Annual Report of the Federal Reserve Board, 1972

Annual ^Report V^> 1972 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

jfetter of Transtnittal BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Washington, May 22, 1973 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-Ninth Annual Report of the Board of Governors of the Federal Reserve System. This report covers operations of the Board during the calendar year 1972. 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 1972 3 INTRODUCTION 15 DEMANDS FOR GOODS AND SERVICES 15 Real output 16 Consumer income and outlays 19 Business fixed investment 20 Inventories 21 Residential construction 23 Government outlays 25 MANPOWER 29 WAGES, LABOR COSTS, AND PRICES 29 Wages 31 Productivity and labor costs 33 Prices 37 FEDERAL FISCAL POLICY 41 MONETARY POLICY AND FINANCIAL MARKETS 42 Monetary policy 47 Monetary aggregates 51 Intermediated credit flows 54 Demands on securities markets 59 U.S. BALANCE OF PAYMENTS 61 Goods and services 63 Capital flows Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Part 2 Records, Operations, and Organization 67 RECORD OF POLICY ACTIONS—BOARD OF GOVERNORS 105 RECORD OF POLICY ACTIONS—FEDERAL OPEN MARKET COMMITTEE 189 FEDERAL RESERVE OPERATIONS IN FOREIGN CURRENCIES 191 VOLUNTARY FOREIGN CREDIT RESTRAINT PROGRAM 195 LEGISLATIVE RECOMMENDATIONS 195 Reserve requirements 197 Lending authority of Federal Reserve Banks 198 Federal Reserve Bank branch buildings 199 Proposals relating to the regulation of holding companies 200 Loans to bank examiners 200 Purchase of obligations of foreign governments by Federal Reserve Banks 201 Interlocking bank relationships 201 Bank investments for community development 203 LITIGATION 203 Bank holding companies—Antitrust actions 204 —Review of Board actions 206 Regulation J—Collection of checks and other items by Federal Reserve Banks 207 BANK SUPERVISION AND REGULATION BY THE FEDERAL RESERVE SYSTEM 207 Examination of member banks 209 Federal Reserve membership 210 Bank mergers 211 Bank holding companies 213 Foreign branches of member banks 213 Foreign banking and financing corporations 214 Actions under delegation of authority Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

BANK SUPERVISION AND REGULATION BY THE FEDERAL RESERVE SYSTEM—Continued 214 Bank Examination Schools 215 Truth in Lending 216 FEDERAL RESERVE BANKS 216 Examination of Federal Reserve Banks 216 Earnings and expenses 217 Holdings of loans and securities 217 Volume of operations 218 Payments mechanism developments 219 Loan guarantees for defense production 219 Foreign and international accounts 220 Bank premises 221 BOARD OF GOVERNORS 221 Income and expenses STATISTICAL TABLES: 228 1. Detailed statement of condition of all Federal Reserve Banks combined, Dec. 31, 1972 230 2. Statement of condition of each Federal Reserve Bank, Dec. 31, 1972 and 1971 234 3. Federal Reserve Bank holdings of U.S. Government and Federal agency securities, Dec. 31, 1970-72 235 4. Federal Reserve Bank holdings of special short-term Treasury certificates purchased directly from the United States, 1967-72 236 5. Open market transactions of the Federal Reserve System during 1972 237 6. Bank premises of Federal Reserve Banks and branches, Dec. 31, 1972 238 7. Earnings and expenses of Federal Reserve Banks during 1972 240 8. Earnings and expenses of Federal Reserve Banks, 1914-72 242 9. Volume of operations in principal departments of Federal Reserve Banks, 1969-72 242 10. Number and salaries of officers and employees of Federal Reserve Banks, Dec. 31, 1972 243 11. Federal Reserve Bank interest rates, Dec. 31, 1972 244 12. Member bank reserve requirements 246 13. Maximum interest rates payable on time and savings deposits Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

STATISTICAL TABLES—Continued 247 14. Margin requirements 248 15. Fees and rates under Regulation V on loans guaranteed pursuant to Defense Production Act of 1950, Dec. 31, 1972 249 16. Principal assets and liabilities, and number of commercial and mutual savings banks, by class of bank, Dec. 31, 1972, and Dec. 31, 1971 250 17. Member bank reserves, Federal Reserve Bank credit, and related items—end of year 1918-72 and end of month 1971 and 1972 254 18. Changes in number of banking offices in the United States during 1972 256 19. Number of par and nonpar banking offices, by Federal Reserve district, Dec. 31, 1972 256 20. Number of par and nonpar banking offices, by State and other area, Dec. 31, 1972 258 2L Description of each merger, consolidation, acquisition of assets or assumption of liabilities approved by the Board of Governors during 1972 280 MAE* OF FEDERAL RESERVE SYSTEM—DISTRICTS FEDERAL RESERVE DIRECTORIES AND MEETINGS: 282 Board of Governors of the Federal Reserve System 284 Federal Open Market Committee 285 Federal Advisory Council 286 Federal Reserve Banks and branches 310 INDEX Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tart 1 cMbnetary JPolicy and the Zl. ^. Sconotny in 1972 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Introduction The performance of the U.S. economy during 1972 was unusually favorable. Most aggregate measures of economic behavior showed the largest improvement since the mid-1960's. • Real output of goods and services (GNP) grew by 7.6 per cent from the fourth quarter of 1971 to the fourth quarter of 1972. This was substantially more than the 5 per cent growth during 1971 and was in sharp contrast to the small over-all decline experienced during 1970. • Total employment expanded by 2.4 million persons from December 1971 to December 1972, and nonfarm payroll employment by 2.7 million, the largest gains since 1966. The unemployment rate declined from nearly 6.0 per cent at the beginning of the year to about 5.0 per cent at the close. • The rate of inflation abated somewhat after imposition of economic controls in August 1971. Over the six quarters following mid-1971, the fixed-weight price index for gross private product, which is the broadest available measure of price behavior in the private economy, rose at an average annual rate of 3.0 per cent. In the preceding six-quarter period, the rise had been at a rate of 4.7 per cent. • Real earnings of U.S. workers rose substantially. Over the 12 months ending December 1972, weekly earnings in the private nonfarm sector advanced by 6.2 per cent, while the consumer price index rose 3.4 per cent. The slower advance in prices relative to earnings resulted basically from a strong gain in productivity, or output per manhour. Moreover, the resurgence in economic activity was well balanced and solidly based. Real output increased vigorously throughout the year, as shown in Chart 1, and all major sectors of the economy contributed to the expansion in demand. The year featured large and steady gains in consumption, a further substantial increase in residential building, and a sizable expansion in business fixed investment. Government purchases rose 7.5 per cent from the fourth quarter of 1971 to the fourth quarter of 1972. State and local government units Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1. INDICATORS OF ECONOMIC PERFORMANCE MILLIONS OF PERSONS NONAGRICULTURAL EMPLOYMENT WEEKLY EARNINGS 1970 1971 1972 NOTE.—Gross national product (GNP) and price index: Changes from preceding quarter compounded at annual rates, based on seasonally adjusted data from the Dept. of Commerce, Bureau of Economic Analysis. Change in real GNP is based on 1958 dollars. Other series: Dept. of Labor, Bureau of Labor Statistics. Employment data are seasonally adjusted. Earnings are averages for private nonfarm production workers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

accounted for most of the increase—-as shown in Chart 2 on page 6. Business inventory accumulation was larger than in 1971, hut it remained unite moderate relative to (he expansion in sales. Net foreign trade, however, continued \o have an unfavorable impact on domestic business. While merchandise exports rose 14 per cent in 1972. imports increased even more sharply. The vigorous expansion of the domestic economy accounted for much of the increase in imports, but higher dollar prices for foreign goods following the late 1^71 changes in foreign exchange parities were also a factor. As a result, the net U.S. balance on exports and imports of goods and serxices was in deficit by about $4,5 bilhon. as compared with a small surplus in !C)7I and substantial surpluses in earlier postwar years. The over-all U.S. balance of payments fas measured by official settlements J remained in heavy deficit—by about $11 billion (apart from SDR allocations)—-although ibis was much less than in 1971 when extraordinary outflows of short-term capital had occurred. The sharp rise in domestic spending put upward pressure on interest rates in l()72 because such spending was financed in part by very high levels of public and private borrowing. Short-term interest rates rose considerably, as reilecled by an increase in the rale on 3-month Trcasuiy bills from a low of 3.20 per cent early in the year lo an average of more than 5.00 per cent in December. Long-term rales, however, changed relatively little over the course of the year. Yields on new corporate bond issues and on municipal securities declined moderately, on balance, while yields on longerterm Treasury bonds rose under pressure of increased supplies. Mortgage rales were generally stable, as both the volume of savings llowing into mortgage lending institutions and mortgage credit expansion continued at record levels. Some narrowing in the yield spread between long- and short-term securities is typical during periods of cyclical expansion in business. But the markedly different behavior of rales in these two types of markets in 1972 was attributable in part to special factors. First, Treasury borrowing requirements, while somewhat smaller than in 1971, did put greater pressure on domestic short-term credit markets. Although foreign central banks continued to invest much Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2. GOVERNMENT OUTLAYS BILLIONS OF DOLLARS 155 STATE AND LOCAL PURCHASES ^ 135 115 95 ^ 0 + 0 20 I I 1970 1971 1972 NOTE.—National Income Accounts (NIA) data at seasonally adjusted rates, from Dept. of Commerce, BEA. Transfer payments include net interest payments, subsidies, and net deficits of government enterprises. Combined deficits throughout (Q4 '72 estimated) exclude surpluses of State and local government retirement funds, which amounted to $7.4 billion (annual rate) in the final quarter of 1972. of the expansion in their dollar reserves in U.S. Treasury debt, the over-all total of such placements was far below that of 1971. Moreover, these banks put three-quarters of the total into higheryielding coupon issues, in contrast to their 1971 emphasis on Treasury bills. Second, the volume of private long-term security issues declined appreciably, as the flow of internal funds available to corporations from depreciation allowances and retained profits improved sharply. Finally, efforts under Phase II of the economic stabilization program to moderate the increase in wages and prices—along with the slowing in inflation that actually took place—may well have induced some decline in the inflation premium required by investors for longterm commitments of funds. The behavior of wages and prices during 1972 was significantly more favorable, on balance, than in other recent years. There was a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

3. SELECTED INTEREST RATES PER CENT PER ANNUM 10 1970 1971 1972 For notes, see Chart 16, p. 42. temporary bulge in the first few months following termination of the wage-price freeze in November 1971, but after that the increase in both wages and prices moderated on balance. For example, the index of average hourly earnings in the private nonfarm economy, adjusted for overtime premiums in manufacturing and for interindustry shifts in employment, rose at an annual rate of 5.9 per cent from January 1972 to January 1973. This compared with a 7.0 per cent rate of increase before the freeze in 1971. Consumer prices of nonfood commodities rose 2.5 per cent during 1972, compared with 4 per cent in the 12 months before the freeze; increases in prices of services also slowed appreciably. Consumer food prices, however, rose nearly 5 per cent during 1972, reflecting the larger consumer demands associated with rising personal incomes and the shortages in supplies of meats and some other foodstuffs in the market. It should be noted that prices of raw agricultural products were exempted from the controls because of the serious problems inherent in balancing supply and demand at non-market-determined prices in the absence of rationing. A major factor contributing to moderation in the inflation of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

nonfood commodity prices during 1972 was the stepped-up growth in productivity. Real output per matihour in the private nonfarm economy increased by 4.7 per cent, compared with a 3.5 per cent gain in 1971 and minimal growth in the preceding several years. Combined with smaller wage gains, this increase in output meant that the rising trend in unit labor costs was slowed markedly, to only about 1.5 per cent. The large rise in productivity resulted in part from the sharp gaie in total output, which permitted economies in the use of manpower. Similarly, the upsurge in business volume made it possible to spread overhead costs over more sales; this permitted a large increase in profits with only moderately larger profit margins. Thus, some slowing in inflation would probably have occurred during 1972 even in the absence of formal controls. But restraints on wages, prices, and profit margins also appear to have contributed to the moderation that actually occurred. Permissible increases in most wages and prices were limited by the program, and in some instances there were enforced rollbacks of Increases that had been put into effect. Moreover, the existence of the program tended to discourage inflationary behavior in the policies and plans of business firms and the public generally. Phase III, announced in January 1973, introduced additional iexibility into the program. But the intent remains one of strong resistance to inflationary behavior, both on a broad scale and in individual cases, and the goal is to reduce further the over-all rate of inflation. During 1972 both fiscal policy and monetary policy were directed toward encouraging more vigorous expansion in economic activity and achieving a higher level of utilization of the Nation's labor and other economic resources. As a part of the new economic program announced in August 1971, tax policy was liberalized in several respects to stimulate demands by the private sector of the economy and to provide additional spending incentives. The Federal excise tax on automobiles was repealed, the investment tax credit was reinstated at 7 per cent, and certain tax reductions that had been scheduled for later were advanced to January 1, 1972. In addition, programmed Federal expenditures were boosted, largely Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

with respect to transfer payments and grants lo State and local governments. As a result of these changes, Federal outlays rose by $26 billion in the calendar year 1972 as compared with an increase of $16 billion in calendar year 1971. It was expected that the changes would result in a large Federal deficit i\w the calendar year 1972. But in fact the deficit on a national income account basis declined to $18.5 billion from $21.7 billion in the previous year. 'Tax revenues were buoyed by the upsurge in economic activity and, in addition, by a change in tax-withholding schedules at the beginning of the year, which resulted in substantial, continuing overpayments on individuals' taxes during all of 1972. Converted to a full-employment basis, which compares expenditures with the tax. revenues that would be produced by an economy operating at high employment. I he fiscal position shifted from a $4 billion surplus in calendar year lc)71 to approximate balance in 1972. Monetary policy also was in a moderately stimulative posture through most of 1972. Reserves available to support private deposits (Chart 4, page 10) were increased by 9.7 per cent as compared with a 7.2 per cent expansion during 1971. The money stock narrowly defined—that is, including currency and demand deposits—also rose more rapidly during 1972—8.3 per cent as against 6,6 per cent in 1971. This, of course, not only reflected the more vigorous growth in activity during the period but also helped to finance it. It should be noted, however, that when the increase is calculated as the change from the fourth quarter of 1971 to the fourth quarter of 1972, the money stock rose less than either real or current-dollar (INP. The money stock more broadly defined-—to include also consumer-type time deposits at commercial banks and other thrift institutions—continued lo expand at about the same high 13 per cent rate as during 1971, And other sources of bank fundsmain! y large negotiable certificates of deposit (CD's)—provided more funds for bank credit expansion than In 1971. Credit thus was readily available from banks and other institutional lenders to finance private and public spending, Expansion in credit and money was not large enough lo satisfy all demands, however, so short-term Interest rates rose considerably over the course of the year whereas Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

4. SELECTED MONETARY INDICATORS PERCENTAGE CHANGE 16 0 12 PER CENT PER ANNUM FEDERAL FUNDS RATE MILLIONS OF DOLLARS NET BORROWED RESERVES 800 1970 1971 1972 NOTE.—RPD's and Mi are quarterly changes at annual rates, based on seasonally adjusted data RPD's are reserves to support private nonbank deposits. Mi is 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. Federal funds rate and net borrowed reserves are monthly averages of daily figures. 10 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

uUeu^i iale>. on mou long-term seiuriticN showed relatively little net vhaovu Upward pressure on short-term inletest rates continued inlo ^;iify !*)7JL and the Federal Reserve discount rale was raised in fwo >M ps H' ! .» percentage point each to 51 ? per cent 1 be discount rnw: had no1 Iv-..n changed in 1072 :is short-term market rates fluctuated as<i»und it. first falling below and then in the latter part • «f the \car rising above if, Economic activity rose especially sharply in the closing months of the year, with production, sales, and employment all expanding vigorously. Real GNP increased at on 8,0 per cent annual rate in the fomfh vjuuticr, and the unomploymcnt rate moved Mgnifieantly It>wer. Bv the ye;ir-iv'.uL rhe prospects seemed clearlv to point in the direction of ,t continued sukstantifi* upward mtnnentum in 1073. Indications early iy 1073 arc that business outlays on new plant nnd equipment will be rising rapidly and that inventory investment may accelerate in line with the rising trend (if business sales. Consumer spending, which was exceptionally Mrong in the fourth quarter of 1972, will vn y likely K buoyed in coming months by sizable tV'\?nd*; of Federal faxes overwifhheld during 1072, as well as by t/nr>hn>iim\ gains in cn^pioyment and inc*»nii\ State and local government expenditures arc to receive substantial financial assistance *rom tin" general n^cnuc-sharing payments of the Federal Governnvnu whirl] Ci>mjnenccd—~wilh a retroactive disbursement-—only wry ^itc in 107 2. Only reNiclcfiifjf construction seems likely to be moving down following .^ years of record-high activity. But both building permits and honsmg starts, which lend construction outlays, remained o.vhvnvh strong through the end of 1972. so any appreciable decline in such outlay s is likely to he deferred until the latter part of 1073. fhe foreign trade outlook also appears more favorable than ia 1^72. I*xports should be stimulated by the high and rising levels o\ economic activity prevailing in most major countries and by the i'ijrfhet- improvement in competitive position likely to stem from the Hi per cent devaluation of the dollar announced by I lie President MI} February 12, 1073. Domestic production that competes with imports will also be stimulated as a rcsull of the increase in dollar 1! Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

prices of imported goods. Thus, the physical volume of imports will tend to be limited, although—as in early 1972—the total dollar value of imports may be inflated by these higher prices. Past experience, both here and abroad, indicates that progress toward a better balance of payments position will be slow and gradual, but the further change In dollar parity in February should make an additional contribution toward that end. Summarizing, there is good reason to belie¥e that the U.S. economy will continue to expand at a relati¥ely rapid rate in the period ahead. And as the economy approaches maximum levels of practicable resource utilization, the nature of the demand—management problem facing governmental policy will be in process of change. Rather than the stimulus that was needed to encourage rapid economic reco¥ery, the Eeed increasingly may be to restrain the expansion in economic acti¥ity to insure that future growth will moderate to a rate consistent with the Nation's longer-mn potential. The administration's new budget plans for the remainder of the fiscal year 1973 and for iscal 1974 recognize this need. If the spending totals proposed are not exceeded, the rise in Federal outlays during calendar year 1973 will be substantially smaller than during calendar year 1972. Tax refunds will keep the deficit large in the first half of 1973, but thereafter revenues will be expanding in line with growth in the economy. Under these conditions, the slower rise planned in Federal expenditures would imply appreciably less iscal stimulus by the second half of 1973 and on into 1974. Monetary policy too must be responsive to the financial requirements imposed by the needed moderation in economic growth to a more sustainable, noninflationary pace. Although expansion in the monetary aggregates continued comparatively rapid in the latter part of 1972 as demands for funds intensified, reserves to support this expansion were being provided more reluctantly, and efforts by banks to adjust their positions by other means put .upward pressure oa short-term, interest rates. Less of the recent rise in bank reserves has stemmed from open market operations, and more from further increases in the average level of temporary bank accommodation at Federal Reserve Bank discount windows. If the past is any guide, the Inning in monetary conditions over 12 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

recent months should soon result in moderation in the rate of monetary expansion, Developing monetary restraint affects monetary growth and economic activity with some lag, since it lakes time for borrowers, lenders, and investors to adjust to changed financial conditions. Thus, the cumulative effects of monetary actions in 1972—particularly those initiated in the latter part of the year—will be working for some time toward restraint of monetary expansion and of aggregate demand in the future. In any event, prospects at the beginning of the year make it unlikely that the needs of the economy in 1973 will or should call for the degree of monetary stimulus provided in 1972, Monetary policy is a flexible instrument for influencing the economic environment, however, and it will be in a position to respond to changing needs as economic developments unfold during the year. 13 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Demands for Goods and Services The stepped-up pace of economic expansion that became evident in the fall of 1971 strengthened measurably in 1972, and at the year-end growth was continuing at a very rapid pace. The new economic policy that had been initiated in August 1971, including a freeze on prices and wages followed by Phase II controls, contributed to the faster economic expansion as well as to the easing of inflationary pressures. As employment and incomes rose strongly and inflationary expectations abated, consumers became more optimistic and they increased their spending appreciably. Demands for housing continued strong, and residential construction activity surpassed to a substantial extent the very high levels reached in 1971. Business attitudes improved with the growth in sales and the better prospects for profits. New orders increased, and business commitments and outlays for fixed investment began to add considerably to the vigor of the expansion. As the year progressed, business also stepped up the pace of inventory investment. Governments, too, contributed to the large advance in over-all spending in 1972. In contrast to these generally expansive demands, net exports shifted from a small surplus in 1971 to a sizable deficit in 1972, as the increase in imports far exceeded that in exports. REAL OUTPUT Measured in current prices, GNP increased rapidly in 1972— by almost 10 per cent for the year as a whole. At the same time, the rise in the GNP implicit price deflator slowed to 3 per cent, as compared with a 5 per cent average increase for the two preceding years. As a result, the increase in real GNP for the year as a whole amounted to 6.4 per cent—more than twice the 1971 rise and the largest since 1966. Growth in real GNP was rapid in every quarter of 1972; in the fourth quarter it was at an 15 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

5. CHANGES IN GNP BILLIONS OF DOLLARS 40 CURBE REAL 1970 1971 1972 NOTE.—Based on quarterly data (constant-dollar series, 1958 dollars) at seasonally adjusted annual rates, from Dept. of Commerce, BEA. Changes are from preceding quarter. annual rate of 8.0 per cent, about double the economy's long-run potential rate of expansion. The surge of aggregate demands in 1972 resulted in sharp increases in industrial output and nonfarm employment and in a significant reduction in unemployment. Over the 12 months ending in December industrial production increased more than 10 per cent; consumer goods, business equipment, and materials all made appreciable contributions to this expansion. Nonfarm payroll employment was 2.7 million persons, or almost 4 per cent, above a year earlier. The unemployment rate declined during the second half of the year to 5.1 per cent in December; a year earlier the rate had been 6 per cent. CONSUMER INCOME AND OUTLAYS Personal income increased somewhat more sharply in 1972 than in 1971—8.5 per cent for the year as a whole compared with less than 7 per cent in 1971. Although the rate of growth in average hourly earnings slowed, employment was up sharply and 16 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table 1: GROSS NATIONAL PRODUCT 1972 Type of measure 1970 1971 \ 1 1 1 , II i Iff IV i In biUiois ofdoiUrs I j Current dollars........... ,7, 1,050 ' I,IJ2 I,HV-) ! i ( ,164 1958 dollars.............. 742 767 i 784 - \SI2 Percemagc cinnuc from pivc rioct uit annual raus | Current dollars 0 12,0 ! 11.4 i 11.0 1958 dollars 5 2*7 j 6.4 9.4 ! 6.3 8.0 ! Implicit deflator (1958 = 10)). . . . 5.5 4.7 | 3.0 , 5.1 ! 1.8 2.4 2.8 1 Quarterly data are seasonally adjusted annual rates. NOTE.—Basic data from Department of Commerce, Bureau of Economic Analysis. total wages and salaries Increased by 9.5 per cent, compared with less than 6 per cent the preceding year. Transfer payments—for example, social security benefits and unemployment insurance—also increased substantially, but less than they had in 1971. However, the growth in disposable personal income was somewhat less than in 1971, because the gain In such income was held down by a change in Federal income-tax-withholding schedules, which resulted in sizable overwithholdings. Nevertheless, consumers stepped up their spending and borrowing briskly, responding to strong gains in employment, increased overtime, and strengthened confidence as evidenced by surveys relating to consumer attitudes about economic prospects and financial positions. The rate of personal saving for the year as a whole declined to about 7 per cent of disposable income, from more than 8 per cent in 1971. In current dollars, consumer spending was about S3 per cent higher than in 1971. Purchases of new autos and household durable goods were especially strong, but spending for nondurable goods and services also rose considerably. Increases in the physical volume of purchases were sizable for all three major categories, in real 17 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

6. CONSUMER INCOME, OUTLAYS, AND SAVING PERCENTAGE CHANGE 1972 NOTE.—Income and spending are changes from preceding quarter, based on quarterly data at seasonally adjusted annual rates, from Dept. of Commerce, BEA. Saving rate is personal saving as percentage of disposable personal income. terms, total consumer spending was up 6 per cent, well above the 4 per cent increase recorded for 1971. Sales of new automobiles—both domestic-type and imports— reached a new high of 10.8 million units for the year, up from 10.2 million units in 1971. In the fourth quarter total auto sales reached an annual rate of 11.7 million units, the highest of the year. The sharp increase in purchases of household durable goods was associated not only with rising incomes but also with the record number of new housing units being completed and occupied. This large increase in consumer spending for durable goods was facilitated by a record increase in the use of instalment credit. Consumer demands were still exerting a stimulating influence on the economy at the end of 1972. Incomes were advancing with exceptional rapidity as a result of continued strong gains in output and employment and of a 20 per cent boost in social security benefits, with initial payments on October 1. It is expected that the unusually large amount of tax refunds anticipated for the first half 18 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

of 1973 because of overwithholding during 1972 will add to both disposable incomes and spending. BUSINESS FIXED INVESTMENT An important factor in the expansive thrust of the economy in 1972 was a marked increase in business spending for new fixed capital. Outlays for new machinery and buildings were 14 per cent higher than in 1971; measured in real terms this represented an increasee of 10 per cent. The rise in spending for business fixed capital reflected a number of factors: the strong expansion in industrial production and an associated rise in the rate of capacity utilization; the greatly improved performance of aggregate profits; and the stimulative effects of a further acceleration in depreciation schedules and the late-1971 restoration of the investment tax credit, which applies to purchases of new equipment. For the year as a whole purchases of machinery and equipment in current dollars were about 16 per cent above the 1971 volume. Because the increase in prices of such goods in 7. BUSINESS FIXED INVESTMENT RATIO SCALE, BILLIONS OF DOLLARS 120 110 100 90 CONSTANT DOLLARS 80 1970 1971 1972 NOTE.—Quarterly data, at seasonally adjusted annual rates, from Dept. of Commerce, BEA. Constant-dollar series is in terms of 1958 dollars. 19 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1972 was quite moderate, most of this large rise in outlays represented physical volume. In the equipment category, truck sales were especially strong; the number of units sold was up 25 per cent from 1971. The increase in business outlays for new construction was more moderate, with little change in real terms. Most of the increase in fixed investment outlays in 1972 occurred outside of the manufacturing sector. Expenditures by public utilities rose strongly, reflecting continued sizable gains in demands for energy as well as more rigorous standards for pollution controls. Communications and commercial firms also increased their investment sharply. The increase in spending for new plant and equipment by manufacturing firms in 1972 was much more moderate; however, the rise of 4 per cent contrasted with a decline of about 6 percent in 1971. Late in 1972 businessmen's intentions to spend for plant and equipment in the year ahead appeared to be in the process of upward adjustment, reflecting—among other factors—rising orders for hard goods and a growing backlog of such orders. The survey taken by the Department of Commerce in December 1972 showed plans for a 13 per cent rise in spending for new plant and equipment in 1973, with larger increases being planned by manufacturers than by other sectors of the economy. Earlier private surveys taken in the autumn had indicated a rise of around 10 per cent. INVENTORIES An upturn in inventory investment finally developed in 1972. As a general rule, inventory investment increases rapidly early in a cyclical expansion, but in this one such spending had continued quite moderate throughout the first year of recovery following the fourth-quarter 1970 trough. This reflected in part the absence of any net liquidation during the 1969-70 recession. Although recovery in sales in 1971 had resulted in a decline in inventory/sales ratios, at the end of 1971 such ratios were still rather high for that stage of the cycle. Businessmen began to increase inventory investment in the second quarter of 1972 in response to the continued rapid increases in sales and production, and the rate of such accumulation accelerated as the year progressed. Toward the year-end, accumulation reached 20 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

8. BUSINESS INVENTORIES AND SALES CHANGE, BILLIONS OF DOLLARS 12 INVENTORIES/SALES 1970 1971 1972 NOTE.—Dept. of Commerce data: Inventory change (NIA), quarterly data at seasonally adjusted annual rates, from BEA. Inventories/sales ratio, based on book value and sales data seasonally adjusted, from Bureau of the Census; book value, end of quarter; sales, quarterly average. an annual rate of $10 billion, as measured in the NIA accounts. With sales gains outstripping inventory increases, the ratios of inventory book values to sales in a number of areas were reduced further, and by the end of the year they were approaching historically low levels. Further growth in inventory accumulation is suggested by these low ratios, as well as by rising backlogs of unfilled orders, by more numerous reports of delays in deliveries, and by continuing rapid increases in sales. RESIDENTIAL CONSTRUCTION Outlays for private residential construction, which had increased sharply in 1971, advanced further in 1972. A record supply of mortgage credit, available at relatively stable interest rates and on liberal terms, supported a strong expansion in demands for both new and existing dwelling units. For the year, residential outlays rose 25 per cent in current dollars and about 20 per cent in real terms. 21 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Private housing starts accelerated to a peak seasonally adjusted annual rate of more than 2.4 million units in the first quarter of the year, almost double the low rate reached 2 years earlier. While the rate fluctuated thereafter below the first-quarter high, the 1972 total came to 2.4 million units. This was 15 per cent more than in 1971, the first year in which starts exceeded 2 million units. Reflecting in part builders' attempts to adjust to further increases in the cost of land and other items, multifamily structures—which include condominiums—continued to account for more than twofifths of total starts. However, upgraded demands for these and for other types of dwellings were also a conspicuous factor in the over-all advance. Nonsubsidized units, which generally incorporate more space and other amenities than do units that receive Federal subsidies, accounted for all of the rise in multifamily structures. In contrast, the number of subsidized starts—for which new commitments were suspended altogether in early 1973—dropped 9. RESIDENTIAL CONSTRUCTION RATIO SCALE, BILLIONS OF DOLLARS 60 50 40 30 CONSTANT DOLLARS i I 20 MILLIONS OF UNITS 2.5 1.5 1970 1972 NOTE.—Dept. of Commerce data: Expenditures, quarterly data at seasonally adjusted annual rates, from BEA. Constant-dollar series is in terms of 1958 dollars. Housing starts, monthly data at seasonally adjusted annual rates, from Bureau of the Census. 22 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

appreciably in 1972 from the highs reached in 1970 and 1971. Shipments of new mobile homes, which are not included in housing starts or in residential construction outlays, also achieved a new high in 1972. Such shipments totaled about 575,000 units, an increase of 15 per cent from 1971. At the year-end demands for housing remained strong, vacancy rates were relatively low, and mortgage funds were still in ample supply at rates little changed from a year earlier. However, it appeared unlikely that the number of starts in 1973 would match the 1972 total in view of (1) the extent to which the backlog of demand had been satisfied by sustained high levels of production (2) the large and growing number of completions of earlier starts in prospect, and (3) other factors. GOVERNMENT OUTLAYS Purchases of goods and services by the Federal Government rose strongly in the first half of 1972 as the result of a Governmentwide pay increase in January and the rebuilding of defense inventories depleted by activities in Vietnam. In the second half of the year, however, defense purchases dropped sharply and nondefense buying slowed; as a result, Federal purchases declined. For the calendar year as a whole, Federal purchases rose about 8.5 per cent—virtually all because of increased pay and higher prices. State and local government purchases rose by about 10 per cent in 1972—the same increase as in each of the past 3 years. Employee compensation, as usual, accounted for much of the gain. Employment rose about 4.5 per cent; about one-third of this increase represented the number of jobs added under provisions of the Public Employment Act—a program funded in large part by the Federal Government. As in other recent years, there was little growth in purchases of structures in 1972, in large part because the demand for new educational structures has lessened. During 1972 there was a dramatic improvement in the over-all fiscal position of State and local governments. Although expenditures continued to rise rapidly, revenues rose even faster, especially in the fourth quarter when the first payments under the Federal revenue-sharing program were received. As a result, State and 23 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

local governments achieved a surplus of about $12 billion (NIA basis) for the calendar year com pared with a surplus of less than $5 billion in 1971 and with deficits in 1967 and 1968. However, there remained wide differences in the fiscal position of individual governmental units. Table 2: CHANGES IN MAJOR COMPONENTS OF GROSS NATIONAL PRODUCT In billions of dollars 1972 < Item 1970 1971 1972 II \ III GNP 46.1 : 74.0 101.4 31.0 30,3 ! 24.6 30.9 Personal consumption expenditures . , . 37.3 | 48.1 56.1 15.6 17.3 15.2 17.1 Durable goods 1 3. 0 12 6 4.<) 2.9 4.7 2. 2 Nondurable* goods 18.' 5 { 13,7 21.4 4, 8.9 4.8 8. 4 Services V). 1 : 21. 5 22. i 5.*8•) s, 7 5.6 6. 5 Saving rate {level, in pt'r ci'ut^ , , . A 0 \ h ^ •».2 . -1 6, 4 7.6 Fixed investment. 1.1 16.1 26.2 id.5 4.3 3,2 7.9 Residential structures -•1.4 ' t!. 4 if. 4 4.3 I 2 I, 6 2.6 Nonresidential . , . . 2. 4 j 14 h (>.3 3. I 5,4 Inventory change - 2.9 • -1.3 2.3 •-i.3 4.6 3.(1 2.3 1.7 • 2.9 4.9 -- 25 .6 1.8 - .1 Exports. 7. 4 7. 6 7 7 4.4 5. 2 Imports. 5.7 . 6 T 12.5 " I 2.6 5. 3 Govt. purchases of uooris ami ser\ices 13.8 21.8 8. 4 1.5 3.7 Federal. . , !. 3 ,N i) 5.0 2*4 _ |, 4 Defense . . . - J, 3 ' . 3 7 4, 5 4.8 S<) - I. l> Other i.' i 4. <S V h 2 .7 6 .6 Slate ami local . ii. 3 12. 5 I.V Si 3,5 2. 3 4.2 5. 0 1 Derived from quarterly lotals at seasonally utfjasied annual Nort»- --Basic data from Hept. of Commerce, Bf:A, 24 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Manpower Labor markets tightened significantly in 1972 in response to the sharp rise in real output. Gains in employment were large and persistent all year, but it was not until near midyear that the jobless rate, which had held close to 6 per cent for a year and a half, began to decline. Growth in employment had begun to accelerate in late 1971, and it continued at a rapid pace through most of 1972. By December nonfarm payroll employment had risen by 2.7 million persons from a year earlier. Gains in manufacturing were especially strong during most of 1972, as increased spending for investment and strong demands for autos and other consumer durable goods stimulated rapid growth in employment in the major metal-producing and metal-using industries. By December total manufacturing employment, at 19.4 million persons, had risen by some 900,000 over the year, and the average factory workweek had increased appreciably. But manufacturing employment was still 900,000 below the peak level of 1969, when defense production was supporting a high level of factory output. Employment growth also accelerated in nonindustrial activities 10. NONFARM PAYROLL EMPLOYMENT 1968=100 115 TOTAL 95 1970 1972 NOTE.—Based on monthly data, seasonally adjusted, from Dept. of Labor, BLS. 25 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in 1972. In services, finance, and trade, the total number employed rose by 1.2 million, about one-third more than during 1971. Federal civilian employment was cut slightly, but State and local governments increased their payrolls by 475,000 over the year ending in December—including about 150,000 jobs provided by the Federally financed public employment program. Little progress was made in reducing unemployment until early summer, however, as much-larger-than-normal increases in the labor force about matched the rise in employment. Rapid gains in the civilian labor force in the winter and early spring reflected not only a rise in participation rates in response to increases in employment opportunities but also the entry into the civilian labor market of several hundred thousand young men as the size of the Armed Forces was reduced further. Toward midyear, however, growth of the civilian labor force slowed, in part because the size of the 11. LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT MILLIONS OF PERSONS CHANGE IN: PER CENT 8 UNEMPLOYMENT RATE 1970 1971 1972 NOTE.—Basic data, Dept. of Labor, BLS. For civilian labor force and employment, 1970 and 1971 are changes from preceding year; the 1972 changes are annual rates calculated from half-year averages of seasonally adjusted data. Unemployment rate is monthly, seasonally adjusted. 26 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Aimed Foices leveled oft aftci a decline of 1.2 million from the high in October iMoK. Altogether over the >car ending in December VAC civilian labor \m\x increased l>v more tkio 1.8 miilion persons. Rell^cliiig continued strong gains hi employment and slower growth in the labor force, the unemployment rate declined irregularly after May to 5,i per ecu! in Oecembei. The decline in oncnsphi\ nieiit was most pronounced among men 25 \e:u*s of ;\iv and over-—reflecting largely the strong recovery In manufacturing and biuc-coliar employmeni. Nevertheless the jobless raw for this age group, at 2 8 pet cent in the fourth quarter, remained above ifie exceptionally low rale oi! late l%9. Unemployment among Negroes (10 per cunl J and younger workers (about 16 per cent) changed iatfc irom I he high rales of late 1971 and early 1972, In 1973 Hit size of the Armed Forces t% expected to decline only a iiitk fluffier, dud growth of the civilian labor force may be closer to lite 1 5 million expeeted per yenr OD the basis of population growth and trends h\ partieipulion iitfts, Sticli a situation would he coiuHjeivv.' !c^ a further txdticiion in the unemployment rate if coipk.nnu n! guifu e<MUinue at a rapid pace. /*: LABOR FORCh, KMFLOYMKNT. AND (UNEMPLOYMENT Viilvx, whkii aic monthly a\crage rates in Vc.»r c!stiif»*4 fourth qiuuter ut* ,\ !H'. • j ,408 i 1,257 I , (>()8 -441 , -353 — 262 O>i'UH •.f'oi ,<,<; } . :• 51 { I, M 0 ! t ,4119 5.3 i 8 : \A 3.5 2.8 M:u. .'0 t-> ,U *.•> ! UK5 i 10.3 8.7 Wmuer,, jOarv.i .p^\ 5 2 {J.I ; l?*2 !(V« 15 6 4.7 10. J 3,5 3.6 3.1 5! 4 4.8 i» u* alh>>v f<»i {he introduction of new i ah.^f. U I .»ix,r Suitisfics. 27 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Wages, Labor Costs, and Prices Progress was made in 1972 in reducing inflationary pressures. The program of wage and price controls initiated in August 1971 contributed to a slowing of the rise of hourly compensation, and with gains in productivity accelerating, the rise in unit labor costs moderated sharply. Price developments, particularly as measured by the comprehensive GNP fixed-weight index for the private economy, reflected the more favorable labor cost situation and the impact of price controls. The consumer price index posted a somewhat smaller increase during 1972 than in the pre-control period of 1971, and the rise in industrial wholesale prices slowed appreciably. On the other hand, prices of farm products and processed foods increased much more rapidly than before controls. On January 11, 1973, the President requested a temporary extension of the Economic Stabilization Act of 1970—the legal underpinning of the wage and price control program— and announced some important changes in the Phase II program. The new program—referred to as Phase III—is intended initially to maintain, with some modifications, the basic wage and price standards established in the early period of controls, but heavier reliance is placed on voluntary compliance and self-regulation. The requirement for prenotification of wage and price increases by large firms has been eliminated. However, foods beyond the farm level, health services, and construction remain under mandatory controls. The Price Commission and the Pay Board were abolished, and authority for the new program was centralized in the Cost of Living Council. WAGES The Pay Board, as originally set up, was charged with the task of limiting wage increases. Accordingly, it established standards for generally permissible pay increases consistent with the announced goal of reducing the rate of price increase to a range of 2 to 3 29 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

per cent. Including an allowance of about 3 per cent for Jong-term growth in productivity^ the general wage and salary standard established by the Board called for a limit of 5.5 per cent on increases in wages and salaries and "covered" fringe benefits. In addition, the Board permitted increases in certain other qualified fringe benefits, and this in effect raised the over-all standard for compensation to as much as 6,2 per cent. Considerable flexibility was also built into the Board's regulations, including procedures for upward adjustment in the standards if necessary to correct gross inequities and to deal with other special situations. The rise in money wages was slower in 1972 than in 1971. For the 12 months ending January 1973 (that is, the year following the post-freeze bulge in wages), adjusted hourly earnings of production and nonsupervisory workers in private nonfarm industries—the measure that most closely approximates changes in wage ratesincreased by about 6 per cent; this compares with an annual rate of increase of nearly 7 per cent both in the pre-control period of 1971 and from January 1971 to January 1972. But the slowing was concentrated ia the interval from January through August. Thereafter, the rise in wages was more rapid than earlier in the year. Because of the moderation of price increases, real wages of production workers in the private sector, which had begun to advance in 1971 following several years of little or no growth, rose more than 2,5 per cent over the course of 1972. Experience in 1972 varied among individual industries, but over Table 4: CHANGES IN A¥EEAGE HOURLY EARNINGS Seasonally adjusted annual rates, In per cent j Aug. 1970- i Aug. 197!-- ' Jan. 1972- ; July 1972- I Jan. 1972-- Industry I Aug. 1971 \ Jan. 1972 ! July 1972 | Jan. 1973 1 Jan. 1973 Tola! private nonfarm i 6.9 7.0 • 4.7 j 6.8 J 5.9 Mining... 6.8 ; 9,2 4.4 i 8.9 6.7 Construction 7.8 6'.8 3. 2 i 10.5 6.9 Manufacturing 6, 6.5 ' 4.9 .3 5,7 I ranportation and public titII- ; i iti s ; 8.•J I I.8 9.4 ! 8.5 9.2 Wh esale and retail trade j 6.0 5 5 ! 4.4 I 4.9 4.7 F Se in rv ance, insurance, and real estate'j 6 7 . . I 3 ) 7 *5 . ! 6 o I 4.8 7 , 4 j . . 8 7 4 5 , . 8 3 Nor —Averagge hourlyy eaminus of ppr ivate noni'arni ppr oduction and suppeyr visory worker, s, ajdjusted for int id dustry shhiifft s andd , ii n manuffai cturing onll y, ff or overtii me hh ours. BBia sicd data f from DD ept off Labor, BLSS. 30 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

the entire 12 months the slowing of the rise in wages was most pronounced for the services and trade sectors. Hourly earnings in construction, which continued to be under the control of the Construction Industry Stabilization Committee, increased by about 7 per cent over the 12-month interval. In manufacturing, hourly earnings rose appreciably less than in the immediate pre-control interval. However, some industry groups realized larger increases in 1972 than in 1971. This was true especially for transportation and public utilities; in these industries there were large wage increases for telephone workers, railroad workers, truckers, and dockworkers, mainly as a result of deferred-wage increases under collective bargaining agreements negotiated before controls were introduced. In most industries the rise in hourly earnings accelerated in the closing months of 1972. The reasons for this are not entirely clear, but the acceleration appears to reflect in part a clustering of both new and deferred wage increases roughly a year after the 1971 freeze and in part a generally stronger labor market. PRODUCTIVITY AND LABOR COSTS Productivity increased sharply in 1972, as is typical of periods of strong growth in output. Output per manhour in the private nonfarm economy rose 5.1 per cent over the four quarters of 1972— double the long-term trend of 2.6 per cent. This performance exceeded the sizable 4.4 per cent rise in productivity in 1971, and it was in sharp contrast to 1969 and early 1970 when there was virtually no growth. Employee compensation, which includes both wages and fringe benefits, increased 6.9 per cent over the course of 1972, compared with 8.1 per cent over the first half of 1971. The stepped-up pace of growth in productivity together with this slowing of the rise in employee compensation resulted in a sharp reduction of the rate of increase in unit labor costs. For the private nonfarm economy, such costs rose only 1.6 per cent during 1972—and they were virtually unchanged in the middle two quarters. This compares with increases of more than 8 per cent during 1969 and 5 per cent during 1970. In 1973, gains in productivity may fall well short of those in 1972, particularly if real growth moderates to a more sustainable rate, as is widely expected. Further progress in restraining cost pressures is 31 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

12. PRODUCTIVITY, COMPENSATION, AND COSTS PERCENTAGE CHANGE OUTPUT PER MANHOUR (1 COMPENSATION PER MANHOUR 1970 1972 NOTE.—Data are from Dept. of Labor, BLS; changes are based on half-year averages of seasonally adjusted quarterly estimates for the private nonfarm economy. thus heavily dependent on the changes in wages and other employee benefits, emphasizing the importance of an effective Phase III program. In appraising wage prospects, it should be noted that measures to restrain wage increases are continuing in Phase III. The fact that workers covered under expiring contracts have realized significant gains in real income may be conducive to some moderation in demands for higher wages. However, the number of workers involved in major contract negotiations, which was relatively small in 1972, will increase substantially in 1973. Contracts covering 4.7 million workers either expire or provide for wage reopenings. These include such key industries as trucking, railroads, rubber, electrical equipment, and autos. Furthermore, a heavy round of bargaining is anticipated in the construction industry, as many of the agreements signed in 1972 covered only one year. 32 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

PRICES The moderation of the pace of price advance during 1972 was fairly general, except for prices of farm products, foods, and some materials. The fixed-weight price index for gross private product rose at an annual rate of about 3 per cent after a post-freeze bulge in the first quarter; this compares with an average annual rate of about 5 per cent in the first two quarters of 1971 preceding the 90-day price freeze. Prices of food products at the farm level, which are not controlled, increased 19 per cent during 1972—considerably faster than in any other year since 1950. In December wholesale prices of livestock were 22 per cent above a year earlier; eggs, 26 per cent; and grains, 44 per cent. Prices of processed foods and feeds, however, rose less rapidly than those of farm products. Nevertheless, the average rise for this category for the year ending December amounted to 11.5 per cent. Because of the sharp rise in prices of farm products and foods, the total index of wholesale prices rose faster in 1972 than in the pre-control period from December 1970 to August 1971. On the other hand, the rise in prices of industrial commodities moderated appreciably during 1972, reflecting mainly improvement in prices of producers' finished goods and fabricated materials. Price rises continued to be very sharp for many raw materials, including such important commodities as hides, skins, and wool. Lumber and Table 5: PRICE CHANGES Seasonally adjusted annual rates, in per cent 1972 Dec. Dec. Item 1969- 1970- Dec. Aug. Dec.- Mar.- June- Sept.- Dec.- 1970 1971 Mar. June Sept. Dec. Dec. Wholesale prices, total. . 2.2 5.2 4.9 4.9 6.7 9.6 6.5 Industrial commodities 3.6 4.7 4.2 4.9 3.2 2.0 3.6 Farm products, processed foods, and feeds -1.4 6.5 7.0 4.8 17.4 30.1 14.4 Consumer prices, total. .. 5.5 3.8 3.6 2.2 4.6 3.2 3.4 Foods 2.2 5.0 7.2 0.0 7.0 5.2 4.7 Other commodities (less foods) 4.8 2.9 2.4 2.7 4.1 1.0 2.5 Services1 8.2 4.5 4.4 3.1 3.0 3.9 3.6 1 Derived from data not adjusted for seasonal variation. NOTE.—Basic data from Dept. of Labor, BLS. 33 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

13. PRICES PERCENTAGE CHANGE 15 WHOLESALE: CONSUMER: 1969 1970 1971 PHASE! PRE-FREEZE NOTE.—Based on data from Dept. of Labor, BLS. Changes measured from last month of previous period to last month of indicated period. Pre-freeze interval extends from December 1970 to August 1971; Phase II, from November 1971 to December 1972; changes for both intervals are annual rates, based on seasonally adjusted data. plywood also advanced at very fast rates, but price advances for other building materials and metals moderated. Consumer prices rose 3.4 per cent over 1972 compared with an annual rate of 3.8 per cent in the pre-control period of 1971. But retail food prices advanced by almost 5 per cent and meat prices by more than 10 per cent during 1972. In contrast to food prices, there was a marked deceleration of the rise in the cost of services as well as a more moderate slowing for nonfood commodities. The full extent of the improvement in costs of services in 1972 compared with the pre-freeze months of 1971 was masked by the sharp decline in mortgage interest costs in the earlier period. When home financing costs are excluded, the rise for service costs in 1972 dropped to about half the early-1971 rate. The slowing of the rise in costs of medical care—which seems to reflect in considerable part the impact of controls—was dramatic; and rents, utility costs, and other major services rose at substantially reduced rates. In early 1973 it appeared that a somewhat faster rise in prices 34 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

was in immediate prospect As noted earlier, some pick-up in the rise in unit labor costs seemed likely, following the marked slowing in 1972, Indeed, such costs were raised at the outset of the year, when the employer tax for social insurance was boosted sharply. Prices of farm products rose sharply further in January, and food prices are expected to continue to rise rapidly for sonic months. More generally, strong domestic and world demands relative to supply have been exerting increasing pressure on prices of materials, especially of internationally traded commodities. Following an upward spurt in prices of farm products and foods in the early months of 1973, however, retail food prices may tend to level off. Contributing to this is a prospective significant increase in per capita food supplies, particularly of meats, in the second half of 1973. 35 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Fiscal Policy In fiscal years 1971 and 1972 large Federal deficits were generally accepted as appropriate, first to cushion the recession of 1970, and then to stimulate recovery. As recovery turned into vigorous expansion, however, the administration recognized that continued sharp increases in Federal spending and large deficits would be inappropriate in the developing environment of high and rising levels of output and employment. A major effort was made, therefore, in the budget document released in January 1973 to limit increases in spending, and the expansionary thrust of fiscal policy is indicated to moderate greatly as calendar year 1973 progresses. The unified budget deficit of $23.2 billion that was realized for fiscal year 1972, while large, was $15.6 billion less than had been projected in the January 1972 budget document. Outlays did accelerate sharply in the spring of 1972, but the anticipated speed-up was not fully realized. More than half of the $4.7 billion short-fall in spending in fiscal year 1972 was due to the unexpected delay in the enactment of revenue sharing and to lower payments on unemployment insurance. Defense spending, however, increased sharply in the spring of 1972—about in line with budget projections. Federal budget receipts in fiscal year 1972 turned out to be $10.8 billion higher than had been projected, in part because of the rapidity of economic expansion but mainly because of an unusual amount of overwithholding of personal income taxes related to the introduction of a new withholding schedule in January 1972. This development will reduce Federal net receipts in the spring of 1973 when individuals file their tax returns for 1972. Prior to adjournment in October 1972, Congress enacted legislation that would increase outlays in fiscal year 1973 to a level some $6 billion to $8 billion above the $250 billion proposed by the administration in September 1972. The administration requested Congress to enact a ceiling of $250 billion on outlays for the fiscal year 1973. Although such a ceiling was not enacted, the administration has indicated that it intends to hold spending to that level by adopting various economies, and by impounding appropriated funds, if necessary. The new budget indicates that economies are planned 37 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in fiscal years 1^73 and 1974 in a large number of areas, fn addition, the budget calls for large sales of assets (negative outlays) in these two fiscal years. Spending in the first two quarters of fiscal year 1973 (that is, the second half of calendar 1972) was in line with the proposed $250 billion. Outlays for national defense, while still strong, fell significantly below the levels attained In the latter half of fiscal year 1972. As expected, nondefense spending increased very sharply in the last quarter of calendar year 1972, rellecting two factors: the 20 per cent boost in soeial security benefits, effective in October 1972, which costs about $8 billion annually; and the first payment to State and local governments under the new general revenue-sharing program, which is expected to cost more than S5 billion in the first full year. However, payments made for revenue sharing in December 1972 and in January 1973 covered revenue-sharing accruals for all of the calendar year 1972; quarterly payments, beginning in April 1973, will be much smaller. The budget document issued in January 1973 anticipates that the deficit in fiscal year 1973 will total about $25 billion—a little larger than the deficits realized in fiscal years 1971 and 1972—but that the deficit in fiscal year 1974 will be reduced to less than $13 billion. The full-employment budget, on a unified budget basis, is projected to show a deficit of around $2 billion in fiscal year 1973 and an approximate balance in fiscal year J974,1 1 The administration's estimate of full-employmenr receipts does not Incorporate the effect of any o\er\\ iihhoiding that is regarded as transitory. Inclusion of such overwithholdiny would h;i\e redtsced the full-employment deficit in fiscal year 1972 and inereased this deficit in fiseal year 1973. Table 6: FEDERAL BUDGKT SUMMARY Fiscal-year totals, in billions of dollars Item N70 f<)?i . 1972 ' IWe 1 1974c Budget receipts Pi 3 188,4 208.6 225J$ 256.0 Budget outlays 196J> 21 f*4 23i .'•* ; 249, 8 26K*? Surplus or deficit (--)..... ..J -2 .8 , -- 23.0 < - 23,2 ! -24 - 12.? Full-employment surplus, or deficit (—:. . . 2.6 ; 4,l> : •- 3,9 ! 2.3 3 '• Estimates, NOTE,—Data from the Budget oj the (>,S. Cunennnent, Fiscal Year 7974. 38 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

14. CHANGING PATTERN OF FEDERAL OUTLAYS PER CENT OF TOTAL OUTLAYS 60 NATIONAL DEFENSE 40 20 4 I I I I I I 1 I I 0 1965 1967 1969 1971 1972 1973 1974 FISCAL YEARS •Three components of this total are shown below (please note differences in scales for the two grids). NOTE.—Data from the Budget of the U.S. Government, Fiscal Year 1974. As shown in Table 6, budget outlays are expected to be about $250 billion and $269 billion in fiscal years 1973 and 1974, respectively. The projected growth of $18 billion to $19 billion in spending in these two fiscal years amounts to about 7.5 per cent annually. In the fiscal year 1972 budget outlays increased by 9.7 per cent, and the annual increase over the previous decade had averaged about 8 per cent. Budget receipts are projected in the budget document to increase to $225 billion and $256 billion, respectively, in fiscal years 1973 and 1974. No significant tax changes are proposed in the new budget. There has been a significant shift in the composition of Federal outlays in recent years. Although outlays for national defense are projected to increase absolutely, their proportion of total budget expenditures, as may be seen in Chart 14, has declined from more 39 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

than 40 per cent in fiscal years 1967 and 1968 to a projected figure of about 30 per cent in fiscal years 1973 and 1974. On the other hand, the proportion of total budget outlays devoted to "income security" has risen from less than 20 per cent a few years ago to about 30 per cent. (Social security benefits, including medicare, are the biggest component of this category, which includes also such other supports to income as Federal retirement benefits, veterans' benefits, unemployment insurance, and public assistance.) Federal outlays for health programs have also risen as a percentage of the total. A broadly similar picture is evident when outlays (NIA basis) are shown as a proportion of full-employment GNP, as in Chart 15. It is evident from this chart that direct Federal demands on resources have decreased as a proportion of full-employment GNP along with the relative decline in defense purchases. But this decline has been offset by a large absolute and relative increase in spending for a great variety of programs that add directly to incomes of individuals without the provision of a current service—as in the case of transfer payments—and by an advance in Federal grants-in-aid to help State and local governments provide for a wide range of needs. 15. FEDERAL EXPENDITURES NIA Relative to Full-Employment GNP PER CENT 22 TOTAL I I I i i i 0 1969 1971 1972 1973 1974 FISCAL YEARS NOTE.—Basic data on expenditures are from the Budget of the U.S. Government, Fiscal Year 1974. Data on full-employment GNP are F.R. estimates. 40 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets Federal Reserve policy in 1972 concentrated on fostering financial conditions conducive to achieving sustainable growth in real economic activity and employment, consistent with the administration's Phase II objective of moderating inflationary pressures. To attain this goal, the Federal Open Market Committee (FOMC) took actions designed to provide reserves sufficient to support growth in the monetary aggregates appropriate to a substantial gain in economic activity and an improved rate of resource utilization. Demands for money and credit were strong in 1972 as the economy expanded vigorously. With demands large, the narrowly defined money stock (M ) expanded at an 8.3 per cent rate, and 1 the bank credit proxy at a little under 12 per cent, somewhat more rapid increases than in 1971. Reserve provision through open market operations, as indicated by the rise in nonborrowed reserves to support private nonbank deposits, was more restrained than in the previous year. As a consequence, short-term interest rates rose substantially after the winter of 1972 and upward pressures continued into early 1973. The Federal Reserve discount rate was raised by Vi percentage point to 5 per cent in mid-January of 1973 and by another Vi percentage point in late February. Partly as a result of the cumulative impact of 1972's developing monetary restraint, the rate of monetary expansion moderated in early 1973. Interest rates on long-term securities and residential mortgages remained quite stable throughout 1972, reflecting in part the slower rise in prices in the economy and the reduction of inflationary expectations. In addition, demands placed on securities markets by the U.S. Government, by State and local governments, and by businesses moderated. The total volume of external financing still remained historically high, however, and the bulk of this demand was met through financial institutions—especially the demands for consumer and mortgage loans and business demands for bank loans. 41 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

16. INTEREST RATES PER CENT PER ANNUM 10 SHORT-TERM LONG-TERM 1970 1971 1972 1970 1971 1972 NOTE.—Monthly averages except HUD (based on quotations for one day each month). Yields: U.S. Treasury bills, market yields on 3-month issues; prime commercial paper, dealer offering rates; conventional mortgages, yields on first mortgages in primary markets, unweighted and rounded to nearest 5 basis points, from Dept. of Housing and Urban Development; corporate bonds (Federal Reserve series), 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 a 20-year constant maturity by U.S. Treasury; State and local govt. bonds (20 issues, mixed quality), Bond Buyer. MONETARY POLICY In its day-to-day implementation of monetary policy during 1972, the FOMC placed somewhat greater emphasis on bank reserves while continuing to give weight to money market conditions. At the same time the longer-run financial objectives of System policy continued to be concerned with various monetary aggregates, interest rates generally, and credit conditions. The bank reserve measure emphasized by the FOMC was reserves available to support private nonbank deposits (RPD's)—total member bank reserves less reserves required against U.S. Government and interbank deposits. Because short-run fluctuations in the latter two types of deposits have only limited impact on economic activity 42 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

and are often large and erratic, the S\siem generally is prepared to accommodate changes in demands for those deposits, fn view of the inherent volatility of U.S. Government and interbank deposits, growth In RPD's is considerably more stable on a month-lomonth and quarter-to-quarter basis than thai for total reserves. However. RPD's too fluctuate fairly widely in the very short run, because week-to-week and month-to-month movements in private demand deposits, which serve as the principal medium of exchange in the economy, arc highly volatile, fe the first quarter of 1972 System open market operations provided for fairly rapid expansion in RPD's. as monetary policy was directed toward creating conditions favorable to rapid economic recovery and toward making up for the shortfall in the growth of M (currency plus private demand deposits adjusted) late in 1971. x Since growth in the monetary aggregates had proceeded at very high rates during February and March, however, the System subsequently provided nonborrowed RPiTs more reluctantly, and RPD growth slowed to an annual rate of about 6.5 per cent in the second quarter—considerably less than In the first. Expansion in M, also dropped substantially below its first-quarter rate, Table 7: GROWTH IN BANK RESERVES 1972 Item ,.)7i If>72 ! 1 If ! III IV i III per ccnt l Total res* 10. {> 3.6 ; 14,2 Rosen.\s to support private tieposits ^RPDV... 9.7 (y.to 9. •> • 10.6 Nonborrowed reserves.., X. 1 7. 1 13.1 -.vS 1 4.8 NonboiTowed RPD's... i 8.2 | IO]7 ; 7.2 5.0 | ,4 J -- -•• 111 111!Itons ofdollars" MEMO: Borrovsed reserves : -.244 0 ! _4j 36(1 i 789 1 Quarterly changes, shown al seast :ill\' adjusted annual rates, are calculated from the average a A m n o nu u a n l t s c h o a u n ts g t e a s n d c i a n lc g u l ( a a t d e j d u s f te ro d m f o O r e e e h e a n ; ::ge ,T s a in v e r r e a s g e e r s v . e requirements) in the last month of each quarter. J Quarterly changes are calculated IV xl and adjusted for chaimes in reserve icquiren the last mouth o\ i\idi quarter, not annuaii/ed. Annual changes calculated from December avc: 43 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In the second half of the year continued rapid expansion in economic activity resulted in increased bank demands for reserves to support additional credit and in monetary expansion. While the growth rate of total RPD's rose again to the high levels reached in the first quarter, reserve provision through open market operations was increasingly restrained, and more of the reserve expansion late in the year was the result of increased borrowing by member banks from the Federal Reserve Banks. During the last quarter of the year nonborrowed RPD's increased by a nominal amount, but banks increased their average borrowings by more than $700 million. Although bank reserves grew rapidly during 1972 as a whole, growth in the demand for reserves was even greater, and this contributed to a tightening of money markets as the year progressed. Until about mid-February, short-term interest rates continued the decline that had begun by the fourth quarter of 1971, as reserves expanded rapidly. During the second quarter, however, demands for money and bank credit increased faster than the Federal Reserve was willing to supply reserves, and the excess demand for funds generated upward pressures on market rates of interest. This pattern continued during the remainder of the year, and by the end of December most short-term rates had increased more than 2 percentage points from their February lows. Even so rates were still somewhat below the high levels experienced in July 1971, Following the increase in open market rates, commercial banks adjusted their prime rates upward in several stages—from, a low of 4Vi per cent In early spring to 6 per cent just before the year-end, and then to 6!4 per cent in early 1973. (As already noted, the Federal Reserve discount rate, unchanged at 4Vi per cent throughout 1972, had been raised to- 5 per cent in mid-January 1973 and to SVi per cent in late February.) While short-term rates increased, most longer-term rates showed little change on balance^ reiecting the substantial lows of funds into capital markets and the continuing moderation in long-term credit demands in securities markets during most of the year. In addition to its strictly monetary policy actions the Federal Reserve made several other regulatory changes in 1972 that had significant effects on financial markets. One area of action related to stock market credit. In the early months of 1972 total credit extended by brokers and bank^ for the purpose of purchasing or 44 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

carrying securities had expanded substantially. When It subsequently appeared that further growth In stock market credit might contribute to inflationary pressures, the Board of Governors raised initial margin requirements on stocks in an effort to forestall such growth. This increase, effective November 24, raised requirements to 65 per cent from the 55 per cent level that had prevailed since December 1971. In an earlier security credit action—effective September 18, 1972—the Board had introduced a technical amendment to its margin regulations designed to improve the quality of stock market credit; under the amendment, customers with low-margin accounts must increase their equity when offsetting sales and purchases of stock collateral are made on the same day. On November 9 the Board Instituted two key changes In its Regulations D and J that affected the reserve positions of member banks. These changes were not designed to meet any general monetary policy objective but rather to restructure reserve requirements against Federal Reserve member bank deposits on a more uniform basis {Regulation D) and to speed up and modernize the Nation's check-clearing system (Regulation J). In an effort to neutralize the impact of the changes insofar as monetary policy was concerned, implementation was timed to coincide with a period of regular seasonal reserve needs and was coordinated with open market operations. The net effect of these two regulatory changes was to provide about $1.1 billion of the seasonal reserve need. Prior to the change in Regulation D there were two classifications of banks for reserve purposes: reserve city and country. Most banks in the major financial centers were classified as reserve city banks, and all other banks were classified in the country bank category. Under that system some smaller banks carried the heavier reserve requirements of a reserve city classification simply because of their geographical location, whereas a few large banks benefited from their country bank status. Over the years the large reserve city banks have tended to exhibit greater deposit volatility than the smaller country banks. Such conditions indicated a need for the reserve city banks to maintain greater liquidity in the form of reserves, as protection against potentially large deposit outflows. However, with the evolution of our modernday banking system, credit markets have become national in scope, and reserve requirements based on geographical considerations are no 45 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

longer appropriate. The change In Regulation D eliminated the geographically based distinction between reserve city and country banks for reserve purposes and established a new system of graduated reserve requirements for net demand deposits that is based solely on the amount of deposits and is applicable to all member banks,2 The effect of the change in Regulation D alone was to- reduce member banks* required reserves by roughly $3.2 billion in the aggregate. With the exception of a few very large banks that had preYiously enjoyed country bank states, each member bank realized some reduction in its required reserves, with the exact amount depending on the amount of the bank's deposits and its previous status as reserve city or country bank. Prior to the November 9 change in Regulation J, most member and nonmember banks located outside Federal Reserve Bank or branch cities had been required to remit funds one or more business days after the checks were presented for payment by the Federal ResefYe. Most banks located within such cities, in contrast, had been required to remit on the same business day the checks were received,3 Initially, the reason some banks had been permitted to remit on a delayed basis was because of transportation and communication problems, Speciically banks that were located a consid- 5 erable distance from Federal Reserve clearing facilities needed additional time in order for remittance drafts to reach their Federal Reserve office. 'J According to this system the required reserve ratios applicable to the various portions of a bank's deposits are as follows: Amount of net demand deposits Reserve percentage (in millions of dollars) applicable 2 or less 8 2-40 10 10-100 12 100-400 13 Over 400 Previously the required reserve ratio oe the first $5 million of net demand deposits had been 17 per cent for reserve city banks and tlVi per cent for country banks, and the required ratio on such deposits of more than $5 million had been 17% and 13 per cent, respecti¥ely. 3 Nonmember banks remit for checks presented by the Federal Reserve through member bank correspondents. 46 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

However, expanded use of both carrier services and wire transfers of funds has greatly improved the communication among banks and has removed the need for additional remittance time. Recognizing these developments, the change in Regulation J required essentially all banks to whom the Federal Reserve presents checks for collection to remit on the same day that the checks are presented. The effect of the change in Regulation J was therefore to give rise to a once-and-for-all drain of reserves at the banks that had previously benefited from delayed remittance for their checks. In the aggregate, before counting offsets, this drain amounted to roughly $4.4 billion. Slightly more than half of this aggregate was offset by reserve gains due to faster crediting by the Reserve Banks on checks presented to them for collection that are drawn on banks in the same Federal Reserve territory as the collecting bank. If this partial offset is taken into account, the reserve drain for member banks resulting from the change in Regulation J amounted to about $2.1 billion. For those banks that experienced a significant adverse effect, temporary waivers of penalties on reserve deficiencies are being permitted to cushion the impact of the changes. MONETARY AGGREGATES In addition to the 8.3 per cent growth in M already noted for x 1972, the broadly defined money stock, M (M plus commercial 2 x bank time and savings deposits other than large negotiable CD's), grew at a rate of 10.8 per cent, and M (M plus deposits at mutual 3 2 savings banks and savings and loan associations) increased by 12.9 per cent. The expansion in M was relatively even on a quarter-to-quarter x basis, but the month-to-month growth showed considerable variation. Because of essentially random factors that affect demand for money in the short run, it is not unusual for months of large growth or months of little growth to occur without any evident, clear cause that would explain demand in the particular short period. For this reason much less weight is given to monthly movements than to quarterly movements as a factor to be considered in monetary policy decisions. The following examples indicate how extreme the monthly movements in the money stock may be—and some of the reasons. After 47 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

rapid expansion early in 1972, growth in M slowed in May and 1 June, reflecting not only System efforts to slow the rate of expansion in RPD's but also the build-up in U.S. Treasury balances as a result of higher withholding rates on 1972 personal tax liabilities. On the other hand, in both July and December, expansion in M was unx usually large. In July most of the growth in M occurred around x the holiday period. In December the rapid growth resulted in some part from a contraseasonal increase in demand deposits held by State and local governments that reflected the disbursements of Federal revenue-sharing funds early in December. The December expansion was followed by little net change in M on the average 1 in January 1973. Consumer-type time and savings deposits increased sharply through the early months of 1972 when market yields on competing assets were falling relative to the rates offered on such deposits. Thus, first-quarter growth rates of the broader measures of the money stock, M and M , were not only considerably above the growth 2 3 rate for M but also at the highest levels since the first quarter l9 17. GROWTH IN MONETARY AGGREGATES 11 1970 1971 1972 1970 1971 1972 | MONETARY AGGREGATES 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. Govt. M2: Mi plus time deposits at commercial banks other than large certificates of deposit. M;\\ M-i plus deposits of mutual savings banks and savings capital of savings and loan associations. 48 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

of 1971. Thrift deposits expanded somewhat less rapidly as 1972 progressed, but net inflows remained quite strong despite the increasing attractiveness of yields on competing open market securities. Some larger commercial banks had lowered rates on consumer-type accounts at the beginning of the year in an effort to keep such accounts from experiencing excessive growth, but by July most banks were offering rates at or close to ceiling levels. Growth in bank credit during 1972—as measured by the adjusted credit proxy 4—was supported not only by increases in demand and consumer-type time and savings deposits but also by a sharp rise in net sales of CD's. Commercial banks bid aggressively for such funds, and negotiable CD's outstanding increased by more than $10 billion between January and December, an amount that exceeded the sizable increase recorded in the preceding year. Banks did not borrow any significant amounts in the Euro-dollar market during 1972, in part because of the high marginal reserve requirement 4 Total member bank deposits subject to reserve requirements, plus Eurodollar borrowings, bank-related commercial paper, and certain other nondeposit items. 1970 1971 1972 1970 1971 1972 | 5^3 I ADJUSTED CREDIT PROXY 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 those for last month of preceding quarter. 49 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

on this type of borrowing and in part because of the availability of domestic CD's. The expansion in CD's did not begin until after the first quarter, when growth in other time deposits began to slow, but it continued strong throughout the remainder of the year with only minor slowdowns occurring in June and October. As yields on alternative shortterm money market instruments began to rise, and as business loan demands on banks continued strong, banks increased offering rates on CD's in order to compete for additional funds. By the end of December rates on negotiable CD's sold by prime New York banks had reached 5l/i per cent—2 percentage points above the first-quarter 18. MAJOR SOURCES OF BANK FUNDS, 1972 BILLIONS OF DOLLARS 50 40 TIME AND SAVINGS DEPOSITS^ EXCL. LARGE CD's J M M J J N 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. Govt. 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. Govt. deposits and nondeposit sources of funds data are for member banks only. 50 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

low. With month-to-month fluctuations in total demand deposits and total time deposits partly offsetting one another, the bank credit proxy maintained relatively stable growth throughout the year, increasing at about a 10 to 12 per cent annual rate in each of the four quarters. INTERMEDIATED CREDIT FLOWS As a result of several factors—including the nature of credit demands, the strong preference on the part of the public for demand and time deposits, the associated developments in interest rates, and others—financial institutions supplied a substantially larger volume of funds than in 1971. Banks, other depositary institutions, and contractual institutions such as insurance and pension funds accounted for more than four-fifths of the total advanced, an even larger share Table 8: FUNDS SUPPLIED TO NONFINANCIAL SECTORS IN CREDIT AND EQUITY MARKETS In billions of dollars 1972 Sector supplying 1971 1972 III IV All sectors 156.3 168.1 139.4 161.2 153.9 216.9 U.S. Govt. and sponsored credit agencies. 6.0 11.0 7.9 9.3 7.4 Federal Reserve System 8.8 .2 3.8 5.6 -6.3 -2.2 Foreign sources 27.3 10.8 17.2 -3.0 16.5 12.7 Private financial institutions 124.9 153.2 137.5 139.3 151.0 184.8 Commercial banking 49.8 65.3 57.3 49.6 64.8 89.1 Savings institutions 42.1 49.6 49.5 48.8 49.9 50.1 Insurance and pension funds 30.2 32.8 27.2 37.0 31.7 35.2 Other 2.8 5.5 3.5 3.9 4.6 10.4 Net funds raised in credit and equity markets by financial institutions *. . . . 9.6 19.6 9.7 17.9 22.5 28.2 Funds advanced by private domestic nonfinancial sectors in credit and equity markets2 -1.0 14.4 -20.3 29.3 5.8 42.4 Households -16.8 A -27.5 16.0 -4.9 17.7 Nonfinancial business 4.8 -1.2 7.7 .9 11.4 State and local governments 7.7 9.3 8.4 5.6 9.8 13.2 MEMO: Net change in institutional deposits and currency held by private domestic nonfinancial sectors 95.7 107.2 122.0 87.2 106.1 113.2 1 Bonds, notes, commercial paper, loans from home loan banks, equities, and mutual fund shares. Includes borrowing by Federally sponsored credit agencies. 2 Total funds advanced less amounts supplied by groups above plus net credit and equity funds raised by financial institutions. NOTE.—Data from flow of funds accounts. Quarterly data are at seasonally adjusted annual rates. 51 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

than in the preceding year. Funds advanced directly by domestic nonfinancial sectors increased following a small decline in 1971, while foreigners accounted for a substantially reduced—though appreciable —volume of identified domestic credit supplies, a reflection of the smaller accumulation of dollars by foreign central banks. Total loans and investments at commercial banks rose substantially from the 1971 year-end level, exceeding by a sizable margin the $50 billion growth during 1971. Banks channeled more than 80 per cent of the 1972 increase in their available funds into loan expansion and put less in securities than they had in 1971. Strengthening of loan demands at banks was the principal reason why banks showed less interest in acquiring securities in 1972. However, another factor was that Treasury financings were smaller than in 197.1. After the first quarter of the year banks added only 19. BANK CREDIT, 1972 PERCENTAGE CHANGE PERCENTAGE CHANGE 25 25 TOTAL •ill wmmmmmm- I Q2 Q4 Q2 Q4 Q2 04 Q2 Q4 25 NOTE.—Quarterly data are changes based on seasonally adjusted totals at annual rates. Total loans and investments and business loans have been adjusted for transfers between banks and their holding companies, affiliates, subsidiaries, or foreign branches. 52 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

marginally to their holdings of U.S. Government securities. On the other hand, acquisitions of other securities—primarily State and local government issues, but also Federal agency securities-—were larger than those of Treasury securities, even though they too remained well below the high rates of late 1970 and early 1971. Banks channeled a considerable proportion of their increased resources into business loans, which expanded at especially rapid rates in the last two quarters of 1972. Early in the year, most of the expansion in such loans was concentrated at banks outside New York City, which tend to serve the needs of smaller regional firms. Meanwhile, larger corporations continued to rely on other sources-— including a greater volume of internally generated funds—for financing, lo the second half of the year, however, both banks in New York City and those outside encountered strong credit demands from corporations seeking working capital to finance inventories and enlarged operations. As businesses sought more credit at banks, they sought less in capital markets. Consumers borrowed record amounts dining 1972 to finance purchases of durable goods. As a result of their borrowing at commercial banks, the banks* share of total consumer credit increased during the year. Real estate loans extended by commercial banks also rose rapidly in a year when total mortgage debt was expanding at the fastest rate since 1955. However, approximately two-thirds of the growth in residential mortgage debt outstanding in 1972 was accounted for by nonbank savings institutions, with savings and loan associations maintaining their dominance in that market. Despite the record level of demands, which carried housing starts to a new high, contract interest rates on residential mortgages remained relatively stable. This reflected the availability of mortgage funds from both bank and nonbank sources and some secondary support from Government sponsored agencies. Insofar as the volume of net lending on Government-underwritten residential mortgages is concerned, there was sonic further moderation, however, reflecting in part increased competition from conventional mortgages on which lower downpayments were instituted by savings and loan associations following further liberalization of regulations by the Federal Home Loan Bank Board in 1971. 53 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

DEMANDS ON SECURITIES MARKETS Demands on securities markets moderated in 1972, as total funds raised by corporations and government units declined and corporations met a larger share of their reduced financing needs through mortgages and bank loans. Flotations of securities by the U.S. Government, by State and local governments, and by corporations all fell below the substantial volumes issued in 1971. This reduction of demand pressures on securities markets was an important factor contributing to the stability of long-term interest rates during the year. Table 9: FUNDS RAISED IN CREDIT MARKETS BY NONFINANCIAL SECTORS In billions of dollars 1972 Sector, or type of instrument 1971 1972 I II III IV Total funds raised 156.3 168.1 139.4 161.2 153.9 216.9 By sector: U.S. Govt.* 25.5 17.3 5.4 17.5 8.3 38.1 Other ... 130.8 150.8 134.1 143.7 145 6 178 8 Nonfinancial business 63.0 70.6 64.4 72.1 62.0 83.9 State and local governments 20.6 14.6 16.2 11.7 16.7 13.8 Households 41.6 62.0 49.3 58.4 64 8 74 9 Foreign 5.6 3.5 4.2 1.6 2.0 6.2 By type of instrument: U.S. Govt. securities1. . . 25.5 17.3 5.4 17.5 8.3 38.1 Corporate and foreign bonds 20.3 13.7 12.9 14.7 13.0 14.3 Corporate equity 13.5 12.4 10.3 15.9 11.8 11.4 State and local govt. debt2 20.2 14.4 15.1 12.9 16.1 13.5 Mortgages.... 47.0 64.3 54.5 64.2 68.2 70.2 Residential 34.9 46.8 39.0 46.4 49.6 52.1 Other 12.1 17.5 15.5 17.8 18.5 18.0 Bank loans n.e.c 13.0 21.6 17.1 14.7 19.0 35.6 Open market paper -.4 -.3 2.9 .3 -5.5 1.0 Consumer credit. 10.4 19.2 13.1 18.0 18.7 26.1 Other loans 6.9 5.5 8.1 2.9 4.3 6.8 1 Public debt securities and budget agency securities. 2 Includes both long- and short-term borrowing. NOTE.—Data are from flow of funds accounts; quarterly figures are at seasonally adjusted annual rates. Several developments that have already been mentioned helped to hold down the Treasury cash deficit in 1972. One was the largerthan-anticipated increase in tax revenues. Another was that the growth in Federal spending was restrained. As a result of these and other developments, the Treasury was able to reduce its borrowing from the public during the calendar year to about $15 billion, more 54 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

than $9 billion less than it had borrowed in 1971, This reduction was a major factor in reducing supply pressures in the securities markets. Continued weakness in the U.S. balance of payments and Its associated impact on international ilows of funds led to sizable accumulations of dollars by foreign central banks. Although these funds would probably have been invested in U.S. markets in any event, accumulation in central batiks directed their investment in marketable {$4.3 billion I and nonmarketable ($3.8 billion) Treasury issues. These purchases supplied more than half of the Treasury's total borrowing needs. Table 10: U.S. GOVERNMENT FINANCE In billions of* dollars Item 197 Deficit . , . 11.4 24.8 I?.4 Amount hianvixi b> ihuiH'CS HI tash assets am tuhci ficnss , , . . _ 5 1 Total horro\\inu from piiWic . It ,8 24 8 15.3 Ncl hakr,if Rescne purcluKSCS of" 1 reas»r>securities 5 0 Hi investo s. pn\ M.irkvuhIc: a. Imxjs?n 7 5 15 2 4. b, Otlu _ j «; -- 10 3.f Nonmarkcu-blc; iJ. 1 Ol\ign ... 1t) I 11 h h. Oilu 3 2 1 3 4 Bono w in u 1roni ail'so irecs bvbudget iij-'cncics _. i 3 -- i.•i 7 Monioi.uuk Nti hor tiiincat SpOMSOlcd aj'oncfe 8.2 i. J 1 i-ciieral Reserve puvcha:-cs of •igciicy issues. , . , 5 8 It should be noted, however, thai acquisitions of marketable Treasury debt by foreign official institutions had been much larger in lc)7l than they were in 1972, Furthermore, the U.S. public had been a large net seller of such debt in 1971. While acquisitions of marketable debt by the public in Ic)72 amounted to about S3.5 billion, this represented a shift of neatly $14 billion from 1971 since the public had sold more than S 1(1 billion in that year. Interest rates on short- and long-term Government securities followed divergent patterns during 1972. Short-term rates, which had 55 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

declined rather sharply following the imposition of the President's new economic program in August 1971, reversed course in early 1972 and rose significantly over the last 9 months of the year in association with the large demands for short-term credit generated by the accelerating economy and the progressive firming in monetary policy. Long-term rates, on the other hand, remained quite stable throughout 1972. The lack of significant upward yield pressure in this sector enabled Treasury debt managers to be increasingly innovative in their approach to financing the debt. One of their announced aims, in addition to maintaining the average maturity of the debt, was to develop a viable market in long-term Government issues. Toward this end the Treasury issued a total of $3.4 billion of securities to the public in the 10-year maturity area in the February, May, and August refundings. In addition, it sold $625 million of 20-year bonds in early January 1973; this was the longest maturity offered to investors in about 10 years. In contrast to the Federal sector. State and local governments moved into a budget position of substantial surplus during 1972. Net issues of securities by these governments declined from the peak volume of 1971. There was relatively little growth in capital outlays, and nonborrowed funds were readily available, as both tax revenues and Federal grants increased. Expenditures rose less rapidly than did receipts, and these governments were able to strengthen further their liquidity positions, which had already been improved by the large volume of securities sold in late 1970 and 1971. Interest rates on long-term municipal bonds fluctuated in a narrow range during 1972, Although banks reduced their acquisitions of these securities doling the year, the impact of this reduction on interest rates was offset by the decline in new-issue volume and by the increase in purchases by fire, casualty, and marine insurance cornpanics, which were seeking tax-exempt income. Corporate noniinancial businesses also benefited from the rising pace of economic activity in 1972. The general improvement in earnings, the increase in capital consumption allowances under the Asset Depreciation Range guidelines, and the slower-than-usual growth in dividend payouts resulting from restraints applied by the Committee on Interest and Dividends as part of the Phase II controls program 56 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

all contributed to a substantial rise in the availability of internal funds of corporations. Furthermore, like State and local governments, corporations had engaged in record amounts of long-term financing late in 1970 and in 1971, and in that way they had restructured their balance sheets and improved liquidity positions in the aggregate. Corporations needed larger amounts of funds in 1972 because of rising outlays for plant and equipment and growing needs for working capital. However, they reduced their dependence on securities markets by financing a larger proportion of their needs with internally generated funds, bank loans, and mortgages. Public offerings of bonds by corporations dropped significantly, the drop more than offsetting a slight increase in private bond placements and equity offerings. The decline in capital market financings was particularly evident for manufacturing corporations. Public utilities continued to rely on the securities markets to meet their needs for growth and modernization, and they utilized equity capital to a larger extent than usual. Financial firms continued to enter the long-term bond markets in large numbers in 1972, in order to improve their capital positions and to prepare for the task of financing the growing short-term credit needs of the economy. 57 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. Balance of Payments Attention was focused in 1972 on the lack of progress toward equilibrium in the U.S. balance of payments after the realignments of exchange rates agreed to at the Smithsonian meeting in December 1971. The year was relatively free of hectic speculative activity, but pressure on the pound sterling at midyear led to the temporary abandonment of a fixed rate for that currency and a renewal of speculative flows into some other European currencies. Also, a large and persistent flow of funds to Japan, coupled with an undiminished Japanese trade surplus, enormously swelled that country's international reserves. Though there were large inflows of foreign capital to purchase U.S. securities, and some sizable inflows of liquid funds at times, for the year as a whole there was no significant repatriation to the United States of the capital that had moved to other currencies in 1971. The failure of such a return flow to materialize reflected in part the relatively higher levels of interest rates abroad, especially in the early months of the year, and in part the continuing uncertainty about the eventual effects upon U.S. exports and imports of the exchangerate changes of 1971. After early 1972, exchange rates against the dollar of the currencies of most industrial countries remained above their central rates or parities, and many countries adopted controls or various types of special reserve requirements or other barriers to protect them from large inflows of foreign capital. Soon after the end of 1972 exchange markets became increasingly unsettled, as the extent and persistence of the large U.S. deficit and the counterpart surpluses of some other countries were more clearly perceived. Speculation against the dollar in favor of other currencies, primarily the German mark and the Japanese yen, rose dramatically in late January and early February of 1973. In the light of these conditions, and because of the need to achieve a speedier adjustment of the underlying imbalance in U.S. international transactions, the President announced on February 12 that he would request Congress to authorize a devaluation of the dollar by 10 per cent. This step was taken in consultation with other countries and in the expectation that its effects on the exchange rates for the dollar in terms of the cur- 59 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

20. INDUSTRIAL PRODUCTION RATIO SCALE, 1963=100 180 160 UNITED STATES , 140 120 I I I 1970 1972 NOTE.—Seasonally adjusted quarterly data from the Organization for Economic Cooperation and Development. Data for fourth quarter of 1972 partly estimated. rencies of other industrial countries would in general not be neutralized by other par-value changes. The Japanese yen was allowed to float, and it quickly appreciated by about 16 per cent relative to the U.S. dollar. In the course of 1972 economic activity rose in most industrial countries but lagged somewhat behind the upswing in the U.S. economy. In a number of European countries price inflation was accelerating early in the cyclical advance. Monetary restraint was commonly adopted as a countermeasure, and several countries moved to offset interest-induced inflows of funds through special controls or reserve requirements. In the United States also, short-term interest rates were rising, as demand in most sectors of the private economy strengthened rapidly. A large over-all deficit was registered in the U.S. balance of payments in 1972, but it was not swollen by an enormous net outflow of capital as had happened the year before. In terms of official settlements, the deficit for the year was $10.8 billion (apart from SDR allocations) compared with more than $30 billion in 1971. The bal- 60 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ance on current account and long-term capital (the so-called basic balance) probably registered a deficit somewhat greater than the $9.3 billion deficit of 1971. There were divergent swings in the currentaccount and capital-account components of the basic balance: The balance on goods and services worsened by about $5 billion in 1972, to a deficit of about $4.5 billion, while net long-term capital flows probably improved by a somewhat smaller amount. 21. 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 60 20 MERCHANDISE EXPORTS 20 20 40 20 ALL OTHF: I I I I I I 1970 1972 1970 1972 1 Excludes SDR allocations. GOODS AND SERVICES A number of factors combined to push the U.S. trade balance to a deficit of $6.8 billion in 1972—about $4 billion larger than the one in 1971. The major influence was the rapid rise of economic activity here in advance of similar developments abroad. In addition, prices of U.S. imports rose sharply, responding to both the devaluation and the general increase in world prices, while export prices in terms of dollars increased much less. These changes in relative prices were 61 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

only just beginning in 1972 to yield the reallocations of production and consumption patterns necessary to halt the worsening trend in the U.S. trade balance that had been developing since 1965. The strongest feature of U.S. export performance in 1972 was the rise in shipments of agricultural products—from $7,8 billion in 1971 to a total of $9.5 billion. By the last quarter of 1972 such shipments were at an annual rate of $11 billion, reflecting the shortage of these commodities in Russia and other countries and a very rapid rise in their prices. Sales of agricultural products in 1973 are expected to continue at a very high rate. Exports of machinery and industrial supplies, supported by the build-up in economic activity abroad, were rising during the year. While the Yalue of exports rose by 14 per cent from 1971 to 1972, the value of imports rose by 22 per cent. Prices (as measured by unit values) rose 3 per cent for exports and 7 per cent for imports. In real terms, imports rose by about 14 per cent, about double the rise in real GNP, a typical reaction of imports to a sharp step-up in demand, Increases in imports were registered in all major commodity groups; a particularly significant feature was the acceleration of petroleum imports from $3% billion in 1971 to $4% billion in 1972. During 1973 the trade balance should begin to benefit measurably from the devaluation of 1971; the net effects of the further realignment of exchange rates early in 1973 will probably not be large until the following year. Other strong influences will also be operating. Most important will be the evolution of demand pressures and of relative costs and prices in the United States and in other industrial countries. This factor will be helpful if this country can continue to moderate inflationary pressures, and if other countries move steadily toward reasonably full utilization of their productive capacity. The United States will also need to compete more effectively for the trade of nonindustrial countries, many of which will be able to increase their imports in 1973 on the strength of their reserve gains in recent years and of a continuing rise in demand for their exports. There was some reduction in the surplus in the nontrade elements of the U.S. current account in 1972. Part of this resulted from smaller net receipts of investment income, as interest payments to foreigners —mainly interest paid to foreign official holders of claims against the United States—rose faster than receipts from U.S. direct investments 62 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

abroad. There was also an increase in net U.S. military expenditures as military sales fell off. CAPITAL FLOWS In 1972 the net outflow of long-term private capital from the United States was probably less than $1 billion—a striking shift from the recorded net outflow of more than $4 billion in 1971. One change between the two years was in direct-investment outflows, which apparently declined from their record high in 1971. A striking feature of developments in 1972 was the upsurge in foreign purchases of U.S. corporate securities. For the year as a whole such purchases totaled some $4.5 billion, including $2.4 billion of corporate stocks purchased in U.S. markets, of which $1 billion came in the fourth quarter, and $2 billion of debt issues offered by U.S. corporations in foreign markets, mainly to finance direct investments abroad. Net outflows of U.S. Government grants and credits were somewhat less in 1972 than in 1971, but they were rising at the year-end and they will probably be considerably larger in 1973. Table 11: U.S. BALANCE OF PAYMENTS In billions of dollars, seasonally adjusted 1972 Item 1971 1972« Merchandise trade balance -2.7 -6.8 -1.7 -1.9 -1.6 -1.6 Exports 42.8 48.8 11.8 11.4 12.3 13.3 Imports 45.5 55.7 13.5 13.4 13.9 14.9 Services, remittances, pensions, net.. 1.9 .1 -.0 .3 .3 U.S. Govt. grants and credit, net. . . -4.4 -3.6 -.9 -.6 -.8 -1.2 Long-term private capital, net -4.0 -.6 -1.0 -.1 -.1 Balance on current account and longterm capital -9.3 -10.2 -3.6 -1.8 -2.2 -2.6 Nonliquid short-term private capital, net. -2.4 -1.5 -.5 .6 -.5 -1.0 Errors and omissions -11.0 -2.8 .8 -1.1 -1.9 -.6 Liquid private capital, net -7.8 3.7 -.1 1.4 -.2 2.6 Of which: Liabilities to foreign commercial banks -6.9 3.9 .5 1.0 .3 2.1 Official settlement balance (excluding SDR allocations). -30.5 -10.8 -3.4 -1.0 -4.8 -1.6 0 Fourth-quarter data partly estimated. NOTE.—Dept. of Commerce data with some F.R. estimates. Details may not add to totals because of rounding. 63 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Recorded flows of private short-term capital in 1972 were inward, on balance, in contrast to a net outflow of more than $10 billion in 1971. Whereas in 1971 there had been an outflow of nearly $7 billion to commerical banks abroad when U.S. banks repaid all but a relatively small part of their borrowings in the Euro-dollar market, in 1972 there was a sizable inflow as the U.S. agencies and branches of foreign banks brought in short-term funds from abroad. (The agencies and branches of foreign banks are not subject to the same reserve requirements on their liabilities to foreigners as are banks that are members of the Federal Reserve System). Large swings in the "errors and omissions" item in the accounts provide a crude indicator of flows of funds in response to speculative pressures. Apart from such flows this balancing item is usually negative, and its normal level in recent years has been around $1 billion. According to early estimates, the balancing item in 1972 was larger than normal, but far smaller than the $11 billion figure for 1971, most of which had represented capita! outflows through unrecorded hedging and through leads and lags in commercial payments. 64 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

"Parti Operations, and Organization Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Record of Policy Actions of the Board of Governors JANUARY 4, 1972 AMENDMENTS TO RULES REGARDING DELEGATION OF AUTHORITY Effective with respect to applications received by the Reserve Banks after January 21, 1972, the Board amended its Rules Regarding Delegation of Authority to expand the authority of the Federal Reserve Banks to approve certain applications by bank holding companies to acquire shares of a bank. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Brimmer. Votes against this action: None.1 In August 1971 the Board had delegated to the Reserve Banks substantial authority to approve the formation of one-bank holding companies and had dispensed with the publication of an order and statement in cases approved by a Reserve Bank. In light of experience and in a further effort to expedite handling of the volume of applications received under the Bank Holding Company Act, as amended, the Board now delegated to the Federal Reserve Banks the authority to approve (1) the acquisition by a bank holding company of additional shares in a subsidiary bank to the extent that the shares were acquired through the exercise of rights received as a bank shareholder, and (2) the acquisition by a registered bank holding company of a controlling interest in the shares of a newly formed bank if no objection to the proposed acquisition was made by the bank's supervisory authority, if no new significant policy issue was raised by the Board proposal, and if the Reserve Bank determined (a) that the general condition of the holding company and its bank subsidiaries was satisfactory, (b) that the holding com- 1 There was one vacancy on the Board at the time this meeting was held. 67 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

pany had a proven record of furnishing needed special services, management, capital funds, and general guidance to its subsidiary banks, or had the potential to provide these services in the case of a relatively new holding company, and (c) that bank subsidiaries of the holding company did not hold more than 20 per cent of the total commercial bank deposits in the relevant market area and that the holding company was not one of the dominant banking organizations in the State. The Board's action also made clear that the delegation in August 1971 to Reserve Banks of authority to approve the formation of a one-bank holding company included the authority to approve merger and Federal Reserve membership applications incidental to such formations. JANUARY 20, 1972 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective February 1, 1972, the Board amended Regulation Y to permit bank holding companies to act as investment advisers to investment companies, including mutual funds. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Sheehan. Vote against this action in part: Mr. Brimmer. In May 1971 the Board made its initial determination with respect to activities so closely related to banking or managing or controlling banks as to be permissible for bank holding companies under the 1970 amendments to the Bank Holding Company Act. One of those permissible activities was acting as investment or financial adviser, including serving as the advisory company for a mortgage or a real estate investment trust and furnishing economic or financial information. At that time the Board indicated that acting as investment adviser to an open-end investment company was not regarded by the Board as within the description of the approved activity, but that it was considering whether to propose expanding such activity to include acting in that capacity. In August 1971 the Board published 68 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

a notice of proposed rulcmaking that would expand the activities of an investment or financial adviser to permit serving in that capacity to an investment company registered under the Investment Company Act of 1940. On the basis of a hearing subsequently held and in light of other comments received, the Board determined that bank holding companies might provide investment advisory services to open-end and/or closed-end companies. The amendment to Regulation Y now adopted added to the list of permissible activities that of serving as investment adviser, as defined in Section 2(a) (20) of the Investment Company Act of 1940, to an investment company registered under that Act. In the course of the deliberations several questions were raised as to the scope of the activity permitted, particularly in view of certain restrictions imposed by pertinent sections of the Banking Act of 1933 (Glass-Steagall Act provisions) and by the United States Supreme Court's decision in Investment Company Institute v. Camp. The scope of the approved activity was spelled out in a published interpretation in which the Board concluded that a bank holding company might exercise all functions customarily permitted an investment adviser except to the extent limited by the Banking Act of 1933. The Board interpreted the Glass-Steagall Act as prohibiting a bank holding company from sponsoring, organizing, or controlling a mutual fund. However, the Board did not believe that this restriction applied to closed-end investment companies so Jong as they were not primarily or frequently engaged in the issuance, sale, and distribution of securities. The Board also stated that a holding company engaging in the approved activity might not, among other things, (1) sell or distribute securities of any investment company for which it acted as investment adviser; (2) act as investment adviser to an investment company that had a name similar to the name of the holding company or any of its subsidiary banks; or (3) purchase for its own account securities of any investment company for which it acted as Investment adviser; purchase, at its sole discretion, any such securities in a fiduciary capacity; extend credit to any such investment company; or accept the securities of any such investment company as collateral for a loan to purchase securities of the investment company. 69 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Governor Brimmer dissented from that portion of the action relating to open-end investment companies because of conflict-of-interest implications. It was his view that it would be difficult to maintain complete separation between the investment advisory activities of a bank holding company and the sales and promotional activities involved in the distribution of shares of the open-end investment trust. JANUARY 31, 1972 GUIDELINES FOR IMPROVING THE PAYMENTS MECHANISM The Board authorized the issuance of guidelines for use by the Federal Reserve System throughout the Nation in establishing regional centers for overnight processing and settlement of checks. Votes for this action: Messrs. Burns, Robertson, Daane, Maisel, and Sheehan. Votes against this action: None. Absent and not voting: Messrs. Mitchell and Brimmer. On June 17, 1971, the Board had issued a statement of policy that 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 looking toward the eventual replacement of checks in large part by electronic transfers of funds. Among the improvements in the national means of making payments to which the Board gave high priority were the extension of present clearing arrangements in cities with Federal Reserve offices into larger zones of immediate payment and the establishment of new regional clearing facilities in other areas of the country. In both cases, settlements would be made in immediately available funds. The guidelines now issued were in furtherance of these stated objectives. Specifically, the guidelines gave basic directions to the Reserve Banks for the establishment and operation of Regional Check Processing Centers in communities where trade, business, and financial activities were substantially related and where check volume warranted upgrading of check-handling facilities. New Federal Reserve 70 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

regional clearing centers were to be opened only in areas not presently served on an immediate-payment basis by existing Federal Reserve offices, and where check volume and the absence of alternative facilities made additional Federal Reserve service essential. The new system would make maximum use, consistent with improved service to the public, of check-processing centers operated by commercial banks or nonbank agents. It was contemplated that the new system would become operative region by region as soon as practicable, and that clearing arrangements would cross State or Federal Reserve district boundaries. MARCH 9, 1972 AMENDMENT TO FOREIGN CREDIT RESTRAINT PROGRAM GUIDELINES Effective immediately, the Board amended the guidelines covering foreign credits and investments by U.S. banks and other financial institutions to prevent subsidiary banks in a holding company from consolidating a newly acquired lending ceiling with ceilings of other banks in the same holding company. Votes for this action: Messrs. Robertson, Mitchell, Daane, Brimmer, and Sheehan. Votes against this action: None. Absent and not voting: Messrs. Burns and Maisel. Consolidation of ceilings among holding company members had been permissible if only one of the banks in question had a ceiling on November 11, 1971, when the guidelines were last revised. The modification now adopted was designed to safeguard the express intention of the Board to make ceilings available to banks that wanted to enter, and actively engage in, the foreign lending field. If ceilings designed to allow banks to develop directly a foreign lending business were to become available to banks already established in that business, the purpose of the ceilings would be lost, and their use could lead to an unintended expansion of aggregate foreign lending by U.S. banks presently in the business. 71 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 11, 1972 AMENDMENTS TO MARGIN REGULATIONS Effective May 15, 1972, the Board amended 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, to incorporate requirements for the continued inclusion of a stock on the list of overthe-counter (OTC) margin stocks. Votes for this action: Messrs. Burns, Robertson, Daane, Brimmer, and Sheehan. Votes against this action: None. Absent and not voting: Messrs. Mitchell and Maisel. In the amendments, the Board set forth the criteria that over-thecounter stocks must continue to meet in order to remain on the list of OTC margin stocks (which are subject to the Board's margin requirements concerning securities credit transactions). The criteria adopted for continued listing were substantially the same as those published for comment earlier in the year. Stocks that appear on the list have not been approved, in any way, by the Board and are included only on the basis of meeting and continuing to meet prescribed criteria. APRIL 26, 1972 REGULATION Y, BANK HOLDING COMPANIES The Board issued an interpretation relating to its previous determinations that the following five activities were not so closely related to banking or managing or controlling banks as to be a proper incident thereto under Section 4(c)(8) of the Bank Holding Company Act: (1) equity funding; (2) underwriting life insurance that is not sold in connection with a credit transaction by a bank holding company, or a subsidiary thereof; (3) real estate brokerage; (4) land development; (5) real estate syndication. The principal purpose of the interpretation was to provide a central place where interested persons could readily find a list of 72 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

activities thai the Board, in considering individual applications, had determined to be nonpermissiblc for bank holding companies. (1) Equ ity fu n ding Votes for this action: Messrs. Burns, Mitchell, Daanc. Maisel, Brimmer, and Sherrill. Votes against this action: None. Absent and not voting: Mr. Robertson. On November 9, 1971, the Board adopted the position that there was no reasonable basis for a determination that equity funding (the financing of sales of mutual fund shares and life insurance policies as a package) was so closely related to banking as to be a proper incident thereto. The affiliation of a bank with an equity-funding company would violate the congressional policy embodied in the Glass- Steagaii Act of divorcing commercial and investment banking and could give rise to potential conflicts of interest and unsound banking practices. The term "equity funding"* was subsequently changed to 'Insurance premium funding." (2) Underwriting life insurance Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Maisel, and Brimmer. Votes against this action: None.1 On December 16, 1971, the Board took the position that there was no reasonable basis for a determination that underwriting general life insurance was closely related to banking. In reaching this conclusion the Board took into account (a) the record of the hearing and the written comments received on the proposal (published for comment in January 1971) to include as a permissible activity acting as insurer either for the holding company and its subsidiaries or with respect to insurance sold by the holding company or any of its subsidiaries as agent or broker, and (b) considerations in its 1957 denial of the application of Transamerica Corporation to retain Occidental Life Insurance Company of California. 1 There was one vacancy on the Board between Nov. 15, 1971, and Jan. 4, 1972. 73 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

(3) Real estate brokerage Votes for this action; Messrs. Burns, Robertson, Daane, Maisel, Brimmer, and Sheehan. Votes against this action: None, Absent and not voting: Mr. Mitchell. On March 23, 1972 the Board concluded that there was no rea- ? sonable basis for determining that real estate brokerage was a permissible activity for bank holding companies under Section 4(c) (8). In reaching this determination, the Board noted that many banks have traditionally performed real estate brokerage services for their fiduciary accounts, but It concluded that since trust departments often perform varied commercial functions for their trust customers^ this in Itself would not provide a sufficient basis for a determination that such activity was closely related to banking. Further, it did not appear to the Board that any net beneit would result to the public from the performance of this activity by bank holding companies. (4) Land development Votes for this action: Messrs, Burns, Robertson, and Brimmer. Votes against this action: Messrs. Mitchell and Sheehae. Absent and not voting: Messrs. Diane and Maisel, On March 28, 1972 the Board determined that there was no- rea- ? sonable basis for a determination that land development was permissible under Section 4(c)(8) as an activity closely related to banking, principally because land development could not be considered as an incidental activity to commercial banking and because entry into this ield by bank holding companies might result in unsound banking practices and other adverse effects that are not outweighed by benefits to the public. Messrs. Mitchell and Sheehan dissented because they would have preferred that a proposal to include land development as a permissible activity be published for public comment before Board action was taken, although they concurred in general with the reasons underlying the Board's action. 74 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

(5) Real estate syndication Votes for this action: Messrs. Robertson, Daane, Brimmer, and Sheehan. Vote against this action: Mr. Mitchell. Absent and not voting: Messrs. Burns and Maisel. On April 4, 1972, the Board concluded that real estate syndicate activities, which would include organizing, promoting, selling partnership interests, and acting as the sole general partner of a real estate syndication, were not closely related to banking and should not be considered as permissible. It was also the Board's view that real estate syndication activities would be inconsistent with the policies of the Glass-Steagall Act inasmuch as a holding company subsidiary would be actively engaged, on a continuing basis, in selling interests in numerous real estate syndications. There would be no demonstrable benefits to the public from permitting bank holding companies to engage in this activity that would outweigh conflictof-interest considerations arising from the sale of limited partnership interests. Governor Mitchell dissented from the action on the grounds that if the general partnership feature were removed, denial would be inconsistent with Board positions in the closed-end mutual fund and real estate investment trust areas. In September 1972 the interpretation was expanded to include management consulting, property management, and operation of savings and loan associations as activities not permissible for bank holding companies under Section 4(c)(8). These three activities are covered in separate policy actions. MAY 30, 19^2 REGULATION Y, BANK HOLDING COMPANIES The Board authorized issuance of an interpretation of Regulation Y outlining the types of investments that bank holding companies may make in projects designed primarily to promote community welfare. 75 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Votes for this action: Messrs. Robertson, Mitchell, Daane, Brimmer, and Sheehan. Votes against this action: None. Absent and not voting: Messrs. Burns and Maisel. "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" was included in the initial listing of activities determined by the Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto under the Bank Holding Company Act, as amended. In the interpretation now issued, the Board emphasized its intent to enable bank holding companies to take an active role in helping to promote community welfare. Within the category of permissible investments outlined by the Board were (1) low- and moderateincome housing projects and (2) projects designed explicitly to create improved job opportunities for low- or moderate-income groups. Although the interpretation focused primarily on low- and moderateincome housing, the Board made it clear that the interpretation was not intended to limit projects to that area. Other investments designed primarily to promote community welfare were considered permissible but were not defined, in order to provide bank holding companies flexibility in approaching community problems. However, the permitted activity was not intended to provide a vehicle for bank holding company entry into general commercial activity, which is prohibited by the Bank Holding Company Act, and the Board indicated that applications would be carefully reviewed to assure compliance with the desired objectives. JUNE 5, 1972 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective June 6, 1972, the Board amended Regulation Y for the purpose of clarifying the scope of investment advisory activity permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act. 76 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, and Sheehan. Voles against this action: None. Absent and not voting. Mr. Brimmer.1 The Board included "acting us investment or financial adviser" in its initial listing adopted in May ll)71 of activities so closely related to banking or managing or controlling banks as to be permissible for bank holding companies tinder the Bank Holding Company Act, as amended. In the amendment now adopted, the Hoard defined in more precise terms its intent to permit bank holding companies to act as investment or financial adviser only to the extent of (1) serving as the advisory company for a mortgage or a real estate investment trust; (2) serving as investment adviser, as defined in Section 2(a)(20) of the Investment Company Act of 1940. to an investment company registered under that Act; (3) providing portfolio investment advice to any other person; (4) furnishing general economic information and advice, general economic statistical forecasting services, and industry studies fas contrasted with management consulting); and (5) providing financial advice to State and local governments, such as with respect to the issuance of their securities. In a related action taken on May 18, 1972, the Board determined that "management consulting" was not an activity that was so closely related to banking or managing or controlling banks as to be a proper incident thereto. Votes for this action; Messrs. Burns, Robertson, Mitchell, Daane, and Brimmer. Voles against this action: None. Abstaining: Mr. Sheehan. Absent and not voting: Mr. Mitisel. The Board viewed management consul!ing as including, but not limited to, the provision of analysis or advice as to a firm's (i) purchasing operations, such as inventory control, sources of supply, and cost minimization subject to constraints: (21 production operations, such as quality control, work measurement, product methods, scheduling shifts, time and motion studies, and safely standards; (3) L There was one Yacancy on the Board at the time this meeting was held. 77 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

marketing operations, such as market testing, advertising programs, market development, packaging, and brand development; (4) planning operations, such as demand and cost projections, plant location, program planning, corporate acquisitions and mergers, and determination of long-term and short-term goals; (5) personnel operations, such as recruitment, training, incentive programs, employee compensation, and management-personnel relations; (6) internal operations, such as taxes, corporate organization, budgeting systems, budget control, data-processing-systems evaluation, and efficiency evaluation; or (7) research operations, such as product development, basic research, and product design and innovation. This view was incorporated by footnote into the amendment to Regulation Y that was adopted on June 5, 1972, as were certain other explanatory or technical changes. At the time of the initial determination with respect to the permissibility of the investment or financial adviser activity, the Board had indicated that it was considering whether to propose expanding the activity to include management consulting. The Board now reached the conclusion that the public benefits—such as increased convenience and efficiency of operation—that might be expected to result from holding company entry into the management-consulting field would not outweigh potential adverse effects, the most serious of which would be possible conflict of interest. It was the Board's view that circumstances might conspire to make the objective, independent point of view—which the management consultant purports to offer— difficult to maintain. In addition, to permit bank holding companies to engage in the business of advising commercial enterprise would, in the Board's judgment, represent an extension of banking influence into the realm of commerce in contravention of congressional purpose to maintain separation between banking and commerce. JUNE 20, 1972 AMENDMENTS TO REGULATION D, RESERVES OF MEMBER BANKS, AND REGULATION J, COLLECTION OF CHECKS AND OTHER ITEMS BY FEDERAL RESERVE BANKS Effective in two steps in late September and early October 1972, the Board amended Regulation D so as to apply the same reserve requirements to member banks of like size, regardless of the bank's location. 78 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Also, the Board amended Regulation J, effective September 21, to require all banks served by the Federal Reserve check-collection system to pay—in immediately available funds—for checks drawn on them on the same day the checks are presented for payment by the Federal Reserve. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Brimmer, Sheehan, and Bucher. Votes against this action: None, In March 1972 the Board had published in the Federal Register for comment proposed changes in Regulations D and J designed to make reserve requirements of member batiks and Federal Reserve check-collection procedures more equitable and more efficient. According to the proposals ail banks, city and country, member and nonmember, would be placed on the same basis with regard to Federal Reserve check collection, and member banks of equal size would be subject to equal reserve requirements. The proposed revision of Regulation J represented a further step in the effort fostered by the Federal Reserve, in cooperation with the commercial banking system, to modernize the Nation's check-collection system. It was expected that a total release of about $3,5 billion from the restructuring of reserves through the amendment of Regulation D would be partially absorbed by the immediate reduction in float of $2 billion resulting from the change in Regulation J. This amount of float would result from the present practice whereby so-called country banks pay checks presented by the Federal Reserve in funds that are not available for use until the next business day following presentment of the checks for payment. As a result of these regulatory changes it was expected that about $1.5 billion of reserves would be released. However, it was intended that Federal Reserve open market operations would be adapted, as needed, to neutralize the effects of the release of reserves on monetary policy. Previously, reserve requirements for member banks had been dependent on whether a bank was located within or outside a reserve city. Under the amendment to Regulation D now adopted, the reserve requirements on net demand deposits were restructured solely on the basis of the amount of such deposits held by a member bank, without regard to its location, and the ratios established for the various portions of a bank's deposits were as follows: 79 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Amount of net demand deposits Reserve percentage (in millions of dollars) applicable 2 or less 8 2-10 10 10-100 12 100^400 13 Over 400 The new reserve ratios were to become effective in two steps. During the period September 21-27, the first three ratios would be applied to net demand deposits of $100 million and less. In addition the 11 ¥2 per cent ratio formerly applied to demand deposits between $100 million and S400 million for reserve city banks would be reduced as a first step to \6Vi per cent. During the period September 28—October 4 this latter ratio would be reduced further to 13 per cent. The purpose of phasing in the new reserve structure was to avoid any unduly large release of reserves at any given point in time. In its deliberations, the Board gave careful attention to situations where a bank's funds available for investment would be significantly reduced by the new check-collection procedures. To alleviate such situations, Federal Reserve Banks were authorized to grant temporary waivers for periods up to 21 months of penalties on certain deficiencies in member bank reserves attributable to the changes in Regulations D and J. In addition, the Board subsequently issued guidelines that the Reserve Banks were to follow in providing credit to nonmember banks in the event that the new check-collection rules resulted in a significant impairment of the liquidity of a nonmember bank or in the impairment of the bank's ability to serve its community. The Board recognized that changes in the regulations, as now adopted, and that early activation of plans for Systemwide Regional Check Processing Centers could effectively lessen the investable funds of some banks. Within the context of improving services, the Board indicated that one of its highest priorities was to accelerate the development of Regional Check Processing Centers. In September 1972—prior to the dates on which the amendments were scheduled to become applicable-—the effective dates of the amendments to Regulations D and j were postponed because a temporary restraining order by the U.S. District Court for the District of Columbia had been issued on a petition filed by the Independent Bankers Association of America and the Western Independent 80 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bankers. Strict compliance with the court's order would have restrained implementation only as to a limited group of banks and only with respect to Regulation J. However, in view of the adverse effect on the payments mechanism if implementation of the Regulation J proposals were fragmented, and considering the adverse impact on monetary policy should the reserve requirement adjustment under Regulation D be put into effect without the accompanying changes in Regulation J, the Board postponed the effective dates of both regulatory amendments pending judicial determination and subsequent Board action. On October 19, 1972, the U.S. District Court for the District of Columbia denied a motion for a preliminary injunction sought by the plaintiffs on the ground that the plaintiffs had failed to carry the burden of establishing (1) that they would be irreparably injured if the amendments to Regulation J were put into effect and (2) that they would be likely to succeed on the merits of the case after full trial. This decision was consistent with the decision rendered on October 10, 1972, by the U.S. District Court for the Central District of California in an action brought by a group of California banks seeking to enjoin full implementation of the Board's Regulation J; the latter court decision on a motion for preliminary injunction was based on these same grounds. Following these court determinations, the Board decided that the changes in Regulation J would take effect on November 9 and that those in Regulation D would take effect in two steps beginning on that date. The amendments to Regulation D that had been scheduled to be effective for the period September 21-27, 1972, would be effective for the period November 9-15, 1972, and the amendments that had been scheduled to become effective on September 28, 1972, would become effective November 16, 1972. JUNE 29, 1972 REGULATION Y, BANK HOLDING COMPANIES The Board determined that property management services are not so closely related to banking or managing or controlling banks as to be permissible activities for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, as amended. 81 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Votes for this action: Messrs. Robertson, Mitchell, Daane, Brimmer, Sheehan, and Bucher. Votes against this action: None. Absent and not voting: Mr. Burns. In September 1971 the Board had published for comment a proposal to amend Regulation Y so as to permit bank holding companies to perform property management services, which the Board defined as encompassing farm management, the management of office buildings and other business or industrial properties, the management of residences ranging from single-family dwellings to high-rise apartment buildings, and the management of the air rights above—or the oil and mineral rights below—a particular parcel of land. On the basis of the record of a hearing subsequently held and of written comments received, the Board concluded that property management services were not closely related to banking or managing or controlling banks; moreover, it was the Board's view that possible benefits to the public from adoption of the proposal, such as greater convenience, increased competition, or gains in efficiency, were outweighed by possible adverse effects, such as unfair competition, conflicts of interests, and unsound banking practices. Accordingly, the Board withdrew the September 14, 1971 proposal. This action was not intended to limit the authority presently conferred by statute or regulation on bank holding companies and their subsidiaries to engage in certain property management activities. The Board specifically pointed out that bank holding companies and their subsidiaries might continue to engage in property management activities with respect to the following: (1) properties held in fiduciary capacity; (2) properties owned by the holding company or its subsidiaries for conducting its own bank and bank-related operations; and (3) properties acquired by the holding company or a subsidiary as a result of a default on a loan. JULY 12, 1972 AMENDMENTS TO MARGIN REGULATIONS Effective September 18, 1972, the Board adopted amendments to Regulation G, Securities Credit by Persons Other Than Banks, Brokers, 82 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

or Dealers, Regulation T, Credit by Brokers and Dealers, and Regulation U, Credit by Banks for the Purpose of Purchasing or Carrying Margin Stocks, designed to improve the quality of stock market credit. Votes for this action: Messrs. Burns, Robertson, Daane, Brimmer, Sheehan, and Bucher. Votes against this action: None. Absent and not voting: Mr. Mitchell. Under the amendments, use of the "same-day substitution" rule would be ended in accounts where the debt, adjusted as defined in the regulations, was more than 60 per cent of the market value of the stock collateral in the account. The same-day-substitution rule permits customers, without regard to margin requirements, to substitute one security for another in their accounts through offsetting purchases and sales made on the same day. The change was designed to strengthen the equity position of low-margin accounts when offsetting sales and purchases of collateral were made on the same day. The basic amendment had originally been published for comment on April 28, 1972, and it was subsequently modified on the basis of industry comment with respect to the manner of calculating the status of margin accounts. Regulation T was also amended to permit short sales of stock into which bonds were convertible to be made in the special convertible debt security account if the bonds were held in the account. This technical amendment, which had been published for comment in July 1971 but had not been acted upon, was now adopted in light of industry comment. JULY 25, 1972 AMENDMENT TO REGULATION T, CREDIT BY BROKERS AND DEALERS Effective September 5, 1972, the Board amended Regulation T with respect to credit for the combined acquisition of mutual fund shares and insurance. Votes for this action: Messrs. Burns, Robertson, Daane, and Sheehan. Votes against this action: None. Absent and not voting: Messrs. Mitchell, Brimmer, and Bucher. 83 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The amendment eliminated the requirement that in order to be eligible for the provisions relating to "special insurance premium funding account," which designation was changed from "special equity funding account," a creditor must be the issuer, or a subsidiary or affiliate of the issuer, of programs that combine the acquisition of mutual fund shares and insurance. Also, the amendment clarified that creditors who arrange credit for the acquisition of mutual fund shares and insurance would be permitted to sell mutual fund shares without insurance under the provisions of the section relating to special cash accounts. AUGUST 3, 1972 REGULATION Y, BANK HOLDING COMPANIES The Board decided that at the present time, in the absence of further congressional guidance, the operation of savings and loan associations was not a permissible activity for bank holding companies. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Brimmer, and Sheehan. Votes against this action: None. Absent and not voting: Mr. Bucher. In May 1971 the Board had implemented its regulatory authority with respect to nonbanking activities of bank holding companies under Section 4(c)(8) of the Bank Holding Company Act by amending Regulation Y so as to list the activities initially found by the Board to be so closely related to banking or managing or controlling banks as to be permissible for bank holding companies. At that time the Board had announced that the operation of a savings and loan association was not included within the scope of authorized activities for bank holding companies but that it was considering whether to expand the list to include such activity. In reaching its present decision not to include the operation of savings and loan associations on its list of permissible activities, the Board noted that Congress had created a statutory framework for savings and loan associations that was separate from the statutes governing commercial banks. Under these statutes, different rules had been established for the two kinds of institutions on such matters as 84 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

branching, taxation, and ceilings on rates paid to attract savings. A statute had also been enacted governing savings and loan holding companies, separate and distinct from the Bank Holding Company Act. This statutory pattern suggested past intent on the part of Congress to maintain savings and loan associations as specialized lenders to finance housing, with specialized rules appropriate to that role. It was the Board's view that acquisition of savings and loan associations by bank holding companies could tend to blur this congressionally established structure. Proposals for affiliation of banks and savings and loan associations in a holding company system involved broad questions of public policy that, in the Board's opinion, should not be decided until Congress had had an opportunity to consider the matter. Suggestions for changes in rules governing specialized thrift institutions had been made by the President's Commission on Financial Structure and Regulation (the "Hunt Commission") as well as by others. It was expected that the next Congress would have occasion to consider thoroughly relationships between banks and savings and loan associations. The action now taken did not affect previous Board decisions permitting affiliations of thrift institutions and commercial banks in Rhode Island, which decisions had been reached in light of the history of affiliation of mutual thrift institutions and commercial banks in Rhode Island as well as on the basis of a hearing held and comments received. AUGUST 31, 1972 REGULATION Y, BANK HOLDING COMPANIES The Board authorized the issuance of an interpretation of Regulation Y to clarify the nature of insurance activities previously found to be so closely related to banking or managing or controlling banks as to be permissible for bank holding companies. Votes for this action: Messrs. Robertson, Mitchell, Daane, Brimmer, Sheehan, and Bucher. Votes against this action: None. Absent and not voting: Mr. Burns. 85 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Effective September 1, 1971, the Board had amended Regulation Y to specify certain types of insurance agency activities in which bank holding companies might engage under the 1970 amendments to the Bank Holding Company Act. In the course of administering this regulation, a number of questions had been raised concerning the scope and terms of the Board's regulation, and the interpretation was now issued to set forth some of the Board's views, as follows: Insurance "for the holding company and its subsidiaries" The Board regards the sale of group insurance for the protection of employees of the holding company as insurance for the holding company and its subsidiaries. Insurance "directly related to an extension of credit by a bank or a bank'relaied firm." (1) This provision is designed to permit the sale, by a bank holding company system, of insurance that supports the lending transactions of a bank or bank-related firm in the holding company system. The Board regards the sale of insurance as directly related to an extension of credit by a bank or bank-related firm where (i) the insurance assures repayment of an extension of credit by the holding company system in the event of death or disability of the borrower (for example, credit life and credit accident and health insurance); or (ii) the insurance protects collateral in which the bank or bank-related firm has a security interest as a result of its extension of credit; or (iii) the insurance is other insurance which is sold to individual borrowers in conjunction with or as part of an insurance package (as a matter of general practice) with insurance protecting the collateral in which a bank or bank-related firm had a security interest as a result of its extension of credit. Examples that fall within (iii) above are: (a) liability insurance sold in conjunction with insurance relating to physical damage of an automobile when the purchase of such automobile is financed by a bank or bank-related firm; and (b) a homeowner's insurance policy with respect to a residence mortgaged to a bank or bank-related firm, (2) Other types of insurance may be directly related to an extension of credit, A bank holding company applying to engage in the sale of such other types should furnish information showing that such insurance is so direct!v related. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

(3) A renewal of insurance, after the credit extension has been repaid, is regarded as closely related to banking only to the extent that such renewal is permissible under Section 225.4 (a) (9) (ii) (c) of Regulation Y. (4) The Board generally regards insurance protecting collateral where the security interest of a bank or bank-related firm was obtained by purchase rather than by a direct extension of credit by the holding company system as not being directly related to an extension of credit by a bank or bank-related firm. However, if such security interests are purchased on a continuing basis from a firm or an individual and the interval between the creation of the security interest and its subsequent purchase is minimal, the Board may regard such purchase as an extension of credit. Full details of the transactions should be provided to support a holding company's contention that such insurance sales are directly related to an extension of credit. Insurance "directly related to the provision of other financial services by a bank or . . . bank-related firm." This provision is designed to permit the sale by a bank holding company system of insurance in connection with bank-related services (rendered by a member of the holding company system) other than an extension of credit. Among the types of insurance the Board regards as directly related to such services are: (i) insurance against loss of securities held for safekeeping; (ii) insurance for valuables in a safe deposit box; (iii) life insurance equal to the difference between the maturity value of a deposit plan for periodic deposits over a specified term and the balance in the account at the time of the depositor's death; (iv) in connection with mortgage loan servicing that is provided by a bank or bank-related firm, insurance on the mortgaged property and/or insurance on the mortgagor to the extent of the outstanding balance of the credit extension, provided that the mortgagee is a beneficiary under such types of insurance policies; and (v) insurance directly related to the provision of trust services if the sale of such insurance is permitted by the trust instruments and under State law. Insurance that "is otherwise sold as a matter of convenience to the purchaser, so long as the premium income from sales within ... subdivision, fiijfc) does not constitute a significant portion of the aggregate insurance premium income of the holding company from insurance sold pursuant to . . . subdivision (it)." 87 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

(1) This provision is designed to permit the sale of insurance as a matter of convenience to the purchaser. It is not designed to permit entry into the general insurance agency business. (2) The term "premium income" means gross commission income. (3) The Board generally will regard premium income attributable to "convenience" sales as not constituting a "significant portion" if the income attributable to convenience sales is less than 5 per cent of the aggregate insurance premium income of the holding company system from insurance sold pursuant to Section 225.4(a) (9)(ii) of Regulation Y. SEPTEMBER 7, 1972 AMENDMENTS TO REGULATION T, CREDIT BY BROKERS AND DEALERS, AND REGULATION U, CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCKS Effective October 16, 1972, the Board amended Regulations T and U so as to exempt from margin requirements certain credit extended to so-called "block positioners" and "third-market makers" and to apply new reporting requirements to exchange specialists. Votes for this action: Messrs. Burns, Mitchell, Brimmer, and Sheehan. Votes against this action: None. Absent and not voting: Messrs. Robertson, Daane, and Bucher. The amendments exempted from margin requirements credit extended to block positioners and third-market makers. Block positioners are securities firms that stand ready to hold substantial blocks of stock for their own account to facilitate the sale or purchase by their customers—primarily institutions—of quantities of stock too large to be absorbed by normal exchange transactions. Third-market makers are firms that make off-exchange markets in stocks that are listed on exchanges. 88 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The proposal had evolved over a period of time, and it reflected conclusions reached in light of assessment of economic and financial market conditions and of comments and suggestions made by representatives of the industry and by major exchanges on proposals previously issued. The amendments now adopted were modified slightly as to detail from the proposal published by the Board for comment in May 1972. Under the amendments, the minimum block of stock that could qualify for the exemption from margin requirements must have a market value of $200,000. A block would also cease to be eligible for exemption credit if not sold by the block positioner within 20 business days, although limited extensions—no more than 5 days each—could be allowed by the stock exchanges or the National Association of Securities Dealers. Exchange specialists would be required to report transactions in blocks acquired on exempt credit. The Board's amendments were adopted simultaneously with registration and reporting requirements imposed by the Securities and Exchange Commission pertaining to the same subjects. SEPTEMBER 13, 1972 EXTENSION OF FEDERAL RESERVE BANK CREDIT TO NON- MEMBER BANKS The Board authorized the Federal Reserve Banks to extend credit to nonmember commercial banks for the purpose of mitigating any possible hardships that might temporarily be placed on such banks by implementation of the changes in Regulation J that were scheduled to become effective on September 21, 1972.1 Votes for this action: Messrs. Burns, Robertson, Daane, Sheehan, and Bucher. Vote against this action: Mr. Brimmer. Absent and not voting: Mr. Mitchell. 1 Implementation of the changes in Regulation J was delayed until Nov. 9, 1972, as noted on pp. 80 and 81. 89 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Board's authorization permitted the Reserve Banks to use either direct loans to nonmember banks or conduit loans through member banks. The Board indicated that the rate on a direct extension may not exceed the rate applicable to member banks under Sections 13 and 13a of the Federal Reserve Act, the lowest lending rate at any given Federal Reserve Bank, and that the rate to be paid by nonmember banks on an indirect extension of credit may not exceed the rate paid by the member bank plus a small additional charge to reflect the member bank's administrative costs and assumption of risk on the loan. Mr. Brimmer dissented with respect to the use of a rate equal to the discount rate for credit under Sections 13 and 13a. He believed that a penalty rate should be established for both direct and conduit loans on the ground that any nonmember bank that used Federal Reserve credit should pay a higher rate than a member bank. On September 18 the Board published guidelines for use by the Federal Reserve Banks in providing credit to nonmember banks in any instances where the changes in Regulation J resulted in a significant impairment of the liquidity of such banks or of their ability to serve their communities. OCTOBER 26, 1972 AMENDMENT TO RULES REGARDING DELEGATION OF AUTHORITY Effective with respect to applications received after October 30, 1972, the Board amended its Rules Regarding Delegation of Authority to incorporate revised guidelines for use of the Federal Reserve Banks acting under delegated authority in processing applications to form one-bank holding companies. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Brimmer, Sheehan, and Bucher. Votes against this action: None. In August 1971 the Board had delegated to the Reserve Banks authority to approve applications for the formation of one-bank holding companies while retaining exclusive authority to deny such applications. At that time the Board had established standards to be used as guidelines by the Reserve Banks in approving applications 90 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

under delegated authority. (Applications that did not meet those standards were to be forwarded to the Board for action.) The procedure had been designed to expedite the handling of applications to form one-bank holding companies. Subsequently, various comments had been received to the effect that the guidelines were being applied in a manner more restrictive than was desirable and that the guidelines were having an unduly adverse effect upon the transferability of bank stock. On the basis of a public oral presentation before members of the Board and in light of other comments received, the Board issued revised guidelines and incorporated them into the Board's Rules Regarding Delegation of Authority. The guidelines covered such matters as the debt incurred by a holding company to acquire a bank and the requirement that an equal offer be made to all shareholders of a bank. OCTOBER 31, 1972 AMENDMENT TO REGULATION Z, TRUTH IN LENDING Effective November 6, 1972, the Board amended Supplement III to Regulation Z so as to exempt certain credit transactions in Wyoming from the disclosure and rescission provisions of the Federal Truth in Lending Act. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Brimmer, Sheehan, and Bucher. Votes against this action: None. Section 123 of the Truth in Lending Act provides that the Board shall exempt from the disclosure and rescission requirements of the Act any class of transactions within a State if the State law provides requirements substantially similar to those imposed by the Federal law and there is adequate provision for enforcement. Inasmuch as the State of Wyoming had met these criteria, the Board granted that State an exemption from the Act applicable to all classes of credit transactions in the State except: transactions in which a Federally chartered institution is a creditor; consumer credit sales of insurance by an insurer in which the insurer is the creditor; consumer loan transactions in which a licensed pawnbroker is a creditor; and transactions in which a common carrier is a 91 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

creditor. The Board earlier had granted similar exemptions from the Federal Act to Maine, Massachusetts, Oklahoma, and Connecticut. NOVEMBER 2, 1972 AMENDMENTS TO REGULATION Z, TRUTH IN LENDING Effective December 15, 1972, the Board adopted clarifying amendments to Regulation Z with regard to liability for unauthorized use of all credit cards. Effective June 1, 1973, the Board also amended Regulation Z with respect to disclosure requirements on billing statements. Votes for this action: Messrs. Burns, Robertson, Brimmer, Sheehan, and Bucher. Votes against this action: None. Absent and not voting: Messrs. Mitchell and Daane. Considerable uncertainty had prevailed in the credit-card field as to whether exemptions in the Truth in Lending Act and Regulation Z for extensions of credit for business or commercial purposes applied to restrictions on the unsolicited issuance of credit cards and to the limits on liability for their unauthorized use. The purpose of the amendments to become effective December 15 was to make clear that all credit cards—whether used for personal, family, household, agricultural, business, or commercial purposes—were covered by the maximum liability limit of $50 for unauthorized use and that they could be issued only upon the request of a prospective cardholder. These amendments do not affect the business exemption in its application to the disclosure, rescission, and advertising requirements. The validity of these amendments has been challenged in a suit against the Board that was filed on December 14, 1972, in the U.S. District Court for the District of Columbia. The technical amendments that are to become effective June 1, 1973, provide that: (1) disclosure of a nominal annual percentage rate on billing statements in open-end credit accounts will be required even though no finance charges are imposed during the billing cycle (many creditors have been making this disclosure, although previously not required under the regulation); (2) disclosure of minimum finance charges on billing statements will be required; and (3) two earlier 92 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

interpretations dealing with computation of the annual percentage rate and disclosure of the balance on which it is computed will be incorporated into the regulation. The effective date of June 1, 1973, will allow time for those lenders and businesses that are affected by the amendments to reprint disclosure statements and to change their computer programming, if necessary, to take account of the changes in the regulation. The amendments had previously been published for public comment and certain technical adjustments had been made on the basis of comments received. The Board also issued an interpretation detailing the application of the regulation to open-end credit plans with variable-rate features. NOVEMBER 7, 1972 AMENDMENTS TO FOREIGN CREDIT RESTRAINT PROGRAM GUIDELINES Effective immediately, the Board adopted clarifying amendments to the guidelines covering foreign credits and investments by U.S. banks and U.S. nonbank financial institutions. Votes for this action: Messrs. Burns, Robertson, Brimmer, Sheehan, and Bucher. Votes against this action: None. Absent and not voting: Messrs. Mitchell and Daane. The amendments now adopted were essentially administrative in nature and were designed to be neutral with respect to capital outflows authorized under the voluntary foreign credit restraint program guidelines. The revisions did not affect the foreign lending and investment ceilings of banks and other financial institutions. One amendment extended to nonbank domestic subsidiaries of bank holding companies treatment already afforded to domestic subsidiaries of Edge Act corporations with regard to offsetting foreign assets by foreign borrowings. In amending the provision, the Board recognized that some banks now utilized domestic subsidiaries of their holding companies to make foreign investments in the same manner as banks had been using domestic subsidiaries of Edge Act corporations. 93 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Other amendments incorporated into the foreign credit restraint program guidelines several technical and clarifying interpretations made by the Board since the November 1971 revision of the guidelines. NOVEMBER 22, 1972 AMENDMENTS TO MARGIN REGULATIONS Effective November 24, 1972, the Board increased the margin requirements from 55 per cent to 65 per cent for credit extended by brokers, dealers, banks, and other lenders to finance the purchase or carrying of stock and also increased the required deposit on short sales from 55 per cent to 65 per cent. In making the increases, 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 requirements applicable to loans made for purchasing or carrying convertible bonds or in the 70 per cent retention requirement applicable to undermargined accounts. The latter requirement specifies the portion of the proceeds of a sale of securities that must be retained in a margin account if the equity in that account does not meet the margin requirements. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Sheehan, and Bucher. Vote against this action: Mr. Brimmer. The action covered new extensions of credit by brokers and dealers (Regulation T) and credits 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 December 6, 1971, when they were reduced from 65 to 55 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 securities transactions. The Board noted that margin debt had increased sharply over the past year. Such debt at brokers and dealers had risen about $3 billion since November 1971, and the 94 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

amount outstanding at the end of October was $7.8 billion, a record level. At banks also, loans for the purpose of purchasing or carrying margin securities had increased by a relatively large amount since November 1971. The Board also npted that recent behavior of the stock market suggested that margin credit, following a leveling off in late summer, was again in process of expanding and that further rapid increases in such credit could stimulate inflationary expectations. Governor Brimmer dissented because he believed that the statistics actually available did not show any significant increase in stock market credit in recent months and thus did not justify an increase in margin requirements at this time. Instead, he would have preferred to wait for the figures on margin credit due in mid-December. In his opinion, changes in margin requirements should not be geared to the behavior of stock prices, but to the actual use of stock market credit to purchase or carry securities. DECEMBER 1, 1972 AMENDMENT TO FOREIGN CREDIT RESTRAINT PROGRAM GUIDELINES Effective immediately, the Board amended the voluntary foreign credit restraint program guidelines to exempt from the ceilings foreign assets acquired in connection with settlement of claims under insurance and guarantees of the U.S. Overseas Private Investment Corporation. Votes for this action: Messrs. Burns, Robertson, Daane, Brimmer, Sheehan, and Bucher. Votes against this action: None. Absent and not voting: Mr. Mitchell. Prior to the adoption of this amendment, purchases of foreign assets acquired in the manner described above by U.S. banks and other U.S. financial institutions would have been subject to guideline ceilings, even though no new capital outflow would have resulted. Since the principal focus of the voluntary foreign credit restraint program was on measures that would reduce the outflow of U.S. capital, no useful purpose would have been served by continuing to subject such purchases to the guideline ceilings. 95 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

DECEMBER 11, 1972 AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES Effective December 11, 1972, the Board amended Regulation Y to permit bank holding companies to engage in underwriting credit life and credit accident and health insurance that is directly related to extensions of credit by a bank holding company system. Votes for this action: Messrs. Burns, Robertson, Mitchell, Sheehan, and Bucher. Votes against this action: None. Absent and not voting: Messrs. Daane and Brimmer. Certain types of insurance business were among the 10 activities originally proposed by the Board as closely related to banking when it announced plans in January 1971 to amend Regulation Y as a first step toward implementing the 1970 amendments to the Bank Holding Company Act. Following a hearing and in light of comments received, in August 1971 the Board had approved an amendment to Regulation Y outlining certain types of insurance agency activities that it found to be closely related to banking and consequently permissible. The Board had also considered but had decided not to adopt at that time a general regulatory provision as to whether insurance underwriting activities are closely related to banking. The amendment now adopted followed consideration by the Board of the record of a hearing in March 1972 on the subject of credit insurance underwriting and of comments received with respect to the hearing, together with the Board's prior experience in the field of bank holding company insurance activities. To assure that engaging in the underwriting of credit life and credit accident and health insurance can reasonably be expected to be in the public interest, the Board indicated that it would approve only those applications in which an applicant demonstrated that approval would benefit the consumer or result in other public benefits. Normally such a showing would be made by a projected reduction in rates or an increase in policy benefits because of bank holding company performance of this service. Under the amendment the operation of a credit life and credit accident and health insurance program, including the underwriting of such insurance directly related to extensions of credit by a bank 96 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

holding company system, was determined to be closely related to banking. The Board was of the view that operation of such a program not only would provide the borrower with financial security in the event of death or disability but also would assure a bank or bank-related firm of repayment of a credit extension. In reaching this conclusion, the Board also took into consideration the legislative history of the Bank Holding Company Act, which indicated that Congress felt that the operation of a credit life and credit accident and health insurance program was closely related to banking. FOR THE YEAR 1972 DISAPPROVALS OF RESERVE BANK ACTIONS TO CHANGE DISCOUNT RATE The discount rate remained unchanged throughout 1972 at AV2 per cent, the level established on December 10, 1971. Key short-term interest rates fell somewhat below the discount rate early in 1972, but by the latter part of the year such rates had risen above the discount rate as vigorous expansion in economic activity and associated demands in credit markets led to increasing pressures in the money market. Over the course of the year, the Board disapproved several actions taken by the directors of a number of Federal Reserve Banks to change the discount rate, including actions to lower it during the January-March quarter and to raise it during the September-December period. Late in the year the Board became increasingly convinced that the trend of interest rate developments might soon require a higher discount rate, and a few days after the turn of the year—on January 12, 1973—it approved an increase of V2 percentage point to 5 per cent at all of the Reserve Banks. The increase brought the discount rate into better alignment with prevailing short-term market rates. The general economic and financial conditions that the Board considered in arriving at its discount rate decisions during the year are reviewed elsewhere in this ANNUAL REPORT, particularly in the dis- 97 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

cusslon of the U.S. economy contained in Part I and in the policy record of the Federal Open Market Committee In Part II During the January-March period, proposals were received from a number of Federal Reserve Banks to lower the discount rate to 4 or 414 per cent. The Board's disapprovals were based in large part on a view that the proposed reductions might foster misleading expectations at home and abroad regarding the future course of monetary policy. During the last 4 months of the year, the Board disapproved a series of actions taken by the directors of several Federal Reserve Banks to raise the discount rate to 4% or 5 per cent. While the immediate circumstances surrounding the successive disapprovals and the speciic reasons for them varied, throughout this 4-month period the Board was concerned that an increase in the discount rate—unless clearly called for to keep that rate aligned with short-term market rates-—might mislead the public with regard to the general thrust of monetary policy and precipitate a substantial and unwanted increase in market rates of interest. In particular, concern was expressed that Phase II of the economic stabilization program might tend to be undermined if the Federal Reserve took an action that was followed by an upward movement in a wide range of interest rates, including quite possibly some institutional lending rates. While institutional lending rates on consumer loans and home mortgages might not be directly affected, it was felt that the rates charged by large banks to prime business customers would be especially sensitive to an increase in the discount rate under prevailing conditions, Various other factors™—including the moderate growth of bank reserves and of the monetary aggregates during most of the period and the timing of Treasury financing operations—were also seen as weighing against the proposed increases in the discount rate during the period. Late in the year the growing evidence of vigorous expansion in economic activity, the rise in short-term interest rates, and the renewed, rapid growth in the monetary aggregates led the Board to conclude that a higher discount rate might well be needed in the relatively near future. However, in their decision on December 18 to disapprove several proposed increases, a majority of the Board mem- 98 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

hers still thought that prevailing uncertainties in financial markets and the imminence of important Treasury financing operations made it advisable to postpone an increase in the rale. When the increase to 5 per cent was approved on January 12, 1973, the substantial advances that had occurred earlier in short-term market interest rates indicated that the change in the discount rate clearly lagged, and was precipitated by, the market adjustments. Individual members dissented from some of the Board's disapprovals of proposed increases in the discount rate during the last 4 months of 1972. fii their judgment, particular proposed increases were warranted by current and prospective economic and financial conditions •—and also by the rise that was taking place in member bank borrowings and by the desirability of keeping the discount rate in close alignment with short-term market rates. They also felt that an increase in the rate would have a beneficial impact on public psychology by focusing attention on the System's determination to resist inflationary pressures in the economy. In their view, a higher discount rate would be consistent with the thrust of the System's over-all monetary policy and would not be likely, under prevailing circumstances, to have any significant or lasting impact on market interest rates, In proposing changes in the discount rate during the course of 1972. the directors of individual Federal Reserve Banks took note of current and prospective economic and financial developments and indicated a desire to maintain the discount rate in relatively close alignment with short-term market interest rates. "The directors suggested that small and fairly prompt adjustments in the discount rate would avoid the need for sizable and potentially disruptive changes and would have the advantage of facilitating the administration of the discount window at the Federal Reserve Banks. As the year progressed, many directors felt that an increase in the discount rate would also serve a useful purpose in signaling the System's determination to avoid an overly expansionary monetary policy. The individual Board decisions and the votes taken were as follows: 99 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Disapproval of Discount Rate Reductions JANUARY 31, 1972 The Board disapproved an action taken by the directors of the Federal Reserve Bank of St. Louis on January 27 establishing a discount rate of 4 per cent (a decrease from AVi per cent). Votes for this action: Messrs. Burns, Robertson, Daane, Maisel, and Sheehan. Votes against this action: None. Absent and not voting: Messrs. Mitchell and Brimmer. FEBRUARY 18, 1972 The Board disapproved actions taken by the directors of the Federal Reserve Banks of St. Louis and Kansas City on February 10 and 17, respectively, to reduce the discount rate to 4 per cent, and by the directors of the Federal Reserve Bank of Philadelphia on February 17 to lower the rate to AVA per cent. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Brimmer, and Sheehan. Votes against this action: None. Absent and not voting: Mr. Maisel. FEBRUARY 25, 1972 The Board disapproved an action taken by the directors of the Federal Reserve Bank of St. Louis on February 24 to reduce the discount rate to 4 per cent. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Brimmer, and Sheehan. Votes against this action: None. Absent and not voting: Mr. Maisel. MARCH 9, 1972 The Board disapproved actions taken by the directors of the Federal Reserve Banks of Kansas City and St. Louis on March 2 and 9, respectively, to lower the discount rate to 4 per cent. 100 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Brimmer, and Sheehan. Votes against this action: None. Absent and not voting: Mr. Maisel. Disapproval of Discount Rate Increases SEPTEMBER 1, 1972 The Board disapproved an action taken by the directors of the Federal Reserve Bank of Kansas City on August 31 to raise the discount rate to 43A per cent. Votes for this action: Messrs. Robertson, Mitchell, Daane, Sheehan, and Bucher. Vote against this action: Mr. Brimmer. Absent and not voting: Mr. Burns. SEPTEMBER 5, 1972 The Board disapproved an action taken by the directors of the Federal Reserve Bank of Boston on the same date to raise the discount rate to 43A per cent. Votes for this action: Messrs. Burns, Robertson, Mitchell, Brimmer, Sheehan, and Bucher. Votes against this action: None. Absent and not voting: Mr. Daane. SEPTEMBER 29, 1972 The Board disapproved actions taken by the directors of the Federal Reserve Bank of Boston on September 18, of the Federal Reserve Banks of New York, Philadelphia, and Kansas City on September 21, and of the Federal Reserve Bank of Chicago on September 28 to increase the discount rate to 43A per cent. Votes for this action: Messrs. Burns, Mitchell, Daane, Sheehan, and Bucher. Vote against this action: Mr. Brimmer. Absent and not voting: Mr. Robertson. 101 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

OCTOBER 3, 1972 The Board disapproved an action taken by the directors of the Federal Reserve Bank of Boston on October 2 to raise the discount rate to 43A per cent. Votes for this action: Messrs. Burns, Mitchell, Daane, and Sheehan. Vote against this action: Mr. Brimmer. Absent and not voting: Messrs. Robertson and Bucher. OCTOBER 10, 1972 The Board disapproved an action taken by the directors of the Federal Reserve Bank of New York on October 5 to increase the discount rate to 43A per cent. Votes for this action: Messrs. Burns, Robertson, Mitchell, Sheehan, and Bucher. Votes against this action: None. Absent and not voting: Messrs. Daane and Brimmer. OCTOBER 16, 1972 The Board disapproved actions taken by the directors of the Federal Reserve Banks of Dallas and Boston on October 12 and 16, respectively, to raise the discount rate to 43A per cent. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, and Bucher. Vote against this action: Mr. Brimmer. Absent and not voting: Mr. Sheehan. NOVEMBER 20, 1972 The Board disapproved an action taken by the directors of the Federal Reserve Bank of Kansas City on November 16 to increase the discount rate to 43A per cent. Votes for this action: Messrs. Burns, Robertson, Mitchell, Daane, Brimmer, Sheehan, and Bucher. Votes against this action: None. 102 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

DECEMBER 18, 1972 The Board disapproved actions taken on December 14 by the directors of the Federal Reserve Banks of Richmond and Chicago to increase the discount rate to 43A per cent and by the directors of the Federal Reserve Bank of St. Louis to raise the rate to 5 per cent. Votes for this action: Messrs. Burns, Mitchell, Daane, and Bucher. Votes against this action: Messrs. Robertson and Brimmer. Absent and not voting: Mr. Sheehan. 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 the Federal Reserve Banks, which had been established in December 1971. 103 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 1972, 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. 105 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy directives of the Federal Open Market Committee are issued to the Federal Reserve Bank of New York as the Bank selected by 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 1972. No revisions were made in the foreign currency instruments 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, 1972)1 1. The Federal Open. Market Committee authorizes and directs the Federal Reserve Bank of New York, to Che 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 re- 1On Jan. 1, 1972, the lower limit on interest rates on repurchase agreements arranged by the Federal Reserve Bank of New York, specified in paragraph l(c) of this directive, was temporarily in a state of suspension pursuant to an action taken by the Committee on Dec. 23, 1971. See policy record for meeting held on Jan, 12, 1972, section headed "Ratification of earlier actions." 106 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

spec! 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 bunkers' 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 otic time shall not exceed (1) $125 million or (2) 10 per cent of the total of bunkers* acceptances outstanding as shown in the most recent acceptance survey conducted by the Federal Reserve Bank 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 bankers1 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 under agreements for repurchase of such securities, obligations, or acceptances in 15 calendar days or less, at rates not less than {! ) the discount rate of the Federal Reserve Bank of New York at the time such agreement is entered into, or 12) the average issuing rate on the most recent issue of 3-month Treasury bili», whichever is the lower, provided that in the event Government .securities or agency issues covered by any such agreement are not repurchased by the dealer pursuant to the agreement or a renewal thereof, they shall be sold in the market or transferred to the System Open Market Account; and provided further that in the event bankers' acceptances covered by any such agreement are not repurchased by the seller, they shall continue to be held by the Federal Reserve Bank or shall be sold in the open market. 2. The Federal Open Market Committee authorizes and directs the Federal Reserve Batik of New York, or, if the New York Reserve Bank is closed, any other Federal Reserve Bank, io 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 107 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

rate VA 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 $1 billion, 3, In order to insure the effective conduct of open market operations, the Federal Open Market Committee authorizes and directs the Federal Reserve Batiks to lend U.S. Government securities held in the System Open Market Account to Government securities dealers and to banks participating In Government securities clearing arrangements conducted through a Federal Reserve Bank, under such instructions as the Committee may specify from time to time. CURRENT ECONOMIC POLICY DIRECTIVE (In effect January 1, 1972) 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 effectively 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 increase 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 interest 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 shortterm 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 developments, it is the policy of the Federal Open Market Committee to footer financial conditions consistent with the aims of the new governmental program, including sustainable real economic growth and increased employment, abatement of inflationary pressores, and attainment of reasonable equilibrium in the country's balance of payments. 108 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

To implement this policy, the Committee seeks to promote the degree of case in bank reserve and money market conditions essential to greater growth in monetary aggregates over the months ahead, while faking account of international developments. AUTHORIZATION FOR SYSTEM FOREIGN CURRENCY OPERATIONS 'in effect January 1, 1972) 1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, for Sxstetn Open Market Account, to the extent necessary to carry out the Committee's foreign currency directive and express authorizations by the Committee pursuant thereto: A. To purchase and sell the following foreign currencies in the form of cable transfers through spot or forward transactions on the open market at home and abroad, including transactions with the U.S. Stabilization Fund established by Section 10 of the Gold Reserve Act of 1934, with foreign monetary authorities, and with the Bank for International Settlements: Austrian schillings Belgian francs Canadian dollars Danish kroner Pounds sterling French francs German marks Italian lire Japanese yen Mexican pesos Netherlands guilders Norwegian kroner Swedish kronor Sw iss francs B. To hold foreign currencies listed in paragraph A above, up to Hie following limits: ( 1 ) Currencies purchased spot, including currencies purchased from the Stabilization Fund, and sold forward to the Stabilization Fund, up to $1 billion equivalent: (2) Currencies purchased spot or forward, up to the amounts necessary to fulfill other forward commitments: 109 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

(3) Additional currencies purchased spot or forward, up to the amount necessary for System operations to exert a market influence but not exceeding S250 million equivalent; and (4) Sterling purchased on a covered or guaranteed basis in terms of the dollar, under agreement with the Bank of England, up to $200 million equivalent C. To have outstanding forward commitments undertaken under paragraph A above to deliver foreign currencies, up to the following limits: (1 ) Commitments to deliver foreign currencies to the Stabilization Fund, op to the limit specified in paragraph 1B(1) above; and (2) Other forward commitments to deliver foreign currencies, up to $550 million equivalent. D. To draw foreign currencies and to permit foreign banks to draw dollars under the reciprocal currency arrangements listed in paragraph 2 below, provided that drawings by cither party to any such arrangement shall be fully liquidated within 12 months after any amount outstanding at that time was first drawn, unless the Committee, because of exceptional circumstances, specifically authorizes a delay. 2. The Federal Open Market Committee directs the Federal Reserve Bank of New York to maintain reciprocal currency arrangements ("swap"' 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 maturity: Amount of ^ arrangement Foreign bank (milljons of 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 5 Bank of France 1,000 German Federal Bank 1,000 Bank of Italy 1,250 Bank of Japan 1,000 Bank of Mexico 130 110 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Amount of arrangement Foreign bank (millions of dollars equivalent) Netherlands Bank 300 Bank of Norway 200 Bank of Sweden 250 Swiss National Bank 1,000 Bank for International Settlements: Dollars against Swiss francs 600 Dollars against authorized European currencies other than Swiss francs 1,000 3. Currencies to be used for liquidation of System swap commitments may be purchased from the foreign central bank drawn on, at the same exchange rate as that empkned 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. 4. It shall be the practice to arrange with foreign central banks for the coordination of foreign "currency transactions. In making operating arrangements with foreign central banks on System holdings of foreign currencies, the Federal Reserve Bank of New York shall not commit itself to maintain any specific balance, unless authorized by the Federal Open Market Committee. Any agreements or understandings concerning the administration of the accounts maintained by the Federal Reserve Bank of New York with the foreign banks designated by the Board of Governors under Section 214.5 of Regulation N shall be referred for review and approval to the Committee, 5. Foreign currency holdings shall be invested insofar as practicable, considering needs for minimum working balances. Such investments shall be in accordance with Section 14(e) of the Federal Reserve Act, 6. A Subcommittee consisting of the Chairman and the Vice Chairman of the Committee and the Vice Chairman of the Board of Governors lor in the absence of the Chairman or of the Vice Chairman of the Board of Governors the members of the Board designated by the Chairman as alternates, and in the absence of the Vice Chairman of the Committee his alternate) is authorized to act on behalf of the Committee when it Is necessary to enable the Federal Reserve Bank of New York 111 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

to engage in foreign currency operations before the Committee can be consulted. All actions taken by the Subcommittee under this paragraph shall be reported promptly to the Committee. 7. The Chairman (and in his absence the Vice Chairman of the Committee, and in the absence of both, the Vice Chairman of the Board of Governors) is authorized: A. With the approval of the Committee, to enter into any needed agreement or understanding with the Secretary of the Treasury about the division of responsibility for foreign currency operations between the System and the Secretary; B. To keep the Secretary of the Treasury fully advised concerning System foreign currency operations, and to consult with the Secretary on such policy matters as may relate to the Secretary's responsibilities; and C. From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary and Financial Policies. 8. Staff officers of the Committee are authorized to transmit pertinent information on System foreign currency operations to appropriate officials of the Treasury Department. 9. All Federal Reserve Banks shall participate in the foreign currency operations for System Account in accordance with paragraph 3 GO) of the Board of Governors' Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks dated January 1, 1944. 10. The Special Manager of the System Open Market Account for foreign currency operations shall keep the Committee informed on conditions in foreign exchange markets and on transactions he has made and shall render such reports as the Committee may specify. FOREIGN CURRENCY DIRECTIVE (in effect January 1, 1972) 1. The basic purposes of System operations in foreign currencies are: A. To help safeguard {'he value of the dollar in international exchange markets; B. To aid in making the system of international payments more efficient; C. To further monetary cooperation with central banks of other countries having convertible currencies, with the International Monetary Fund, and with other international payments institutions; D. To help insure that market movements in exchange rates, within the limits stated in the International Monetary Fund Agreement or estab- 112 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

lished by central bank practices, reflect the interaction, of underlying 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 the needs of an expanding world economy. 2. Unless otherwise expressly authorized by the Federal Open Market Committee, System operations in foreign, currencies shall be undertaken only when necessary: A. To cushion or moderate fluctuations in the flows of international payments, if such fluctuations (1) are deemed to reflect transitional market unsettlement or other temporary forces and therefore are expected to be reversed in the foreseeable future; and (2) are deemed to be disequilibrating or otherwise to have potentially destabilizing effects OE U.S. or foreign official reserves or on exchange markets, for example, by occasioning market anx.iet.ies, undesirable speculative activity, or excessive leads and lags in international, payments; B. To temper and smooth out abrupt changes in spot exchange rates, and to moderate forward premiums and discounts judged to be disequilibrating. Whenever supply or demand persists in influencing exchange rates in one direction, System transactions should be modiied or curtailed unless upon review and reassessment of the situation the Committee directs otherwise; C. To aid in avoiding disorderly conditions in exchange markets. Special factors that might make for exchange market instabilities include (1) responses to short-ran increases in international political tension, (2) differences in phasing of international economic activity that give rise to unusually large interest rate differentials between major markets, and (3) market rumors of a character likely to stimulate speculative transactions. Whenever exchange market instability threatens to produce disorderly conditions, System transactions may be undertaken, if the Special Manager reaches a judgment that they may help to reestablish, supply and demand balance at a level more consistent with the prevailing flow of underlying payments. In such cases, the Special Manager shall consult as soon as practicable with the Committee or, in. an emergency, with the members of the Subcommittee designated for that purpose in paragraph 6 of the Authorization for System foreign currency operations; and D. To adjust System, balances within the limits established in the Authorization for System, foreign, currency operations in light of probable fu.tu.re needs for currencies. 3. System drawings under the swap arrangements are appropriate when 113 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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, cither outright or in conjunction with spot transactions, may be undertaken only (i) to prevent forward premiums or discounts from giving rise to diseijiiilibrating movements of short-term funds; (ii) to minimize speculative disturbances; (iii) to supplement existing market supplies of forward cover, directly or indirect!)', as a means of encouraging the retention or accumulation of dollar holdings by private foreign holders: (iv) to allow greater flexibility in covering System or Treasury commitments, including commitments under swap arrangements, and to facilitate operations o( the Stabilization Fund; (v) to facilitate the use of one currency for the settlement of System or Treasury commitments denominated in other currencies; and (vi) to provide cover for System holdings of foreign currencies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON JANUARY 11,1972 1. Current economic policy directive. The information reviewed at this meeting suggested that the rate of growth in real output of goods and services (real gross national product) had stepped up in the fourth quarter of 1971 and that prices, which had been subject to Government controls since mid- August, had risen relatively little from the third to the fourth quarter. Staff projections suggested that the faster pace of growth in real GNP would continue in the first half of 1972. In December nonfarm payroll employment and industrial production rose further, although to a large extent the gains were attributable to post-strike recovery in coal mining. The unemployment rate edged up to 6.1 from 6.0 per cent in November. Retail sales fell in December, according to the advance report, in part because sales of new cars dropped from the high rates prevailing during the first phase of the new economic program. The rates of increase in prices and wages, which had slowed sharply during the freeze in effect from mid-August to mid- November, picked up afterward. Under the post-freeze program, some increases in wages—both previously scheduled and newly negotiated—were allowed to go into effect, some of the many pending applications for price increases were approved, and a general increase in residential rents was authorized. The latest staff projections for the first half of 1972 were similar to those of 4 weeks earlier, although the expansion now expected in consumer spending was not so rapid. Also, the projected rise in Federal outlays in the first quarter had been increased as a consequence of a recently enacted Government pay raise effective in early January. It was still anticipated that business capital outlays, residential construction, and State and local government expenditures would grow at substantial rates and that business inventory investment would increase further. The Finance Ministers and central bank Governors of the Group of Ten, meeting at the Smithsonian Institution in Washington, reached agreement on December 18 regarding revaluations of foreign 115 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

currencies against the dollar and a widening of permissible margins for exchange rate fluctuations. Following announcement of the agreement, market exchange rates for major foreign currencies against the dollar generally moved up to levels a little above their new lower limits. Outflows of short-term capital from the United States—-which had been very large during much of 1971— came to a halt, and some funds flowed back before the year-end. However, the U.S. basic balance of payments remained in deficit and foreign official reserves declined only a little. Demands for business loans at commercial banks remained weak In December, and most large banks reduced their prime rates around the end of that month. Real estate and consumer loans continued to expand at a rapid pace In December and banks sharply increased their holdings of securities. The narrowly defined money stock (private demand deposits plus currency in circulation, or M), which had not grown on t balance from August to November, rose somewhat from November to December. Over the fourth quarter Mi increased at an annual rate of about I per cent, after rising at rates of about 3.5 per cent over the third quarter and 10 per cent over the first half of 1971.! Inflows of savings to commercial banks increased in December and the money stock more broadly defined (M plus commercial l bank time deposits other than large-denomination CD's, or M ) 2 rose at a substantial rate. Growth in the bank credit proxy—dailyaverage member bank deposits, adjusted to include funds from nondeposit sources—also was substantial as the average volume of both large-denomination CD's outstanding and U.S. Government deposits expanded. At the same time, banks reduced their outstanding borrowings of Euro-dollars by large amounts. Over the fourth quarter M and the proxy series increased at annual 2 rates of about 8 and 9.5 per cent, respectively. System open market operations in the period since the last meeting of the Committee had been complicated by year-end churning in the money market and by uncertainties regarding the likely volume of reflows of short-term capital following the Smith- Growth rates cited are calculated on the basis of the daily-average level in the last month of the period relative to thai of the preceding period. 116 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

sonian Agreement, It was expected that if the reiows were large they would be accompanied by hea¥y foreign central bank sales of Treasury securities. In order to leave scope for future outright purchases of securities to moderate the market impact of such sales, the System made extensive use of repurchase agreements In the latter part of December to supply reserves on a temporary basis. In fact, however, reiows during the period were of quite modest dimensions. Over the period as a whole System operations had been directed at fostering a substantial easing in money market conditions, against the background of the behavior of the monetary aggregates—particularly the continuing sluggishness of M . The x Federal funds rate was about 35/s per cent at the time of this meet ing, down from the level of about 4% per cent prevailing at the time of the preceding meeting. In the 4 weeks ending January 5, member bank borrowings averaged $110 million compared with $395 million in the preceding 4 weeks. At the time of this meeting interest rates on most types of market securities were lower than they had been in mid-December. Short-term rates had fallen, in part because of the easing of money market conditions associated with the System's reserve-supplying operations and because of anticipations oe the part of market participants of still greater ease. EYCE with the auction oe December 22 of $2.5 billion of tax-anticipation bills, Treasury bill rates had come under strong downward pressure as the reiow of short-term capital from abroad—and the consequent sales of bills by foreign central banks—proved to be far less than the market had expected. OE the day before this meeting of the Committee, the market rate on 3-month bills was about 3.00 per cent compared with 3,95 per cent 4 weeks earlier. Declines In rates tor long-term securities were much more moderate. Early in the period capital markets were still under the influence of the Treasury's November financing, and later they were affected by discussion of the possibility that the February financing----the terms of which were expected to be announced near the end of January—would include an advance refunding. Public offerings of new corporate bonds were light, as is usual in December, but offerings of new State and local government bonds 117 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

were contraseasonally large. It was expected that the volume of corporate issues would rebound in January but that issues of State and local governments would taper off. Yields In the secondary market for Federally insured mortgages declined slightly further in December. Inflows of savings to nonbank thrift institutions, which had slowed in November, increased in December as the relative attractiveness of savings shares and deposits was enhanced by the further declines in market interest rates. In the Committee's discussion considerable concern was expressed about the persistent sluggishness of key monetary aggregates, and a number of members advocated action to provide sufficient reserves to support the faster monetary growth that they believed was required by the economic situation and outlook. It was noted in this connection that the level of member bank reserves, as well as that of M had changed little during the fourth u quarter despite a progressive easing of money market conditions. In the interest of assuring the provision of reserves needed for adequate growth in monetary aggregates, the Committee decided that in the period until its next meeting open market operations, while continuing to take appropriate account of conditions in the money market, should be guided more by the course of total reserves than had been customary in the past. The members also agreed that in the course of operations account should be taken of international developments and. beginning late in the month, of the forthcoming Treasury financing. In placing greater emphasis on total reserves, the Committee took note of a staff analysis suggesting that moderate rates of growth in M, and M<> in January and February were likely to be associated with a large increase in total reserves from December to January and then a decline in February—mainly as a consequence of recent and anticipated changes in U.S. Government deposits, and allowing for the 2-week lag between member bank deposits and required reserves. Against the background of this analysis, a majority agreed that an annual rate of growth in total reserves of roughly 20 to 25 per cent from December to January would be satisfactory, provided that it could be attained without undue easing of money market conditions. 118 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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 increased more rapidly in the fourth quarter than it had In the third quarter, but the unemployment rale remained high. In recent weeks wage and price developments have reflected some increases that had been deferred under the 90-day freeze. The narrowly defined money stock, which had not grown on balance from August to November, rose somewhat in December, while both the broadly defined money stock and the bank credit proxy increased substantially. Market interest rates, particularly short-term rates, have declined in recent weeks. After international agreement was reached in December on new central exchange rales and on wider margins of permissible variation, market exchange rates for major foreign currencies against the dollar initially moved to levels a little above their new lower limits. The volume of capital reflows to the United States has been modest, however, and the underlying U.S. balance of payments remains in deficit. 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, while taking account of international developments and the forthcoming Treasury financing, 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. Bums, Clay, Daane. Maisel, Mayo. Mitchell. Morris. Robertson, and Sheehan. Votes against this action: Messrs, Hayes. Brimmer, and Kimbrel. Messrs. Hayes. Brimmer, and Kimbre! differed somewhat in their reasons for dissenting from this aelion. Mr. Hayes considered the emphasis placed on total reserves as an operating target lo be an undesirable step; in his judgment, reserves were much less meaningful than other measures, such as the monetary and ,19 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

credit aggregates and Interest rates, as an Instrument for working toward the Committee's basic economic objectives. Also, he was reluctant to issue a directive that might involve a substantial further easing of money market conditions, since the Committee had already moved rapidly In that direction and since it appeared to him that the economic outlook had improved somewhat in recent months. He was concerned about the risk that a further sharp decline in short-term interest rates might subject financial markets to unnecessary whipsawing and might tend to rekindle ieiationary expectations. Mr. Brimmer shared the majority's views concerning broad objectives of policy at this time, and he indicated that he would have voted favorably on the directive were it not for the decision to give special emphasis to total reserves as an operating target during coming weeks. In his judgment the Committee should have had more discussion of the implications of that decision, and in any case it should have postponed the decision until after it had held a contemplated meeting to be devoted primarily to discussion of its general procedures with respect to operating targets. Mr. Kimbrel favored supplying reserves at a rate that would accommodate orderly economic expansion. He voted against the directive because he thought it involved risks of depressing short-term interest rates to unsustainably low levels and of producing excessive rates of growth in the monetary aggregates in the future. 2. Ratification of earlier actions. Earlier in the course of this meeting the Committee, by unanimous vote, ratified the action taken by the members on December 20, 1971, adding the clause "while taking account of international developments'"1 at the end of the final sentence of the current economic policy directive then in effect. Also, with Mr. Robertson dissenting, the Committee ratified the action taken by vote of a majority on December 23, 1971. to suspend, until close of business on the day of the next meeting, the lower limit (specified in paragraph l(c) of the continuing authority directive with respect to domestic open market operations) on interest rates on repurchase agreements arranged by the 120 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Bank of New York with nonbank dealers. The suspended provision specified that such repurchase agreements were to be made t%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 niost recent issue of 3-month Treasury bills, whichever is the lower." The two actions in question had been taken for reasons set forth in the policy record for the meeting held on December 14, 1971. Mr. Robertson dissented from ratification of the second action for the same reasons that had led him to dissent from the action itself, as described in that policy record. 121 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON FEBRUARY 15, 1972 1. Current economic policy directive. The information reviewed at this meeting indicated that in the fourth quarter of 1971 real GNP had grown at an annual rate of about 6 per cent, compared with (downward revised) growth rates of about 3.5 and 2.5 per cent in the second and third quarters, and that prices had risen relatively little in reflection of the 90-day freeze imposed in mid-August. Staff projections suggested that the faster pace of growth in real GNP would be sustained through the first half of 1972, and that prices were likely to rise sharply for a time in the post-freeze period. In January industrial production and manufacturing employment increased somewhat, although the average workweek in manufacturing declined after having risen for several months. Total nonfarm payroll employment advanced substantially further, and the unemployment rate edged down to 5.9 from 6.0 per cent in December. Weekly data suggested that retail sales increased a little in January, following a substantial decline in December. The wholesale and consumer price indexes rose sharply from November to December, reflecting in part the mid-November termination of the 90-day freeze. About half the rise in both indexes was accounted for by increases in foodstuffs, which are largely uncontrolled, and in imported goods and other items exempt from the controls. Wage rates also rose substantially in December when, under the post-freeze program, some increases—both previously scheduled and newly negotiated—were allowed to go into effect. However, the advance in wage rates slowed in January. The staff's projection of growth in real GNP in the first half of 1972 was about unchanged from 5 weeks earlier, although expectations for some major categories of expenditure were altered. Thus, the projected expansion in Federal purchases of goods and services —which had been raised 5 weeks earlier to reflect the Government pay increase effective in early January—was raised further to reflect a concentration of outlays in the second quarter of the year, roughly in line with the administration's late-January estimates of the Federal budget for the 1972 fiscal year. On the other hand, the prospective gains in consumer spending were scaled down 122 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

mode*ntclx, HI iuuv pat! n Uccin-»}r fbc fc<.cni lack of sliengfh in ftijil sales iiiiu esUeikC iU-ii \iv\\ \\ itbboidmg svfictiufe^ weie resulting in substantial o\ci v, nhholdmv tit personal income faxes. A'- in llie prc\ H'tr^ piojecfion H was anticipated flia< business capital outlays, residential consuuetion, and Sfak ami local go\ eminent CKpeiidifurv's v, onld continue !o tium lit Nul>stanlnil rates and thai business Mivemor\ u»ses{»nrift uoulvi HKM^.I^- Iniiher, In ftire»rn exefiany: market^. rau>< {'or rnosf iiui}or currencies iippiwuitcd ai.*ains( the dollar in Jatttsun and eariv i'ebruars, rising l<» or aixne llicii new cenlial values. i')\er the s\ hole period from me Una- oj fiic Smithsi>mau '\jLfieenu"uf OH iJecenjber 18 through ear!> Fehfiiary, liuTe \v(>, a small surplus in the Lf.»S. balance of pa\me>Us <vu the ol'ii^ ia» •••iillornctits baM*». ,»s sellous of funds to (he rnned SKues allei Ih*.v 4t\ffi e:iu ui ^v:tv soMK'whM :u excess of the deficit on uinviif aecouni JikJ »u»imul • apnal transi'ictions. I he laasui) aunojmcv<» oi; JaiHKii} JJ* that if"1 its niid-l'ebruary Iifiaiiv <i)': il UOMU! idk! ai pa* a s>\ month ^ ^ pci'cciit itote and a HMiur, (> s* per i.vfti bon^.1 ft"; TM liau.-'e '*H ISMIO maturinjj f!i Tehrnnrs \kK: : aiu! in fchitiaf\ und '\la\ j ' ^i 11i«s v'oiiibination of a a lltfNliif;1 tU!»J a pJC rcitHuhut1 H ;«s well l'v<.«/»-N,»t{ ;\houf SL 2 bllliou c^! .r* fjcf e\%ui «>i rht S^ N billion ni Mu1 {MiblK'lv held issues iiuiluii<))?, iliis I'cbnuM'N w»a..' redeemed l\<i ^ash. and the Treasury .net the ».ash reu(utteuu'ji( h\ i>vducuj'j it» balance Iroiii aiii:itf\ef\ b\yh k-\c\ Icifi'ii's! iaU s on !o)iy. !t?fn s^cunnes ^.'ciivialK had risen in leccnt weeks, LiHk'K hi fi\*iiii>f: to (he n ew \. shmaics of a large! Federal deficit in fis^d la/2 ihau IUK! b^ en atuicmaicd. ,md (o numerous iiiijitHtiH/ciitciils <»l ptospc\n\c nesv v'o*po/.{jr >e<:urit\ issues, Horn ever, vmir vorpojaie b(»»;u*». v*f> imiica^1.! thai (lie evaet timing of Hieif olKTiii4^ \s \ uMd d\. (l>; (a! r-u inaik/! <. ts.'-Jii futi^ , :UKJ others post poficil pu'^-,f'i"\'Vf\c is\Hc> HI fe^u'iion ii» u^iut* iiiiercsl itifes. In the h*o?ith i.si Ji.'nuan m-. voiiifii'/ v,i iic\^ i'isr;o.»;itr issues rose soniewhai Htuir thitti MMsojKtlh uiuJv' thai oi M<!,!c and loi aJ go\eminent IS511CS dwt-iJUCd. \jihl ^lu^n (v'/r:> mU'Usi fair ha>j U'»:VMM'/(J vince the last meeting ot fhs1 </ofumh'h.'e in tC'pon^e iostr'Miy i'ii\ a?e domestic a nd foreign • 'liui.il demands )<»* >h- >f?-K*ri»» s* « mine", a^ ueli as to huthet easing HI nuwics niark'/i couilitions 'hca>ui\ b'ij T'ales IKK! risen e a / l\ • w.) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in the period, reflecting expectations of heavy Treasury financing In the short-term area, but after that they fell back. At 3.00 per cent on the day before this meeting, the market rate on 3-month bills was about the same as 5 weeks earlier. Contract interest rates on conventional new-home mortgages and yields 1E the secondary market for Federally insured mortgages continued to decline in January. Inflows of savings funds to nonbank thrift institutions rose sharply further—approaching the record high rates of early 1971—in part because of the continuing decline in yields available on short-term market securities relative to the rates paid on savings shares and deposits. Business loans at commercial banks increased somewhat in January, but business loan demand apparently remained relatively weak, and major banks again lowered their prime rates. Real estate and consumer loans continued to expand rapidly, and banks further increased their holdings of securities other than Treasury issues. Following the January 1 1 meeting of the Committee, System open market operations had been directed at fostering substantial growth in total member bank reserves in January, while continuing to take appropriate account of conditions in the money market, After late January, System operations gave primary emphasis to maintaining steady conditions in the money market while the Treasury was engaged in its refunding operation. Total reserves were indicated to have grown from December to January at an annual rate of 28 per cent on the basis of earlier seasonal adjustment factors, and at about a 21 per cent rate on the basis of the factors emerging from the annual revision of seasonal adjustments, completed shortly before this meeting. In late January and the first half of February the Federal funds rate fluctuated around 3!4 per cent, down froni 3% per cent at the time of the Committee's meeting on January 1 1. In the 5 weeks ending February 9, member bank borrowings averaged about $20 million compared with $110 million in the preceding 4 weeks. Growth in the narrowly defined money stock (private demand deposits plus currency in circulation, or M)» remained relatively slow t in January. However, money more broadly defined (M plus comt mercial bank time deposits other than large-denomination CD's, or M ) grew at a fast pace as inflows of savings to commercial banks—- 2 124 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

like those to nonbank thrift Institutions—rose sharply further. Growth was also rapid in the adjusted bank credit proxy—dailyaverage member bank deposits, adjusted to include funds from, nondeposit sources —allhough the average volume of outstanding largedenomination CD's declined moderately and Government deposits changed little. In continuation of a discussion begun, at a meeting on the previous day, the Committee considered the relative merits of money market conditions and various measures of member bank reserves as fc'operating targets"—that is, as variables for guiding day-to-day open market operations in the effort to achieve its intermediate monetary objectives and, in the process, contribute to the Nation's basic economic goals. Some arguments were advanced in favor of placing about the same degree of emphasis on money market conditions as had been customary prior to the meeting on January 1 I. However, the Committee concluded that in the present en\ironnient it was desirable to increase somewhat the relative emphasis placed on reserves while continuing to take appropriate account of money market conditions. Committee members believed that doing so would enhance their ability to achieve desired intermediate monetary objectives. These include the performance of various measures of money stock and bank credit that are supported by reserves as well as interest rates and over-all liquidity and credit conditions. At the same time, the members believed that reservesupplying operations should be conducted so as to avoid disturbing effects in money and credit markets. At this meeting the Committee decided to express its reserve objectives in terms of reserves available to support private eoebank deposits—-defined specifically as total member bank reserves less those required to support Government and interbank deposits. This measure was considered preferable to total reserves because shortrue fluctuations in Government and interbank deposits are sometimes large and difficult to predict and usually are not of major significance for policy. It was deemed appropriate for System open market operations normally to accommodate such changes ie Government and interbank deposits. The Committee agreed that the economic situation and outlook at this time called for growth ie the monetary aggregates at moderate 125 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

rates. If look note oJ a stall' analysis suggesting that, over the months of l;ebruary and Marc!) combined, such growth was likely to be associated with expansion in the reserve measure employed at about an H per ecu! annual ralw Line! possibly with some Firming of money market conditions, The members decided that it would be desirable to seek growth in the reserve measure in the February-March period at an annual rale in a range of u to 10 per cent, while avoiding both sharp short-run fluctuations and undesirably large cumulative changes in money market conditions in either direction in the period between meetings. The}' also decided that some allowance should be made in the conduct ol opeialions lor any significant deviations that might de\e!op between the actual rates of growth in the monetary aggregates and the moderate growth rales expected. The members also agreed that account should continue to be taken of international developments, and that to the extent feasible fhe (foveiiiiiiCiit securities pui chased m icserve-supplying operations should include intermediate- and longer-term issues as well its Treasury bills, Finally, it was understood thai the Chairman might call upon the Committee to consider ihe nted for supplementary instructions if if appeared during the period be!ore the next scheduled meeting that the Committee's several ohieUhes jnd constraints were iiol being met sutistactoiih The following i urrent economic pohe\ directhe was issued to the Federal Rescue Haul- '»t W w York' Tbt information reviewed at ihi\ meeting indicates itiar leal *n\lpiil of iMn-$is uttii v;r^ "tVk,^ :nv.]'/nsed fuuic rap<«ll\ in the fourth quiiiler than it had in me rnifvi qiiiiner. hit! IIic imemployuitMU iate rtiiuiiiii't! hirh, 1M»I tin. cun^ nf qitarfrr. oreiwtii IN projreted ai a late i!i?se !u fl);jt ul Jhe h Miuis vjtiaitei Pficc^ iiicf e.tj.ed sharpis in December, in pur! reilechnx1 lerntination of the u0-da\ freezi Waft rates also fv>v suh^unttiutl} HI DeeeHiiHi vvlkiisoaic iueitascs tiiuf iiacl been deteuvti ftndei tUx" fiav*/ weie alUmed ;o go into cffe*'L bill the ri,v.j slowed iu Jaruiaty. I he nurrc^wlv ilefmed nn>ne\ sunk V^IHVII hud u«'t yd'W.i *>)\ }>.iKv.\>.\: iu^n Akij\v-i to Niueuibei, rose siwnewhat in l'h\.r^iiher :ud Januat1) . inh>n\s of tune ;UK1 savings fluids ut bank "Ji)\i i,i»n!>ai:s uhti'i mstiniu'wns »?u.reused ;»harpl> iti Johuai)', and boi!i J]JC f)n:a«l^. •Jein»ed money --jtuek ami llie bank credit pn»\\ e\pd«ft!eJ rapiill\ Soi^»e sh»>rt'ferni intcresi ruks ha\c 126 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

<feOi'pi<'<f Mother JH r.'t *cii H ^ ' I* i\rf',j,* M»'{ !M*M io?ni -usiJU s'vriiu «. i_vrv»'.il!\ b,n>* U'U-.'jiMd ff.'Hj flv tow •» ieachtM aioiuul undthe doUm !i»iu' appu ». u hv ?" i«, w j\ m J, .tiM^1 ihon H«*U SVH.VS* poll*. N t '-1 ihf. IVoV'Mf ^ *J"H* fl M . lH i ! ( '<»h\'iHfk\ f*; fo\k'l {jfKlll*. ?;t! c rt*itst'% t <,'iypf{>yti5ri!], ,ii Kilt"' lit nt <»! fHiktli»»i,;jrs p*» ^,u»\\ i'k^ aUiiiunu'iif t>f K\'*M»IK<»>L rijiHlihuitiif ;:i ^li',: (<Hti]try\ h iliiw*/ r»t payments. *. c'L'-pnii. n»s. ilk1 ("Vm.-niu,» .5 rl-, :• * tK'h;. •. •.' L.UrL r\:v i (> •.' d'l-J n>oiu\\ nnnkei CiHuIitioos rjuif v\ill Mippor* un^Ici'tk f/i^wih in oto{i<iai\ Mil boll Mr l!;rve> iJi^M-*f«ti\i horn H UN :i»:fiun f in sw^itfkifk ihc- sitfi ,(Sni!,> IF }\:U\ Ji*^rru»*d IHMII flic t1!^,1-; h vi ,K^>piCit at ihtv pr« '» io '^Pny I'lfsL hi, ritd ;;<»i !;rsOi pl;h.''n;/ ,^ UHirl; CDiphasss v»». **• i'il k'O^plu-.Ms orl !j:oiir\ Uut'kri '.'»><i{!l( i. * is l\H \\)M p(n(.».>*«0. ''tO 2, Continuing authority directiv i«•«; • s :),>•' • r •: n - ,«-<.» «j ^ >{ | )< Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

through January 11. 1972, specified that such repurchase agreements were to be made %%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/" Votes for this action: Messrs. Burns. Hayes. Brimmer. Clay. Daane. Kimbrel, Maisel, Mayo, Mitchell, Morris, and Shechan. Vote against this action: Mr, Robertson. This action was taken on recommendation of the System Account Manager, to provide against the contingency that under existing rate limitations it might not prove feasible to enter into repurchase agreements during coming weeks in the volume likely to be found desirable to meet the Committee's objectives for member bank reserves. It was understood that rates below 3lA per cent would not be used without prior notification to the Committee. The action of January 26 was ratified at today's meeting. Mr. Robertson dissented from the ratification as well as from the original action for reasons similar to those underlying his dissent from the similar action taken in December. He preferred to have needed reserves injected into the banking system by means of outright purchases of Treasury securities in the open market rather than through repurchase agreements with Government securities dealers. In his judgment such agreements actually constituted subsidized Joans to dealers, and he saw no justification for increasing the subsidy by making them at lower and lower rates of interest. 3, Rewisictn of gyideiine for operations in agency issyes. On August 24. 1971, when the Committee had first authorized outright operations in securities issued by Federal agencies, it had approved certain initial guidelines for the conduct of such operations with the understanding that they would be subject to review and revision as experience was gained. At this meet ing the Committee revised guideline 5 under which purchases were 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 128 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

purchase, and to issues outstanding in amounts of $200 mi]lion or over in cases where the securities have a maturity of more than 5 years at the time of purchase. As revised, the guideline specified that the maturity of the obligation should be taken as of the time of issuance, rather than as of the time of purchase, in determining whether It was eligible for purchase. Votes for this action: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and Sheehan. Votes against this action: None, This action was taken on recommendation of the System Account Manager, on the grounds teat from a practical standpoint it was undesirable for an obligation, initially eligible for purchase and perhaps already held in the System Account to become ineligible merely because its maturity had shortened with the passage of time. 129 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON MARCH 21, 1972 1. Current economic policy directive. The latest estimates of the Commerce Department indicated that real output of goods and services had risen at an annual rate of nearly 6 per cent in the fourth quarter of 1971, and it appeared that expansion in real GNP was continuing at about that rate in the current quarter. Prices rose substantially in the first few months following the mid-November termination of the 90-day freeze. In February industrial production and nonfarm payroll employment continued to expand, and estimates of both measures for January were revised upward by substantial amounts. The average workweek in manufacturing increased sharply, more than recovering the reduction of January, and the unemployment rate declined further to 5.7 from 5.9 per cent in January. The number of housing starts expanded substantially further. However, retail sales—according to the advance report—remained at the December-January level. The wholesale price index continued to rise at a rapid rate in January and February. In addition to sizable advances in prices of industrial commodities—which for the most part had been expected in the first few months after termination of the 90-day freeze—there were large increases among foodstuffs. However, the advance in wage rates slowed after an initial post-freeze surge in December. Staff projections suggested that growth in real GNP would be somewhat faster in the second quarter than in the first, in large part because of acceleration in consumer expenditures. It was expected that consumer spending would be buoyed by a more rapid rate of expansion in disposable personal income—as many taxpayers took steps to remedy the overwithholding of taxes that had resulted from the introduction of new withholding schedules at the beginning of this year. It was expected also that the rise in prices would moderate from the high rate that followed termination of the freeze. The deficit in U.S. merchandise trade remained large in January, about equaling the average of the preceding 9 months. Between mid-February and mid-March speculative outflows of funds from the United States raised the deficit in the over-all balance of payments and put further downward pressure on exchange rates for the dollar against other major currencies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Short-term interest rates had increased considerably In recent weeks, selecting in large part expanding market supplies of Treasury hills and firming money market conditions. From February 14 through March 20, the Treasury added $300 million to its weekly Issue of bills, aed on March 1 it auctioned a $3 billion strip of 15 outstanding issues of bills. In addition, the System sold sizable amounts of Treasury bills in order to absorb bank reserves that were supplied as the Treasury reduced its balances at the Federal Reserve Ranks. Oe the day before this meeting of the Committee, the rate on 3-month bills was about 3.85 per cent compared with a recent low of about 3.00 per cent in mid-February. Interest rates on long-term securities had changed little on balance since mid-February after having increased partly in reaction to late January estimates of a larger Federal deicit in iscal 1972 (han had been, anticipated. The spread between rates on short- aed long-term securities had been extremely wide by historical standards, aed it remained wide even after the recent rise in short-term rales. In February, as in January, the volume of new corporate aed Slate and local government bonds issued publicly was below the monthly average of 1971. It appeared that the volume of such issues would not change much in March. Yields in the secondary market for Federally insured mortgages declined somewhat further ie February, reaching a level about onehalf of a percentage point lower than ie the summer of 1971. The rates of inflow of savings funds to nonbank thrift institutions slowed from their exceptionally rapid pace of January, bet they were still taster than the average rates of the second half of 1971. Despite the recent rise ie yields available on short-term, market securities, the rules paid oe savings shares aed deposits remained relatively attractive. Business loans at commercial banks expanded more rapidly in February than at any other time since the summer of 1971 when loan demand had been stimulated by developments in foreign exchange markets, bet expansion was concentrated ie a relatively few iedeslues. Real estate aed consumer loans continued to increase at high rates and banks added a large amount to their holdings of securities, especially Treasury issues. Following 6 months of slow growth, the narrowly deieed money 13 J Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

stock (private demand deposits plus currency In circulation, orM,) increased sharply in February—in part because of a substantial reduction in U.S. Government deposits at commercial banks. Inflows of savings funds to commercial banks—although smaller than in January—remained large, and continued rapid growth was recorded for the niore broadly defined money stock (M, plus commercial bank time deposits other than large-denomination CD\s, or M ). 2 Growth moderated in the bank credit proxy—-daily-average member bank deposits, adjusted to include funds from nondeposit sources —chiefly because of the reduction in Government deposits. Including rough estimates for March, it appeared that over the first quarter M| and M would expand at anneal rates of about 9.5 and 13.0 per 2 cent, respectively, and that the bank credit proxy would rise at a rate of about 10.5 per cent.1 System open market operations since the February 15 meeting of the Committee had been directed at fostering growth in reserves available to support private nonbank deposits—the measure employed by the Committee to express its objective for bank reserves —at an annual rate between 6 and 10 per cent in the February-March period while at the same time avoiding both sharp fluctuations and large cumulative changes in money market conditions. As the period progressed, it appeared that the reserve measure was growing at a rate of 10 per cent or slightly faster. It also appeared that the firstquarter growth rates developing for the monetary aggregates were somewhat above the rates the Committee had expected. As a result, operations were directed toward limiting the growth in reserves, and money market conditions were allowed to firm. The Federal fynds rate, which had fluctuated around 314 per cent in the second half of February, rose to about 4 per cent at the time of this meeting. Member bank borrowings averaged about $60 million in the 2 weeks through March 15 compared with about $35 million in the preceding 3 weeks. The Committee agreed that the economic situation continued to call for moderate growth in the monetary aggregates, although at rates less rapid than those likely to be recorded for the first quar- 1 Growth rates cited are calculated on the basis of the daily-average level In the last month of the quarter relative to the last month of the preceding quarter. 132 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ter. The members took account of a stall' analysis suggesting that moderate rates of growth in the aggregates over March and April combined were likely to be associated with expansion in reserves available to support private nonbank deposits at an annual rate of about 1 1 per cent in those months, and probably with some further tightening in money market conditions, ft was indicated that such developments would not necessarily have much lasting effect on capital markets, in. view of the unusually wide spread existing between long- and short-term interest rates. The Committee decided to seek growth in the reserve measure employed at an annual rate in a range of 9 to 13 per cent during the March-April period while avoiding both sharp day-to-day fluctuations and large cumulative changes in money market conditions. The members also decided that some allowance should be made in the conduct of operations if growth in the monetary aggregates appeared to be deviating significantly from the rates expected; that account should be taken of international developments and of the Treasury financing of relatively small size that was being contemplated; and thai reserve-supplying operations should continue to include to the extent feasible purchases of intermediate- and longerterm Government securities as well as Treasury bills. It was under™ stood that the Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if it appeared that the Committee's objectives and constraints were eot being met satisfactorily. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests thai real outpot of goods and services is increasing in the current quarter at about the stepped-up rale attained in the fourth quarter of 1971. Several measures of business activity have strengthened recently and demands for labor have improved somewhat, but the unemployment rate remains high. Wholesale prices continued to rise rapidly In January and February, in part because of large increases in prices of foods. However, the advance in wage rates slowed markedly after the post-freeze surge in December. Following a period of sluggish growth, the narrowly defined money stock increased sharply in February, partly reflecting a substantial reduction in U.S. Government deposits. Inflows of time and savings funds at bank and nonbank 133 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

thrift institutions continued rapid in February, although below January's extraordinary pace. Short-term interest rates have risen considerably in recent weeks while \ields on long-term securities have changed little on balance. Exchange rales for most major foreign currencies against the dollar appreciated further in February and early March, as reeurrent speculative outflows of capital added to the U.S. balance of payments deficit, In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster tinaneial conditions conducive to 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, while taking account of international developments and possible Treasury financing, the Committee seeks to achieve bank reserve and money market conditions that will support moderate growth in monetary aggregates over the months ahead. Votes for this action: Messrs. Burns, Hayes, Brimmer. ColdwcIL Daane. Hastburn, MaeLaury, Maisel, Mitchell, Robertson, Sheehan, and Winn. Votes against this action: None. 2. Continuing authority directive. On February 2{), 1V)72, the Committee members bad voted to Increase from $2 billion to S3 billion the limit on changes between Committee meetings in System Account holdings of U.S. Government and Federal agency securities specified in paragraph Ha) of the continuing authority directive with respect to domestic open market operations. Votes for this action: Messrs. Burns, Hayes. Brimmer. Cla\. Daane. Kimbrel. Maisel, Mayo, Mitchell. Morris, Robertson, and Sheehan. Votes against this action: None. This action, which was ratified by unanimous vote at today's meeting, had been taken on recommendation of the System Account Manager as a temporary precautionary measure. The Manager had advised that increased !ee\v;n for System sales of Government and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

fvdt-fal aguii \ \^c\nitlv^ niii\t\\ v\/il be loquned *11 implcmcwing fbc Committee's p**\K\ dtrecrr*e durinn the [vnod before the next meeting HI view i«f tbt larri \>>i11nie *'»* ^alcs thai had already been required bevaUM.' uf the {eduction in I'KV.SU n balance^ at 1-cderal Ke-sen e Ranks Ai ihh meeting, after rhe Mnnap i had ad* !Ncd that the largei lunii no ion^trr appeared HkHy tr bw* iicetJed, the Comnuttee aitiendcd paragraph Ua) i.'f the eoitfununiZ aulhorily dneetive to rcstoa Hie 5.^ hilfuni 11 in it tha? h,ui 'ven ii! elfcxt piioi to the action on Jhebiuary ,1H;. \ oU's f\w this aetKHi: Me:»>rs. fkints, Flaves, iiriTUHjer, i'uidwelf, Daauc, I:;iHthufii, Macl.auiy, \lmsel. Mitchell. RuhejrM)n SliCi-lsati, aiui Whin, Votes ;iira«f\ ,t fhis ;kli*>n N«>nt\ On Maieh 7, 1^72, a n)aji>rity oi' Couujninee meiuhers had voted to suspend, until the elose of bus'niCh\ on March 2 ! , lc/72. the lower limit t.scl t\>f1li in paragraph U.L) of the continuing authoritv directive) on interest rates on repurchase agreerneius tRlvs) itrranged by the Federal Reserve Bank of New York with nonhank dealers. The provision in tjuc,sti<^n- •• which had also bc.cn suspended for the periods from December ?J. !^7I« thr\>uuh January 1 1. 1^72. and from Jaoiiii?) 2(> ihrout'h IVbfuaiv 15, 197.?-•• specified that such RF's were to f'»e made %*:il rates noi less ilun- (I) the discount rate of the Federal Rescive Bank uf New York nl the time such agreement is entered into, or (2) the average issuing rate on the most recent issue of 3-month Treasury hills, whichever U the lower/* Votes for this a«.tiocr Messrs. Haves. C'oUwefl, Daane. Fasthunu MaeLaur), MitehelL Sheehasi, <if]tl Wiiifi, Votes against this action: Messr.-*. Riioi mer and Robertson. Absent UJK! not \oiing: Messrs Ruins and Maisel. This action had been taken on recommendation of the Manager, to provide against the contingency thai under existing rate limitations it might noi prove feasible ft) enter into Rlrs during coming days in the volume itKely to be found desirable to meet ihc Committee \s objectives for inciiiber bank reserves. It was understood that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

rates below 3!4 per cent would not be used without prior notifica™ tion to the Committee. Mr. Brimmer had dissented from this action because he felt that excessive reliance was being placed on RP's in open market operations. He was also disturbed about the frequency with which RP's had been made recently at rates below the lower limit that would obtain in the absence of Committee action to suspend the relevant provision of the continuing authority directive. He thought that since such RP rates were typically below yields on 3-month Treasury bills, their continued use might give the market a misleading impression of the Committee's policy objectives. Mr. Robertson had dissented from the action in question for the same reasons underlying his dissents from similar actions taken in December and January. He preferred to have needed reserves injected into the banking system by means of outright purchases of Treasury securities in the open market rather than through RP's with Government securities dealers. In his judgment such agreements actually constituted subsidized loans to dealers, The action of March 7 was ratified by unanimous vote at today's meeting. Messrs. Brimmer and Robertson, having recorded their dissents from the action of March 7, did not consider it necessary to dissent also from the ratification. 3. Fiewieif 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, 1972, and their assumption of duties, the Committee followed its customary practice of reviewing all of its continuing authorizations and directives. The Committee reaffirmed the continuing authority directive with respect to domestic open market operations, the authorization for System foreign currency operations, and the foreign currency directive in the forms in which they were presently outstanding. Votes for these actions: Messrs, Burns, Hayes, Brimmer, Coldwell, Daane, Eastburn, MacLaury, Maisel, Mitchell, Robertson, Sheehan, and Winn. Votes against these actions: None. 136 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In connection with the review of the continuing authority directive for domestic open market 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 tinie 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 that the lending activity in question remained necessary and, accordingly, that the authorization should remain in effect subject to periodic review. 137 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON APRIL 17, 1972 This meeting was called by the Chairman for the afternoon before the meeting scheduled for April 18, 1972, to enable the Committee to consider certain matters before it without infringing on the time available for its deliberations on current monetary policy. 1. Continuing authority directive. The Committee amended paragraph l(c) of the continuing authority directive with respect to domestic open market operations to provide that interest rates on repurchase agreements (RP's) arranged by the Federal Reserve Bank of New York with nonbank dealers should be determined by competitive bidding unless otherwise expressly authorized by the Committee. Prior to this action, interest rates on RP's had been administratively determined by the System Account Management, subject to the provision of paragraph l(c) that they should not be less than (1) the discount rate of the Federal Reserve Bank of New York or (2) the average issuing rate on the most recent issue of 3-month Treasury bills, whichever is lower. (On three recent occasions—December 23, 1971; January 26, 1972; and March 7, 1972—the Committee had suspended this provision for periods of a few weeks, on the basis of advice from the System Account Manager that it might otherwise not prove feasible to enter into RP's in the volume likely to be found desirable to meet the Committee's current reserve objectives.) Although no upper limit was specified in the continuing authority directive, in practice RP rates ordinarily had not been set higher than the discount rate. The amended paragraph read as follows: 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 under agreements for repurchase of such securities, obligations, or acceptances in 15 calendar days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding, after applying reasonable 138 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Jimitatious on flic volume ri avzreuncnts with intln kiual dealers; provided ih'it HI the event Cl*ncinincnl securities or agcruy issues ooNCtctl In ai>% ^utii agteepient are not i^fniu ikiseJ h\ the ifealei puisua?;? t*> the agreement «H a icfiew.tJ thereof, liter shall he sole) in ilu: maikof or transfeneci to the Svstein # )pen Market Ae« omite auJ pr°v ttJeif Inrifici (hat in llu: ewot harikit:/ aev\%pUUK'cs v'o\Tcfi.'ii hy any such dfjeetnuif are ri*»t repuichasetl h\ the sellei , fhe\ shall continue to Nc% heltf In iHe l;eder;i! Krs-rve !!j}ik <*-i >h.iJI he •*(»!<! in the open maiket Voio J~c*i this :n*iiefii" Messis, Hiiro^, liav's. Brimmer, C.\»k!welL Daane, rii.sthuni.. \Jaci.auiy. Mai so I. MifoheN, R<"»hcttson, S'leeiKin, arni Wnu\, V«>les uuainst this aeiion. None, This action was Liken on lecomnieiklanon of a stall committee appointed to stiuly eetiain matters lektiine to RIrs, l*he Mull eommithv Couiul that sueh agrt*eme?Hs piovuie u useful means lor supplying, reserve^ *\'horr the tiitfienfetl tfservr neecis are large but are likeh- h» he of a short duration, and that exLsfioti procedures for sect in 11 UP rates had worked fairly well on the whole, Howevei, trie stall' committee also concluded iiiat a competitive bidding procedure would haw certain advantages. In particular, it mould niiiiiiiit/t^ the unwarranted "announcement effects^ that had sewneflines resulted when market participants attached an unintended pohc\ significance to changes in the KP rate. Seeoiiifh , it \venikl insure that (he costs to dealers of funds obtained through System repurchase agreements were closely related to the costs of funds available to them from alternative stniics, The Open Market C'onmnitec concir>vd in these Iniilings of" the stall* committee ami decided to experiment with a procedure under which lates ini HP's with nonhank dealers would be establisheii through competitive bidding, aflei applyitig reasonable limitations on the volume oi RP\ with iiuJiv ulual dealers. In view of lite possibility that eireiinisianees inighf arise under which acompetni\e bidding procevlure wemld not be desiiablc, prt^visiun was matie for fhe use of other procedure's when expressly authorised h\ the Open Market (\>mn>ntee. 139 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2. Rewision of guideline for operations in Federal agency issyes. At this meeting the Committee revised the sixth of the guidelines for the conduct of System operations ie securities issued by Federal agencies. Initial guidelines had been approved on August 24, 1971, with the understanding that they would be subject to review and revision as experience was gained, and guideline 5 had been revised on February 15, 1972. Prior to today's action, guideline 6 had specified that System holdings of any one issue would not exceed 10 per cent of the amount of the issue outstanding, but that there would be no specific limit on aggregate holdings of the issues of any one Federal agency. The revision consisted of an increase in the limit oo holdings of any one issue to 20 per cent, and the addition of a provision that aggregate System holdings of the issues of any one agency would not exceed 10 per cent of the amount of outstanding issues of that agency. Votes for this action: Messrs. Burns, Hayes, Brimmer, ColdwelL Daane, Eastburn, MacLaury, Maisei, Mitchell, Robertson, Sheehan, and Winn. Voles against this action: None. This action was taken on the grounds that it would reduce the number of occasions on which the System might have to reject offers of particular issues that were priced attractively relative to other issues, while maintaining the principle that System operations in agency issues should be conducted on a limited scale so as not to dominate the market for such issues. 140 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON APRIL 18, 1972 Current economic policy directive. The information reviewed at this meeting suggested that real output of goods and services had grown in the first quarter of 1972 at about the stepped-up rate attained in the fourth quarter of 1971, and that prices had risen at a relatively fast pace in the first quarter, in part because of the mid-November termination of the 90-day freeze. Staff projections suggested that the rate of growth in real GNP would increase somewhat in the current quarter and that the uptrend in prices would moderate. In March retail sales increased sharply after having changed little for several months. Industrial production continued to grow at a substantial rate, employment rose appreciably in manufacturing and other nonfarm establishments, and the average factory workweek remained near the high level reached in February. However, the unemployment rate moved back up to 5.9 per cent from 5.7 in February, reflecting a very large increase in the civilian labor force. Housing starts dropped in March from the extraordinary high they had reached in February. The uptrend in wholesale prices of industrial commodities continued in March at about the relatively rapid rate prevailing since mid-November, when the 90-day freeze had ended. However, average prices of foodstuffs declined, after having risen sharply in February, and the increase in the total wholesale price index was small. Average hourly earnings of production workers on private nonfarm payrolls now were estimated to have advanced at a more rapid pace in January and February than had been indicated by earlier data, and they rose appreciably further in March. According to staff projections, growth in real GNP would pick up in the second quarter mainly because of a sizable advance in consumer spending. Such spending would be buoyed by a much larger gain in disposable income than in the first quarter, when an increase in personal income tax payments under the new withholding schedules had dampened the rise. The staff projections suggested that both Federal purchases and State and local govern- 141 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ment outlays would continue to expand at moderate rates and that the rise in, residential construction outlays would slow as housing starts declined from a record level. It was expected that business capital outlays, in line with recent surveys, would continue to increase, but at a less rapid pace than in the first quarter. Projections for the second half of the year suggested some further step-up in the rate of growth in real GNP. It was anticipated that disposable income and consumption expenditures would increase at a faster pace; that business capital outlays would continue to grow at moderate rates and inventory investment would increase further; that State and local government expenditures would expand substantially; and that net exports would improve in lagged, response to the earlier realignment of exchange rates. Oe the other hand, Federal outlays were expected to rise at a slower pace than in the first half of the year and residential construction activity was expected to level off. In foreign exchange markets the dollar had strengthened somewhat siece mid-March and the deficit in the U.S. balance of payments on the official settlements basis had been small, in contrast with preceding weeks when the dollar had weakened In association with speculative outflows of funds. Markets had been influenced in recent weeks by the rise in short-term interest rates le the United States relative to those abroad and by the enactment on April 3 of the Par Value Modification, Act, which raised the U.S. official price of gold from $35 to $38 per ounce. In, February the value of U.S. exports fell much more than the ¥alue of imports and the delcit in merchandise trade increased from the already large amount ie January. Short-term interest rates generally had continued to rise siece the Committee's meeting on March 21, in response to some further tightening in money market conditions and to evidence of gathering strength in economic activity and rising credit demands. However, the market rate oe 3-month Treasury bills, at about 3.85 per cent on the day before this meeting, was unchanged from 4 weeks earlier. Demands for bills of short maturities had expanded in recent weeks, and the prospective supply was reduced when the Treasury announced oe March 21 that it would no longer add $300 million to its weekly issues of ^1-day Mils, as it had been doing since February 14. 142 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In association with increases in yields on most types o! short-KM m securities ami growing uncertainties about the course of intercsr rales in general, rates on !ont_?-tenn securities also had ilnficd upward ^iiice the March meeting The combined volume of new corporate and Stale and UKUI s/overnment bomb publicly issued changed liitle in March, remaining weil below the monthly average of ]*•>"/1: the volume ol offering appeared likely to increase somewhai m April. Contract interest rates on conventional new-home moit^a^es declined vln*li(ly in March while yields in the secondary market for Federally insured mortgages changed little, follows of savings hinds to nonbank thrift institutions icmamed ver\ JanL'C fur the first quarter as a whole they approximated the extraordinaitly high rates of the same period ot 1^71 At commercial hanks, business loans outstanding rose in Match at the stepped-up pjee of February, and real estate and con>umer Joans continued to expand rapidly Hanks increased sharply ttether ihcir holdings of both U S. Cjo\eriuiieiit and other securities. In reaction to strengthening loan demand and advances in money market rates, most major banks raised their prime rales front 4-% to 5 per cent m late March and early April, Growth in the narrowly defined money stock (private demand deposits plus currency in circulation, or A/,) remained rapid in Maieh. However, growth in the more broadly defined money stock (Mi plus commercial bank tone and savings deposits other than large-denomination CD's, or M ) slowed somewhat. Inflows of 2 .savings funds to commercial banks, while still strong, continued to moderate—-reflecting in part the increases in yields available on short-term market securities and earlier reductions in rates paid by banks on time ant! savings deposits Over the first quarter, M t and M grew at annual rates of about C).S and 13,5 per cent, 2 respectively, compared with rates of about 1 and K per cent over the fourth quarter of I*)?I.1 Chiefly because of large swings in U.S. Government deposits, the rate of growth in the bank credit proxy-—daily-average member bank deposits, ac!justed to include s Growth rates cited aie calculated on the h.tsih of the iiaii\ -average level in the last month of the tpntifer relathe to that in the Jus! month oi the preceding quarter 143 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

funds from nondeposit sources-—increased sharply In March after having slowed In February. System open market operations since the March 21 meeting of the Committee had been directed at fostering growth in reserves available to support private nonbank deposits at an annual rate in the March-April period of 9 to 13 per cent while at the same time avoiding sharp day-to-day fluctuations and large cumulative changes in money market conditions. It appeared at present that the reserve measure employed would actually grow over the March-April period at an annual rate of about 13.5 per cent, but a technical adjustment to the underlying data—which did not affect the deposit measure—accounted for about 1 percentage point of the rate of growth in the measure of reserves, The Federal funds rate had risen from about 4 per cent at the time of the March 21 meeting to around 4lA per cent in recent weeks. Member bank borrowings averaged about $105 million in the 4 weeks ending April 12 compared with about $45 million in the preceding 5 weeks. The Committee agreed that the economic situation called for growth in the monetary aggregates at rates somewhat more moderate than those recorded for the first quarter of the year. The members took account of a staff analysis which suggested that somewhat more moderate rates of growth over April and May combined were likely to be associated with expansion in the volume of reserves available to support private nonbaek deposits at ae annual rate of about 9 per cent in those months and probably with some further tightening of money market conditions. The Committee decided to seek growth in the reserve measure employed at an annual rate in a range of 7 to 11 per cent during the April-May period and to accept, if necessary, somewhat firmer money market conditions in order to achieve growth in that range in existing circumstances, while continuing to avoid sharp fluctuations and large cumulative changes in money market conditions. The members also decided that account should be taken of the forthcoming Treasury financing and of developments ie capital markets, and that some allowance should be made in the conduct of operations if growth in the monetary aggregates appeared to be deviating significantly from the somewhat more moderate rates expected. It was understood that the Chairman might call upon the Committee to consider the need for supplementary instructions 144 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

before the next scheduled meeting if il appeared that the Committee's objectives and constraints were not being met satisfactorily. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The in format ion reviewed at this meeting suggests thai real output oi goods and services grew in the first quarter at about the stepped-up rate attained in the fourth quarter of 1971. Most measures of business activity have shown strength recently and demands for labor have improved further, but the unemployment rate remains high. The rise in wholesale prices slowed in March as some farm and food products declined sharply, but the rise in prices of industrial commodities remained substantial. Wage rales also rose substantially in Mareh and over the first quarter as a whole. The dollar has strengthened somewhat in exehange markets in reeent weeks, and the over-all U.S. balance of payments deficit on the official settlements basis has been small. In January and February merchandise imports continued to be considerably in excess of exports. The narrowly defined money stock expanded rapidly tn February and Mareh, bringing the annual rate of growth over the post 6 months to about 5lA per cent. Inflows of consumer-type time and savings deposits to hanks have been strong thus far this year, although they moderated us the first quarter progressed; inflows to nonbank thrift institutions remained very large. Mainly reflecting swings in U.S. Government deposits, a modest increase in the bank credit proxy in February was followed by a large increase in March. Market interest rates generalI\ have continued to rise in recent weeks. In light of the foregoing developments, it JS the policy of the Federal Open Market Committee to foster financial conditions conducive to sustainable real economic growth and increased employment, abatement of inflationary pressures, ami attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, while taking account of capital market developments and the forthcoming Treasury financing, the Committee seeks to achieve hank reserve and money market conditions that will support somewhat more moderate growth in monetary aggregates over the months ahead. Votes for this action: Messrs. Bums, Hayes, Brimmer, Coldwell, Daane, Eastburn, MacLaury, Maisel, Mitchell, Robertson, Sheehan, and Wine. Votes against this action,: None. 145 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON MAY 23, 1972 Current economic policy directive. Estimates of the Commerce Department indicated that real output of goods and services had grown at an annual rate of 5.6 per cent in the first quarter—about the same rate as in the fourth quarter of 1971—and growth appeared to be accelerating in the current quarter. Staff projections suggested that the growth rate would increase further in the second half of 1972. In April industrial production rose at a faster pace than earlier in the year, reflecting widespread gains in output among consumer goods, business equipment, and materials. Employment in manufacturing and other nonfarm establishments continued to expand, and the average factory workweek increased sharply. However, the unemployment rate remained at 5.9 per cent. According to the advance report, retail sales declined in April—following an upsurge in March—but they remained well above the monthly average in the first quarter. Housing starts continued to fall from the extraordinary high reached in February, although part of the reported decline for April may have reflected statistical problems. Wholesale prices of farm and food products, which had declined in March, were about unchanged in April, but prices of industrial commodities continued to rise at the substantial rate of the preceding 4 months. The consumer price index rose somewhat, after having been stable in March; over the 2 months, retail prices of foods changed little. The advance in average hourly earnings of production workers on private nonfarm payrolls remained fairly rapid. Staff projections continued to suggest that growth in real GNP would accelerate in the current quarter, with a step-up in inventory accumulation from a very low rate in the first quarter now expected to account for a part of the acceleration. Consumer spending, which had increased more in the first quarter than had been estimated earlier, was expected to continue upward at a substantial rate; such spending would be buoyed by a larger gain in disposable income than in the first quarter when a sizable increase in personal income tax payments under the new withholding schedules had dampened 146 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

the n:n' It v-as aiitit i|Kf!v"iJ 1 bat bfisf$icv» eapital ouila\s would eoiilinue lu iiK'Kasc. I'*i«¥ ni it k\s,'> tapid paee irum H» the lirst quarter, and Iha! the DM* in ir\kk*isfia! etmstiuetiou oiulavs would sit>w. Projeetiojts io^ fjv -vji oml *i,t!I of the veer lile tho*e of ^ wveks earhei, Mirpevfed some f Hither ii.se nt tin1 rate of real CLNP growth lr was still antu'ipated that disposable IOIOIIH1 ;md consumption expenditures would nk*n.\tse a! a f»^ft^ p;t,cc, fluif hy^incss capilaf »'Utiay* and invmln'y iin'f^-tna'itl would ^ onnnue fo cNpaii<l, ar.ti fltal nor c\non* would ir<»pro\v % On \\w ot!;ci hand, it was expccled that !ln% i'xpaiiMcui lit fvdcnil <nitl-nys would slow - although not to tin: c\lcii! thai had htvis ^UiT;?»¥stod in llw (HCMOUS pfoj^cHoiiN— rnid that residential constitutor- outlast \vouid icvr! or)'. hxcbj.nrc iah/s r\>j if he dollar ^ram'.l Hir-si rnaior loieii1!! currencie> had chaihjrd !tilk4 >fiicc nud-Mateli 1'iu* I' .v» balance of paymeuiNon tfi? ollieia^ seUleiuenK ba^.i^ bad fvi n \n shjfht siupius. letk-eiihi: ,'i;; i!?t!o\\ ol p>i\aie wtpH;t', ;-pevviai!v MSOII itnu, lo tin: l!i<i!ed Slates ?hi\ \\ .p in wouira-^ vdh the hea\'^ delict iveoided ib tin. nrst M'j ni^nili; ,»l t^JJ whvn prwuu* i .tpiiaf «in hahihee hat! ilowed out. 1'tic pu\ incut'- haianec <»»- the net liquidity basis apparent^ h«.<d »en»;;meu' fi; ^is'iieM u, /ev.^ni vN'v'ef s. alHi%>mih I!K deliijf was i>K\i(!v iediKed hy the mMov* of ia|)H«i! lit Maic!'« Ciie 'Jeltcif in nieiehund?--t. if,uk' u*nia»ned Lirv 'Ilk* ! fca^ury ,tfitn «IHU eti o<» '\)H(i .'(' ilia! us i\\ Hiui NLk% liniiiic HIL( (! would refund ou!\ .s> 1 . 7'< hillit>n oi the SJ 4 bi11 n-?i tit pu«>iKJ\ iirld dvin jiKiturttJ)' on Mas I *% and that if v-. ould jed^eui rho IniLtiice U»r cash hi fin' refunding fi'ie I':t/asi,5f \ atkliom*;! 5> I ,1*5 hilliuii <<* ,i ) ',«. vii n*«! „ at ;«n #>\eK.i;N ptii; » ? ;. k !d 4 M pi/t eeuL afki !>%n0 in,l!h.n }.;»»;e ol ,i bonii [iialuui:;.! tn ietHu.JV iMN :, al un avou;.1" pn^e I** y«eltl d ;'•'• |»rf ee*n. If v«, a^ thought possible ihai l l i H' J'/st (."Ji % i > it* t u l\ h ad !r«h V:dV\l lit A Ulii\i>\ C 'onnuiik\ ' > nK^tiiiP ^ JI A{«ni uV !',;nl\ in !fic d i o n" ixMii r.tH .t-< \\\h* x'il^'s'l iJ i^ i' pa'Uv m T ^ 'p I:1! tiW'i six",hi:.\ e,t.!) h ^j t ow aiv •, h; Hit '•>*, eoi,d \\%ntUi hi' le.*s IJKIII fK!4f i>/i 0 iM?<, nr.if, d, f*lou^v\ ! V\*kr?,ie < *f <«<„"•-*'» ^.M'pvM»ih,' .in'J *>t.<U a m! k>v al y.o1, » hiii'jv issued h:»d deeiined swhiewhaf in '\r*:il and a .« » l'^\is iurl'ui'' ,i. *(d,»" i'''X,,if.; d :e *. v'1 u; \ he Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

however, interest rales—-especially short-term rales—had tended upward again partly in response to sonic tinning in money market conditions and to three Treasury auctions of bills in a short period of time. The market rate on 3-month bills was 3,19 per cent on the day before this meeting, compared with a low of 3.42 per cent In early May and 3.85 per cent on the day before the April meeting. Contract Interest rates on conventional new-home mortgