined again, reaching year-end levels generally below those that had pre- 31 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

vailed at the beginning of the year. At the same time, growth of the money and bank credit aggregates slowed. The deceleration was particularly marked in the narrowly defined money stock, where there had been a sharp build-up in cash balances earlier in the year. For the year as a whole, Mi grew at an annual rate of 6.2 per cent, somewhat more than in 1970, while M. (M plus time and savings 2 A deposits other than large negotiable certificates of deposit) and the adjusted bank credit proxy grew by 11 and almost 10 per cent, respectively. Total reserves of member banks rose by over 7 per cent. Strong demands for credit in 1971 were a factor limiting interest rate declines, particularly in long-term markets. Total funds raised in all credit markets exceeded the previous record, of 1970, by about $50 billion. Borrowing by the Federal Government to finance a record postwar deficit accounted for a sizable part of this increase, but private financing also expanded substantially. New records were set 11. INTEREST RATES PER CENT PER ANNUM LONG-TERM 1970 1971 1970 NOTE.—Monthly averages. Yields: U.S. Treasury bills, market yields on 3-month issues; corporate bonds, weighted averages of new publicly offered bonds rated Aaa, Aa, and A by Moody's Investors Service and adjusted to an Aaa basis; U.S. Govt. bonds, market yields adjusted to 10-year constant maturity by U.S. Treasury; State and local govt. bonds (20 issues, mixed quality), Bond Buyer. Home mortgages, FNMA auction; commitments on 3-month maturities until mid-October 1971, and 4-month maturities thereafter. 32 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in mortgage debt expansion; in total financing by nonfinancial corporations, including stocks and bonds; and in borrowing by State and local governments. Bank and nonbank thrift institutions were of particular importance in supplying the increased volume of funds raised. The generally easy and accommodative stance of Federal Reserve policy contributed to a sharp growth in thrift deposits at these institutions because interest rates in short-term markets remained low relative to those paid on time and savings accounts. The ample availability of funds at commercial banks encouraged sizable increases in real estate and consumer lending and in loan commitments to business. Takedowns of business loan commitments were quite small, however, as businesses, in lieu of bank credit, continued to rely heavily on capital market financing and as they obtained increased amounts of funds internally through improved profits and rising capital consumption allowances. Banks also channeled a large share of their deposit inflows into security investments, adding in the process to their own liquidity. At nonbank thrift institutions too, heavy inflows of deposits supported an improvement in liquidity along with a large increase in mortgage lending. In addition, mutual savings banks invested a substantial portion of their deposits in the corporate bond market. A part of the improvement in liquidity reflected large paydowns by the savings and loan associations of advances from the Federal home loan banks. Reduced reliance on the home loan banks and on the Federal National Mortgage Association permitted these institutions, in turn, to reduce substantially their own demands on securities markets. DEVELOPMENTS PRIOR TO AUGUST 15 Early in 1971 growth of the narrowly defined money stock remained quite small, carrying over the pattern of sluggishness that had developed during the auto strike in late 1970. Once the sharp poststrike catch-up in current-dollar GNP was under way, however, growth in the money stock accelerated at a rapid pace. From February through July, Mi grew at an unusually high annual rate, about 11 per cent. To a considerable extent this expansion reflected the enlarged need for transactions balances created by the rapid rate of growth in 33. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

current-dollar GNP during the first half of 1971. In addition, the over-all demand for money in this period appears to have been reinforced by the lagged effects of the sharp decline in short-term interest rates that had started in the summer of 1970 and had carried through the first quarter of 1971. Finally, demands for liquidity may also have been enhanced by prevailing uncertainties about the domestic economic and employment outlook and international financial conditions. The increased demand for liquidity was also reflected in public acquisition of thrift-type deposits at financial institutions. Such demands were reflected in the two broader measures of the money stock, which grew even faster than M^ during the first half of 1971. In addition to the general demand for liquidity—and the high rate of consumer saving—the sharp growth in thrift accounts represented a continuation of the expansion in such deposits that had been triggered by the drop in market rates of interest during the latter half of 1970. Since average rates paid on thrift accounts declined only a lit- 12. MONETARY AGGREGATES Growth in 1971 L Q2 Q4 ADJUSTED MEASURES OF MONEY CREDIT PROXY Mi: Currency held outside the Treasury, F.R. Banks, and the vaults of all commercial banks, plus demand deposits other than interbank and U.S. Government. M-y. Mi plus time deposits at commercial banks other than large certificates of deposit. Ms: M-2 plus deposits of mutual savings banks and savings and loan shares. Adjusted credit proxy: Total member bank deposits subject to reserves, plus Euro-dollar borrowings, bank-related commercial paper, and certain other nondeposit items. NOTE.—Quarterly rates of growth derived from daily-average data for last month of the quarter relative to that for last month of preceding quarter. 34 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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13. BANK FUNDS Major Sources in 1971 BILLIONS OF DOLLARS 40 ALL MAJOR SOURCES 30 TIME AND SAVINGS DEPOSITS EXCL. LARGE CD's NONDEPOSIT SOURCES I I I I I I I I I I I D J F M A M J J A S 0 N D NOTE.—Time and savings deposits other than large certificates of deposit and private demand deposits are for all commercial banks. Time and savings deposits other than large CD's exclude those due to domestic commercial banks and to the U.S. Government as well as balances accumulated for repayment of personal loans. Large CD's are negotiable CD's issued in denominations of $100,000 or more by major commercial banks. U.S. Government deposits and nondeposit sources of funds data are for member banks only. in a large debt refinancing and a pre-refunding at the time, the market was especially sensitive. Later, when it became apparent that money market conditions were continuing to ease and that the basic strength of the economy was subject to question—once allowance had been made for the auto-strike catch-up—long-term rates declined again, notwithstanding the heavy volume of capital market financing. This further decline was abetted by large Federal Reserve purchases of longer-maturity Treasury securities. After mid-March, however, both short- and long-term rates began a sustained uptrend that extended to midsummer and again raised 36 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

rates generally to levels aboYe those of late 1970. A number of factors contributed to this over-all advance. One was the stronger-thananticipated demands for borrowing; in particular, capital market financing by businesses and State and local governments became larger and more sustained than had earlier seemed likely. At the same time U.S. Treasury borrowing remained large, and estimates of the volume of financing to be undertaken by the U.S. Government in, the second half of the year expanded as the year progressed. During the spring of 1971 the Federal Reserve, in an effort to slow the continued rapid growth of the monetary aggregates^ began to supply reserves less aggressively and thus contributed to a tightening of money market conditions. The accelerated rate of growth in the monetary aggregates in the first quarter offset the relatively sluggish growth of the preceding quarter and supported the poststrike catch-up In current-dollar GNP. But persistence of such rapid growth rates into the spring raised questions in. the minds of some observers as to the prospects both for success in controlling domestic inflation and for the future course of monetary policy. Over the second quarter, the gradual tightening of money market conditions tended to accentuate the upward pressures on interest rates being exerted by other factors. In an effort to promote accommodative conditions in longer-term markets, the System supplied reserves to the extent feasible through purchases of Treasury issues maturing in. more than a year. Market rates, particularly short-term rates, were also influencing, and were being influenced by, international lows of liquid or speculative funds during this period. The marked further widening of spreads between U.S. and foreign, interest rates that had developed in ..•arly 1971 appeared to be encouraging an increase in capital outflows over and above the large repayments of Eu.ro-doll.ar borrowing by major banks. With deterioration of the trade balance also contributing to a marked over-all worsening in the U.S. balance of payments, large dollar outiows in anticipation of possible adjustments ie exchange rates began to develop during April. Although these outflows subsided temporarily after seYeral key European currencies were allowed to float or were revalued upward in May, uncertainties about the international monetary outlook persisted. Around midyear the pace of the general advance in interest rates 37 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

seemed about to quicken. At that time deepening concern about the state of the U.S. trade balance appeared to be threatening a resurgence of speculative dollar outflows on an even larger scale than in April. This trend, together with the continued active expansion of the monetary aggregates and growing frustrations about the stubborn persistence of wage and price pressures, seemed to presage an immediate further firming of money market conditions. This market expectation was strengthened by an increase in the discount rate in July by VA of a percentage point to 5 per cent. With the period of heavy deficit financing by the Treasury just getting under way, and with long-term rates remaining high in an environment marked by disappointment about the progress being made to curb inflation under prevailing policies, further general rate increases were beginning to seem inevitable. LATER DEVELOPMENTS Once the President had announced his new economic policies, however, interest rates reversed course. The ensuing downtrend reflected, in large part, the diminution of inflationary expectations resulting from the institution of wage-price controls. This, together \^ith the new measures tg improve the balance of payments and the functioning of international exQjiarjge markets, also led market participants tg modify their earlier view that monetary policy would have to seek more restrictive money market conditions. Treasury bill yields had declined somewhat even before the ^President's new policies were announced, and after the announcement they dropped faster than other market rates of interest. The. decline in bill yields in July reflected the relative ease with which the Treasury had met its first large financing needs of the new fiscal year, Purchases of Treasury bills by foreign offipial ^counts contributed t,o the .easing of conditions in the bill market after midyear as foreign official institutions were acquiring dollars in support of their own currencies as speculation against the dollar; mounted. , t Dollar outflows continued at a high rate jfg>llo,wing the general floating of exchange rates in mid-August, and foreign official demand for U.S. Government securities remained strong. At the same time, the supply of new bill offerings in the market was substantially less than had previously been anticipated because acquisitions of special issues 38 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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The initial phase of the slowdown appeared to be associated with the Increased outflow of dollars during August. Speculators and liedgers had sought to profit from, or protect themselves against, the expected rise in value of foreign currencies relative to the dollar. Some domestic holdings of dollar balances were drawn down in the process, but the bulk of the outflow was probably financed in other ways. For example, both domestic and foreign demands for loans at U.S. banks increased sharply in August, and the proceeds of many of these loans were used to prepay liabilities in foreign currencies or to acquire foreign currencies for future payment or to profit from future revaluations. The public's demand for money in the late summer and early fall remained lower relative to income than it had been in preceding months. In this period the public may ha¥e shifted out of cash balances built up earlier for precautionary reasons and into market securities in an effort to capture peak yields, in Yiew of the widespread expectations that the new economic program would lead to lower interest rates. In addition, improved public confidence In both the domestic and the international economic outlook probably reduced the demand for liquidity. Finally, the increases in interest rates during the spring and early summer had made it cost more to hold money, and this earlier rise in rates continued into the fall to affect the demand for money. By the third quarter the higher level of interest rates had already contributed to a significant slowing of the growth in consumer-type time and savings deposits at banks, despite a reversal of the scattered rate cuts that had been instituted at a number of major institutions in the spring. Inflows also had slowed at nonbank thrift institutions —but to a lesser degree inasmuch as these institutions still paid higher rates on deposits than banks did and fewer of them had reduced offering rates in the spring. With savings inflows thus more moderate, growth of M and M decelerated, although not so sharply 2 3 as M. x Growth in bank credit—as measured by the adjusted credit proxy —did not fall off nearly so much in the third quarter as the money stock aggregates. Cutbacks in the expansion of private demand and consumer-type time deposits at banks were generally offset by an expansion, in large negotiable CD's (many of which were taken by for- 40 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

cit'll accounts), by increases In \ ^ Oo^;5 merit deposits (arising Hum the large foreign official purchases of special Treasury certificates), and by a virtual cessation of U.S. bank repayments of Eurodollar borrowings to their foreign branches. Similarly, in the fourth qo.ai.ter, even though M expanded at an x annual, rate of only 1. per cent, the credit proxy rose at close to a 10 ;vr cent annual rate, or a little faster than in the third quarter. This fourth-quarter expansion reflected, a sharp acceleration in time and savings deposits other than CD's to a 15 per cent annual rate; as a result M in this period accelerated to an 8 per cent rate of growth, 2 despite the slow growth in M,, Over 1971 as a whole, the monetary aggregates expanded substantially. While growth in M, was sluggish in the latter pail of the year, it had been very rapid earlier in the period. Broader measures of the money stock grew considerably faster than M and contributed to x greater public liquidity, while credit from banks and other financial institutions remained ample throughout the year. By the year-end most interest rates were at or near their lows for the year. Rates in short-term markets had declined quite sharply as monetary policy was directed toward promoting the degree of ease in bank reserves that would lead the monetary aggregates to grow at a rate sufficient to support accelerated economic recovery. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Total Credit Flows and the Financing of Private Investment The net flow rif credit through domestic markets was at an unprecedented rate in 1971, both in dollar amounts and in relation to economic activity. Net funds reached a total of $15 f billion, about 50 per cent more than in any previous year. The total was 14 per cent of GNP, well above the 1^968 high of 11 per cent and the 10 per cent average for the 1960's. This record volume of credit consisted mainly of a combination of heavy Federal borrowing to cover the year's deficit, a volume of private financing that was large relative to capital outlays, and State arid local government borrowing well in excess of fiscal needs. Foreign borrowing in U.S. markets was also sharply higher than in 1970 and earlier years, but it remained a small part of the total. SOURCES OF CREDIT SUPPLY The financing of such large credit flows was accomplished with market interest rates declining somewhat over the year, although sizable fluctuations in such rates occurred during the year. Rates in shortterm markets Were unusually low relative to long-term rates—such as those for mortgages and corporate bonds—and savings institutions that lend predominantly in long-term markets offered yields on deposits that were very attractive relative to money market rates. In view of this rate advantage, time and savings deposits grew by an unprecedented 17 per cent in 1971, and these institutions were a dominant source of funds to credit markets. An important element in short-term markets and in the forms of credit flow in 1971 was the very large volume of U.S. Government securities purchased by foreign official reserve holders; sizable acquisitions of Treasury bills by foreign central banks accounted in part for the decline in the Treasury bill rate relative to other market rates. During the year these institutions bought $27 billion of U.S. 43 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Government securities, more than total Treasury borrowing; over the same period domestic private holdings of Treasury issues decreased. In the absence of these outflows, private investment in U.S. markets would have been larger and foreign official acquisitions of U.S. Treasury securities smaller. Purchases by foreign official accounts were the counterpart of the weak current-account position in the U.S. balance of payments and the large volume of private capital outflows. The capital outflows took a variety of forms, such as bank repayment of foreign borrowings, loans to foreign borrowers, and liquidation of dollar assets held by private foreigners. Some of the borrowing, both foreign and domestic, shown in Table 7 reflects the strong demand for foreign exchange, but there is a great deal of uncertainty as to the form of much of the outflow. The relation of foreign inflows to U.S. credit markets is indicated in Table 8, where the sharp increase from 1970 in U.S. Government borrowing is more than offset by larger foreign purchases. Private domestic lending in credit markets increased less sharply than total borrowing, and all of the domestic credit supply was in the form of private loans and securities. Although private domestic lending increased less, proportionately, than total borrowing from 1970 (Table 8), the $112 billion flow from the private sector was sharply higher in relation to activity and income than in any other year of the preceding two decades. Moreover, the flow originated entirely in banks and nonbank financial in- Table 7: FUNDS RAISED IN CREDIT MARKETS BY NONFINANCIAL SECTORS Amount Percentage of GNP Sector In billions of dollars Percentage change, 1966- 1970 to 70 avg. 1 0*71 1970 1971 1971 Total * . . .. 97.5 151.1 55.0 10.1 14.4 U.S. Government 12.8 25.5 99.2 .9 2.4 State and local governments 12.2 18.7 53.3 1.1 1.8 Foreign . . .. 2.6 5.4 107.6 .3 .5 Households and nonfinancial business l 69.9 101.5 45.2 7.8 9.7 1 Includes net issues of corporate equities. 44 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table 8: TOTAL FUNDS RAISED AND PRIVATE DOMESTIC CREDIT SUPPLY Amount Percent- (in billions of dollars) age Sector, or supplier change, 1970 to 1969 1970 1971 1971 A. Funds raised in credit markets by nonfinancial sectors. . . 90.4 97.5 151.1 55.0 B. U.S. Government. -3.6 12.8 25.5 99.2 C. Other l 93.9 84.7 125.6 48.3 Funds supplied directly by: D. Foreign 1.3 10.9 28.4 160.6 E. Public agencies, net2. . . .. 6.9 9.4 11.0 17.0 F. Private domestic lenders (A —D —E) 82.2 77.2 111.7 44.7 G. To: U.S. Government 4.6 5.8 -6.0 -203.4 H. Other. . 77.6 71.4 117.7 64 8 I. By: Commercial banks 12.2 31.3 47.5 51.8 J. Savings institutions 10.4 14.7 40.8 177.6 K. Other finance 19.7 24.2 27.9 15.3 L. Nonfinancial investors 3 39.8 7.1 -4.5 -163.4 1 Includes corporate equities. '- U.S. Government, federally sponsored credit agencies, and federal Reserve System. Net of security issues by sponsored agencies. 3 Households, nonfinancial business, and State and local governments. stitutions; nonfinancial investors liquidated holdings of credit market instruments, net, over the year. The extent to which the domestic credit supply was intermediated was as unprecedented as the size of the flow for a period as long as a year, and it indicated the yield advantage of deposits over money market instruments as liquidity holdings during the period. As indicated earlier in this report, the flow into time and savings accounts supplied an unusually large volume of funds to lenders who specialize in mortgage credit. Thus, it provided a strong financial base for the high and rising rate of housing construction, which continued through the year, and also for some forms of business investment. Savings institutions were the source of 60 per cent of total mortgage funds supplied in 1971, a higher proportion than in the 1961-65 period of rapid deposit growth, and mutual savings banks also bought one-fifth of the net new corporate bond issues, and savings and loan associations repaid borrowings from the Federal home loan banks. Commercial banks were also substantial lenders in mortgage markets, with loans on real estate absorbing a fourth of total bank credit flows. 45 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

PRIVATE DOMESTIC FINANCING Funds raised by households and nonfinancial business in credit and equity markets were far larger than would have been expected, based on past relationships to private saving or capital investment. Both net residential mortgage financing and business credit flows were up sharply from recent years in relation to capital spending (Table 9), and the ratios for both types of financing were well above those for any other year of either the 1950's or the 1960's. During the 1960's total external financing by households and business had stayed within a fairly narrow range of 31 to 34 per cent of total capital outlays on an annual basis, in spite of wide variations in credit conditions and in the relation between saving and capital spending. The 41 per cent relationship in 1971 is a sharp departure from this experience. The upward pace of residential mortgage flows in 1971 accompanied a sharp upsurge in outlays for construction of both single-family and multifamily housing units. However, not all of the increase in net flows of such credit reflected new lending to finance the record Table 9: EXTERNAL FINANCING BY HOUSEHOLDS AND NONFINANCIAL BUSINESS Amount Percent- (in billions of dollars) age change, 1970 1966-70 1970 1971 to 1971 NET FUNDS RAISED: A. Residential mortgages 17.5 18.7 33.8 80.7 B. Percentage of residential construction 61 62 83 C. Corporate equities l 2.7 6.8 13.5 98.5 D. Corporate bonds l 14.0 20.3 18.3 -9.9 E. Business loans arid nonfesidential mortgages. 2Qfl 14.9 19.6 31.5 F. Total nonresidcntial business ,. 37.4 42.0 51.4 22.4 G. Percentage of nonresidential business capital expenditure 40 43 50 H. Other external financing 2 12.5 9.2 16.4 78.3 I. Total external financing. 67.4 69.9 101.5 45,2 J. Percentage of total capital outlays 3 33 32 41 CAPITA! OUTLAYS: K. Residential construction 28.5 30.4 40.6 33.6 L. Ndnresjdential business plant and equipment outlays and net inventory change. 92.7 97.6 103.1 5.6 M. Consumer durable goods and nonprofit-institution plant and equipment. 86.1 93.9 105.8 12.7 N. Total.. 207.3 221.9 249.5 12.4 1 Nonfinancial corporations only. 2 Consumer credit, policy loans, and borrowing by nonprofit institutions. 3 Capital outlays include those for consumer durable goods and nonprofit-institution plant and equipment. 46 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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Table 10: PRIVATE DOMESTIC SAVING AND INVESTMENT Amount Relative to GNP In billions of dollars Per cent Change Item Per a c g e e nt- (pe a r g c e ent change, points), 1970 1971 1970 to 1966-70 1971 1966-70 1971 avg. avg. to 1971 Households and nonfinancial business: A Gross saving 245.5 276.4 12.6 25.5 26.4 .9 B. Capital expenditures 222.0 249.5 12.4 24.1 23.8 -.3 C. Less: External financing 69.9 101.5 45.2 7.8 9.7 1.9 D. Equals: Internal financing (B — C).. 152.1 148.0 -2.7 16.3 14.1 -2.2 E. Net financial uses of funds (A — D).. 93.4 128.4 37.5 9.2 12.3 3.1 State and local governments: F Net current surplus -6.0 -4.0 -33.3 -.5 -.3 .2 G. External financing 12.2 18.7 53.3 1.1 1.8 .7 H. Net financial uses of funds (F+G). 6.2 14.7 137.1 .5 1.4 .9 Private financial investment: I. Total net financial uses of funds (E-fH) 99.6 143.1 43.7 9.7 13.6 3.9 J. Currency and deposits 61.1 93.0 52.2 4.4 8.9 4.5 K. Credit market instruments 7.1 -4.5 -163.4 1.8 -.4 -2.2 L. Other, net 31.4 54.6 73.9 3.5 5.2 1.7 opments generated a temporary surge in loans. There was very little growth in commercial paper or in loans from nonbank financial institutions. SAVING AND INVESTMENT The high rates of external financing by households and business in 1971 relative to capital outlays were matched, for the group as a whole, by comparably large flows into financial assets. Private saving increased by a somewhat larger amount than capital expenditures from 1970, but each continued to have approximately the same relation to GNP as the average for 1966-70 (Table 10). Because the increase in external financing was larger in absolute amount than the increase in outlays, financial uses of funds rose to an unprecedented 46 per cent of gross private saving, as compared with an average of 36 per cent for 1966-70. State and local government financing was also very large in 1971 relative to the total need for funds. Municipal borrowing had picked up sharply after mid-1970, when commercial banks increased their 48 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

purchases of tax-exempt securities, and by the end of 1970 the liquidity of State and local governments had recovered from a low position at the beginning of the year to a level that was more normal in relation to expenditures. Early in 1971, however, net issues of municipal securities increased even further. Banks were able to absorb most of the increase in offerings during the year, and there was little incremental buying of such securities by nonfinancial investors. With households, businesses, and State and local governments all active during the year both as borrowers and as lenders, their total financial uses of funds increased sharply from 1970 in dollar amount and to a new high level in relation to GNP. Of total financial uses, the flow into money, time deposits, and savings accounts was about 65 per cent—a higher proportion than for 1970 and also above the 1961-65 average, when institutional flows were also a large component of total credit flows. Direct purchases of credit market instruments by private domestic investors were negative in 1971, as was mentioned earlier. "Other" financial uses of funds, however, were extremely large. These "other" uses are to some extent unidentified in the statistics, and they probably include part of the private capital outflows to foreign countries, both recorded and unrecorded, which rose to such large proportions in 1971. Capital outflows were an important counterpart of foreign official purchases of Treasury securities during the year. LIQUID ASSETS The total liquid asset position of the domestic private nonfinancial economy increased slightly during 1971 as a result of the unusual size and structure of flows. On the basis of a simple measure of liquid assets—holdings of money, time and savings accounts, U.S. Treasury and agency securities, and commercial paper—the 1971 year-end total was slightly more than 83 per cent of GNP (Table 11). This represents a departure from a narrow range of 82 to 83 per cent of GNP, a level that has been maintained for well over a decade, except in the two tight-credit periods of 1966 and 1969. The deposit component of liquid assets rose sharply as a result of institutional flows in 1971 and reached a level well above preceding peaks. This rise was partly offset, however, by the decrease in holdings of Government securities and of commercial paper. 49 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table 11: PRIVATE LIQUID ASSET HOLDINGS End-of-year figures as a percentage of fourth-quarter GNP, seasonally adjusted annual rate Year Total an C d u d rr e e p n o c s y its U se .S c . u r G iti o e v s t 1 . Com pa m p e e r r cial 1959 82.0 59.7 22.1 .2 1965 82.8 66.3 15.6 .9 1966 . 80.6 64.0 15.5 1.1 1967. . 82.5 66.9 14.4 1.2 1968 82.4 66.7 14.1 1.6 1969 80.4 63.2 14.8 2.4 1970 82.5 66.8 13.5 2.1 1971 83.3 70.2 11.2 2.0 1 Includes Federal agency issues. This measure of liquid assets probably understates to some extent the 1971 position of private holders. As mentioned earlier, "other" financial uses of funds by this group undoubtedly included part of the unrecorded private capital flows that occurred in 1971. Insofar as those funds were placed abroad in liquid forms for higher yields and/or to await readjustments in exchange rates, they are statistically a missing component of private liquidity; they will appear in the totals whenever they are returned to U.S. markets. If allowance is made for unknown assets held abroad, it is probable that the large scale of private borrowing and lending during 1971 was sufficient to lift liquidity holdings of the nonfinancial economy even further out of the narrow range of recent years. The heavy emphasis by business on long-term financing also reduced sharply the position of short-term debt in business capital structures. Both of these developments have put the private economy in a favorable position for further growth of activity. • 50 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. Balance of Payments During 1971 it became evident that the balances of both current and capital transactions between the United States and the rest of the world had worsened to such an extent that conventional changes in monetary or fiscal policies here or abroad could not be expected to reverse the trend. In fact, the cyclical situation was adverse for the balance of payments because demand in the United States was strengthening whereas in most major foreign countries—where resource utilization was still relatively high—the pace of economic advance was slowing. The international monetary scene in the first half of the year was dominated by huge flows of funds to Germany, as that country continued to pursue a relatively tight monetary policy, while the revaluation of the mark in 1969 did not appear to have diminished Germany's strong trade surplus. By April these flows reflected market expectations that the mark would be revalued, and on May 10 the German authorities allowed the mark to float; at the same time the 14. U.S. BALANCE OF PAYMENTS SEASONALLY ADJUSTED ANNUAL RATES SEASONALLY ADJUSTED ANNUAL RATES BILLIONS OF DOLLARS BILLIONS OF DOLLARS MAJOR COMPONENTS- OVER-ALL BALANCES OFFICIAL SETTLEMENTS BALANCE 40 ll i ll 1969 1971 1969 1971 1 Excludes SDR allocations. 51 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Netherlands guilder was allowed to float and Switzerland and Austria revalued their currencies. For a brief period thereafter there was a partial reversal of speculative flows and some relaxation of tensions in international markets, but as evidence of the deepening troubles of the U.S. balance of payments mounted, another and much more massive flow of funds got under way. Demands for the currencies of most other industrial countries built up, and foreign official reserve accruals accelerated. By the end of July U.S. liabilities to foreign official accounts stood at $37 billion, compared with $24 billion at the end of 1970; meanwhile, U.S. reserve assets had fallen from $14.5 billion to $13.3 billion. In the first 2 weeks of August reserve liabilities grew by about $4.5 billion, while reserve assets were reduced by $1.2 billion. Reductions in reserves occurred mainly in connection with repayments by other countries to the International Monetary Fund. Moreover, the United States made large drawings on swap lines with some countries that were accumulating large holdings of liquid dollar assets. MEASURES OF AUGUST 15 The external measures announced on August 15 as part of the new economic program represented an effort by the United States to exercise an initiative to restore, via a change in the exchange rate for the dollar, the country's competitive position in world trade, to obtain an easing of restrictive trading arrangements, and to arrange for a more equitable sharing of mutual defense expenditures. As a first step to effect these changes, the U.S. Government suspended the convertibility of dollars held in foreign official reserves into gold and other reserve assets. Other actions taken—imposition of a temporary 10 per cent surcharge on dutiable imports and the limitation of tax relief for capital expenditures to domestically produced capital goods—were intended to emphasize the seriousness with which the U.S. Government viewed the need for exchange rate adjustments. These measures were eliminated once agreement on such adjustments was reached in the meetings held in Washington on December 17 and 18. In the period between August 15 and the weekend of December 17 and 18 the currencies of other industrial countries were allowed to float above their previous parities. In most cases, however, the extent of the appreciations of these currencies was limited by official 52 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

intervention in the market or by various measures intended to limit inflows of speculative and interest-sensitive funds. In that period the outflow of funds from the United States (reflecting not only flows of liquid funds but also leads and lags in payments of all kinds) was again very great, and liabilities to foreign official accounts rose by almost $12 billion. Japan was the principal recipient, as that country was reluctant to accept at an early stage the major revaluation that was generally expected. As negotiations toward a realignment of exchange rates proceeded, the extent of the change in the U.S. balance of payments that was required came to be better understood, though it was actively debated. In particular, the U.S. trade balance had clearly tended to deteriorate more rapidly in recent years than could be accounted for by changes in general demand conditions here and abroad. By 1972 the trade balance could be expected to register a deficit substantially larger than that already in prospect for 1971. It also seemed clear that, in the absence of major adjustments of exchange rates, the balance on current and long-term capital transactions would be headed for a deficit even larger than in 1971, whereas a surplus of some size for these transactions would be necessary to produce a satisfactory balance on official settlements. MERCHANDISE TRADE The U.S. trade balance in 1971 dropped to a deficit of nearly $3 billion compared with a surplus of $2 billion in 1970 (Table 12). The trade deficit stemmed from a very weak showing in exports, which were only slightly higher in value than in 1970, while imports advanced sharply—by about 15 per cent. Part of the difference reflected a somewhat larger increase in import prices than in export prices. On the export side, increases in sales of agricultural commodities, in sales of automotive vehicles and parts to Canada, and in deliveries of commercial aircraft were just about offset by declines in shipments of machinery and industrial materials. The declines in these exports were attributable mainly to the easing of demand in foreign industrial countries. In volume terms, exports as a whole were slightly lower in 1971 than in the previous year. The gains in imports in 1971 were broadly based, with all major 53 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table 12: U.S. INTERNATIONAL TRANSACTIONS In billions of dollars, seasonally adjusted 1971 Item 1970 1971 III IV v Merchandise trade balance 2.1 -2.9 .3 -1.1 -.6 -1.5 Exports 42.0 42.8 11.0 10.7 11.5 9.6 Imports 39.9 45.7 10.8 11.8 12.0 11.1 Services, remittances, pensions, net .1 1.4 .7 .2 U.S. Govt. grants and credits, net -3.8 -4.2 -1.1 -1.1 -1.0 Long-term private capital, net -1.5 -5.1 -1.0 -1.8 -1.7 -.5 Balance on current account and long-term capital -3.0 -10.9 -1.3 -3.2 -3.2 -3.2 Nonliquid short-term private capital -.5 -2.8 -.4 -.4 -1.2 -.9 Errors and omissions ii -9.3 -1.0 -2.3 -5.1 -.8 Liquid private capital -6.0 -7.2 -3.0 .1 -2.8 -1.5 Of which: Liabilities to foreign commercial banks -6.5 -6.6 -3.1 -.1 -2.1 1.3 Official settlements balance l -10.7 -30.3 -5.7 -5.9 -12.3 6.4 P Fourth-quarter data are partly estimated. 1 Excludes SDR allocations. NOTE.—Dept. of Commerce data, with some Federal Reserve estimates. Details may not add to totals because of rounding. categories of goods—foods, industrial materials, capital equipment, automobiles, and other consumer goods—increasing over 1970 levels. The greatest increase was in imports of autos, especially from Japan. Despite this increase, sales of imported autos other than those from Canada accounted for about the same share of total U.S. sales of autos as they had in 1970—about 15 per cent of the number of vehicles— but this was a much higher share than the 10 per cent average for 1967-69. A rise in prices of foreign goods accounted for about one-third of the increase in the value of imports in 1971, whereas in 1970 nearly two-thirds of the increase in imports had stemmed from price increases—as measured by unit values. Trade movements in 1971 were greatly affected at times by such factors as actual or anticipated domestic strikes (mainly in port operations, steel, aluminum, and coal), anticipation that "voluntary" controls would be imposed by foreign governments on their industries' sales to the United States, and the increasing possibility of changes in currency values. Therefore it is difficult to determine how 54 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

15. INDUSTRIAL PRODUCTION EEC 1969 NOTE.—Seasonally adjusted quarterly data from the Organization for Economic Cooperation and Development. Data for fourth quarter of 1971 partly estimated. much of the 1971 deterioration in the U.S. trade position resulted from these factors rather than from more enduring ones. In addition, the deceleration in business activity abroad and the easing of supply conditions in Europe and Japan were major causes for the downturn in U.S. exports of machinery and industrial materials—and probably also for the rise in imports, as foreign producers intensified their selling efforts in the United States. At the same time, however, continued sluggishness in domestic economic activity held imports to levels below what they would have been if output and consumption here had been more buoyant. The steady deterioration in the trade balance of recent years is expected to be slowed or arrested in 1972 as the recently announced changes in exchange rates begin to shift competitive advantages. However, it may take 2 or 3 years before rearrangements of production and consumption patterns both here and abroad will have gone far enough to produce substantial improvement. In the short run, the U.S. trade balance is likely to be affected mainly by general business conditions, as economic activity in the United States gains momentum while foreign economic activity may remain below opti- 55 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

mal levels. Under such conditions, foreign demand for U.S. products will be blunted, even at relatively favorable prices, while foreign suppliers to the U.S. market may be inclined to accept lower profit margins. CAPITAL FLOWS The net outflow of private capital from the United States—taking into account both recorded and unrecorded elements—reached enormous proportions in 1971. For most of the year there were interest rate incentives for U.S. investors and banks to add to assets abroad or repay foreign borrowings and for foreigners to borrow dollars. Outflows spurted at times when the market became convinced that appreciations of foreign currencies were imminent. Larger-than-usual outflows, or smaller inflows, of private capital were recorded in all major categories. Recorded outflows of U.S. private capital reached about $10 billion—some $3 billion larger than in 1970 and more than double the average of the 1960's. Outflows for direct investment rose, reflecting both a further increase in outlays for foreign production facilities and an extension until the end of February 1972 of the requirement to meet the ceilings for 1971 under the direct investment controls. Net additions to foreign assets reported by U.S. banks rose sharply to about $3 billion, as relatively higher interest rates abroad focused demands for funds on the U.S. market. The exemption of export credits from the voluntary ceilings toward the end of the year may also have led to increased foreign lending. Foreign claims reported by U.S. nonbank institutions also rose, but it is believed that many of the transactions affecting the foreign assets of U.S. corporations and of other investors other than banks were of types that are not captured by the statistical reporting system, and are therefore reflected in the residual "errors and omissions" in the balance of payments accounts. The recorded inflow of foreign private capital (apart from liquid assets in U.S. banks) dropped sharply from $5 billion in 1970 to only about $2 billion in 1971. Foreign investors had placed substantial amounts in U.S. direct investments and corporate stocks in 1970, but under the pressures of exchange rate uncertainties and a weak U.S. economic performance in 1971, such inflows ceased, and at 56 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

times there were sizable net outflows. Borrowing abroad by U.S. corporations to finance overseas direct investment or for other purposes also diminished in 1971. U.S. banks further reduced their borrowings from the Euro-dollar market in 1971, as the increase in the cost of funds in that market relative to costs in the United States outweighed the advantages of retaining the reserve-free Euro-dollar borrowing bases established by the Federal Reserve with a view to moderating the liquidation of such borrowing. By the end of the year borrowings of U.S. banks from their foreign branches as registered in the U.S. balance of payments accounts had dropped to $1.3 billion, a reduction of $5.0 billion for the year and $14.1 billion from the peak in October 1969. U.S. Government securities that had been offered to the branches at attractive rates earlier in the year in order to slow the pace of the withdrawal of funds borrowed abroad were allowed to run off after mid-August. In addition to tHe net recorded outflow of U.S. and foreign private capital in 1971—which aggregated about $15 billion—the unrecorded payments element in the U.S. international accounts rose to more than $9 billion. The combined total of $24 billion was about $15 billion greater than the comparable figure for 1970. Such unrecorded net outflows reached their peak in the period of hectic speculation preceding the August 15 measures taken by the United States. YEAR-END PERSPECTIVE As 1972 began, the events of 1971 clearly had set in motion strong forces tending to restore equilibrium in the U.S. balance of payments. The exchange rate realignments achieved in December were substantial, and they could be expected over time to move the trade balance into a surplus position more in accord with the normal role of the United States as a supplier of real resources to less wealthy countries. Moreover, such a realignment of rates should also have favorable effects on capital transactions—reducing the incentives for outflows of U.S. capital and restoring the basis for resumption of sizable inflows of foreign investment capital to the United States. In addition, impetus has been given to work on remodeling the structure of the international monetary system—especially regarding the management of international reserves and the process for adjusting ex- 57 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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Record of Policy Actions of the Board of Governors JANUARY 5, 1971 REVISION OF FOREIGN CREDIT RESTRAINT PROGRAM GUIDELINES Effective immediately, the guidelines covering foreign credits and investments by U.S. banks and other financial institutions were revised. Votes for this action: Messrs. Burns, Daane, Maisel, and Brimmer. Votes against this action: None. Abstaining: Mr. Robertson. Absent and not voting: Messrs. Mitchell and Sherrill. The revised guidelines continued the program of voluntary restraint that had been in effect since 1965. No change was made in the overall guideline ceilings already in effect, since the Board concluded that the outlook for the U.S. balance of payments did not justify relaxing significantly the degree of restraint under the voluntary foreign credit restraint program. However, certain technical changes designed to equalize treatment under the guidelines between banks and other financial institutions and to give banks greater flexibility in using their existing leeway under the general ceiling for export financing were approved. One revision excluded from the guidelines bonds and notes of international institutions—such as the International Bank for Reconstruction and Development, the Inter-American Development Bank, and the Asian Development Bank—of which the United States is a member. Another exempted export credits from a subceiling that limits short-term credits to residents of developed countries of continental Western Europe, although banks would still be required to report these short-term export credits under their general ceiling. Mr. Robertson abstained from this action on the grounds that no further relaxation of the guidelines could be justified in light of U.S. balance of payments problems. The revision also incorporated into the body of the guidelines 61 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

three amendments that had been adopted in 1970, and clarified the language of several guideline provisions. Announcement of the revised guidelines was coordinated with announcement by the administration concerning its decision on other aspects of the U.S. balance of payments program, particularly a moderate relaxation of the foreign direct investment program administered by the Department of Commerce. JANUARY 7, 1971 REDUCTION IN RATES ON DISCOUNTS AND ADVANCES Effective January 8, 1971, the Bpard approved actions that had been taken by the boards of directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, Kansas City, and San Francisco establishing a rate of 5lA per cent (a decrease from SVi per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, Brimmer, and Sherrill. Votes against this action: None. The Board later approved similar actions by the directors of the Federal Reserve Bank of Atlanta effective January 11, and by the directors of the Federal Reserve Bank of Dallas effective January 15, 1.971. Effective the same dates the Board approved for the respective Federal Reserve Banks a rate of 53A per cent (rather than 6 per cent) on advances to member banks under Section 10(b) of the Federal Reserve Act. Rates on advances to individuals, partnerships, and corporations, under the last paragraph of Section 13 of the Act, remained or were established in a range of 7 to IVA per cent (rather than 7 to IVi per cent). (In accordance with the*' provisions of the Federal Reserve Act, the Federal Reserve Banks are required to establish rates on discounts for and advances to member banks at least every 14 days and to submit such rates to the Board for review and determination.) The Board had previously approved a reduction in the discount rate from 5% to 5Vi per cent on November 30, 1970. (See page 80 of the Board's ANNUAL REPORT for 1970.) Since that time avail- 62 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

able information continued to point to sluggishness in over-all economic activity and there had been some further declines in short-term interest rates. The further reduction in the discount rate was made in recognition of those declines and was in keeping with a desire to maintain an appropriate alignment between the discount rate and market rates. JANUARY 15, 1971 AMENDMENT TO REGULATION M, FOREIGN ACTIVITIES OF NATIONAL BANKS Effective January 15, 1971, the Board amended Regulation M to provide a means by which a member bank might retain its reserve-free base with respect to its Euro-dollar borrowings from its foreign branches by counting within its base the amount of purchases by its foreign branches of certain Export-Import Bank obligations. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, and Maisel. Votes against this action: None. Absent and not voting: Messrs. Brimmer and Sherrill. A matter of continuing concern to the Board was the deleterious effect on the U.S. balance of payments of the rapid repayment by U.S. banks of their Euro-dollar borrowings. The amendment now adopted was a further step toward strengthening the inducement to U.S. banks to retain their Euro-dollar liabilities. Under the amendment U.S. banks were permitted to count toward maintenance of their reserve-free Euro-dollar bases any funds invested by their overseas branches in special Export-Import Bank securities under the program just announced by the Export-Import Bank. Euro-dollar borrowings by a member bank are subject to a 20 per cent reserve requirement to the extent that they exceed a bank's reserve-free base. Also, as detailed on pages 81 and 82 of its ANNUAL REPORT for 1970, the Board in November 1970 had amended its regulations, effective January 7, 1971, with respect to member bank borrowings 63 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

of Euro-dollars. One of the earlier interrelated actions had been to apply an automatic downward adjustment feature to minimum (3 per cent of deposits) bases after January 20, 1971. The Board now postponed for 4 weeks, through the computation period ending February 17, 1971, the application of that automatic downward adjustment, thereby giving banks an opportunity to establish and preserve bases. JANUARY 18, 1971 REDUCTION IN RATES ON DISCOUNTS AND ADVANCES BY FEDERAL RESERVE BANKS Effective January 19, 1971, the Board approved actions that had been taken by the boards of directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Atlanta, Minneapolis, and Dallas establishing a rate of 5 per cent (a decrease from 5lA per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Brimmer. Votes against this action: None. Absent and not voting: Mr. Sherrill. The Board later approved similar actions by the directors of the Federal Reserve Bank of Chicago effective January 21, by the directors of the Federal Reserve Banks of New York and San Francisco effective January 22, and by the directors of the Federal Reserve Banks of Richmond, St. Louis, and Kansas City effective January 29, 1971. Effective the same dates the Board approved for the respective Federal Reserve Banks a rate of 5Vi per cent (rather than 53A per cent) on advances to member banks under Section 10(b) of the Federal Reserve Act. In addition the Board approved for all of the Banks a rate of 7 per cent on advances to individuals, partnerships, and corporations other than member banks under the last paragraph of Section 13 of the Act; previously the rate on such advances had been in a range of 7 to 11A per cent at the various Federal Reserve Banks. 64 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A reduction in the discount rate from 5Vi to 5lA per cent had previously been approved on January 7. Since then, interest rates had declined further in all maturity areas of the market and major commercial banks had announced two successive Vx percentage point reductions in their prime lending rates. The further reduction in the discount rate to 5 per cent gave recognition to the additional declines that had taken place in short-term market interest rates. JANUARY 19, 1971 AMENDMENTS TO REGULATION Z, TRUTH IN LENDING Effective January 25, 1971, the Board approved amendments to Regulation Z resulting from the inclusion within the Truth in Lending Act of special provisions regarding credit cards. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Brimmer. Votes against this action in part: Mr. Sherrill. Public Law 91-508, among other things, amended the Truth in Lending Act so as to restrict the issuance of unsolicited credit cards and in general to limit cardholder liability for unauthorized use to $50. The purpose of the amendments to Regulation Z was to incorporate references to credit cards in an existing section outlining the scope and purposes of the regulation; to specify that States might apply for an exemption, under certain conditions, from the Federal law; and to set forth in a new section the rules governing the issuance of credit cards and conditions of liability, including liability for their unauthorized use. A new Supplement IV outlined the procedures and criteria necessary for a State to obtain an exemption. Mr. Sherrill dissented only with regard to the manner in which the term "credit card" was defined. He favored the use of a more comprehensive definition than the one incorporated in the regulation. 65 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

JANUARY 28, 1971 EMERGENCY CREDIT FACILITIES FOR NONMEMBER DEPOSITARY INSTITUTIONS The Board extended to August 1, 1971, its authorization to the Federal Reserve Banks to provide, in accordance with certain specified principles, emergency credit facilities to nonmember depositary institutions. Votes for this action: Messrs. Burns, Daane, Maisel, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Robertson and Mitchell. As detailed on pages 92 and 93 of the Board's ANNUAL REPORT for 1969, on December 24, 1969, the Board had authorized the Federal Reserve Banks to provide emergency credit facilities, in accordance with specified principles, to nonmember depositary institutions that might encounter difficulty as to the adequacy of their liquidity reserves. Such authority was effective until April 1, 1970. In two separate actions the authority was subsequently extended, first to August 1, 1970, and then to February 1, 1971. No extensions of credit had been necessary under the authorized arrangements, but it appeared desirable for the Reserve Banks to continue to be in a position to respond quickly if an emergency situation should arise. Accordingly, the authority originally granted in December 1969 was again extended, this time to August 1, 1971. FEBRUARY 4, 1971 AMENDMENTS TO REGULATION F, SECURITIES OF MEMBER STATE BANKS Effective February 4, 1971, Regulation F was amended in respect to tender offers and other stock acquisitions. Votes for this action: Messrs. Robertson, Mitchell, Daane, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Burns and Maisel. 66 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In December 1970 the Securities Exchange Act of 1934 was amended by Public Law 91-567 to require disclosure of certain information concerning acquisitions or tender offers of more than 5 per cent of a class of equity securities registered pursuant to the 1934 Act (rather than 10 per cent as formerly). The major purpose of the amendments now approved by the Board was to bring Regulation F into conformity with that Act as regards offerings of member State banks, and to make certain procedural changes. FEBRUARY 12, 1971 REDUCTION IN RATES ON DISCOUNTS AND ADVANCES BY FEDERAL RESERVE BANKS Effective February 13, 1971, the Board approved actions that had been taken by the boards of directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco establishing a rate of 43A per cent (a decrease from 5 per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Brimmer. Votes against this action: None. Absent and not voting: Mr. Sherrill. The Board later approved similar action by the directors of the Federal Reserve Bank of New York effective February 19, 1971. Effective the same dates the Board approved for the respective Federal Reserve Banks a rate of 5lA per cent (rather than 5Vi per cent) on advances to member banks under Section 10(b) of the Federal Reserve Act. In addition the Board approved reductions to 63A per cent (rather than 7 per cent) in rates on advances to individuals, partnerships, and corporations other than member banks under the last paragraph of Section 13 of the Act. 67 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Since the Board's previous approval of a discount rate reduction from 5lA to 5 per cent on January 18, interest rates had fallen further in all maturity sectors of the market amid indications of continuing weakness in over-all economic activity and of a widespread view that monetary policy was easing. The action to reduce the discount rate to A3A per cent served to bring the rate into closer alignment with short-term market interest rates, and it was also in keeping with the practice followed in recent months of making small and relatively frequent changes in the rate to maintain such an alignment. In reaching its decision, the Board also took note of the widely held expectation that the discount rate would soon be reduced. In the circumstances, it was thought likely that maintenance of the 5 per cent rate would result in a reassessment of the outlook for monetary policy and perhaps lead to an upturn in market interest rates. FEBRUARY 25, 1971 AMENDMENTS TO REGULATION Z, TRUTH IN LENDING Effective April 5, 1971, the Board amended Regulation Z: (1) to require creditors to give 15 days' notice, rather than 30, to active customers regarding a change in terms of an open-end credit account, except that no notice was required for a reduction in the minimum payment or in finance charges, (2) to modify the rescission notice used in credit sales of vacant lots, (3) to permit farmers to obtain funds, goods, and services in agricultural credit transactions prior to the expiration of the 3-day rescission period when their residence was part of the collateral for credit, and (4) to provide special advertising requirements for financing under FHA Section 235 assistance programs. Votes for this action: Messrs. Robertson, Mitchell, Daane, Maisel, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Mr. Burns. The amendments were designed principally to simplify notices of changes in the terms of open-end accounts, to clarify rescindable transaction procedures, and to reduce existing burdens on creditors and farmers by permitting immediate access to funds or services in rescindable transactions. 68 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Section 235 of the National Housing Act is a Government assistance program designed to aid low-income families to purchase homes. The assistance is in the form of a subsidy for each monthly payment, with the amount varying primarily with the size and income of the family. Because of fluctuations in monthly payments and hence the annual percentage rate, a single figure meaningful to all prospective customers could not be stated in an advertisement. The amendment allowed but did not require the annual percentage rate exclusive of assistance, prohibited a rate that reflected the assistance, and required the amount of the payments to be related to the applicable family size and income level. MARCH 11, 1971 UNDIVIDED PROFITS AS "CAPITAL STOCK AND SURPLUS11 The Board revised its position with respect to the question whether a bank's undivided profits should be included within the definition of "capital stock and surplus" for purposes of various provisions of the Federal Reserve Act. Votes for this action: Messrs. Burns, Mitchell, Maisel, and Sherrill. Votes against this action: Messrs. Robertson and Brimmer. Absent and not voting: Mr. Daane. The Board reexamined the question whether a member bank's undivided profits should be considered as part of its "capital stock and surplus" as that or similar terms are used in provisions of the Federal Reserve Act that limit member banks with respect to the following: loans to affiliates, purchases of investment securities, loans on stock or bond collateral, deposits with nonmember banks, bank acceptances, investments in and by Edge Act and "agreement" corporations, and the amount of paper of one borrower that may be discounted or accepted as collateral for an advance by a Federal Reserve Bank. On the basis of that reexamination, the Board concluded that its negative view expressed in 1964 was unnecessarily restrictive in the light of the congressional purpose in establishing limitations on bank 69 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

activities in terms of a bank's capital structure. Accordingly, the Board decided that, for the purposes of the limitations set forth above, undivided profits should be included as part of "capital stock and surplus." Such a position was consistent with the views of the other Federal bank supervisory agencies. Messrs. Robertson and Brimmer agreed that uniformity among the banking agencies on this question would be in the public interest. However, they believed that the problem should be resolved through legislation rather than by changing the Board's outstanding interpretation, which they considered to be a correct interpretation of the law as presently written. MARCH 18, 1971 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective March 18, 1971, the Board adopted an amendment to Regulation Y that spelled out procedures to be followed under Section 4(c)(12) of the Bank Holding Company Act. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Brimmer. Votes against this action: None. Absent and not voting: Mr. Sherrill. Section 4(c)(12) of the Bank Holding Company Act permits a company that had become a bank holding company as a result of the 1970 amendments to retain or acquire any shares or to engage in any activities until January 1, 1981, if the company complies with such conditions as the Board may prescribe. The amendment to Regulation Y provided that if such a company elected to make an irrevocable declaration of intent to divest its bank by 1981, that company could acquire other businesses under a simple notification procedure, and de novo expansion could be undertaken without further approval. Acquisitions by companies that had not made such a declaration would require the Board's approval; it was contemplated that acquisitions approved would normally be limited to those that the holding company demonstrated were necessary to enable the more efficient marketing of assets subject to divestiture. 70 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MARCH 30, 1971 AMENDMENTS TO REGULATION G, SECURITIES CREDIT BY PERSONS OTHER THAN BANKS, BROKERS, OR DEALERS, AND REGULATION U, CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCKS Effective March 30, 1971, the Board amended Regulations G and U to implement a provision of the Securities Exchange Act of 1934 permitting an exemption from margin requirements for certain loans that the Board may deem necessary or appropriate in the public interest or for the protection of investors. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Mr. Maisel. Pursuant to these amendments the Board, upon certification by the Securities Investor Protection Corporation that circumstances existed warranting such action, could exempt credit obtained for the purpose of making a loan or providing capital to a broker or dealer subject to Regulation T, Credit by Brokers and Dealers, from the restrictions imposed by Regulations G and U. APRIL 1, 1971 AMENDMENT TO REGULATION M, FOREIGN ACTIVITIES OF NATIONAL BANKS Effective April 1, 1971, Regulation M was amended to provide a means by which a member bank could retain its reserve-free base with respect to its Euro-dollar borrowings from its foreign branches by counting within its base the amount of purchases by its foreign branches of certain U.S. Treasury obligations. Votes for this action: Messrs. Robertson, Mitchell, Daane, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Burns and Maisel. The amendment permitted foreign branches of U.S. banks to purchase and hold free of reserve requirements securities issued under 71 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

a current Treasury program, designed to deter the repayment of Euro-dollar liabilities, even if the holdings of such securities, together with head-office borrowings of Euro-dollars from their branches, exceeded the reserve-free base. The Treasury offering of certificates of indebtedness to overseas branches of U.S. banks was designed to provide an investment outlet in the United States for Euro-dollars acquired by the overseas branches. (On January 15, 1971, the Board had made a similar amendment to Regulation M regarding Export- Import Bank securities offered to foreign branches of U.S. banks as part of an effort to strengthen the inducement for such banks to retain their Euro-dollar liabilities.) APRIL 1, 1971 EQUAL EMPLOYMENT REGULATIONS The Board adopted regulations relating to equal employment practices of contractors and subcontractors performing under contracts with the Board. Votes for this action: Messrs. Robertson, Mitchell, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Burns, Daane, and Maisel. The regulations established a policy of promoting nondiscrimination in the employment practices of contractors and subcontractors and set up detailed procedures for processing complaints relating to alleged discrimination. Promulgation of the regulations was prompted by the prospective construction of the annex to the Board's building although the policy and procedures would apply to all Board contracts. Previously the Board had included in its contracts provisions requiring contractors to refrain from discrimination. Under the regulations a contract or subcontract may be cancelled or terminated and the contractor barred from further Board contracts if it is found that the contractor or subcontractor has practiced discrimination. Such sanctions are similar to those imposed by other Government agencies and are in keeping with the spirit of published Executive orders, with which it has been the practice of the Board to conform. 72 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 16, 1971 AMENDMENT TO REGULATION U, CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCK Effective April 16, 1971, the Board amended Regulation U to grant an exemption from initial margin requirements for credit by banks for the purpose of providing capital to broker/dealer firms. Votes for this action: Messrs. Robertson, Daane, Maisel, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Burns, Mitchell, and Brimmer. The amendment, issued pursuant to Section 7 of the Securities Exchange Act of 1934, permitted banks to extend credit for the purpose of enabling a customer to contribute capital to a broker/dealer firm, whether in the form of a subordinated loan, equities in the accounts of partners, a purchase of stock in a corporation, or otherwise, without regard to the initial margin requirements. The action was taken as an interim measure pending consideration of proposed amendments to Regulations U, T, Credit by Brokers and Dealers, and G, Securities Credit by Persons Other Than Banks, Brokers, or Dealers, published in the Federal Register for comment. The proposed amendments set forth conditions under which credit might be obtained for the purpose of providing capital to broker/dealer firms without regard to initial margin requirements. APRIL 29, 1971 OBLIGATIONS ELIGIBLE AS COLLATERAL FOR ADVANCES The Board amended its interpretation of those portions of Regulation A, Advances and Discounts by Federal Reserve Banks, relating to obligations eligible as collateral for advances. Votes for this action: Messrs. Burns, Robertson, Daane, Maisel, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Mitchell and Brimmer. 73 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Section 13 of the Federal Reserve Act and Regulation A authorize a Reserve Bank to make advances to member banks secured by obligations eligible for Federal Reserve purchase under Section 14(b) of the Act. The latter section authorizes Federal Reserve purchase of any obligation of, or fully guaranteed by, the United States or any agency thereof. The Board amended its outstanding interpretation listing eligible obligations so as to include obligations of the Federal Home Loan Mortgage Corporation and of the United States Postal Service and to cite as eligible the guaranteed certificates issued by the Trustees of Penn Central Transportation Company. The Board also retained on the list obligations of the Federal National Mortgage Association. MAY 7, 1971 DISAPPROVAL OF PROPOSED DISCOUNT RATE INCREASE The Board disapproved the action taken by the board of directors of the Federal Reserve Bank of New York on May 6, 1971, establishing a rate of 5VA per cent (an increase from 43A per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act, along with appropriately corresponding subsidiary rates on advances under other sections of the Act. Votes for this action: Messrs. Burns, Maisel, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Robertson, Mitchell, and Daane. The directors of the New York Bank had proposed the action out of concern over the current unsettlement in foreign exchange markets and the attendant massive flows of dollars into a number of European currencies, notably the German mark. The directors believed the action could serve as an important signal to the international community that the United States intended to defend the value of the dollar. In taking this action, the directors recognized that it posed risks for the domestic financial markets, but they felt the risks of some increase in domestic interest rates were outweighed by the need to maintain international confidence in the dollar, particularly against the background of rapid growth in monetary and credit aggregates in recent months. 74 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In arriving at its decision to disapprove the proposed rate increase, the Board agreed that arguments could be made in favor of this action on international grounds, but it was not convinced that such action would have any significant effect on European currency decisions. The Board believed that in the existing circumstances any action to increase rates might be considered to be precipitate and hence would present problems both domestically and internationally. On domestic grounds the Board believed that the sensitive state of U.S. debt markets argued strongly against the increase. It was also thought that such an action could prove damaging to general confidence at a time when the economic recovery was still fragile and that any sharp increase in interest rates might have severely adverse effects on flows of funds to key sectors of the economy. The result of the Board's action was to continue in effect the rates on discounts and advances contained in the existing rate schedule of the New York Bank. MAY 13, 1971 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective July 1, 1971, the Board amended Regulation Y to specify the kinds of activities in which subsidiaries of bank holding companies would be permitted to engage on the basis of Section 4(c)(5) of the Bank Holding Company Act, as amended. Votes for this action: Messrs. Burns, Mitchell, Daane, and Maisel. Votes against this action: Messrs. Robertson and Brimmer. Absent and not voting: Mr. Sherrill. As a first step in its plan to implement the 1970 amendments to the Bank Holding Company Act, the Board had published for comment in January 1971 a proposed list of activities that would be regarded under Section 4(c)(8) of the Act to be so closely related to banking or managing or controlling banks as to be permissible for bank holding companies. Pursuant to Section 4(c)(8), the Board is required to consider proposed acquisitions by a bank holding company not only from the standpoint of whether the activities of the companies to be acquired are closely related to banking, but also 75 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

. • •m the standpoint of antitrust a ;• ; - r tod public interest consid- •mtions. In view of that responsibility, the Board believed that it iiould exercise its general regulatory authority over holding com- , 'tiies under Section 5 of the Act to limit the scope of activities r n gaged In on the basis of Section 4(c)(5), which relates to the ••- juisition by a bank holding company of shares eligible for Invest- •.••ml by a national bank. The ori^'i:- r r; •-• < ;'•:',••,<' ,; ,. ., comment In Januan •; :': '•••*: . to limit the IWH?^^1-- -,. .-V*-. L i holding company s'vv-ir-'•'•*• under Sect' »SJ ../',- s ', • •'•• • fiduciary activities c- • •• • " • • ' de novo, e\ >,.•;': >T .'• • , ! volved were of the '• '• ' : : ' amounts e:-pMv":\ ,-—; — ,• •.-.*- *--.• -••-nent by a national b"./?. - :< 1 • deral statute law. However, in tne light of comments subsequently ;. reived, and after further consideration, the Board concluded that - M ,:h restrictions should not be applied at this time insofar as banks > .'re involved. That decision was based on (1) considerations of '« ally as between, banks that were and were not members of holding ^upaiiy systems, and (2) lack of evidence that acquisitions by ».'> Iding company banks were resulting in evasion of the purposes •• the Bank Holding Company Act. Accordingly, under the amendment to Regulation. Y as adopted, while acquisitions under Section 4(c)(5) by holding companies and ''<« 'Ir subsidiaries that were not banks or subsidiaries of tanks were :<: lited to shares of the kinds and amounts explicitly eligible for In- - ;tment by a national bank under Federal statute law, national bar*'" '•', a holding company system were permitted to acquire shares • • • ,:ordance • with the rules of the Comptroller of the Currency a • kit'ite-chartered banks in a holding company system were permitted, ;- • ofar as Federal lam/ was concerned, to acquire shares in accordance ••:li the rules of the Board. It was believed that such a position would facilitate orderly administration of the Bank Holding Company Act by avoiding to the • •\tent possible the need for interpretation of the scope of Section ' ? c) (5) relating to permissible activities. Messrs. Robertson -<<' >!; mmer voted against the amendment. »i was their ¥lew that1 ; • - lhe prohibitions of Section 4 ap^1" ^ direct or Indirect" acc ' s of stock by a holding compan; ' A Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

indirect acquisition refers principally to acquisition through a subsidiary, whether a national bank, State bank, or a nonbanking corporation; and (3) accordingly, the exemption provided by Section 4(c)(5) would make no distinction between shares acquired by a national bank subsidiary and those acquired by a State bank subsidiary. Consequently, in their judgment, the Board would not be legally justified in interpreting Section 4(c)(5) differently with respect to these two kinds of indirect acquisition. In addition to their doubt as to the legality of the amendment, Messrs. Robertson and Brimmer considered that, as a matter of policy, it is inadvisable to draw a distinction, as the Board is doing in this instance, between national banks and State banks, giving national bank subsidiaries privileges that are denied to State bank subsidiaries. MAY 20, 1971 AMENDMENTS TO REGULATION Y, BANK HOLDING COMPANIES Effective June 15, 1971, the Board amended Regulation Y to implement its regulatory authority with respect to nonbanking activities of bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, as amended. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, Brimmer, and Sherrill. Votes against this action: None. In January 1971 the Board had announced plans to amend Regulation Y as a first step toward implementing the 1970 amendments to the Bank Holding Company Act. Proposed regulatory amendments published for comment included a list of 10 activities that would be regarded under Section 4(c)(8) of the Act as so closely related to banking or managing or controlling banks as to be permissible for bank holding companies. The proposal also spelled out the general procedures the Board would follow in processing applications by individual companies to engage in those lines of business. Subsequently, a hearing was held regarding all issues raised by 77 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in the manner authorized by State law so long as the institution vM.-uld not both accept demand deposits and make commercial loans. 5. Acting as investment or financial adviser, Including (a) serving as the advisory company for a mortgage or a real estate investment trust and (b) furnishing economic or financial information. 6. Leasing personal property and equipment, or acting as agent, broker, or adviser in leasing of such property, where at the Inception of the initial lease the expectation had been that the effect of the transaction and reasonably anticipated future transactions with the same lessee as to the same property would be to compensate the lessor for not less than his full investment in the property, 7. Making equity and debt investments in corporations or projects designed primarily to promote community welfare, such as the economic rehabilitation and development of low-income areas. Although certain technical or clarifying changes were incorporated in the amendments as adopted, the activities specified as permissible 78 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

• olished for dtles—two ••ocessing— •hat certain rating as a iser to an. •jltant, and • ;! a permis- •".: provision • individual •»f the pertry iii- -aeans of a •.; proposed would out- ; company r idled In the •vas closely pplications procedures )ne of the ^e provided 79 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

only if the Board believed there was a reasonable basis for the holding company's opinion that the activity applied for was closely related to banking. JUNE 10, 1971 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective July 1, 1971, the Board adopted an amendment to Regulation Y outlining the type of data processing activities permissible for bank holding companies under the 1970 amendments to the Bank Holding Company Act. Votes for this action: Messrs. Burns, Robertson, Mitchell, Maisel, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Mr. Daane. The amendment added an eighth activity, as follows, to the list of activities previously found by the Board to be so closely related to banking or managing or controlling banks as to be permissible for bank holding companies : (1) providing bookkeeping or data processing services for the internal operations of the holding company and its subsidiaries and (2) storing and processing other banking, financial, or related economic data, such as performing payroll, accounts receivable or payable, or billing services. Data processing was one of the 10 activities originally proposed in January 1971 when the Board announced plans to amend Regulation Y as a first step toward implementing the 1970 amendments to the Act. On the basis of the record of a hearing subsequently held and of written comments received, the Board shifted its approach to this activity from the types of customers for whom data processing services were performed to the kinds of data being processed. Under the amendment as adopted, bank holding companies are permitted, subject to Board approval in individual cases, to process banking, financial, or related economic data for any type of customer. 80 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

JUNE 10, 1971 STATEMENT OF POLICY ON THE PAYMENTS MECHANISM The Board authorized the issuance of a policy statement calling for basic changes in the Nation's system for handling money payments. Votes for this action: Messrs. Burns, Robertson, Mitchell, Maisel, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Mr. Daane. The statement of policy, which was issued on June 17, 1971, reflected the Federal Reserve System's sense of urgency in modernizing the system for making financial payments throughout the United States. The changes suggested were essentially transitional steps that look toward the eventual replacement of checks in large part by electronic transfers of funds. The statement pointed out that until electronic facilities began to replace check transfers in substantial volume the present check-clearing system was vulnerable to serious transportation delays and manpower shortages. However, structural changes in the present system could effect significant savings in manpower and in unnecessary handling of checks. These changes would result in faster, more convenient, and more economical banking services for the public and would reduce the cost of operations. The Board therefore placed high priority upon efforts by the Federal Reserve System to improve the Nation's means of making payments, initially along the following lines: 1. Extending present clearing arrangements, in cities with Federal Reserve offices, into larger zones of immediate payment. 2. Establishing other regional clearing facilities, in which settlements would be made in immediately available funds. 3. (a) Encouraging banks and their customers to make greater use of the expanded capabilities of the Federal Reserve wire transfer system; (b) removing restrictions on third-party transfers of demand deposits, and extending the time period in which the wire transfer system could be used; and (c) expanding facilities at Reserve Bank offices, where justified by traffic potentials, to include high-speed tape transmission and computer-to-computer communications. 81 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In a further effort to expedite payment traffic by making financial transactions for individuals and businesses quicker and cheaper, the Board on August 11, 1971, authorized opening the System's recently expanded nationwide communications network for use, free of charge, for wire transfers of $1,000 or more. Depositors in Federal Reserve member banks were given direct access, through their banks, to the System's network, and depositors in nonmember banks could arrange for such transfers when the payment was made via a correspondent member bank. JUNE 22, 1971 DISAPPROVAL OF PROPOSED DISCOUNT RATE INCREASES The Board disapproved the action taken by the board of directors of the Federal Reserve Bank of Philadelphia on June 17, 1971, establishing a rate of 5 per cent (an increase from 43A per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act, along with appropriately corresponding subsidiary rates on advances under other sections of the Act. Votes for this action: Messrs. Burns, Mitchell, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Robertson, Daane, and Maisel. In proposing the increase in the discount rate, the directors of the Philadelphia Bank indicated that they were concerned about the persistence of inflationary pressures, and that they felt an increase in the discount rate was a desirable way to signal such concern, particularly in view of the rapid expansion recently in the monetary aggregates. The directors also noted that the proposed increase could be justified as a move to maintain general alignment between the discount rate and short-term market interest rates and that it would be in keeping with their preference for a policy of flexibility in adjusting the discount rate to changes in market rates. In voting not to approve the proposed increase, members of the Board were of the view that a higher discount rate would not prove 82 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

to be a constructive step in dealing with inflationary pressures at this time. In reaching this conclusion they took into account the currently sensitive state of the securities markets where short-term rates had been under upward pressure in recent weeks. Since late May, for example, the 3-month Treasury bill rate had risen from around 43/s per cent to its current level of about 4% per cent. The Board did not think, however, that the current levels of short-term rates called for an increase in the discount rate. An additional consideration at this particular time was the desirability of avoiding a change in monetary policy during the period when a Treasury financing operation was in progress. On June 24, 1971, the executive committee of the board of directors of the Federal Reserve Bank of St. Louis voted to establish a discount rate of 5 per cent (an increase from 4% per cent) for reasons generally similar to those given by the Philadelphia Bank directors. This proposed rate increase was likewise disapproved by the Board. The result of the Board's actions was to continue in effect the rates on discounts and advances contained in the existing rate schedules of these two Banks. JUNE 30, 1971 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective June 30, 1971, the Board amended Regulation Y for the purpose of clarifying the Board's intention that a company might fulfill its commitment pursuant to its irrevocable declaration (filed under Section 4(c)(12) of the Bank Holding Company Act) that it would cease to be a holding company by 1981 by demonstrating that it had divested itself of control of its bank although it retained some minor interest in the bank. Votes for this action: Messrs. Burns, Mitchell, Daane, Maisel, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Mr. Robertson. 83 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Under procedures adopted by the Board to implement relevant provisions of the 1970 amendments to the Bank Holding Company Act, a company that filed an irrevocable declaration that it would divest itself of its bank interests by January 1, 1981, was permitted to acquire a nonbank concern 45 days after notifying the appropriate Reserve Bank of its intention to make the acquisition unless in the meantime the company was notified to the contrary. Under the terms of the amendment now adopted it was made clear that a company would fulfill its commitment to divest if it provided the Board with convincing evidence that it did not exercise a controlling influence over the management or policies of the bank even though it retained some interest in the bank. JULY 6, 1971 AMENDMENT TO REGULATION U, CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCKS Effective July 10, 1971, the Board amended Regulation U to revise a provision regarding exemptions from initial margin requirements for credit by banks for the purpose of providing capital to broker/dealer firms. Votes for this action: Messrs. Robertson, Daane, Maisel, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Burns, Mitchell, and Brimmer. Proposed amendments to the Board's margin regulations setting forth conditions under which credit might be obtained without regard to initial margin requirements for the purpose of providing capital to broker/dealer firms had been published for comment. Pending consideration of the proposals the Board, as an interim measure, had amended Regulation U effective April 16, 1971, to grant exemptions from initial margin requirements for such purpose. The effect of the present amendment was to make clear that exempt credit would not be available to finance public trading in stock of such firms. 84 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

JULY 15, 1971 INCREASE IN RATES ON DISCOUNTS AND ADVANCES BY FEDERAL RESERVE BANKS Effective July 16, 1971, the Board approved actions that had been taken by the boards of directors of the Federal Reserve Banks of New York, Philadelphia, St. Louis, and San Francisco establishing a rate of 5 per cent (an increase from 43A per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Robertson, Daane, Maisel, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Burns and Mitchell. The Board later approved similar actions by the directors of the Federal Reserve Banks of Boston, Atlanta, and Minneapolis effective July 19, and by the directors of the Federal Reserve Banks of Cleveland, Richmond, Chicago, Kansas City, and Dallas effective July 23, 1971. Effective the same dates the Board approved for the respective Federal Reserve Banks a rate of SVi per cent (an increase from 5Vx per cent) on advances to member banks under Section 10(b) of the Federal Reserve Act; it also approved increases to 7 per cent (from 63A per cent) in rates on advances to individuals, partnerships, and corporations other than member banks under the last paragraph of Section 13 of the Act. In reaching its decision, the Board took note of the sizable increases that had occurred recently in short-term market interest rates, including a rise in the 3-month Treasury bill rate from around 4% per cent in the latter part of June to 53/s per cent currently. The prime lending rate charged by commercial banks had been raised from 5Vi to 6 per cent in early July. The advance in these rates had taken place against a background of rapid increases in the monetary aggregates and of widespread concern about the persistence of inflation in the economy. In these circumstances the Board decided that an increase in the discount rate would bring that rate into better alignment with short-term market interest rates generally and would serve to signal the Board's concern over the continuation of substantial cost-push inflation. 85 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

AUGUST 5, 1971 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective September 1, 1971, the Board approved an amendment to Regulation Y outlining the types of insurance agency activities permissible for bank holding companies under the 1970 amendments to the Bank Holding Company Act. Votes for this action: Messrs. Burns, Robertson, Mitchell, and Brimmer. Votes against this action: None. Absent and not voting: Messrs. Daane, Maisel, and Sherrill. The amendment added the following activity to the list of activities previously found by the Board to be so closely related to banking or managing or controlling banks as to be permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act: Acting as insurance agent or broker in offices at which the holding company or its subsidiaries are otherwise engaged in business (or in an office adjacent thereto) with respect to the following types of insurance: (i) any insurance for the holding company and its subsidiaries; (ii) any insurance that (A) is directly related to an extension of credit by a bank or a bank-related firm of the kind described in this regulation, or (B) is directly related to the provision of other financial services by a bank or such a bank-related firm, or (C) is otherwise sold as a matter of convenience to the purchaser, so long as the premium income from sales within this subclause (C) does not constitute a significant portion of the aggregate insurance premium income of the holding company from insurance sold pursuant to this clause (ii); (iii) any insurance sold in a community that (A) has a population not exceeding 5,000, or (B) the holding company demonstrates has inadequate insurance agency facilities. 86 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Insurance agency business was one of the 10 activities originally proposed by the Board in January 1971 when it announced plans to amend Regulation Y as a first step toward implementing the 1970 amendments to the Act. The original proposal would have permitted a bank holding company to act "as insurance agent or broker principally in connection with extensions of credit by the holding company or any of its subsidiaries." However, in the light of a hearing subsequently held and the written comments received, the Board, in the amendment to the regulation now adopted, spelled out in more detail the types of insurance agency activities that it found to be closely related to banking. The Board had also considered, but decided not to adopt at this time, a general regulatory provision as to whether insurance underwriting activities are considered to be closely related to banking. AUGUST 16, 1971 DISAPPROVAL OF PROPOSED DISCOUNT RATE INCREASES The Board disapproved actions taken by the boards of directors of the Federal Reserve Banks of St. Louis and Dallas on August 12, 1971, establishing a rate of 5Vi per cent (an increase from 5 per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act, along with appropriately corresponding subsidiary rates on advances under other sections of the Act. Votes for this action: Messrs. Burns, Robertson, Mitchell, Maisel, and Brimmer. Votes against this action: None. Absent and not voting: Messrs. Daane and Sherrill. The actions of the St. Louis and Dallas Banks were taken against a background of continuing rapid growth in the monetary aggregates and persisting concern about the rates of advance in prices and wages. Most market interest rates had risen somewhat further since the announcement of an increase in the discount rate from 434 to 5 per cent on July 15. Rates on shorter-term Treasury bills had declined slightly, however, as large purchases of such securities were made 87 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

by foreign central banks that acquired dollars being sold abroad in anticipation of shifts in foreign exchange rates. The Board's decision not to approve the proposed increases in the discount rate was made in the light of the President's major economic policy announcements on August 15. The Government's new economic program was thought likely to help moderate the rise in prices and wages while stimulating economic activity, and early reactions to the President's announcements suggested that a downward adjustment in market interest rates was developing. In these newly emerging circumstances the Board concluded that an increase in the discount rate would not be appropriate. The result of the Board's action was to continue in effect the rates on discounts and advances contained in the existing rate schedules of the two Banks. AUGUST 19, 1971 AMENDMENTS TO REGULATION Y, BANK HOLDING COMPANIES Effective September 1, 1971, the Board amended sections of Regulation Y relating to procedural requirements in order to facilitate the processing of certain types of applications filed under the Bank Holding Company Act, as amended. Votes for this action: Messrs. Burns, Mitchell, Daane, and Maisel. Votes against this action in part: Messrs. Robertson and Brimmer. Absent and not voting: Mr. Sherrill. The number of applications for approval of the formation of bank holding companies had increased substantially following the enactment of the 1970 amendments to the Bank Holding Company Act, and there had also been an increase in the number of requests for approval of nonbanking activities pursuant to Section 4(c)(8) of the Act. In the Board's judgment, applications for the formation of onebank holding companies normally present no significant issues. Accordingly, the Board delegated to the Federal Reserve Banks the bulk of its authority to approve the formation of such holding com- 88 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

panics and dispensed with the publication of an order and state- ••• ;nt in cases approved by a Reserve Bank, More specifically, the • legation authorized the Reserve Banks to approve the acquisition a company of a controlling interest in the voting shares of one . ok if (1) no objection to the proposed acquisition had been made the bank's supervisory authority, (2) no significant policy Issue •' -.s raised by the proposal as to which the Board apparently had not ' *d an opportunity to express Its views, and (3) neither the holding • mpany nor any of Its subsidiaries or affiliates was engaged In any : . :ivities other than those specifically designated as permissible for • nk holding companies by either the Bank Holding Company Act ' • .julation Y. '<• Board also eliminated some of the steps that bank holding .-, nies had been, required to take In seeking to engage in certain . , , jf activities that had been determined to be closely related to .• '-g. Under those procedures, adopted In May 1971, a bank T- ' ! • g company was required to file a formal application to acquire • •ablished concern to engage in a bank-related activity, and •"•• • i '•'!.. . local newspaper when it proposed to enga.. 1 a b - ''• • • • vity either de novo or through an establish-. >.• . mpa-. ~ > '"• . " now concluded that those steps were unnect^ •:y \* • ' • ' v • • T : ' 'Giving the public interest would normally be '' /orai ', Ace : • • • ' - " -' :empted the following activities from such procedui • ;••'.. -ing or acquiring a finance company with assets of • • :" million., so long as the aggregate cost of such transactions in any one year did not exceed $50 million; (2) engaging in bank-related activities shifted from a bank in the holding company system to the .holding company itself or to a nonbanking , - , iary (this being limited to bank-related activities in which the • " • ' engaged either de nova or as the result of a bank merger); an , • • ngaging de novo in all kinds of insurance agency activities de :.: • . I by the Board to be closely related to 'banking, except where the holding company was required to demonstrate that 1' < * community in which the Insurance was to be sold had inadequ;,v insurance agency facilities. A bank holding company was still required to notify its Reserve Bank of Its intention to engage in such Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

activities 45 days before engaging in them, except where the company would operate a finance company with assets of less than $10 million. In that case, notice was required to be submitted to the Reserve Bank within 30 days after consummation of the transaction, and divestiture could be required whenever necessary to carry out the purposes of the Bank Holding Company Act. Messrs. Robertson and Brimmer dissented from the Board's action relaxing procedural requirements with respect to acquisition of finance companies on the grounds that such action would permit a holding company to acquire existing finance companies without any prior notice to the public or even to the Federal Reserve System. Provisions for later requiring divestiture of an acquired company— a difficult and time-consuming procedure—would be an inadequate substitute for giving the public (or at least the Federal Reserve System) opportunity to object to such acquisitions before their consummation. Mr. Robertson also dissented from that part of the action eliminating the requirement of prior public notice of proposed entry into certain bank-related activities, either de novo or through acquisition of an established company. He based his dissent on the ground that, in the absence of compelling reasons, it is unwise to deprive the public of prior notice of proposed acquisition and the opportunity to present comments or objections. Subsequently, in the light of developments, the Board in December published for comment further proposed revisions of its rules permitting bank holding companies to make de novo entry into activities closely related to banking and to acquire small finance companies. At the same time, the Board suspended its existing simplified procedures pending consideration of the new proposals. SEPTEMBER 9, 1971 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective September 21, 1971, the Board amended Regulation Y to specify the types of foreign business activities in which domestic bank 90 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

holding companies may engage under the 1970 amendments to the Bank Holding Company Act. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Brimmer. Votes against this action: None. Absent and not voting: Mr. Sherrill. Under the amendment adopted, bank holding companies may acquire ownership or control of the shares of companies in which Edge Act corporations may invest, if such acquisitions are made with the Board's prior consent under procedures similar to those presently governing investments by Edge Act corporations. This action implemented the Board's regulatory authority under Section 4(c)(13) of the Bank Holding Company Act to permit bank holding companies to acquire shares of companies that do no business in the United States except as an incident to such companies' international or foreign business. Edge Act corporations are generally subsidiaries of member banks, established in the United States with specific Board approval, to facilitate the foreign business of their parent banks. The corporations are permitted to exercise broader powers in foreign operations than are their parent banks, and in general they may invest in companies engaged in international or foreign banking or other international or foreign financial operations. SEPTEMBER 10, 1971 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective September 21, 1971, the Board amended Regulation Y to establish presumptions regarding control of a bank or other company. Votes for this action: Messrs. Burns, Mitchell, Daane, Maisel, and Brimmer. Votes against this action: Mr. Robertson. Absent and not voting: Mr. Sherrill. The purpose of the action was to define circumstances that might be found to constitute control of a bank, or other company, in light 91 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

of the 1970 amendments to the Bank Holding Company Act. The 1970 amendments, in part, extended the provisions of the Act to holding companies controlling only one bank and gave the Board greater latitude to determine when control existed. The amendment now adopted established as part of Regulation Y a series of presumptions, some conclusive and others rebuttable, regarding control of a bank or other company. These presumptions, with certain exceptions, were generally those that had been proposed by the Board and published for comment earlier this year. The proposals not included in the regulation were made the basis of guidelines for use by the Reserve Banks for investigation of control in individual cases. Mr. Robertson based his dissent on the view that adoption of regulations establishing such presumptions is beyond the powers conferred on the Board by the Bank Holding Company Act, and that at least some of the presumptions are not in harmony with the realities of corporate control. OCTOBER 1, 1971 AMENDMENT TO REGULATION Z, TRUTH IN LENDING Effective October 1, 1971, the Board amended Regulation Z in order to add Columbus Day as a holiday for purposes of calculating the time within which certain credit transactions may be rescinded. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, Brimmer, and Sherrill. Votes against this action: None. A footnote to Regulation Z provided that Sundays and the eight Federal holidays authorized at the time the regulation became effective (July 1, 1969) would not be considered as business days when determining the period within which certain credit transactions might be rescinded. The present amendment, purely technical in nature, was adopted for the purpose of aligning the regulation with the legal public holiday schedule, to which a ninth public holiday, Columbus Day, had been added through the enactment of Public Law 90-363, effective January 1, 1971. 92 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

OCTOBER 7, 1971 ADOPTION OF REGULATION X, RULES GOVERNING BORROWERS WHO OBTAIN SECURITIES CREDIT Effective November 1, 1971, the Board issued Regulation X to implement legislation requiring borrowers to comply with margin regulations in securities transactions. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Brimmer. Votes against this action: None. Absent and not voting: Mr. Sherrill. Title III of the Foreign Bank Secrecy Act (Public Law 91-508), which was enacted October 26, 1970, to become effective November 1, 1971, for the first time made margin regulations applicable directly to U.S. borrowers (and to foreign borrowers whom they control or who act for them). In July 1971 the Board published for comment proposed amendments to its three existing margin regulations to implement the new statute. However, comments received prompted the Board to combine the changes in a new regulation, which was designated Regulation X. In essence, Regulation X provided that subject borrowers obtaining credit in the United States or abroad must comply with the margin regulation applicable to the lender, or if none applied, they must treat the borrowing as if it were subject to Regulation G, the margin regulation applicable to extensions of credit by persons other than banks, brokers, or dealers. Exemptions were provided for (a) individuals permanently resident abroad who obtain $5,000 or less in "purpose" credit at any one time or in any one year; (b) foreign subsidiaries of U.S. corporations making markets in Euro-bonds; and (c) extraordinary circumstances in which the Board may wish to grant individual exemptions, by order, if the obtaining of the credit is consonant with the purposes of the Foreign Bank Secrecy Act. Other proposed amendments, also published for comment in July, relating to the application of margin regulations to foreign branches of U.S. banks and to U.S. brokers and dealers were held for further consideration. 93 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

OCTOBER 26, 1971 AMENDMENT TO REGULATION J, COLLECTION OF CHECKS AND OTHER ITEMS BY FEDERAL RESERVE BANKS Effective October 26, 1971, the Board amended footnote 1 of Regulation J to include the Territory of American Samoa in the Twelfth Federal Reserve District for check collection purposes. Votes for this action: Messrs. Burns, Mitchell, Daane, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Robertson, Maisel, and Brimmer. This action was taken in order to make available in the Territory of American Samoa certain of the System's check collection facilities. Regulation J already included the Virgin Islands, Puerto Rico, and Guam in Federal Reserve districts for the purposes of check collection. Public Law 91-609, Section 910, had recently been amended to render banks in American Samoa eligible for Federal deposit insurance. NOVEMBER 4, 1971 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective December 1, 1971, the Board amended Regulation Y to exempt foreign bank holding companies from prohibitions in the Bank Holding Company Act with respect to certain of their nonbanking activities and interests in the United States. Votes for this action: Messrs. Burns, Daane, Brimmer, and Sherrill. Votes against this action in part: Mr. Mitchell. Abstaining in part: Messrs. Mitchell and Maisel. Absent and not voting: Mr. Robertson. The action was taken to implement the Board's regulatory authority under Section 4(c)(9) of the Bank Holding Company Act, as amended in 1970. This section pertains to acquisitions of companies that do some business in the United States by foreign bank holding 94 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

---shed permitting foreign bank holding companies to apply to <ard for special exemptions. Mr. Mitchell dissented from that part of the action relating to the provision that noncontrolling investments were permissible in foreign companies engaged in nonbanking activities in the United States if more than half of the business of those companies was done outside the United States. He regarded such a standard as very permissive, and expressed apprehension that minimal reporting requirements involving a transaction, of that kind would not develop adequate information .regarding the activities of foreign, bank, holding companies in the United States. Messrs, Mitchell and Maisel abstained from that portion of the action, exempting certain specialized investment companies that, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

while principally engaged in financing or facilitating transactions in international or foreign commerce, also conducted some purely domestic business not otherwise exempted. In their view, the role of the specialized investment companies in the U.S. financial structure was not yet well enough defined to permit taking a position regarding the appropriateness of the exemption. NOVEMBER 10, 1971 REDUCTION IN RATES ON DISCOUNTS AND ADVANCES BY FEDERAL RESERVE BANKS Effective November 11, 1971, the Board approved actions that had been taken by the boards of directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, St. Louis, Minneapolis, Dallas, and San Francisco establishing a rate of 43A per cent (a decrease from 5 per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Burns, Mitchell, Daane, Maisel, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Mr. Robertson. The Board later approved similar actions by the directors of the Federal Reserve Banks of Richmond, Chicago, and Kansas City effective November 12, by the directors of the Federal Reserve Bank of Atlanta effective November 15, and by the directors of the Federal Reserve Bank of New York effective November 19, 1971. Effective the same dates the Board approved for the respective Federal Reserve Banks a rate of 5V4 per cent (down from 5Vi per cent) on advances to member banks under Section 10(b) of the Federal Reserve Act. In addition the Board approved for all of the Banks reductions to 634 per cent (down from 7 per cent) in rates on advances to individuals, partnerships, and corporations other than member banks under the last paragraph of Section 13 of the Act. The reductions in the System's lending rates were made in recognition of declines that had taken place in other short-term interest rates, notably Treasury bill rates, and were intended to bring the System's 96 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

rates into better alignment with short-term rates generally. It was also felt that the reductions, while in the nature of market-following moves, would tend to have a favorable influence on business and consumer confidence. The latter was being adversely affected by uncertainties relating to the new, Phase II stabilization program for prices and wages and by the unsettled international monetary situation. NOVEMBER 11, 1971 REVISION OF FOREIGN CREDIT RESTRAINT PROGRAM GUIDELINE Effective immediately, the Board revised the guidelines covering foreign credits and investments by U.S. banks and other financial institutions chiefly to bring the guidelines into conformity with recent legislation. Votes for this action: Messrs. Burns, Daane, Maisel, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Messrs. Robertson and Mitchell. Public Law 92-126 (the Export Expansion Finance Act of 1971), which was enacted August 17, 1971, among other things directed the removal of export credits from the voluntary foreign credit restraint program. The Senate-House conferees who worked out the final language of the legislation made it clear that the Board should be allowed a reasonable period (up to 90 days) within which to make modifications reflecting the exemption as well as any further changes needed to continue the program in effect for nonexport financing. Accordingly, on August 18 the Board requested commercial banks and other financial institutions participating in the program to continue to comply with the existing program for the time being. Principal features of the revised guidelines now adopted by the Board were the exemption of export credits to foreigners by banks and nonbank financial institutions, and the inclusion of a new formula for calculating ceilings. The ceiling for nonexport financing of each reporting bank would be the highest of the following: (a) 85 per cent of its general ceiling as of September 30, 1971; (b) its general ceiling 97 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

as of September 30, 1971, minus any export credits subject to that ceiling as of that date; or (c) 2 per cent of its total assets as of December 31, 1970. The ceiling for nonexport financing of each nonbank financial institution would be the higher of the following: (a) its ceiling as of September 30, 1971, minus export credits subject to that ceiling as of that date; or (b) 85 per cent of its ceiling as of September 30, 1971. The establishment of the new ceilings was designed to reduce inequities among banks attributable to differing historical positions and to the exemption accorded export credits. If there had been a single ceiling that reduced a bank's lending authorization by the amount of its export credits, a participating bank with substantial export financing would have experienced a sharp reduction in its over-all ceiling while a competitor that did little export financing would have experienced only a slight reduction. Under the revised guidelines each bank was permitted to adopt the ceiling most advantageous in its particular circumstances. Certain technical changes were also adopted, including elimination of the subceiling on short-term claims on residents of developed countries of continental Western Europe, imposition of reporting requirements for U.S. agencies and branches of foreign banks, and modification of the nonbank guidelines to eliminate one feature of the exemption for long-term credits to less developed countries. NOVEMBER 26, 1971 AMENDMENT TO REGULATION Z, TRUTH IN LENDING Effective December 31, 1971, the Board amended Regulation Z to permit creditors in making disclosures to disregard any variance in credit terms caused by leap year. Votes for this action: Messrs. Burns, Robertson, Daane, and Brimmer. Votes against this action: None. Absent and not voting: Messrs. Mitchell and Maisel. This technical amendment was adopted to facilitate the use of preprinted disclosures without the need for preparation of new forms solely because of the extra day in leap year. 98 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

DECEMBER 3, 1971 AMENDMENTS TO MARGIN REGULATIONS Effective December 6, 1971, the Board lowered the margin requirement from 65 to 55 per cent for credit extended by brokers, dealers, banks, and other lenders to finance the purchase or carrying of stocks, and also reduced the required deposit on short sales from 65 to 55 per cent. In making the reductions, the Board amended the Supplements to Regulation G, Securities Credit by Persons Other Than Banks, Brokers, or Dealers; Regulation T, Credit by Brokers and Dealers; and Regulation U, Credit by Banks for the Purpose of Purchasing or Carrying Margin Stocks. No changes were made in the 50 per cent margin requirement applicable to loans made for purchasing or carrying convertible bonds or in the 70 per cent retention requirement applicable to undermargined accounts. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Brimmer. Votes against this action: None. The action covered new extensions of credit by brokers and dealers (Regulation T) and loans by banks and other lenders (Regulations U and G, respectively) for the purpose of purchasing or carrying securities registered on a national stock exchange or named in the Board's over-the-counter margin list. The change in margin requirements was the first since May 6, 1970, when they were reduced from 80 to 65 per cent. In making the change, the Board acted under the authority granted in the Securities Exchange Act of 1934 to prevent excessive use of credit to finance transactions in securities. The Board took note of the moderate level of outstanding stock market credit and the absence of indications of the excessive use of such credit. Margin credit extended by brokers totaled about $5 billion at the end of October compared with the peak of about $6.5 billion reached during June 1968. At large banks, loans for the purpose of purchasing or carrying securities currently amounted to about $2.5 billion. In retaining the 50 per cent margin requirement on loans made to purchase or carry convertible bonds, the Board took into account the relatively low level of the current requirement and also noted that most convertible bonds subject to the requirement were trading at 99 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

prices that tended to reflect their stock rather than their bond values. The retention requirement applicable to undermargined accounts was kept at 70 per cent, its level since November 6, 1963. That requirement specifies the proportion of the proceeds of a sale of securities from a margin account that must be retained in the account if the equity in that account does not match the margin requirements. DECEMBER 10, 1971 REDUCTION IN RATES ON DISCOUNTS AND ADVANCES BY FEDERAL RESERVE BANKS Effective December 13, 1971, the Board approved actions that had been taken by the boards of directors of the Federal Reserve Banks of Boston, St. Louis, Kansas City, and San Francisco establishing a rate of AVi per cent (a decrease from 43A per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Burns, Robertson, Mitchell, Maisel, and Brimmer. Votes against this action: None. Absent and not voting: Mr. Daane. The Board later approved similar actions by the directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, and Chicago effective December 17, by the directors of the Federal Reserve Banks of Atlanta and Minneapolis effective December 23, and by the directors of the Federal Reserve Banks of Richmond and Dallas effective December 24. Effective the same dates the Board approved for the respective Federal Reserve Banks a rate of 5 per cent (a decrease from 5VA per cent) on advances to member banks under Section 10(b) of the Federal Reserve Act. In addition the Board approved for all of the Banks a reduction to 6V2 per cent (from 63A per cent) in rates on advances to individuals, partnerships, and corporations other than member banks under the last paragraph of Section 13 of the Act. Since the previous reduction in the discount rate from 5 to 4% per cent was announced on November 10, most short-term interest rates had declined slightly further on balance and some major banks 100 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

had reduced their prime lending rates. The Board's action was taken in recognition of the prevailing levels of market interest rates, but also to assist the progress of economic expansion. In the latter connection it was noted that growth of certain key monetary aggregates—total member bank reserves and demand deposits—had remained sluggish in recent weeks, although growth in time and savings accounts at banks and other thrift institutions had continued at a relatively fast pace. In reaching its decision, the Board took account of the still substantial underemployment of economic resources, including the relatively high level of unemployment, and concluded that a reduction in the discount rate would serve a useful purpose in signaling a more aggressive monetary policy designed to stimulate desired expansion of economic activity and employment. DECEMBER 15, 1971 STATEMENT ON REAL ESTATE FINANCING The Board authorized the issuance of a statement directing Statechartered member banks to give public notice, effective March 1, 1972 (effective date subsequently deferred to May 1, 1972), that their real estate financing was nondiscriminatory. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Brimmer. Votes against this action: None. In its statement, issued December 17, 1971, the Board directed that at a minimum all State-chartered member banks (1) post in the lobbies of head offices and branches display-size notices announcing that the lending institution was an "Equal Housing Lender" and giving directions for filing complaints; (2) indicate prominently in any advertising that the institution's real estate lending was free from discrimination; (3) ban use of words, phrases, symbols, directions, forms, models, or other means that would imply discrimination; and (4) include in all advertising a logotype symbol indicating nondiscriminatory real estate lending. 101 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

This action, was taken as one of a series of affirmative steps toward '.^plementation of the provisions of the 1968 Civil Rights Act , ected at the real estate lending activities of financial institutions, '.e objective was to Increase public awareness of nondiscrimination 1 .'.;uirements and to publicize complaint procedures. Similar statements were issued simultaneously by the Comptroller of the Currency v. i'h respect to national banks, by the Federal Deposit Insurance C -<rporation with respect to State-chartered nonmember banks, and :\ the Federal Home Loan Bank Board with respect to savings and •••11 associations under its jurisdiction. The Board had earlier taken other steps to implement civil rfgk>>, "' "islation affecting real estate lenders, including the use of a du; • ' 'fits questionnaire as an integral part of the bank examination piu- > 4ure, and a special course of study in Federal Reserve schools for h*;ak examiners. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Record of Policy Actions of the Federal Open Market Committee The record of policy actions of the Federal Open Market Committee is presented in the ANNUAL REPORT of the Board of Governors pursuant to the requirements of Section 10 of the Federal Reserve Act. That section provides that the Board shall keep a complete record of the actions taken by the Board and by the Federal Open Market Committee on all questions of policy relating to open market operations, that it shall record therein the votes taken in connection with the determination of open market policies and the reasons underlying each such action, and that it shall include in its ANNUAL REPORT to the Congress a full account of such actions. In the pages that follow, there are entries with respect to the policy actions taken at the meetings of the Federal Open Market Committee held during the calendar year 1971, including the votes on the policy decisions made at those meetings as well as a resume of the basis for the decisions. The summary descriptions of economic and financial conditions are based on the information that was available to the Committee at the time of the meetings, rather than on data as they may have been revised later. It will be noted from the record of policy actions that in some cases the decisions were by unanimous vote and that in other cases dissents were recorded. The fact that a decision in favor of a general policy was by a large majority, or even that it was by unanimous vote, does not necessarily mean that all members of the Committee were equally agreed as to the reasons for the particular decision or as to the precise operations in the open market that were called for to implement the general policy. Under the Committee's rules relating to the availability of information to the public, the policy record for each meeting is released approximately 90 days following the date of the meeting and is subsequently published in the Federal Reserve Bulletin as well as in the Board's ANNUAL REPORT. Policy directives of the Federal Open Market Committee are issued to the Federal Reserve Bank of New York as the Bank selected by 103 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

the Committee to execute transactions for the System Open Market Account. In the area of domestic open market activities the Federal Reserve Bank of New York operates under two separate directives from the Open Market Committee—a continuing authority directive and a current economic policy directive. In the foreign currency area it operates under an authorization for System foreign currency operations and a foreign currency directive. These four instruments are shown below in the form in which they were in effect at the beginning of 1971. No revisions were made in the foreign currency directive during the year; changes in the other instruments are shown in the records for the individual meetings. CONTINUING AUTHORITY DIRECTIVE WITH RESPECT TO DOMESTIC OPEN MARKET OPERATIONS (in effect January 1, 1971) 1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, to the extent necessary to carry out the most recent current economic policy directive adopted at a meeting of the Committee: (a) To buy or sell U.S. Government securities in the open market, from or to Government securities dealers and foreign and international accounts maintained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the System Open Market Account at market prices and, for such Account, to exchange maturing U.S. Government securities with the Treasury or allow them to mature without replacement; provided that the aggregate amount of such securities held in such Account at the close of business on the day of a meeting of the Committee at which action is taken with respect to a current economic policy directive shall not be increased or decreased by more than $2.0 billion during the period commencing with the opening of business on the day following such meeting and ending with the close of business on the day of the next such meeting; (b) To buy or sell prime bankers' acceptances of the kinds designated in the Regulation of the Federal Open Market Committee in the open market, from or to acceptance dealers and foreign accounts maintained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the account of the Federal Reserve Bank of New York at market discount rates; provided that the aggregate amount of bankers acceptances held at any one time 104 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

shall n ot exce<v i ,, ' <.'.••- • •••' ent of the total of bankers' acceptances outst;1 \ '!<). .'•<•> -!> .aost recent acceptance survey conducted by ,. • ; .• ,• , :; • • '"ink of New York, whichever is the lower; (c) To buy U.S. Government securities, obligations that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, and prime bankers' acceptances with maturities of 6 months or less at the time of purchase, from nonbank dealers for the account of the Federal Reserve Bank of New York UEcier agreements for repurchase of such securities, obligations, or acceptances in 15 calendar days or less, at rates not less than (1) the discount rate of the Federal Reserve Bank of New York at the time such agreement is entered into, or (2) the average issuing rate on the most recent Issue of 3-month Treasury bills, whichever Is the lower; provided that In the event Government securv./ • s .. , ' '••" covered by any such agreement are not repu:>i, ..<••". .-' . pursuant to the agreement or a .renewal there i; -. "• in the market or transferred to the System Oper, •• • . • provided further that in the event bankers' a- •• ;• '' • any such agreement are not repurchased by the •••>••• tinue to be held by the Federal Reserve Bank ••: -:•.• • ; ; • open market. 2, The Federal €v» i M,->; •' rv,, • V\ • . •:::• -;.• * " ' ", Federal Reserve Baoi <>< V v • •. - >.. r- ,' ..• \ •is closed, a ny other J •„ ^-i:o !•..•..';• •.•• ;"••.:•;••. T r e a s u ry f or I ts o w i. •->;•••.•!...' >•.'.•! »•,•..•• desirable, to issue ps•.".". *;.••• '*;••' . • • - • - •. such amounts of spe,•,•;•,! >\\x >• :••. , . be necessary from time to time for the teii;;;- .'.- . • ••. • the Treasury; provided that the rate charged :-;,''.••' <'i a. rate !4 of 1 per cent below the discount ••••••. i( : ;';.'ik of N ew York at the time of such purcl- ; •.:-. •.":•'•• •• • • ;, ••; the total amount of such certificates fae';>.! ,;• •:/, .•••v,- •';••.• .- - ••'<,'] Reserve Banks shall not exceed $1 billion. • ;-; order to Insure the effective conduct *••'• ;-'..•• 1 ., r iserai Open Market Committee authoriy* »,.>•• • ;*•" erve Banks to lend U.S. Government sec.1' 'i; !; '•- • ••; ;n Market Account to Government secui'•(-••• ..- <! •• ;•. 'icipatlng in Government securities clearir.1- '.; ; .:„• ••. through a Federal Reserve Bank, under such ;•'*<<.;,. . mittee may specify from, time to time. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

(in elect January 1, 1971) The Information reviewed at this meeting suggests that real output of • '>ds and services has declined since the third quarter, largely as a con- •., • <uence of the recent strike in the automobile Industry, and that unemployment has increased. Resumption of higher automobile production is • \!>ected to result in a bulge In activity in early 1971. Wage rates gen- • , lly are continuing to rise at a rapid pace, but gains In productivity ap- ;•• ir to be slowing the increase In unit labor costs. Movements in major !•'. (ce measures have been diverse; most recently, wholesale prices have •••• »wn little change while consumer prices have advanced substantially. ' !, irket interest rates declined considerably further in the past few weeks, ,-;•! Federal ReseFYe discount rates were reduced by an additional ooe- <>; ..liter of a percentage point Demands for feeds in capital markets have :itinued heavy, but business loan, demands at banks have been weak, ' , owth in the money supply was somewhat more rapid on average in ''• member than. In October, although it remained below the rate prevailing in the first three quarters of the year. Banks acquired a substantial volume of securities in November, and bank credit increased moderately .tl.'er changing little In, October, The foreign trade balance in September .,.J October was smaller than in any other 2-month period this year. The \ jr-all balance of payments deficit oe the liquidity basis remained In U.tober and November at about Its third-quarter rate. The deficit on the ^itcial settlements basis was very large as banks continued to repay Euro- '•i'-i' ,', : •'>'lilies. In light of the foregoing developments, it is the policy "' - .. ! -;.erai Open Market Committee to foster financial condition* •'.;•; Jii.." . :o orderly reduction in the rate of inflation, while encouragii. •; resumption of sustainable economic growth and the attainment » ' asonable equilibrium in the country's balance of payments. To implement this policy, System open market operations shall be con- <>h ^ted with a view to maintaining the recently attained money market < '.Mditions until the next meeting of the Committee, provided that the exv.;ted rates of growth in money and bank credit will at least be achieved. ; '• *' 1 ' 'ORIZATION FOR SYSTEM FOREIGN CURRENCY OPERATIONS (in elect January 1, 1,971) 1. The Federal Open Market Coniniitt.ee authorizes and directs the Federal Reserve Bank of New York, for System Open Market Account, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

to the extent i "ective and express A. To purchase • : cable transfers • i •.rket at home anci ; ion Fund establis1 ' :h foreign monet-- '•-••rtlements: An st r i an sc hill I n gs Belgian francs Ca n adia n d o 11 ars Danish kroner Pounds sterling French francs German murks Italian lire Japanese yen Mexican pesos Netherlands guilders Norwegian, kroner Swedish kroner Swiss francs lf "'•''.•. . reign currencies listed in par,*,.v ;' - . • , up to the following limits: (1) Currencies purchased spot, includin; •••• •. . . rchased from the Stabilization Fund, and sold forward to ; ;• >:. •..: ".. •. Fund, up *"^ *'1 ^:-]V~ '• T,-V- ' ••yit; ' ' • > . • • • . . purchased spot or forward, up to the amounts nee; • '•! • .;;'.:' ,,; •. forward commitments; v«.5 •• "V " currencies purchased spot or forward, up to the am '*- ,' ••• ' • '!•. {'•'• "• ystem operations to exert a market influence but no* / •, • < .'• -',250 million equivalent; and • . v, ding purchased on a covered or guaranteed basis in terms JL ,^: • ; . \ under agreement with the Bank of England, up to $200 • ", r" • . ; '•« .'mt. '". ". ' ' /e outstanding forward commitments undertaken under '". * i • .bove to deliver foreign currencies, up to the following • ' umitments to deliver foreign currencies to the Stabiliza- • < •• •; to the limit specified In paragraph 111(1) above; and 107 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

• • r - ""er forward commitments to deliver foreign currencies, up -,. .. •,..: tu.:t,on equivalent. t r w foreign currencies and to permit foreign banks to draw • :."-. •/," • he reciprocal currency arrangements listed in paragraph below, proYicled that drawings by either party to any such arrangement shall be fully liquidated within 12 months after any amount out- •i.:tiding at that time was first drawn, unless *jr* x' -^nmittee, because of -optional circumstances, specifically authori; . s A il.iay. !. The Federal Open Market Committee '.;>,' ' he Federal Reserve '<- lk of New York to maintain reciprocal currency arrangements : * ".wap" arrangements) for System Open Market Account for periods »*i- to a maximum of 12 months with the following foreign banks, which n, among those designated by the Board of Governors of the Federal '."'. serve System under Section 214.5 of Regulation N, Relations with Foreign Banks and Bankers, and with the approval of the Committee to renew such arrangements on maturity: ': -rant of ' • • sgement <<'•* nnr Of Foreign baok doll*; «: >valent) Austrian National Bank x. 'tional Bank of Belgium ' - -nk of Canada sr 'tional Bank of Denmark '• 0 ^;:tik of England iiank of France 1,000 < j.rman Federal Bank !< 'nk of Italy n.tak of Japan H,.nk of Mexico ! '0 Y t \ therlands Bank I1: iok of Norway •''.ok of Sweden • o ~*. iss National Bank - 0 H*-nk for International Settlements: i->Lj«!ars against Swiss fraocs 600 ''.'.'•• ars against authorized European currencies other than, Swiss fraocs 1,000 3. Unless otherwise expressly authorized by the Comix •'•. :: ,.nSactions in foreign, currencies undertaken under paragra;*^ j'hove Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

"-,"]-: -•• ••• prevailing market rates and no attempt shall be made to •••aonsn ra*f-- fh?f appear to be out of line with underlying market j-ces. 4. It sha:- -T ----j practice to arrange with foreign central ban.ks for --• coordination, of foreign currency transactions. In making .. . - • angements with foreign central banks OD System holdings • ^ -,-*rencies, the Federal Reserve Bank of New York shall r • . : ...jlf to maintain any specific balance, unless authorized by 1 /en Market Committee. Any agreements or understandings •. administration of the accounts maintained by the Fedei • • •" ' nk of New York with the foreign banks designated by th : >vernors under Section 214.5 of Regulation N shall be referred for - • and approYal to the Committee, oreige currency holdings shall be invested insofar as practicable, ' " 'ring needs for minimum working balances. Such investments :,-' " accordance with Section. 14(e) of the Federal R,« • ;.ct. •' •'• Dcommittee consisting of the Chairman and the ^ . • ' lir- - ; Committee and the Vice Chairman of the Board * ~ > errs (or in the absence of the Chairman or of the Vice Chairman of .•• Board of Governors the members of the Board designated by the •airman as alternates, and in. the absence of the Vice Chairman of the mmittee his alternate) is authorized to act on behalf of the Com- •ttee when it is necessary to enable the Federal Reserve Bank of New '• :rk to engage In foreign currency operations before the Committee ~T. be consulted. All actions taken by the* Subcommittee under this •;?agraph shall be reported promptly to the Committee. 7, The Chairman (and ID his absence the Vice Chairman of the Com- -*ttee, and In the absence of both, the Vice Chairman of the Board - Governors) is authorized: A. With the approval of the Committee, to enter into any needed jr'eement or understanding with the Secretary of the Treasury about I-*. dl¥ision of responsibility for foreign currency operations between .•u System and the Secretary; B. To keep the Secretary of the Treasury fully advised concerning -item foreign currency operations, and to consult with the Secretary :L such, policy matters as may relate to the Secretary's responsibilities; • i C. From, time to time, to transmit appropriate reports and inforn . n to the National Advisory Council on International Monetary a lancial Policies. 8. Staff offic " '•" • • •, . " , ' cl to transmit par- 109 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

tinent information on System foreign currency operations to appropriate •* ..,..:.-^ :.- -Yeasury Department. •• " ' ; " " " il Reserve Banks shall participate in the foreign currency • • •- System Account in accordance with paragraph 3 G(l) of 1 \ i- :•: . i «.jovernors' Statement of Procedure with Respect to Foreign ^.vr"':^1-;" '•**•' Federal Reserve Banks dated January 1, 1944. !:<*. 5"! . 7*->>.:dal Manager of the System Open Market Account for :'; I.KI . »::!!,,•-ivy operations shall keep the Committee informed on condiUi.Mi', in ;.-\. ign exchange markets and on transactions he has made •\ini sh;?il rcmHT such reports as the Committee may specify. :. M:-\ iu-^n. pi.'iL.L^.:. ».;i .:;.?.U.M -^!;r,i!nms »<* (uj,'«t>5> v'i*n:encies are: •'" *-~ "r»p safeguard the value of the dollar in International exi» ifj :i-J in making the system of international payments more <i'i;eient; C. To further monetary cooperation with central banks of other • -, -mines haviog coiwertibte currencies, with the International Monetary i.\:nd, and with other international payments Institutions; D. To help insure that market movements in exchange rates, within >)• •• limits stated in the Internationa! Monetary Fund Agreement or r* ablished by central bank practices, reflect the interaction of underly- -ii-; economic forces and thus serve as efficient guides to current financial decisions, private and public; and E. To facilitate growth In international liquidity In accordance with ; '••"• needs of an expanding world economy. 2, Unless otherwise expressly authorized by the Federal Open Market ( ^mmittee, System operations in foreign currencies shall by undertaken ^<-Iy when necessary; A. To cushion or moderate fluctuations In the flows of international twivmeiits, if such fluctuations (1) are deemed to reflect transitional ri;, filial unsettlement or other temporary forces and therefore are ex- ;•> >;ted to be reversed in the foreseeable future; and (2) are deemed to !."-. disequilibrating or otherwise to have potentially destabilizing effects s~ U.S. or foreign official reserves or on exchange markets, for example, '•• occasioning market anxieties, undesirable speculative activity, or :esslve leads and lags in international payments; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

currency operations; and D. To adjust System balances within the limits established le the Authorlzalioe for System, foreign currency operations in light of probable future needs for currencies. 3. System drawings under the swap arrangements are appropriate when necessary to obtain foreign, currencies for the purposes stated in paragraph 2 above, 4. Unless otherwise expressly authorized by the Committee, transactions in forward exchange, either outright or in conjunction -with spot • , • idertaken only (i) to prevent forward premiums • ng rise to disequilibrating movements of shorteiroize speculative disturbances; (Hi) to supple- , •'. : • ,- • .upplies of forward cover, directly or indirectly, •: • • " ,.\ • ing the retention or accumulation of dollar hold- . . . • • • ' holders; (iv) to allow greater flexibility in cover- " • . ;y commitments, including commitments under id to facilitate operations of the Stabilization :•--.-• --•• •-- :••-'-• the use of one currency for the settlement of , , • nmitments denominated in other currencies; and - = - •-•- --:- • --i >r System holding of foreign currencies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON JANUARY 12, 1971 Authority to effect transactions in System Account. The information reviewed at this meeting suggested that real output of goods and services (real gross national product) had declined in the fourth quarter of 1970, largely as a consequence of the strike in the automobile industry that ended in late November. The resumption of higher automobile production was expected to result in a bulge in economic activity in early 1971. The rate of advance in major price indexes appeared to have moderated recently, following substantial increases earlier in the fall. In December the labor market eased further, and the unemployment rate rose to 6.0 from 5.8 per cent in November. Although both nonfarm payroll employment and industrial production increased, the advances appeared to be attributable to the ending of the auto strike. On the other hand, weekly data suggested that nonautomotive retail sales might have been relatively strong during December. In November private housing starts had risen considerably further, to the highest rate in nearly 2 years. Average wholesale prices—which had declined from mid-October to mid-November—were about unchanged in the following month, when a further reduction in prices of farm products and foods about offset an increase in prices of industrial commodities. Over the fourth quarter as a whole wholesale prices rose much less than in the preceding quarters of 1970 as a result of declines in prices of farm products and foods. In November the rise in the consumer price index slowed appreciably from the accelerated rate of the two preceding months. Staff projections suggested that real GNP would rise sharply in the first quarter in the aftermath of the auto strike, but that the pace of the advance would then slow. For both the first and second quarters the projections contemplated sizable increases in residential construction expenditures and in State and local government outlays. Prospects were for moderate increases in consumer spending, apart from the anticipated return to a higher rate of new car purchases early in the year. Neither defense spending nor business outlays on fixed investment were expected to contribute to expansion in GNP over the first 112 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

r. It was noted, however, that these projections did not ;e for the probability that steel users would accumulate that metal as a hedge against a possible strike in the at the end of July, when current wage contracts will ember e. . ' • •; • - . . over-ail ' . . ' . • - " • , " • • • • • ' .• . r sugges..-.- -;.-- ' "'"".' . . • • '• . I about ;, •? . ' • • "•• , . ' . . --il reserv- ...,..-•..: ' .,:...:.- •... . : ... ;: .. . .. —•.._:.. /y repay] • • • • •. ' " . < • •rest rate- --• • '•>• - •• ^ •- -v ~ -....:...,...,. '... •alf Of E ' • . ; : " • ,"• •-eg seasc----: - * -• -• ..; )ecembe • • ' ... . . • •, for Eur-1 •' ' :r-- :•- "- •''••' ••'- •••••'- •--••'.: , Board of Governors of certain measures designed to moderate *aents of Euro-dollar borrowings by these banks. In gene.r--: ige rates for major foreign currencies eased in early Deceml . Euro-dollar Interest rates were rising; then toward the end ~"~ • . .ey firmed as Euro-dollar rates declii ;" • •/• '" '; .; Bank of France reduced its discount rr"~ ~*— • :ry was expected to announce on Januar '•" "" i ter"" ' ' • • mid refund securities maturing on Febru. . • includ- • ..._ ..^IJLL'LJJ on the "liquidity" basis is measured by changes in U.S. • ; ••• • liquid U.S. liabilities to all foreigners. The balance on, the „!:__ .•;_.. transactions" basis (sometimes referred to as the "official A settlements" basis) is measured by changes in U.S. reserves and in liquid and certain nonliquid liabilities to foreign official agencies, mainly monetary authorities. The latter balance differs from the former by (1) treating changes In liquid U.S. liabilities to foreigners other than official agencies (including liabilities to U.S. bank branches abroad) as ordinary capital lows, and (2) treatlo.g changes in certain nonliquid liabilities to foreign, monetary authorities as financing items rather than ordinary capital flows. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

.• • out $5 billion held by the public. It appeared likely that the _ --.-- y uld decide at the same time to refund securities maturing r : r:r WO .: .. -March, and perhaps also to pre-refund certain issues maturing . < " • . the year. In capital markets the strong rally that had been under way since • .'S October halted In mid-December, but only temporarily; yields • • >e on most types of long-term bonds during the closing weeks (1 the year, but they turned down again in early January. Short-term 'Merest rates fclb'rrl z similar pattern. For example, the market ?• :.e on 3-moni.;- • ;. •< bills reached a low of about 4.75 per cent ••Portly after ir:-; • . • :•. -IT, advanced to about 4.90 per cent near L.ar-end, and then declined to about 4.65 per cent on the day before r - "i.s meeting* Various factors contributed to the upward pressures on. interest i..:.es in late December. These included the very heavy recent and •< ospective volume of corporate and municipal bond offerings, 1-.1 ,. ssibility that the Treasury might pre-refund a sizable volume .; ourities In connection with its mid-February financing, and—in 1*- > ' : >vernment securities sector—uncertainties that existed for a tii»- , <>out the availability of insurance against loss or theft. The renew <• -•- clines in market Interest rates were stimulated by continur:-* .sorts of sluggishness in economic activity, by an easing of conditic "< hi money markets, and by further reductions In the prime lendi .->-:e of commercial 'banks and i-- J -, \- -• *ve discount rates. I'^v- :••: 'ine rate was lowered to 6% , . •• . • •••'!• icember 22, 1970, a«: ' i-1 . r.• •• •' ;>er cent on Jan. .-: . •.• ? ! ;, and discount rates . . : - i .;..,,.,- - - -.serve Banks we. • • - M ••••••> <-. •»-i 5 Vz to 5lA per ct:• • !; • , : ,:< ry 8, ir |«, > ;' . r interest rates OJ- • • •.•- •..' . * ;tgages declined furtK • -* ,—.p y'.i^^.iy markets for cc ^'---T M--e loans and secondary ; ;• , ;, ' . ' <>>, . ierally underwrir. - i •-.•, ' Nonbank thrift institu- •' • •. • ,.' •i .' < • > d to experlen.ce very heavy inflows of savings funds M»:'*•-> '^^ — {*->er, and the net outflows following year-end interest and i i •./'•.' f;fing were much smaller than usual. •• '•.•..;•' . • ial banks substantial increases were recorded in, Decem- ':*••'> :-:- '''•'••' 'consumer-type time and savings deposits and large- !' • •;•••<<••< '•• certificates of deposit (CD's). The volume of business loans outstand.' • • .justed to Include loans that had been sold to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

affiliates) declined for the fourth successive month, However, banks • laily-average ^ments, plus •ertaih other , i use of this Dping move- Ei very short .v, and invest- •;:h are much :he available jf loans and ay—of each ' .ember bank eral Reserve lonth of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

• npared with the rates around 5 per cent that had prevailed shortly •» bre the preceding meeting. During the interval the System supplied ubstantial volume of reserves, partly through purchases of longer- .j^m Treasury securities. Staff analysis suggested that the bulge in economic activity antici- <'*,.:ed for the first quarter would tend to produce more rapid growth '• money and bank credit than had been recorded in the fourth quarter. According to the analysis, however, some further easing of mnncy market conditions probably would be required if M' were to t •.vf>and sufficiently over the first quarter—at an annual rate of about ••; per cent—to compensate for the shortfall in the fourth quarter \ r- 'in the expected growth rate. The Committee agreed that It would be desirable at this time to promote accommodative conditions in credit markets and moderate * mansion in monetary and credit aggregates. In the discussion, diver- '• it ¥,Iews were expressed about the degree to which open market • •( orations during the period immediately ahead should be directed -s/ard attaining specific objectives for various monetary and credit ./^regates. A number of members favored seeking growth rates In ^ , • first quarter high enough to make up for the fourth-quarter short- ,. :L in M. Others, while not necessarily opposed to such growth rates, x noted that their concern about the shortfall was mitigated by the " • , > • relatively high, rates of expansion in M and the bank credit 2 ; •• > • \, or by the fact that they did not attach great importan.ee in any •, •. " fo short-run fluctuations in the growth rate of a single monetary • • . /ate. <' ; he conclusion of the discussion the Committee agreed that the • - ••..•, iient of its objectives for both credit conditions and the monetary "•idit aggregates would be facilitated by some moderate easing of >; '«;n . market conditions; and that such easing should be accom- , •<• '•• ^ I soon, partly because It would become necessary to take'account <• -I- forthcoming Treasury financing later in the month. The mem- •!so agreed that money market conditions should be eased some- -: . ('arther if it appeared that the aggregates were expanding at rates :•• )< . those consistent with making up the fourth-quarter shortfall In ii_- following current economic policy directive was issued to the < - !v('-, J Reserve Bank of New York: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The information reviewed at this meeting suggests that real output of goods and services declined in the fourth quarter of 1970, largely as a consequence of the recent strike in, the automobile Industry. Unemployment Increased further in December. The resumption of higher automobile production is expected to result in a bulge in activity in early 1971. Wage rates generally are continuing to rise at a rapid pace, but gains in productivity appear to be slowing the Increase in unit labor costs. The rise in both wholesale and consumer prices appears to have moderated recently, following substantial Increases earlier In the fall. Most market interest rates turned down,, again in recent clays, and Federal Reserve discount rates were reduced by an additional one-quarter of a percentage point. Demands for funds in capital markets have continued heavy, but business loan demands at banks remain weak. Although growth in the money supply accelerated in December, over the fourth quarter as a whole It was at a rate below that; prevailing in the preceding three quarters. Banks made substantial further additions to their holdings of securities in December, and bank credit increased sharply. The foreign trade surplus has declined markedly in recent months. The over-all balance of payments deficit on the liquidity basis in, the fourth, quarter was apparently about as large as In the third quarter. The deficit on the official settlements basis was very large as banks continued to repay Euro-dollar liabilities. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to the resumption of sustainable economic growth, while encouraging an "• !rrly reduction in the rale of inflation and the attainment of ••:•'• onable equilibrium in, the country's balance of payments. - o implement this policy, the Committee seeks to promote ac- >.modative conditions in credit markets and moderate expansion •lonetary and credit aggregates. System, open market operations until the next meeting of the Committee shall be conducted with a view to maintaining bank reserves and money market conditions consistent with those objectives, taking account of the forthcoming Treasury financing. Votes :--• '•'••- - ••'""• Messrs. Burns, Brimmer, Daane, !-'• :•; "• lltchell, Robertson, Swan, Mayo, ar~' ;.-,••;-- -..•:«> against this action: Mr, Francis, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Absent and not voting: Messrs. Hayes and Slierrill. (Mr. Treiber voted as alternate for Mr. He" -jand Mr. Mayo voted as alternate for the late ' '•, Hickman.) Mr. Francis dissented from this action for reasons s:' • ';*>se underlying his dissent from the directive adopted at = ' ''<•',•' >- >er meeting. In Ms judgment, if growth in M were m«:- ."• ••;•, • ••rer x ti , , :ning months at an average annual rate of approx'^- ••-• ;• per , , it-—about the average prevailing over the second h : •• • '"';—. 'i. ' longer-run performance of production and prices *¥, *•' ''-Mter '•' ,tn if money were to expand at some faster rate. !• ;•;-.'-•-< he • rored reducing the emphasis given to money market conditions in • <plementing open market policy. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON FEBRUARY 9, 1971 1. Authority to effect transactions in System Account. Preliminary estimates of the Commerce Department indicated that in the fourth quarter of 1970 real GNP had declined at an annual rate of 3.3 per cent. The decline was attributable largely to the strike in the automobile industry that had ended in late November. In the current quarter, according to staff projections, real GNP was rising again, primarily as a consequence of the resumption of higher automobile production. Wage rates were continuing to advance at a rapid pace in most sectors of the economy, and relatively large increases had recently been recorded in some major price measures. Tentative estimates suggested that both retail sales and industrial production had advanced in January, mainly as a result of the ending of the auto strike. Nonfarm payroll employment increased moderately —also largely because of higher auto production—and the unemployment rate declined to 6.0 per cent, from the (upward revised) December rate of 6.2 per cent. Private housing starts had risen sharply further in December, the latest month for which data were available. Average wholesale prices increased considerably from mid-December to mid-January as a result of a substantial advance in prices of farm products and foods and a small rise in prices of industrial commodities. The rate of increase in the consumer price index, which had slowed in November, stepped up again in December. The staff's GNP projections had been reassessed in light of the Federal budget estimates for the 1971 and 1972 fiscal years that were presented by the administration in January, and in light of the probability that steel users would accumulate inventories of that metal as a hedge against a possible strike in the steel industry at the end of July, when current wage contracts will expire. Although modified in some respects, the projections still suggested that real GNP would rise markedly in the first quarter in the aftermath of the automobile strike, and that the pace of the advance would slow in the second quarter. Resumption of a higher rate of automobile and truck purchases was expected to result in a sharp increase in consumer spending and some rise in business capital outlays in the first quarter, but it seemed 119 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

likely that consumer spending would increase only moderately further in the second quarter and that business capital spending would level off. An accelerated pace of business inventory Investment appeared to be in prospect for the second quarter, reflecting in part a step-up in the accumulation of steel stocks. In line with the new budget estimates, it was expected that defense spending would decline in be1'; quarters, but that total Federal expenditures would rise considerably- • - • -rgely because of increased transfer payments to individuals a-' * i'K,nts to State and local governments. Outlays of State and lex. • y/ernments were projected to Increase substantially, as were re <»'•*•*-}' --^structionexpenditures. : '•• f.'-plus on U.S. foreign trade in the fourth quarter of 19<'" . • * '.v> ; smaller than it had been earlier in the year. The over- :;' <w-.ance of payments deficit on the liquidity basis was little change* • • • 'in the third-quarter level. The official settlements deficit re •': trply, however, as U.S. banks reduced their Euro-dollar borrowic1 . -ttU-u ^--der the stimulus of wide differentials between short-tern '.-iV '••' ces in the United States and in the Euro-dollar n- n', i "< i-"- • i•'J'orentials had continued wide In recent weeks, whei P- •> ? • S r>i«* -Juro-dollar Interest rates declined; but the spread br;*- '.vn ih^.; ,.».•* and the still higher rates in major European n<vr- ^-. markets had become larger. Movements of funds in respo; • interest rate differentials had tended to strengthen most major j> *.••*:•,"; currencies relative to the dollar and had contributed to further :'<- • • . "• • • '. , lumber of central, banks. r^.t^-*<*?•••!- --^^Qwlegs of U.S. banks increased seasonally In. t*r* «'.! .;'''" ,* y when U.S. corporations were reversing year-e:; «(< ',;•.:'''.;•' 'U s, but subsequently the decline in such borrowir-'' ^ ^i\>~>*i -::. i.;,^ary 25 the Export-import Bank sold $1 billion. ••• -.., .; - •, ^ -i , ' foreign branches of U.S. banks and thereby help ; ; >.>•,<>:•<>[ ?'. M " ." of funds to other countries. Effective January 2 ' ta* b"s- --: ••']•-'- lowered Its discount rate from 6 to 53A per cent, ;,-,«;,s (>;« i • •• > >;ay the National Bank of Denmark reduced its dis- -.'•.•'i-ii'.A i»'\-" ''(3 8 per cent. 1 l^ 'rrr:i' ,. the Treasury announceci that in its mid-February f"\" ^ ;;•/ M >^ s;,1 , offer two new securities—a 4Vi-year, 5% per cent ;,.!•.!><,: • ; •. • . 6XA per cent note—In exchange for nine outstanding issues, including three that would mature in mid-February or mid- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

" " ' ree each that would mature in November 1971 and, - - . i: I, This combination of a refunding and a prerefunding :cessful. Of the $19,5 billion of eligible issues held by : •' • ' • . • )iit $11 billion were exchanged for the new notes; and .' . . er cent of the issues maturing in February and March eemed for cash, despite the fact that the new securities ,: t include the customary short-term "anchor" issue. •;e volume of current and prospective offerings of new • ' ' municipal bonds had remained very heavy in recent " is well as short-term interest rates had fallen, consid- •' . ;- • " since the January 12 meeting of the Committee. The -reflected continuing reports of weakness In economic 1 ; ther developments that tended to buttress market ex- • 'ower rates to come. The latter Included two additional • • the prime lending rate of commercial banks—from '•" • , ••; cent on January 15 and then, to 6 per cent on January • . '. - - rut in Federal Reserve Bank discount rates, from 514 ; . • effective on various dates from. January 19 through " :r.\, •" ad the progressive easing of money market conditions : • . '.red during the period, In short-term markets the rate • ' • •• ,\ " '"'reasury bills had fallen, about 85 basis points in the :•>:•'. . , :- , ;;o about 3,80 per cent on the day before this meeting. • , •' .es on residential mortgages continued downward in .' • ;• •- th primary and secondary markets. Inflows of savings " - •'• : ' • "»ank thrift institutions— which had been heavy in the •' ;• • • ••: of 1970—-reached, extraordinarily high levels during .••••'• ' e yields available on. competitive market instruments accnncu biiaiply further. Commercial banks also experienced heavy inflows of consumr type time and savings deposits In January. Growth in the volume • large-denomination CD's slowed appreciably as banks reduced then offering rates on such certificates, but the expansion in CD's was still rapid by historical standards. The volume of business loans outstanding (adjusted to Include loans that had been, sold to affiliates) increased moderately in January after 4 months of decline, and banks added considerably further to their holdings of securities. The narrowly defined money stock—private demand deposits plus currency in circulation, or If —increased less on the average in :1 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

January than had been expected at the time of the preceding meeting of the Committee, .«nd considerably less than it had grown in December. However, M -• ik fined as M plus commercial bank time deposits t other than large-denomination CD's—expanded substantially further, as did the adjusted bank credit proxy—daily-average member bank deposits, adjusted to include funds from nondeposit sources. System open market operations following the January 12 meeting of the Committee had been directed initially at achieving somewhat easier conditions in the money market. Further easing was sought later in the period, as data that became available in late January and early February offered increasing evidence that growth in, M was x falling short of Committee expectations. The effective rate on Federal funds moved irregularly lower during the period; most recently it had fluctuated around 3% per cent, compared with a range around 4V4 per cent shortly before the January meeting. Staff analysis suggested that both M and M would grow signifit 2 ' cantly faster in February and March than, they had in January as a consequence of the expected bulge in economic activity, and that the adjusted credit proxy would, continue upward at a substantial pace, According to the analysis, if prevailing money market conditions weiv maintained M would expand at an annual rate of about 6 per cent 1 over the first quarter as a whole,1 This rate would be roughly the same as the a¥erage for the first three quarters of 1970 and higher than 1lic 3.4 per cent rate recorded in the fourth quarter. For M and 1?»e 2 adjusted credit proxy, the analysis suggested {^--Tvv'h over the first quarter at rates of about 15 to in ;vr ct/nt an*! ;O \o II per cent, respectively. The Committee agreed that in light of the economic situation and outlook it would be desirable to accommodate further declines In longterm Interest rates at this time. Views differed, however, with respect to the appropriate objectives for conditions In the money and shortterm credit markets and for growth rates in the monetary and credit aggregates, A number of members advocated some further easing of money market conditions in an effort to achieve growth rates in M ± over coming months that would tend to compensate for the recent 1 diet tilted on the basis of the daily-average level in the last month of the quarter relative to that In the last month of the preceding quarter. 122 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

shortfalls. Other members Indicated that they would prefer to maintain prevailing money market conditions during corning weeks, at least in the absence of developments militating strongly in favor of further easing. Among the considerations stressed by these members were the rapid recent and prospective growth rates In monetary and credit aggregates other than M and the undesirable consequences for x international capital flows of further sizable declines In short-term interest rates in the United States, There also was some sentiment for letting less emphasis on short-run fluctuations in M In the period x <l^ad. At the conclusion of the discussion the Committee decided that ^••en market operations in the coming period should be directed at ..< antaining the prevailing conditions in the money market unless rhore were indications of shortfalls in M and M from the growth r 2 • fths expected on that basis.—in which case, money market condi- '.' 'iis were promptly to be eased somewhat farther. The Committee ,i';.o agreed that its objectives for interest rates would be facilitated if, :" the extent feasible, needs to supply reserves were met by purchases ~if longer-term Treasury securities. The following current economic policy directive was issued to the *• \ deral Reserve Bank of New York: The information reviewed at this meeting suggests that real output of goods and services, which declined in the fourth quarter of 1970, is rising in the current quarter primarily because of the resumption of higher automobile production. The unemployment rate remained high in January. Wage rates in most sectors are continuing to rise at a rapid pace, and recent Increases in some major price measures have been relatively large, Interest rates have fallen considerably further in recent weeks despite continued heavy demands for funds In capital markets, and differentials between interest rates In the United States and those in major foreign cc"*v tries have widened further. Federal Reserve discount rates v/- • reduced by an additional one-quarter of a percentage point t<> '• per cent, Bank credit increased considerably further in Janu t, ^ as business loan demands strengthened somewhat and banks m *> \: substantial further additions to their holdings of securities. The money stock narrowly defined grew modestly in January following a stronger December rise, but money more broadly defined expanded sharply further as a result of continued rapid growth In 123 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

consumer-type time and savings deposits. The over-all balance of payments deficit in the fourth quarter was about as large as in the third quarter on the liquidity basis; on the official settlements basis the deficit increased further from the very high third-quarter level as banks continued to repay Euro-dollar liabilities. More recently, the issuance of a special Export-Import Bank security to foreign branches of U.S. banks helped to moderate the flow of dollars to foreign central banks. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to the resumption of sustainable economic growth, while encouraging an orderly reduction in the rate of inflation and the attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining prevailing money market conditions while accommodating additional downward movements in long-term rates; provided that money market conditions shall promptly be eased somewhat further if it appears that the monetary aggregates .are falling short of the growth path desired. Votes for this action: Messrs. Burns, Hayes, Brimmer, Daane, Heflin, Maisel, Mitchell, Sherrill, Swan, and Mayo. Vote against this action: Mr. Francis. Absent and not voting: Mr. Robertson. (Mr. Mayo voted as alternate for the late Mr. Hickman.) Mr. Francis dissented from this action for reasons similar to those underlying his dissents from the directives adopted at the two preceding meetings. Briefly, he favored placing less emphasis on money market conditions in implementing policy, and he thought that expansion in M at an annual rate of about 5 per cent would be best x suited to the needs of the economy. 2. Ratification of an action with respect to continuing authority directive. The Committee ratified an action taken by members on January 22, 1971, suspending a provision of paragraph l(a) of the continuing authority directive (the provision limiting exchanges with the Treasury 124 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Votes for ratification of this .action; Messrs, Burns, Hayes, Brimmer, Daane, Francis, Heflin, Maisel, Mitchell, Robertson, Sherrill, Swan, and Mayo. Votes against ratification of this action; None, (Mr. Mayo voted as alternate for the late Mr. Hickman.) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON MARCH 9, 1971 1. Authority to effect transactions in System Account. Revised official estimates indicated that real output of goods and services had declined at an annual rate of 3.9 per cent in the fourth quarter of 1970. It appeared that real GNP would rise substantially in the current quarter, largely as a result of the recovery of production in the automobile industry following settlement in late November of the strike at a major producer. According to preliminary indications industrial production declined slightly in February, following 2 months of advance, as further increases in output of motor vehicles and steel were more than offset by continued reductions in output of business and defense equipment. Employment also declined in February, but because there was an even larger decline in the labor force the unemployment rate edged down to 5.8 from 6.0 per cent in January. Weekly data suggested that retail sales had risen in February at both automobile dealers and other types of stores. Apart from autos, however, it appeared that average retail sales in January and February were little changed from the fourth quarter. In January private housing starts fell sharply— reversing the unusually large increase of the previous month—but they remained at a high level. Recent movements in major price indexes had been diverse. Average wholesale prices rose substantially from mid-January to mid-February, as a result of a marked increase in prices of farm products and foods; prices of industrial commodities rose less than in most other recent months. In January the advance in the consumer price index moderated from the sharp December increase. Meanwhile, wage rates continued to rise rapidly in most sectors of the economy. Staff projections suggested that growth in real GNP would slow in the second quarter from its current high rate, mainly because the post-strike recovery in the automobile industry would no longer be providing unusual stimulus to consumer and business spending on autos and trucks. In addition, defense outlays were expected to decline. On the other hand, it seemed likely that residential construction expenditures and State and local government outlays would con- 126 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

tinue to rise at substantial rates, and that the stockpiling of steel in anticipation of a possible strike in that Industry in August—-which already was making an appreciable contribution to over-all business investment in Inventories—would Increase in Importance. Also, It was expected that some strength would be Imparted to consumer spending by payments late in the quarter of an anticipated increase in social security benefits retroactive to the beginning of the year. The U.S. foreign trade surplus narrowed further in, January, extending the trend begun in mid-1970. The chief factor in the deterioration was a sharp rise in the total value of imports. The \) 4 er-all balance of payments in the January-February period connauecl very heavily in deficit on. the official settlements basis. On the fluidity basis the deicit was at a rate much larger than in the second (-.(if of 1970, re.lecti.Eg for the most part adverse capital lows stem- '•ung from the wide differentials between short-term interest rates :i; the United States and abroad. Sho.rt-te.rni interest rates in Britain, had risen since the beginning of the year, and .rates in Germany had fallen less than U.S. rates .M'-d Euro-dollar rates. Largely in consequence of iEterest rate difv rences, the dollar was at the floor against nearly all major currencies • ••>. the exchange markets in February. The Bank of Canada reduced :;% discount rate by lA percentage point in mid-February and by a 'tijther Vi point, to 5¥$ per cent, effective February 24. On Febra- ;."/ 26, the Export-Import Bank offered, an additional %Vi billion of ; ecial securities to overseas branches of U.S. banks, for payment iv if eli 3. In domestic financial markets short-term Interest rates had con- '.nued to decline In. recent weeks. For example, the market rate on. ^nonth Treasury bills, at 3.32 per cent on the day before this meet™ '<$;, was 50 basis points below its level 4 weeks earlier. Discount rates .«, Federal Reserve Banks were reduced by anoH>> v • garter of a ••rrcentage point, to 4M per cent, effective February I,;» i February 19 i \ the New York Reserve Bank), and commerce: ^mo lowered tl.dr prime lending rate again, from 6 to 5% per cent, effecti¥e Febru- :)ir 16, Further declines also had. been recorded, recently in bank f * waring rates on large-denomination CD's and in rates on commercial and. finance company paper. In contrast, yields on new issues of corporate and municipal bonds 127 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

—which, also had been declining earlier—turned up in early February and rose considerably over the course of the following wee! These yield increases reflected the continuing ¥ery heavy calendar ^' •: w offerings—particularly of corporate bonds—and apparently al . - . * growing belief among investors that long-term Interest rates were < • v near their cyclical lows. Yields rose only slightly on iong-tei:^ i, easury bonds and they moved down on intermediate-term Treasi-; • » ' ties, In part because of sizable purchases of such securities by the '. deral Reserve. Interest rates on residential mortgages declined further in Febru- 7 in secondary markets for federally Insured loans, and on February < - the celling rate on. such loans was reduced by administrative action ..•an 7!/i to 7 per cent—the third half-point cut in 3 months, ' v.posit Inflows at nonbank thrift Institutions, which had reached < craordinarily high rates in January, continued large in tii- ILJL "< 41 of February, At commercial banks the rate of growth in consumer-typ. '-.<*• , id savings deposits was exceptionally rapid in February, but the ., h pansion in large-denomination CD's slowed somewhat further. The vlume of business loans outstanding (including loans that had been < >d to affiliates) increased substantially, following a moderate • - s in January and declines in the four preceding months. Banks .i-<itin made sizable additions to their holdings of securities. Total bank credit, as measured by the adjusted proxy series— ' 'ily-a¥erage member bank deposits, adjusted to include funds from ^-•ndeposit sources—increased considerably further on the a¥erage \>> February. Sharp increases also were recorded for two key measures <•• the money stock—M, deined as private demand deposits plus a ^"rrency in circulation, and M , defined as M plus commercial bank 2 t • ;ue deposits other than large-denomination CD's. For all of these •:"gregates the growth rates in February exceeded those expected at :•(•.! time of the preceding meeting of the Committee. For both of the •• oney stock series, however, earlier estimates of the increase in \ "iuary had been revised downward somewhat, and for Mi the "H. binary expansion followed a ..number of months in which, growth i.,id fallen well short of Committee expectations. The strength of the .,. |i*egates In, February appeared to be related to the step-up in the growth of business loans at banks and, niore generally, to the first- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

quarter bulge in economic activity in the aftermath of the auto strike. System open market operations had been, directed at achieving • '.newhat easier conditions in the money market shortly after the •; bruary 9 Committee meeting, when revised data for late January "•• :l tentative estimates for early February suggested that both iVi and M were growing less rapidly than, desired. Subsequently, t 2 however, new data becoming available indicated that these aggre- . • ;es were currently expanding at rates at or above those desired, and "'^rations were directed at maintaining prevailing conditions. The i . deral funds rate fluctuated rather widely during the period, but '.' >st recently it had. averaged about 3!/2 per cent, compared with ; : average of about 3% per cent that had. prevailed shortly before •;»\> February 9 meeting. In recent weeks needs for reserves had been -' -X to an Important extent by System purchases of intermediate- and long-term Treasury securities. Staff analysis suggested that, if prevailing money market conditions were maintained, both M and. M would expand considerably x 2 less in March than they had in February, and that over the first .'.•arter as a whole they would grow at annual rates of about 7 and I! •• per cent, respectively. The adjusted bank credit proxy was pro- ^ ted. to continue upward in March at a pace dose to that of r.:bruary, and to increase at about a 12 per cent annual rate over « M ixst quarter. It was noted that, while the outlook for the monetary <•:- .jregates in the second quarter was highly uncertain at this juncture, ; M .;sent indications suggested that M would grow more rapidly than x ••• the first quarter if money market conditions remained unchanged, and that M and the proxy series would grow a little less rapidly. 2 In the Committee's discussion considerable concern, was expressed about the recent sharp increases in corporate and iiiijni.ci.pal bond. \ ""Ids, and the members agreed that it would be desirable to accommo- ^ ce renewed declines in long-term interest rates generally. At the same time, there was widespread sentiment to the effect that further • -./able declines in short-term Interest rates would not serve a useful . '.rpose. Indeed, in light of the expected growth rates in the monetary «,<•<:! credit aggregates and the recent large capital outflows, a number . .i* members thought that some modest increase in short-term rates vi >uld be desirable if—as they considered likely—such a development *: < >uld not be inconsistent with a downdrift in long-term rates. How- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ever, other members believed that any significant rise in short-term fates at this time would risk putting upward pressure on long-term rales. The members also expressed diverse views about the emphasis that should be placed on the behavior of the monetary and credit aggregates in making open market operating decisions during coming weeks, and about the appropriate rates of growth in the aggregates over the mouths ahead, la the latter connection, some members expressed concern about the relatively high growth rates projected by the stall for the period through the second quarter on the assumpiioii of unchanged money market conditions, and especially about the- acceleration anticipated in M. Others, however, stressed the x uncertainties attached to the projections for the later months of the period covered and indicated that they were not disturbed -by the near-term outlook for the aggregates—particularly in light of the shortfalls in M experienced in other recent months. 1 At the conclusion of the discussion the Committee decided that open market operations at present should be directed at maintaining pre¥ailing money market conditions while accommodating any downward movements in long-term interest rates, A pro¥iso was added calling for modification of money market conditions if during coming weeks the monetary and credit aggregates appeared to be de¥iating widely from the growth paths consistent with the first-quarter rates of expansion cited above. Specifically, money market rates were to be increased somewhat if the aggregates were rising considerably faster than expected, but in light of recent declines ia such rates they were to be shaded down only slightly if growth were markedly below expectations, The Committee also agreed that its objectives for interest rates would be served if, to the extent feasible, needs to supply reserves continued to be met by purchases of longer-term Treasury securities. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information reYiewed at this meeting suggests that real output of goods and services, which declined in the fourth quarter of 1970, is rising in the current quarter primarily because of the resumption of higher automobile production. Although the unemployment .rate has edged down, recently, it remains high. Wage rates 130 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in most sectors are continuing to rise at a rapid pace. Movements in major price measures have been diverse; most recently, the rate of advance moderated for consumer prices and wholesale prices of industrial commodities, but wholesale prices of farm products and foods rose sharply. Bank credit increased considerably further in February, as business loans strengthened substantially and banks again made sizable additions to their holdings of securities. The money stock both narrowly and broadly defined expanded sharply in February. Short-term interest rates and mortgage rates have fallen further in recent weeks but yields on new issues of corporate and municipal bonds have risen considerably, in part as a result of the very heavy calendar of offerings. The over-all balance of payments deficit in January and February was exceptionally large. Imports increased more rapidly than exports in January, and capital outflows have been stimulated by widened short-term interest rate differentials. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to the resumption of sustainable economic growth, while encouraging an orderly reduction in the rate of inflation and the attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining prevailing money market conditions while accommodating any downward movements in long-term rates; provided that money market conditions shall be modified if it appears that the monetary and credit aggregates are deviating significantly from the growth paths expected. Votes for this action: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and Sherrill. Votes against this action: None. 2. Amendment to authorization for System foreign currency operations. On recommendation of the Special Manager of the System Open Market Account the Committee amended paragraph 3 of the authorization for System foreign currency operations to authorize the purchase of currencies to be used for the liquidation of System 131 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

vne exchange rate as that employed in the drawing to be liquivtecl. Prior to this amendment, the paragraph had specified that •ijless otherwise expressly authorized by the Committee all transac- T ^iis in lv>< r- > .••"•;.;. • \ taken under paragraph 1(A) of i:-^ author:,-1"', <-, ").;•;.< . •• .•, availing market rates. As a result \ thisactic:,, , ..' , , .:•- * • ;ollows: 3. Cu< i •',.-•.', • ' - • ijuidation of System swap commitments m >' :"• , *. /•! •'••• >" ! "-\ •'<& foreign, central bank drawn on, at the same exchange rate as that employed in the drawing to be liquidated. Apart from any such purchases at the rate of the drawing, all transactions In foreign currencies undertaken under paragraph I (A) above shall, unless otherwise expressly authorized by the Committee, be at prevailing market rates and no attempt shall be made to establish rates that appear to be out of line with underlying market forces. Votes for *,:,-. ..~tion: Messrs. Burns, Hayes, Brimmer, Cl. v.. Me, Kimbrel, Maisel, Mayo, Mitchell, Me ••• \ >bertson, and Sherrill. Yotes against this action: None. Discussions had been under way recently with certain, central - • iks la the System's swap network regarding the possibility of using ;-if procedures In connection with, the liquidation of System swap •.iwings in cases in which it was necessary to obtaiE the foreign '. TTency required for liquidation by purchasing it directly from the ~<~ritral bank drawn on. It had been noted that both parties were i -;jx)sed to a risk of loss If such, transactions could be made only ' the rate pre¥aillng In the foreign exchange market at the time '-' repayment, and that such risks could be avoided if It were understood in advance that the currency could be purchased from :['-) foreign central bank at the samr •• • '•,„>•„ rate as that em- *v*->yed in the drawing to be liquidate-i * *-- * "-nmittee concurred • !) the judgment of the Special Manage ' i •• ""-aid be appropriate : • •• enter into such understandings with, foreign central banks at the ;riea System drawing was made if the foreign bank were agreeable. • was specified that such tiiiderstaediiigs should not preclude Fed- ' il Reserve repayment of swap dra--1 '• •,• on or before maturity Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

through purchase of the foreign currency required at market rates in the foreign exchange market or elsewhere. 3. Review of continuing authorizations. This being the first meeting of the Federal Open Market Committee following the election of new members from the Federal Reserve Banks to serve for the year beginning March 1, 1971, and their assumption of duties, the Committee followed its customary practice of reviewing all of its continuing authorizations and directives. The action taken with respect to the authorization for System foreign currency operations has been described in the preceding portion of the record for this date. Except for the change resulting from that action, the Committee reaffirmed the authorization, and also the foreign currency directive and the continuing authority directive with respect to domestic open market operations, in the form in which they were outstanding at the beginning of the year 1971. Votes for these actions: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and Sherrill. Votes against these actions: None. In connection with the review of the continuing authority directive for domestic operations, the Committee took special note of paragraph 3, which authorized the Reserve Banks to engage in lending of U.S. Government securities held in the System Open Market Account under such instructions as the Committee might specify from time to time. That paragraph had been added to the directive on October 7, 1969, on the basis of a judgment by the Committee that in the existing circumstances such lending of securities was reasonably necessary to the effective conduct of open market operations and to the effectuation of open market policies, and on the understanding that the authorization would be reviewed periodically. At this meeting the Committee concurred in the judgment of the Manager of the System Open Market Account that the lending activity in question remained necessary and, accordingly, that the authorization should remain in effect subject to periodic review. 133 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON APRIL 6, 1971 Authority to effect transactions in System Account. Information reviewed at this meeting suggested that real output of goods and services had risen substantially in the first quarter primarily because of the post-strike recovery of production in the automobile industry, but that the unemployment rate had remained high. Growth in real GNP was expected to slow in the current quarter. While wage rates were continuing to rise at a rapid pace in most sectors of the economy, the rate of advance in some major price indexes seemed to have moderated recently. In March nonfarm payroll employment was about unchanged, and the unemployment rate moved back up to 6.0 per cent after having dipped to 5.8 per cent in February. Incomplete data suggested that retail sales had risen moderately and that industrial production had remained near the February level. Apart from fluctuations related to the auto strike, it appeared that in the first quarter as a whole retail sales were about the same as in the fourth quarter of 1970 and that industrial production had declined somewhat further. On the other hand, private housing starts continued at the high January rate in February and may have increased further in March. Wholesale prices of industrial commodities rose further from mid- February to mid-March, but the increase in that period—and over the first quarter as a whole—was at a rate below the average pace of 1970. The rate of advance in the consumer price index slowed in February for the second successive month. Expansion in real GNP was expected to moderate in the second quarter mainly because consumer and business spending on motor vehicles would be increasing much less rapidly than it had in the first quarter in the aftermath of the auto strike. In addition, defense spending was expected to decline further. As before, however, the staff projections suggested that residential construction expenditures and State and local government outlays would continue to rise at substantial rates, and that business inventory investment would be augmented by continued stockpiling of steel in anticipation of a possible strike in that industry at the beginning of August. The possibility of a steel strike lent a high degree of uncertainty 134 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

to the economic outlook for the second half of 1971. However, the average growth rate in real GNP ewer the second half was projected 1,1 be somewhat higher than, the rate now anticipated for the second »jharter, on the assumption that the deration of any such strike would 'V limited to about 60 days. It was expected that expansion in con- Mi mer spending would be sustained in part by the recently enacted increase in social security benefits, under which payments retroactive t<> January 1 were scheduled to be made in late June; possibly by a ;>i,Hilary pay increase around midyear; and possibly by some decline in the personal saving rate in the third and fourth quarters. In line v, tth the results of the latest Commerce-SEC survey of business spending plans, taken in February, growth in business ixed Investment outlays was projected to increase moderately over the second iMlf. Continued sizable gains appeared to be in prospect for State ji'id local government outlays, but it seemed likely that residential '/instruction expenditures would expand more slowly than earlier »ii the year. The U.S. foreign, trade surplus was very small in January and. fr'Vbruary. With respect, to the over-all, balance of payments, it seemed «:i:ely that in the first quarter as a whole the deficit on the liquidity basis was at a rate higher than in the first half of 1970 and much digher than in the second half of that year. The worsening reflected tit incipally an increase in net capital outflows. On the official settlements basis, the first-quarter deficit in the ,.:*yments balance was exceptionally large. International flows of in- »«.trest-sensitive funds continued heavy in March, and major European >.\mn tries experienced very substantial reserve gains. Recently, several i uropean central banks had lowered their discount rates; In particular, the German Federal Bank and the Bank of England had made reductions of a full percentage point cm April 1, These actions 1 v nded to narrow the wide differentials between short-term interest rates in Europe and, the United States. Nevertheless, exchange market demands for German marks were very strong at the beginning of April, and there were indications of speculative and hedging activity. At the time of thr rncr^ng, lioweYer, the m«°r1:^tr arpc^rrd tn be quieting. On April 1 tU* i • ;"•), i"*casury announced an oiL-nnu ^L i;.! .** h'Jion of special securities to foreign branches of U.S. banks, for payment 135 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

i! 9. Like similar Export-Import Bank issues earli* ©tiering was intended to help 1- '^^' the flows of • In domestic securities markets, I1- IV., -sury annoiJB^o fu .Onryh :,? that it would offer $5 billion of new bills in three segments: n ::.> J. billion addition to the outstanding tax-anticipation bills that we r^- UJ mature on April 22, to be auctioned on March 24; a strip of brh .Maturing from Jul> •< *o September 16, totaling $2.2 billion, to nc auctioned on Mart >i ; 1 • ,md $200 million increments to four con- '-ocutive weekly i^u'^rr?, of 6-month Mis, beginning with the ^areli 22 offering. The Treasury was expected to announce on April 28 the terms on which it would refund notes maturing in mid- May, including $5.8 billion held by the public. Interest rates on most types of short-term, securities had risee on balance in recent weeks. For example, the market rate on 3-month Treasury bills, at about 3.70 per cent on the day before this meeting of the Committee, was approximately 40 basis points above its level at the time of the March 9 meeting. The upturn in short-term yielu , reflected in part the additions to the outstanding supply of bi!<resulting from the Treasury's new offerings and the somewhat finr,< r money market conditions that developed during the period, in March public offerings of new corporate bonds—which h>u{ been very large In recent months—expanded to an unprecedent •. a volume, and offerings of State and local government issues continual heavy. Nevertheless, yields on new corporate and. municipal bor ^ declined sharply after early March, reversing the advance of prece** ing weeks; and yields on Treasury notes and bonds also moved lower. The capital market rally was apparently a consequence of reports suggesting that the economy was recovering less rapidly than many market participants had anticipated and, more generally, of a modification of earlier Yiews that long-term Interest rates had already passed their cyclical lows. Although bond yields subsequently advanced somewhat, they still were well below the levels of 4 weeks earlier at the time of this meeting. Interest rates on conventional home mortgages continued to iL cline in February. Yields in secondary markets for federally insm ed mortgages, which also had' declined further in February, remaii<ou about unchanged over the course of March. At iioiibank thrift institu- 136 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

at an extremely rapid pace In March, according to incomplete data for that month. Although, many commercial banks reduced their offering rates on consumer-type time and savings deposits during March, inflows of such deposits remained heavy at banks also. However, large-denomination CD's expanded only moderately further. The volume of business loans outstanding (including loans that had been sold to affiliates) declined during the month, and on March 11 major banks again reduced their prime lending rates—some by ¥2 of a percentage point, to 5!4 per cent, but most by ¥4 of a point. On March 19 the 5V4 per cent prime rate became general. Banks continued to increase their holdings of securities at a substantial pace and to reduce their reliance OE nondeposit sources of funds, including borrowings of Euro-dollars from their foreign branches. Preliminary estimates indicated that there had been a substantial ;, or ease from February to Maxell in total bank credit, as measured « . the adjusted proxy series—daily-average member bank deposits adjusted to include feeds from nondeposit sources. However, the increase was less than that expected at the time of the March 9 meeting of the Committee and also less than the rise recorded in the previous month. Like bank credit, both the narrow and broader measures of the money stock—M and M —rose substantially on the x 2 average in March, although less sharply than in February, In contrast to bank credit, however, bot'i .'-' • defined as private demand deposits plus currency in circulate •'• - i M (defined as M plus 2 x commercial bank time deposits ott,- '• '••.•:•••. • -; .:••', • • CD's) increased considerably more than ].-•; "' i'• <;•..•.> ,' • •• J rates of growth over the first quarter as a w •' .•> • •••,>• . . about 11 per eeet for the proxy series and •'•-.- : '• •••,>' - '.c cent, respectively, for M and M, x 2 System open market operations since, the preceding meeting of the Committee had been directed at achieving a slight firming of money market conditions, as incoming data Indicated that M and M x 2 1 Calculated OE the basis of the daily-average level In the last month of the quarter relative to that in the last month of the preceding quarter. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

were growing considerably faster than expected. At the same time, efforts were made during the period to counter repetitive tendencies toward undue firmness that arose from market factors affecting reserves. The Federal fends rate, which had averaged about SVi per cent shortly before the March 9 meeting, subsequently fluctuated mostly around 3% per cent—although it rose to 4 per cent or abewe on a number of days in mid-March and again in late March, and early April. As in other recent weeks, an important part of reseiYe needs was met by System purchases of Intermediate- and long-term Treasury securities. Staff analysis suggested that, if preYailing money market conditions *vcre maintained, M would continue to rise rapidly early in the t second quarter and would grow somewhat faster o¥er the quarter '<\+ a whole than it had in the first quarter. The analysis also suggested that expansion in time and savings deposits other than large-denomination CD's would slow substantially in coming months, in part because of the spreading practice among banks of reducing rates offered on such deposits. As a result, it was expected that growth in M.» woeld moderate in the second quarter from its exceptionally rapid first-quarter pace. In addition, it appeared likely that the volume of CD's outstanding would increase relatively little farther over the quarter and that this development, along with slower expansion of other time deposits, would contribute to an expected moderation in the pnwtli of the adjusted bank credit proxy. The Commit lo. decided that open market operations at present should be diret.u.J at attaining temporarily some minor firming of money market conditions. Some members favored this course primarily for the purpose of achieving less rapid growth in the monetary aggregates than the staff analysis indicated might eventuate in the second quarter under unchanged money market conditions. Others placed main emphasis on the objectlYe of contributing, at least marginally, to a narrowing of the differentials between short-term interest rates in this country and abroad, in the interest of moderating capital outflows. In the former connection, the Committee indicated that it would like to see more moderate expansion in the monetary aggregates in the second quarter than had occurred in the first. As a step in that direction it was felt that growth in M in April at a t slower rate than in March and more in line with the first-quarter rate 138 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

would be d^-irable, and various members expressed a desire :.<<!* further slowing in M as the quarter progressed. It was recognized tlr-i 1 the aggregates were likely to increase at faster rates in April tli i«over the second quarter as a whole. The Committee agreed that money market conditions should be modified somewhat if the monetary and credit aggregates appeared to be deviating substantially from the growth paths desired. The Committee also decided that needs for reserves should continue to be met to the extent feasible by purchases of long-term Treasury securities, in,, the interest of promoting accommodative conditions in long-term credit markets. It was noted that later in April even-keel considerations related to the forthcoming Treasury refunding would begin to place constraints on operations in coupon issues, as well as on operations directed at modifying money market conditions. IIic following current economic policy directive was issued to the f Vderal Reserve Bank of New York: The information reviewed at this meeting suggests that real output of goods and services rose substantially in the first quarter primarily because of the resumption of higher automobile production, but that the unemployment rate remained high. More moderate growth in real GNP appears to be in prospect for the current quarter. Wage rates in most sectors are continuing to rise at a rapid pace. The rate of advance in consumer prices and In wholesale prices of industrial commodities appears to haYe moderated recently. In March bank credit and the money stock both narrowly and broadly defined again expanded substantially, although the Increases were less sharp than, in February. Inflows of consumer-type time and savings funds to banks and nonbank thrift Institutions reached unusually high levels in the first quarter as interest rates on competitive short-term market instruments declined considerably further. In, recent weeks, however key short-term interest rates have moved up somewhat on, ? balance, Yields on new issues of corporate and municipal bonds declined during much of March despite a continuing heavy calendar of offerings,, bet most recently long-term market yields have also risen somewhat. The over-all balance of payments deficit In the first quarter was exceptionally large. The trade surplus for the first two months was very small, and capital outflows haYe been stimulated by wide short-term interest rate differentials. Despite recent reductions 139 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ciiuctia iraiKitii wiUc. m ligut iii like itJitigtimg tieVeiupilients, it is tiifc policy of the Federal Open Market Committee to foster financial conditions conducive to the resumption of sustainable economic growth, while encouraging an orderly reduction in the rate of inflation, moderation of short-term capital outflows, and attainment of reasonable equilibrium in the country's balance of payments. To Implement this policy, while taking account of the Treasury financing the terms of which are to be announced late in the month, System open, market operations until the next meeting of the Committee shall be conducted with a view to attaining temporarily some minor firming in money market conditions, while continuing to meet some part of reserve needs through purchases of coupon issues in the ioierest of promoting accommodati¥e conditions in long-term credit markets; provided that money market conditions shall be modified If it appears that the monetary and credit aggregates are deviating significantly from the growth paths desired. Votes for this action: Messrs. Burns, Brimmer, Clay, Daane, Maisel, Mayo, Morris, Robertson, and Sherrill. Votes against this action: Messrs. Hayes and Kimbrel. Absent and not voting; Mr. Mitchell. In dissenting, Messrs. Hayes and Kimbrel noted that they favored more firming of money market conditions than, contemplated under f.:ective, although not so much firming as to cause serious re- ; : • - • •• ions In bond markets. Mr. Hayes thought the directive gave •••' *i — fuate recognition to the need for moving toward somewhat ..'<:;her short-term interest rates in light of the international financial 11 lation, and lie also expressed concern about the risk of excessive >wth in the money stock. Mr. Kimbrel belieYed that higher shortni Interest rates would be desirable mainly to hold growth in the • >netary and credit aggregates to a moderate pace in order to avoid ; • ekindling of inflationary expectations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON MAY 11, 1971 Authority to effect transactions in System Account. Preliminary estimates of the Commerce Department indicated that real output of goods and services had increased at an annual rate of 6.5 per cent in the first quarter, after having declined at a 3.9 per cent rate in the fourth quarter of 1970. The strength of the firstquarter rise was attributable primarily to a resumption of higher automobile production following the strike in that industry, and more moderate growth of real GNP appeared to be in prospect for the current quarter. In April nonfarm payroll employment again remained about unchanged and the unemployment rate edged up to 6.1 from 6.0 per cent in the previous month. Tentative estimates indicated that industrial production had risen somewhat. The latest data for retail sales suggested that there had been a pick-up in consumer spending, apart from the post-strike recovery in automobile purchases; revised figures revealed that nonautomotive sales had strengthened somewhat more over the course of the first quarter than had been thought earlier, and according to preliminary indications for April such sales were continuing at about the level they had reached in March. Private housing starts increased substantially further in March. Wholesale prices of industrial commodities rose sharply in April, after having advanced at a moderate pace earlier in the year. The rate of increase in the consumer price index slowed in March for the third successive month, reflecting to an important extent a further decline in mortgage interest costs. Wage rates continued to rise rapidly. Growth in real GNP was projected to slow in the second quarter mainly because of the waning effect of the post-strike recovery in the automobile industry. In light of the recent strengthening of retail sales, the projected amount of improvement in personal consumption expenditures had been raised somewhat, although it remained well below the gain recorded in the first quarter. The staff projections continued to suggest a further decline in defense spending and further substantial increases in residential construction expenditures and State and local government outlays—and also a step-up in business inventory accumulation, in part reflecting stockpiling of steel in 141 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

anticipation of a possible strike in the industry when current wage contracts expire at the end of July. While the possibility of a steel strike continued to cloud the outlook for the second half of the year, the average rate of growth was still expected to be somewhat higher than in the second quarter if the duration of any such strike did not exceed 60 days or so. It appeared likely that the rate of growth In residential construction outlays would slacken as the year progressed. However, prospects were for further large increases in State and local government expenditures and moderate gains in outlays for business fixed investment. Various- developments were expected to help sustain expansion in consumer spending during the second half of the year: the recently enacted increase in social security benefits, under which payments retroactive to January 1 were scheduled to be made in late June; a possible increase in military pay scales around midyear; and a possible decline in the rate of personal saving in the third and fourth quarters. Although the U.S. merchandise trade balance improved somewhat in March, exports exceeded Imports by only a small margin over the first quarter as a whole. The over-all payments balance was in extremely large deicit during the quarter on both the liquidity and official settlements bases, and tentative estimates indicated that the deficit was again very large in April. In great part the deterioration of the payments balance in the irst 4 months of 1971 reflected outflows of short-term capital, at first primarily in response to higher interest rates abroad and later also in response to a growing belief that there might be increases in the exchange rates for certain European currencies. Movements from the dollar into the German mark and some other European currencies, which had been particularly heavy in the first few days of April, subsided during the next 3 weeks. The atmosphere in foreign exchange markets .remained uneasy, however, and a new wave of uncertainty was evidenced late in the month by EE upsurge of demands for forward marks. On April 28 the German monetary authorities announced that they were discontinuing forward sales of marks; and during the next few days against the background of ¥ari- ? ous public statements and market rumors regarding possible exchange rate policies, upward pressures intensified on. the exchange rate for the mark and for several other European currencies. Flows of funds, 142 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

particularly into marks, reached massive proportio1. .",- Wi,\ 4 and *, and on the latter date the central banks of Germany, Switzerland, {]•>:• Netherlands, Belgium, and Austria suspended sales of their curj.'ucies for dollars. On Sunday, May 9, announcements were made .' •; it exchange rates for the German, mark and the Dutch guilder would be allowed to float for the time being, and that the Swiss franc and Austrian schilling were being revalued upward, by 7,07 and 5.05 per cent, respectively. On April 28 the Treasury announced the terms on which it would : 'iiind securities maturing in mid-May, including $5.8 billion held by To public. Holders of the maturing obligations were offered the risoice of two relatively short-term notes—a new. 15-month, 5 per vv<it note priced at par and a reopened issue of SYi year, 5% per ,,\ Tit notes priced to yield about 5.88 per cent. Although the outcome * •{ the financing was affected adversely by the developments in for- /j.'n exchange markets around the May 5 dosing date for subscripi'' mSj the proportion of publicly held maturing issues redeemed for * \ > ;h—-about 30 per cent—was less than many observers had ex- »voted under the circumstances. The atmosphere of crisis In foreign exchange markets in early May 'j'.'ded to uncertainties already prevailing in. domestic financial mar- \i ;:s. Interest rates on most types of short- and long-term securities lu'd risen sharply in recent weeks, reflecting continued heavy demands i-'V funds in capital markets and growing expectations on the part of >>rirket participants of higher rates to come. Contributing to the * -¥<ange in market psychology were favorable business developments, !h.i recent Inning of money market conditions, and the belief that the ! . deral Reser¥e would seek still firmer conditions in light of current t \ nd rates of growth in the monetary aggregates and of developments L m international financial markets. Market rates on short-term Treasury i'»ils shared in the general uptrend through most of April; for example, ir-i rate on 3-month bills advanced from about 3,70 per cent on the \\>>y before the April 6 meeting of the Committee to slightly more than \ xr cent near the end of the month. Subsequently, however, the 3pionth rate declined—-to about 3.85 per cent on the day before this >; Meeting—partly as a result of large-scale bill purchases by foreign > 4tidal accounts. Interest rates on conventional new-home mortgages declined fur- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

".. )r In March, but more slowly than earlier In. the yt-a< \ iclds in - .:ondary markets for federally insured mortgages, whicii iiad leveled • M't In March, advanced in late April. Incomplete data for April sug~ ;.'.;>ted that Inflows of funds to nonbank thrift institutions were re- • i lining close to the extraordinarily high monthly volume recorded in < !'o first quarter. At commercial banks, inflows of consumer-type time and savings ;i.'posits slowed substantially in April from, their very high firstjr'arter pace, partly in. response to reductions in rates offered on such • ivv posits. 'The volume of large-denomination CD's outstanding de- •• 'itied slightly. Business loans outstanding (including loans that had *- en sold to affiliates) changed little over the course of the month, <mer having declined in March. On April 22 and 23 a number of *;«.ijor banks announced an increase in their prime lending rates from. "••' 4 to 5 Yi per cent, and by the date of this meeting the higher prime ii*te had become general. This increase, which followed a series of >•' ductions during the fall and winter months, was attributed to the ;-/'vance in short-term market interest rates that had occurred since r-e last such reduction in March. Commercial bank holdings of Treasury securities declined during April, following a substantial, rise in the first quarter, and holdings of •!•!• i securities expanded at a somewhat slower pace than earlier in. ;hr vr-ar, Banks continued to reduce their use of funds from non.depiMt .ources. Most of the reduction in April was associated with. «/•' <fhes in head-office liabilities to foreign branches, largely in CGIItu1; \.\.a with branch acquisitions of the $1.5 billion of special certifiv.tk"* offered to them by the Treasury for payment on April 0. (jrowth in f;)i;sl bank, credit, as measured, by,the adjusted proxy series -d:uly- :; ,i; ;:e member bank deposits, adjusted to include funds iVr»n) nonuq «.'-«t sources—slowed further from March to April. .L.V-^mates of the average March level, of both the narrow and htiu'fier measures of the money stock—Mi and M —had been re~ 2 v!^.?ii upward somewhat since the preceding meeting of the Com- M'iii-«.-c. It now appeared that M (pri¥ate demand deposits plus curx t\m:\ in circulation) had increased at an annual rate of about 9 per cent over the first quarter as a whole 1 an.d that M (M plus commer- 2 x 1 Calculated on, the basis of the daily-average level in the last month of the quarter relative to that in the last month of the preceding quarter. 144 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

i i e mfkf*11pIT Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

to slow expansion in M, sufficiently during the rest of the second quarter to achieve n substantial moderation of growth over the quarter as a whole. In the discussion Committee members expressed concern both about the recent high rates of growth in the monetary aggregates and about the marked increases that had occurred in long-term interest rates. The Yiew was widely held among members that expansion in M at the first-quarter pace for an extended period would be inconx sistent with an orderly reduction in the rate of inflation. Also widely held, however, was the view that sharp increases in long-term rates at this juncture might have adverse consequences for spending, particularly In. the residential construction and State and local government sectors, and might thus pose a threat to the economic recovery under way. Although there were some rather marked differences in the stress that individual members placed on these two types of considerations, the Committee agreed that it would not be desirable at present either to re¥ert to the money market conditions that had prevailed until the end of April or to se-ek the amount of finning that evidently would be required to achieve a substantial slowing of growth In the aggregates over the second quarter. Instead, the Committee decided that in the early part of the coming period, when open market operations in any case would be conditioned by even-keel considerations related to the current Treasury refunding, the objective should be to maintain the money market conditions currently prevailing. Similar conditions were to be sought later if the monetary aggregates appeared to be on paths consistent, with gradual moderation of growth during the second quarter. If the aggregates appeared to be deviating significantly from, such paths, the objective was to be modified accordingly—except that any firming of money market conditions directed at slowing excessive growth was to be carried out cautiously, with a view to a¥G.id.iiig undue reactions in capital markets. The Committee agreed that, in light of the uncertainties prevailing in,, domestic financial markets and in foreign exchange markets, the Account Manager should have more than, the usual degree of dk cretion In making day-to-day operating decisions. However, the Committee also agreed that it would be advisable at present for the System to engage in purchases of longer-term Government securities on 146 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

a smaller scale than in recent months in the process of meeting needs for reserves. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The Information reviewed at this meeting suggests that real output of goods and services rose substantially in the first quarter primarily because of the resumption of higher automobile production, and more moderate growth appears to be in prospect for the current quarter. The unemployment rate remained high in April. Wage rates in most sectors are continuing to rise at a rapid pace. The rate of advance in consumer prices and in wholesale prices of industrial commodities moderated In the first quarter, but the rise in Industrial prices stepped up again in April, The money stock both narrowly and broadly defined expanded substantially further In April but growth in. bank credit slowed. Inflows of consumer-type time and savings funds to banks moderated, partly as a result of reductions in the Interest rates offered by banks, but flows to nonbank thrift Institutions continued heavy. Interest rates on most types of shortand long-term, market securities rose sharply in April and early May, .reflecting uncertainties about domestic, and more recently international, financial prospects. The over-all balance of payments deficit in. the first four months of 1971 was exceptionally large, in great part reflecting short-term capital outflows. Recently, after further large International flows of funds, several European central banks suspended sales of their currencies for dollars; subsequently, announcemei"- • . ; ide that the German mark and Dutch guilder woulr k v\ .,.-.' d to float for the time being, and that the Swiss franc £•> I V- ;:. • schilling were being revalued. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to the resumption of sustainable economic growth, while encouraging an orderly reduction ID. the rate of inflation., moderation of short-term capital outflows, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, the Committee seeks to moderate growth in monetary and credit aggregates over the months ahead, taking account of the current Treasury financing, developments in. capital markets, and uncertainties in foreign exchange markets. System open market operations until the next meeting of the Committee shall be aimed initially at maintaining currently pre¥ailieg Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

money market conditions, and thereafter conducted with a Ylew to maintaining bank reserves and money market conditions consistent with the above-died objectives. Votes for this action: Messrs. Bums, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and Sherrill. Votes against this action; None. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON JUNE 8, 1971 1. Authority to effect transactions in System Account. According to revised official estimates, real output of goods and services had increased at an annual rate of 7.1 per cent in the first quarter, somewhat more than preliminary estimates had indicated. The size of the advance was primarily a consequence of the poststrike recovery of production in the automobile industry, and real GNP appeared to be rising at a slower pace in the second quarter. In May expansion in the labor force exceeded growth in employment, and the unemployment rate edged up further to 6.2 from 6.1 per cent in April. Industrial production, which had increased only a little in March and April, was tentatively estimated to have advanced at a somewhat faster pace in May. According to weekly figures retail sales were about unchanged in May. In April private housing starts remained close to the very high level they had reached in March. Wholesale prices of industrial commodities, which had risen at a moderate pace in the first quarter and then advanced sharply in April, increased considerably further in May. However, average prices of farm products and foods declined in May, and the over-all wholesale price index rose at a slower pace than in the first 4 months of the year. In April, as in the first quarter, the rate of advance in the consumer price index was less than earlier largely because of a decline in mortgage interest costs. Wage rates recently had continued to increase at a rapid pace. Despite the upward revision in the official estimates of GNP for the first quarter, staff projections continued to suggest that activity would expand at a relatively moderate rate over the rest of 1971. Prospects still favored further large increases in outlays by State and local governments and in expenditures on residential construction. As before, the advance in housing activity was expected to slow as the year progressed; but the projected rates of growth had been increased significantly in light of the recent strength of housing starts, the large volume of outstanding mortgage commitments, and the continued heavy flows of savings funds to nonbank thrift institutions. On the other hand, it now appeared from various kinds of evidence 149 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

!iu>1 rvsiv-p" n-, i 'h. v1 Ji.u IM .ni!,,! ^ <!:;!'• ^ p i u kl liliL o w* the siA'-onci half of the year. The latest Commerce-SEC survey, taken in "M'ly, re¥ealed that since February businesses had revised downward their planned spending on new plant and equipment in 1971; and a fecent survey by the National Industrial Conference Board indicated ihut in the first quarter manufacturers had reduced their appropriations f*n" new plant and equipment—the sixth such reduction in the last se¥en quarters. The rate of increase In consumer spending was still expected to moderate considerably in the second quarter—mainly because outlays on new cars were no longer rising sharply In the aftermath of the auto strike—and then to step up somewhat In the second half of the war. It was anticipated that growth in consume!* spending during the second half would be sustained In part by the recently enacted increase in social security benefits, including retroactive payments scheduled im" late June; by a possible military pay raise around midyear; and by some decline in the personal saving rate. The possibility of a steel strike at the end of July lent an element of uncertainty to the outlook for the rest of 1971. It appeared, however, that if the duration of any .such strike were limited to 2 months or less, the effect on the average rate of growth in real GNP In the third and fourth quarters taken. together would not be great. Following the small surplus of the first quarter, U.S. merchandise trade moved into deficit in April as a result of a large increase in Imports and an even larger decline in exports. The deficit in the over-all balance of payments, which had been extremely heavy earlier in the year, reached enormous proportions in late April and early May as a consequence of capital outflows In response to expectations of upward revaluations In the exchange rates of the German mark and some other European currencies. Since May 9—when it was announced that the mark and the Dutch guilder would be allowed to float for the time being and that the Swiss franc and Austrian schilling were being revalued—there had been, some capital flows Into Japanese yen and probably also into Euro-dollars. Although the differentials between short-term interest rates in. the United States and in major foreign countries had narrowed on. balance in April and May, the spread between rates In the United States and. those in the 150 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Euro-dollar market had been widened by si- ; \ increases In the latter in. early May. In recent weeks the mark had fluctuated lit a iinge up to 4,6 per cent above Its par value, and. the guilder also had traded beyond its normal margin, above par. In the week before this meeting the German Federal Bank had reentered the exchange market, buying marks for dollars at rates above the previous ceiling. Interest rates on most types of domestic market securities, which had been, under upward pressure since mid-March, rose sharply further during much of May. In the third week of the month—against the background of uncertainties in foreign exchange markets, expectations of increased monetary restraint, and continuing heavy demands on capital markets—yields on Treasury and corporate bonds reached new peaks for the year and municipal bond yields held at the highs they had attained in the previous week, Subsequently, however, a rally developed in bond markets and long-term, bond yields declined to or below the levels prevailing at the time of the May 11 Committee meeting. In. contrast, short-term interest rates had, advanced further on balance In recent weeks. For example, the market rate on 3-month Treasury bills, at about 4,45 per cent on the day before this meeting, was 60^ basis points above the level of 4 weeks earlier. Interest rates on conventional new-home mortgages declined much less in April than in earlier months of the year, and there were scattered, reports of advances during May. Secondary-market yields on, federally Insured mortgages turned up in late April and, rose to a high, for the year In early June. Inflows of savings funds at nonbank thrift institutions slowed in May from, the exceptionally high rates that, had prevailed earlier In the year, but they still were large. Inflows of consumer-type time and savings deposits at commercial 'banks continued in May at about the same rate as in .April, which was quite high by historical standards but well below the firstquarter pace. The volume of large-denomination CD's outstanding rose in May by about as much as it had declined in April, reflecting to a large extent an increase in holdings of foreign official institutions. Banks lifted their offering rates on such CD's during the month, and holdings of domestic depositors also increased. Business loans outstanding (including loans that had been sold to affiliates) expanded sharply after having changed little in April, While banks continued Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

- v tl bank credit, as measured by the adjusted proxy series— -• :•••- '-verage member bank deposits, adjusted to Include funds from •j- ';-:i"5Osit sources—increased moderately from April to May, accord- -1-"' !-- preliminary estimates. However, sharp increases were recorded " .:-:h the narrow and broader measures of the money stock—M 2 '--••v•••;•: -'-'-r-—-* -,---.'•- plus currency in circulation) and M (M 2 2 "'"••• : .-.r- — - -,-;-,' - •• - deposits other than large-denomination ie ' '"7 - : :.*'*'••• ' "gates, the advance in May was substantially -'•'•":•• : •! i: * : . ' ected at the time of the previous meeting System open market operations had been directed, at maintaining • availing money market conditions in the period immediately follow- . .5 the May 11 meeting, in light of the Treasury financing then, in • • :>cess and the sensitive state of conditions in. capital markets. Sub- .juently, as the atmosphere in capital markets improved and incom- '!•;£ data indicated that the monetary aggregates were expanding sig- , i'.icantly faster than had been expected, operations were directed -•• .•..hieving a gradual firming of money n1--r -L • - -"-tions. The Fede:* il> :i:ads rate, which had fluctuated arou--- •'-•-• ;—-; cent early in 1" • ---riod, later moved into a range aro---"J •-•••• ;-er cent. In the " -'•,jeks ending June 2 member bank borrowings averaged about $3 ">'' • -llion, compared with about $150 million in the preceding 4 wee]'" Staff analysis suggested that, if prevailing money market condition were iii.aintaiD.ed, M would .rise rapidly in June although not •• • x rapidly as in May; and that it would ex{3aecl at an annual rate about 12 per cent over the second quarter as a whole, following the 9 per cent increase of the first quarter.1 Growth in M and the bank 2 credit proxy, which had. been, at annual .rates of 18 and 11 per cent, respectively, in the first quarter, was expected to be somewhat more moderate in the second. As to the third quarter, tentative projections suggested that under prevailing money market conditions M would x continue to grow rapidly over the quarter as a whole—at a rate of 1 Calculated on the basis of the daily average level, in the last, month of the quarter relative to that in the last month of the preceding quarter. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

rhaps 10 or 11 per cent—but that the pace of the expansion would - w as the quarter progressed. '" :* .''.' • • lalysis also suggested that, if somewhat firmer money • •" " '.>'• ons were attained during coming weeks, the effect on •' ^8 of the aggregates in June and over the second quar- •..' ': would be slight. It appeared, however, that the .rates • • •. • • . '. the third quarter might be reduced, by about 1 per- T • 'v~ r ".:mittee's discussion considerable concern was expressed about the rapid growth of the monetary aggregates, and the members agreed that it would, be desirable to seek somewhat slower growth over coming months than appeared likely to eventuate if prevailing money market conditions were maintained. At the same time, a number of members stressed the importance of moving gradually and cautiously in attaining somewhat Inner money market conditions, in order to minimize any resulting upward pressures on. long-term interest rates. The Committee agreed that account should be taken of devel.oprn.ents in capital markets in the conduct of open market operations. The following current economic policy directive was issued to the Federal Reserve Bank of New York; The information reviewed at this meeting suggests that real output of goods and. services is expanding moderately in. the current quarter, following the first-quarter surge that primarily reflected the resumption of higher automobile production. The unemployment rate remained high in. May, Wage rates in most sectors are continuing to .rise at a .rapid pace. In the first four .months of 1971 the consumer price index Increased at a slower pace than, earlier, in considerable part because of a decline In. mortgage interest rates; the rate of advance In wholesale prices of industrial, commodities, which had moderated in the first quarter, stepped up again in April and May, The money stock both narrowly and broadly defined expanded even more rapidly in May than in April but growth in the bank credit proxy remained moderate. Interest rates on most types of market securities rose sharply further during much of May, reflecting continuing uncertainties about domestic and international financial, prospects; more recently rates on long-term securities have declined on balance, but mortgage rates have risen,. The U.S. merchandise trade balance, which was in sin all surplus in the first quarter, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

worsened in April. The deficit in the over-all balance of payments has diminished since early May, when capital outflows were swollen by expectations of changes in foreign exchange rates, but it remains large. Differentials between short-term interest rates in the United States and in major foreign countries narrowed on balance in April and May, but differentials between rates in the United States and in the Euro-dollar market recently have widened as rates in that market moved up sharply in early May. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to the resumption of sustainable economic growth, while encouraging an orderly reduction in the rate of inflation, moderation of short-term capital outflows, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, the Committee seeks to moderate growth in monetary aggregates over the months ahead, taking account of developments in capital markets. System open market operations until the next meeting of the Committee shall be conducted with a view to achieving bank reserve and money market conditions consistent with those objectives. Votes for this action: Messrs. Burns, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, Sherrill, and Treiber. Votes against this action: None. Absent and not voting: Mr. Hayes. (Mr. Treiber voted as his alternate.) 2. Amendment to continuing authority directive. The Committee amended paragraph 2 of its continuing authority directive to the Federal Reserve Bank of New York with respect to domestic open market operations, to increase the dollar limit on Federal Reserve Bank holdings of short-term certificates of indebtedness purchased directly from the Treasury from $1 billion to $2 billion. With this change, paragraph 2 read as follows: The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, or, if the New York Reserve 154 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Is dosed, any other Federal Reserve Bank, to purchase directly from the Treasury for its own account (with discretion, in cases where it seems desirable, to issue participations to one or more Federal. Reserve Banks) such, amounts of special short-term certificates of indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury; provided, that the rate charged on. such certificates shall be a rate !4 of 1 per cent below the discount rate of the Federal Reserve Bank of New York at the time of such purchases, and provided further that the total amount of such certificates held at any one time by the Federal Reserve Banks shall not exceed $2 billion. Votes for this action: Messrs, Burns, Brimmer, Clay, Daane, Kimbrei, Maisel, Mayo, Mitchell, Morris, Robertson, Sherrill, and Treiber. Votes against this action; None. Absent and not voting: •'> h ! i i/es. (Mr. Treiber voted as his alternate.) This action was taken on 'recommendation of the System Account Manager, who advised that an expected sharp decline in the Treas- •ii /s cash balances ie the period before the mid-June tax-payment t'li-e probably would necessitate temporary borrowing from the Sysd 10, and that the Treasury's needs might well exceed the existing $1 billion limit on such borrowing. It was anticipated that the $1 limit would be restored at the next meeting of the Committee. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON JUNE 29, 1971 1. Authority to effect transactions in System Account. Information reviewed at this meeting suggested that real output of goods and services was expanding moderately in the second quarter, after having risen sharply earlier in the year under the stimulus of the post-strike recovery in the automobile industry. Continued moderate gains in activity appeared to be in prospect for the rest of 1971. Retail sales had declined in May, but according to weekly data they turned up in the first half of June. It appeared likely that the volume of retail sales in the second quarter as a whole would be appreciably above that of the first quarter. According to tentative estimates, industrial production was rising in June at a slower rate than in May. Conditions in labor markets remained slack; both the number of persons receiving unemployment insurance benefits and the number making initial claims for such benefits had increased further in recent weeks. In May private housing starts remained close to the advanced level that had been reached in the two preceding months. Both consumer prices of goods and services and wholesale prices of industrial commodities increased sharply in May—the latter for the second successive month—after having risen at moderate rates earlier in the year. Wage rates continued to advance rapidly in most sectors of the economy. The expectation that over-all economic activity would continue a gradual expansion in the second half of 1971 was based in part on the assumption that there would not be a strike in the steel industry when wage contracts expired at the end of July—or that if there were a strike, it would not be of long duration. The latest staff projections, like those of 3 weeks earlier, suggested that the rise in residential construction outlays would slow as the year progressed but would remain sizable, and that expenditures by State and local governments would continue to expand at a substantial rate. As before, it appeared that business fixed investment outlays would increase relatively little in the second half. And it was still anticipated that growth of consumer spending would be sustained in part by the recent increase in social security benefits, including retroactive payments made in late 156 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

... rsonal saving rate. The U.S. merchandise trade balance, which had shifted from a small surplus in the first quarter to a large deficit in April, remained :.. substantial deficit in May as a rise in exports was matched by -- -oughly equal rise in imports. The over-all balance of payments on ,->-> official settlements basis had been in surplus in recent weeks, in <-,-rt because of some reversal of earlier speculative outflows of short- --•.in capital from the United States. Funds moved out of Germany •«. the German Federal Bank bought a large amount of marks (sold *--Jlars) at rising exchange rates for the mark; the rate currently was ----out 4.7 per cent above its par value, compared with. 3.8 per cent In - --*ly June. The outflow from Germany depressed ¥ery short-term r-erest .rates in the Euro-dollar market, and this decline In Euroi- 'liar .rates apparently had been, a factor contributing to the upturn In —cent weeks in the liabilities of U.S. banks to their foreign branches. ¥ -*e exchange rate for the Dutch guilder had increased sharply when ••• J German Federal Bank began, to sell dollars, "but latex it declined • •' 1.6 per cent above par. In connection with its sales of dollars in foreign exchange markets, • - t German Federal Bank not only sold U.S. Treasury bills but also •~ leemed a substantial volume of special nonmarketable U.S. Treasury "purities it had acquired earlier. In part for this reason, the Treasury's >h balance was drawn down to a very low level prior to the iiild- ",,ne tax date, and in the period June 3—1.6 the Treasury financed ;'.:rt of Its cash needs temporarily through the sale of special certificates of indebtedness to the Federal Reserve Banks.1 To replenish Its cash balance, on June 22 the Treasury auctioned '• 'lA billion of 16-month, notes for payment on, the day of this meet- •',5, and on June 30 it was scheduled to auction for payment on My 6 SIM billion of tax-anticipation Mils due in. September. Also, • > the day before this meeting the Treasury announced that the Germ Federal Bank would acquire up to $5 billion of special medium- , -in U.S. Treasury securities In an operation to be completed within •T 5 next few weeks, and that the FH^r^ Bank had already acquired 1 ' billion,, of the contemplated tot " ''vs acquisition was financed 1 The maximum volume of such cei^^^ outstanding In the Jun_ ;.' period was $610 million, on June 10. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in part ^\ the sale of $1 billion of Treasury bills in the market, thus acidinu :t like amount to the Treasury balance, and in part by the redemption of about $2 billion of short-term special Treasury securities the Ivderal Bank had acquired earlier in the year. Interest rates on most types of long- and short-term market securities had Increased on balance since the June 8 meeting of the Committee. Contributing to the upward rate pressures were investor concern about the size of the Treasury's potential needs for cash and indications that the Federal Reserve was fostering firmer money market conditions in an effort to moderate the growth of the monetary aggregates. The market for State and local government bonds rent allied under pressure throughout the period, but conditions In the market for new corporate bonds—and to a lesser extent in that for I of ig-term Treasury securities—improved somewhat after midmonth, mainly as a result of some indicated reduction In the forthcoming 'volume of new corporate issues. In short-term markets, rates on Treasury bills were subject to additional pressures arising out of actual and anticipated sales of hiilg by foreign official accounts. The market rate on 3-month bills, at about 4.95 per cent on the day before this meeting, was roughly 50 basis points above its level of 3 weeks earlier. During June banks raised further their offering rates on large-denomination CD's, and early in the month several medium-sized banks increased their prime U:riding rate from 53A to 6 per cent, However, at the time of this meeting most banks were maintaining a 534 per cent prime rate. Contract interest rates on conventional new-home mortgages edged up during May after trending down for nearly a year. In the more sensitive secondary market for federally insured mortgages, yields had turned up in late April and had reached a new high for 1971 in early June, Secondary-market yields later stabilized, apparently in part as ;i result of a special FNMA auction of purchase commitments on Sum 9, which was aimed at reducing iEYentories of mortgage companies and other institutions that originated loans for resale, Inflows of savings fends to nonbank thrift institutions remained large during the Irst half of June. Tentative estimates for June suggested that consumer-type time and sa¥ings deposits at commercial banks were continuing to expand at the relatively rapid rate of the two preceding months and that the 158 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

volume of large-denomination CD's outstanding was rising somewhat MUIII Its average level in May. It appeared from data for weekly tt porting banks that the sharp increase In business loans recorded in x» ly was not continuing in June. Total bank credit, as measured H the adjusted proxy series—daily-average member bank deposits, 'H justed to include funds from nondeposit sources—was tentatively •"•••.imated to have risen at an annual rate of about 7.5 per cent from V'riy to June and about 7 per cent over the second quarter as a *vrole.2 Over the first quarter, the adjusted bank credit proxy had "vxeased at a rate of approximately 11 per cent. Both the narrow and the broader measures of tie money stock— M (pri¥ate demand deposits pies currency in circulation.) and M x 2 ' 1 ( plus commercial bank time deposits other than large-denomina- 1 iMtt CD's)—appeared to be growing rapidly on the average in June, • •'•hough not so rapidly as in May, For the second quarter as a .' nble, M was currently estimated to have expanded at a rate of about x 11.5 per cent, and M at a 13 per cent rate. 2 System, open market operations in the period since the June 8 • <j-.-eting of the Committee had been directed at attaining somewhat I1; >ner conditions in the money market in light of the continued rapid i^.jwtli of the monetary aggregates. The Federal funds rate, which hud been fluctuating around 4% per cent shortly before the precedm:\ meeting, rose gradually over the period to the neighborhood of ' • 8 per cent. In the 3 weeks ending June 23 member bank borrow- ?ft;|s averaged about $390 million, compared with about $330 million «!< the preceding 4 weeks. Staff analysis suggested that, if conditions in the money market were similar to those that had prevailed on the average during the jvriod since the previous meeting, M would grow slightly less in the x nnrd quarter than it had In the second., and growth In M also would 2 v<iw somewhat. In. contrast, the adjusted bank credit proxy was ex- \K cted to expand more rapidly in the third quarter than it had in the • A;ond. According to the analysis, if money market conditions were ••<-?newhat firmer, it was likely that both M\ and M would expand at 2 rates in the neighborhood of 9 per cent over the third quarter, 2 Calculated on the basis of the daily-average level In the last month of the quarter relatiYe to that in the last month of the preceding quarter. 159 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1'it that growth in these aggregates would recede to quite modest I H-» }\ h n i it vr In the final quarter of the year. in «s*' * \Miimittee's discussion considerable concern was exj!«'."««.*J >'' 'in the rapid growth in the monetary aggregates, particuisnU U\ U:M> uf the persistence of iniationary pressures and expectant^-, M fh- same time, concern was expressed about the recent ,!K\>!\! i">v<s sures on Interest rates, in ¥lew of the depaicleece of the . «i»«*'.!-««' i .V'i>\»nic recovery on continued expansion in such interestsensitive sectors of the economy as residential construction. While the members agreed that an unduly sharp inning of money market conditions should be avoided because of the risk of undeshvvJ rv percussions on market Interest rates, the Committee decided tluj. npen market operations in the coming period should be directed at achieving more moderate growth In monetary aggregates over the months ahead. As at the preceding meeting, it was agreed that account should be taken of developments in capital markets In the conduct of operations. The following current, economic policy directive was issued to- the Federal Reserve Bank of New York: The information re¥iewecl at this meeting suggests that real output of goods and services is expanding moderately in the current quarter and that the unemployment rate has remained high. Wage rates In most sectors are continuing to rise at a rapid pace. The rate of advance in both consumer prices and wholesale prices of Industrial commodities has stepped up again recently after moderating earlier in. the year. In June, according to tentative estimates, the money stock both narrowly and broadly defined Is still growing rapidly on average, although less than in May; growth in the bank credit proxy remains below the first-quarter rate. Interest rates on most types of market securities have Increased on, balance In recent weeks. The market exchange rate for the German mark lias advanced, and a substantial low of funds from Germany to other mi fleets lias occurred in recent weeks. In consequence of a partial K*\orsal of the earlier speculative outflows of short-term capital from the United States and of an increase in Euro-dollar borrowings *,;! IJM, banks, there has been a surplus in the U.S. payments balance on the official settlements basis in this period. The U.S. merchandise trade balance, which had been in small surplus in, the first 160 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

quarter, was in deficit in April and May. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to the resumption of sustainable economic growth, while encouraging an orderly reduction in the rate of inflation, moderation of short-term capital outflows, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, the Committee seeks to achieve more moderate growth in monetary aggregates over the months ahead, taking account of developments in capital markets. System open market operations until the next meeting of the Committee shall be conducted with a view to achieving bank reserve and money market conditions consistent with those objectives. Votes for this action: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Maisel, Mayo, Mitchell, Morris, Robertson, Sherrill, and Coldwell. Votes against this action: None. Absent and not voting: Mr. Kimbrel. (Mr. Coldwell voted as his alternate.) 2. Amendment to continuing authority directive. The Committee amended paragraph 2 of its continuing authority directive to the Federal Reserve Bank of New York with respect to domestic open market operations, to reduce the dollar limit on Federal Reserve Bank holdings of short-term certificates of indebtedness purchased directly from the Treasury from $2 billion to $1 billion. Votes for this action: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Maisel, Mayo, Mitchell, Morris, Robertson, Sherrill, and Coldwell. Votes against this action: None. Absent and not voting: Mr. Kimbrel. (Mr. Coldwell voted as his alternate.) The dollar limit in question had been increased to $2 billion at the preceding meeting of the Committee, after the System Account 161 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Manager advised that an expected sharp decline in die Treasury's cash balance in the period before the mid-June tax payment dale might necessitate temporary borrowing by the Treasury from the System In an amount exceeding the then-existing $1 billion limit. If had been anticipated at the time of that action that the $1 billion limit would be restored at today's meeting. 162 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON JULY 27, 1971 Authority to effect transactions in System Account. Preliminary estimates of the Commerce Department indicated that real output of goods and services had increased at an annual rate of 3.6 per cent in the second quarter, after having risen sharply—at a rate now estimated at 8.0 per cent—in the first quarter when automobile production and sales were recovering from the strike of late 1970. Growth in real GNP was expected to continue at a moderate pace during the remainder of 1971. Retail sales increased considerably in June from April and May levels that had been revised upward, and sales in the second quarter as a whole were appreciably higher than in the first quarter. Industrial production continued to rise moderately in June, but payroll employment declined in both manufacturing and other nonfarm sectors. A reported drop in the unemployment rate to 5.6 from 6.2 per cent in May appeared to bt attributable in large part to technical measurement problems. The volume of private housing starts was again very high in June. Wholesale prices of industrial commodities and consumer prices rose substantially further in June. Over the second quarter as a whole both price measures increased appreciably faster than they had earlier in the year. Wage rates continued to advance rapidly. Staff projections suggested that growth in real GNP would slow a little from the second to the third quarter, and then step up in the final quarter of the year. Although it was assumed that there would not be a strike in the steel industry when wage contracts expired at the end of July, it appeared likely that efforts of steel users and producers to work off excess stocks accumulated earlier against the threat of a strike would temporarily depress the rate of over-all inventory investment in the third quarter. Projections of gains in consumer spending for both the third and the fourth quarters had been raised somewhat as a result of the recent vigor in retail sales, even though it was now believed that the military pay increase—previously assumed to take effect around midyear—was not likely to occur until early October. The latest projections, like those of 4 weeks earlier, sug- 163 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

,i • • ted that the rise In residential construction outlays would slow . > • tUv. year progressed but would remain sizable; that State and loc«' i'^vernment expenditures would expand at a substantial rate, and tbn business ixed investment outlays would increase little in the secor-.' half of the year. The deficit in the U.S. balance of payments was agaie extraordinarily large in the second quarter. The merchandise trade balance, which had been in smalt surplus In the first quarter, moved into substantial deicit in the second quarter as exports declined and the earlier uptrend in Imports accelerated sharply. Outflows of capital remained heavy. Relative to those of the first quarter, the second-quarter outflows were occasioned less by interest rate differentials and more by "* pectations of shifts in exchange rates. In,, July foreign exchange markets experienced renewed tensions, ,mJ the dollar weakened again*' .•; . >• * :s>.i;or foreign currencies. The c < .Tman mark rose to a new faij!1, \<i ;"•• . ent above parity. On July 21 the Treasury aon. m^V'1 • Le terms on which it would refund securities maturing In, mid-August, including $4.1 Kid by the public. Holders of the maturing obligations were <ho choice of a 51 -month, 7 per cent note priced to yield. 7,06 ps't :.vut and a 10-year, 7 per cent bond priced to yield 7.11 per cent. Tn • bond, which was the first long-term security to be Issued since thr f i easury received legislative authority to sell a limited number * * (•onds at interest rates above the 414 per cent celling, was also offered M individuals for cash subscription in amounts up to $1,0,000, Short-term interest rates generally had risen further since the Comnuttee meeting of June 29. For example, the market rate on. 3-month I reasury bills, at 5.45 per cent on, the day before this meeting, was V' basis points above its level 4 weeks earlier. The rate advances »v fleeted additional- heavy sales of Treasury bills by foreign official lu'counts early In the period, the emergence of firmer money market ^»nditions after mid-July, and Invest"; * •,•• ctations of large-scale {•Herings of short-term securities by tlv ; ^ > ;ury during the rest of Wti year, Against the background of I,-;*" -iiort-term market rates, :iiv)st major commercial banks increased their prime lending rate from ; ! I to 6 per cent in early July. Federal Reserve discount rates were •;u.sed !4 of a percentage point, to 5 per cent, at four Reserve Banks OE July 16 and at the other Banks during the following week. 164 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Yields on long-term market securities had changed little on. balance "•• recent weeks, after having Increased substantially during the sec- -/,d quarter. The volume of public offerings of new corporate bonds •••dined in July, and It appeared that offe..,._:.. :.. *• ••. ; would re- ' de below the -high rates of the irst half •- -1- • [ -'*•-- oond flota- •• .ns by State and local governments s • . - : -— -moderating •• newhat. Contract interest rates on conventional new-home mortgages and • • • :ondary-market yields on federally Insured mortgages rose some- 1 ',at further in June. Inflows of consumer-type savings funds at non- • • :ik thrift Institutions continued rapid in June, but over the second . • i arter as a whole such Inflows—although strong—were below the ^ -optionally high rate of the first quarter. At commercial banks also, inflows of consumer-type time and r • -ings deposits had. moderated from the first to the second quarter. V>,ese inflows appeared to be slowing sharply further in July. How- - ^;r, expansion in total time and savings deposits at commercial banks v.-*s still relatively large in July, as a result of a substantial further increase in the volume of large-denomination CD's outstanding. Growth in the narrow measure of the money stock (jr "•> ' •' . • : ,:,. posits plus currency in circulation, or Mi) increased • ; . - K', :,-^arte:r to an annual rate of about 11.5 per cent from : '.: .-.'«; ' r •* ,: Irst quarter.1 Growth in the broader measure of ni'^-.j * ^ ^.t-- 1 nmercial bank time deposits other than large-denomination CD's, . : M ) also was rapid in the second quarter—at an ; s,<; ! - "ate of 2 .{.-out 12.5 per cent—but it was appreciably below th ' '< . \x cent -re reached in the first quarter, reflecting the less ra,--' ..;::JWS of .'- asumer-type time and savings deposits. Expansion ie the adjusted 1 ik credit proxy (daily-average member bank deposits, adjusted to ::,Jude funds from, nondeposit sources) moderated to-a 6.5 per cent annual rate ie the second quarter from 11 per cent in the first. According to partial data for July, Mi and the adjusted proxy series were continuing to expand at approximately their rates in the second quarter. Growth in M >, hcjwever, was slowing further. L Following the June 29 meeting of the Committee, when data becoming available for late June suggested that the rise in the monetary 1 Calculated on the basis of the daily-average level in the last month of the quarter relative to that in the last month of the preceding quarter. 165 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

aggregates might be moderating, System open market operations had been directed at maintaining money market conditions similar to those pre¥alling shortly before that meeting. Later, however, data for early July revealed that the aggregates—particularly M^—were again rising strongly, and somewhat firmer money market conditions were sought. The effecti¥e rate oe Federal funds, which had fluctuated around 514 per cent in late June and early July, moved up to the neighborhood of SVz per cent after mid-July, With the Federal funds rate well aboYe the discount rate, member bank borrowings rose substantially during ihe period; for the 4 weeks ending July 21, borrowings a?eraged a hunt $885 million compared with about 55455 million In the preceding 4 weeks. Staff analysis suggested that if prevailing monc\ market conditions were maintained, M and M-> would expand at annual rates of about t 9 and 8 per cent, respectively, over the .third quarter as a whole, and at substantially lower rates over the inai 3 months of the year. On the other hand, expansion in, bank credit was expected to step up temporarily in the third quarter, selecting In part anticipated bank purchases of new securities to be offered by the Treasury. According to the analysis, if somewhat firmer money market conditions were attained in coming weeks, the expected rates of .growth in the monetary and credit aggregates would 'be reduced slightly In the third quarter and more significantly in, the fourth, The Committee decided that the achievement of more moderate growth in the monetary aggregates over the months ahead remained the appropriate objective of System open market operations. At the same time. It was noted that operations during the period until the next meeting would be influenced by even-keel considerations related to the current Treasury financing. Also, as at other recent meetings, the members agreed that account should be taken of developments in capital markets in the conduct of operations. In these circumstances, the Committee decided that the Manager should be given more than the usual amount of discretion to make operating decisions in light of actual market developments during the coining period. The following current economic policy directive was issued to the Federal Reserve Bank of New Y.u'k.: The information review ;d a* this meeting suggests that moderate expansion in real output of goods and services Is continuing 166 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

and that unemployment remains substantial. Wage rates in most sectors are continuing to rise at a rapid pace. The rate of advance In both consumer prices and wholesale prices of industrial commodities has stepped up again recently after moderating earlier In the year. In. the second quarter Inflows of consumer-type time and savings funds at banks and nonbank thrift institutions were large, but below the unusually rapid first-quarter pace. Growth In bank credit and the broadly defined money stock slowed in the second quarter, but the rate of expansion in the narrowly defined money stock increased. In July, according to partial data, it appears that both 'bank credit and the narrowly delned money stock are growing at rates dose to those of the second quarter, but that expansion in broadly delned money is slowing. While Interest rates on most types of long-term market securities have changed relatively little on balance in recent weeks, short-term interest rates have risen, further. In. mid-July Federal Reserve discount rates were increased by onequarter of a percentage point to 5 per cent. The deficit In the U.S. balance of payments remained extraordinarily large In the second quarter, mainly reflecting capital outflows related to expectations of shifts in foreign exchange rates and the de¥elopmeni of a substantial deficit In the merchandise trade balance. In. light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to sustainable economic growth, while encouraging an orderly reduction in the rate of inflation, moderation of short-term capital outflows, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, taking account of the current Treasury financing and of developments in capital markets, the Committee seeks to achieve more moderate growth in monetary aggregates over the months ahead. System open market operations until the next meeting of the Committee shall be conducted with a view to achieving bank reserve and money market conditions consistent with those objectives. Votes for this action: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and Sherrill. Votes against this action: None. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON AUGUST 24, 1971 1. Authority to effect transactions in System Account. Real output of goods and services, which had increased at an annual rate of 4 per cent in the second quarter, apparently was expanding at a somewhat slower pace in the third quarter, mainly because steel users and producers were working down excess stocks following the August 1 agreement on a new labor contract in the steel industry. Expectations of faster growth in real GNP during the rest of 1971 were enhanced when the President announced a new economic program on August 15. In addition to a number of fiscal proposals, the program included a 90-day freeze on prices and wages, a temporary surcharge of 10 per cent on dutiable imports, and suspension of full convertibility of dollars into gold and other reserve assets for settlement of international transactions. Industrial production dropped in July, reflecting mainly reductions in output of steel and some other industrial materials. Nonfarm payroll employment declined substantially further, and the unemployment rate rose to 5.8 per cent; in June the unemployment rate had fallen 0.6 percentage point to 5.6 per cent, but that decline apparently was attributable in part to technical measurement problems. Retail sales, which had increased considerably in June, declined in July to about the average monthly level in the second quarter. The volume of private housing starts advanced sharply further. The rise in consumer prices slowed in July from the rapid pace of the second quarter, but the increase in wholesale prices of industrial commodities accelerated. Over the 6 months through July wholesale industrial prices had risen more than in any comparable period since 1956. Major labor contract settlements of recent months continued to provide for large increases in wage rates. According to a tentative staff reappraisal of the outlook for the rest of 1971 in light of the new economic program, growth in real GNP would moderate less in the third quarter and speed up considerably more in the fourth quarter than had been anticipated earlier. Also, the rate of advance in prices was now expected to slow significantly. As a consequence of the changed outlook for prices, the projected increases in current-dollar GNP for both quarters had been reduced somewhat. 168 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

It now appeared that the real volume of consumer purchases would ;; • e more than had seemed likely earlier, as a result of the stimulus •'."< automobile sales of the proposed elimination—retroactive to A*- :ast 15—of the Federal excise tax on autos and the more gene J • 'imulus provided by improved consumer confiden.ee. it was expect;1.: rn-it business inventory investment would decline in the thi:>'< ;;uarter—not only because stocks of steel would be worked down. l>*;< ;-'.0 because part of any step-up in final sales probably would be met ir-tially out of inventories—and that such investment would rebound ;*' the fourth quarter. The growth in Federal outlays projected for in4li quarters had been, reduced, reflecting the various economy measures Included in the .new program and the assumption that the military i .jy Increase, previously assumed to take effect in early October, would be deferred until the beginning of 1972. The projections for other key sectors of activity had been changed h'-atively little. Thus, it was still anticipated that the rise in residential v,. fist ruction expenditures would slow as the year progressed but w *iiid remain sizable, and that State and local government outlays 5 \v:»iiici expand at a substantial rate. Also, the projections continued to •-iggest little change in capital outlays -by business in the third and i- -arth quarters, on the assumption that the proposed investment tax •. »v,dit would not significantly increase outlays before 1972. The deficit in the U.S. balance of payments, which had 'been 1 .cremely large In. the first and second quarters, increased sharply •<*ther after midyear mainly because of an acceleration of capital ^'-tflows in anticipation of shifts in exchange rates. In, the first half of vigust the deficit reached massive proportions. Following the mid-August suspension of dollar convertibility, all • ;•,'.; • European central banks discontinued operations in their foreign * •• •• "ige markets, These markets were reopened on August 23 under u'-. • •<> arrangements, including a continuation of floating rates for the \ >.r;'» in mark and the Dutch guilder; suspension of the upper inter- •v> JV'^II limit for the British pound; and a dual exchange rate system, •;.* /';:.";ting commercial from other transactions, for the French franc, ' :n : iu. day of this meeting rates of exchange between these currencies ..:'.' *f>e dollar were all somewhat above the previous upper Intervention limits, at least for certain types of transactions. In contrast to the European markets, the Japanese exchange market 169 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

had remained open throughout the period, and the Bank of Japan had purchased a large amount of dollars in pre¥entlng the yen from moving above its upper intervention limit. Japanese exchange controls were tightened further during the period. In the Treasury's mid-August refunding,. $2.7 billion of tie $4.1 billion of maturing securities held toy the public were exchanged for the new Issues—$251 .million for the 10-year bonds and the remainder for tie 51-month notes. Cash subscriptions for the bond by individuals, which were permitted in amounts up to $10,001), totaled $192 million. On August 5, to cover the attrition in the refunding and to raise additional cash, the Treasury auctioned $2.5 billion of ! 8-imnilh, Ci'/i per cent notes at an aYerage yield of 6,54 per cent. In July business credit demands at banks and in the commercial paper market remained moderate and the volume of new corporate bond issues declined to the lowest level in 16'.months. The volume of corporaic bond offerings In prospect for August and September also was appreciably below tie monthly aYerage in the first half of ttie year. Bond flotations by State and local governments, while still large, appeared to be moderating slightly. Despite the easing of such credit demands, interest rates on most types of market securities had remained steady or had increased somewhat further In the interval between the July 27 meeting of the Committee and the President's announcement of the new economic program. Among the contributiEg factors were the continuation of rapid advances in prices and costs, the further firming of money market conditions that occurred during the period, and the uncertainties generated by developments in international financial markets. Following the an.nounce.ment of the new economic program, interest rates on long-term market securities declined sharply reflecting ? the improved prospects for more effective control of inflation and of the balance of payments problem. For the most part, rate declines:on short-term securities were much less pronounced. However, Treasury hill yields—which, In an exception to the general trend, had been moving down earlier as a result of heavy demands from foreign official accounts—fell considerably further. For example, on the day before this meeting the market rate on 3-month bills was 4.75 per ceat, 40 basis points lower than on August 13 and 75 basis points lower than, on the day before the July 27 meeting. ;o Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Contract Interest rates on conventional new-home mortgages and secondary market yields on federally Insured mortgages rose somewhat further in July. Inflows of savings funds to non-bank thrift institutions were again large. At commercial banks, inflows of consumer-type time and savings deposits slowed markedly in July. The volume of large-denomination CD's outstanding increased substantially further, however, and growth In total time and sa¥ings deposits remained relatively large, 4ithough business loans rose considerably, the expansion was only a little greater than the contraction that had occurred in June and if appeared to relect Irregular and seasonal, influences rather than a significant strengthening in underlying demands. Holdings by banks of U.S. Government securities declined sharply, but their holdings of other securities increased substantially. The narrow measure of the piotw nipply (private demand deposits plus currency in circulation, or M ) v ^tinned to grow rapidly in July, at an annual rate only slightly fv*ww the 11.5 per cent pace ot the second quarter,1 The broader measure of money (Mi plus c^mFKfciai bank time deposits other than large-denomination CD's, or -V* < ? r.odt erated from the 12.5 per cent second-quarter rate as a resui; »** the marked slowing of inflows of consumer-type time and savings deposits. Total bank credit, as measured by the adjusted credit proxy—dailya¥erage member bank deposits, adjusted to include funds from nondeposit sources—increased slightly faster than, in the second quarter, when It had expanded at a rate of 6,5 per cent. System open market operations in the period immediately following the July 27 meeting had been directed at maintaining prevailing money market conditions, against the background of the Treasury financing then In process. Later, as incoming data Indicated that the monetary aggregates—in particular My—were continuing to grow at a mful pace, slightly Inner money market conditions were sought, For t!$; period as a whole the average Federal fiMds rate was somewhat higher than SVi per cent, compared with 5V4 per cent in the preview periods between meetings. Member bank -bor.rowings, which hail 1 Calculated on the basis of the daily-average level in the last month of the quarter relative to that in the last month of the preceding quarter. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

increased substantially in the preceding period, declined somewhat; in the 4 weeks ending August 18, borrowings averaged $770 million compared with $880 million In the preceding 4 weeks. Staff analysis suggested that the new economic program, along with other forces—including lagged reactions to earlier increases in sho*"term interest rates—should tend to produce lower rates of growth in ilu monetary aggregates over the rest of the year. The new program was expected to reduce transactions demands for money insofar as i( Jed to a smaller rise in prices and thus to slower growth in currentdollar GNP; and to reduce desired money holdings generally insofar as it allayed uncertainties about the economic and financial outlook HI id moderated expectations of continuing inflation and further firming of money market conditions. It was noted, however, that because of the difficulties of assessing the precise Impact of such forces, aey projections of the monetary aggregates at this time were subject to larger-than-usual margins of error. According to tentative staff projections, if prevailing money market conditions were maintained growth la Mi would moderate somewhat in August and September and would slow substantially further in the fourth quarter. Growth in M which was projected to 2j remain near the July pace during the rest of the third quarter, a ppeared likely to moderate less than Af i in the fourth quarter because banks were expected to be reasonably successful in competing for consumer-type time and savings deposits. The rate of growth In the bunk credit proxy over the latter half of the year was projected to i emaiii somewhat above that of the second quarter, in part because prospects favored some strengthening of the demands for bank credit end, therefore, more aggressive solicitation, of funds by banks through Stiles of large-denomination CD's. It was noted In the Committee's discussion that, while the new ec> < nomic program had profoundly affected the economic atmosphere an! outlook, the ultimate consequences for business activity and prices— Di id therefore the implications for monetary policy o¥er the longer i tin,—could not yet be assessed with assurance. Accordingly, it was > uggested that any marked change in the stance of policy would be premature. Some members placed particular stress on the risk that an overt easing of money market conditions at this time, against the background of the recent rapid growth in 'M could rekindle inflationary u Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

-• pectations and thus nullify the favorable impact that the announce- ? mt of the new program had had on confidence. The Committee agreed that open market operations should COE- -ue to be directed at achieving growth rates In, the monetary aggre- :;:es over the months ahead, well below the rapid rates recorded in '.-lent months. The following current economic policy directive was • lied to the Federal Reserve Bank of New York: The information reviewed at this meeting indicates that real output of goods and services has been expanding moderately, that unemployment has remained substantial, and that prices and wages have been rising rapidly on average in recent months. However, the economic program announced by the President on August 15 enhances prospects for higher rates of growth in real economic activity, increased job opportunities, and curtailed inflationary pressures. In July inflows of consumer-type time and savings funds slowed markedly at banks, but inflows to nonbank thrift institutions continued large. Growth in the narrowly defined money stock remained rapid in July, but growth in broadly defined money slowed and bank credit, continued to expand at about the second-quarter pace. Interest rates on most types of market securities declined sharply in the days following the announcement of the new program. The deficit in. the U.S. balance of payments reached extraordinarily large proportions in early August, mainly reflecting an acceleration of capital outflows related to expectations of shifts In. foreign exchange rates. Following the suspension of convertibility of the dollar into gold and other reserve assets, major European centra! banks discontinued foreign exchange market operations for a week. When most of the European, rn.ark.ets were reopened on August 23 these central banks pursued diverse exchange rate policies, but all allowed at least some types of market transactions to take place at rates of exchange for "their currencies relative to the dollar above previous upper intervention limits. In light of the foregoing developments, it is the policy of the Federal Open Market. Committee to foster financial conditions consistent with the aims of the new governmental program, including sustainable real economic growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium, in the country's balance of payments. To implement this policy, the Committee seeks to achieve m» ' moderate growth, in monetary and credit aggregates over the nion.! 1.73 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ahead. System open market operations until the next meeting of the Committee shall be conducted with a view to achieving bank reserve and money market conditions consistent with that objective. Votes for this action: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and Sherrill. Votes against this action: None. 2. Amendment to continuing authority directive. At this meeting the Committee amended paragraph l(a) of its continuing authority directive to the Federal Reserve Bank of New York with respect to domestic open market operations to authorize outright operations in securities issued by Federal agencies. With this amendment, the first part of the directive read as follows: 1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, to the extent necessary to carry out the most recent current economic policy directive adopted at a meeting of the Committee: (a) To buy or sell U.S. Government securities and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States in the open market, from or to securities dealers and foreign and international accounts maintained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the System Open Market Account at market prices and, for such Account, to exchange maturing U.S. Government and Federal agency securities with the Treasury or the individual agencies or to allow them to mature without replacement; provided that the aggregate amount of U.S. Government and Federal agency securities held in such Account at the close of business on the day of a meeting of the Committee at which action is taken with respect to a current economic policy directive shall not be increased or decreased by more than $2.0 billion during the period commencing with the opening of business on the day following such meeting and ending with the close of business on the day of the next such meeting. Votes for this action: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and Sherrill. Votes against this action: None. 174 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

This action, which was taken under legislation enacted in September 1966, was for the purpose of widening the base of System open market operations and at the same time adding breadth to the market for agency securities. In November 1966 the Committee had authorized repurchase agreements in agency Issues, and on a number of subsequent occasions It had considered the desirability of also authorizing outright transactions. The' decision to do so at this time was taken against the background of the substantial growth in the market for agency Issues in recent years, and the consequent reduction of the risk that System purchases or sales could dominate the market. The Committee also approved certain Initial guidelines for the conduct of open market operations in agency issues, with the understanding that they would be subject to review and re¥lsion as experiencewas gained. These initial guidelines were as follows: 1. System open market operations in Federal agency Issues are an integral part of total System, open market operations designed to influence bank reserves, money market conditions, and monetary aggregates. 2. System open market operations in Federal agency Issues are not designed to support individual sectors of the market or to channel funds into issues of particular agencies, 3. As an initial objective, the System would aim at building up a modest portfolio of agency issues, with the amount and timing dependent on the ability to make net acquisitions without undue market effects. 4. System holdings of maturing agency issues will be allowed to run off at maturity, at least initially, 5. Purchases will te limited to fully taxable Issues for which there is an active secondary market. Purchases will also be limited to issues outstanding in amounts of $300 million or over In cases where the obligations have a maturity of 5 years or less at the time of purchase, and to issues outstanding in amounts of $200 million or over in cases where the securities have a maturity of more than 5 years at the time of purchase, 6. System holdings of any one issue at any one time will not exceed 10 per cent of the amount of the issue outstanding. There will be no speciic limit on aggregate holdings of the Issues of any one agency. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

7. No new issue will be purchased in the secondary market until at least 2 weeks after the Issue date, 8. All outright purchases, sales and holdings of agency Issues will be for the System Open Market Account. 3^ Amendment to authorization fir System foreign currency operations. Tlk; Committee ratified actions taken by members on, August 9 and )], I1)]], to* increase the System's swap arrangements with the National Bank of Belgium from $500 million, to |600 million anil with the Swiss National Bank from $600 million to $1 billion, and lu make corresponding amendments to paragraph 2 of the authorization for System foreign currency operations. As a result of these actions, which were effecti¥e August 12, 1971, paragraph 2 of the authorization read as follows: 2, Tie Federal Open Market Committee directs the Federal Reserve Bank of New York to maintain reciprocal currency arrangements ("swap95 arrangements) for System Open Market Account for periods up to a maximum of 12 months with the following foreign banks, which are among those designated by the Board of Governors of the Federal Reserve System under Section 214.5 of Regulation N, Relations with Foreign Banks and Bankers, and with the approval of the Committee to renew such arrangements on matunly; Amount of arrangement (millions of Foreign bank dollars equivalent) Austrian National Bank ........................................ 200 National Bank of Belgium .................................... 600 Bank, of Canada .................................................... 1,000 National Bank of Denmark .................................. 200 Bank of England .................................................... 2,000 Bank of France ...................................................... 1,000 German Federal Bank .......................................... 1,000 Bank of Italy 1,250 Bank of Japan ........................................................ 1,000 Bank of Mexico 130 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

mnt of auaugement (millions of bank dollars equivalent) Netherlands Bank .................................................. 300 Bank of Norway 200 Bank of Sweden. .................................................... 250 Swiss National Bank 1,000 P-nryU.for International Settlements: illars against Swiss francs .............................. 600 >llars against authorized European currencies other than, Swiss francs ................ 1,000 Votes for ratification of these actions; Messrs. Boras, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and Sherrill. Votes against ratification of these actions: None. • • . ctions had been recommended by the Special Manager af. • - •.:; i >n with the Treasury Department. The Special Manager h . ,'vised that the swap line increases in question should prove help: avoiding further immediate drains on U.S. reserve assets. 177 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON SEPTEMBER 21, 1971 Authority to effect transactions in System Account. Information reviewed at this meeting suggested that real output of goods and services was expanding in the third quarter at a pace significantly slower than the annual rate of 4.8 per cent now estimated for the second quarter. Growth in real GNP was expected to accelerate in the fourth quarter, owing in part to the Government's new economic program. In August industrial production declined further, mainly because output of steel was curtailed sharply as producers and users worked down the inventories they had accumulated against the possibility of a strike. Nonfarm payroll employment was unchanged following 2 months of decline. The unemployment rate rose further to 6.1 per cent, nearly equaling the high of last spring. Retail sales, which had declined in July, rose sharply in August, and the average for those 2 months was appreciably above that for the second quarter. Sales of new automobiles were exceptionally strong in late August and early September, no doubt in part because of expectations of rebates of Federal excise taxes. The volume of private housing starts, already at a very high level in July, edged up in August. Wage rates and wholesale prices of industrial commodities continued to rise rapidly prior to the imposition of the wage-price freeze in mid-August. The business outlook continued to be more uncertain than usual because various elements of the new economic program remained to be determined and because only limited information was as yet available on the program's initial effects. Staff projections—which were still highly tentative—suggested that growth in real output would be appreciably faster in the fourth quarter of 1971 and the first half of 1972 than had been expected before announcement of the program, and that the rise in prices would be significantly slower. For the most part, the projections for the fourth quarter were similar to those prepared 4 weeks earlier, shortly after the President's mid-August address. The real volume of consumer purchases was expected to rise substantially, not only because of the proposed elimi- 178 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

nation of the auto excise tax but ah., L-1 -:use of the general stimulus that a slower rise in prices and improveu consumer conidence were expected to provide. It was still anticipated that residential construr tion expenditures and State and local government outlays woi'.M expand appreciably further, and that business capital, outlays wovid change little. Business inventory investment was projected to r.v moderately in the fourth quarter. The deicit in the U.S. balance of payments was still large in late August and early September, although It was well below the extraordifMiily high level of the first half of August. Outlows of speculate-: . i pital moderated after mid-August, as a result of the policy measui\ •• ."iopted In this country and the decisions taken, abroad to allow son;'.1 rrpreciation of exchange rates and to raise barriers against capital •'/.lows. In July the U.S. merchandise trade balance had been 1^ ••fbstantial deficit for the fourth successive month. In foreign exchange markets, the Bank of Japan, permitted the rate '• r the yen to rise above its former intervention limit on August 28, ,,'id at the time of this meeting the yen was, slightly more than. 6 per cent above that limit. Most other major currencies were at rates _u.ainst the dollar a few per cent higher than on August 13, prior to \'.\z suspension of dollar convertibility. Earlier in September, negotiations had begun on additional measures to reduce payments imbalances and on other improvements in the International monetary Interest rates on short- and, long-term i--> i<:< * securities generally had fluctuated irrejmiariv since the Augus ' • • voting of the Committee, after having ;.<!.v«' , vreciably in r» \p -i: , to the mid-August announcement of th:- *v^ •-. ?*uomic program. Rates on Treasury bills continued to decile :-: • ;«;Cie after the August meeting, in large part because of pe^i^M!- v.-.ag demands for bills from foreign central banks. Subsequently, those demands subsided as dollar inflows to foreign central banks moderated, and on the day before this meeting the market rate on 3-month bills was about 4.70 per cent, only a few basis points below its level 4 weeks earlier. In capital markets the volume of nev. i-.v <vi.1. of corporate and State and local government bonds changed li;:! ( "• .\i July to August. Howe¥er, the declines In yields following r<T:f!{v:n<:ement of the Government's new economic program,, stimulated additional offerings of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

r> ••> •;.» >,• ite bonds, and It appeared that the volume of new issues would I'1- '-.iii'-stantially higher in September and October. i-iM:tract interest rates on conventional new-home mortgages V</;" .>eci slightly further in August, but yields edged down in the >!<-»re sensitive secondary market for federally insured mortgages, • • <lows of savings fueds to nonbank thrift iEstitutions moderated < • < ther from the ¥ery high rates recorded earlier In the year. kt commercial banks, business loans expanded by an extraordinary 1; i; lount In August, apparently as a result of borrowings by domestic M\d foreign corporations la connection with developments In foreign <* change markets during the month. The Treasury sold a large vol- '.;ue of special securities to certain Ic^-iw! ;\n'-al banks that had ' H •> perienced heavy inflows of dollars, £^ » ! . N' < *> rvernment deposits •n. Teased sharply. The rate of increa\. .-> ;»:,./ time and savings u, posits declined as the volume of large-denomination CD's outsending expanded much less than in July and Inflows of consumer- ; • yte time and sa¥iegs deposits remaieed near the reduced rate of * I * nt month. Relatively low growth rates were recorded in August for both the narrow and the broader measures of the money stock—Mi (private demand deposits plus currency in circulation) and M (Mi plus com- 2 r-^rcial bank time deposits other than large-denomination CD's). \\ f •»./ time of the previous meeting of the Committee it had be%s r -•\ pected that growth in M would slow from, the a¥erage annual xu\ t \:i 10 per cent recorded In the first 7 months of the year, in part ui :: lagged response to earlier increases in short-term, interest rates, m\(l 'iut M would contieue to expand at about the moderate rate tip? 2 \y\i emerged in July. For both measures, however, actual grem-'N <'.<'es in August were lower than had been anticipated partly for rea- '•• is related to the lows of funds into foreign currencies. Growth In •he, adjusted bank credit proxy—daily-average member bank deposi - adjusted to include funds from nondeposit sources—was faster !. in In July mainly because of the sharp Increase in Government t d' posits. System open market operations in. the period immediately following \ « August 24 meeting had been directed at maintaining prevailing money market conditions, Latex, when data becoming available indicated that the monetary aggregates were growing more slowly than Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

• d been expected, slightly easier money market conditions were jglit. Operations were complicated in early September by persistent ••. )ney market pressures partly related to international flows of funds, . .:!, • >' : -.deral funds rate—which had been fluctuating between SVi •'.•>!J ""' . «er cent in the period before the preceding meeting—rose *~ * * •. "~r cent for a time. Subsequently, however, the funds rp^ ;'u-— '--'-vn to around 514 per cent. In the 4 weeks ended Septe.« :..'; ,.'. *.;ember bank borrowings averaged $675 million, compai • i" ' million in the preceding 4 weeks. •'•e previous meeting, staff analysis suggested that the effects of the new economic program on, demands for money, together with ' -;ged reactions to earlier Increases in short-term, interest rat • • •'iould tend to produce much lower average rates of growth In t*^ monetary aggregates over the rest of 1971 than, had been record- ^ • .r-'lier in the year. Including rough estimates for September, ,: speared that M and M would expand over the third quarter at t 2 , nual rates substantially below those of 11.5 and 12.5 per cent ; corded in the second quarter.1 According to the analysis, if pre- •• ling money market conditions were maintained growth in M] •>uld slow further in the fourth quarter. It was noted in the Committee's discussion that an appropriate r-;x of fiscal and monetary policies would be required if the Go¥- . -iment's new economic program was to be successful. A number .;. members stressed the difficulties of determining the proper longeri stance of monetary policy at this juncture In light of the existing ^r*certainties about the nature of the fiscal measures that would be • •• • icted, the general outlines of the post-freeze stabilization effort, . • i the manner in which the economy would respond to the new ;• ngram. The Committee decided that open market operations in the period immediately ahead should be directed at achieving moderate growth in the monetary and credit aggregates, while taking account of de¥elopments in. capital markets. Although It was recognized that the pursuit of these objectives might involve operations designed to attain • '• ''• easier money market and reserve conditions, the members ' ^' • •'-, ed on the basis of the daily-average level in the last month of the quarter relative to that in the last month of the preceding quarter. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

agreed that aggressive easing operations should be aYoidecl in order to minimize the risk of rekindling inflationary expectations. Also, the sentiment was widespread among members that, in view of the i in usually rapid growth in M through July, relatively low rates of 1 expansion for a few months would not be inconsistent with the Committee's general objectives for the monetary aggregates. The following current economic policy directive was issued to the Federal Resent Bank of New York: The information re¥.Ieweci at this meeting suggests that the Government's new economic program lias reduced inflationary expectations and has improved prospects for higher rates of growth in real economic activity and employment. In the current quarter, however, real output of goods and services is expanding modestly and unemployment remains substantial. Prior to the imposition of the 90-day freeze, prices and wages were rising rapidly on a¥erage. In August inflows of consumer-type time and savings funds to nonbank thrift institutions moderated and inflows to banks remained at a reduced rate. Growth in the narrowly defined money stock, which had been rapid through July, slowed sharply in August; and growth in, broadly defined money continued to slacken. BfoweYer, the rate of expansion in the bank credit proxy stepped up, mainly reflecting a marked rise in U.S. Government deposits, Market Interest rates, which declined sharply following the announcement of the new program, ha¥e since fluctuated irregularly. The U.S. balance of payments continues to be in a position of substantial basic deficit. Speculative capital outflows have diminished recently. Most major foreign currencies are trading in the exchange markets at rates against the dollar a few per cent higher than on August 13. Negotiations have begun on additional measures to reduce payments imbalances and on other improvements in the international monetary system. In light of the foregoing cieYelopmeiits, it is the policy of the Federal Open Market Committee to foster financial conditions consistent with the aims of the new governmental program, including sustainable real economic growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium In the country's balance of payments. To Implement this policy, the Committee seeks to acMe¥e moderate growth in monetary and credit aggregates, taking account of developments in. capital markets, System open market operations 182 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

until the next meeting of the Committee shall be conducted with a Yiew to achieving bank reserve and money market conditions consistent with that objective. Votes for this action.: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and She trill, Votes against this action: None. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON OCTOBER 19, 1971 Authority to effect transactions in System Account. Information reviewed at this meeting indicated that the increase in real output of goods and services in the third quarter was of only modest proportions, in part because of reductions in steel inventories after the threat of a steel strike was eliminated by the August 1 agreement on a new labor contract. However, there were indications of a strengthening in economic activity following the mid-August announcement of the Government's new economic program. Staff projections suggested that real GNP would grow considerably faster in the current quarter and in the first half of 1972 than it had in the third quarter, and that the rise in prices would be appreciably slower. In September retail sales expanded further, mainly because of the sharp rise in purchases of new domestic automobiles that had begun in mid-August. Retail sales were considerably higher in the third quarter as a whole than in the second quarter. Industrial production, after having declined in July and August, increased somewhat in September, chiefly as a result of partial recovery in output of steel. Total nonfarm payroll employment rose appreciably, in part because of widespread gains among manufacturing industries, and the unemployment rate edged down to 6.0 from 6.1 per cent in August despite a sizable increase in the civilian labor force. Although the number of private housing starts fell in September, the total for the third quarter was a record high. Wholesale prices of industrial commodities declined slightly from mid-August to mid-September—the first monthly decrease in several years. The number of increases among classes of industrial commodities dropped sharply, reflecting the 90-day freeze, and prices of motor vehicles were reduced as the 1971 model-year came to an end. The rise in wage rates apparently also slowed significantly following imposition of the freeze. The general framework of the post-freeze stabilization program, including provision for a Price Commission and a Pay Board, was described in an address by the President on October 7 and in subsequent statements by administration officials. 184 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The latest su/l isi actions for the fourth quarter contemplated a larger increase *•» •" t O^raJ expenditures than, those prepared 4 weeks • .»rlier, mainly bcuiu^e It was now assumed that the military pay .vise associated with the development of a volunteer armed force *' 'Uild be effective in mid-November rather than on January 1, Expands-;n in residential construction outlays was expected to be substantial, .<!• hough well below the unexpectedly large gain in the third quarter, I T other sectors, projections were about the same as 4 weeks earlier. Fhus, it was anticipated that the real volume of consumer spending -vuld increase appreciably; that State and local government expend!- '•M'es would continue to expand at a substantial rate; that business . :pital outlays would change little; and that inventory investment •\'»uld rise. The expectation, that real GNP would continue to grow in the • -* st half of 1972 at about the rapid rate anticipated for the fourth »,carter was based in part on the assumption that tax measures along <!f*; lines of those recently approved by the House of Representatives '•vould be enacted into law, It was expected that consumer expenditures would rise substantially further as a result of advances in di- ;\»sable Income that reflected cuts in personal Income taxes as w-.:i -i1- increases in employment; and it appeared likely that a renew*, i -. ' pansion In business outlays for plant and equipment would be stimulated by the upswing In production., along with the investment tax ufedit. Also, business inventory Investment was projected to Increase o >asiderably in response to the rise In final sales and the need for the •'a; to industry to replenish depleted stocks. U.S. imports again exceeded exports by a substantial margin in August, and In July and August together the trade deficit remained >°>i about the second-quarter rate. Contributing to the July-August '.irficit was an acceleration in imports in anticipation of the East '.oast port strike, which began on October 1. Outflows of short-term • apital in September were much smaller than the massive outflows «n August. In foreign exchange markets, rates for most major currencies h;t<« \ f"en further against the dollar in recent weeks. Some foreign cent.;^ .mnks acquired substantial amounts of dollars in September and eaiiy October in the process of limiting appreciation of their currencies. Interest rates on market securities had declined In recent weeks to 185 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

k*vds somewhat below tho>»e io which ificy had tftopped immediately after announcement of tie new economic program In mid-August, Among the factors contributing to the declines were the developments with respect to the post-freeze stabilization program and growing expectations of a more stimulative monetary policy in the light of recent slackening in the expansion of the monetary aggregates and moderate easing of money market conditions. Although the Yolume of now issues of corporate bonds rose substantially from August to September and that of State and local government issues also increased, it appeared that total offerings In those sectors would decline somewhat in October and November. The market for Treasury bills was influenced not only by the easing of money market conditions but also by tie continuing demands for Mils on the part of foreign central banks. On the day before this meeting the market rate on 3-month bills was 4.45 per cent, about 25 basis points lower than 4 weeks earlier and 70 basis points kwer than on August 13. The Treasury was expected to announce on October 27 the terms on which it would refund securities maturing on November ! 5, including about $3,H billion, held by the public. Market participants expected the Treasurv to pre-refund some issues and to offer some longer-term Issues, making further use of the limited authority to sell bonds with a yield above 4!4 per cent. Contract interest rates on conventional new~tiome mortgages, which had risen over the preceding 4 months, were unchanged In Septemher. Yields in the more sensitive seconders market for federally insured mortgages edged down for the second eonsecutive month. Inflows of savings to nonbaak thrift institutions Increased In September, but for tie third quarter as a whole they were well below the extraordinary rates in the first two quarters of the year. At commercial banks, business loans rose moderately In September following the very large Increase that lad occurred in August in connection with developments in foreign exchange markets. Other categories of loans—especially real estate, consumer, and security loans— expanded appreciably. Banks acquired sizable amounts of short-term municipal securities but reduced their holdings of U.S. Government obligations for the third consecutive month. The narrowly deieed money stock (private demand deposits plus 186 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ciifftiK'V m virciilaiiuii, <ir Mi1: chv'-n^i si' S: j«i,/i.'i!v f;'Lv kivjit! increased at a sharply reduced rate In August. Inflows of consumer- K'()c lime and savings deposits remained relatively small, and tie broadly defined money stock (M plus commercial bank time deposits :1 of ha* I ban large-denomination CD's, or M ) increased only slightly, 2 Owf the third quarter Mi and M grew at annual rates of about 3 2 vtitd 4,5 per cent, respectively, compared with rates of 11.5 and 12.5 fvi cent In the second quarter.1 Against the background of strong over-all demands for loans, banks raised offering rates on large-denomination CD's early In September, antf i lie volume of such certificates outstanding rose considerably iliirli}? the month. Consequently, expansion in. the bank credit proxy —daily-average member bank deposits, adjusted to include funds ^oiii nondeposit sources—remained relatively rapid in September. Over the third quarter the proxy series rose at a rate of 9 per cent '•'Mnpared with 6.5 per cent in. the second quarter. Late In September «/. nne banks reduced offering rates on. CD's. System opee market operations In the period since the September 2 I meeting of the Committee had been directed at encouraging some what easier conditions in the money market, in light of the continuing cadency of the monetary aggregates to fail short of the expected l"itlis. The Federal funds rate, which had been fluctuating around :•' 2 per cent at the time of the September meeting, edged down to -<found 5!4 per cent, la the 4 weeks ending October 13 member bank borrowings aYeraged about $380 million, compared with $675 milhoti In the preceding 4 weeks. In the latter part of September the S):>tem purchased about $96 million of Federal agency securities, fhese were the first operations conducted pursuant to the Committee's action of August 24, 1971, authorizing outright operations in agency Issues. Staff analysis suggested that if prevailing money market conditions were maintained, growth in both M and M would remain relatively t 2 slow In October and November but would quicken o¥er the course of the following se¥eral months. It was noted that the precise timing «<?' ?!v step-up in moneian. i^owth rates was particularly difficult to 1 t .tSculated on. the basis of tee daily-average level in the last month of the ivrcr relative to that In the last month of the preceding quarter. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

anticipate because of the many prevailing uncertain!;*' I ?<wv\er, the analysis suggested that o¥er the fourth quarter Mi and M might 2 expand at rates dose to those recorded in the third, and that Mi might increase more rapidly in the first quarter of 1972. Growth n the bank credit proxy was expected to slow in the fourth quarter :r> a result of a reduction m U.S. Government deposits from their recent unusually high level" It was noted in the Committee's discussion that the 90-day freeze on prices and wages had been effective thus far and that the announcement concerning the framework of the post-freeze stabilization program seemed to have been generally well received. However, tik. details of the program remained to be filled in, and there appear* x*J to be widespread uncertainty about how the program would operate and how effective It might pro¥e to be. As to economic acti¥ity the ? ('ommittee agreed that a strengthening was under way but some members voiced doubt that real GNP was rising as much in the current quarter as the staff projections suggested. Against this background the Committee decided that open market operations in the period until the next meeting should be directed at achieving moderate growth in monetary and credit aggregates ewer the months ahead, taking account of the forthcoming Treasury financing. The members agreed that, while some easing of money market conditions in the coining period might be indicated by unfolding developments with respect to the aggregates, a marked easing designed u» stimulate faster growth in the near term, would not be warranted, particularly in light of the very high rates of monetary expansion earlier in the year. The members also agreed that a continued downdrift in market interest rates would be constructive, but that aggressive efforts to stimulate rate declines would risk both a resurgence of iuilationary expectations and the development of conditions that could eliminate in rising rates. The following current economic policy directive was issued to the Federal Reserve Bank of New York; The information reviewed at this meeting Indicates that real output of goods and services expanded modestly in. the third quarter and that unemployment remained substantial. Howe¥er, there are indica- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

announcement of the Government's new economic program. The 90-day freeze has thus far effectively limited increases in prices and wages, and the general framework of the post-freeze stabilization program has been established. The narrowly defined money stock, which had grown rapidly through July, Increased much less in August and declined in,. September. The broadly defined money stock increased slightly In September as inflows of consumer-type time and savings deposits to banks continued at the moderate August • •'.-. However, the volume of large-denomination CD's outstanding --- c sharply, and the rate of expansion In the bank credit proxy 1 •'.!'«ained relatively rapid. Market Interest rates have declined in ::-\nt weeks and are appreciably below their mid-August levels. The ' • *:, foreign trade balance remained in heavy deficit in August. Out- '"• -/s of short-term, capital, which had been massive in August, were much smaller in September. In recent, weeks the market exchange rates for some foreign, currencies against the dollar rose further, while foreign official reserve holdings Increased substantially. In light of the foregoing developments, It is the policy of the Federal Open Market Com.mltt.ee to foster fio.anci.al conditions consistent with the aims of the new governmental program., including sustainable real economic growth and. increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the coun- , ," 'iance of payments. ; i" ••itpJenteet this policy, the Committee seeks to achieve moder- , .. / • .''th in monetary and credit aggregates over the months ahead. -.'..i'.jj open, market operations until the next meeting of the Com- AiuilCw 5iiall be conducted with a view to achieving bank .reserve and money market conditions consistent with that objective, taking account of the forthcoming Treasury .fin.and.ng. Votes for this action; Messrs. Burns, Hayes, Brimmer, Clay, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, a - f ..* n'; • •"" Votes against this ( action,: None, Absent and not YQLM *.t;. < • , me. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON NOVEMBER 16, 1971 Authority to effect transactions in System Account. Preliminary estimates of the Commerce Department indicated that expansion in real output of goods and services had slowed to an annual rate of about 3 per cent in the third quarter, in part because producers and users of steel were working down inventories accumulated earlier against the threat of a steel strike. Growth in real output appeared to be accelerating in the fourth quarter, and staff projections suggested that a faster pace of expansion would be sustained in the first half of 1972. In October industrial production increased slightly as widespread gains among industries were offset in large part by a strike-induced curtailment in coal. Because of the coal and dock strikes, employment fell in the mining and transportation sectors, and total nonfarm payroll employment changed little following a sizable gain in September. The unemployment rate declined to 5.8 from 6.0 per cent, in part because expansion in the civilian labor force slowed considerably. According to early estimates, retail sales increased slightly further in October to a level appreciably higher than the monthly average for the third quarter. The volume of private housing starts, which had fallen in September from a record high level, rose somewhat in October. Price developments from mid-September to mid-October—the middle period of the 90-day freeze—continued to be characterized by a sharply reduced number of increases, and the wholesale index for industrial commodities was stable following a slight decline in September. The rise in average wage rates slowed sharply in September and October. In early November the Price Commission and the Pay Board announced the basic policies and initial regulations for the post-freeze phase of the stabilization program. The latest staff projections for the fourth quarter of 1971 and the first half of 1972 were similar to those of 4 weeks earlier, although the rate of expansion in real GNP now anticipated was not quite so large as before. In the current quarter growth appeared to be accelerating mainly because of faster expansion in the real volume of consumer spending and an increase in inventory investment from the 190 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

rate of the third quarter. Federal outlays were expected to '"'• e in part because of the military pay increase that became effective i;>5 mid-November. For the first half of 1972, the projections continued to suggcs; substantial further growth in consumer spending—in response to gair^ a, disposable income arising from tax reductions and increases i?1 Mfdai security benefits as well as from expansion in output a^u •.',itployment—and further increases in inventory investment. It m,t>. anticipated also that business capital outlays would pick up, tl.v,» Suite and local government expenditures would continue to expa^.l *;tpidly, and that residential construction would advance moderately nt rtfier. The flow of merchandise through East Coast and Gulf ports was accelerated in September In anticipation of the dock strike that began m October but the acceleration in exports far exceeded that in ? imports and the trade balance shifted into surplus. For the third quarter as a whole imports exceeded, exports, although by less than Hio large margin in the second quarter. In late October and early November trading generally was thin in !<Hreign exchange markets, and on occasion rates moved sharply as i riders attempted to assess the progress in negotiations on new v \change rate relationships. The outflow of short-term capital de- ,:i'i.ed further, and the rise in reserves of foreign central banks slowed, '•rarkediy. On a weighted average basis, rates for major foreign curi v ncies changed little against the dollar. On October 27 the Treasury announced that In its mid-November hnancing It would offer two new securities—a 7-year, 6 per cent note priced to yield 6,04 per cent and a 15-year, 6Vs per cent bond priced *»> yield 6,15 per cent—In exchange for notes and bonds maturing m November 1971 and in May and August 1972. This coraMiiatiGE of a refunding and a pre-refunding was well recei¥ed. Of the nearly %l2 billion of eligible Issues held by the public, $5.8 billion were * \changed for the new issues, and only $1.3 billion,.—34 per cent— i>( the Issues maturing in November were redeemed for cash even * hough the offering did not include a short-term issue. To cover the redemptions and to raise additional cash, on November 9 the 11 easury auctioned $2% billion of a 4% per cent, 15-month note at an. average yield of 4,91 per cent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Interest rates on market securities generally had continued to decline following the October 19 meeting of the Committee, The course of rates was influenced by a gradual easing in money market conditions during the period and by market expectations of further easing. Downward pressure on short-term rates was intensified by the relatively small market supply of Treasury bills, which resulted in part from purchases of short-term Treasury securities by foreign central banks. On the day before this meeting the market .rate on 3-month Treasury bills was about 4,15 per cent, 30 basis points below Its level 4 weeks earlier. Federal Reserve discount rates were reduced !4 of a percentage point, to 4% per cent, at se?en Reserve Banks on November 11 and at four additional Banks in the period through the date of this meeting. In capital markets, the estimated 'volume of new corporate and State and local government bonds issued in October was smaller than in September, However, declining yields apparently stimulated offerings, and the volume of new Issues expected during the rest of the year remained relatively large. Contract interest rates on,, conventional new-home mortgages edged lower in,. October, marking the first decrease since last spring. Yields in. the more sensitive secondary market for federally insured mortgages, which had, turned down in August, continued to decline. Inilows of sa¥ings funds to nonbank thrift institutions slowed somewhat in October but were close to the average rate of the third quarter. At commercial baeks, business loans outstanding rose relatively little during October. Major banks reduced their prime lending rates from 6 to 5% per cent late In the month and then to SYi per cent in early November, and some banks announced that they were adopting a "floating" prime rate, Real estate and consumer loans continued to expand rapidly in October, and banks again reduced their holdings of U.S. Government securities and Increased their holdings of other securities. According to preliminary estimates, the narrowly defined money stock (private demand deposits plus currency in circulation, or Mi) declined further in October. The broader measure of money (Mi plus commercial bank time deposits other than large-denomination CD's, or M- ) increased as a result of a marked expansion of inflows of 2 192 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

• >nsumer-type time and savings deposits, but the rise In JM was some- 2 what smaller than had been expected. Growth in the bank credit i^roxy—daily-average member bank deposits, adjusted to include fluids from nondeposit sources—slowed substantially, as U.S. GoverniiMnt deposits declined and. the volume or kuTr-denomination CD's outstanding increased less than, in September Offering rates on such </Q's had been reduced late in September MK! Hicy were cut further during October. System open market operations in the period since the October 19 meeting of the Committee had been directed at achieving a gradual easing of money market conditions in light of the continuing tendency of the monetary aggregates to fall below expected paths. The Federal funds rate declined from about 5!4 per cent shortly before the preceding meeting to about 4% per cent. In the 4 weeks ending November 10 member bank borrowings averaged, about $27U million, compared with about $380 million in the preceding 4 weeks. Staff analysis suggested that the effects of two factors that had been tending in. recent months to hold down demands for moneymoderation of inflationary expectations as a result of the new economic program, and. lagged reactions to the high short-term interest i;»res of late spring and early summer—probably had about run their '-•nurse. According to the analysis, if money market conditions were Mmilar to those prevailing or slightly easier, M would begin to grow 3 ntvain in December and would expand faster over the first quarter— .'it a pace more nearly in line than recently with growing transactions • irtnands. For M , prospects favored a fourth-quarter rate of growth 2 somewhat above the 4.5 per cent annual, rate recorded in the third quarter.1 Only a small further step-up in growth of M was antici- 2 pated in. early 1972, however, because inflows of consumer-type if rue and. savings deposits were expected to slow as consumer spendnh; expanded, As to the bank credit proxy, it appeared likely that the r^e over the fourth quarter would be held to modest proportions by ;t decline In U.S. Government deposits from their high September Wei. In the Committee's discussion, it was noted that business and ' i Hculated OE the basis of the daily-average level in the last month of the \.>i ?<T relative to that of the preceding quarter. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

consumer confidence was being adversely affected by widespread uncertainties connected with the transition from the 90-day freeze to the post-freeze stabilization program and with the unsettled international monetary situation. The view was expressed that It would be particularly unfortunate In this climate for the recent weak performance of the monetary aggregates to persist for long since 'the ? lack of significant growth In the aggregates could become an Important independent source of uncertainty. At the same time, some members cautioned against unduly aggressive action to stimulate monetary expansion. The Committee decided that open market operations in the coming period should be directed at promoting somewhat greater growth in monetary and credit aggregates ewer the months ahead ? recognizing that pursuit of that objective might require appreciably easier money market conditions. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information. reYlewed at this meeting indicates that real output of goods and services expanded modestly In the third quarter, but greater growth appears In prospect for the current quarter. Although the unemployment rate has declined recently, it remains high. Available data indicate that the 90-day freeze effectively limited increases in prices and wages, and basic policies for the post-freeze stabilization program have been announced. The narrowly defined money stock declined further in October, but inflows of consumer-type time and savings deposits to banks expanded considerably and the broadly defined money stock increased moderately. Expansion In the bank credit proxy slowed substantially as the volume of large-denomination CD's outstanding rose less than in September and as U.S. Government deposits were reduced. Interest rates on both short- and long-term market securities have continued to decline in recent weeks and Federal Reserve discount rates were reduced by one-quarter of a percentage point to 4% per cent. The IXS. foreign trade balance was raised in September by -a sharp acceleration of export shipments in adYance of an East Coast port strike. In recent weeks net outflows of short-term capital apparently have diminished further, market exchange rates for foreign currencies against the dollar on average have not changed much, and foreign official reserve holdings have increased less than they did 194 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in September. In light of the foregoing de¥elopments, it is the policy of the Federal Open Market Committee to foster financial conditions consistent with the aims of the new governmental program, including sustainable real economic growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, the Committee seeks to promote somewhat greater growth in monetary and credit aggregates o¥er the months ahead. System open market operations until the next meeting of the Committee shall be conducted with a Yiew to achieving bank reserve and money market conditions consistent with that objective. Votes for this action.; Messrs. Burns, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, and Robertson. Votes against this action: None. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON DECEMBER 14, 1971 1. Authority to effect transactions in System Account. The latest estimates of the Commerce Department indicated that real output of goods and services had risen at an annual rate of about 4 percent in the third quarter of 1971 despite the sharp cut in inventory investment associated with elimination of the steel strike threat on August 1. It appeared that real GNP was increasing at a more rapid rate in the fourth quarter—mainly because of an upturn in inventory investment and a greater gain in the real volume of consumer spending—and that prices were rising at a relatively slow pace from the third to the fourth quarter. Staff projections suggested that the faster rate of growth in real GNP would be sustained in the first half of 1972. In November industrial production rose substantially further, reflecting gains in output for both finished goods and materials in addition to expansion in coal mining after the strike settlement in midmonth. Nonfarm payroll employment advanced moderately, but the unemployment rate rose from 5.8 to 6.0 per cent as growth in the civilian labor force picked up again after having slowed in October. Contrary to earlier indications, it now appeared that total retail sales had declined in October, but early estimates for November suggested an upturn despite some slackening in sales of new automobiles. Industrial commodity prices and average hourly earnings in manufacturing changed little from October to November. During the period of the 90-day freeze—mid-August to mid-November—the rate of increase in prices and wages was sharply lower than earlier in the year. In late November and early December, after the freeze ended, the Price Commission received requests for increases from many of the companies required to obtain prior approval. Some requests were granted in full and some in part, and others were held in abeyance pending receipt of additional information. Thus far the Pay Board had announced only a few decisions under the post-freeze guidelines. The latest staff projections for the first half of 1972 were generally similar to those of 4 weeks earlier, although—in line with recent surveys of business spending intentions—the projected rise in busi- 196 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1 ss capital outlays had been revised upward somewt- . •'• ' • >f -re, ' was anticipated that the rate of expansion in consumer speeding v >uld remain substantial, reflecting reductions in,, taxes and assumed \ :reases in social security benefits as well as gains in wage and salary ,-. yments; that State and local government expenditures would con- • ue to grow rapidly; that residential construction would advance :- )derately; and that business inventory investment would increase 1 -.rther. The flow of U.S. merchandise trade declined sharply in October, ''•:er having accelerated in September in anticipation of the strike •• East Coast and Gulf ports that began, on October 1. The decline— i i«e the earlier rise—was greater for exports than for imports. Moreover, exports in October were adversely affected, by the coal strike, and they benefited less than imports from, the resumption of work at West Coast ports, Consequently, the trade surplus that had emerged in September was succeeded in. October by a deficit of record proportions. In foreign exchange markets attitudes had been influenced in, recent weeks by the introduction of legislation that would give the ' 'esident authority to change the dollar price of gold and by reports • ; progress in international negotiations at the Rome meeting of the ••"oup of Ten,. These developments were interpreted as enhancing r-ospects for a near-term realignment of exchange rates in which .."ost major currencies would appreciate further against the dollar. •Ss a consequence, outflows of short-term capital from the United Sites were substantial in late November and early December. Offi- •ril reserves of some countries increased, considerably and market change rates for most major currencies appreciated against the ••'liar. Another meeting of the Group of Ten was scheduled to begin in Washington on December 17. In domestic financial markets, interest rates on lo.ng-te.rm bonds ;*'d on. Treasury bills rose in late November, but they turned down. i 'ain in early December and by midmonth they were close to or ••.low the levels of 4 weeks earlier. In capital markets dealers' "• /entories of U.S. Government securities increased sharply following the Treasury's mid-November financing—which included a prerefunding of Issues maturing in May and August 1972—and. the volume of new offerings of corporate and State and local gove.miii.ent Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

bonds rose moderately from. October to MoYember. These developments contributed to the upward pressures on bond yields in late November, but thereafter markets were strengthened by reports of progress at the Group of Ten meeting in Rome and by Federal Reserve purchases of Treasury coupon Issues for System account and for foreign official accounts. The rise in Treasury bill rates In late No¥ember was related in part to a large issue of tax-anticipation bills, and the subsequent decline to a sharp expansion In demands for bills by the foreign central banks experiencing gains in reserves. The market rate oil 3-month bills was about 3.95 per cent on the day before this meeting of the Committee, compared with 4.15 per cent 4 weeks earlier. Federal Reserve discount rates, which had beem reduced VA of a percentage point in mid-November, were lowered by an additional 14 of a point, to Wi per cent, at four Reserve Banks effecti¥e December 13. Yields in the secondary market for federally insured mortgages apparently declined further in November. According to preliminary estimates, inflows of sa¥ings to nonbank thrift institutions continued to slow. At commercial banks, business loans declined somewhat in November, and total loans advanced relatively little even though real estate and consumer loans continued to expand rapidly. Banks increased their holdings of securities. The narrowly defined money stock, (private demand deposits plus currency in circulation, or Mi) changed little from October to November and had not grown on balance since August. The broader measure of money (M plus commercial bank time deposits other f than large-denomination CD's, or M ) continued to expand at a 2 moderate rate, howe¥er, as inflows of consumer-type time and saYings deposits remained rapid. Growth in the adjusted bank credit proxy —daily-a?erage member bank deposits, adjusted to include funds from nondeposit sources—rose sharply, reiecting expansion in U.S. Government deposits and in nondeposit liabilities. Owing in part to the weakness in business loan demands, banks had reduced offering .rates on large-denomination CD'sJn September and October, and the aYerage volume of such CD's outstanding declined in November. System open market operatloEs in the period sin.ee the last meeting 198 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

of the Committee had been directed at achieving a further gradual relaxation of money market conditions, with cognizance being taken of the behavior of the monetary aggregates, particularly the continuing lack of growth in M . Operations were complicated In. late 5 November by an unanticipated shortfall in nonborrowed reserves, and the Federal funds rate and member bank borrowings increased temporarily. At the time of this meeting the funds rate was about 4 V8 per cent, down from the level of about 4% per cent prevailing shortly before the preceding meeting. In the 4 weeks ending December 8, borrowings averaged about $395 million, compared with •ibout $270 million in the preceding 4 weeks. Staff analysis suggested that an, easing of money market conditions during coming weeks probably would be required if Mi were to vNpand at moderate rates in. December and January, and that such inning would be associated with some step-up in the rate of growth In M . It was noted, however, that the outlook for the monetary 2 aggregates was particularly uncertain at this time because of factors rJated to possible International flows of funds. It appeared likely 'but an agreement on new exchange rates in the current negotiations would stimulate reflows of funds from abroad, which in tern could hitve substantial—if perhaps temporary—effects on the monetary aggregates. However, the size and timing of any such reflows could not be foreseen with assurance. In addition, there was considerable uncertainty about the extent to which recent amendments to regulations of the Office of Foreign Direct Investment would delay the usual year-end corporate repatriation, of liquid funds. In the Committee's discussion a number of members expressed the view that more aggressive actions to stimulate monetary growth were needed,, at this time in the interest of fostering the desired expansion of economic activity and employment. In their judgment ihc risk of rekindling inflationary pressures and expectations by such scions was considerably less now than it had been earlier in the year. Considerable concern was expressed about the persistent weakness of key monetary aggregates despite the progressive easing of money market conditions in recent months. Reference was made in this connection not only to the absence of net growth in Mi since August Nit also to the low average rate of increase in total member bank reserves during that period. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Other members, while agreeing that it would be desirable to promote adequate growth in the aggregates over coming months, ad¥ocated more cautious and gradual measures. They noted that the rate of increase in M\ had been very high in the first 7 months of the year, and they expressed concern, about unduly aggressive action to case money market conditions at this time in part because of the risk that such action might generate excessive rates of monetary growth in. the near future. They also suggested that substantial weight should be given to the behavior of other key aggregates, noting in this connection that M and the bank credit proxy had been expanding 2 more rapidly than Mi in recent months. At the conclusion of the discussion the Committee agreed that open market operations should be directed at promoting the degree of ease in, bank reserve and money market conditions essential to greater growth in monetary aggregates over the months ahead. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests that real output of goods and services is Increasing more rapidly in the current quarter than it had in the third quarter, but the unemployment rate remains high. Increases in. prices and wages were effeetlYely limited by the 90-day freeze, which ended in mid-November. Since then some wage and price increases have occurred, but other increases requested have been cut back or not approved by the Pay Board and the Price Commission. The narrowly defined money stock changed little in November and has not grown on balance since August, Inflows of consumer-type time and savings deposits to banks remained rapid in November and the broadly defined money stock continued to In.crea.se moderately. Expansion in the bank credit proxy stepped up as U.S. Government deposits and nondeposit liabilities increased on average. After advancing In the latter part of November, most market io.te.rest rates have been, declining recently, and discount rates at four Federal Reserve Banks were reduced by an. additional one-quarter of a percentage point. The U.S. foreign trade balance was heavily In deficit in October. In .recent weeks net outflows of short-term capital apparently have been substantial, market exchange rates for foreign, currencies against the dollar on average have risen further, and official reserve holdings of some countries have Increased considerably. In light of the foregoing 200 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

developments, it is the policy of tli'e Fed -mi Open Market Committee to foster financial conditions consistent with the aims of the new governmental program, including sustainable real economic growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, the Committee seeks to promote the degree of ease in bank reserve and money market conditions essential, to greater growth In monetary aggregates over the months ahead. Votes for this action.: Messrs. Burns, Hayes, Brimmer, Clay, Daaoe, Kimbrel, Maisel, Mayo, Mitchell, Morris, and Robertson, Votes against this action.: None. Subsequent to this meeting, on December 20 ! V /1. Committee ? iilumbers voted unanimously to amend this current economic -policy directive by adding the clause "while taking account of international developments" at the end of the final sentence. As amended, that sentence read as follows: To implement this policy, the Committee seeks to promote the degree of ease in bank reserve and money market conditions essential to greater growth in monetary aggregates over the months ahead, while taking account of international developments. This action was taken, following the announcement that agreement regarding exchange rates and related matters had been reached \n\ December 18 at the Group Ten meeting in Washington. The Manager had advised that, if the agreement was followed by substantial reflows of funds to the United States, considerable flexibility in open market operations might be required to cope with the resulting churning in, domestic financial markets. The members decided that the directive should be amended to affirm the Committee's intention to authorize the operations that might be needed. 2, Action with respect to continuing authority directiwe. On December 23, 1971, a majority of Committee members voted to suspend, until dose of business on. the day of the next meeting of flic Committee, the lower limit (set forth in paragraph l(c) of the continuing authority directive with respect to domestic open market %i 1; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

operations) on Interest rates on repurchase agreements arranged by the Federal Reser¥e Bank of New York with nonbank dealers. The suspended pro¥ision specified that such repurchase agreements were to be made "at rates not less than (1) the discount rate of tie Federal Reser¥e Bank of New York at the time such agreement Is entered into, or (2) the average issuing rate on the most recent Issue of 3-month Treasury bills, whichever is the lower." This action was taken after the Manager had ad¥lsed that occasions might arise in the next few weeks when it would be desirable to make fairly extensive use of repurchase agreements in. order to supply reserves on a flexible temporary basis, in anticipation of possible large-scale sales of U.S. Treasury bills by foreign central banks; and that in light of prevailing costs of funds to dealers it was doubtful that the New York Reserve Bank would be able to arrange repurchase agreements in any significant volume under existing rate limitations. It was understood that the authority to make repurchase agreements at rates lower than those authorized previously would be used sparingly, and only as deemed necessary to accomplish Committee objecti¥es; and that rates below 3% per cent would not be employed without prior notification to the Committee. Votes for this action: Messrs, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, and Treiber. Vote against this action: Mr. Robertson. UnaYallabie and not voting: Messrs. Burns and Hayes. (Mr. Treiber voted as alternate for Mr, Hayes.) Mr. Robertson dissented from this action because he believed that the desired Injection of funds Into the market by the Federal Reserve should be through the outright purchase of U.S. Government securities rather than through repurchase transactions which, In his judgment, actually constituted low-rate loans to securities dealers. He indicated that he was reluctant to increase the profits of dealers by providing them with low-cost Federal Kese.f¥e funds merely to avoid temporarily raising the price (lowering the yield) of Treasury securities by purchasing them outright, 202 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Operations in Foreign Currencies In 1971 the Federal Reserve System made extensive use of the reciprocal swap network with central banks to supplement the use of official reserve assets in financing the very large U.S. balance of payments deficit. System drawings of foreign currencies totaled $3,565 million between January 1 and August 13; after that further drawings were suspended as part of the President's package of economic measures, which included the suspension of convertibility of the dollar into reserve assets. There were no drawings on the Federal Reserve by our foreign central bank swap partners in 1971, except for minor amounts drawn overnight by the Bank for International Settlements (BIS) for technical reasons. At the beginning of the year the System had $810 million in swap indebtedness outstanding to the central banks of Switzerland, the Netherlands, and Belgium. Further reserve gains by these countries early in the year—the result of interest-induced capital flows and, later, speculative flows associated with inflows into German marks— necessitated further drawings on these swap lines. Despite the repayment of some drawings through the use of U.S. reserve assets, the System still had $590 million in outstanding drawings on the Belgian and Swiss central banks at the end of the second quarter. In addition, the Federal Reserve had $60 million in swap debt to the German Federal Bank as the result of drawings made to cover System sales of forward marks in the New York market in April in its cooperative effort with the German Federal Bank to reduce flows of private funds into Germany. In July and early August, as the dollar came under widespread speculative attack, reserve gains by several central banks resulted in requests by them for swap drawings by the System of an additional $2,395 million in Swiss francs, Belgian francs, and sterling. On August 13 System drawings outstanding totaled $3,045 million. As drawings matured after August 13, they were renewed for additional 2- to 3-month periods by mutual agreement. During the period of more or less floating exchange rates—from August 13 to 203 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

December 18—the System purchased Belgian francs in the New York market from time to time at the request of the Belgian National Bank and repaid some $145 million equivalent of Belgian franc swap drawlegs. The System used existing German mark balao,ces to repay $10 million equivalent of mark drawings in November; and in December, subsequent to the establishment of new central values and margins of variation for foreign currencies, the System—with the consent of the Bank of England—purchased sterling la the market at the new lower limit for that currency and repaid $35 million of sterling swap drawings, Total System, swap drawings outstanding at the year-end were ihus reduced to $2,855 million, valued at the exchange rates at the litues the drawings were initiated. Owing to the Increased dollar pjices of currencies drawn—Swiss francs, Belgian francs, German fiMfks, and sterling—the System's loss upon liquidation of these drawings Is presently estimated at less than $200 million. • 204 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Voluntary Foreign Credit Restraint Program On January 7, 1971, the Board issued guidelines to modify and continue the Voluntary Foreign Credit Restraint (VFCR) program. Under this program, inaugurated in early 1965 as part of the Government's over-all effort to protect the balance of payments by limiting capital outflows, the Board requests banks and nonbank financial institutions to limit both their lending to foreigners and their other investments in foreign countries other than Canada. The January revision made only minor changes in the level or the form of restraint; however, a further revision of the guidelines on November 11 did alter significantly the degree of program restraint. The January revision did not make any changes in the over-all level of guideline ceilings. But for banks it did entail some liberalization by specifically excluding from restraint bonds and other direct obligations issued by the International Bank for Reconstruction and Development (IBRD) and by other international institutions of which the United States is a member. In addition, export credits were exempted from a subceiling that restrained short-term credits to residents of the developed countries of continental Western Europe. In August legislation was enacted that exempted from the guideline ceilings all credits to finance U.S. exports. On November 11, following a preparatory period contemplated in the congressional action, the Board issued revised guidelines that exempted export credits from the VFCR guideline ceilings. Export credits were defined to include credits that financed both the shipment of goods produced in the United States and the performance abroad of services by U.S. nationals. Export credits could be either direct credits that financed U.S. exports or indirect credits to foreign financial institutions that in turn would utilize these funds to finance U.S. exports. The November revisions in the guidelines made other changes in the VFCR program. For banks, the Export Term-Loan Ceiling for export credits of over 1 year was eliminated, since export credits were now exempt from the guideline restraint. Other changes included: (1) elimination of the subceiling on short-term bank claims on residents of continental Western Europe, (2) the request that U.S. 205 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOREIGN ASSETS OF U.S. BANKS 1971 Item 1970, Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Number of reporting banks 171 169 174 183 188 Millions of dollars Guidelines in effect through Nov. 10, 1971 General ceiling: Aggregate ceiling 9,968 9,908 9,935 9,967 Assets under ceiling 9,306 9,116 9,187 9,641 Change from previous date -43 -190 +71 +454 Apparent leeway 662 793 748 326 Export Term-Loan (ETL) ceiling: Aggregate ceiling 1,423 1,442 1,495 1 512 Assets under ceiling 190 248 342 406 Change from previous date + 174 + 58 +94 +64 Apparent leeway.. 1,234 1,194 1,153 1,107 Total General and ETL ceilings: Aggregate ceiling 11,391 11,350 11,430 11,493 Assets under ceiling 9,496 9,364 9,529 10,047 Change from previous date + 131 -132 + 165 + 518 Apparent leeway 1,896 1,987 1,901 1,433 Guidelines in effect beginning Nov. 11, 1971 Ceiling: Aggregate ceiling Assets under ceiling »8,955 Apparent leeway 1,027 Memorandum item: Export credit to foreigners other than Canadians 3,295 1 As of Nov. 11, 1971, export credits were exempted from restraint, and new Ceilings were calculated for all banks in place of General Ceilings and Export Term-Loan Ceilings. agencies and branches of foreign banks report monthly on their foreign lending positions, and (3) a narrowing of an exemption so that a nonbank financial institution would charge to its ceiling longterm investments to finance oil tankers owned or chartered by a subsidiary of a U.S. oil company in a developing country unless the oil company took a corresponding charge under the Foreign Direct Investment Program administered by the Department of Commerce. The November revisions also amended the manner in which banks and nonbank financial institutions could calculate their ceilings for nonexport foreign lending and investing. Henceforth, a bank could adopt a ceiling based on the most favorable of (1) 85 per cent of its General Ceiling as of September 30, 1971; (2) its General Ceiling as of September 30, 1971, minus export credits outstanding thereunder as of that date; or (3) 2 per cent of its total assets as 206 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

of December 31, !*>'"r0. The last option was initiated to allow small and medium-si'ai banks without historical lending bases to establish themselves in I ho tVlu of foreign financing. Noebank financial Institutions wei,' p\ep :he option of calculating their ceilings as either i heir ceilings (adjusted-base-date holdings) as of September 30 1971, ? minus export credits subject to restraint, or of using 85 per cent of iheir ceilings on that same date. At the end of 1970, the approximately 170 banks reporting under ihe program had aggregate General Ceilings and Export Term-Loan 1 Vilings of $11.4 billion, with an apparent leeway of about $0.7 bMlion under the former and $1.2 billion under the latter. At the end t>f 1971 the approximately 190 VFCR reporting banks had latitude In extend about Si0.0 billion of nonexpert foreign credits, of which 'W.O billion was bain; utilized.1 Therefore, at the end of the year, hanks had an. apparent leeway of $1.0 billion to extend nonexport credit to foreigners other than Canadians and unlimited leeway to ovtend credits of all types to Canadians and export credit to other foreigners. At the end of 1971 the amount of export credits outstanding at reporting banks was about $3.3 billion, part faa¥ing been restrained, and part exempted, under the previous guidelines. In August many banks went o¥er their General Ceilings to a large extent as the result of speculative outflows by foreign customers making sudden drawings on established lines of credit. In October there was a rapid correction of positions. Again, in December there wits a substantial outflow, but there was no excess over the aggregate new ceiling for nonexport credits. Only a minor fraction of the increased outflow was in,, export credits of the type exempted by the November revision, the bulk being attributable to speculative pressure thai dvHcIopeil before the Smithsonian Agreement jinl to other factors. During \^'!\ ihe nonbiink financial institutions reduced their holdings of foreign assets subject to On. junJeLite ceiling. At the end of the vear, such holdings amounted i«* M,>. ivilion, well below the guideline ceiling of $1.8 billion an«! jbou; \200 million, below amounts outstanding at the end of 1970. A small part of this decline, approximately $?0 million, was due to the removal of export credits from • \n estimated S M> billion of export credit was eliminated from guideline Te-41;ti!i; hv the ?Tv»M«)tm approved fm Nnv 11 1071 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

the guideline ceilings. The holdings of foreign assets that were not subject to the guideline ceiling increased during the year by about $300 million; nearly half of this increase represented additional longterm investments in developing countries. FOREIGN ASSETS OF U.S. NONBANK FINANCIAL INSTITUTIONS AND NONPROFIT ORGANIZATIONS REPORTING UNDER VFCR GUIDELINES Amounts shown in millions of dollars Change from Dec. 31, Amount 1970 Item Dec. 31, 1971 Amount Per cent ASSETS SUBJECT TO CEILING Deposits and money market instruments, foreign countries, except Canada 18 -17 -48.6 Short- and intermediate-term credits, foreign countries except Canada 1 152 -29 -16.0 Long-term investments, developed countries except Canada: Net investment in subsidiaries, affiliates, and branches 2 169 + 19 + 12.7 Lo S n t g o - c t k er s m 3 bonds and credits 4 5 3 3 2 1 -79 - -1 1 9 3 . . 7 0 -106 TOTAL holdings of assets subject to ceiling. 1,302 * -211 Ceiling. 1,784 -6.9 -132 ASSETS NOT SUBJECT TO CEILING Export credits 5 80 6 +80 Investments in Canada: Deposits and money market instruments 322 + 169 + 110.5 Short- and intermediate-term credits l 193 + 37 + 23.7 Net investment in subsidiaries, affiliates, and branches 2 872 + 268 +44.4 Long-term bonds and credits 8,523 -147 -1.7 Stocks 1,269 -119 -8.6 Direct obligations of international institutions of which U.S. is a member 1,029 -12 -1.2 Long-term investments in developing countries; Net investment in subsidiaries, affiliates, and branches 2 39 -2 -4.9 Long-term bonds and credits 895 + 121 + 15.6 Stocks 130 + 22 + 20.4 Otherwise "covered" stocks acquired after Sept. 30, 1965, in U.S. markets from U.S. investors 885 +70 + 8.6 Otherwise "covered" assets acquired after Dec. 31, 1967, as "free delivery" items 38 + 14 + 58.3 TOTAL holdings of assets not subject to ceiling. 14,275 +526 +3.8 MEMO: Total holdings of foreign assets. .. 15,578 + 316 +2.1 1 Bonds and credits with final maturities of 10 years or less at date of acquisition. 2 Net investment in foreign branches, subsidiaries, or affiliates in which the U.S. institution has an ownership interest of 10 per cent or more. 3 Except those acquired after Sept. 30, 1965, in U.S. markets from U.S. investors. 4 The amount outstanding on Dec. 31, 1970, included an undeterminable amount of export credits that were believed to have been approximately $20 million and that were removed from the ceiling in November 1971 (see note 5); both the absolute and percentage declines are, therefore, slightly overstated. 5 Up to November 1971 export credits were subject to ceilings, except for those that were related to Export-Import Bank or to Department of Defense financing programs. 6 Export credits exempted by reason of being related to the Export-Import Bank or to the Department of Defense amounted to approximately $60 million. 208 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legislation Enacted Purchase of Government obligations by Federal Reserve Banks. An Act of Congress approved July 2, 1971 (Public Law 92-45), extended through June 30, 1973, the authority of the Federal Reserve Banks under Section 14(b) of the Federal Reserve Act to purchase and sell direct or fully guaranteed obligations of the United States directly from or to the United States. Interest on deposits. By Joint Resolution approved March 31, 1971 (Public Law 92-8), Congress extended until June 1, 1971, the flexible authority of the Board of Governors, the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board in regulating the maximum rates of interest or dividends payable by insured banks and savings and loan associations on deposit or share accounts. By Act approved May 18, 1971 (Public Law 92-15), Congress further extended this authority until June 1, 1973. Emergency Loan Guarantee Act. By Act approved August 9, 1971 (Public Law 92-70), Congress established the Emergency Loan Guarantee Board, which is empowered to guarantee emergency loans not to exceed $250,000,000 to major business enterprises. The Board comprises the Secretary of the Treasury, as chairman, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Securities and Exchange Commission. Export Expansion Finance Act of 1971. An Act of Congress approved August 17, 1971 (Public Law 92-126), includes a provision that removed export credits from limitations in connection with the Voluntary Foreign Credit Restraint program administered by the Board of Governors. Economic Stabilization Act. By Act approved December 22, 1971 (Public Law 92-210), Congress amended the Economic Stabilization Act of 1970 and extended its effectiveness until April 30, 1973. Both the first and second phases of the Nation's anti-inflation program were launched under authority of that Act, which, among other things, authorizes the President to issue such orders and regulations as he deems appropriate to stabilize interest rates. Farm Credit Act of 1971. By Act approved December 10, 1971 (Public Law 92-181), Congress revised and expanded the farm lending activities of the cooperative Farm Credit System. Included 209 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

among the provisions of the Act Is authority for member banks to purchase obligations issued under the Act and authority for the Reserve Banks to purchase such obligations to the same limited ex lent as they may purchase municipal warrants under Section 14(b) of the Federal Reserve Act, The Act also amended Section 15 to authorize the Reserve Banks to act as depositaries for and fiscal <igcnts of institutions of the Farm Credit System. State taxation of national banks. By Act approved December 22, 1071 (Public Law l)2 213). C ongress extended from January 1, I4)72 to Januarv K 1^73, the thfe upon which a national bank will, ? tor the purposes of any Stale lax law, be treated as a bank organized itiicier the law of the State within which its principal office is located. 21(1 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legislative Recommendations Lending authority of Federal Reserve Banks. Under present law, when a member bank borrows from its Reserve Bank on collateral other than obligations that are eligible for purchase by Reserve Banks (mainly U.S. Government obligations) or short-term promissory notes of the member bank's customers that meet certain "eligibility" requirements, it must pay interest at a rate not less than Vi of 1 percentage point higher than the Reserve Bank's basic discount rate. For several years the Board of Governors has urged legislation that would permit a member bank, subject only to regulations by the Board, to borrow on any security satisfactory to its Reserve Bank without the necessity of paying a higher rate of interest simply because the security is not of a specified type. The need for enactment of such legislation has increased as member banks have reduced their holdings of U.S. Government securities and broadened the scope of their lending in order to meet the expanding credit demands of their customers. Many of these loans cannot qualify as security for Federal Reserve advances except at the "penalty" rate of interest, although their quality may be equal to that of presently "eligible" paper. To enable the Federal Reserve System always to be in a position to carry out promptly and efficiently one of its principal responsibilities—the extension of credit assistance to enable the banking system to meet the legitimate needs of the economy—and to avoid penalizing those uses of credit that generate sound paper that is not "eligible" under existing law, the Board again urges legislation that would authorize the Reserve Banks to extend credit on any sound collateral at a uniform rate of interest. Reserve requirements. For several years the Board has recommended legislation that would make Federal Reserve reserve requirements applicable to all federally insured banks, rather than to member banks only. The reasons for that change in the structure of reserve requirements have become stronger with the passage of time, and the Board now believes that those requirements should apply to demand deposits in all institutions that accept deposits subject to withdrawal by check (demand deposits). 211 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Because demand deposits held by any Institution are part of the country's money supply just as are those in member banks, applying the same demand-deposit reserve requirements to all such Institutions would facilitate the effective implementation of monetary policy. The most rational, and equitable system of reserve requirements for this purpose would be based on the amount of an Institution's deposits, without regard to the location of the institution. Also as a matter of rational and equitable application of the laT\ the Board believes that any institution that Is subject to Fedeiai K'-serve reserve requirements should be granted access to Federal P,c ^•rve credit on the same terms as member banks. A.*<M H^.: ,!i- FM ,'N! .recommends that legislation be enacted Hi h'- JJSJIU ( t", vh\ -ystem of .reserve requirements to the deiKsruf ,.!•}•<>•..>'> ,•• «'* >'M*positary institutions that accept deposits •lib}--, i (o ^A':!",:; s../ h. check, and (2) to authorize the Reserve *unk& io extend a. eo.it to such inst:+*Ttion~ r>r, +be ~nmr hisis as they vwcend credit to member banks. Loans to bank examiners, Tii- i * <<J n, f ' '< \ ,•<!£, "Crimes ;;fici Criminal Procedure," prohibits loans to a bank examiner by any K;nk that the examiner is authorized to examine. For several years lito Board has favored modification, of this prohibition to permit a U derally insured bank to make a home mortgage loan to a bank "\aminer under appropriate statutory safeguards. The Board again recommends that modification. Pm-rchase of obligations of foreign governments by Federal Banks. Under present law, balances that the Reserve Banks in foreign central banks in connection with the System's foreign currency operations may be invested in prescribed kinds of ''ills of exchange and acceptances. On occasion these investment media have not been conveniently available. To facilitate economic use of such balances, for several years the Board has favored enactment of legislation that would permit Reserve Banks, subject to regiikuion of the Board, to invest in obligations of foreign, governments vr monetary authorities that will mature within 12 months and are uiyable in a convertible currency. The Board again recommends •••ich legislation. Interlocking bank relationships. Section 8 of the Clayton Act generally prohibits interlocking relationships between a member bank Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

and any other bank: located in the same or an adjacent community. During 1970 the Federal Reserve System made an extensive review of interlocking bank relationships and concluded that Section 8 should be amended in several respects to protect the public against situations arising in which the risk of abuse of an Interlocking relationship outweighs the likelihood of benefit. The major extension favored by the Board would apply the prohibition to interlocks between any depositary institutions In the same or an adjacent community, with an. appropriate delay to permit a gradual phasing out of prohibited relationships. In one respect the Board considers that the present law is unnecessarily .restrictive. The law presently prohibits Interlocking service as a "director, officer, or employee." The Board believes that the pur- , • sse of the law would be better served by limiting the applicability - the prohibition to service as a "director or an officer or an em- ;• jyee with management functions." Federal Reserve Bank branch buildings. Under Section, 10 of • 'MJ Federal Reserve Act, the aggregate of costs incurred by the >•' serve Banks for the construction of branch buildings after July 30, i ^47, is limited to $60 million. 'This amount has been almost fully 'j'flized, and the remaining amount is insufficient to permit construe- ; n of facilities necessary to continue to provide services that are ; • * :essary to keep the Federal Reserve .responsive to the needs of the n-bJic. The Board believes that the dollar limitation on the cost for . • istruction of Federal Reserve Bank branch buildings is unnecessary • •;(d recommends that it be repealed. The Reserve Banks would still need the Board's approval of their branch-building programs, under the third paragraph of Section 3 of ']•'• *• Federal Reserve Act, The Board would continue to consider each ;n:)posed construction or improvement in the light of the needs of the '•: inch, the type of proposed construction, the reasonableness of the < . >sts, and whether the proposal is generally in keeping with the prevailing economic situation, Bank investments for community development, As leading Inr utions in,, their communities, banks are expected to participate in ;' )grams for the improvement of the community. In some cases this , • ponsibility can. be fulfilled by contributing feeds or services. In " • ters, the appropriate form of participation is an investment in. stock Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

of a corporation established for a particular purpose, such as to promote the economic rehabilitation and development of low-Income areas. In. the Board's judgment, limited investments in such corporations axe in the public Interest and should be encouraged by appropi iate legislation. Accordingly, as a method of encouragement, the Board recommends legislation, expressly to authorize national banks to Invest in community corporations established by them or by other local organizations. Such legislation would not itself authorize State member banks to invest in such corporations, because the corporate powers of a State-chartered bank are a matter of State law. Nonetheless, it would encourage investments by banks in those States that do not prohibit banks from making such investments. It should also encourage States that do prohibit such investments to re-examine their position. l\t assure that the investments cb not have an adverse effect on the soundness of our Nation's banks, the Comptroller of the Currency and the Board of Governors should "be authorized to impose limitations on the nature and scope of those investments by national banks and State member banks under their respective jurisdictions. Miscellaneous amendments relating to bank holding companies', «. "C ease-and-desist orders/' Under present law, there Is no Federal administrative remedy for violations of law by a bank holding company or any of its nonbanking subsidiaries (that are not also subsidiaries of bank>.}. Hie Board may either refer the violation to the Department of Jusho. as a criminal violation or work the matter out with the holding company, or it may take no action. The Board recommends that the Financial Institutions Supervisory Act of 1966 be expanded to authorize the Board to initiate cease-and-desist proceedings to prevent an unsafe or unsound practice in conducting the business of the holding company or to present violations by the holding company of a law, rule or regulation, or any condition imposed ? by the Board in connection with the granting of any application or other request by the holding company. h* Acquisition by holding t'*tn/f>ttny of "failing bank." The Board recommends that Section \\ih) of ibe Bank Holding Company Act be amended to include provisions similar to those In the 214 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

B;<.nk Merger Act, under which j I ; '/omments by a bank supervisor »>n a proposed take-over of a 'tailing" bank may be required to be submitted within 10 days (rather than, the usual 30 days) and (2) \ii 5 Board may inform the Attorney General of an emergency re~ quiring expeditious action, and thereby shorten from 30 to 5 the iiueik r of days between approval of the transaction by the Board and the >i;ty consummation becomes permissible, c. "Retention by holding company of hank stock acquired as a result of a debt previously contracted," Section 4 of the Bank Molding Company Act authorizes the Board to extend, from 2 tc : \vars the time within which to dispose of stock In. nonbanki'it; 1 M ganizations acquired by a holding company pursuant to a dc i : previously contracted. The .reasons underlying that authorizatl <i xcm equally applicable In the case of bank stock. Accordingly, t'u lizard recommends that Section, 3 be amended to parallel thi p^< v - -.IOES of Section 4 in this respect. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Litigation Bank holding companies—Antitrust actions. During 1971 the Federal courts announced actions in four cases brought by the U.S. Department of Justice to prevent the consummation of bank acquisitions by registered bank holding companies. In each case the complaint alleged that the effect of the proposed acquisition would be substantially to lessen competition, or to tend to create a monopoly in violation of Section 7 of the Clayton Act (15 U.S.C. 18). The captions of the cases and the actions by the courts are as follows (for further identifying details, see the ANNUAL REPORT for 1970, page 192): United States v. First National Bancorporation, Inc., et al. This case was dismissed by the District Court on the grounds that the Government failed to prove that the acquisition would substantially lessen competition or tend to create a monopoly in commercial banking in the Greeley, Colorado, market or substantially lessen competition in the correspondent banking field (329 F. Supp. 1003 (1971)). In November 1971 the Department of Justice filed an appeal, which the U.S. Supreme Court has accepted for review. United States v. First National Bancorporation, Inc., et al. The proceedings in this case (relating to Security State Bank of Sterling, Colorado) have been suspended pending the outcome of the Greeley case referred to in the preceding paragraph. United States v. United Banks of Colorado, Inc., et al. The District Court denied defendant's motion to overturn a stay of consummation of the proposed transaction after ruling that the defendant had not established that the Government's complaint was frivolous. Defendant subsequently abandoned its proposal for acquisition of the bank, and the action was dismissed in August 1971. United States v. United Virginia Bankshares Incorporated, et al. A stay against consummation of the acquisition was lifted by the District Court in February 1971. The holding company had filed a plan that, in the Court's judgment, would permit orderly divestiture of the bank if the Department of Justice is successful on the merits of the case. The case has been tried and is awaiting decision. 217 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank holding rowpanics AVr/Viv of ii^dfd itcrions, t'i\e ei\if actions .raising questions under the Bani Holding Company Act were decided; one remains pending. In The Commercial National Hunk <>/ 1 .idle Ri>ck, et at, \ Htnird of Governors (see the ANNUAL REPORT for 1970, page hni. the Court of Appeals for the Eighth Circuit upheld the Boards Order. In a case involving the formation of First Arkansas BankM^k Corporation, the Court held (h;ii formation of a multibank holding compaay in Arkansas does not violate that State's prohibition against branch banking and thai the Board had not violated the constitutional rights of the banks opposed to the formation by denying them a trialtype hearing (451 K 2J 8n). Parties in the Commercial National case were also parties in Merchants and Planters Bank, et al. v. Hoard of Governors, filed July 1971, U.S.C.A. for the Eighth Circuit. I it that case the Court was asked to re¥iew and set aside an Order of the Board granting the application of First Arkansas Bankstock Corporation to acquire an additloeai bank, The Stephens Security Bank, Stephens, Arkansas, (For the Board's Order, see the Federal Reserve Bulletin for July 1971, page 623.) Following its decision in the Commercial National case, the Court dismissed the petition, in Merchants and Planters in November 1971. In Robert A, Browm v, Board of Governors, filed September 1971, U.S.C.A, for the First Circuit, the Acting Bank Commissioner for the State of Maine petitioned for review of the Board's Order of August 12, 1971, appro¥ieg the application,, of United Bancorp of Maine, Portland, Maine, to acquire 51 per cent of the Yoting shares of Central National. Bank, Water¥ille Maine, a proposed new bank. (For ? the Board's Order and Statement, see the Federal Reserve Bulletin for September 1971, page 727.) On December 16, 1971, the petition for re¥iew was dismissed for want of prosecution. In Union Bank and Trust Company, et al. v. Board of Governors, filed May ll)7f, U.S.C.A. for the District of Columbia, petitioner requested the Court to reYiew and set aside the Board's Order of April 20, 1971, approving the application of First Alabama BaiichliaivH, in;:,, Birmingham, Alabama, to become a bank holding company, (F<T the Board's c )rder and Statement, sec the Federal Reserve Bulletin tor May nPi, page 404.) On August VK 1971. the Court granted petitioner's motion to dismiss the petition. 218 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

la '\\i(t,>leon A, Marcou, et at v. Board of Governors, filed March "~'T;, U.S.C.A. for the First Circuit, petitioner sought Court review u> Sw'i ai-ide an Order of the Board approving the application vf Merrill Bankshares Company, to acquire shares of Federal TmM Company, Waterville, Maine, (For the BouwY Oul« j and Statement, ^o the Federal Reserve Bulletin for Mar-:1: iv. i. nage 262.) The •ratter was dismissed by stipulation,, of the »*:t:*i*• ~- s:: \ugust 1971. In National Association a* «''--,^."/. - Agents, Inc. v. Board of i-itvernors, filed Septemb< < I'-'Cl, s.^.CA for the District of i Jumbia, petitioner aske.1 ;ix ( 'Mr-" ,»> review and set aside a regulatory actioE by the B<* <v n> M»\"pi«~ certain procedures in, consection with applications undr» M1-linir. 3(a)(l) and 4(c)(8) *;* ih-i Bank Holding Company A; ; f"> ; V. mber 1971 the Board sui, ;>^nded the operation of that IV/'JJ^M > ^ tion as it relates to •h c) (8) and published proposed regulatory amendments that i /modifications of the suspended, procedures. The Court proceeding h'AVQ been suspended pending final outcome of the Board's propose; ".piendments. (For the action establishing the procedures, see IK S:deral Reserve Bulletin for September 1971, page 723; for the prof-^sed amendments, see the Federal Register for December 28, 1971, puge 25048.) Bank merger. In United States v. Trust Company of Georgia, et ,/('., filed May 1971, U.S.D.C. for the Northern. District of Georgia, )ho Department of Justice sued under Section 7 of the Clayton Art • 15 U.S.C. 18) to praYeiit Trust Company of Georgia from acquir vig the assets and assuming the liabilities of the Peachtree Bank a">i I j'ust Company, Chamblee, Georgia. (For the Board's actions on tL< matter, see the Federal Reserve Bulletin for Marc! f '•; I , p.^;e 2^.v. April 1971, page 333; and June 1971, page '>' " = M-i'endi ?n ii^andoned its merger plans, and the action was dis-11-:-''/.! h\ ^.tipulai}nn in, August 1971, Margin requirements on securities credit transax ?:* •'<-. n) ». -ordon cfc Co,, Inc., et al. v. Board of Governors (set V • s. w REPORT for 1970, page 193), an Order of dismissal was K HU ^a K !hc District Court following a stipulation by the parties o;s; u,w • i t s Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Supervision and Regulation by the Federal Reserve System Examination of member banks. Each State member bank is subject to examinations made by direction of the Board of Governors or the Federal Reserve Bank of the district in which it is located by examiners selected or approved by the Board. The established policy is for the Federal Reserve Bank to conduct at least one regular examination of each State member bank, including its trust department, during each calendar year, with additional examinations if considered desirable. In most States concurrent examinations are made in cooperation with the State banking authorities, while in others alternate independent examinations are made. All but 18 of the 1,128 State member banks were examined during 1971. National banks, all of which are members of the Federal Reserve System, are subject to examination by direction of the Board of Governors or the Federal Reserve Banks. However, as a matter of practice they are not examined by either, because the law charges the Comptroller of the Currency directly with that responsibility. The Comptroller provides reports of examination of national banks to the Board upon request, and each Federal Reserve Bank purchases from the Comptroller copies of reports of examination of national banks in its district. The Board of Governors makes its reports of examination of State member banks available to the Federal Deposit Insurance Corporation, and the Corporation in turn makes its reports of insured nonmember State banks available to the Board upon request. Also, upon request, reports of examination of State member banks are made available to the Comptroller of the Currency. In its supervision of State member banks, the Board receives, reviews, and analyzes reports of examination of State member banks and coordinates and evaluates the examination and supervisory functions of the System. It passes on applications for admission of State banks to membership in the System; administers the disclosure requirements of the Securities Exchange Act of 1934 with respect to equity securities of State member banks within its jurisdiction under 221 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

the 1934 Act; and under provisions of the Federal Reserve Act and other statutes, passes on applications for permission, among other things, to (1) merge banks, (2) form or expand bank holding companies, (3) establish domestic and foreign branches, (4) exercise expanded powers to create bank acceptances, (5) establish foreign banking and financing corporations, and (6) invest in bank premises an amount in excess of 100 per cent of a bank's capital stock. By Act of Congress approved September 12, 1964 (Public Law 88-593), insured banks are required to inform the appropriate Federal banking agency of any changes in control of management of such banks and of any loans by them secured by 25 per cent or more of the voting stock of any insured bank. In 1971, 31 such changes in ownership of the outstanding voting stock of State member banks were reported to the Reserve Banks as changes in control of these member banks. Arrangements continue among the three Federal supervisory agencies for appropriate exchanges of reports received by them pursuant to the Act. The Reserve Banks send copies of all reports they receive to the appropriate district office of the Federal Deposit Insurance Corporation, the Regional Administrator of National Banks (Comptroller of the Currency), and the State bank supervisor. LOANS TO EXECUTIVE OFFICERS Total loans to Period covered executive officers Ranges of (condition report interest rate dates) charged (per cent) Number Amount (dollars) Oct. 29, 1970— Dec. 31, 1970 5,981 16,888,929 1-18 Jan. 1, 1971— Apr. 20, 1971 7,998 22,639,646 1-18 Apr. 21, 1971— June 30, 1971 6,922 18,908,673 1-18 July 1, 1971— Sept. 30, 1971 7,663 22,799,739 1-18 Oct. 1, 1971— Dec. 31, 1971 « O O Compilation of data for condition report of Dec. 31, 1971, has no t been completed. 222 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

jM-r n i:ils the Reserve Banks are under instructions to T^r^uid such rfpftns (>»umptly to the Board, together with a statemern i I \ inat the mv. tAvr^r and management are known and acceptable f<.> ?h.e Re- \er\i* B.trk: or (2) that they are not known and that an u>VvVJtMiuin is. hcuig made. The findings of any investigation ano \U, l^vru1 H;ink\ conclusions based on. such findings are forw ;•»;'< K** *** h(v B«>ard. By Act of Congress approved July 3, 196? (Public I 'tw "0. 44 <, vaoh member bank of the Federal Reserve System is i-Appr-.M h» >u* chide with (but not as part of) each report of condit?ro ,.n.-i cor-v thereof a report of all loans to its executive officers since the date of M 5 Emission of its previous report of condition. Since the Board's 1970 A:\si -\« Rt I'ORT was released, member banks have submitted, as ,':i|!H!V(I l^v f iw, the data that ^MVV,.< *^ 'ii' i.Me '<n rii^s ?22. }"iulrral h'i>serve membershtp, ^ , > 1 >., ,• jiiibc* '*;. i:'"i, niem- !*"•'- biiik- aicounted for 42 pei »..-!;»• *»t I'v number o! ,»<! •; jp.unercial ^mks in the United States arid *.vt ^^ ^-,j .'ent «<? ;•;} > «»<>uaercial b.taking offices, and they held approximately 80 pei '.'.-n' '-•« H»e total • U-posits In such banks; these figures compare with •, IVJ ^cnt, 62 ;vr cent, and 80 per cent, respectively, at the ejui ^4 \^"u. State iitumber banks accounted for 13 per cent of the ni:.j>Jv; i»i *ll State commercial banks and 26 per cent of the banking "Uw\ s. -u»d they he id 51 per cent of total deposits In State commerce! hjj^^ Of the 5,727 banks that were members of the Federal Reserve system at the end of 1971, there were 4,599 national banks and 1.128 State baaks. During the year there were net declines of 21 national ain1 ^ State member banks. The decline in the number of national banks r:i)ected 51 conversions to branches incident to merg- L*M and abi.ojpLic.uis and 21 conversions to nonmember banks. The J-'dina wa% oft'-,'- in part by the organization, of 37 new national hanks and the cofweraon of 7 nonmember banks to national banks. The decrease in State member banks reiected mainly 20 withdrawals hom membership and 6 conversions to branches incident to mergers :t'»,*! absorptions. At tie end of 1971 member HnnVs were operating ^ ",u>^h I'Manches, ;"'/-s more than at the close '/«'' J}>/0; this incluJ«.''.' ':-'•' de novo establishments. 223 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Detailed figures on changes in the banking structure during 1971 are shown In Table 18, pages 266 and 267. Bank mergers. Under Section IK (c) of the Federal Deposit Insurance'Act (12 U.S.C. 1828 (c) K ihc prior written consent of the Board of Governors of the Federal Reserve System must be obtained before a bank may merge, consolidate, or acquire the assets and assume the liabilities of another bank if the acquiring, assuming, or resulting bank is to be a State member bank. In deciding whether to approve an application, the Board Is required by Section 18(c) to consider the impact of the proposed transaction on competition, the financial and managerial resources and prospects of the existing and proposed institution and the con- ? venience and needs of the community to be served. The Board is precluded from approving "any proposed merger transaction which would result in a monopoly, or which would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States." A proposed transaction "whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade," may be approved only if the Board of Governors is able to find that the anticompetitive effects of the transaction would be dearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. Before acting on each application the Board must request reports iVoin the Attorney General, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation on the competitive factors involved in each transaction. The Board in turn responds to requests by (ho Comptroller or the Corporation for reports on competitive factors involved when the acquiring, assuming, or resulting bank is to be a national bank or an insured nonmember State bank. During 1971 the Board disapproved two and approved 16 of these applications, and it submitted 106 reports on. competitive factors to the Comptroller of the Currency and 63 to the Federal Deposit Insurance Corporation. As required by Section 18(e* of the Federal Deposit Insurance Act, a description of each of the 16 applications approved by the Board, together with other pertinent information, is shown in Table '! I, p»ges 270-91. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements and/or orders of the Board with respect to all bank merger applications, whether approved or disapproved, are released immediately to the press and the public and are published in the Federal Reserve Bulletin. These statements and/or orders set forth the factors considered, the conclusions reached, and the vote of each Board member present. Bank holding companies. During 1971, pursuant to the provisions of the Bank Holding Company Act of 1956, as amended, the numbers of proposals acted on by the Board, and the Federal Reserve Banks under delegated authority, were as follows: Board Reserve Banks Section Approved Denied Approved Permitted Section 3(a) (1) 51 2 14 3(a) (3) 143 15 4(c) (8) 6 1 71 4(c) (12) 1 45 4(d) 2 Board statements and/or orders with respect to applications, whether approved or denied, are released immediately to the press and the public and are published in the Federal Reserve Bulletin. The statements and/or orders set forth the factors considered, the conclusions reached, and the vote of each Board member present. Federal Reserve Bank actions are made available to the press and the public in the Board's weekly H.2 publications. Annual reports for 1970 were obtained from all registered bank holding companies pursuant to the provisions of Section 5(c) of the Act. At the end of 1971, there were 153 multibank holding companies in operation. In addition, pursuant to the Bank Holding Company Act Amendments of 1970, approximately 1,450 one-bank holding companies had filed registration statements with the Federal Reserve System. Foreign branches of member banks. At the end of 1971, 91 member banks had in active operation a total of 577 branches in 67 foreign countries and overseas areas of the United States; 67 national 225 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

[Tabulation referred to on facing page.] Abu Dhabi ........ 1 Luxembourg ...... . Argentina ....... 38 Malaysia. ,.,....,... Austria ........ . Mariana Islands ...... BahamaN . . . . .... Marshall Islands ..... Bahrain .......... Mexico ............. Barbados .......,. Netherlands ......... Belgium . . ...... Netherlands Antilles . . 3 Bolivia ........... Nicaragua .......... 3 Brazil ............ I )klnawa ........... 2 Canal Zone . , . .. Pakistan ............ 4 Chile ............ Panama ... ........ 29 Colombia . , . . . . . . Paraguay ........... 6 Dominican Republic Peru ........ ...... X Dubai ............ Philippines .......... 4 Ecuador ...,,.,.,. Puerto Rico ......... f:l Sahador ....... Qatar .......... . . Fiji IslatuK .,...,., Saudi Arabia ........ F;rance . ......... 15 Singapore .......... Germany ...... . 22 Switzerland ......... S Greece .......... 13 1 aiwan ............. 2 Guam ......... . 4 1 hailand , . . . ...... 2 Guatemala ....... Trinidad and Tobago .. Guyana .......... Tracial Slate oi Sharjah 1 Haiti ......... . Truk islands ........ 1 Honduras ...... . I 'ulted Kingdom ..... 45 Hong Kong ...... Uruguay ............ 4 India ..."....... II \cnezuela ...,.,..., 4 Indonesia ........ b Vietnam ............ 2 Ireland ... ..,.,, 3 Virgin Islands (U.S.) . 19 Israel ... ...... Virgin Islands (British) 3 I tidy ...... ..... Jamaica . ....... Japan .,....,,... !5 Other (West Indies) 10 Korea . . . . ...... Lebanon ....... 3 Liberia . . _ . . . . .. 2 Total ............ 577 226 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

hanks were operating 527 of these branches, and. 24 State member natiks were operating 50 such branches. The number and location. of these foreign branches were as shown in the tabulation on page Under the provisions of the Federal Reserve Act •; Section 25 as to national banks and Sections 9 and 25 as to Stale member banks), I he Board of Governors during the year 1971 approved 69 applications made by member banks for permission to establish branches in foreign countries and overseas areas of the United States, During 1 he year, member banks opened 57 branches overseas and closed 16. Acceptance powers of member banks. During 1.971 the Board approved the application of four member banks, pursuant to the pro- \isions of Section 13 of the Federal Reserve Act, for increased acceptance powers; it granted the banks permission to accept commercial drafts or bills up to 100 per cent of paid-up and unimpaired capital stock and, surplus. Foreign banking and financing corporations. At the end of 1^71 there were five corporations operating under agreements w.?th the Board pursuant to Section 25 of the Federal Reserve Act relating lo investment by member banks in the stock of corporations engage J principally in international or foreign banking. Three of these "agre»i • ment" corporations have head offices in New York, and, one h<i: its head office in Miami, Florida. The four corporations were examined during the year by examiners for the Board of Governors. The fifth agreement corporation is a national, bank in the Virgin Islands and is owned by a State member bank in Philadelphia. During 1971, under the provisions of Section ?>(a) of the Fedoral Reserve Act, the Board issued final permits u> 10 corporations in engage in international or foreign banking or other international or foreign financial operations, and 10 corporations commenced operations. At the end of the year there were 80 corporations in active operiflion under Section 25(a); 36 haw home offices in New York. Cilv. 5 each in Philadelphia and Miann; 4 each in Boston, Chicago, 1 os Anodes, and San,, Fran.ci.sco; 3 in iVUoit; 2 each in Atlanta, Dallas, and Seattle; and one each in Cu •^•lund, Indianapolis, Minneapolis, Norfolk, Pittsburgh, Portland (Oregon}, Richmond, St. Louis, and Winston-Salem. One of the corporations with headquarters in Seattle has 5 branches in Hong Kong; one of the corporations in 227 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Philadelphia and one in New York operate branches in London; one New York corporation and two Detroit corporations operate branches In Nassau; and one New York corporation operates a branch in, Luxembourg. Examiners fo? \\a B«i.\K* H Governors examined 79 of these corporations during i°"l Actions under delegation of auth"r?f\\ P'lra^nt to the provisions of Section ll(k) of the Federal RWMM- ^C the Board of Governors has delegated to the Resent bank:* i I I authority to apl*'iove, on behalf of the Board, certain applications of State member iv.mks to establish domestic branches, to Invest in bank premises, to ik-clare certain dividends, and to grant a waiver of 6 months' notice by a bank of its intention to withdraw from membership In the Federal Reserve System, and (2) certain other authorities. Under authority granted in (1) above, the Reserve Banks approved 205 bianch applications, 57 investments in bank premises, and 16 waivers .»!' notice of intention to withdraw from membership in the Federal Reserve System,. Under authority granted in i 2) above, the Reserve I<anks approved 843 applications. The Board has delegated to the Director or Acting Director of the Division of Supervision, and Regulation authority to approve certain applications to establish domestic brandies and various other authorities. Under this authority 7 branches were approved and 450 other actions were taken. In addition, the Director or Acting Director of the Division of Supervision and Regulation Is authorized under Seclion !8{V)(4) of the Federal Deposit Insurance Act (12 U.S.C. IS2N(c) ( 4) } to furnish to the Comptroller of the Currency and the Fixleral Deposit Insurance Corporation reports on competitive fetors Involved In a bank merger required to be approved by one i*f those agencies if each of the appropriate departments or divisions ^i the appropriate Federal Reserve Bank and the Board, of Governor v, of the view that the proposed merger either would have no advei v competitive effects or would have only slightly adverse competiti •, o cfleets, and If no member of the Board has Indicated an objection prior to the forwarding of the report to the appropriate agency. Under this authority 127 competing IM-VK reports were approved. Bank Examination Schools. \.\ 19 -;! the Board's Bank Examination School conducted one sesM^n ^» <n<: School, for Examiners, two sessions of the School for Assistant Examiners, and one session of the 228 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

School for Trust Examiners. The Bank Examination School was established in 1952 by the three Federal bank supervisory agencies, and from 1962 through 1970 was conducted jointly by the Federal Reserve System and the Federal. Deposit Insurance Corporation. Since the establishment of this program, 4,608 persons have attended the various sessions. This number includes representatives of the Federal bank supervisory agencies; the State Banking Departments of Arkansas, Arizona, California, Connecticut, Florida, Idaho, Indiana, Kentucky, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York:, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, and Wyoming; the Treasury Department of the Commonwealth of Puerto Rico; and 19 foreign, countries. Truth In Lending, A report entitled Annual Report to Congress on Truth in Lending -. . . L i L .„; ,J:i was submitted separately, pursuant to the Truth • < ', .-.u! ':•- ' r< "» :le 1 of the Consumer Protection Act (Public La • l< > ' Pair Credit Repo <',e ».• \ \ ,* '< oard of Governors of the Federal Reserve System, e •(•'-;..•!' of the Currency, the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board joined in issuing the pamphlet, Financial Institutions and the Fair Credit Reporting Act. This pamphlet, designed to assist financial Institutions in developing a working knowledge of the Act and its requirements, Indicates how the four Federal agencies view f.jovisions of t.U : :• '. ' :•<• H<, ;> ring Act (Public Law 91.-508) '"^r enforceme: ! }"•'." «... , '•.- < <; • •.• ncy distributed copies of the /.'imphlet in M « 'i; < • -'i ;•,.<« ,al institutions under its super- '•; ion. D 229 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks Examination of Federal Reserve Banks. The Board's Division of Federal Reserve Bank Operations examined the 12 Federal Reserve Banks, 24 branches, and 2 facilities during the year, as required by Section 21 of the Federal Reserve Act. In conjunction with the examination of the Federal Reserve Bank of New York, the Board's examiners also audited the accounts and holdings related to the System Open Market Account and the foreign currency operations conducted by that Bank in accordance with policies formulated by the Federal Open Market Committee, and rendered reports thereon to the Committee. The procedures followed by the Board's examiners were surveyed and appraised by a private firm of certified public accountants, pursuant to the policy of having such reviews made on an annual basis. Miami office opened. In October 1971 the Federal Reserve Bank of Atlanta announced the opening of a new office in Miami, Florida, the first new office to be established for the provision of services to commercial banks since the Charlotte Branch of the Federal Reserve Bank of Richmond was opened in 1927. The Miami office is providing currency and coin, and check collection services to the following 13 counties in southern Florida: Broward, Charlotte, Collier, Dade, Glades, Hendry, Indian River, Lee, Martin, Monroe, Okeechobee, Palm Beach, and Saint Lucie. The Miami office provides currency and coin services in the same manner as provided by all Federal Reserve Banks and branches. Check collection services provide that all commercial banks in the area served settle their depositors' checks on the day of presentation. Earnings and expenses. The table on page 232 summarizes the earnings, expenses, and distribution of net earnings of the Federal Reserve Banks for 1971 and 1970. Current earnings of $3,723 million in 1971 were 4 per cent lower than in 1970. The principal decreases in earnings were as follows: on U.S. Government securities, $77 million; on foreign currencies, $46 million; and on discounts and advances, $30 million. Current expenses were $56 million, or 17 per cent, more than in 231 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1970. Statutory dividends to member banks amounted to $43 million, an increase of $2 million from 1970. This rise in dividends reflected an increase in capital and surplus of member banks and a consequent increase in the paid-in capital stock of the Federal Reserve Banks. Payments to the Treasury as interest on Federal Reserve notes totaled $3,357 million for the year, compared with $3,494 million in 1970. This amount consists of all net earnings after dividends and the amount necessary to bring surplus to the level of paid-in capital. EARNINGS, EXPENSES, AND DISTRIBUTION OF NET EARNINGS OF FEDERAL RESERVE BANKS, 1971 AND 1970 In thousands of dollars Item 1971 1970 Current earnings 3,723,370 3,877,218 Current expenses 377,185 321,373 Current net earnings 3,346,185 3,555,845 Net addition to current net earnings 94,266 11,442 Net earnings before payments to U.S. Treasury 3,440,451 3,567,287 Dividends paid 43,488 41,136 Payments to U.S. Treasury (interest on F.R. notes) 3,356,560 3,493,571 Transferred to surplus 40,403 32,580 A detailed statement of earnings and expenses of each Federal Reserve Bank during 1971 is shown in Table 7 on pages 252 and 253 and a condensed historical statement in Table 8 on pages 254 and 255. Holdings of loans and securities. The table on page 233 shows holdings, earnings, and average interest rates on loans and securities of the Federal Reserve Banks during the past 3 years. Average daily holdings of loans and securities during 1971 amounted to $65,820 million—an increase of $6,748 million over 1970. Holdings of discounts and advances decreased $413 million, 232 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

RESERVE BANK EARNINGS ON LOANS AND SECURITIES, 1969-71 Discounts Accept- U.S. Item and year Total and ances Govt. advances securitiesl In millions of dollars Average daily holdings:2 1969 55,198 1,102 67 54,029 1970 59,072 826 65 58,181 1971 65,820 413 81 65,326 Earnings: 1969 3,250.8 65.3 4.7 3,180.8 1970 3,827.1 50.6 4.7 3,771.8 1971 3,719.6 20.9 4.0 3,694.7 In per cent Average rate of interest: 1969 5.89 5.93 7.01 5.89 1970 6.48 6.13 7.23 6.48 1971 5.65 5.06 4.94 5.66 1 Includes Federal agency obligations. 2 Based on holdings at opening of business. whereas there were increases of $7,145 million in U.S. Government securities and $16 million in acceptances. The average rates of interest on holdings were down from 6.13 per cent to 5.06 per cent on discounts and advances, from 7.23 per cent to 4.94 per cent on acceptances, and from 6.48 per cent to 5.66 per cent on U.S. Government securities. Volume of operations. Table 9 on page 256 shows the volume of operations in the principal departments of the Federal Reserve Banks for 1968-71. Both the number and dollar amount of loans declined again as the number of banks borrowing dropped from 1,416 to 892. Continuing growth in the movement of funds is reflected in significant increases in the volume of checks handled and in transfers of funds. Of the total checks handled, 323,718,000 items or 4.20 per cent, were processed by the new regional clearing facility at 233 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Miami, the expanded metropolitan clearing arrangement at Denver, and the Washington/Baltimore regional clearing center. The volume of food stamps redeemed again rose sharply to just under 2 million. On tie other hand, the number of transactions in U.S. Government securities decreased to the lowest level in 4 years. Although the number of coins received and counted by the Reserve Banks was only slightly higher, a significantly greater number of coles were shipped to the Banks and paid out to the public, including approximately $ 1 11 million in new Elsenhower dollars during the last 2 mohths of the year. For the first time, Table 9 shows the volume and dollar amount of unit currency verified and destroyed by the Rese,r¥e Banks and branches, The volume of this activity has been increasing steadily, reflecting the larger amounts of currency In circulation. Payments mechanism developments. A Board of GoYeriiors policy statement issued on June 17, 1971. placed, high priority on Federal Reserve System efforts to i nip rove the Nation's payments system by extending the present clearing arrangements In cities with Federal Reserve offices and by establishing other regional clearing facilities. In May 1971 the Denver Branch extended clearing arrangements to Include 110 hanks located on the eastern slope of the Rocky Mountains. Clearing arrangements surrounding the Kansas City, Minneapolis, and Baltimore Federal Reserve offices had been expanded in 1969 or 1970; As previously noted, a new facility at Miami was opened in October 1971 by the Federal Reserve Bank of Atlanta to provide currency and coin and check collection services for 13 counties In southern Florida. The Federal Reser¥e Bank of San Francisco announced that, beginning In 1972 all commercial banks within the Twelfth District 5 would settle checks on the day of presentation by Federal Reserve offices, A simulation model of the Nation's check collection system was constructed for the Board by TRW of Redondo Beach, California. The System Steering Committee OE Impro¥lng the Payments Mechanism, will use the model to evaluate potential lmpro¥ements in the payments mechanism. Loan guarantees for defense production. Under the Defense Production Act of 1950, the Departments of the Army, Navy, and 234 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Aii Foiee, the iicfVnsc Sup»H\ /Nt'rnv \ of" Ms*.* htj^jiMiuil -I < ^ (ease, the Departments ot Commerce, Interior, and Agriculture, trie General Services Administration, the National Aeronautics and Space Administration, and the Atomic Energy Commission, are authorized to guarantee loans for defense production made by commercial banks and other private financing institutions. The Federal Reserve Banks act as fiscal agents of the guaranteeing agencies under the Board's Regulation V. During -1971 the guaranteeing agencies authorized the issuance of one new guarantee agreement covering a loan of $85,000, Loan authorizations outstanding on December 31, 1971, totaled $53 million, of which more than $52 million represented outstanding loans and $200,000 represented additional credit available to borrowers. Of total loans outstanding, 18 per cent on. the average was guaranteed. During the year approximately $12 million was disbursed on guaranteed loans, most of which are revolving credits. Authority for the V-loan program, unless extended, will terminate on June M) 1972. A Table 11 on page 257 shows guarantee fees and maximum. interest rates applicable to Regulation V loans. Foreign and international accounts. Assets held for account of foreign countries at the Federal Reserve Banks increased $28,108 million in 1971. At the end of the year they amounted to $56,398 million: $10,632 million of earmarked gold; $43,195 million, of U.S. Government securities (including securities payable in foreign, currencies); $294 million in dollar deposits; $254 million of bankers' acceptances purchased through Federal Reserve Banks; and $2,023 million of miscellaneous assets. The latter item consists mainly of dollar bonds Issued by foreign countries and international organizations. Assets held for international and regional organizations, including IMF gold deposits, ir<uv;!M'd Sj.7*>2 million to $ I !.:'[. million. In !()7I a new account wa^ upcircJ in \lic name of tiu \ ^:>' • t*iijTt*iie\ Board. An account in the name of the National BM>\ O| the C/itfifjp was changed to the Bank of Zaire. I he 1 ederal Reserve Banks did not make any loans oe gold in I*;?!. ilic iVderal Reserve Bank of New York continued to act as de- 235 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

positary and fiscal agent for international and regional organizations. As fiscal agent of the United States, the Bank con.tln.ued to operate the Exchange Stabilization Fund pursuant to authorization and Instructions of the Secretary of the Treasury, Also on behalf of the 'heasury Department, it administered foreign assets control regulations pertaining to assets in the United States of North Vietnam, C uba, the People's Republic of China (pertaining to assets blocks K fore May 7, 1971), and North. Korea, and their nationals, and transactions with those countries and their nationals. The Foreign Assets Control Regulations were amended to remove controls on ti"1 use of dollars in transactions with the People's Republic of Chi>.:« and its nationals entered into on or after May 7, 1971. Bank premises. With the approval of the Board,, the Boston K'deral Reserve Bank acquired the ren.iaIni.Eg parcel of land needed lot* its tu;Vw JMItiding site, 1'iihic o on \\ige 251 shows the cost and "book value of bank promises cuit^d and occupied by the Federal Reserve Banks a:H i-f real estate acquired for banking-house purposes. 236 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board of Governors Income and expenses. The accounts of the Board for the year 1971 were audited by the public accounting firm of Lybrand, Ross Bros. & Montgomery. ACCOUNTANTS' OPINION Board of Governors of the Federal Reserve System We have examined the balance sheet of the Board of Governors of the Federal Reserve System as of December 31, 1971, and the related statement of assessments and expenses for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the balance sheet and related statement of assessments and expenses present fairly the financial position of the Board of Governors of the Federal Reserve System at December 31, 1971 and the results of its operations for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Lybrand, Ross Bros. & Montgomery Washington, D. C. February 8, 1972 237 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

BOARD m GOVERNORS O»- HIE FEDERAL RESERVE SYSTEM B-\! \Nt'E SHEET DK-I-MBER 31, 1971 ASSETS OPERATING FUND: Cash.................................................... ,2tf Miscellaneous receivables and advances..................... 58 Stockroom and cafeteria Inventories at first-in, first-out cost. . . 39, il>5 Total operating fund.............................. 5 Sill PROPERTY FUND: Land and improvements...... 792,852 Building.................... 284, 18! Furniture and equipment..... i .hi 3. 599 Construction in, progress..... 9,77!,715 Total property fund. 16,522,347 S22, ,975 LIABILITIES AND FUND BALANCES OPERATING FUND: Current liabilities: Accounts payable and accrued expenses. ........ $1,722,014 Income taxes withheld........................ 157,997 Accrued payroll.............................. 327,602 S 2,207,613 Fund balance: Balance, January 1, 1971...................... 1,120,546 Excess of assessments over expenses for the year ended December 31, 1971................. 2,269,469 3,390,015 Total operating fund................................ 5,597,628 PROPERTY FUND: Fund balance: Balance, January 1, 1971...................... 8,868,106 Additions................................. 7,720,419 Property adjustments and disposals........... (66,178) 16,522,347 S22,IIM,975 The accompanying notes are an integral part of the financial statements. [See page 240 for notes.] 238 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

BOARM « i» In VERNORS OF THE FEDERAL RESERVE SYSTEM STATEMENT OF ASSESSMENTS AND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1971 ASSESSMENTS LEVIED ON FEDERAL RESERVE BANKS; For Board expenses and additions to property.................. $32,634,000 For expenditures made on behalf of the Federal Reserve Banks..... 22,882,713 Total assessments.................................. 55,516,713 \ PENSES : I '.xpenditures for printing, issue and redemption of Federal Reserve Notes, paid on behalf of the Federal Reserve Banks. ......... 22,882,713 For the Board; S^iries. .................................... $15,101,752 Hi urement and insurance contributions, ........ 2,005,986 I i»vel expenses.............................. 687,419 I ual, consultant and audit fees................ 431,034 i i 'Utractual services........................... 346,746 I*'siting and binding—net..................... 628,287 I jtiipment and other rentals................... 2,189,655 ! -lephone and telegraph...................... 27l~ ,489 V tstages and expressage..........:............ 227,229 s • tionery, office and either supplies,............ 194,298 iK!ut, light and power.......""................ 93,778 < »i oration of cafeteria—net.................... 121,319 Repairs, maintenance and alterations,........... 194,128 !!• Hiks and subscriptions....................... 52,855 S'^tem membership, Center for Latin American ' Monetary Studies........................... 28,338 Miscellaneous—net........................... 135,977 "??.Till. 2911 For property additions...................................... 7 , (-.^4 , 241 Total expenses..................................... '^",247,214 I \CESS OF ASSESSMENTS OVER EXPENSES, ......................... \ 2 KM. iw The accompanying notes are an integral part of the financial statements. (See page 240 for not.es.] 239 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM NOTES TO FINANCIAL STATEMENTS ACCOUNTING METHODS The Board has consistently followed the practice of not providing for depreciation on fixed assets. Acquisitions are charged to expense and proceeds from sales of fixed assets are recorded as income. The property accounts are increased or reduced at full cost, with corresponding increases or decreases In the property fund balance when property is acquired or sold, Assessments and expenditures made on behalf of the Federal Reserve Banks for the printing, issuance and redemption of Federal Reserve Notes are recorded on. the cash basis and produce results which are not materially different from, those which would have been produced on the accrual basis of accounting. LONG-TERM LFASES The Board leases outside office space at an annual rental of $667,918 under leases -expiring in 1973. These leases may be terminated with six months notice. CONSTRUCTION The Martin Building and North Garage are currently under construction. Estimated cost is $39,400,000, a portion of which will be recovered from the Department of Interior under an agreement whereby the Board will build the North Garage (including the above ground park). The garage will be for the use of both Federal Reserve and Department of Interior employees. RETIREMENT PLANS There are two contributory retirement programs for employees of the Board, About 77% of the employees are covered by the Federal Reserve Board plan. All new members of the staff who do not come directly from a position in the Government are covered by this plan. The second, the Civil Service Retirement Plan, covers all new employees who come directly from Go¥ernment service. Employee contributions and benefits are the same under both plans aiiit are based upon the Civil SerYice Plan. Under the Civil Service Plan, Board contributions match employee payroll deductions while under the Federal Reserve Plan, Board contributions are actuarially determined annually. Additionally, employees of the Board have been authorized to- participate in the Federal Reserve System's Thrift Plan. Under this plan, the Board adds a fixed percentage to allowable employee savings. Total Board contributions to these plans In 1971 totaled $1,831,173, There are no unfunded prior service costs under either plan, 240 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

(Statistical Tables Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1. DETAILED STATEMENT OF CONDITION OF ALL FEDERAL RE- SERVE BANKS COMBINED, DECEMBER 31, 1971 (In thousands of dollars) ASSETS Gold certificates on hand 1,278 Gold certificates due from U.S. Treasury: Interdistrict settlement fund 7,204,114 F.R. Agents' fund 2,670,000 Total gold certificate account 9,875,392 Special Drawing Rights certificate account 400,000 F.R. notes of other F.R. Banks 1,134.453 Other cash: United States notes 146 Silver certificates 18 National bank notes and F.R. Bank notes 25 Coin 259,819 Total other cash : 260,008 Discounts and advances secured by U.S. Govt. obligations: Discounted for member banks 39,337 Discounted for others 39,337 Other discounts and advances: Discounted for member banks 160 Foreign loans on gold 160 Total discounts and advances 39,497 Acceptances: Bought outright 79,663 Held under repurchase agreement 180,919 Federal agency obligations: Bought outright 485,010 Held under repurchase agreement 101,400 U.S. Govt. securities: Bought outright: Bills 30,155,445 Certificates Notes 35,553.883 Bonds 3.286,326 Total bought outright 68,995,654 Held under repurchase agreement 1,222,305 Total U.S. Govt. securities 70,217.959 Total loans and securities 71.104.448 Cash items in process of collection: Transit items 14,797,423 Exchanges for clearing house 299,567 Other cash items 552,283 Total cash items in process of collection 15,649.273 Bank premises: Land 37,621 Buildings (including vaults) 114,347 Fixed machinery and equipment 72,381 Construction account 46,622 Total buildings 233,350 Less depreciation allowances 119,336 114,014 Total bank premises 151,635 Other assets: Claims account closed banks , Denominated in foreign currencies 17,109 Gold due from U.S. Treasury for account International Monetary Fund 143,914 Reimbursable expenses and other items receivable 7,750 Interest accrued f , 615,876 Premium on securities ,.. 61,920 Deferred charges 3,415 Real estate acquired for banking-house purposes 22,697 Suspense account 39,265 AH other 5,430 Total other assets. , , , 917,376 Total assets ,,...,,. 99,492,585 242 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

I.—CONTINUED LIABILITIES F.R. notes: Outstanding (issued to F.R. Banks) 57,489,206 Less: Held by issuing F.R. Banks 2,506,942 Forwarded for redemption 26,523 2,533,465 F.R. notes, net (includes notes held by U.S. Treasury and by F.R. Banks other than issuing Bank) 54.955,741 Deposits: Member bank reserves 27,747,574 U.S. Treasurer—General account 2,027,019 Foreign 294,042 Other deposits: Nonmember bank—Clearing accounts 55,445 Officers' and certified checks 13,659 Reserves of corporations doing foreign banking or financing 79,185 International organizations 249,554 Secretary of Treasury special account 267,860 All other 708,544 Total other deposits 1,374,247 Total deposits 31.442.882 Deferred availability cash items 10,962,678 Other liabilities: Accrued dividends unpaid Unearned discount 503 Discount on securities 592,367 Sundry items payable 11,559 Suspense accounts 41,314 All other 1,173 Total other liabilities. 646.916 Total liabilities <>8.008.217 CAPITAL ACCOUNTS Capital paid in 742,184 Surplus 742,184 Other capital accounts x Total liabilities and capital accounts 99,492,585 Contingent liability on acceptances purchased for foreign correspondents 254,486 1 During the year this item includes the net of earnings, expenses, profit and loss items, and accrued dividends, which are closed out on Dec. 31; see Table 7, pp. 252 and 253. NOTE.—Amounts in boldface type indicate items shown in the Board's weekly statement of condition of the F.R. Banks. 243 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

•^ 2. STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK, DECEMBER 31, 1971 AND 1970 (In millions of dollars unless otherwise indicated) Total Boston New York Philadelphia Cleveland Richmond Item 1971 1970 1971 1970 1971 1970 1971 1970 1971 1970 1971 1970 ASSETS Gold certificate account 9,875 10,457 572 591 1,957 1,942 471 721 973 1,095 894 1,044 Special Drawing Rights certif. acct 400 400 23 23 93 93 23 23 33 33 36 36 F.R. notes of other F.R. Banks 1,135 1,063 144 131 164 187 82 60 69 67 100 83 Other cash 261 221 9 10 21 20 11 10 27 25 38 13 Discounts and advances: Secured by U.S. Govt. securities 39 22 * 17 16 * 3 Other 312 88 Acceptances: Bought outright . . . 80 57 80 57 Held under repurchase agreements 181 181 Federal agency obligations: Bought outright 485 23 117 27 39 36 Held under repurchase agreements 101 101 U.S. Govt. securities: Bought outright 1 68,996 1 62,142 3,334 3,040 16,714 15,844 3,823 3,261 5,492 4,848 5,162 4,626 Held under repurchase agreements 1,222 1,222 Total loans and securities 71,104 62,533 3,357 3,040 18,432 16,005 3,850 3,261 5,531 4,848 5,201 4,626 Cash items in process of collection 15,648 14,249 840 780 2,922 2,810 803 694 981 912 1,088 996 Bank premises 150 128 2 2 8 8 3 3 24 12 13 11 Other assets: Denominated in foreign currencies . ... 17 257 1 12 4 68 1 13 2 23 1 13 IMF gold deposited 2 144 166 144 166 All other 757 572 58 42 183 145 39 30 54 43 53 45 Total assets 99,491 90,046 5,006 4,631 23,928 21,444 5,283 4,815 7,694 7,058 7,424 6,867 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

LIABILITIES F.R. notes 54,954 51,386 2,925 2,919 13,462 12,196 3,237 ? 934 4 473 4,198 4 803 4 604 Deposits: Member bank reserves 27,748 24,039 1,116 875 6,960 6,162 1,164 163 969 1,813 515 1,307 U S Treasurer—General account 2,020 1 149 52 387 337 155 64 164 76 98 39 Foreign . . .. 294 148 13 6 88 56 14 6 ?5 11 14 7 Other: IMF gold deposits 2 144 166 144 166 All other 1,237 1,067 17 15 706 571 24 17 33 24 41 29 Total deposits 31,443 ?6, 576 1,295 948 8,285 7,292 1,357 j 250 2,191 1,924 j 668 1 382 Deferred availability cash items 10,963 10,098 689 669 1,627 1,439 581 529 847 764 834 767 Other liabilities and accrued dividends 647 582 29 29 168 147 32 30 47 46 43 42 Total liabilities 98,007 88 64? 4,938 4,565 23,542 21,074 5,207 4 743 7,558 6,932 7,348 6 795 CAPITAL ACCOUNTS Capital paid in 742 70? 34 33 193 185 38 36 68 63 38 36 Surplus 742 702 34 33 193 185 38 36 68 63 38 36 Other capital accounts Total liabilities and capital accounts. 99,491 90,046 5,006 4,631 23,928 21,444 5,283 4,815 7,694 7,058 7,424 6 867 Contingent liability on acceptances purchased for foreign correspondents 254 250 12 12 66 66 13 13 23 22 13 13 F.R. NOTE STATEMENT F.R. notes: Issued to F.R. Bank by F.R. Agent and 3Utstanding.... 57,490 745 3,107 3,055 14,063 12,811 3,335 3,003 4 691 4,368 4,962 4 741 Less held by issuing Bank, and forwarded for redemption 2,536 2,359 182 136 601 615 98 69 218 170 159 137 F.R. notes, net3 54,954 51,386 2,925 2,919 13,462 12,196 3,237 2,934 4,473 4 198 4,803 4 604 Collateral held by F.R. Agent for notes issued to Bank: Gold certificate account. 2,670 3 330 175 250 500 500 300 300 350 510 485 610 U.S. Govt. securities 55,875 51 415 3,000 2,840 13,800 12,400 3,150 2,800 4,400 3 900 4 520 4 160 Total collateral 58,545 54,745 3,175 3,090 14,300 12,900 3,450 3,100 4,750 4 410 5 005 4,770 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2. STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK, DECEMBER 31, 1971 AND 1970—Continued (In millions of dollars unless otherwise indicated) Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Item 1971 1970 1971 1970 1971 1970 1971 1970 1971 1970 1971 1970 1971 1970 ASSETS Gold certificate account 375 555 1,785 2,210 346 469 25 161 546 424 98 199 1,833 1,046 Special Drawing Rights certif. acct 22 22 70 70 15 15 7 7 15 15 14 14 49 " 49 F.R. notes of other F.R. Banks. . . 205 222 82 60 40 32 31 31 41 37 48 40 129 113 Other cash 32 30 28 32 17 12 8 6 26 17 14 14 30 32 Discounts and advances: Secured by U.S. Govt. securities 3 3 * 1 * 5 3 10 Other 224 Acceptances: Bought outright Held under repurchase agreements Federal agency obligations: Bought outright 27 79 19 9 20 22 67 Held under repurchase agreements U.S. Govt. securities: Bought outright 3,784 3,229 11,282 9 786 2 649 2,279 1 252 1 219 2,795 2 427 3 180 2 814 9 529 8 769 Held under repurchase agreements Total loans and securities 3,811 3,229 11,364 10 013 2 668 2,279 1,262 1,219 2,820 2 430 3 202 2 814 9 606 8 769 Cash items in process of collection 1,528 1,456 2,498 2,327 854 671 709 467 969 929 1,102 874 1,354 1,333 Bank premises 16 17 16 17 15 12 19 12 17 18 9 8 8 8 Other assets: Denominated in foreign currencies 1 17 2 38 1 9 * 6 1 11 1 14 2 33 IMF gold deposited 2 All other 41 28 113 86 26 20 15 10 28 21 33 25 114 77 Total assets 6,031 5,576 15,958 14,853 3,982 3,519 2,076 1,919 4,463 3,902 4,521 4,002 13,125 11,460 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

LIABILITIES F R notes 2,809 2,645 9 573 9,003 2,119 1,951 914 875 ,045 1,878 133 946 6,461 6,237 Deposits: Member bank reserves 1,725 1,606 3,751 3,430 1,015 885 682 623 1,328 1,104 1 437 1257 5,086 3,814 U S Treasurer—General account 139 79 255 103 154 74 59 49 164 96 83 57 213 130 Foreign ... 19 8 42 19 10 4 6 3 12 5 16 7 35 16 Other: IMF gold deposits2 All other 57 15 137 282 27 11 13 5 81 12 20 15 81 71 Total deposits 1,940 1,708 4 185 3,834 1,206 974 760 680 1,585 1,717 1 556 1 336 5,415 4,031 Deferred availability cash items 1,150 1,100 1,884 1,714 585 525 356 320 746 724 715 617 949 930 Other liabilities and accrued dividends 32 29 94 92 22 21 12 12 23 23 35 25 110 86 Total liabilities 5,931 5,482 15,736 14,643 3,932 3,471 2,042 1,887 4,399 3,842 4,439 3 924 12,935 11,284 CAPITAL ACCOUNTS Capital paid in 50 47 111 105 25 24 17 16 37 30 41 39 95 88 Surplus 50 47 111 105 25 24 17 16 32 30 41 39 95 88 Other capital, accounts Total liabilities and capital accounts. 6,031 5,576 15,958 14,853 3,982 3,519 2,076 1,919 4,463 3,902 4,521 4,002 13,125 11,460 Contingent liability on acceptances purchased for foreign correspondents 17 16 38 37 9 8 6 5 11 11 14 14 32 33 F.R. NOTE STATEMENT F.R. notes: Issued to F.R. Bank by F.R. Agent and outstanding. . 3,039 2,857 9,909 9,340 2,212 2,037 948 911 ,124 1,956 ,061 6,825 6,605 Less held by issuing Bank, and forwarded for redemption 230 212 336 337 93 86 34 36 79 78 142 115 364 368 F.R. notes, net3. . . 2,809 2,645 9,573 9,003 2,119 1,951 914 875 2,045 1,878 2,133 1,946 6,461 6,237 Collateral held by F.R. Agent for notes issued to Bank: Gold certificate account 700 1,000 155 155 5 5 U.S. Govt. securities 3,100 2,900 9,300 8,450 2,130 1,930 970 930 2,175 1,975 2,330 2,130 7,000 7,000 Total collateral 3,100 2,900 10,000 9,450 2,285 2,085 970 930 2,175 1,975 2,335 2,135 7,000 7,000 • Less than $500,000. the IMF under quota increases. The United States has a corresponding gold * Includes securities loaned—fully secured by U.S. Govt. securities pledged liability to the IMF. with F.R. Banks. 3 Includes F.R. notes held by U.S. Treasury and by F.R. Banks other than the 2 Gold deposited by the IMF to mitigate the impact on the U.S. gold stock of issuing Bank. purchases by foreign countries for the purpose of making gold subscriptions to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

3. FEDERAL RESERVE BANK HOLDINGS OF U.S. GOVERNMENT AND FEDERAL AGENCY SECURITIES, DECEMBER 31, 1969-71 (In thousands of dbllars) Increase or decrease (—) Rate of December 31 during— Type of issue interest and date (per cent) 1971 1970 1969 1971 1970 Treasury bonds: 1965-70 573,540 573,540 1966-71 155,007 154,007 -155,007 1,000 1967-72 June 89,066 58,066 55,566 31,000 2,500 1967-72 Sept...... 107,652 88,652 47,552 19,000 41,100 1967-72 Dec 130,358 125,358 99,858 5,000 25,500 1970 Feb 107,850 107,850 1970 Aug 169,750 169,750 1971 Aug 188,400 184,400 ' -i88,'406" 4,000 1971 Nov 259,650 255,900 -259,650 3,750 1972 Feb 196,650 196,650 165,650 31,000 1972 Aug 149,250 125,950 120,050 23,300 5,900 1973 Aug 264,150 199,150 179,150 65,000 20,000 1973 Nov 379,950 312,400 295,350 67,550 17,050 1974 Feb 180,300 140,900 123,650 39,400 17,250 1974 May 291,850 254,450 239,650 37,400 14,800 1974 Nov 67,500 52,700 46,700 14,800 6,000 1975-85 124,440 98,740 90,340 25,700 8,400 1978-83 76,250 18,750 6,250 57,500 12,500 1980 Feb 121,700 73,200 66,200 48,500 7,000 1980 Nov 73,450 40,950 33,850 32,500 7,100 1981 Aug 105,000 105,000 1985 May 46,800 31,300 27,800 15,500 3,500 1986 Nov 206,770 206,770 1987-92 462,165 337,900 285,200 124,265 52]700' 1988-93 24,300 23,500 23,500 800 1989-94 71,625 45,350 42,350 26,275 3,000 1990 Feb 84,250 80,450 74,450 3,800 6,000 1995 Feb 2,100 2,100 2,100 1998 Nov 30,750 30,750 25,750 5,000 Total. 3,286,326 2,940,323 3,496,413 346,003 -556,090 Treasury notes: May 15, 1970—B.. 5,297,750 -5,297,750 May 15, 1970—C.. 6,123,543 -6,123,543 Aug. 15, 1970—D.. 305,590 -305,590 Nov. 15, 1970—A.. 5 1,179,250 -1,179,250 Feb. 15, 1971— C. 53A 73,590 70,590 -73,590 3,000 Feb. 15, 1971—D.. 63,400 46,400 -63,400 17,000 May 15, 1971—A.. 5M 1,577,650 1,571,850 -1,577,650 5,800 May 15, 1971—E.. 455,799 435,599 -455,799 20,200 Aug. 15, 1971—F.. 285,890 -285,890 285,890 N N o o v v . . 1 1 5 5 , , 1 1 9 9 7 7 1 1 — — B G . . . . 5V8 7,23 8 2 0 , , 9 6 5 5 0 0 79,650 -7, - 2 8 3 0 2 , , 6 9 5 5 0 0 7,232 1 , , 9 0 5 0 0 0 Feb. 15, 1972—A.. '139,866' 137,300 "ii9,"3oo" 2,500 18,000 Feb. 15, 1972—C. 1V2 233,790 224,990 8,800 224,990 M Ap a r y . 1 1 5 , , 1 1 9 97 7 2 2 — — E B A .. \XA 2,381 1 , , 4 80 6 0 0 2,370 1 , , 6 80 1 0 0 2,357 1 , , 6 8 6 0 0 0 10,850 i2,950 May 15, 1972—D.. 6% 128,500 111,500 17,000 111,500 Aug. 15, 1972—E.. 1,345,449 ,345,449 Nov. 15, 1972—F.. 6 43,200 43,200 Feb. 15, 1973—C. 81,600 81,600 Feb. 15, 1973—D.. 1,718,000 1,718,000 May 15, 1973—A.. 2,618,093 2,607,793 130,500" 10,300 2,477,293 Aug. 15, 1973—B.. 222,500 201,500 21,000 201,500 Feb. 15, 1974—C. 249,750 180,750 69,000 180,750 May 15, 1974—D.. 1 951,750 888,250 63,500 888,250 Aug. 15, 1974—B.. 5,179,982 5,005,282 '4,'938,'382' 174,700 66,900 Nov. 15, 1974—A.. 1,849,000 1,103,150 1,092,050 745,850 11,100 Feb. 15, 1975—A.. 1,075,550 994,550 954,650 81,000 39,900 Feb. 15, 1975—E.. 31,000 31,000 May 15, 1975—B.. 3,721,797 3,707,297 3,692,297 14,500 15,000 A N A F M A N F F e e e u u o u o a b b b g g g v v y . . . . . . . . 1 1 1 1 1 1 1 1 1 5 5 5 5 5 5 5 5 5 , , , , , , , , , 1 1 1 1 1 1 1 1 1 9 9 9 9 9 9 9 9 9 7 7 7 7 7 7 7 7 7 6 7 6 8 7 5 6 6 5 — — — — — — — — — B B A A A D D C C . . . . . . . . . . . . . . . . 2 2 2 , , , 5 3 3 3 6 3 3 0 9 1 3 5 0 8 1 6 1 3 4 6 9 9 5 , , , , , , , , 7 9 5 5 7 2 8 5 9 0 0 5 0 1 0 0 7 0 0 0 0 5 0 0 2, ; 2 5 6 3 . 1 0 0 0 7 6 8 7 3 , , , , 5 0 0 7 6 6 0 0 0 0 0 0 0 0 2,5 2 1 0 9 9 6 2 6 , , , 6 1 9 6 0 0 6 0 0 2,3 3 1 9 9 2 4 8 1 3 9 2 6 8 9 5 , , , , , , , 8 7 5 2 9 0 5 5 1 9 0 5 5 0 0 0 5 7 0 0 0 0 0 0 2,2 4 2 9 1 1 1 2 1 7 5 , , , , 0 3 8 5 0 5 0 0 0 0 0 0 Nov. 15, 1978—B.. 2,461,650 2,461,650 2,201,250 2,201,250 Total 35,553,883 33,236,351 31,391,861 2,317,532 1,844,490 248 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

3. —CONTINUED Increase or decrease (—) Rate of December 31 during— Type of issue interest and date (per cent) 1971 1970 1969 1971 1970 Treasury bills: Tax anticipation 101,400 751,250 606,500 -649,850 144,750 Other due— Within 3 mos 18,670,225 14,128,084 12,522,479 4,542,141 1,605,605 3-6 mos 7,825,570 7,740,070 6,679,301 85,500 1,060,769 After 6 mos 3,558,250 3,345,450 2,456,956 212,800 888,494 Total 30,155,445 25,964,854 22,265,236 4,190,591 3,699,618 Repurchase agreements. 1,222,305 1,222,305 Total holdings 70.217.959 62,141.528 57.153,510 8.076.431 4.988.018 Maturing— Within 90 days 19,741,270 14,670,481 13,315,369 5,070,789 1,355,112 91 days to 1 year. . . . 16,583,455 21,667,359 22,707,140 -5,083,904 -1,039,781 Over 1 year to 5 years. 25,099,634 19,089,048 12,811,264 6,010,586 6,277,784 Over 5 years to 10 yrs. 7,664,150 6,045,800 7,641,947 1,618,350 -1,596,147 Over 10 years 1,129,450 668,840 677,790 460,610 -8,950 Federal agency issues: Held outright 485,010 485,010 Held under Rp's.. 101,400 101,400 4. FEDERAL RESERVE BANK HOLDINGS OF SPECIAL SHORT-TERM TREASURY CERTIFICATES PURCHASED DIRECTLY FROM THE UNITED STATES, 1954-71 (In millions of dollars) Date Amount Date Amount Date Amount Date Amount 1954 1959 I 1968 1969 Jan. 14 22 1960 Sept. 9 87 Sept. 5 322 15 169 1961 1 Dec. 10 92 6 322 16 169 1962 • none 12 45 7* 322 17* 169 1963 13 430 8 653 18 323 1964 14 430 9 830 19 424 1965 15* 430 10 1,102 20 323 16 447 11 862 21 306 17 596 12 759 22 283 13 759 23 283 1966 14* 759 24* 283 Dec. 9 169 15 513 25 203 10 169 16 972 26 3 11* 169 Mar. 15 134 1970 none 16 190 1969 1971 Apr. 8 151 June 8 79 1955 ] 1967 9 519 9 582 1956 \ none Mar. 10 149 10 490 10 610 1957 11 149 11 976 11 593 12* 149 12 976 12* 593 June 15 87 13* 976 13* 593 1958 Sept. 8 153 14 514 14 243 Mar. 17 143 9 153 15 502 15 588 18 207 10* 153 16 627 16 349 * Sunday or holiday. NOTE.—Under authority of Section 14(b) of the Federal Reserve Act. On Nov. 9, 1953, the F.R. Banks sold directly to the Treasury $500 million of Treasury notes; this is the only use that has been made under the same authority to sell U.S. Govt. securities directly to the United States. Interest rate 34 per cent through Dec. 3, 1957, and 34 per cent below prevailing discount rate of F.R. Bank of New York thereafter. Rate on purchases in 1958 was 2 per cent. For data for prior years beginning with 1942, see previous ANNUAL REPORTS. NO holdings on dates not shown. 249 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

5. OPEN MARKET TRANSACTIONS OF THE FEDERAL RESERVE SYSTEM DURING 1971 (In millions of dollars) Outright transactions in U.S. Govt. securities by maturity Total Treasury bills Other within 1 year Month Exch., c G h p r a u o s r s e - s s G sa r l o e s s s Re t d io e n m s p- c G h p r a u o s r s e - s s G sa r l o e s s s Re t d io e n m s p- c G h p r a u o s r s - e s s G sa r l o e s s s m s a h t o i u f r t r s i , ty redemp. January 1,515 1,547 327 1,515 1,547 327 February 5,832 5,153 5,347 5,153 -3,732 March 3,142 2,523 240 2,600 2, 523 240 April. 2,229 1,298 50 2,033 i,:19% 50 2 May.. 1,291 248 1,163 248 464 June 1,955 1,165 37 1,893 L,L65 37 82 July 2,067 1,617 127 2,067 l,<517 127 August. . .;. 1,818 1,024 1,709 l,<)24 991 S O e c p to te b m er ber... 2,1 7 0 7 2 2 1 1 , , 1 0 3 8 3 8 83 1,8 7 1 7 8 2 l,( ) 1 8 3 8 3 83 46 104 November... 1,883 1,070 200 1,129 I,)70 200 24 -3,548 December... 3,160 1,981 3,055 M>81 11 130 • Total... 27,765 19,847 1,064 25,101 19,8 c 47 1,064 81 -5,507 1-5 years 5-10 years Over 10 years Exch. Exch. Exch. c G h p r a u o s r s e - s s G sa r l o e s s s m s a h t o u i r f r t i s ty c G h p r a u o s r s e - s s G sa r l o e s s s m s a h t o u i r f r t i s ty c G h p r a u o s r s - e s s G sa r l o e s s s m s a h t o u i r f r t i s ty January February 174 4,092 189 -360 121 March 263 205 74 April 119 -2 62 16 May 46 -136 82 -327 June 38 -82 11 14 July August 84 -444 16 -547 8 September... 189 -104 34 14 October. November... 406 1,478 267 i,920 58 150 December... 21 -130 67 6 Total... 1,338 4,672 933 685 311 150 Repurchase Federal agency Bankers' acceptances agreements obligations (net) (U.S. Govt. securities) Net change Under Net inU.S. Repur- Out- repur- change1 Govt. Out- chase right, chase Gross Gross securities right agree- net agreepurchases sales ments ments, net January 2,298 2,298 -359 2 -357 February 4,183 4,183 679 -5 673 March 6,561 5,242 1,698 186 85 1,968 April 5,085 6,404 -439 -186 3 -85 -707 May 4,076 4,076 1,043 8 48 1,099 June 1,165 1,165 754 -1 -48 705 July 3,044 3,044 323 —7 316 August 2,184 1,951 1,027 69 -3 55 1,148 September... 3,697 3,930 698 61 -69 -55 634 October 2,616 2,616 -361 35 1 -326 November... 5,003 5,003 613 244 6 862 December... 4,830 3,607 2,401 145 101 22 181 2,850 Total... 44,741 43,519 8,076 485 101 22 181 8,866 * Less than $500,000. 1 Net change in U.S. Govt. securities, Federal agency obligations, and bankers' acceptances. NOTE.—Sales, redemptions, and negative figures reduce System holdings; all other figures increase such holdings. Digitized for FRASER 9SO http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

6. BANK PREMISES OF FEDERAL RESERVE BANKS AND BRANCHES, DECEMBER 31, 1971 (In dollars) Cost F.R. Bank Net or branch Buildings Fixed ma- bock value Land (including chinery and Total vaults)! equipment Boston 1,628,132 5,929,169 2,943,179 10,500,480 2,241,147 New York 5,215,656 13,601,153 7,753,680 26,570,489 5,264,520 Annex 592,679 1,491,116 716,472 2,800,267 477,863 Buffalo , 673,076 2,562,224 1,565,400 4,800,700 2,537,675 Philadelphia 1,884,357 5,993,559 2.154,452 10,032,368 3,281,013 Cleveland 1,295,490 6,635,177 3.572,665 11,503,332 1,015,798 Cincinnati.. 1,332,666 20,004,899 1,587,495 22,925,060 20,078,233 Pittsburgh 1,667 994 3,116,297 2,525.243 7 309,534 3,162.177 Richmond. . 2,342,774 4,546,360 2,500,681 9,389,815 3.624,550 Annex 1 146,875 256,000 2,313 405.188 225,808 Annex 2 388,263 3,435,090 2,885,898 6,709,251 6,351,960 Baltimore 801,779 2,009,381 1,097,455 3,908,615 1,786,786 Charlotte... 347,071 1,069.026 625.121 2,041,218 1.076,737 Atlanta.. . 1 304,755 5,804,778 3.558,580 10,668,113 6,545,994 Birmingham... 410,775 2,000,619 1.019,618 3,431,012 1,763,424 Jacksonville 164,004 1,706,794 778.871 2,649,669 1,276,581 Annex. 107,925 76,236 15,842 200.003 176,427 Nashville . . 592,342 1,474,678 1,098,924 3,165|944 1,683,604 New Orleans 1,557,663 2,754,271 1,448,181 5,760,115 4,843,987 Chicago , ... 6,275.490 17.656,976 10,423,477 34,355,943 13,868,270 Detroit 1,147,734 3,036,377 1,641,650 5,825,761 2,607,666 St. Louis 1,675,780 3,243,488 2,589,232 7,508,500 1,429,274 Little Rock. 800,104 1,963,152 965,202 3,728,458 3,139,891 Louisville 700,075 2,859,819 1,056,659 4,616,553 2,790,094 Memphis, 731,122 6,862,578 218,883 7,812,583 7,322,669 Minneapolis 358 014 18 326,366 18 684 380 18 684,380 Helena , 15,709 126,401 62,977 205,087 47,751 Kansas City... 1,340,561 7,465,459 3,035,260 11,841,280 5,813,503 Denver 2,997,747 3,239 882 2,233,403 8,471 032 7 646 220 Oklahoma City. 647,686 1,511,600 853,051 3,012,337 1,872]311 Omaha 996 489 1 585 536 731,925 3 313.950 2,075 564 Dallas 713,302 4,922,659 3,570,804 9,206,765 3,679,723 El Paso 262,477 789,199 393,301 1,444,977 831,111 Houston. . . 1,915,716 1,408,575 714,187 4 038 478 3 190 878 San Antonio 448,596 1,442,742 570,847 2,462,185 1,471,221 San Francisco 684,339 3,783,530 1,801,463 6,269,332 644,322 Annex 247,201 124,000 30,000 401,201 338,961 Los Angeles .... 777,614 4,103,844 1,608,576 6,490,034 2,527,998 Portland. . . 207,380 1,678,512 649,432 2,535,324 1,192,107 Salt Lake City 480,222 1,878,238 707,575 3,066,035 1,870,123 Seattle 274,772 1,890,966 1,058,744 3,224,482 1,376,641 Total 46,152,406 174,366,726 72,766,718 293,285,850 151,634,962 OTHER REAL ESTATE ACQUIRED FOR BANKING-HOUSE PURPOSES Boston 20,061,816 20,061,816 20,061,816 Philadelphia 1,374,515 1,374,515 1,374,515 Cleveland 395,875 38i,666 776,875 440,325 Richmond 326,403 326,403 326,403 Charlotte 195,404 195,404 195,404 Helena 53,770 53,770 53,770 Los Angeles 245,082 245,082 245,082 Total 22,652,865 381,000 23,033,865 22,697,315 1 Includes expenditures for construction at some offices pending allocation to appropriate accounts. 251 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

7. EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS DURING 1971 (In dollars) New Phila- Cleve- Rich- Minne- Kansas San Item Total Boston York delphia land mond Atlanta Chicago St. Louis apolis City Dallas Francisco CURRENT EARNINGS Discounts and advances 20,785,310 1,621,592 4,926,126 591,732 602,930 968,532 i.120,367 8,733,021 73,777 87,784 326,985 398 419 1,334,045 Acceptances 4,017,310 4,017,310 U.S. Govt. securities.. . 3,694,676,122178,996,770 948,998,950192,791,951 284,093,700 270,720,510185,193,555 600,673,056 136,656,592 72,376,648144,523,731 509,924,388 Foreign currencies 2,648,052 124,890 696,980 135,077 237,964 135,076 176,638 395,960 90,051 60,509 111,240 335,348 All other 1,243,127 31,448 592,373 27,018 67,431 34,681 74,526 145,150 36,041 70,693 53,090 65,883 Total. 3,723,369,921180,774,700 959,231,739193,545,778 285,002,025 271.858,799186,565,086 609,947,187136,856,461 72,595,634145,015,046:170,317,802 511,659,664 CURRENT EXPENSES Salaries: Officers 14,802,481 929,259 3,086,718 986,454 854,151 1,248,156 1,171,194 1,356,750 1,223,904 111,642 1,006,007 883,114 1,279,132 Employees 171,903,441 10,978,342 44,160,844 7,830,591 10,778,588 13,490,323 12,614,779 23,301,248 9,593,667 6,606,427 9,962,016 7,712,050 14,874,566 Retirement and other benefits.. 34,193,811 2,312,721 8,088,689 1,575,149 2,296,178 2,749,093 2,529,595 4,363,985 2,021,137 1,315,621 2,046,057 1,585,403 3,310,183 Fees—Directors and others 3,594,882 126,130 1,308,553 195,809 157,019 173,024 348,413 249,329 146,379 344,147 157,576 156,620 231,833 Traveling expenses 4,511,495 292,822 705,391 157,653 313,790 360,770 581,967 512,804 290,713 329,825 298,724 245,067 421,969 Postage and expressage 39,994,681 2,538,146 4,916,748 1,447,744 3,379,861 4,726,117 3,942,585 4,961,391 2,736,394 1,763,778 2,599,748 2,325,536 4,656,633 Telephone and telegraph 4,031,183 208,652 875,947 163,518 177,032 351,196 519,131 468,018 245,800 149,781 310,754 265,776 295,578 Printing and supplies 14,446,257 823,513 2,681,730 736,512 840,846 1,429,139 1,381,964 1,948,924 1,022,559 603,351 1,061,977 690,638 1,225,104 Insurance 638,896 40,476 146,746 21,136 47,034 44,938 56,882 56,371 44,957 26,527 36,678 33,072 84,079 Taxes on real estate 8,347,964 940,578 1,349,216 202,716 490,388 343,465 485,857 1,494,045 333,200 999,328 579,533 372,585 757,053 Depreciation (buildings) 5,246,584 171.664 825,755 76,596 214,529 520,510 780,812 662,271 254,494 62,957 850,290 379,528 447,178 Light, heat, power, and water. . 3,365,213 216,254 617,874 129,380 337,312 295,347 298,581 461,093 217,637 136,492 302,951 160,467 191,825 Repairs and alterations 2,173,458 63,439 248,054 119,858 122,903 365,002 123,500 235,588 353,985 50,475 132,566 215,413 142,675 Rent 2,694,100 424,546 1,852,027 55,727 32,384 102,850 138,304 68,779 11,130 582 4,269 1,863 1,639 Furniture and equipment: Purchases 12,188,682 328,556 2,317,296 222,764 440,038 792,399 841,194 1,048,000 960,414 145,847 4,155,797 413,621 522,756 Rentals 19,328,125 1,158,212 2,666,867 1,078,089 883,016 1,883,694 1,511,669 3,060,847 1,371,848 864,356 2,065,912 1,160,988 1,622,627 All other 6,662,779 410,623 1,529,582 389,835 521,325 277,877 296,361 1,377,149 348,400 264,938 477,478 515,823 253,388 Inter-Bank expenses 110,028 -1,442,039 115,670 207,535 -197,998 171,603 347,942 91,015 59,886 106,950 139,520 289,886 Subtotal 348,124,031 22,073,961 75,935,998 15,505,201 22,093,929 28,955,902 27,794,392 45,974,534 21,267,633 14,501,960 26,155,283 17,257,084 30,608,154 F.R. currency 24,942,528 1,473,226 5,176,618 1,508,467 1,495,287 2,203,948 1,956,256 3,611,569 1,262,547 688,853 1,035,019 1,437,203 3,093,535 Assessment for expenses of Board of Governors 32,634,002 1,518,000 8,560,400 1,679,798 2,946,100 1,674,400 2,190,200 4,893,000 1,112,700 737,700 1,381,700 1,820,004 4,120,000 Total. 405,700,561 25,065,187 89,673,016 18,693,466 26,535,316 32,834,250 31,940,848 54,479,103 23,642,880 15,928,513 28,572,002 20,514,291 37,821,689 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Less reimbursement for certain fiscal agency and other expenses . . 28,515,761 1,431,540 6,002,321 1,264,157 2,609,734 1,671,533 2,252,481 5,076,057 1,730,477 848,145 1,911,651 953,323 2,764,342 Net expenses 377,184,800 23,633,647 83,670,695 17,429,309 23,925,582 31,162,717 29,688,367 49,403,046 21,912,403 15,080,368 26,660,351 19,560,968 35,057,347 PROFIT AND LOSS Current net earnings 3,346,185,122 157,141,053 875,561,044 176,116,469 261,076,444 240,696,083156.876,719560,544,140114,944,059 57,515,266 118,354,694150,756,834 476,602,317 Additions to current net earnings: Profits on sales of U.S. Govt. securities 101,969,630 5,079,942 26,059,947 5,217,742 7,866,249 7,629,142 5,071,922 16,418,733 3,766,685 2,032,385 3,983,060 4,646,106 14,197,717 Allother 7,599,394 100,663 46,386 2,445 470,646 117,202 16,400 30,270 2,975 6,766,167 21,422 8,287 16,531 Total additions 109,569,024 5,180,605 26,106,333 5,220,187 8,336,895 7,746,343 5,088,322 16,449,003 3,769,661 8,798,552 4,004,482 4,654,393 14,214,248 Deductions from current net earnings: Losses on foreign exchange transactions 8,118,845 384,531 2,151,738 417,257 736,336 417,257 548,161 1,227,227 215,503 188,175 343,624 458,165 1,030,871 All other 7,184,102 32,960 58,665 3,143 96,102 53,180 55,749 79,291 3,020 6,763,515 9,236 6,847 22,394 Total deductions. . . . 15,302,947 417,491 2,210,403 420,400 832,438 470,437 603,910 1,306,518 218,523 6,951,690 352,860 465,012 1,053,265 Net addition to current net earnings 94,266,076 4,763,114 23,895,930 4,799,787 7,504,457 7,275,906 4,484,412 15,142,485 3,551,138 1,846,862 3,651,622 4,189,381 13,160,982 Net earnings before payments to U.S. Treasury 3,440,451,196 161,904,,167899,456,974180,916,256 268,580,901 247,971,989161,361,130 575,686,625118,495,196 59,362,128122,006,316154,946,215 489,763,299 Dividends paid 43,488,074 2,004,027 11,341,925 2,237,610 3,957,512 2,261,033 2,951,631 6,485,409 1,474,167 991,349 1,844,745 2,418,835 5,519,831 Payments to U.S. Treasury (interest on F.R. notes) 3,356,559,873 159,040,740 880,050,249176,241,396 259,851,138 243,122,856 154,897,299563,996,366 115,887,429 57,273,629118,376,272150,657,531477,164,968 Transferred to surplus 40,403,250 859,400 8,064,800 2,437,250 4,772,250 2,588,100 3,512,200 5,204,850 1,133,600 1,097,150 1,785,300 1,869,850 7,078,500 Surplus, January 1 701,780,800 32,777,350184,789,650 35,971,650 63,109,650 35,700,550 46,865,800105,455,600 24,042,500 15,798,000 29,742,150 39,144,850 88,383,050 Surplus, December 31 742,184,050 33,636.750192,854,450 38,408,900 67,881,900 38,288,650 50,378,000110,660,450 25,176,100 16,895,150 31,527,450 41,014,700 95,461,550 NOTE.—Details may not add to totals because of rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

8. EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS, 1914-71 (In dollars) Net earnings Payments to U.S. Treasury Current Current before pay- Dividends Transferred Transferred Period or Bank earnings expenses ments to paid to surplus to surplus U.S. Treasury 1 Franchise tax Under Interest on (Sec. 13b) (Sec. 7) Sec. 13b F.R. notes All F.R. Banks, by years: 1914-15 2 173 252 2 320 586 -141,459 217,463 1916 5 217,998 2,273,999 2,750,998 1,742,775 1917 16,128,339 5,159,727 9,582,067 6,804,186 1,134,234 1,134,234 1918 67 584,417 10,959,533 52,716,310 5,540,684 48,334 341 1919 102,380,583 19,339,633 78,367,504 5,011,832 2,703,894 70,651,778 1920 181,296,711 28,258,030 149,294,774 5,654,018 60,724,742 82,916,014 1921 122 865 866 34 463,845 82,087,225 6,119,673 59 974 466 15 993 086 1922 50 498,699 29,559,049 16,497,736 6,307,035 10,850,605 -659,904 1923 50,708,566 29,764,173 12,711,286 6,552,717 3,613,056 2,545,513 1924 38 340,449 28 431,126 3,718,180 6,682,496 113,646 -3,077,962 1925 41 800,706 27,528,163 9,449,066 6,915,958 59,300 2,473,808 1926 47 599 595 27 350 182 16 611 745 7,329,169 818 150 8 464 426 1927 43 024,484 27,518,443 13,048,249 7,754,539 249,591 5,044,119 1928 64,052,860 26,904,810 32,122,021 8,458,463 2,584,659 21,078,899 1929 70 955,496 29 691,113 36,402,741 9,583,911 4,283,231 22,535 597 1930 36 424 044 28 342 726 7 988 182 10,268,598 17,308 -2,297,724 1931 29,701,279 27,040,664 2,972,066 10,029,760 -7,057,694 1932 50 018 817 26 291 381 22 314 244 9,282,244 2,011,418 11,020,582 1933 49,487,318 29,222,837 7,957,407 8,874,262 -916,855 1934 48,902,813 29,241,396 15,231,409 8,781,661 -60,323 6,510,071 1935 42,751,959 31,577,443 9,437,758 8,504,974 297,667 27,695 607,422 1936 37 900,639 29 874 023 8 512 433 7,829,581 227,448 102,880 352,524 1937 41,233,135 28,800,614 10,801,247 7,940,966 176,625 67,304 2,616,352 1938 36,261,428 28 911 600 9 581 954 8,019,137 119,524 -419,140 1,862,433 1939 38,500,665 28,646,855 12,243,365 8,110,462 24,579 -425,653 4,533,977 1940 43,537,805 29,165,477 25,860,025 8,214,971 82,152 -54,456 17,617,358 1941 41 380 095 32 963 150 9 137 581 8,429 936 141 465 -4,333 570,513 1942 52,662,704 38,624,044 12,470,451 8,669,076 197,672 49,602 3,554,101 1943 69 305 715 43 545 564 49 528 433 8 911 342 244 726 135,003 40,237,362 1944 104,391,829 49,175,921 58 437 788 9,500,126 326,717 201,150 48,409,795 1945 . 142 209 546 48 717,271 92 662 268 10,182,851 247,659 262,133 81,969,625 1946 150,385,033 57,235,107 92,523,935 10,962,160 67,054 27,708 81,467,013 1947 158 655 566 65 392 975 95 235 592 11,523 047 35 605 75 223 818 86,772 8,366,350 1948 304,160,818 72 710,188 197 132,683 11,919,809 166,690,356 18,522,518 1949 316,536,930 77,477,676 226,936,980 12,329,373 193,145,837 21,461,770 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1950 275,838,994 80,571,771 231,561,340 13,082,991 196,628,858 21,849,490 1951 394,656,072 95,469,086 297,059,097 13,864,750 254,873,588 28,320,759 1952 456,060,260 104,694,091 352,950,157 14,681,788 291,934,634 46,333,735 1953 513,037,237 113,515,020 398,463,224 15,558,377 342,567,985 40,336,862 1954 438,486,040 109,732,931 328,619,468 16,442,236 276,289,457 35,887,775 1955 412,487,931 110,060,023 302,162,452 17,711,937 251,740,721 32,709,794 1956 595,649,092 121,182,496 474,443,160 18,904,897 401,555,581 53,982,682 1957 763,347,530 131,814,003 624,392,613 20,080,527 542,708,405 61,603,682 1958 742,068,150 137,721,655 604,470,670 21,197,452 524,058,650 59,214,569 1959 886,226,116 144,702,706 839,770,663 22,721,687 910,649,768 -93,600,791 1960 1,103,385,257 153,882,275 963,377,684 23,948,225 896,816,359 42,613,100 1961 941,648,170 161,274,575 783,855,223 25,569,541 687,393,382 70,892,300 1962 1,048,508,335 176,136,134 872,316,422 27,412,241 799,365,981 45,538,200 1963 1,151,120,060 187,273,357 964,461,538 28,912,019 879,685,219 55,864,300 1964 1,343,747,303 197,395,889 1,147,077,362 30,781,548 1,582,118,614 -465,822,800 1965 1,559,484,027 204,290,186 1,356,215,455 32,351,602 1,296,810,053 27,053,800 1966 1,908,499,896 207,401,126 1,702,095,000 33,696,336 1,649,455,164 18,943,500 1967 2,190,403,752 220,120,846 1,972,376,782 35,027,312 1,907,498,270 29,851,200 1968 2,764,445,943 242,350,370 2,530,615,569 36,959,336 2,463,628,983 30,027,250 1969 3,373,360,559 274,973,320 3,097,829,686 39,236,599 3,019,160,638 39,432,450 1970 3,877,218,444 321,373,386 3,567,286,887 41,136,551 3,493,570,636 32,579,700 1971 3,723,369,921 377,184,800 3,440,451,196 43,488,074 3,356,559,873 40,403,250 Total 1914-71. 33,162,085,248 5,005,599,378 28,334,035,895 851,725,281 149,138,300 2,188,893 26,460,130,829 -3,657 870,856,249 Aggregate for each F.R. Bank, 1914-71: Boston 1,776,591,268 335,349,389 1,452,427,763 47,362,270 7,111,395 280,843 1,353,806,268 135,411 43,731,575 New York 8,415,551,751 1,078,833,943 7,386,485,008 253,998,709 68,006,262 369,116 6,834,433,310 -433,413 230,111,021 Philadelphia 1,836,675,189 286,010,074 1,564,385,964 57,753,903 5,558,901 722,406 1,447,320,971 290,661 52,739,122 Cleveland 2,710,007,003 415,642,170 2,307,358,998 80,641,125 4,842,447 82,930 2,140,686,710 -9,906 81,115,693 Richmond 2,258,182,445 361,876,187 1,908,938,310 39,492,113 6,200,189 172,493 1,818,976,570 -71,517 44,168,458 Atlanta 1,765,567,727 334,492,528 1,438,573,479 42,205,037 8,950,561 79,264 1,331,688,585 5,491 55,644,540 Chicago 5,431,767,457 702,349,409 4,752,803,166 113,459,965 25,313,526 151,045 4,487,877,745 11,682 125,989,204 St. Louis 1,286,187,734 277,482,269 1,013,899,426 29,258,441 2,755,629 7,464 951,608,680 -26,515 30,295,728 Minneapolis 729,588,921 178,800,870 555,653,355 19,826,132 5,202,900 55,615 509,731,475 64,874 -20,772,363 Kansas City 1,365,176,301 286,047,820 1,085,578,092 33,421,907 6,939,100 64,213 1,009,494,148 -8,674 35,667,400 Dallas 1,385,115,803 245,397,859 1,147,457,533 41,104,437 560,049 102,083 1,060,343,447 55,337 45,292,178 San Francisco 4,201,673,649 503,316,860 3,720,474,801 93,201,242 7,697,341 101,421 3,514,162,920 -17,089 105,328,967 Total 33,162,085,248 5,005,599,378 28,334,035,895 851,725,281 149,138,300 2,188,893 26,460,130,829 -3,657 2 870,856,249 1 Current earnings less current expenses, plus or minus adjustment for profit and loss Sec. 13b surplus (1958), and was increased by $11,131,013 transferred from reserves for items. contingencies (1945), leaving a balance of $742,184,050 on Dec. 31, 1971. 2 The $870,856,249 transferred to surplus was reduced by direct charges of $500,000 for charge-off on Bank premises (1927); $139,299,557 for contributions to capital of the NOTE.—Details may not add to totals because of rounding. Federal Deposit Insurance Corporation (1934), and $3,657 net upon elimination of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

9. VOLUME OF OPERATIONS IN PRINCIPAL DEPARTMENTS OF FEDERAL RESERVE BANKS, 1968-71 (Number in thousands; amounts in thousands of dollars) Operation 1971 1970 1969 1968 NUMBER OF PIECES HANDLEDi Loans 7 13 23 11 Currency received and counted.... 6,270,732 r 6,029,373 5,720,499 5,561,500 Currency verified and destroyed... 2,446,244 2,174,444 2,115,564 2,057,607 Coin received and counted 13,736,840 • 13,402,165 12,873,277 10,957,259 Checks handled: U.S. Govt. checks 628,602 622,144 575,118 554,813 Postal money orders 181,054 183,574 187,123 195,871 All other 2 7,704,732 '7,158,441 6,503,449 5,904,929 Collection items handled: U.S. Govt. coupons paid 13,523 ' 14,210 13,118 13,255 All other 26,994 r 27,364 27,895 26,299 Issues, redemptions, and exchanges of U.S. Govt. securities 258,174 ' 276,172 283,175 267,826 Transfers of funds 8,148 '27,364 6,662 5,894 Food stamps redeemed 1,842,026 r 1,277,007 519,595 384,763 AMOUNTS HANDLED Loans 85,254,860 129,578,588 154,305,388 84,525,110 Currency received and counted.... 48,783,022 45,718,990 43,273,577 40,585,320 Currency verified and destroyed... 13,261,100 12,092,137 11,832,628 10,548,073 Coin received and counted 1,602,994 1,533,972 1,432,623 1,173,761 Checks handled: U.S. Govt. checks 211,996,633 208,858,062 208,155,031 190,653,523 Postal money orders 4,806,963 4,736,564 4,603,938 4,640,992 All other 2 3,822,111,968 '3,330,673,690 2,774,422,163 2,350,761,951 Collection items handled: U.S. Govt. coupons paid 6,239,761 5,702,894 6,849,373 6,765,295 Allother 22,103,954 21,022,409 19,782,240 19,865,950 Issues, redemptions, and exchanges on U.S. Govt. securities 1,951,122,313 '1,433,118,703 1,151,579,538 1,055,426,914 Transfers of funds 14,858,172,824 12,332,001,386 9,800,324,538 7,727,430,821 Food stamps redeemed 3,116,904 r 1,840,100 694,394 513,618 ' Revised. 1 Packaged items handled as a single item are counted as one piece. 2 Exclusive of checks drawn on the F.R. Banks. 10. NUMBER AND SALARIES OF OFFICERS AND EMPLOYEES OF FEDERAL RESERVE BANKS, DECEMBER 31, 1971 President Other officers Employeesl Total Federal Reserve Bank (including branches) Annual Num- Annual Num- Annual Num- Annual salary ber salaries ber salaries ber salaries Boston $ 50,000 38 $ 918,600 1,341 $ 10,470,517 1,380 $ 11,439,117 New York 90,000 97 2,983,100 4,717 44,413,234 4,815 47 486 334 Philadelphia 45,000 37 861,900 1,025 7,535,795 1,063 8,442,695 Cleveland. . 51,000 35 831,500 1,342 10,661,037 1,378 11,543,537 Richmond 51,000 51 1,178,300 1,889 13,786,628 1,941 15,015,928 Atlanta 51,000 53 1,127,000 1,952 13,047,820 2,006 14 225 820 Chicago 67,500 53 1,254,100 3,046 22,790,419 3,100 24,112,019 St. Louis 56,000 48 1,099,025 1,374 9,699,453 1,423 10,854,478 Minneapolis 45,000 30 733,400 800 6,458,300 831 7,236,700 Kansas City 56,000 42 921,200 1,413 9,644,880 1,456 10,622,080 Dallas 48,000 38 846,300 1,093 7,925,953 1,132 8,820,253 San Francisco 67,500 55 1,205,900 1,899 14,424,018 1,955 15,697,418 Total $678,000 577 $13,960,32521,891 $170,858,05422,480$185,496,379 1 Includes 1,002 part-time employees. 256 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

11. FEES AND RATES UNDER REGULATION V ON LOANS GUAR- ANTEED PURSUANT TO DEFENSE PRODUCTION ACT OF 1950, DECEMBER 31, 1971 Fees Payable to Guaranteeing Agency by Financing Institution on Guaranteed Portion of Loan Guarantee fee Percentage of Percentage of loan guaranteed (percentage of any commitment interest payable fee charged by borrower) borrower 70 or less 10 10 75 . . .. 15 15 80 20 20 85 25 25 90 30 30 95 35 35 Over 95 . .. 40-50 40-50 Maximum Rates Financing Institution May Charge Borrower Interest rate 1Y2 per cent per annum l Commitment rate. Y2 per cent per annum 1 Except that the agency guaranteeing a particular loan may from time to time prescriibbee aa hhiigghheer raie if it determines the loan to be necessary in financing any contract or other operation ddeeeemmeedd bbyy such agency to be essential to the national defense. NOTE.—In any case in which the rate of interest on the loan is in excess of 6 per cent, the guarantee fee shall be computed as though the interest rate were 6 per cent. 12. MARGIN REQUIREMENTS (Per cent of market value) Period For credit extended under Regulations T (brokers and dealers). U (banks), and G (others than brokers, dealers, or banks) On margin stocks On convertible bonds Beginning Ending On short sales date date (T) T U G T U G 1937—Nov. 1 1945—Feb. 4 40 50 1945—Feb. 5 July 4 50 50 July 5 1946—Jan. 20 75 75 1946—Jan. 21 1947—Jan. 31 100 100 1947—Feb. 1 1949—Mar. 29 75 75 1949—Mar. 30 1951—Jan. 16 50 50 1951—Jan. 17 1953—Feb. 19 75 75 1953—Feb. 20 1955—Jan. 3 50 50 1955—Jan. 4 Apr. 22 60 60 Apr. 23 1958—Jan. 15 70 70 1958—Jan. 16 Aug. 4 50 50 Aug. 5 Oct. 15 70 70 Oct. 16 1960—July 27 90 90 1960—July 28 1962—July 9 70 70 1962—July 10 1963—Nov. 5 50 50 1963—Nov. 6 1968—Mar. 10 70 70 1968—Mar. 11 June 7 70 50 70 June 8 1970—May 5 80 60 80 1970—May 6 1971—Dec. 3 65 50 65 Effective Dec. 6,1971 55 50 55 corresponding regulation. Regulation G and special maarrggiinn rreeqquuiirreemmeennttss ffcor bonds convertible into stocks were adopted by the Board of Governors effective Mar. 11, 1968. For earlier data, see Banking and Monetary Statistics, 1943, Table 145, p. 504. 257 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

13. MEMBER BANK RESERVE REQUIREMENTS (Per cent of deposits) Through July 13, 1966 Net demand deposits 2 Time deposits Effective date l (all classes Central reserve Reserve city Country of banks) city banks banks banks 1917—June21 13 10 1936—Aug.16 J 15 1937—Mar. 1 22 17 May I.'.'.'.'.'.'.'. 26 20 14 1938—Apr. 16 17 12 1941—Nov. 1 20 14 1942—Aug.20 24 Sept.14 22 Oct. 3 20 1948—Feb. 27 22 June 11 24 Sept.24, 16 26 22 16 1949—May 5, 1 24 21 15 June 30, July 1. . 20 14 Aug. 13 Aug. 11," 16'.'.'.'.'.! 23H 12 Aug. 18 23 19 Aug.25 Sept. 1 1951—Jan. 11, 16 23 19 13 Jan. 25, Feb. 1.. 24 20 14 1953—July 9, 1 22 19 13 1954—June 24, 16 21 July 29, Aug. 1. 20 is 12 1958—Feb. 27, Mar. 1. Mar.20, Apr. 1. Apr. Apr. 1960—Sept. 17H Nov. 12 Dec. 24 1962—July 1 Oct. 28 25, Nov. 1. Beginning July 14, 1966 Net demand Time deposits *•6 < deposits 2> * (all classes of banks) Reserve Country Other Effective date * city banks banks time deposits Savings Under Over Under Over depos- Under Over $5 mil- $5 mil- $5 mil- $5 mil- its $5 mil- $5 million lion lion lion lion lion 1955—j^y 14 21 6 16^ 6 12 64 6 4 5 Sept. 8, 15 6 1967—Mar. 2 3H 3H Mar 16 1 1 9 9 6 6 9 8 — — A Ja p n r . . 1 i 7 l, 18 1 17 6H 1 1 7 7^ 1 1 2 2H \ 1 i 3 y2 2 1970—Oct. 1 5 In effect Dec. 31, 1971 17 17^ ny 2 13 3 3 5 Legal requirements—Dec. 31, 1971: Minimum 10 7 3 3 3 Maximum 22 14 10 10 10 For notes see opposite page. 258 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

14. FEDERAL RESERVE BANK INTEREST RATES, DECEMBER 31, 1971 (Per cent per annum) Loans to member banks Federal Reserve Loans to all others Bank under last par. Sec. 13 3 Under Under Sees. 13 and 13a 1 Sec. 10(b) * Boston 4H 5 New York 4K 5 Philadelphia 5 6V2 Cleveland 4M 5 R A i t c la h n m ta ond W W 2 2 5 5 6y2 C S M t h . i i n c L n a o e g u a o i p s olis 4 4 4^ 3 K 4 5 5 5 6 6 6 V V V 2 2 2 S K D a a a n l n l s a F a s r s a n C c i i t s y co W 4 4 H H 2 5 5 5 6 6 6 V V V 2 2 2 1 Discounts of eligible paper and advances secured by such paper or by U.S. Govt. obligations or any other obligations eligible for Federal Reserve Bank purchase. Maximum maturity: 90 days except that discounts of certain bankers' acceptances and of agricultural paper may have maturities not over 6 months and 9 months, respectively. 2 Advances secured to the satisfaction of the F.R. Bank. Maximum maturity: 4 months. 3 Advances to individuals, partnerships, or corporations other than member banks secured by direct obligations of, or obligations fully guaranteed as to principal and interest by, the U.S. Govt. or any agency thereof. Maximum maturity: 90 days. Notes to Table 13 on opposite page. 1 When two dates are shown, the first applies to the change at central reserve or reserve city banks and the second to the change at country banks. 2 Demand deposits subject to reserve requirements, which beginning with Aug. 23, 1935, have been total demand deposits minus cash items in process of collection and demand balances due from domestic banks (also minus war loan and Series E bond accounts during the period Apr. 13, 1943—June 30, 1947). 3 Authority of the Board of Governors to classify or reclassify cities as central reserve cities was terminated effective July 28, 1962. 4 Since Oct. 16, 1969, member banks have been required under Regulation M to maintain reserves against balances above a specified base due from domestic offices to their foreign branches. Until Jan. 7, 1971, the applicable reserve percentage was 10 per cent; effective that date it became 20 per cent. Regulation D imposes a similar reserve requirement on borrowings above a specified base from foreign banks by domestic offices of a member bank. For details concerning these requirements, see amendments to Regulations D and M as described in earlier ANNUAL REPORTS. 5 Effective Jan. 5, 1967, time deposits such as Christmas and vacation club accounts became subject to the same requirements as sayings deposits. 6 See columns above for earliest effective date of this rate. NOTE.—All required reserves were held on deposit with F.R. Banks, June 21, 1917, until late 1959. Since then, member banks have also been allowed to count vault cash as reserves, as follows: country banks—in excess of 4 and 2x/2 per cent of net demand deposits effective Dec. 1, 1959, and Aug. 25, 1960, respectively; central reserve city and reserve city banks—in excess of 2 and 1 per cent effective Dec. 3, 1959, and Sept. 1, 1960, respectively; all member banks were allowed to count all vault cash as reserves effective Nov. 24, 1960. 259 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

O 15. MAXIMUM INTEREST RATES PAYABLE ON TIME AND SAVINGS DEPOSITS (Per cent per annum) Rates Nov. 1, 1933—July 19, 1966 Rates beginning July 20, 1966 Effective date Effective date Type of deposit Type of deposit Nov. 1, Feb. 1, Jan. 1, Jan. 1, Jan. 1, July 17, Nov. 24, Dec. 6, July 20, Sept. 26, Apr. 19, Jan. 21, 1933 1935 1936 1957 1962 1963 1964 1965 1966 1966 1968 1970 Saving deposits: Savings deposits 4 4 4 4^ L 12 e s m s o th n a t n h s 1 o 2 r m m o o n r t e hs } ' 2lA 3 / I 4 3^ 4 3H } * 4 Ot M he u r lt t i i p m le e m de a p t o u s r i i t t s y : : 2 3 30-89 days 4 4 4 90 days-1 year 1 year to 2 years }• 5 5 VA Postal savings deposits:1 2 years and over L 12 e s m s o th n a t n h s 1 o 2 r m m o o n r t e hs } ' 2M 23/2 3 { 3K 4 33^ } * 4 Sin L g e l s e s m th a a t n u r $ it 1 y 0 . 0,000: 30 days to 1 year 1 year to 2 years 5 5 f 534 2 years and over 1 5V 2 Other time deposits:2 $100,000 and over: 6 1 2 m m o o n n th th s s t o o r 1 m 2 m or o e nths } 3 2H 2Yi 3 / \ 4 3H 4H 3 6 0 0 - - 5 8 9 9 d d a a y y s s 5V2 ( ( 4 4 ) ) 9 L 0 e ( s d 3 s a 0 t y - h 8 s a 9 n t o d 9 a 6 0 y m s d ) a o y n s ths 3 2 2 V V 2 2 2 1 2XA 2H ): 4 \ sy 2 9 1 1 0 8 y - 0 1 e d 7 ar a 9 y o d s r a t y m o s o 1 r e year. . . . 5V2 5V2 }6 6 X / ?A \ 11A 1 Closing date for the Postal Savings System was Mar. 28, 1966. NOTE.—Maximum rates that may be paid by member banks as established by the 2 For exceptions with respect to foreign time deposits, see ANNUAL REPORTS for Board of Governors under provisions of Regulation Q; however, a member bank may 1962, p. 129; 1965, p. 233; and 1968, p. 69. not pay a rate in excess of the maximum rate payable by State banks or trust companies 3 Multiple-maturity time deposits include deposits that are automatically renewable on like deposits under the laws of the State in which the member bank is located. Beat maturity without action by the depositor and deposits that are payable after written ginning Feb. 1, 1936, maximum rates that may be paid by nonmember insured comnotice of withdrawal. mercial banks, as established by the FDIC, have been the same as those in effect for 4 The rates in effect beginning Jan. 21 through June 23, 1970, were 634 per cent on member banks. maturities of 30-59 days and 6H per cent on maturities of 60-89 days. Effective June 24, 1970, maximum interest rates on these maturities were suspended until further notice. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

16. PRINCIPAL ASSETS AND LIABILITIES, AND NUMBER OF COMMERCIAL AND MUTUAL SAVINGS BANKS, BY CLASS OF BANK, DECEMBER 31, 1971, AND DECEMBER 31, 1970 (Asset and liability items shown in millions of dollars) Commercial banks Mutual savings banks All Item banks Member banks Nonmember banks Total Total Insured Noninsured Total National State Total Insured Noninsured December 31, 1971 i Loans and investments, total 600,670 514,170 404,189 n.a. n.a. 109,981 n.a. n.a. 86,500 n.a. n.a. Loans. . 410,180 345,530 277,323 68,207 64,650 Investments 190,490 168,640 126,866 41,774 21,850 U.S. Treasury securities 68,400 64,550 47,132 17,418 3,850 Other securities 122,090 104,090 79,734 24,356 18,000 Cash assets 101,260 99,830 85,838 13,992 1,430 Deposits, total 610,660 529,390 419,789 109,601 81,270 Interbank 30,670 30,670 28,583 2,087 Other demand .... 226,810 226,730 180,787 45,943 80 Other time 353,180 271,990 210,419 61,571 81,190 Total capital accounts 54,770 48,630 37,110 11,520 6,140 Number of banks 14,272 13,783 5,727 4,5S)9 1,1:>8 8,056 7,8'75 U$1 489 3:>6 163 December 31, 1970 Loans and investments total 538 546 461,998 366 520 271 760 94,760 95,478 92,399 3,079 76,548 66,300 10,248 Loans 374,487 314,138 254,516 187,554 66,963 59,622 57,489 2,133 60,348 52,749 7,599 Investments. 164,059 147.860 112,004 84,207 27,797 35,856 34,910 946 16,199 13,551 2,649 U.S. Treasury securities 64,814 61,742 45,399 34,203 11,197 16,342 16,039 304 3,072 2,364 708 Other securities 99,245 86,118 66,604 50,004 16,600 19,514 18,871 642 13,127 11,187 1,941 Cash assets 94 887 93,643 81,500 56 028 25,472 12,143 11,208 935 1,244 1,115 128 Deposits, total 553,826 481,745 385,176 283,664 101,512 96,568 93,998 2,570 72,081 62,680 9,402 Interbank . . 31,171 31,168 29,674 18,493 11,181 1,494 1,180 314 3 3 Other demand 218,987 218,375 175,419 127,444 47,975 42,956 41,491 1,464 611 593 17 Other time 303,668 232,201 180,083 137,726 42,357 52,118 51,327 792 71,467 62,083 9,383 Total capital accounts 48,669 42,958 34,100 24,868 9,232 8,858 8,326 532 5,711 4,857 854 to Number of banks 14,179 13,686 5,767 4,620 1,147 7,919 7,735 184 493 328 165 n.a. Not available, NOTE.—All banks in the United States. i Estimated. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

17. MEMBER BANK RESERVES, FEDERAL RESERVE BANK CREDIT, AND RELATED ITEMS—END OF YEAR 1918-71 AND END OF MONTH 1971 (In millions of dollars) Factors supplying reserve funds F.R. Bank credit outstanding Spe- Treascial ury Period U.S. Govt. securities ! Draw- cur- Dis- Gold ing rency counts Other stock Rights out- Held and Float All F.R. Total 5 certif. standunder ad- other acct. ing Bought repur- vances Total out- chase right agreements 1918. 239 239 1,766 199 294 2,498 2,873 ,795 1919. 300 300 2,215 201 575 3,292 2,707 ,707 1920. 287 287 2,687 119 262 3,355 2,639 ,709 1921. 234 234 1,144 40 146 1,563 3,373 ,842 1922. 436 436 618 78 273 1,405 3,642 ,958 1923. 134 80 723 27 355 1,238 3,957 2,009 1924. 540 536 320 52 390 1,302 4,212 2,025 1925. 375 367 643 63 378 1,459 4,112 1,977 1926. 315 312 637 45 384 1,381 4,205 1,991 1927. 617 560 582 63 393 1,655 4,092 2,006 1928. 228 197 1,056 24 500 1,809 3,854 2,012 1929. 511 488 632 34 405 1,583 3,997 2,022 1930. 729 686 251 21 372 1,373 4,306 2,027 1931. 817 775 638 20 378 1,853 4,173 2,035 1932. 1,855 1,851 235 14 41 2,145 4,226 2,204 1933. 2,437 2,435 98 15 137 2,688 4,036 2,303 1934. 2,430 2,430 7 5 21 2,463 8,238 2,511 1935. 2,431 2,430 5 12 38 2,486 10,125 2,476 1936. 2,430 2,430 3 39 28 2,500 11,258 2,532 1937. 2,564 2,564 10 19 19 2,612 12,760 2,637 1938. 2,564 2,564 4 17 16 2,601 14,512 2,798 1939. 2,484 2,484 7 91 11 2,593 17,644 2,963 1940. 2,184 2,184 3 80 2,274 21,995 3,087 1941. 2,254 2,254 3 94 2,361 22,737 3,247 1942. 6,189 6,189 6 471 6,679 22,726 3,648 1943. 11,543 11,543 5 681 12,239 21,938 4,094 1944. 18,846 18,846 80 815 19,745 20,619 4,131 1945. 24,262 24,262 249 578 25,091 20,065 4,339 1946. 23,350 23,350 163 580 24,093 20,529 4,562 1947. 22,559 22,559 85 535 23,181 22,754 4,562 1948. 23,333 23,333 223 541 1 24,097 24,244 589 1949. 18,885 18,885 78 534 2 . 19,499 24,427 598 1950. 20,778 20,725 53 67 1,368 3 22,216 22,706 4,636 1951. 23,801 23,605 196 19 1,184 5 25,009 22,695 4,709 1952. 24,697 24,034 663 156 967 4 25,825 23,187 4,812 1953. 25,916 25,318 598 28 935 2 26,880 22,030 4,894 1954. 24,932 24,888 44 143 1 25,885 21,713 4,985 1955. 24,785 24,391 394 108 1,585 29 26,507 21,690 5,008 1956. 24,915 24,610 305 50 1,665 70 26,699 21,949 5,066 1957. 24,238 23,719 519 55 1,424 66 25,784 22,781 5,146 1958. 26,347 26,252 95 64 1,296 49 27,755 20,534 5,234 1959. 26,648 26,607 41 458 1,590 75 28,771 19,456 5,311 1960. 27,384 26,984 400 33 1,847 74 29,338 17,767 5,398 1961. 28,881 28,722 159 130 2,300 51 31,362 16,889 5,585 1962. 30,820 30,478 342 38 2,903 110 33,871 15,978 5,567 1963. 33,593 33,582 11 63 2,600 162 36,418 15,513 5,578 1964. 37,044 36,506 538 186 2,606 94 39,930 15,388 5,405 1965. 40,768 40,478 290 137 2,248 187 43,340 13,733 5,575 1966. 44,316 43,655 661 173 2,495 193 47,177 13,159 6,317 1967. 49,150 48,980 170 141 2,576 164 52,031 11,982 6,784 1968. 52,937 52,937 186 3,443 58 56,624 10,367 6,795 1969. 57,154 i<>57,154 183 3,440 64 2,743 63,584 10,367 6,852 1970. 62,142 1062,142 335 4,261 57 1,123 67,918 10,732 400 7,149 1971. 70,804 1069,481 ,323 39 4,343 261 1,068 76,515 10,132 400 7,710 For notes see last two pages of table. Digitized for FR2A6S2ER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

17.—CONTINUED Factors absorbing reserve funds Deposits, other than member bank Member bank Cur- Treas- reserves, Other reserves rency ury with F.R. Banks Other F.R. in cash F.R. liacir- hold- bilities cula- ings7 and With Curtion Treas- For- capital4 F.R. rency Re- Exury eign Other4 Banks and quired 4,951 288 51 96 25 118 .636 1,585 51 5,091 385 31 73 28 208 ,890 1,822 68 5,325 218 57 5 18 298 ,781 4,403 214 96 12 15 285 ,753 1,654 99 4,530 225 11 3 26 276 ,934 4,757 213 38 4 19 275 898 1,884 l 4,760 211 51 19 20 258 21220 2,161 59 4,817 203 16 8 21 272 2,212 2,256 -44 4,808 201 17 46 19 293 2,194 2,250 -56 4,716 208 18 5 21 301 2,487 2,424 63 4,686 202 23 6 21 348 2,389 2,430 -41 4,578 216 29 6 24 393 2,355 2,428 -73 4,603 211 19 6 22 375 2,471 2,375 96 5,360 222 54 79 31 354 1,961 1,994 -33 5,388 272 8 19 24 355 2,509 1,933 576 5,519 284 3 4 128 360 2,729 1,870 859 5,536 3,029 121 20 169 241 4,096 2,282 1,814 5,882 2,566 544 29 226 253 5,587 2,743 2,844 6,543 2,376 244 99 160 261 6,606 4,622 1,984 6,550 3,619 142 172 235 263 7,027 5,815 1,212 6,856 2,706 923 199 242 260 8,724 5,519 3,205 7,598 2,409 634 397 256 251 11,653 6,444 5,209 8,732 2,213 368 1,133 599 284 14,026 7,411 6,615 11,160 2,215 867 774 586 291 12,450 9,365 3,085 15,410 2,193 799 793 485 256 13,117 11,129 1,988 20,449 2,303 579 1,360 356 339 12,886 11,650 1,236 25,307 2,375 440 1,204 394 402 14,373 12,748 1,625 28,515 2,287 977 862 446 495 15,915 14,457 1,458 28,952 2,272 393 508 314 607 16,139 15,577 562 28,868 1,336 870 392 569 563 17,899 16,400 1,499 28,224 1,325 1,123 642 547 590 20,479 19,277 1,202 27,600 1,312 821 767 750 706 16,568 15,550 1,018 27,741 1,293 668 895 565 714 17,681 16,509 1,172 29,206 1,270 247 526 363 746 20,056 19,667 389 30,433 1,270 389 550 455 777 19,950 20,520 -570 30,781 761 346 423 493 839 20,160 19,397 763 30,509 796 563 490 441 907 18,876 18.618 258 31,158 767 394 402 554 925 19,005 18,903 102 31,790 775 441 322 426 901 19,059 19,089 -30 31,834 761 481 356 246 998 19,034 19,091 -57 32,193 683 358 272 391 1,122 18,504 18,574 -70 32,591 391 504 345 694 841 18,174 310 18,619 -135 32,869 377 485 217 533 941 17,081 2,544 18,988 637 33,918 422 465 279 320 1,044 17,387 2,823 20,114 96 35,338 380 597 247 393 1,007 17,454 3,262 20,071 645 37,692 361 880 171 291 1,065 17,049 4,099 20,677 471 39,619 612 820 229 321 1,036 18,086 4,151 21,663 574 42,056 760 668 150 355 211 18,447 4,163 22,848 -238 44,663 1,176 416 174 588 -147 19,779 4,310 24,321 -232 47,226 1,344 1,123 135 653 -773 21,092 4,631 25,905 -182 50,961 695 703 216 747 -1,353 21,818 4,921 27,439 -700 53,950 596 1,312 134 807 1,919 22,085 5,187 28,173 -901 57,093 431 1,156 148 1,233 1,986 24,150 5,423 30,033 -460 61,068 460 2,020 294 999 2,131 27,788 5,743 32,496 1,035 For notes see last two pages of table. 263 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

17. MEMBER BANK RESERVES, FEDERAL RESERVE BANK CREDIT, AND RELATED ITEMS—END OF YEAR 1918-71 AND END OF MONTH 1971—Continued (In millions of dollars) Factors supplying reserve funds F.R. Bank credit outstanding Spe- Treascial ury Period U.S. Govt. securities l Draw- cur- Dis- Gold ing rency counts Other stock Rights out- Held and Float All F.R. Total 5 certif. standunder ad- 2 other assets acct. ing Bought repur- vances 3 4 6 Total out- chase right agreements 1971— Jan. . 61,783 0 61,783 308 2,750 59 1,267 66,167 10,732 400 7,172 Feb.. 62,462 0 62,462 263 2,832 54 832 66,443 10,732 400 7,213 Mar.. 64,345 0 62,841 1,504 391 2,550 138 997 68,421 10,732 400 7,270 Apr.. 63,721 0 63,721 81 2,824 56 1,169 67,851 10,732 400 7,329 May. 64,764 0 64,764 1,051 2,414 112 927 69,268 10,332 400 7,390 June. 65,518 065,518 446 2,549 62 1,086 69,661 10,332 400 7,420 July.. 65,841 0 65,841 778 2,618 55 1,209 70,501 10,332 400 7,445 Aug.. 66,937 0 66,635 302 858 2,250 107 786 70,938 10,132 400 7,479 Sept.. 67,627 0 67,627 198 3,139 51 1,001 72,016 10,132 400 7,504 Oct. . 67,301 0 67,301 212 3,585 52 1,208 72,358 10,132 400 7,526 Nov.. 68,157 168,157 146 2,707 58 841 71,909 10,132 400 7,563 Dec. 70,804 io69,481 1,323 39 4,343 261 1,068 76,515 10,132 400 7,710 1 U.S. Govt. securities include Federal agency obligations held under repurchase agreement as of Dec. 1, 1966, and Federal agency issues bought outright as of Sept. 29, 1971. 2 Beginning with 1960 reflects a minor change in concept; see Feb. 1961 Federal Reserve Bulletin, p. 164. 3 Principally acceptances and industrial loans; authority for industrial loans expired Aug. 21, 1959. The total of F.R. Bank capital paid in, surplus, other capital accounts, and other liabilities and accrued dividends, less the sum of bank premises and other assets. Beginning Apr. 16, 1969, "Other F.R. assets," and "Other F.R. liabilities and capital" are shown separately; formerly, they were netted together and reported as "Other F.R. accounts." 5 Before Jan. 30, 1934, included gold held by F.R. Banks and in circulation. 6 The stock of currency, other than gold, for which the Treasury is primarily responsible—silver bullion at monetary value and standard silver dollars, subsidiary silver and minor coin, and United States notes; also F.R. Bank notes and national bank notes for the retirement of which lawful money has been deposited with the Treasurer of the United States. Includes currency of these kinds held in the Treasury and the F.R. Banks as well as that in circulation. 264 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

17.—CONTINUED Factors absorbing reserve funds Deposits, other than member bank Member bank Cur- Treas- reserves, Other reserves rency ury with F.R. Banks Other F.R. in cash F.R. liacir- hold- ;; ac- bilities cula- ings7 counts and With Curtion Treas- For- Other4 capital F.R. rency Re- Exury eign Banks and quired9 cess9 coin8 55,348 467 976 129 769 2,217 24,565 5,449 29,723 291 55,611 471 1,064 147 776 2,309 24,409 5,022 29,376 155 56,304 483 858 201 794 2,255 25,932 5,124 29,567 1,489 56 592 509 1 322 162 730 2 246 24 752 5 283 30 418 —383 57,393 507 805 208 676 2,302 25,499 5,219 29,992 726 58 393 454 1,274 199 688 2,256 24,550 5 372 30 050 — 128 58,558 479 1,115 162 754 2,291 25,321 5,438 30,461 298 58,890 452 987 122 669 2,361 25,467 5,354 30,199 622 58,757 453 2,102 166 111 2,374 25,424 5,508 30,782 150 59,157 477 1,876 135 733 2,337 25,697 5,548 30,563 682 60,558 442 1,996 177 697 2,351 23,782 5,490 30,689 -1,417 61,068 460 2,020 294 999 2,131 27,788 5,743 32,496 1,035 7 Gold other than that held against gold certificates and gold certificate credits, including the reserve against United States notes and Treasury notes of 1890, monetary silver other than that held against silver certificates and Treasury notes of 1890, and the following coin and paper currency held in the Treasury; subsidiary silver and minor coin, United States notes, F.R. notes, F.R. Bank notes, and national bank notes. 8 Part allowed as reserves Dec. 1, 1959—Nov. 23, 1960; all allowed thereafter. Beginning with Jan. 1963, figures are estimated. Beginning Sept. 12, 1968, amount is based on close-of-business figures for reserve period 2 weeks previous to report date. 9 These figures are estimated through 1958. Before 1929 available only on call dates (in 1920 and. 1922, the call dates were Dec. 29). Beginning Sept. 12, 1968, amount is based on close-of-business figures for reserve period 2 weeks previous to report date. 10 Includes securities loaned—fully secured by U.S. Govt. securities pledged with F.R. Banks. 11 Includes (1) securities sold, and scheduled to be bought back, under matched sale/purchase transactions, and (2) securities loaned—fully secured by U.S. Govt. securities pledged with F.R. Banks NOTE.—For description of figures and discussion of their significance, see "Member Bank Reserves and Related Items," Section 10 of Supplement to Banking and Monetary Statistics, Jan. 1962. 265 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

18. CHANGES IN NUMBER OF BANKING OFFICES IN THE UNITED STATES DURING 19711 Commercial banks (incl. stock savings banks and nonde posit trust companies) Mutual savings banks Type of office All Member Nonmember and change banks Total Total tio N n a a - l l State su In re - d s N u i o n re n - d - su In re - d s N u i o n re n - d - Number of banks, Dec. 31, 1970 14,181 13,688 5,678 4,621 1,147 7,735 185 328 165 Changes during 1971 New banks 2 203 201 46 37 9 149 6 2 Suspensions. -4 -4 -1 -1 -2 Reopening of suspended banks 1 1 1 Consolidations and absorptions: Banks converted into branches -87 -83 -45 -39 -6 -37 -1 -2 -2 Ceased banking operations -1 -1 Other8 -15 -13 -8 -5 -3 -5 -2 Voluntary liquidations. -3 -3 -1 -2 Interclass changes: Nonmember to— National 7 7 — 7 State member.. 4 4 -4 State member to— National 3 -3 Nonmember -20 -20 20 National to nonmember — 21 — 21 21 Noninsured to insured 6 -6 Net change 92 96 -40 -21 -19 140 -4 -2 -2 Number of banks, Dec. 31, 1971 14,273 13,784 5,728 4,600 1,128 7,875 181 326 163 Number of branches and additional offices, Dec. 31,1970 4..... 22,727 21,643 16,191 12,536 3,655 5,404 48 891 193 Changes during 1971 De novo 1,602 1,493 947 743 204 546 90 19 Banks converted 90 86 65 51 14 21 3 1 Discontinued 4 -97 -96 -73 -53 -20 -22 -1 -1 Sale of branch i -4 -4 4 -1 Interclass changes: Nonmember to— National 21 21 -21 State member 16 16 -16 State member to— National 20 -20 Nonmember -24 -24 24 National to— State member -2 2 Nonmember -26 -26 26 Noninsured to insured 7 -7 Noninsured mutual savings to insured mutual savings ... 1 -1 Facilities reclassified as branches 3 3 3 3 For notes see end of table. 266 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

18.—CONTINUED Commercial banks (incl. stock savings banks and nondeposit trust companies) Mutual savings banks Type of office All Member Nonmember and change banks Total Total tio N n a a - l l State su In re - d N su i o n re n - d - su In re - d s N u i o n re n - d - Other -25 -24 -31 -21 -10 6 _1 Net change 1,572 1,461 894 736 158 575 -8 92 19 Number of branches and additional offices, Dec. 31, 1971 * 24,083 22,888 16,902 13,102 3,800 5,946 40 983 212 Number of banking facilities, Dec. 31,1970* 219 219 186 174 12 33 Changes during 1971 Established 6 6 6 5 1 Discontinued . .. -2 -2 2 -2 Other -4 -4 Facilities reclassified as A A branches -3 -3 -3 -3 Net change -3 -3 -3 -4 1 Number of banking facilities, Dec. 31, 1971 216 216 183 170 13 33 1 Includes a national bank (8 branches) in the Virgin Islands; other banks or branches located in the possessions are excluded. 267 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

19. NUMBER OF PAR AND NONPAR BANKING OFFICES, BY FEDERAL RESERVE DISTRICT, DECEMBER 31, 1971 Par Total Nonpar (nonmember) F.R. district Total Member Nonmember Banks B & r a o n ff c i h ce e s s Banks B & r a o n ff c i h ce e s s Banks B & r a o n ff c i h ce e s s Banks B & r a o n ff c i h ce e s s Banks B & r a o n ff c i h ce e s s DISTRICT Boston 373 1,685 373 1,685 227 1,229 146 456 New York.... 477 3,650 477 3,650 340 3,210 137 1440 Philadelphia. . 441 1,691 441 1,691 306 1,211 135 480 Cleveland.... 789 2,074 789 2,074 468 1,707 321 367 Richmond.... 735 3,244 702 3,201 360 1,967 342 1,234 33 43 Atlanta 1,691 1,641 1,582 1,560 562 1,039 1,020 521 109 81 Chicago 2,591 2,435 2,591 2,435 941 1,594 1,650 841 St. Louis 1,517 935 1,453 903 458 490 995 413 64 32 Minneapolis. . 1,370 301 1,370 301 490 145 880 156 Kansas City. . 1,969 321 1,969 321 796 201 1,173 120 Dallas 1,358 270 1,302 256 633 135 669 121 56 14 San Francisco. 391 5,049 391 5,049 147 4,193 244 856 Total.... 13,702 23 ,29613,440 23,126 5,728 17,121 7,712 6,005 262 170 1 Includes 15 New York City branches of 3 insured nonmember Puerto Rican banks. 20. NUMBER OF PAR AND NONPAR BANKING OFFICES, BY STATE AND OTHER AREA, DECEMBER 31, 1971 Par Total Nonpar (nonmember) State, or Total Member Nonmember other area Branches Branches Branches Branches Branches Banks & offices Banks & offices Banks & offices Banks & offices Banks & offices STATE Alabama 273 303 216 281 108 226 108 55 57 22 Alaska 11 65 11 65 5 58 6 7 Arizona 13 347 13 347 4 248 9 99 Arkansas 252 175 188 143 81 104 107 39 64 32 California.... 144 3,171 144 3,171 66 2,810 78 361 Colorado 235 28 235 28 140 20 95 8 Connecticut... 62 469 62 469 29 363 33 106 Delaware 18 99 18 99 7 47 11 52 District of Columbia 14 108 14 108 12 101 2 7 Florida 534 41 534 41 240 13 294 28 Georgia 434 412 434 412 70 282 364 130 Hawaii 7 141 7 141 9 6 132 Idaho 24 165 24 165 13 144 11 21 Illinois 1 132 122 1 132 122 493 80 639 42 Indiana 407 671 407 671 183 420 224 251 Iowa 665 328 665 328 148 91 517 237 Kansas 603 73 603 73 199 42 404 31 Kentucky. . . . 343 361 343 361 94 212 249 149 Louisiana.... 235 414 145 341 59 223 86 118 90 73 Maine 40 238 40 238 25 174 15 64 For notes see end of table. 268 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

20.—CONTINUED ]Par Total Nonpar (nonmember) State, or Total Member Nonmember other area Branches Branches Branches Branches Branches Banks & offices Banks & offices Banks & offices Banks & offices Banks & offices STATE— Cont. Maryland.... 112 568 112 568 46 348 66 220 Massachusetts. 158 780 158 780 98 604 60 176 Michigan..... 330 1,254 330 1,254 205 1,028 125 226 Minnesota 731 17 731 17 223 8 508 9 Mississippi. . . 183 369 183 369 45 160 138 209 Missouri 669 99 669 99 169 41 500 58 Montana 143 10 143 10 92 8 51 2 Nebraska 439 45 439 45 135 27 304 18 Nevada 8 89 8 89 78 3 11 New Hampshire 73 69 73 69 49 57 24 12 New Jersey.. . 209 1,096 209 1,096 153 949 56 147 New Mexico.. 68 140 68 140 40 88 28 52 New York.... 305 2,553 305 2,553 239 2,402 66 i 151 North Carolina. . . 93 1,222 72 1,183 24 610 48 573 21 39 North Dakota 168 72 168 72 46 14 122 58 Ohio 514 1,368 514 1,368 336 1,150 178 218 Oklahoma 436 71 436 71 213 51 223 20 3regon 46 358 46 358 8 259 38 99 Pennsylvania.. 451 1,823 451 1,823 309 1,350 142 473 Rhode Island. 13 179 13 179 5 97 8 82 South Carolina. . . 99 457 87 453 25 261 62 192 12 4 South Dakota. 159 100 159 100 57 66 102 34 Tennessee.... 309 527 309 527 91 331 218 196 Texas 1,214 86 1,196 86 579 29 617 57 " " is Utah 50 148 50 148 15 108 35 40 Vermont. . 41 89 41 89 26 50 15 39 Virginia 245 885 245 885 146 645 99 240 Washington... 91 587 91 587 31 499 60 88 West Virginia. 199 6 199 6 119 2 80 4 Wisconsin.... 608 285 608 285 166 89 442 196 Wyoming. . . . 71 2 71 2 55 1 16 1 OTHER AREA Puerto Rico 2. 13 186 13 186 19 13 167 Virgin Islands 2.... 8 25 8 25 1 25 7 1 Includes 15 New York City branches of 3 insured nonmember Puerto Rican banks. 2 Puerto Rico and the Virgin Islands assigned to the New York District for check clearing and collec- \rt mirnncpc All mAmhpr Virdnr^h^c in "Pm»i*t/"% T?ir*^* anH all pvp^nf £ in tV»o \/ifnrin Tclo NOTE.—Comprises all commercial banking offices on which checks are drawn, including 216 banking facilities. Number of banks and branches differs from that in Table 19 because this table includes banks in Puerto Rico and the Virgin Islands but excludes banks and trust companies on which no checks are drawn. 269 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2L DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUI- SITION OF ASSETS OR ASSUMPTION OF LIABILITIES AP- PROVED BY THE BOARD OF GOVERNORS DURING 1971 CONTENTS APPLICANT BANK OTHER BANK Page Chemical Bank and Trust Com- Commercial Savings Bank of 271 pany, Midland, Mich. St. Louis, St. Louis, Mich. Citizens Central Bank of Arcade, Bank of Elba, Elba, N.Y. 282 Arcade, N.Y. Commercial Trust Company of Bergen County National Bank 280 New Jersey, Jersey City, N.J. of Hackensack, Hackensack, N.J. Connecticut Bank and Trust Com- North Side Bank and Trust 287 pany, Hartford, Conn. Company, Bristol, Conn. Farmers Savings and Trust Com- Lucas State Bank, Lucas, Ohio 277 pany, Mansfield, Ohio HTS Bank, Chicago, 111. Harris Trust and Savings Bank, 291 Chicago, 111. Huron County Banking Co., Nor- Savings and Loan Banking Co., 289 walk, Ohio New London, Ohio First Manassas Bank and Trust 278 Manaport Bank, Manassas, Va. Company, Manassas, Va. Northern Trust Company, Chi- 284 Nortrust Bank, Chicago, 111. cago, 111. Perry County Bank, New Lexing- Peoples Bank, Thornville, Ohio 285 ton, Ohio Peachtree Bank and Trust"] Co., Chamblee, Ga. Trust Company of Georgia f 274 Bank of Sandy Springs, Trust Company of Georgia, Atlanta, Ga. Sandy Springs, Ga. J Trust Company of Georgia 279 Bank of DeKalb, Atlanta, Ga. Stanford Bank, Palo Alto, 273 Calif. Union Bank, Los Angeles, Calif. Bank of Long Beach, N.A., 275 Long Beach, Calif. Western Greenbrier Bank, Rain- Bank of Rainelle, Rainelle, 282 elle, W. Va. W. Va. 270 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED Banking5 offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated No. 1—Chemical Bank and Trust Company, 77.0 6 Midland, Mich., to consolidate with 7 The Commercial Savings Bank of 18.0 1 St. Louis, St. Louis, Mich. SUMMARY REPORT BY THE ATTORNEY GENERAL (11-3-70) Chemical Bank's closest offices to Commercial Bank and Gladwin Bank are 22 and 18 miles apart, respectively. Both Gratiot and Gladwin Counties are adjacent to Midland County, Gratiot to the south and Gladwin to the north. Chemical Bank estimates that it receives approximately $22,000 in deposits from the service area of Commercial Bank and places $6,000 in loans in that service area. Chemical Bank also draws some deposits and places loans in Gladwin County. There would, therefore, be some elimination of existing competition as a result of the proposed merger. Michigan law allows banks to branch anywhere within the county in which the home office is located and also into all counties adjacent to the one in which the home office is located, but only within a 25-mile radius of the home office. There is also branch- and home-office protection, which precludes Chemical Bank from branching de novo into either St. Louis or Beaverton. Chemical Bank, as of June 30, 1968, was the largest bank in Midland County, holding around 65 per cent of the total deposits held by commercial banks. As of that same date, Gladwin County had 2 banks with combined deposits of $11.6 million. The Gladwin Bank held approximately 40 per cent of those deposits. The home-office and branching protection under Michigan law of the 2 largest communities (Gladwin and Beaverton) located in a sparsely populated county results in the absence of a nearby community of sufficient size to support de novo branching by Chemical Bank. Hence, the proposed merger with Gladwin Bank3 would not appear to eliminate potential competition. Gratiot County, as of June 30, 1968, had 5 banks, with total deposits of $72.1 million. Commercial Bank, the 3rd largest in the county, held 22 per cent of those deposits. Because there are several nonprotected towns in Gratiot County, de novo branching by Chemical Bank would be feasible. It is, therefore, possible that the proposed merger with the Commercial Bank would eliminate potential competition. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (1-28-71) Chemical Bank operates its head office and 2 branches within the city limits of Midland (population 34,000), and an additional branch office to the south of, and in close proximity to, Midland. It also operates 1 branch in Fisherville, 7 miles east of Midland, and 1 branch in Sanford, 8 miles northwest of Midland. Chemical Bank is the larger of the 2 For notes see p. 291. 271 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont. banks in Midland, holding more than twice the amount of deposits held by the only other local bank, the $31-million-deposit First National Bank & Trust Company. The Commercial Savings Bank of St. Louis (hereinafter St. Louis Bank) operates its sole office in Saint Louis, Michigan (population 4,000), which is located about 23 miles to the southwest of the city of Midland. The banks serve separate markets, and there is no substantial existing competition between them. There are 6 commercial banks located in the Saint Louis area that are considered to be in direct competition with St. Louis Bank: Bank of Alma and Central National Bank of Alma, both in Alma, 3 miles to the southwest of Saint Louis; Commercial National Bank in Ithaca, 8 miles to the south of Saint Louis; Shepherd State Bank, 9 miles to the northwest of Saint Louis; Farmers State Bank in Breckenridge, 6 miles east of Saint Louis; and Farmers & Merchants State Bank in Merrill, 14 miles east of Saint Louis. No adverse impact on these banks is foreseen arising from consummation of the consolidation of Chemical Bank and St. Louis Bank. Further, under current Michigan banking law providing home-office and branch-office protection, Chemical Bank would be prohibited from establishing a de novo branch office in the communities in which St. Louis Bank and its competitor banks are located. Since the other areas intervening between Midland and Saint Louis are sparsely settled, it appears unlikely that Chemical Bank would establish a de novo branch in these areas. There is, therefore, no significant potential for competition between Chemical Bank and St. Louis Bank. The financial condition, management, and prospects of Chemical Bank are satisfactory. The financial condition and management of St. Louis Bank are reasonably satisfactory. The proposed consolidation would appear to enhance its future prospects. Consummation of the proposed transaction would not affect present customers of Chemical Bank. The proposed consolidation would make available to present customers of St. Louis Bank increased lending limits and a relaxation of restrictive lending policies that have been followed by St. Louis Bank in the granting of agricultural, mortgage, and consumer instalment credit. While there is no evidence in the record to indicate that the major financial needs of the Saint Louis area are, at present, going unserved, the factors set forth above lend slight weight toward approval of the application. The proposed consolidation would eliminate no substantial existing or potential competition between the banks. The banking and convenience and needs factors lend some weight toward approval of the application. The Board concludes, therefore, that the application is in the public interest and should be approved. For notes see p. 291. 272 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated No. 2—Union Bank, 2,000.0 26 Los Angeles, Calif., to merge with 27 The Stanford Bank, 28.1 1 Palo Alto, Calif. SUMMARY REPORT BY THE ATTORNEY GENERAL (2-16-71) Stanford Bank is located 24 miles northwest of Union's San Jose branch, situated in central Santa Clara County. Numerous banking alternatives intervene. Neither bank derives significant deposits or loan business from the area of Santa Clara County served by the other. Therefore, the proposed merger would not have an adverse effect upon existing competition. Within the last 2 years, Union has acquired banks in the San Francisco Bay area with total deposits in excess of $175 million. In addition, Union has entered San Jose by de novo branching, and it can enter other areas of Santa Clara County by the same technique. Presently, Union is the largest bank operating offices in the San Francisco Bay area which does not operate offices in the Palo Alto area. Banking in this area is dominated by 3 banks which, as of June 29, 1968, controlled over 80 per cent of deposits in commercial banking offices in this area. Stanford Bank was the 4th largest bank in this area, with almost 7 per cent of such deposits. This merger, therefore, eliminates Union as a potential de novo entrant into the Palo Alto area. In addition, Stanford Bank is 1 of only 4 small banks headquartered in Santa Clara and San Mateo Counties. This merger has the effect of eliminating one of the few remaining footholds by which smaller banks serving other areas of the State might have entered this portion of the San Francisco Bay area. For these reasons, this merger would have some adverse effect on competition. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (2-11-71) Union Bank is the 7th largest bank in California, having about 3.3 per cent of the commercial bank deposits in the State. It operates its main office and 16 branches in southern California; in northern California it maintains 8 offices in and in close proximity to San Francisco and 1 office in San Jose. The Stanford Bank operates its sole office in Palo Alto, and it competes with 43 offices of 11 banks, including 35 offices of 5 of the 6 largest banks in the State, in a geographic area that lies between the communities of San Jose and San Francisco. The nearest offices of Union Bank to The Stanford Bank are the recently opened (September 14, 1970) office of Union Bank in San Jose, 24 miles south- For notes see p. 291. 273 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 197V—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont. east of Palo Alto, and its offices in downtown San Francisco, 30 miles north of Palo Alto. There are numerous offices of other banks located in the densely populated areas intervening between the present offices of Union Bank and The Stanford Bank. There is, therefore, no substantial existing competition between Union Bank and The Stanford Bank. Under California law both Union Bank and The Stanford Bank could be permitted to establish de novo branch offices in the areas served by the other. The Stanford Bank is unlikely to establish such a de novo branch office, and it does not appear probable that Union Bank would establish a de novo branch in the area served by The Stanford Bank in the immediate future. The largest shares of deposits in the market area served by The Stanford Bank are held by offices of large banking institutions—Bank of America, Wells Fargo Bank, and Crocker-Citizens National Bank. The Stanford Bank is the 7th largest bank in its market area in terms of deposits. In these circumstances, the amount of potential competition between the merging banks that would be eliminated by the proposed transaction is not significant; at the same time, Union Bank's entry into the market by acquisition of The Stanford Bank would likely result in increased competition between it and the larger banks located in this market. Based upon the foregoing, the Board concludes that consummation of the proposal would not eliminate significant exisiting or potential competition. Considerations relating to the financial and managerial resources and future prospects of the banks involved are consistent with approval of the application. Customers of The Stanford Bank would benefit by the merger because Union Bank would offer them a wider range of banking services and through its larger lending limit would be better able to meet the needs of medium-sized business customers. Convenience and needs considerations are, therefore, consistent with approval of the application. No. 3 and 4—Trust Company of Georgia, 695.0 20 Atlanta, Ga., to acquire the assets and assume the deposit liabilities of Peachtree Bank and Trust Company, 17.0 2 23 Chamblee, Ga., and Trust Company of Georgia Bank 5.0 1 of Sandy Springs, Sandy Springs, Ga. SUMMARY REPORT BY THE ATTORNEY GENERAL (No report received.) For notes see p. 291. 274 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (2-22-71) Trust Company was instrumental in organizing Peachtree Bank and Trust Company of Georgia Bank of Sandy Springs (hereinafter Sandy Springs Bank) in 1960 and 1966, respectively, in communities situated several miles outside the city limits of Atlanta (population 487,600) and has had a strong degree of influence over them since they opened for business. It seems likely that were it not for the restrictions placed on branching under Georgia statutes at the time Peachtree Bank and Sandy Springs Bank were organized, Trust Company would have established branches at such locations. Effective January 1, 1971, countywide branching was permitted in Georgia. Trust Company would operate branches at the present offices of Peachtree Bank and Sandy Springs Bank. There is no effective competition existing among proponents, and there is little likelihood of potential competition developing among them due to their long-standing close relationship. The banking and convenience and needs factors are consistent with approval. No. 5—Union Bank, 2,000.0 27 Los Angeles, Calif., tp mei-ge with 29 Bank of Long Beach, N.A., 18.4 2 Long Beach, Calif. SUMMARY REPORT BY THE ATTORNEY GENERAL (3-5-71) Union Bank operates 21 [27] branches throughout southern California. As of June 1968, it held about 7.5 per cent of Los Angeles County total deposits. Union Bank does not have a branch in Long Beach, however, and its closest office to an office of Bank of Long Beach, N.A., is 12 miles away. Bank of Long Beach, N.A., is the 8th largest of 12 banks in Long Beach and has about 2 per cent of Long Beach total deposits. The application states that as of June 30, 1970, Bank of Long Beach, N.A., had about 3.1 per cent of total IPC 4 demand deposits in Long Beach. Union Bank, according to the application, derives about Vi of 1 per cent of its total deposits from the Long Beach area. This would be equal to about $8 million or 50 per cent of Bank of Long Beach, N.A.'s, deposits. Each of these banks also derives some loan business from the other's service area. The proposed merger would eliminate this existing competition. Union Bank is the 6th largest bank in California and the largest bank having no offices in Long Beach. In 1964 it applied for a branch in Long Beach and, after approval, withdrew its application in 1966. Under California law, Union Bank could establish de novo branches in Long Beach. For notes see p. 291. 275 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont. Long Beach banking is highly concentrated, the 4 largest banks having over 80 per cent of total Long Beach deposits. Union Bank is the most likely de novo entrant into banking in the Long Beach area. The proposed merger would, therefore, eliminate the potential independent entry of Union Bank into Long Beach. In addition, the elimination of Bank of Long Beach, N.A., a 4-year-old bank, which has experienced rapid deposit growth, will remove one of the few smaller independent competitive forces in this market and one of the few footholds by which smaller banks not serving the Long Beach area might make more effective entry. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (3-12-71) Union Bank (deposits of $1.5 billion) is the 7th largest bank in California, having about 3.3 per cent of the commercial bank deposits in the State. It operates its main office and 16 branches in southern California; in northern California it maintains 10 offices and has recently (February 11, 1971) received approval to operate another office as an incident to a merger. Bank of Long Beach, N.A. (deposits of $16 million), operates 2 offices in Long Beach, California, and has received approval to operate an office in the downtown district of that city. Bank of Long Beach, N.A., with about 2.5 per cent of market deposits, ranks 8th among the 12 banks (total of 50 offices) operating in its market area, which includes the cities of Long Beach, Lakewood, and Signal Hill. Among the competitors of Bank of Long Beach, N.A., are 5 of the largest banks in the State; these 5 banks operate 64 per cent of the offices and control about 69 per cent of the deposits in the area. The office of Union Bank located nearest to an office of Bank of Long Beach, N.A., is in Torrance, which is about 12 miles west of Long Beach. A large number of offices of other banks are located in the densely populated areas intervening between the present offices of Union Bank and Bank of Long Beach, N.A. There is, therefore, no substantial existing competition between these 2 banks. Under California law each bank could be permitted to establish de novo branch offices in the areas served by the other. Because of the small size of Bank of Long Beach, N.A., it appears unlikely that that bank would in the near future establish a de novo branch outside its market. It also does not appear probable that Union Bank would establish a de novo branch office in the Long Beach area. In 1966 Union Bank withdrew an application to establish such a branch because a large-scale real estate development did not progress beyond the planning stages; since that time, Union Bank indicates that the area is not sufficiently attractive for establishment of a de novo office. Furthermore, since Bank of Long Beach, N.A., has only a very small share of the deposits in its area, the For notes see p. 291. 276 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont. amount of potential competition between the merging banks that would be eliminated by the proposed transaction is not significant; at the same time, Union Bank's entry into this market by acquisition of Bank of Long Beach, N.A., would likely increase competition among the large banks there. On the basis of the foregoing, the Board concludes that consummation of the proposal would not eliminate significant existing or potential competition. Considerations relating to the financial and managerial resources and future prospects of the banks are consistent with approval of the application. Customers of Bank of Long Beach, N.A., would benefit by the merger because Union Bank plans to offer them an additional source of a wider range of banking services, such as computer and trust services, and through its larger lending limit would be better able to meet the needs of medium- and large-sized business customers. Therefore, convenience and needs considerations lend support to approval of the application. It is the Board's judgment that consummation of the proposed merger would be in the public interest, and that the application should be approved. No. 6—The Farmers Savings and Trust 50.0 Company, Mansfield, Ohio, to merge with The Lucas State Bank, 4.0 Lucas, Ohio SUMMARY REPORT BY THE ATTORNEY GENERAL (3-3-71) The head office of Farmers Trust in Mansfield is 7 miles distant from State Bank's single office in Lucas, with no banking offices in the intervening area. However, Farmers Trust and State Bank have had common ownership and management since the latter bank commenced business in 1929. At all times, officers and directors of Farmers Trust have owned or controlled more than two-thirds of State Bank's stock and every president of State Bank, including the incumbent, has been either the president or a senior officer of Farmers Trust. In view of this long-standing affiliation between the 2 banks, we conclude that the proposed merger is not likely to have an adverse effect on competition. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (3-12-71) The Farmers Savings and Trust Company (hereinafter Farmers Bank), the 3rd largest of 7 banks located in Richmond County, holds about 17 per cent of Richmond County commercial banking deposits. Lucas Bank For notes see p. 291. 277 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 197V—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont. is the smallest of the 7 institutions located in Richmond County. Farmers Bank is a subsidiary of First Bane Group of Ohio, Inc., Columbus, Ohio, which is the 4th largest registered bank holding company in the State, controlling about 3 per cent of deposits in the State of Ohio. Consummation of the proposed merger would not increase substantially the concentration of banking resources in any relevant area. Farmers Bank was instrumental in organizing Lucas Bank in 1928 and provided Lucas Bank with its initial management. Since that time applicant and Lucas Bank have been closely associated, and each president of Lucas Bank has been either a president or senior officer of applicant. There is no indication that this close relationship between applicant and Lucas Bank is likely to change in the foreseeable future, regardless of the Board's action with respect to the present application. In view of the close relationship between the 2 banks, it may be reasonably concluded that present and potential competition would neither be foreclosed by approval of the application nor encouraged by its denial. It does not appear that competition with and between other banks in Richmond County would be affected in any significant way by consummation of the proposal. The Board concludes that consummation of the proposed merger would not have an adverse effect on competition in any area. The financial and managerial resources and prospects of the merging banks and the resulting bank are satisfactory and consistent with approval of the application. Consummation of the merger would provide customers of Lucas Bank with certain additional banking services; the convenience and needs aspects of the proposal lend weight, therefore, to approval of the transaction. Based upon the foregoing, it is the Board's judgment that consummation of the proposal would be in the public interest and that the application should be approved. No. 7—Manaport Bank. 0.1 (Newly organized Manassas, Va., bank; not in to merge with operation) First Manassas Bank and Trust 1.6 1 1 Company, Manassas, Va. SUMMARY REPORT BY THE ATTORNEY GENERAL (2-3-71) The proposed merger is part of a plan under which Northern Virginia Bankshares, Inc., a registered bank holding company, proposes to acquire all of the voting shares of First Manassas Bank and Trust Company, and For notes see p. 291. 278 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont. as a contemporaneous transaction, to effect the merger of Manaport Bank and First Manassas Bank and Trust Company. The effect of these transactions will be to transfer control of an existing bank to a registered bank holding company. In and of itself, however, the proposed merger would merely combine an Existing bank with a nonoperating institution; as such, and without regard to acquisition of the surviving bank by Northern Virginia Bankshares, Inc., the proposed merger would have no effect on competition. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (4-8-71) Manaport Bank, Manassas, Virginia, a nonoperating bank applying concurrently for membership in the Federal Reserve System, proposes to merge First Manassas Bank and Trust Company, Manassas, Virginia. The proposal is a transaction to facilitate the acquisition of First Manassas Bank and Trust Company by Northern Virginia Bankshares, Inc., Baileys Crossroads, Virginia, a proposed bank holding company. The proposed merger would, in itself, have no adverse competitive effects. The banking and convenience and needs factors are consistent with approval of the application. No. 8—Trust Company of Georgia, 695.0 21 Atlanta, Ga., to acquire the assets and assume the deposit liabilities^ of 24 Trust Company of Georgia 26.0 Bank of DeKalb, Atlanta, Ga. SUMMARY REPORT BY THE ATTORNEY GENERAL (4-27-71) Since 1954, Trust Company's wholly owned subsidiary has owned at least 70 per cent of the outstanding stock of DeKalb Bank. Since that time, DeKalb Bank has been controlled and operated by Trust Company as a subsidiary. This merger, therefore, is essentially a corporate reorganization and as such will have no effect on competition. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (5-6-71) Trust Company of Georgia has been affiliated with DeKalb Bank since 1954, when its wholly owned subsidiary, Trust Company of Georgia Associates, acquired 85 per cent of DeKalb Bank's capital stock. DeKalb For notes see p. 291. 279 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont. Bank's 3 offices are in unincorporated areas of DeKalb County, outside the city limits of Atlanta (population 487,600). There is no effective competition existing between proponents and there is little likelihood of potential competition developing between them due to their long-standing close relationship. The banking and convenience and needs factors are consistent with approval. No. 9—Commercial Trust Company of 204.0 14 New Jersey, Jersey City, N.J., to acquire the assets and assume the 15 deposit liabilities of^ Bergen County National Bank of 27.0 Hackensack, Hackensack, N.J. SUMMARY REPORT BY THE ATTORNEY GENERAL (4-13-71) During 1970 Commercial Trust opened 3 de novo branches in southern Bergen County. The closest of these to Bergen National is located in Hasbrouck Heights, approximately 5 miles away. There are several commercial bank offices located in the intervening area. Commercial Trust's main office is approximately 16 miles from Bergen National. Bergen National derives about 1 per cent of its total deposits from the service area of Commercial Trust, mostly from Hasbrouck Heights. Commercial Trust's Hasbrouck Heights office draws about 1.6 per cent of its total deposits from Hackensack. This branch was opened on November 14, 1970, however, and it can be expected to increase its draw from this area in the future. Therefore, a limited amount of direct competition between the 2 banks will be eliminated by consummation of the proposed merger. Commercial Trust is the 11th largest commercial bank in New Jersey's First Banking District. At present, it holds a very small share of Bergen County deposits, attributable to its recently opened branches. Under New Jersey law commercial banks are allowed to branch freely throughout the banking district in which they are located, with certain home-office- and branch-office-protection limitations. Commercial Trust cannot branch de novo into Hackensack, although the increasingly popular holding company device may provide some opportunity for expansion. Bergen National is the smallest bank in Hackensack and one of the smaller banks in Bergen County, with less than 1.2 per cent of total county deposits. In view of this fact and the existence of many other larger banks in the First District, the amount of potential competition eliminated is unlikely to be significant. For notes see p. 291. 280 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (5-13-71) Commercial Trust operates 6 offices in Jersey City and 5 additional offices elsewhere in Hudson County; during 1970 Commercial Trust opened 3 branch offices in Bergen County. The principal area served by Commercial Trust is Jersey City and the southeastern part of Hudson County, from which it derives over 90 per cent of its deposits and wherein it ranks as the 2nd largest of the 12 area banks, controlling approximately 17 per cent of area deposits. Bergen Bank maintains its sole office, and is the smallest of 4 banks, in the city of Hackensack (Bergen County). Commercial Trust holds 5.5 per cent of the deposits in the combined Hudson-Bergen County area. Its share of such deposits would increase to 6.3 per cent upon consummation of the proposed acquisition. Approval of the proposed transaction would not increase substantially the concentration of banking resources in any area. The competitive effect of this proposal would be confined principally to the city of Hackensack. Commercial Trust has recently opened 3 offices in Bergen County that are situated 9, 7, and 5 miles from Hackensack, in areas that serve mainly as a base for those who commute to New York City for employment. Neither Bergen Bank nor Commercial Trust derives any significant portion of its business from the areas served by the other bank, and the banks serve essentially separate banking markets. Consequently, there is no substantial existing competition between Commercial Trust and Bergen Bank. Moreover, it does not appear that significant potential competition would be eliminated by consummation of this proposal, since under the home-office protection afforded by State law, Commercial Trust could not be permitted to branch de novo into the city of Hackensack. Bergen Bank is not an aggressive competitor to the 3 larger Hackensack banks, and consummation of this merger could serve to enhance the ability of the resulting banking office to compete in the area. On the basis of the foregoing, the Board concludes that consummation of the proposal would not eliminate significant existing or potential competition. Considerations pertaining to the financial and managerial resources and future prospects of the banks are consistent with approval of the application. Although the banking needs of the residents of Hackensack are being adequately served at the present time by many banking offices of large organizations, it appears that the proposed acquisition would replace a conservatively operated institution with a more aggressive competitor in the Hackensack area, enlarge present services offered to Bergen Bank's customers, and provide another source of specialized services now being offered only by the larger Hackensack banks. Therefore, convenience and needs considerations are consistent with and lend some support to approval of the application. It is the Board's judgment that consummation of the proposed merger would be in the public interest, and that the application should be approved. For notes see p. 291. 281 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 197V—CONTINUED Banking\ offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated No. 10—The Western Greenbrier Bank, 7.0 1 Rainelle, W. Va., to acquire the assets and assume the 1 deposit liabilities of The Bank of Rainelle, 5.0 1 Rainelle, W. Va. SUMMARY REPORT BY THE ATTORNEY GENERAL (8-2-71) The service areas of Bank of Rainelle and Western are coextensive. No other banks are located in this area, and it does not appear that the closest banks in other areas do any meaningful business or exert any meaningful competitive pressure in the Rainelle area. Therefore, the proposed transaction would eliminate essentially all banking competition in the Rainelle area, with Western acquiring a monopoly position. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10-5-71) Proponents operate the only banking offices in Rainelle (population 1,800), and the nearest office of another bank is 25 miles distant. Bank of Rainelle throughout its existence has been used primarily as a depository for the convenience of a lumber company, control of which was purchased during 1970 by Georgia-Pacific Corporation and its subsidiary Georgia-Pacific Timber Company. Since these firms do not wish to be subject to the nonbank restrictions of the Bank Holding Company Act, they decided to either sell the bank or to liquidate it. All efforts to sell it to residents of the Rainelle area and to banks other than Greenbrier Bank were unsuccessful. Consummation of the proposed transaction would avoid the public inconvenience and confusion that would be brought about by liquidation of Bank of Rainelle. No. 11—The Citizens Central Bank of 40.3 Arcade, Arcade, N.Y., to merge with Bank of Elba, 2.9 Elba, N.Y. SUMMARY REPORT BY THE ATTORNEY GENERAL (8-6-71) Citizens' main office in Arcade and its branch in Silver Springs are its closest offices to Elba, at approximate distances of 46 and 41 miles. The 3 largest banks in the district all operate offices in Batavia, between Arcade and Elba. Other banking alternatives are also located between Citizens and the Bank of Elba. The merging banks draw little banking busi- For notes see p. 291. 282 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont. ness from each other's service areas, and other subsidiaries of Charter [New York Corporation] do only limited business in the Elba area. Therefore, it is unlikely that the proposed merger would eliminate substantial existing competition. Under present New York law, which permits intradistrict branching subject to home-office protection, Citizens could be permitted to open new branches in Genesee County. Although the town of Elba itself is closed to branching, the nearby and significantly larger community of Batavia is open. Citizens clearly has the ability to open de novo branches, particularly in view of its affiliation with Charter. However, in view of the relatively stable economy and population in the Elba-Batavia area, and the size and relative market position of the Bank of Elba, we do not believe that the proposed merger would have a significantly adverse effect on potential competition. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10-5-71) Citizens Bank, a Subsidiary of Charter New York Corporation, New York, with deposits of $35 million, is the 11th largest of 32 banks headquartered in New York's Ninth Banking District, wherein it operates 5 banking offices in 3 0f the district's 8 counties. Elba Bank, with deposits of $2 million, operates its sole office in Elba and is the only bank serving the town. It is the smallest of 3 banks domiciled in Genesee County, wherein it holds 11 per cent of total county deposits. The nearest offices of Citizens Bank to Elba Bank are its main office in Arcade and its branch in Silver Springs, located 46 and 41 miles, respectively, from Elba. In the intervening area there are 8 banking offices, which include branches of the 3 largest Buffalo-based banks. The relevant market within which the competitive effects of the proposed merger are to be assessed is the Batavia banking market, which encompasses an area approximately half the distance between Rochester and Buffalo, consisting of Genesee County and the towns of Bennington, Attica, Middleburg, and Covington, in Wyoming County. Elba Bank is the 7th smallest of 8 banks represented in the market and controls only 1.9 per cent of the market's total deposits. The merging banks do not compete with one another in the relevant market, and there is no significant competition between other subsidiary banks of Charter New York Corporation and Elba Bank. Further, no substantial potential competition would be foreclosed by consummation of the proposed merger considering Elba Bank's size, the economy of the area, and the restrictions placed on branching into Elba by New York State banking laws. Consummation of the proposed transaction would not result in a substantial increase in concentration levels on a local or statewide basis. Based upon all the facts revealed in the record, the Board concludes that the merger would not have an adverse effect on competition in any relevant area. For notes see p. 291. 283 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED Banking offices Name of bank; and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont. The financial and managerial resources and prospects of the merging banks and the resulting bank are satisfactory and consistent with approval of the application. Considerations under the convenience and needs aspects of the proposal lend some support in favor of approval since consummation of the merger would provide customers of Elba Bank with a more varied range of banking services than is presently offered them. No. 12—Nortrust Bank, (Newly organized bank; Chicago, 111., not in operation) to merge with The Northern Trust 2,000.0 Company, Chicago, 111. SUMMARY REPORT BY THE ATTORNEY GENERAL (9-30-71) The proposed merger is part of a plan through which Nortrust Bank would become a subsidiary of Nortrust Corporation, a bank holding company. The proposed merger, however, would merely combine an existing bank with a nonoperating institution; as such and without regard to the acquisition of the surviving bank by Nortrust Corporation, it would have no effect on competition. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10-26-71) Nortrust Bank, Chicago, Illinois, an organizing bank applying concurrently for membership in the Federal Reserve System, has requested prior written consent of the Board of Governors to merge with The Northern Trust Company, Chicago, Illinois, under the charter of Nortrust Bank and with the title The Northern Trust Company. The Northern Trust Company operates 1 domestic office and has total deposits of $1.9 billion. The proposed merger is a transaction to facilitate the acquisition of The Northern Trust Company by Nortrust Corporation, Chicago, Illinois, a bank holding company. The proposed merger would, in itself, have no adverse competitive effects. The banking and the convenience and needs factors are consistent with approval of the application. For notes see p. 291. 284 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2l._CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated No. 13—The Perry County Bank, 9.0 1 New Lexington, Ohio, to merge with 2 The Peoples Bank, 5.6 1 Thornville, Ohio SUMMARY REPORT BY THE ATTORNEY GENERAL (7-23-71) The 2 merging banks are located 18 miles apart, and 2 banks are located in the intervening town of Somerset (population 1,417). According to the application, the primary service areas of the merging banks do not overlap. Nonetheless, Peoples Bank, because of an aggressive policy (for example, Peoples Bank has no service charges on checking accounts), draws deposits from a rather broad area, including the towns of Lancaster, Newark, and Zanesville; BancOhio Corporation presently has subsidiaries in each of these towns. Moreover, Perry Bank does some deposit and loan business with Thornville customers. Because of BancOhio Corporation's complete ownership of Perry Bank and other banks competing with Peoples Bank, this merger will eliminiate the existing competition generated by an independent, aggressive Peoples Bank in Thornville. In Perry County, BancOhio Corporation's present subsidiary, Perry Bank, is currently the largest of the 8 commercial banks in the county. Based on June 30, 1970, deposit figures, Perry Bank and Peoples Bank each had slightly more than 16 per cent of the deposits held by Perry County banks. Consummation of this merger would give BancOhio Corporation control of over 32 per cent of the deposits in Perry County banks. We conclude that this merger is likely to have an adverse effect on competition in Perry County. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-4-71) The Perry County [Bank (hereinafter New Lexington Bank) is a subsidiary of BancOhio i Corporation, Columbus, Ohio (hereinafter Banc- Ohio). BancOhio is trie 2nd largest banking organization in Ohio, with 28 subsidiary banks folding aggregate deposits in excess of $1.5 billion, representing 7.2 per c^nt of State commercial bank deposits. The Peoples Bank (hereinafter Thornville Bank) is located 18 miles northwest of New Lexington Bank. Althpugh New Lexington Bank and Thornville Bank are both located in Perry! County, there is little existing competition between them because they serve essentially separate banking markets. However, within a radius of 10 miles from Thornville Bank, there are 3 branches of BancOhio subsidiaries that compete to some extent with Thornville For notes see p. 291. 285 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont. Bank. They are the Buckeye Lake office of The First National Bank of Newark (located 6 miles northwest of Thornville) and the Pleasantville and Baltimore offices of The Hocking Valley National Bank of Lancaster (located within Fairfield County, 8 miles southwest and 10 miles west of Thornville, respectively). Thornville Bank is located at the periphery of the Newark banking market, the relevant market, which is approximated by Licking County and the extreme northwestern section of Perry County. The First National Bank of Newark, with 6 offices, all located in Licking County, and total deposits of $44.6 million, has the 2nd largest share (23.7 per cent) of commercial bank deposits within the relevant market. Thornville Bank has 2.7 per cent of market deposits; approval of the application will increase BancOhio's share of market deposits to 26.3 per cent, and it would remain the 2nd largest banking organization in the market. BancOhio subsidiaries hold at least 20 per cent of commercial bank deposits in areas contiguous to the relevant market in Fairfield County, Muskingum County, and Perry County. In addition, BancOhio subsidiaries hold approximately 42 per cent of commercial bank deposits in an 8county area surrounding Columbus, Ohio, and may be considered the dominant banking organization in central Ohio. Because of the increased concentration within the relevant market and the substantial shares held by BancOhio subsidiaries in nearby markets, the Board concludes that the proposed merger would have an adverse effect on competition. However, the Board is required to consider whether other aspects of the proposed transaction are such that approval would be in the public interest despite the adverse competitive finding. The Thornville Bank has serious management problems. Despite efforts to recruit successor management, Thornville Bank has been without a chief executive officer of its own since early 1970. It has relied on management assistance provided by BancOhio since April 1970. Prior to seeking management assistance from BancOhio, Thornville Bank had had severe management problems that had left the bank in a weakened financial condition. The bank's condition improved only with BancOhio's assistance. Since Ohio law permits only countywide branching, merger with a bank outside Perry County is not feasible. Because of the relatively small size of all other banks located within Perry County, a merger with any of these banks would not appear to be the solution to Thornville Bank's management problems. Acquisition by a holding company other than BancOhio might alleviate Thornville Bank's management problems, but other holding companies in the area contacted by Thornville Bank expressed no interest in acquiring the bank. For notes see p. 291. 286 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont. In the light of Thornville Bank's prior difficulty in securing a chief executive officer on its own, there is no assurance that capable management can be attracted to the bank in the absence of approval of the proposed transaction. Consequently, the Board has concluded that the financial and managerial factors lend substantial weight for approval. Since approval of the proposed transaction appears the only method whereby the continued existence of banking facilities in Thornville can be assured, the convenience and needs of the community outweigh the adverse competitive consequences of this proposed merger. Based upon the foregoing, it is the Board's judgment that consummation of the proposal would be in the public interest and that the application should be approved. No. 14—The Connecticut Bank and Trust 1,177.0 59 Company, Hartford, Conn., to merge with 62 The North Side Bank and Trust 15.1 Company, Bristol, Conn. SUMMARY REPORT BY THE ATTORNEY GENERAL (8-19-70) A distance of about 18 miles separates the head offices of the merging banks. Six of CBT's [The Connecticut Bank and Trust Company] branch offices are within 15 miles of Bristol, and its new Avon office, not yet open, will be only 10 miles distant. However, several independent banks operate offices in the intervening area, and data from the application suggest that neither of tjhe merging banks obtains significant business from areas immediately served by offices of the other. Consequently, it seems doubtful that the proposed merger will eliminate substantial existing competition. Connecticut law d^es not permit a commercial bank to establish de novo branch offices jn a township where there is already located the home office of another bank. Under this law, Bristol is presently closed to de novo entry by CBT. If the proposed merger is approved, Bristol will be open to de novo branching by any commerical bank. Of the 6 townships surrounding Bristol separating it from townships where CBT has offices, 3 are also closed. CBT could, however, be permitted to enter For notes see p. 291. 287 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont. the remaining 3 townships de novo, and as Connecticut's 2nd largest bank, it would appear that it has the resources and capability for such entry. Two commercial banks operate offices in Bristol; a 3rd bank is located in Plymouth. As of June 30, 1968, these 3 banks held total deposits of about $43 million. The largest of these 3 was the Hartford-based United Bank and Trust Company, whose 4 offices in Bristol controlled about 54.0 per cent of these deposits. North Side Bank, the 2nd largest, held 27.2 per cent of these deposits. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-9-71) The Connecticut Bank and Trust Company (hereinafter CBT) is one of Connecticut's two largest commercial banks. North Side Bank is comparatively modest in size. Although CBT's operations are centered in the Hartford standard metropolitan statistical area (SMSA), it derives about $1.4 million in deposits and $4.3 million in loans from the Bristol-Plymouth SMSA, where North Side Bank's operations are primarily located. Of this $1.4 million in deposits, $1.07 million are in demand deposits, half of which are in 3 large commercial accounts and the remainder in 300 other accounts; $176,000 are in 353 savings accounts, and $172,000 in 29 time deposits. Of the $4.3 million in loans that CBT derives from the Bristol-Plymouth area, $3.1 million are in loans that exceed North Side Bank's lending limit. At the request of the Board, the Federal Reserve Bank of Boston conducted a survey of Bristol, Connecticut, to determine whether Bristol is becoming a part of the same banking market as the Hartford SMSA. To obtain information on banking habits of different types of customers, three groups were sampled—households, businesses, and professionals; businesses were subdivided into large and small. Less than 10 per cent of the households surveyed had their major checking account in the Hartford SMSA, and 4.7 per cent had this account in Hartford itself. Of this sample, 5.3 per cent had their major savings account in the Hartford SMSA, and 3.2 per cent had this account in Hartford itself. Among professionals working in Bristol, only 5.4 per cent had a checking account in the Hartford SMSA. Among small businesses in Bristol, only 4.8 per cent had their major banking relationship in the Hartford SMSA. Although large businesses had somewhat more banking relationships within the Hartford SMSA, nonetheless, only 25 per cent indicated they used a Hartford SMSA bank for their primary source of banking services. Thus, the survey results suggest that Bristol is not integrated into the banking market approximated by the Hartford SMSA. The Board has considered that Connecticut law presently prohibits the establishment of de novo offices in Bristol because it is the location of the home office of North Side Bank. The effect of the present proposal in For notes see p. 291. 288 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont. eliminating home-office protection in Bristol would be to open up that city to competition from other Connecticut banks. The Colonial Bank and Trust Company, Waterbury ($225 million in deposits), has an application pending for a de novo branch in Bristol- that is contingent upon approval of this application. Thus, consummation of the present proposal would serve to stimulate competition in Bristol. Indeed since Bristol is on the fringes of the Hartford SMSA, the intensification of competition among banks in Bristol may even serve to stimulate competition among banks in the highly concentrated Hartford area, where the 2 largest banks now control 85 per cent of area deposits. The Board has considered whether home-office protection might be eliminated by alternative means. Although North Side Bank has received expressions of interest in a merger from other banks from time to time, all of these banks were in adjacent markets. In any case, North Side Bank has not received a firm offer for a merger, and this transaction does not present such anticompetitive effects as to require that it be evaluated by measuring it against hypothetical transactions. The Board is of the view that consummation of the present proposal would not have anticompetitive effects, and indeed, elimination of homeoffice protection would have a procompetitive effect. The financial condition, management, and future prospects of CBT and North Side Bank are satisfactory regardless of whether the proposed merger is consummated. Consequently, these considerations are consistent with approval. The banking needs of the Bristol area are being adequately served by the banking organizations located therein and in nearby communities. The convenience and needs factors are consistent with, but lend no weight toward, approval of the proposal. No. 15—The Huron County Banking Co., 34.3 Norwalk, Ohio, to merge with The Savings & Loan Banking Co., 10.2 New London, Ohio SUMMARY REPORT BY THE ATTORNEY GENERAL (9-27-71) Seventeen miles separate the offices of the 2 banks. There are no banks in the intervening area. There is a banking alternative in Norwalk (Citizens Bank, total deposits: $17 million). In addition, there are other banking offices which are closer to New London than is the office of Huron County Bank. Although the banks contend that there is no competition For notes see p. 291. 289 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont. between them, each draws some deposits from the area of the other and each could expand that competition by branching into the other's territory. As a result, this merger would eliminate some existing competition and the potential for increasing it. Huron County Bank is presently the largest of 8 banks serving Huron County. It has some 24 per cent of county deposits. S&L Bank [The Savings & Loan Banking Co.] is the 6th largest bank with 6 per cent of county deposits. Presently, the 4 largest banks in the county hold 70 per cent of all deposits; that share would go to 76 per cent after this merger, and Huron County Bank would be almost twice the size of any other bank in the county. Thus, consummation of this merger would result in a substantial increase in concentration in Huron County. Furthermore, several bank holding companies have considered acquiring S&L Bank. Thus, this merger will eliminate a vehicle by which banking organizations not serving Huron County might have entered by acquisition of a footholdtype bank. In conclusion, we believe that this merger will have an adverse effect on banking competition in Huron County. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-9-71) The Huron County Banking Co. (hereinafter Norwalk Bank), with deposits of $32 million and 2 banking offices, is located in Huron County and operates in the Sandusky banking market, which consists of all of Erie County and the northern portion of Huron County. Norwalk Bank is the 4th largest of 13 banks headquartered in the Sandusky banking market, holding 11.1 per cent of the deposits in that market. The Savings & Loan Banking Co. (hereinafter New London Bank), with deposits of $9 million, operates its sole office in New London. Although located in Huron County, this bank operates in a separate banking market consisting of New London and its immediate surroundings. The nearest offices of Norwalk Bank to New London are 17 miles distant. Although there are no banking offices in the territory between New London and Norwalk, there are offices of other banks that provide alternative banking services to residents of New London and that are located closer to New London Bank than is Norwalk Bank. There is no substantial existing competition between New London Bank and Norwalk Bank. Although Norwalk Bank could branch de novo into the New London banking market, substantial potential competition would not be foreclosed by consummation of this proposal because of the small size of New London Bank and because of the rural nature and modest growth prospects of the New London area, which make branching into that market by Norwalk Bank unlikely. Consummation of the proposed transaction would not result in a substantial increase in concentration lev- For notes see p. 291. 290 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2i._CONTINUED Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) In To be operation operated BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont. els in any relevant area. Based upon all the facts revealed in the record, the Board concludes that the merger would not have an adverse effect on competition in any relevant area. The financial and managerial resources and future prospects of the merging banks and the resulting bank are satisfactory and consistent with approval of the application. Considerations relating to the convenience and needs of the community lend some weight toward approval since the merger would increase the lending limit of New London Bank. New London Bank would, as a result, be able to serve more adequately the credit needs of the New London community. Based upon the foregoing, it is the Board's judgment that consummation of the proposal would be in the public interest and that the application should be approved. No. 16—HTS Bank, 0.4 (Newly organized Chicago, 111., bank; not in to merge with operation) Harris Trust and Savings Bank, 2,042.0 1 1 Chicago, 111. SUMMARY REPORT BY THE ATTORNEY GENERAL (No report received.) BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (12-22-71) HTS Bank, Chicago, Illinois, a nonoperating bank applying concurrently for membership in the Federal Reserve System, proposes to merge Harris Trust and Savings Bank, Chicago, Illinois, which has deposits of $1.6 billion and operates 1 domestic office. The proposal is a transaction to facilitate the acquisition of Harris Trust and Savings Bank by Harris Bancorp., Inc., Chicago, Illinois, a bank holding company. The proposed merger would, in itself, have no adverse competitive effects. The banking and convenience and needs factors are consistent with approval of the application. 1 During 1971 the Board disapproved 2 merger applications. However, under Section 18(c) of the Federal Deposit Insurance Act. only those transactions approved by the Board must be described in its ANNUAL REPORT to Congress. 2 Each transaction was proposed to be effected under the charter of the first-named bank. 3 Application by Chemical Bank and Trust Company for consolidation with Gladwin Bank was denied. 4 The abbreviation "IPC" designates deposits of individuals, partnerships, and corporations. 291 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

VO •[ THE FEDERAL RESERVE SYSTEM ]• BOUNDARIES OF FEDERAL RESERVE DISTRICTS AND THEIR BRANCH TERRITORIES Q HAWAII © July 1971 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 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

zfederal 'Reserve 'Directories and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (December 31,1971) Term expires ARTHUR F. BURNS of New York, Chairman January 31, 1984 J. L. ROBERTSON of Nebraska, Vice Chairman January 31, 1978 GEORGE W. MITCHELL of Illinois January 31, 1976 J. DEWEY DAANE of Virginia January 31, 1974 SHERMAN J. MAISEL of California January 31, 1972 ANDREW F. BRIMMER of Pennsylvania January 31, 1980 ROBERT C. HOLLAND, Executive Director J. CHARLES PARTEE, Adviser to the Board ROBERT SOLOMON, Adviser to the Board HOWARD H. HACKLEY, Assistant to the Board CHARLES MOLONY, Assistant to the Board ROBERT L. CARDON, Assistant to the Board DAVID B. HEXTER, Assistant to the Board EDWIN J. JOHNSON, Assistant to the Board FRANK O'BRIEN, JR., Special Assistant to the Board JOSEPH R. COYNE, Special Assistant to the Board JOHN S. RIPPEY, Special Assistant to the Board OFFICE OF EXECUTIVE DIRECTOR ROBERT C. HOLLAND, Executive Director DAVID C. MELNICOFF, Deputy Executive Director GORDON B. GRIMWOOD, Assistant Director and Program Director for Contingency Planning HARRY J. HALLEY, Program Director for Management Systems WILLIAM W. LAYTON, Director of Equal Employment Opportunity BRENTON C. LEAVITT, Program Director for Banking Structure OFFICE OF THE SECRETARY TYNAN SMITH, Secretary KENNETH A. KENYON, Deputy Secretary MURRAY ALTMANN, Assistant Secretary NORMAND R. V. BERNARD, Assistant Secretary ARTHUR L. BROIDA, Assistant Secretary ELIZABETH L. CARMICHAEL, Assistant Secretary LEGAL DIVISION THOMAS J. O'CONNELL, General Counsel ROBERT F. SANDERS, Deputy General Counsel PAULINE B. HELLER, Adviser DIVISION OF RESEARCH AND STATISTICS J. CHARLES PARTEE, Director STEPHEN H. AXILROD, Associate Director SAMUEL B CHASE, Associate Director k LYLE E. GRAMLEY, Associate Director STANLEY J. SIGEL, Adviser MURRAY S. WERNICK, Adviser KENNETH B. WILLIAMS, Adviser JAMES B. ECKERT, Associate Adviser PETER M. KEIR, Associate Adviser JAMES L. PIERCE, Associate Adviser EDWARD C. ETTIN, Assistant Adviser STEPHEN P. TAYLOR, Assistant Adviser Louis WEINER, Assistant Adviser JOSEPH S. ZEISEL, Assistant Adviser LEVON H. GARABEDIAN, Assistant Director 294 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

DIVISION OF INTERNATIONAL FINANCE ROBERT SOLOMON, Director JOHN E. REYNOLDS, Associate Director ROBERT L. SAMMONS, Associate Director JOHN F. L, GHIARDI, Adviser A, B. MERSEY, Adviser REED J. IRVINE, Adviser SAMUEL I. KATZ, Adviser BERNARD NOEWOOD, Adviser RALPH C. WOOD, Adviser RALPH C. BRYANT, Associate Adviser ROBERT F. GEMMILL, Associav **r> *•- < SAMUEL PIZER, Associate Advi-<; / DIVISION OF FEDERAL RESEKN i H-i\\ OPERATIONS JAMES A, MCINTOSH, Director JOHN N. KILEY, JR., 'Associate .'>••' - f " WALTER A. ALTHAUSEN, Assisi>ir' .'»,-», « •,- DONALD G. BARNES, Assistant /><>< • •' > HARRY A. GUINTER, Assistant iJnt-tJuf P, D. RING, Assistant Director JAMES L, VINING, Assistant Director CHARLES C. WALCUTT, Assistant Director LLOYD M. SCHAEFFEE, Chief Federal Reserve Examiner DIVISION OF SUPERVISION \Ni) K* GULATION FREDERIC SOLOMON, Dim '< IEENTON C. LEAVITT, Depu" n>,< <*»« FREDERICK R. DAHL, Assistant Director JACK M. EGEITSON, Assistant Director JOHN P. FLAHERTY, Assistant Director JANET O. HART, Assistant Director TOHN N. LYON, Assistant Director l»rHN T. MCCLINTOCK, Assistant Director I i IOMAS A. SIDMAN, Assistant Director OF PERSONNEL ADMINIST); 'V^\ G. BUMKE, Director I' »HN J. HART, Assistant Director DIVISION OF ADMINISTRATIVE SERVICES !«>SEPH E. KELLEHER, Director I MNALD D. ANDEESOM, Assistant Director ^••HN D. SMITH, Assistant Director OV-IU E OF THE CONTROLLER JOHN KAKALEC, Controller HARIY J. HALLEY, Deputy Controller DIVISION OF DATA PROCESSING JEEOLD E. SLOCUM, Director CHARLES L. HAMPTON, Associate Director GLENN L, CUMMINS, Assistant Director BENJAMIN R. W. KNOWLES, JR., Assistant Director HENRY W, MEETZE, Assistant Director RICHARD S. WATT, Assistant Director 295 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FEDERAL OPEN MARKET COMMITTEE (December 31, 1971) MEMBERS ARTHUR F. BURNS, Chairman (Board of Governors) ALFRED HAYES, Vice Chairman (Elected by Federal Reserve Bank of New York) ANDREW F. BRIMMER (Board of Governors) GEORGE H. CLAY (Elected by the Federal Reserve Banks of Minneapolis, Kansas City, and San Francisco) J. DEWEY DAANE (Board of Governors) MONROE KIMBREL (Elected by the Federal Reserve Banks of Atlanta, St. Louis, and Dallas) SHERMAN J. MAISEL (Board of Governors) ROBERT P. MAYO (Elected by the Federal Reserve Banks of Cleveland and Chicago) GEORGE W. MITCHELL (Board of Governors) FRANK E. MORRIS (Elected by the Federal Reserve Banks of Boston, Philadelphia, and Richmond) J. L. ROBERTSON (Board of Governors) OFFICERS ROBERT C. HOLLAND, Secretary ARTHUR L. BROIDA, GEORGE GARVY, Deputy Secretary Associate Economist NORMAND R. V. BERNARD, LYLE E. GRAMLEY, Assistant Secretary Associate Economist CHARLES MOLONY, A. B. HERSEY, Assistant Secretary Associate Economist HOWARD H. HACKLEY, JOHN E. REYNOLDS, General Counsel Associate Economist DAVID B. HEXTER, KARL A. SCHELD, Assistant General Counsel Associate Economist J. CHARLES PARTEE, ROBERT SOLOMON, Economist Associate Economist STEPHEN H. AXILROD, CHARLES T. TAYLOR, Associate Economist Associate Economist ROBERT W. EISENMENGER, CLARENCE W. TOW, Associate Economist Associate Economist ALAN R. HOLMES, Manager, System Open Market Account CHARLES A. COOMBS, Special Manager, System Open Market Account During 1971 the Federal Open Market Committee held 13 meetings, generally at intervals of four weeks, as indicated in the Record of Policy Actions taken by the Committee (see pp. 103-202 of this Report). 296 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FEDERAL ADVISORY COUNCIL (December 31, 1971) MEMBERS District No. 1—Mark C. Wheeler, President, New England Merchants National Bank, Boston, Mass. District No. 2—John M. Meyer, Jr., Chairman of the Board, Morgan Guaranty Trust Company of New York, New York, N.Y. District No. 3—G. Morris Dorrance, Jr., Chairman of the Board and President, The Philadelphia National Bank, Philadelphia, Pa. District No. 4—John S. Fangboner, Chairman of the Board and Chief Executive Officer, The National City Bank of Cleveland, Cleveland, Ohio. District No. 5—Joseph W. Barr, President, American Security and Trust Company, Washington, D.C. District No. 6—Harry Hood Bassett, Chairman of the Board, First National Bank of Miami, Miami, Fla. District No. 7—Gaylord Freeman, Chairman of the Board, The First National Bank of Chicago, Chicago, 111. District No. 8—Allen Morgan, Chairman of the Board, The First National Bank of Memphis, Memphis, Tenn. District No. 9—T. M. Reardon, Chairman of the Board, Western Bank, Sioux Falls, S. D. District No. 10—Morris F. Miller, Chairman of the Board and Chief Executive Officer, The Omaha National Bank, Omaha, Neb. District No. 11—John E. Gray, Chairman of the Board and Chief Executive Officer, First Security National Bank of Beaumont, Beaumont, Tex. District No. 12—A. W. Clausen, President and Chief Executive Officer, Bank of America National Trust and Savings Association, San Francisco, Calif. OFFICERS JOHN M. MEYER, JR., President A. W. CLAUSEN, Vice President HERBERT V. PROCHNOW, Secretary WILLIAM J. KORSVIK, Assistant Secretary EXECUTIVE COMMITTEE JOHN M. MEYER, JR., ex officio A. W. CLAUSEN, ex officio MARK C. WHEELER ALLEN MORGAN JOHN E. GRAY Meetings of the Federal Advisory Council were held on February 4-5, June 17-18, September 16-17, and November 4-5, 1971. The Board of Governors met with the Council on February 5, April 20, June 18, September 17, and November 5. The Council is required by law to meet in Washington at least four times each year and is authorized by the Federal Reserve Act to consult with and advise the Board on all matters within the jurisdiction of the Board. 297 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FEDERAL RESERVE BANKS AND BRANCHES (December 31, 1971) CHAIRMEN AND DEPUTY CHAIRMEN OF BOARDS OF DIRECTORS Federal Reserve Chairman and Deputy Chairman Bank of— Federal Reserve Agent Boston James D. Duesenberry Louis W. Cabot New York.. Albert L. Nickerson Roswell L. Gilpatria Philadelphia Bayard L. England D. Robert Yarnall, Jr. Cleveland Albert G. Clay J. Ward Keener Richmond. Wilson H. Elkins Robert W. Lawson, Jr. Atlanta Edwin I. Hatch John C. Wilson Chicago Emerson G. Higdon William H. Franklin St. Louis Frederic M. Peirce Sam Cooper Minneapolis David M.Lilly Bruce B. Dayton Kansas City Robert W. Wagstaff Willard D. Hosford,Jr. Dallas.... Chas. F. Jones Philip G. Hoffman San Francisco O. Meredith Wilson S. Alfred Halgren CONFERENCE OF CHAIRMEN The Chairmen of the Federal Reserve Banks are organized into a Conference of Chairmen that meets from time to time to consider matters of common interest and to consult with and advise the Board of Governors. Such a meeting, attended also by Deputy Chairmen of the Reserve Banks, was held in Washington on December 2-3, 1971. Mr. Clay, Chairman of the Federal Reserve Bank of Cleveland, who was elected Chairman of the Conference and of its Executive Committee in December 1970, served in that capacity until the close of the 1971 meeting. Mr. Nickerson, Chairman of the Federal Reserve Bank of New York, and Mr. Wilson, Chairman of the Federal Reserve Bank of San Francisco, served with Mr. Clay as members of the Executive Committee; Mr. Nickerson also served as Vice Chairman of the Conference. On December 3, 1971, Mr. Wilson was elected Chairman of the Conference and of its Executive Committee to serve for the succeeding year; Mr. Lilly, Chairman of the Federal Reserve Bank of Minneapolis, was elected Vice Chairman of the Conference and a member of the Executive Committee; and Mr. Wagstaff, Chairman of the Federal Reserve Bank of Kansas City, was elected as the other member of the Executive Committee. 298 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Cont. DIRECTORS Class A and Class B directors are elected by the member banks of the district. Class C directors are appointed by the Board of Governors of the Federal Reserve System. The Class A directors are chosen as representatives of member banks and, as a matter of practice, are active officers of member banks. The Class B directors may not, under the law, be officers, directors, or employees of banks. At the time of their election they must be actively engaged in their district in commerce, agriculture, or some other industrial pursuit. The Class C directors may not, under the law, be officers, directors, employees, or stockholders of banks. They are appointed by the Board of Governors as representatives not of any particular group or interest, but of the public interest as a whole. Federal Reserve Bank branches have either five or seven directors, of whom a majority are appointed by the Board of Directors of the parent Federal Reserve Bank, and the others are appointed by the Board of Governors of the Federal Reserve System. Term expires DIRECTORS District 1—BOSTON Dec 31 Class A: John Simmen Chairman of the Board and Chief Executive Officer, Industrial National Bank of Rhode Island, Providence, R.I 1971 William M. Honey President, The Martha's Vineyard National Bank, Vineyard Haven, Mass 1972 Ralph A. Mclninch President, Merchants National Bank of Manchester, N.H 1973 Class B: W. Gordon Robertson. .General Trustee, Bangor Punta Corporation, Bangor, Maine 1971 F. Ray Keyser, Jr Vice President, Vermont Marble Company, Proctor, Vt 1972 G. William Miller. President, Textron, Providence, R.I. 1973 Class C.- James S. Duesenberry... Professor of Economics,-Harvard University, Cambridge, Mass. 1971 Louis W. Cabot Chairman of the Board, Cabot Corporation, Boston, Mass 1972 John M. Fox President and Chief Executive Officer, H. P. Hood & Sons, Charlestown, Mass 1973 299 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.K. BANKS AND BRANCHES- Com. Term expires DIRECTORS—Cont. District 2—NEW YORK Dec, 31 Class A: I*iv\UU:nt. Ioi««pk»ns County Trust Company, C, E. Trernan, Jr.,..,. Ith:tca, N/i , ......................... 197! President, I he Canandaigua National Bank and Arthur S. Hamlin I rust Company, Canandaigua, N.Y,....... 1972 i lutirman of the Board, Chemical Bank, New William S, Renchard.. York, N.Y.. 1973 Class B: t h<iirman of the Board, Lever Brothers Milton C. Mumford. . ( ompany, New York, N.Y,............... N?f Chairman of the Board, B. Forman Co., Maurice R. Forman. . Rochester, N.Y. ............ hJ?2 , 1973 (Vacancy*........... Class C: . Partner, Cravath, Swaine & Moore, Attorneys, Kt^wel! f,. Giipatric. . New York, N.Y, 1971 , Former Chairman of the Board, Mobil Oil Albert L. Nickerson. . Corporation, New York, N.Y............. 1972 .President, Carnegie Corporation of New Alan J. Pifer.. ....... York, N.Y. . .................. 1973 BUFFALO BRAM !II Appointed by Federal i?c',vrnv Hank: James I. Wyckoff.. C hairman of" tlu: Bottrd, The National Bank iff Geneva. N.Y ................. 1971 David J, Laub.... (t;:iirman of the Board, Marine Midland Bank- Western, Buffalo, N.Y... . . 1972 William B. Anderson. President, The First National Bank of Jamestown, N.Y.. 1973 Angelo A. Costanza President and Chief Executive Officer, Central Trust Company, Rochester, N.Y........... 1973 Appointed by Board of Governors: Norman F. Beach, .... .Vice President and General Manager, Kodak Park Division, Eastman Kodak Company, Rochester, N.Y.......................... 197! Morton Adams. ...... General Manager, Pro-Fac Cooperative Inc., Rochester, N.Y.......................... 1972 Rupert Warren........ 1 'resident, Trice* Products Corporation, Buffalo, N.Y..... ............................... 1973 300 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Term expires DIRECTORS—Cont. t '-DELPHIA Dec. 31 Class A: Harol' •• v» • Jr..... tJ • > dent, Central Perm National Bank, Phila- '.Mphia, Pa.............................. 1971 William l'; - ;• by. . . . - "r.'.-rman of the Board, Princeton Bank and !: list Company, Princeton, N.J............ 1972 Richard A. Herbster. . <• ' sclent, Lewistown Trust Company, Lewis- .'vn, Pa..... 1973 Class B: President and Chief Executive Officer, Berwind C. Graham Berwind, Jr. Corporation, Philadelphia, Pa,..... ' >' 1 Chairman and Chief Executive Offic • Edward J. Dwyer. Incorporated, Philadelphia, Pa...... ; u '2 Chairman of the Board and Presidents I . n Philip H. Glatfelter, III Glatfelter Co., Spring Grove, Pa.., . "3 Class C; .President, Yarway Corporation, Blue Bell, D. ROI-.M. N.'»;-..iall, Jr... ' Pa,.................................... 1971 Former Chairman of the Board, Atlantic City Bayard L. England Electric Company, Atlantic City, N.J.. ..... 1972 President, Haverford College, Haverford, Pa,. . 1973 John R. Coleman..... . Dlsti • '• ''ELAND Class A: George F. Karebt, .Chairman of the Board and Chief Executive Officer, The Cleveland Trust Company, Cleveland, Ohio......................... 1971 David L, Brumback. /President, Van Wert National Bank, Van Wert, Ohio. 1972 Edward W. Barker. . .President, First National Bank of Middletown, Ohio.... 1973 Class B: J.Wm. Henderson, Jr., . .Henderson & Associates, Columbus, Ohio. . 1971 R. Stanley Lalng. . President, The National Cash Register Company, Dayton, Ohio..................... 1972 John L, Gushman. .Chairman, of the Board and Chief Executive Officer, Anchor Hocking Corporation, Lancaster, Ohio............................. 1973 301 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

expires >»M ,.u> < ,.., MiMrirt .J»»-U i '/ELAND—Cont. .Dec, 3! H -I * i '. ^{f.'cr •'!,;•,."< , the Board and Chief Executive . )i'" '. ! }•' \V Inc.. Cleveland Ohio. „ , , 1971 1 . ;.;,.,.'»- .\u,^i; us,." . . . 1973 CINCINNATI BRANCH Appointed by Federal Reserve Bank: Robert B. Johnson. ... .President, Pikevilie Ma;-. .>.», M,•••'. ^ f rust Company, Pikevilie, K . . . . 1971 Paul W. Christensen, Jr..President, The Cincin>»'.t! C^;.{ «'.".»•..any, Cincinnati, Ohio, . . . . . . 1972 Robert E, Hall........ .President, The First Na^^ni ^ar.- -MM, i rust Company, Troyf Ohic . . ... 1972 William S. Rowe. . . . . . .President, The Fifth IT.,*.! H.-'^K 1 ••• -..^lati, Ohio.,... ............................... 1973 Appointed by Board of Governors: Graham E. Marx... . . . .President and General Manager, The G. A. Gray Company, Cincinnati, Ohio.......... 1971 Phillip R. Shriver...... /President, Miami University, Oxford, Ohio, . . 1972 Clair F. Vough........ .Vice President, Office Products Division, IBM Corporation, Lexington, Ky.......... 1973 PITTSBURGH BRANG H Appointed by Federal Reserve Bank: Charles H. Bracken... , .President and Chief Executive Officer, Marine National Bank, Erie, Pa.................. 1971 Robinson F. Barker.... Chairman of the Board and Chief Executive Officer, PPG Industries, Inc., Pittsburgh, Pa..................................... 1972 John. W. Bingham...... President, The Merchants and Manufacturers National Bank of Sharon, Pa... ....... 1972 Merle E. Gilliand........President and Chief Executive Officer, Pittsburgh National Bank, Pittsburgh, Pa........ 1.973 302 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Term expires DIRECTORS -Cont. :r tct 4—CLEVELAND—O >•• Dec, 31 PITTSBURGII BRANCH—Con 1:. Appointed by Board of Governors: Richard M, Cyert /Dean, Graduate School of Industrial Administration, Carnegie-Mellon University, Pittsburgh, Pa,. 197! Lawrence E. Walkley. . . President and Chief Executive Officer, Westinghouse Air Brake Company, Pittsburgh, Pa. 1972 Robert E. Kirby....... .President, Industry and Defense Company, Westinghouse Electric Corporation, Pittsburgh, Pa... 1973 I ' '.«' •/...• , Jr. •National Bank, Kiln- Hugh A,. Curry........ Executive Officer, '; <, Charleston, W. V Thomas P. McLachlen. Mational Bank, We-' Class B: Charl<- • k J •' -n ...... Potomac Edison Co- . 1 • • d . . . . . . . . . . . . . . .. Robert O. kJIliCtil ....... ;'i - . Mills Incorporaicu, 1972 H. Dail Holderness.... ephone and Telegraph Company, 1973 Class C: Wilson, H. Elkins ..PPrreessiiddeenntt,, LUniversity of Maryland, College Park, Md. . . . . . . . ............. 1971 Robert W. Lawson, Jr., .Managing Partner of Charleston. Office, Steptoe & Johnson, Attorneys at Law, Charleston, W. Va.................................. Stuart Shumate President, Richmond, Fredericksburg and Potomac Railroad Company, Richmond, Va. 303 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ru. Term expires DIRECTORS—Cont. I'htrict 5—RICHMOND—Cont. Dec. 3! BALTIMORE BRANCH Appointed by Federal Reserve Bank: Tilton H. Dobbin...... President and Chairman of the Executive Committee, Maryland National Bank, Baltimore, Md.,............................. 1971 J. E. Chaffinch, Jr..... .Executive Vice President, The Denton National Bank, Denton, Md....................... 1972 James J, Robinson,.... .Executive Vice President, Bank of Ripley, W. Va.... .............................. 1973 J. Stevenson Peck......President, Union Trust Company of Maryland, Baltimore, Md........................... 1973 Appointed by Board of Governors: James M, Jan-is........ Chairman of the Board, Crane Construction Company, Clarksburg, W. Va............. 1971 Arnold J. Kleff, Jr.. . ... Former Manager, Baltimore Refinery, American Smelting and Refining Company, Baltimore, Md.............................. ! 972 John H. Petting, Jr...,. .President, A. H. Petting Company, Baltimore, Md.................................... 1973 CHARLOTTE BRANCH Appointed by Federal Reserve Bank; L. D. Coltrane, III..... President, The Concord National Bank, Concord, N.C.... .......................... 1971 J. Willis Cantey. .......Chairman and Chief Executive Officer, The Citizens & Southern National Bank of South Carolina, Columbia, S.C................... 1972 C. C, Cameron,....... .Chairman of the Board and President, First Union National Bank of North Carolina, Charlotte, N.C.......................... 1973 H. Phelps Brooks, Jr.... President, The Peoples National Bank, Chester, S.C.................................... 1973 Appointed by Board of Governors: John L. Fraley......... President, Carolina Freight Carriers Corporation, Cherryville, N.C.................... 1971 F, Craig Wall, Sr,..... .Chairman of the Board, Canal Industries, Inc., Conway, S.C., 1972 Charles W. DeBell..... .General Manager, North Carolina Works, Western Electric Company, Inc., Winston- 304 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Term expires DIRECTORS -Cont. District 6—ATLANTA Dec. 31 Class A: . President, The First National Bank of Scotts- John W» Gay boro, Ala............................... 1971 .President, The Florida National Bank, Jackson- William B. Mills. . . ville, Fla.... ............................ 1972 . Chairman of the Board, First National Bank, A. L. Ellis . Tarpon Springs, Fla. 1973 Class B.- Owen Cooper. . President, Mississippi Chemical Corporation and Coastal Chemical Corporation, Yazoo City, Miss.. ............................ 1971 Philip J. Lee....... .Vice President, Tropicana Products, Inc., Tampa, Fla............................. 1972 Hoskins A, Shadow. .President, Tennessee Valley Nursery, Inc., Winchester, Teen. 1973 i" ', wv I, Hatch, . . . .President, Georgia Power Company, Atlanta, Ga.... ................................. 1971 -1 ; ,ans Farwell. , . .President, Milliken and Farwell, Inc., New Orleans, La............................. 1972 '. •'<;« C. Wilson, . , . .President, Home-Wilson, Inc., Atlanta, Ga., . . 1973 BIRMIN ,li •. .< )*>! • < OH Appointed by Federal Reserve .Bank: K. M. Varner, Jr...... .President, The First National Bank of Aubi»rs Ala.. ............................... i'M Harvey Terrell. ....... .Chairman of the Board, The First National Bank of Birmingham, Ala.............. i J /.' \VM!r«ee D. Malone, Jr.. .President and Chairman, of the Board, r! K. First National Bank of Dothan, Ala..... ••/,•* • '* «.gan Taylor. ..... .Chairman of the Board, The First State Bunk of Oxford, Ala....................... < '• ' Appointed by Board of Governors: 'A .-turn C. Bauer.......President, South Central Bell Telephone Company, Birmingham, Ala,.................. 1971 r M.mley Robbins. .. . .President, National Floor Products Company, 305 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F H, H DIRECTORS—Cont. fli^frki ft— Vll \\T V~~CoitL Dec, 31 JACKSONVILLE BRANCH Appointed by Federal Reserve Bank: Edward W. Lane, Jr.... .President, The Atlantic National Bank of Jacksonville, Fla......................... 1971 James G. Richardson, . . Chairman of the Board and President, The Commercial Bank and Trust Company of Ocala,FIa.. ......................... lu72 Malcolm C. Brown. .» , .President and Chairman of the Board, Floiuh First National Bank at Brent, Pensact >i i Fla.................................. :'V73 A i'kw .-. Howell.... . . .President, Marine Bank & Trust Company Tampa, Fla. 1973 Appointed by Board of Governors: Castle W. Jordan... . . . .President, AO Industries, Inc., Coral Gables, Fla...... ............................... 1971 Henry K. Stanford. . . . .President, University of Miami, Coral Gables, Fla...... ............................... 1972 Henry Cragg........... Vice President, The Coca-Cola Company Foods Division, Winter Park, Fla................ 1973 NASHV1T ),!• m<ANGH Appointed by Federal Reserve Bank : Hugh M. Willson...... .President, Citizens National Hunk, Athens, Tenn................... ... 1971 Edward C. Huffman, . . .Chairman of the Board ami M« VSMMH, first National Bank., Shelbyville h h*i, ... 1972 Dan B. Andrews. . . . . . .President, First National H^n^,, {)«t-j..son, Ten,n. ... 1973 Edward G. Nelson...... Executive Vice President, C ---ua •>:».• t'aion Bank, Nashville, Tenn.. r .. T............... 1973 Appointed by Board of Governors: Edward J. Boling...... .President, The University of Tennessee, Knoxville, Tenn,.................. r...: ...... 1971 John C. Tune, Jr........ Partner, Butler, McHugh, Butler, Tune & Watts, Attorneys-at-Law, Nashville, Tenn... 1972 James W. Long........ President, Robertson County Farm Bureau, Springfield, Tenn.. f r ...... ; .... T . r ...... 1973 30-6 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Term expires Dec, 31 DIR ECTORS- -Con t. Appointed by Federal 1 v v. Haining. .President, The First National Bank of Vicksburg, Miss................ .......... 1971 '•' V Heidelberg, Jr..... President, Pascagoula-Moss Point Bank, Pascagoula, Miss,.......................... 1972 Tom A. Flanagan, Jr.,.. President, Lakeside National Bank of Lake Charles, La.. ............................ 1973 Lawrence A. Merrigan. .President, The Bank of New Orleans and Trust Company, New Orleans, La,,............. 1973 ., 'Governors: Cal-Maine Foods, Inc., Jackson, 1971 , -a Manager, Kleinpeter F**rm<; Dairv, ) * tton Rouge, La......... -''.. Dillard University, N <*- 4 ^. i•; ^ ,- Class A; Floyd F., Whit more. . i National Bank, ................ 1971 Edwai ' 5 < >.. . - Smitl • •' e Northern Trust ................ 1972 Melvi * - ;;ard. .-..k, Mattoon, 111.. . 1973 Class B: Joseph O. Waymire.. . Former Vice President for Finance and Treasurer, EH Lilly Company, Indianapolis, led... 1971 William H. Davidson .President, Harley-Davidson Motor Co., Inc., Milwaukee, Wis......................... 1972 Howard M. Packard. .Vice Chairman, S. C, Johnson & Son, Inc., Racine, Wis... ........................... 1973 Class C: William H. Franklin. . President, Caterpillar Tractor Co,, Peoria, III... 1971 Emersoni G. Higdon, . President, The Maytag Company, Newton, Iowa.... ...........'.................... 1972 John W, Baird. . President, Baird Si Warner, Inc., Chicago, 111... 1973 30? Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Term expires DIRECTORS—Cont. District 7—CHI I 'Mil I—i out. Dec, 31 DETROIT liiLiXUii Appointed by Federal Reserve Bank: B. P. Sherwood. Jr..... .President, Security First Bank & Trust Company, Grand Haven, Mich................ 1971 George I . \\h>H President, Genesee Merchants Bank & Trust t \>mpany, Flint, Mich,................... 1972 Roland A. Mew IKt-i Chairman, Manufacturers National Bank of i ktrolt, Mich,........ ...,,.,,. , 1972 Ellis B. \toty> .. Chairman of the Board, National Bank of Detroit, Mich........................... 1973 Appointed by Board of Governors: Peter B. Clark. ....... .Chairman of the Board and President, The Evening News Association, Detroit, Mich,. . 1971 W. M. Defoe. .........Chairman of the Board, Defoe Shipbuilding Company, Bay City, Mich,............... H7 > L. Wm. Seidman....... Resident Partner, Seidman & Seidman, Grand Rapids, Mich............................ j'P * District 8—ST. LOUIS Class A; James P. Hickok Hsuvtm. Hrsi National Bank in St. Louis, \K». .................... 1971 Cecil W. Cwpp, Jr... Ph>iJept. \r\ uiivi". B'ink & Trust Co<]>o;tn\, Hoi SpjiML's. A«k. ............. L>?2 Bradford Brett..... Ipi~k~>!'J.;jti. ! 'if I-J{ ,i W'tcional Bank of Mcsicu. Mo.. ........................... . W3 Class B: Lhiun'tiini of the Board and Presider»i. D F Sherwood J, Smith, < on>p»jter Services,Inc., Evansville, iiul . ilh'l < 11 J ••;.»».i i i of the Board, Schnuck Markef %. f in., Edward J. Schnuck. lit i,.i -«;ion, Mo,.......................... 1972 IV* UM'H!. Arkansas Foundry Company, Little Fred I, Brown, Jr., . K,».k. \rk.. ............'................ 1973 Class C u; M. Peirce.. <.n.'HFu,.v-» \'i' the Board and Chief Executive OHui-i, ' f<jaeral American Life Insurance \ Mt>vvi:, St. Louis, Mo.................. 1971 Sam Cooper....... i^'.nhi1 HamKo Products, Division of ki«!(%) Corporation, \I\ iivl'L T< ,MI ]Q7" Harry M. Young, Jr. \k t/t )•' f :111us, Herndo* , ^.'. i M ? ? 308 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

HANKS ,\'V|j JU expires DIRECTORS—Cont. Districi K—Si. : i H r IN—< ant, Dec, 31 LIr» I ' f- v« H , f .RANCH Appointed by Federal Ju , • *-.- r.ink: Louis E, Hurley. , , . C;: 'irman of the Board and Chief Executive t .'.ficer, The Exchange Bank & Trust Comj»-«ny, El Dorado, Ark. 1971 Ellis E. Shelton..... IV- sclent, The First National Bank of Pay- .'ueville, Ark.. . . 1972 Wayne A. Stone.,.. t (<.:.»rman of the Board and Chief Executive Officer, Simmons First National Bank of Pine Bluff, Ark, 1972 Edward M. Penick.... . .President and Chief Executive Officer, Worthen Bank & Tryst Company, Little Rock, Ark., . 1973 Appointed by Board of Governors: Al Poll,I'd ......... President, \» Pollard & Associates, Little Rock, An................................ 1971 Jake riart/. Ir......... .President, Jacob Hartz Seed Co., Inc., Stuttgart, Ark............................... 1972 Rolanti R fVnimel. ... .Chairman of the Board, Southland Building Products Co,, Little Rock, Ark............ 1973 LOUISVILLE BRANCH Appointed, by Federal Reserve Bank: Hugh JVL Shwab. ..... .Chairman of the Boards, First National Bank of Louisville and. The Kentucky Trust Company, Louisville, Ky. 1971 Paul Chase. ....,...,. .President, The Bedford National Bank, B^.iford, Ind..,,,, ....................... I9"'2 Herbert J. Smith....... President, The American National Bank A; Trust Company of Bowling Green, Ky,..... 19 72 Harold E, Jackson...... President, The Scott County State Bank, Scottsburg, Ind.......................... 1973 Appointed by Board of Governors: John E, Sheehan....... President and Chief Executive Officer, Corhart Refractories Company, Louisville, Ky...... 1971 John G. Beam. ....... .President, Thomas Industries Inc., Louisville, Ky... .................................. 1972 William H. Stroube.... .Assos1. ."s ;< -\\ \ '>>:<•'. •<* SJ,-KI !••' I \\xno'i'i^.V*- *\ * i\ K • *.>,>,,!«,•> t is ,n »>*. , \U-\\r - 309 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

AD Term expires DIRECTORS—Cont. S r f ,1II IS—I !•»!, Appointed by Federal Jv \« ••"< Wade W. Hollowell. '.v' itU :>', The First National Bank of Greenulk. Miss.-.,, .......................... 1971 James R. Fitzhugh.. U^.MI,', Vice President, Bank of Ripley, h'!«:i ................................. 1972 Wayne W. Pyeatt... i i* *hk'»«t. National Bank of Commerce, Mernr»h>,, fenn.. ............................ 1972 J. J. White,,... .. . . : f,' ?vi,-»:: Helena National Bank, HeieEa, Ark. 1973 Appointe. / r ^ '/«\< 'YI of (^>\< u-siJv••«:, v< ( I^M ,\ < <i»M«{M«ty, Memphis, C, Whi'ucv Hr* '\vn.. 1 Ir-Mh. ........... 1971 M'.isU'iii. Mr f'.^j *''. Stub: University, State William I (» ivs. . . I ( o«kvi, Mi^............................ 1972 f-. \uUi\i, Huffman Brothers Incorporated, Alvin Mil'h \u ? Jr.. I Biytheville, Ark.......................... 1973 District 9—MINNEAPOLIS :im \ : G. A, Dablen. ........ .President, First National Bank of Iroewood, Mich... ................................ 1971 John Bosshard......... Executive Vice President, First National Bank of Bangor, Wis.......................... 1972 Philip H. Nason....... .President, The First National Bank of St. Paul, M?rr . ........... 1973 John H. Bailey........ l'n -.ul.'i'i i l',v, % : i>i v \ \ '.»i,^«-Mes, Inc., Elk River, iVimn,............................ 1971 i )j\n\ M Heskett. .... .President, Montana-Dakota Utilities Co., Bismarck, N.D... .......................... 1972 Dale v Aadersen. .... .President, Mitchell Packing Company, Inc., Mitchell, S.D..... ....................... 1973 t U-r, ijiuwe B. Dayton. ......Chairman of the Board, Dayton Hudson Corporation, Minneapolis, Mine........ ? "<7! David M. Lilly........ .Chairman of the Board, The Toro Compauv, Minneapolis, Mien..................... I vV Ml) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Term expires DIRECTORS—Com, i§—Cont. Dec. SI HELENA BRANCH Appointed by Federal Reserve Bank ; Richard D. Ruble. .... .President, Missoula Ba.- • >r ''<••'.•,• M i ssoula, Mont............................. 1971 E. Lowry Kunkel....... President, First National Bank, Butte, Mont., . 1972 Robert I. Penner. ..... .President, Citizens First National Bank, Wolf Point, Mont..,., 1972 Appointed by Board of Governors: William A. Cordingley. .Publisher, Great Falls Tribune, Great Fails, Mont................................... 1971 Warren. B. Jones. ..... .Secretary-Treasurer, Two Dot Land and Livestock Company, Harlowton, Mont......... 1972 N.^f '<<«-.'* * '.«-;AS CITY Class A.- John A, O'Leary. ... ' :« ,'rman of the Board, The Peoples State Bank, Luray, Kan....................... 1971 Roger I). Knight, Jr. .. President, 'United Banks of Colorado, Inc., Denver, Colo............................ 1972 •-<• ?se Miller. Chairman of the Board and President, The Farmers and Merchants State Bank, Colby, Kan.,... ........................... ...\ 1973 Class B: . .Consultant, Phillips Petroleum Company, Bar- Stanley Learned..... tlesville, Gkia,........................... 1971 . .President, C. O. Emrlch Enterprises, Norfolk, Cecil O, Emrich. .... Nebr., ................................. 1972 . .Vice President, Trans World Airlines, Inc., A'!'1^.1 s fordan. ... Kansas City, Mo,....................... 1973 Cla ' p,»;,,<;• \y Wagstaff. .Chairman of the Board and President, The Coca-Cola Bottling Company of Mid- America, Inc., Kansas City, Mo........... 1971 Willard D. Hosford, Jr. \ <•• • ;<; detent and General Manager, John Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

i'.k HANKS AXl'i ttf* .\M ,i M'> Term expires DiRECTORS-Cont. District 10—K WSAS CITY—Cont. Der.il DENVER BRANCH Appointed by Federal Reserve Bank : Armln B, Barney, . . . . . .Chairman of the Board, The Colorado Sprint National Bank, Colorado Springs, Colo., * •)? 1 Robert L. Tripp....... .President, Albuquerque National Bank, Albuquerque, N. Mex..................... 1972 Dale R. Hinman...... .President, The Greeley National Bank, Greeic;. Colo.. \-)ll Appointed by Board of Governors: Cris Dobbins, ........ .Former Chairman of the Board, Ideal Basic Industries, Inc., Denver, Colo............. 1971 David R. C. Brown,., . .President, The Aspen Skiing Corporation, Aspen, Colo..,,......................... 1972 OKLAHOMA CITY BRANCH Appointed by Federal Reserve Bank: W. H. McDonald...... Chairman of the Executive Committee, The First National Bank and Trust Company of Oklahoma City, Okia.... , ........ 1971 Marvin Millard. ...... .Chairman, of the Board, National Bank of Tulsa, Okla.. 1972 Hugh C. Jones. ....... .Executive Vice President, The Bank of Woodward, Okla.............................. 1972 A pointed by Board of 6i;« t mot y ; C. W. Flint, Jr.. ... ( hiurman of the Board, Flint Steel Corporaturn, Tulsa, Okla......................... 1971 Florin W. Zaloudek. .. .Manager, J. I. Case Implements, Kremlin, Okia.. ................................. W'l OMAHA BRANCH Appointed by Federal Reserve Bank: John W, Hay, Jr........ President, Rock Springs National Bank, Rock Springs, Wyo............................ 1971 S, N, Wolbach......... President, The First National Bank of Grand Island, Nebr............................ 197! Edwaiit W I viiian i'jv-..ident, The ; n.n • M.iif. \ -n «i» *• H,«».\ uf Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Term expires DIRECTORS—com. District 10 K'^SAS CITY—Cont. Dec. 31 OM * a '• -«Ji \NCH—Cont. Appointed by Board of Governors: A, James Ebel, ..,.,,. .Vice President and General Manager, Cornhusker fVirMs-iw; Corporation, Lincoln, Nebr... .................... 1971 Henry Y. Kieinkauf. . . .President, N >4>»r -v •" o.npany, Omaha, Nebr.. 1972 District 11—DALLAS Class A: A. W. Riter, Jr......... President, The Peoples National Bank of Tyler, Tex,.............................. 1.971 Murray K.yger......... Chairman of the Executi¥e Committee, The First National Bank of Fort Worth, Tex.. . . 1972 J. V. Kelly............. President, The Peoples National Bank of Belton, Tex,............................ 1973 Class B: Hugh F. Steen. ....... "!*• dent. El Paso Natural Gas Company, r > Paso, Tex............................ 1971 C -1, *'-»Mjm, Jr....... >'•' >.dent and Chief Executive Officer, Texas \ 'ilities Company, Dallas, Tex......... u>"2 C" '"l • newton....... % '."'.'irman of the Board, Fox-Stanley Ph<>i<» Products, Inc., San. Antonio, Tex....... i'.-7! CIH^ > tones. ....... .Vice Chairman of the Board, Humble Oil ,'<• Reining Company, Houston, Tex........ !''? I Phiii|/ O. Hoffman..... .President, University of Houston, Tex........ ID72 John Lawrence.........Chairman of the Board, Dresser Industries, Inc., Dallas, Tex......................... 1973 EL PASO BRANCH Appointed by Federal Reserve Bank: Joe B. Sisler. ......... .President, The Clevis National Bank, Clovis, N. Mex..... ............................ 1971 Archie B, Scott.........President, The Security State Bank of Pecos, Tex.. .................................. 1972 Sam D. Young, Jr.. . . . .President, El Paso National Bank, Ei Pn>c. Tex,. ........................... -/ .'2 Cuiiee J. Kelly........ .President, The First National Bank of MidJ.uvi. Tex.. ........................... i^n Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Term expires DIRECTORS—Cont. • \ }''$.'' \ S Dec, 31 Appointed by Board of Governors: Joseph. M. Ray........ .Benedict Professor of Political Science, The University of Texas at El Paso, Tex........ 1971 Allan B. Bowman...... President and General Manager, Banner Mining Company, Tucson, Ariz.................. 1972 Herbert M. Schwartz. . .President, Popular Dry Goods Co., Inc., El Paso, Tex............................ 1973 HOUSTON BRANCH Appt>Ui! '..* J'\ federal Reserve Bank: Bt-nn \\ Clay, ........President, First Bank & Trust, Bryan, Tex..... 1971 V (» rS"»< ciiell. ..... .Chairman of the Board and President, The First National Bank of Port Arthur, Tex,. . . 1972 J<.)u; ». Vvhitmore.... . Chairman of the Board, Texas Commerce Bank National Association, Houston, Tex.,,,.,.. 1972 Kline McGee........ .Chairman of the Board, Southern National Bank of Houston, Tex.................... 1973 Appointed by Board of f"f > E. M. Buckley, !i>'*,jdent and Director, Eastex Incorporated, Vsbee, Tex.. ........................... 1971 Geo. T, Morse, Jr... •, i. Chairman of the Board and Chief Oper- .ii: ng Officer, Peden Industries, lac, Houston, 'i- K.. .................................. 1972 M. Steele Wright, Jr i«,{ rnian of the Board, Texas Farm Products Company, Nacogdoches, Tex.............. 1973 SAN ANTONIO BRANCH Appointed by Federal 3;< n -nk: James T. Denton, Jr ir.irman of the Board and Chief ExecutiYe 'J'Scer, Corpus Christi Bank and Trust, i \ >rpus Christi, Tex...................... 1971 Tom C, Frost, Jr,. . : \ riiiae of the Board, The Frost National B 4iik of San Antonio, Tex................ 1972 W, O. Roberson ... j. --dent, First National Bank at Brownsville, 1972 Ray M. Keck, Jr.... Union National Bank of Laredo, Tex.. 1973 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Term expires DIRECTORS—Cont. Distric Dec, 31 SAM A . Appointed by Board of Governors: Francis B. May. . . . . , Professor of Business Statistics, The University of Texas, Austin, Tex,.................... 1971 W. A. Belcher...... , , Veterinarian, and Rancher, Brackettville, Tex.., 1972 Irving A, Mathews. . .Chairman of the Board and Chief Executive Officer, Frost Bros., Inc., San Antonio, Tex.. 1973 Class A: Ralph V. Arnold. 1 !••.:.! Chief E«. ^, x LL>L .uUvi^ ^^Jc and Tro • )ntario, Calif.,,,....,...... Carroll F. Byrd. --"A of the Board and Preside national Bank of Willows, Cal Ralph J. Voss... . First National Bank of < M-fd, Oreg.. ................. ''!••>•; i ! *. 'Qstrong. \ • i ." • , Standard Oil Company of Cali- ;- - }*r * San Francisco, Calif............... 1971 •>• ';'•''•' •• -.att. . . . . i !••.•< - Chairman of the Board, The Elmco . .'.,*. ation, Salt Lake City, Utah,........ 1972 Marron Kendrick. . . . . !*-.••,*'<: and Chairman of the Board, Schlage Lock Company, San Francisco, Calif....... 1973 Class C.- Bernard T. Rocca, Jr., . Director and Consultant, Paciic Vegetable Oil Corporation, San Francisco, Calif......... 1971 S. Alfred Halgren .Senior %FIee President and Director, Carnation. Company, Los Angeles, Calif,............. 1972 O. Meredith Wilson. . .President and Director, Center for Advanced Steely in the Behavioral Sciences, Stanford, Calif................................... 1973 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

K.K. V,\ShS AM) f Term expires DIRECTORS—Com. District 12—SAN FRANCIS^ >~-Out. Dec. 3! LOS AMGELES BRANCH Appointed by Fedeml Reserve Bank: Sherman Hazeltine , , Chairman of the Board and Chief Executive Officer, First National Bank of Arizona, Phoenix, Ariz........................... 1971 Carl E. Schroeck-r President, The First National Bank of Orange County, Orange, Calif.................... 1972 Linus E, Southwiek. President, Valley National Bank, Giendale, Calif................................... 1973 Carl E, Hartnack. President, Security Pacific National Bank, Los Angeles, Calif........................... 1973 >lf'pointed by Board of Governors: }, Ltiland Atwood, .... .Senior Consultant, North American Rockwell Corporation, Los Angeles, Calif........... 1971 Lcland D. Pratt....... .President, Kelco Company, San Diego, Calif,., 1972 Edward A. Sloan...... .President, Sloan's Dry'Cleaners, Los Angeles, Calif. .. .. 1973 PORTLAND BMANCB Appointed by Federal M( serve Bank: LeRoy B. Staver. . . Chairman of the Board and Chief Executive <Officer, United States National Bank of Oregon, Portland, Oreg................... 1971 James H. Stanard. .... . Vice President, First National Bank of McMinnville, Oreg.............................. 1972 Frank L. Servoss....... President, Crater National Bank of Medford, Oreg..'.................................' 1972 Appointed by Board of Governors: Frank Anderson. , , Farmer, Heppner, Oreg..................... 1971 John R. Howard. ..... .President, Lewis and Clark College, Portland, Oreg.. . ................................ 1972 SALT LAKE CITY BRANCH Appointed by Federal Reserve Bank: William E, Irvin........ Former Chairman of the Board, The Idaho First National Bank, Boise, Idaho ...,..,.. 1971 Roderick H. Browning, . President, Bank of Utah, Ogden, Utah,..,.,. 1972 Roy W. Simmons...... President, Zions First National Bank, Salt Lake City, Utah......,..,,.,,,.. 1972 316 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FM, HANKS A;\T!.I BH4NCHHS- • 4 ,'om. Terra exp/res DIRECTORS—Cont. District 12—SAN FRANCISCO—Cont. Dec. 3! SALT LAKE CITY BRANCH—Cont. Appointed by Board of Governors: Royden G. Derrick..... President and General Manager, Western Steel Company, Salt Lake City, Utah........... 1971 John, H. Breckenriclge.. .President, L. L. Breckenridge Company, Twin Falls, Idaho. . . 1972 SEATTLE BRANCH Appointed by Federal Reserve Bank: Joseph C. Baillargeon. . . Chairman of the Board and Chief Executive Officer, Seattle Trust & Savings Bank, Seattle, Wash........................... 1971 A. E. Saunders........ .Vice Chairman of the Board, Puget Sound. National Bank, Tacoma, Wash,........... 1972 Philip H. Stanton...... .President, Washington Trust Bank, Spokane, Wash,,.,,.............................. 1972 Appointed by Board of Governors: Francis G. Crane,..... .Manager, Crane and Crane Orchards and Cold Storage, Brewster, Wash,................. 1971 C. Henry Bacon, Jr., . . .Vice Chairman of the Board, Simpson Timber Company, Seattle, Wash.................. 1972 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Cont. PRESIDENTS AND VICE PRESIDENTS (December 31,1971) Federal Reserve President Bank First Vice President Vice Presidents or branch Boston Frank E. Morris D. Harry Angney Daniel Aquilino E. O. Latham Lee J. Aubrey Ansgar R. Berge Norman T. Byrnes R. W. Eisenmenger Luther M. Hoyle, Jr.Niels O. Larsen Donald A. Pelletier Maurice P. Shea, III Laurence H. Stone J. M. Thayer, Jr. James T. Timberlake Richard A". Walker Parker B. Willis New York... Alfred Hayes David E. Bodner W. H. Braun, Jr. William F. Treiber John J. Clarke Charles A. Coombs Richard A. Debs Peter Fousek Edward G. Guy Marcus A. Harris Alan R. Holmes John T. Keane Robert G. Link Fred W. Piderit, Jr. Everett B. Post Peter D. Sternlight T. M. Timlen, Jr. Thomas O. Waage Buffalo Angus A. Maclnnes, Jr. Philadelphia. David P. Eastburn Edward A. Aff Hugh Barrie Mark H. Willes Edward G. Boehne Joseph R. Campbell Joseph M. Case Norman G. Dash Ralph E. Haas William A. James A. A. Kudelich G. William Metz L. C. Murdoch, Jr. Kenneth M. Snader James V. Vergari Cleveland... Willis J. Winn George E. Booth, Jr.Paul Breidenbach W. H. MacDonald Roger R. Clouse Elmer F. Fricek R. Joseph Ginnane W. H. Hendricks William J. Hocter John J. Hoy Harry W. Huning Frederick S. Kelly Clifford G. Miller Cincinnati Robert D. Duggan Fred O. Kiel Pittsburgh James H. Campbell Charles E. Houpt Richmond. .. Aubrey N. Hefiin Clifford B. Beavers John G. Deitrick Robert P. Black Welford S. Farmer H. Ernest Ford William C. Glover Arthur V. Myers, Jr. John L. Nosker James Parthemos John F. Rand R. E. Sanders, Jr. Aubrey N. Snellings William F. Upshaw 318 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Cont. PRESIDENTS AND VICE PRESIDENTS—Cont. Federal Reserve President Bank First Vice President Vice Presidents or branch Richmond— Cont. Baltimore H. Lee Boatwright, III A. A. Stewart, Jr. Charlotte Stuart P. Fishburne Jimmie R. Monhollon Culpeper1 J. Gordon Dickerson, Jr. Atlanta Monroe Kimbrel Harry Brandt Robert P. Forrestal Kyle K. Fossum George H. Gaffney Billy H. Hargett J. E. McCorvey R. E. Moody, Jr. Brown R. Rawlings Richard A. Sanders R. M. Stephenson Charles T. Taylor Birmingham Dan L. Hendley Jacksonville Edward C. Rainey Miami1 W. M. Davis Nashville Jeffrey J. Wells New Arthur H. Kantner Orleans Chicago Robert P. Mayo Carl E. Bierbauer George W. Cloos Ernest T. Baughman LeRoy A. Davis Elbert O. Fults Victor A. Hansen Edward A. Heath Ward J. Larson R. A. Moffatt James R. Morrison R. M. Scheider Karl A. Scheld Harry S. Schultz Bruce L. Smyth Lynn A. Stiles Jack P. Thompson Allen G. Wolkey Detroit William C. Conrad Daniel M. Doyle Ronald L. Zile St. Louis Darryl R. Francis Leonall C. Andersen Gerald T. Dunne Eugene A. Leonard Joseph P. Garbarini W. W. Gilmore Jerry L. Jordan John W. Menges D. W. Moriarty, Jr. F. G. Russell, Jr. Charles E. Silva Harold E. Uthoff Howard H. Weigel Joseph C. Wotawa lviiiie Rock John F. Breen Louisville Donald L. Henry Memphis L. Terry Britt 1 Not considered a branch. 319 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Cont. PRESIDENTS AND VICE PRESIDENTS—Gont. Federal Reserve President Bank First Vice President Vice Presidents or branch Minneapolis . Bruce K. MacLaury Frederick J. Cramer Ralph J. Dreitzler M. H. Strothman, Jr. L. W. Fernelius Lester G. Gable Roland D. Graham Douglas R. Hellweg John A. MacDonald David R. McDonald Clarence W. Nelson John P. Olin C. A. Van Nice R. W. Worcester Helena Howard L.Knous Kansas City. George H. Clay W. T. Billington Raymond J. Doll John T. Boysen Joseph R. Euans Roger Guffey J. David Hamilton Wayne W. Martin M. L. Mothersead Robert E. Thomas Clarence W. Tow Denver George C. 1Rankin Oklahoma City Howard W Pritz Omaha (Temporarily vacant) Dallas Philip E. Coldwell Robert H. Boykin James L. Cauthen T. W. Plant Leon W. Cowan Ralph T. Green Larry D. Higgins James A. Parker W. M. Pritchett Tony J. Salvaggio T. R. Sullivan E. W. Vorlop El Paso Fredric W.Reed Houston J. L. Cook San Antonio Carl H. Moore San Francisco.. Eliot J. Swan J. Howard Craven D. M. Davenport A. B. Merritt H. B. Jamison G. R. Kelly D. V. Masten Rix Maurer, Jr. Louis E. Reilly R. G. Retallick J. B. Williams Los Angeles P. W. Cavan W. G. DeVries Portland W. M. Brown Salt Lake City A. L. Price Seattle W. R. Sandstrom 320 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Gont. CONFERENCE OF PRESIDENTS The Presidents of the Federal Reserve Banks are organized into a Conference of Presidents that meets from time to time to consider matters of common interest and to consult with and advise the Board of Governors. At the December 14, 1970, meeting, Mr. Galusha, President of the Federal Reserve Bank of Minneapolis, and Mr. Francis, President of the Federal Reserve Bank of St. Louis, were elected Chairman and Vice Chairman, respectively, for the remainder of that Conference year and the forthcoming Conference year, ending with the March 1972 meeting. Mr. Galusha served as Chairman until his death on January 31, 1971. At a meeting on February 9, 1971, the Conference elected Mr. Francis and Mr. Kimbrel (President of the Federal Reserve Bank of Atlanta) Chairman and Vice Chairman, respectively, for the remainder of the year, and for the forthcoming Conference year, ending with the March 1972 meeting. Mr. Melvin L. Burstein of the Federal Reserve Bank of Minneapolis and Mr. Joseph P. Garbarini of the Federal Reserve Bank of St. Louis were appointed Secretary of the Conference and Assistant Secretary, respectively, in December 1970. At the February and March 1971 meetings, Mr. Garbarini and Mr. H. Terry Smith of the Federal Reserve Bank of Atlanta, were appointed Secretary and Assistant Secretary, respectively. CONFERENCE OF FIRST VICE PRESIDENTS In 1969 a Conference of First Vice Presidents was organized to meet from time to time, primarily for the consideration of operational matters. Effective March 11, 1970, Mr. MacDonald, First Vice President of the Federal Reserve Bank of Cleveland, and Mr. Strothman, First Vice President of the Federal Reserve Bank of Minneapolis, were elected as Chairman of the Conference and Vice Chairman, respectively. Mr. Lester M. Selby and Mr. Melvin L. Burstein were appointed Secretary and Assistant Secretary, respectively. Effective March 1, 1971, Mr. Lewis, First Vice President of the Federal Reserve Bank of St. Louis, and Mr. Fossum, First Vice President of the Federal Reserve Bank of Atlanta, were elected Chairman and Vice Chairman of the Conference. Mr. Joseph P. Garbarini and Mr. H. Terry Smith were appointed Secretary and Assistant Secretary, respectively. On August 3, 1971, Mr. Leonard, First Vice President of the Federal Reserve Bank of St. Louis, was elected Chairman to succeed Mr. Lewis, who retired on July 31, 1971. 321 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index Page Acceptance powers of member banks 227 Acceptances, bankers': Authority to purchase and enter into repurchase agreements ..... .104-05 Federal Reserve Bank holdings 233, 242, 244, 246 Federal Reserve earnings on 233, 252 Open market transactions during 1971 250 Repurchase agreements 105. 242, 244, 246, 250 Agriculture: Farm Credit Act of 1971 209 Assets and liabilities: Banks, by classes 261 Board of Governors 238 Federal Reserve Banks 242-47 Balance of payments {See U.S. balance of payments) Bank Examination Schools 228 Bank examiners, home mortgage loans to, legislative recommendation . . 212 Bank holding companies: Board and Reserve Bank actions with respect to 225 Legislative recommendation 214 Litigation 217-19 Regulation Y, amendments 70, 75, 77, 80, 83, 86, 88, 90, 91, 94 Bank mergers and consolidations 219, 224, 228, 270-91 Bank premises, Federal Reserve Banks and branches 236, 242, 244, 246, 251 Bank supervision and regulation by the Federal Reserve System 221-29 Banking offices: Number, changes 266 Par and nonpar, number 268 Board of Governors: Audit of accounts 237 Delegation of certain authority, actions under 225, 228 Foreign credit restraint program 61, 97, 205-08, 209 Income and expenses .237-40 Legislative recommendations 211-15 Litigation 217-19 Members and officers 294 Policy actions 61-102 Regulations {See Regulations) Report to Congress 229 322 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page ;><:./'.' ', •;•..• U" u - •'• - > ted S;jf-:;r. ........ ....................... 239 5 .•,(':' ..-.!•,.:• , •,, ; • :i in Lendi?' \ Branch banks; Bank* ; - ! • • • i > •, • In number .......................... 266 Fedei M I- Ba-), • ., ,-•.: . .................................. .236, 251 Br; '.• !• ' ••;.'., i s- • / 'ive recommendation .................. 213 Directors ............................................... 299-317 Vice Presidents ie charge ..................................31 i—20 Foreign branches of member banks, number and location ..,,,.., 225-27 Capital accounts: Banks, by classes ............ ................. 261 Federal Reserve Banks ....... .......... 243, 245, 247 Chairmen and Deputy Chairmen oi ; .. .<. . ,-.'.> • Banks .,,.,....,. 298 Clearing and collection: Collection, amendment of Regu< '< • ....,...,,,,...,. Payments mechanism, statement •.<, .••• , i ' .ii:velopments .... .81, 2 : ' ¥olume of operations ......................................... 1 .- Commercial banks: Assets and liability 261 Banking offices, ch.inr.r w. '•<,•..< . , 166 Foreign credit restf ;•.»!'{ ^<'.y-i{ < : •;'• :{<l «»> > 09 Number, by class c; ,••"'•» , >61 Condition statement •. •. '• >.\\ ; ii v. -\ • l{ -.» , ,' <,,::A7 Credit (See also Loans); Emergency: Facilities for nonmember depositary institutions, extension ........ 66 Loan guarantees to business, legislation ...................... 209 Export Expansion Finance Act of 1971 ...,.,,...,...,.....,.,. 209 Farm Credit Act of 1971 ..................................... 209 Stock market credit (See Stock market credit) Total iows and the financing of private investment ............. .43-50 Truth in Lending (See Truth in Lending) Defense production loans .................................... 234, 257 Demands for goods and semees ................................ 19-29 Deposits: Banks, by classes ............................................ 261 Federal ReserYe Banks .......... ", •,, 245, 247, 263, 265 Reserve requirements (See Reserve re • •• , . Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Deposits——Continued Time and savings deposits: Maximum permissible interest rates on,: Flexible authority to set, extension, of law ................... 209 Table '.................................................. 260 Deputy Chairmen of Federal Reserve Banks .,.........,,..,.....,. 298 Directors, Federal Reserve Banks and branches ,....,,,..,,...,. ,299-317 Discount rates at Federal Reserve Banks: Increases: Approval .,..,.,..,...,..,,,,.,..,,,.,.,......,,,,......,. 85 Disapprovals ................................ .......... 74, 82 87 5 Reductions ...................................... 62, 64, 67, 96, 100 Table of rates .............................................. 259 Discounts and advances by Federal Reserve Banks: Holdings and earnings on .................................. 233, 252 Volume .......................... .233, 242, 244, 246, 256, 262, 264 ! >ividends, Federal Reserve Banks ........................ .231, 253, 254 Earnings, Federal Reserve Banks ........................ .231, 252, 254 Economic Stabilization Act, amendment and extension ............... 209 Euro-dollar borrowings ........................................ 63, 71 F'^ animations: Federal Reserve Banks ........................................ 231 Foreign banking and financing corporations .,.....,..,...,«.,.... 227 Member banks .............................................. 221 State member banks ......................................... 221 Executive officers of member banks, loans to, reporting requirements .............................................. 222, 223 Expenses: Board of Governors ........................................ 237-40 Federal Reserve Banks ................................231, 252, 254 Fair Credit Reporting Act ....................................... 229 Federal Advisory Council ,.,.,,,......,,,.,...,.»,.«.,,,...,.,». 297 Federal agency obligations: Federal Reserve Bank holdings and earnings .... .233, 242, 244, 246 248 ? Open market transactions of Federal Reserve System during 1971 ... 250 Repurchase agreements ...................... 242, 244, 246, 249, 250 Federal Open Market Committee: Audit of System Account ..................................... 231 Continuing authorizations ..................................... 133 Foreign currency operations, review ,..»...,,..,»....,.....,».». 203 Meetings ................................................. 103, 296 324 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Federal Open Market Commit* '• • •"(.tinned Members and officers ......................................... 296 Policy actions ............................................. 103-202 Federal Reserve Agents ......................................... 298 Federal Reserve Banks: Advances by, amendment of Interpretation and. legislative recommendation ..................................... 73, 211, 212 Assessment for expenses of Board of Governors .,...,,...,.,. .239, 252 Authority to purchase Govt. obligations directly from U.S., extension of law . ..'.... ............................................ 209 Bank premises .............................. 236, 242, 244, 246, 251 Branches (See Branch banks, Federal Reserve) Capital accounts .................................... 243, 245, 247 Chairmen and Deputy Chairmen, ............................... 298 Condition statement ......................................... 242-47 Delegation by Board of certain authority to, actions under ...... .225, 228 Directors ................................................. 299-317 Discount rates (See Discount rates) Dividends ............................................ 231, 253, 254 Earnings and expenses ................................ 231, 252, 254 Emergency credit facilities for nonmember depositary institutions, extension ...,...,........,,,...,,.,...,....,,.....,.,...., 66 Examination ................................................ 231 Federal agencj .• MW. \M > .. , !/.'*.., *•',.-. ".< !,;>,«;• < Foreign and i.-i.»M,iv,> -t. J • .'.•,><)? , , ... , , 235 Lending autho-'^ . . , . .7->,,:•'i. 212 Miami office o; • >,.»i , , 2 31 Officers and ei<>r; I% '-'"{> «''^ "• '><.! >' .-.• * . .156 Presidents and v- ?',•!-:.•«,• . ... '<!,v:.--20 Profit and loss ........................................ , , .153 Purchase of foreign, govt. obligations, legislative recommendation .... 212 U'.S, Govt, securities (See U.S. Govt. securities) Volume of operations ...................................... 233, 256 Federal Reserve notes: Condition statement data .................................... 242-47 Cost of printing, Issue, and redemption .....,...,....,,..,....,.. 239 Interest paid to Treasury ............................. .232, .253, 254 Federal Reserve System: Bank Examination Schools .................................... 228 Bank supervision and regulation by .......... f ,....,..,,»,,.. f ,221-29 Foreign credit restraint (See Foreign credit restraint program) Foreign currency operations (See Foreign currency operations) Map of Federal Reserve districts ,,,,.,,,,......,.,....».,,.,.. 292 325 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Federal Rest ^ H. ^ u: -' > • ' < ' , d Membersh-p ................................ 223 Povrnents ,D»\ \< ,>\%^U, «•>,<> >>.\ * of policy, and developments . .... .81, 234 'i »;i.ing *-...<:^ ...'....*.'........................ ' 228 I ••j*-"-'n and international accounts of Federal Reserve Banks ........ 235 iu,.;u* banking and financing corporations, examination and operation 22? ! "K't^n branches of member banks, number and location ..,,...,. .225—2? * .'K'i-.\i credit restraint program .................... .61, 97, 205-08, 209 I ^ !;."• currency operations: Authorization and directive ................ 1€N, , "-H, • i i : •; "33, 176 Federal Re-serve earnings on foreign currencies . , . 252 Investment of Reserve Banks' foreign currencies in u H, u • i i; i .i i • r! foreign govts., legislative recommendation .................... 212 Jleview ..................................................... 203 recommendation ........................................... .? I I Interest on deposits: Kvsible authority for supervisory agencies to set maximum rates n deposits or share r<.:?p"jri?- :*"'"?> rtr7;r,r! iTf jaw ................. 209 i;,i>it<"v» rates (See also Intr;* ••<• <»»: -h rvv> -», Defense production loan ................* .234, 25? Discount rates at Reserve HMIK - » \ , \ >, ,A r.mi rates) Economic Stabilization i\M .-tr^v -«.!th* »•: .+ nu rxtensip't . /uv Maximum permissible raic^ on tutu, itiid &<tvui^s dept«•'{."» {-fwU . .'^0 Monetary aggregates and ..................... ....._,. 31 I i Interlocking bank relationships, legislative recommenc-iiK'ii . .'.H, Interpretations, Board of Go¥ernors; Ad¥ao.ces by Reser¥e Banks, obligations eligible as collateral, amendment of interpretation ................................. 73 Capital stock and surplus, undivided profits as ....,....,..,,,,,... 69 Investments: Bank Investments for community development, legislative recommendation ........................................... 213 Banks, by classes ............................................. 261 Business ............................................... 24 Federal Reserve Banks ................................. 24 \ '. hJ !46 Total credit flows and the financing of private investment ..... •< • -50 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page ; v,.s<,''ion: •l • Investments for community development, legislative recommendation ........................................... 213 Economic Stabilization Act, amendment and extension ............. 209 Emergency Loan Guarantee Act ................................ 209 Export Expansion Finance Act of 1971 .......................... 209 Fair Credit Reporting Act, pamphlet on ......................... 229 Farm Credit Act of 1971 ...................................... 209 Federal Reserve Banks; Federal supervisory agencies to set maximum, extension ...... Real estate, home mortgage loans to bank examiners, legislative recommendation ....................................... Reserve requirements, graduated, on. demand deposits, legislative recommendation ....................................... State taxation of national banks ,,.....,,..,,.,,.....,..,,.,. Litigation: Manpower utilization ........................................... 28 Margin requirements: Exemption of certain credit extended to a broker or dealer, amendment of Regulations G and U .................... .71, 73, 84 32? Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Margin requirements—Continued Litigation concerning securities credit transactions ........ ... 219 Reduction on stocks, amendment of Regulations G, T, and ! . . . . 9.9 Rules governing borrowers, adoption of Regulation X. ,.,.....,..,.. 93 Table ...................................................... 257 Member banks (See also National Banks): Acceptance powers .,.,.,,.....,,..,..... . . , .127 Advances by Reserve Banks .....,,..,..,., . . T * 2 ; {, 212 Assets, liabilities, and capital accounts ...... . . *!6i Banking offices, changes in number .,.,.,».. . . . . t€6 Capital stock and surplus, undivided profits as ink ipit'iatioii . . 69 Examination ............................ . . , . . .!21 Executive officers of, loans to, reporting requiu-mui.'. . . I'l? 223 Farm Credit Act of 1971 ..................................... 209 Foreign branches, number ................................... 225-27 Interlocking relationships, legislative recommendation ............ 212 Number .................................................223, 261 Reserve requirements (See Reserve requirements) Reserves and related items .................................. 262-65 State member banks (See State member banks) Membership in Federal Reserve S> -,wa\ . ......................... 223 •Mergers and consolidations . , 219, 224, 228, 27Q-91 Monetary aggregates and inteuM iau- .......................... ,31-41 Monci in I».MI,-\ D.ycM id pifsK ipiii p/hv \ iii'Ui/i^ , . . . . , , , . I- \ if { lax'nii: prfi.vj -M ) Is'c'v.cu i.f sl'/i . . . . . . . . . . .. , , , , . . . .. . 3 SH MutJial vi\i!l!^ {'...I.LN . .. 2ft I. liJ> Assti-% Aini iia!--ili!ji-. . , r . , . , . , . 2hl F Ofi1 il< > 11 * i T hot i i*\^ .la \ »'iflit'!Ufi!i»'!il Ul kcytitativi' \f , ,6?,, Vi J'i'iOii'Jt t-Mih/itv'i, I'iJiMJPt >' . . . . . . .. . .. "?5 '!-' A«<\.-\1K"t> '^ kc-.c-\ r h si*; > Assets itrtil iiahihiios . 328 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page k**ir and nonpar banking offices, number .......................... 268 r<*!icy actions, Board of Governors: Advances by Reserve Banks, obligations eligible as collateral, amendment of interpretation ................................. 73 Capital stock and surplus, undivided profits as, revision of Board position ............................................. 69 Discount rates at Federal Reserve Banks: Increases: Approval ............................................... 85 Disapprovals ........................................ 74, 82, 87 Reductions .................................... 62, 64, 67, 96, 100 Emergency credit facilities for nonmember depositary institutions, extension ...,,..,.,...,,,,,..,,.,,,.,...,...,,.,,.,,...,,. 66 Equal employment regulations ................................ 72 Foreign credit restraint program guidelines, revisions ............. .61, 97 Payments mechanism, statement of policy .,...,..,,............., 81 Real estate financing, statement ................................ 101 Regulations (for details of Board actions, see Regulations, Board of Governors) Policy actions, digest of principal Federal Reserve actions ....................... .1—VII (facing page 24) Policy actions, Federal Open Market Committee: Authority tO effect 5; lJU-/>;h<1h ,0 ss ' >•! \ • vsn- s.'t, ]\ }i;i. current economi • \-*-','•, -. vV,: v ~, . ltii !02 Continuing author*!'. .-<:'. u »'••. »•*, !»•• •>, ,i operations ..... . . . S" ,, :~ • : '\ > ',; w,\ ]~ > 201 Continuing authori '•.»{»• <?'•* . , '31- Foreign currency <>!• T.tfii-iv "^ii.> ,':(*v and directive ........................... 104, 10'>- ! i «I i • >. I "'•» Presidents and Vice Presidents of Federal Reserve Banks: Conference of Presidents and Conference of K;>! \i > ^(«-,uf'"),^ 12! List ................................... . :; - -20 Salaries of Presidents ....,......,.,....,. L56 Prices, wages, and productivity ............. . > ' -18 Profit and loss, Federal Reserve Banks ...... , , >53 Profits, undivided, as capital stock and surplus, tn-t : t-t--» -.'."»«t 69 Real estate: Bank examiners, home rn.ort.gage loans to, legislative recommendation 212 Board statement on real estate financing ........................ 101 Record of policy actions (See Policy actions) 329 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Regulations, Board of Governors: A, Advances and Discounts by Federal Reserve Banks; . ,*aendment of Interpretation ................................ 73 I ,».'curities of Member State Banks: r iMider offers and other stock acquisitions, amendments ........ 66 i . "<'Curities Credit by Persons Other Than Banks, Brokers, •>r Dealers: - Kemption of certain, credit extended to a broker or dealer from onargin requirements, amendment .......................... 71 M»cks, reduction in margin requirements, amendment .......... 99 K i Election of Checks and Other Items by Federal Reserve Banks; •\ i aendment to include American Samoa in the Twelfth Federal Reserve District for collection, purposes ,.....,...,..,...,,. 94 >. t foreign Activities of National Banks: iburo-dollar borrowings, amendments .,..,.,,.,.,....,,.,.,. .63, 71 i'. * redit by Brokers and Dealers: ,v :icks» reduction in margin .'requirements, amendmeot ..,,,.,.,. 99 I •. *. redit by Banks for the Purpose of Purchasing or Carrying Margin Stocks: !'\emption from margin requirements of certain credit extended to a broker or dealer, amendments ................... .71, 73, 84 ,S:oeks, reduction in margin requirements, amendment .......... 99 X, \<tiles Governing Borrowers Who Obtain. Securities Credit; AJoption ................................................. 93 V Hank Holding Companies: c ontrol of bank or company, presumptions regarding, amendment . 91 1 *> reign activities of domestic holding companies, amendmeot ..... 90 1 >*reign bank holding companies, nonbanking activities, amendment 94 Jtv.ih U-'H declaration, procedures to be followed and clarification .'<'?(»• .?«! v, amendments .,....,,..,.......,,.,..»,...»»,». 70, ;< >: K ?n^ s; ' anking activities permitted .,....,,.,.....»,...,»., '*'• \^",>.u>Vr-. activities ..............................77, 80, 86, (J; St;«M IIT' i ;«»n of procedures ......,,......,,.,.,,,,,,,.»,,,,. ;••':••' 7 T: 11',',* in » ending: \.IM ..-.:.*.•. is ..................................... .65, 68 92, 98 ? Repurchase agreements: Bankers' acceptances ................ ; v", 242, 244, 246, 250 rvJi-ral agency obligations .......... . v-;, 244, 246, 249, 250 * k- Govt. securities ............ 105, :: K s. i-. .'-.'s 249, 250, 262, 264 K 's.1''. o requirements: Graduated, on demand deposits, legis•.*; i ^. L*Jcommendation ......... 211 Member banks; 330 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page .'•' serves: Vfember banks: Reserve requirements (See Reserve requirements) Reserves and related items ................................ .262-65 Salaries; Board of Governors ......................................... 239 Federal Reserve Banks ....................................... 256 Securities {See also U.S. Govt. securities): Eligible for advances by Reserve Banks (See Federal Reserve Banks) rV<: : ->ency obligations (See Federal agency obligations) .' ••. !%- Mate banks, tender offers with respect to securities of ...... 66 '".• • • J bonds {See Stock market credit) ' . . «.• s ' • .wing Rights ........................ 242, 244, 246, 262, 264 .,.,_ ..i:._.jsr banks: Assets and liabilities .......................................... 261 Banking offices, changes In number .,.,.,........,..,,.,,....... 266 Changes in control, reporting requirements ...................... 222 Examination .,.,........,..,.......,,....,....,...,...,...,. 221 Foreign branches, number ................................... 225-27 Investments for community development, legislative recommendation 214 Mergers and consolidations .................... .219, 224, 228, 270-91 Number .................................................223, 261 Tender offers with respect to securities of ,..,..........,.,..,,. 66 Stock market credit: Marein requirements: ;i emption of certain credit extended to a lireamendment of Regulations G and U . . . . " . • ,. ; •• ,' igation ............................. !•', duction on stocks, amendment of Regula * - • •' i>- ' ; •'•'..•les governing borrowers, adoption of Re '•••'; System Open Market Account; Audit ...................................................... 231 Authority to effect transactions in ............................ 1,0=3-202 Foreign currencies, review of operations ........................ 203 Tender offers with respect to securities of member State banks, amendment of Regulation F ..,,....,,..,,..»,,..,.....,,,.,,,, 66 Training activities ............................................. 228 Truth in Lending: Regulation Z, amendments '•• •:>•• 92, 98 Report to Congress ...... , . 229 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page I VS. balance of payments: Euro-dollar borrowings, amendment of Regulation M ........... .63, 71 Foreign credit restraint program (See Foreign credit restraint program) Review ..................................................... 51-58 U.S. Govt. securities; Authority of Reserve Banks to purchase directly from U.S., extension of law ...................................... 209 Bank holdings, by class of bank ................................ 261 Federal Reserve Bank earnings on ,..,,..,...,.»,.,.,.., .231, 233, 252 Federal Reserve Bank holdings ......233, 242, 244, 246? 248, 262, 264 Open market operations ................................ 103-202, 250 Repurchase agreements .......... 105, 242, 244, 246, 249, 250, 262, 264 Special certificates purchased directly from the United States ....... 249 U.S. Govt. agency obligations (See Federal agency obligations) V loans (See Defense production loans) Voluntary foreign credit restraint program ........... .61, 97, 205-208. 209 Wages, prices, and productivity .............................. , ! f -1 s 332 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis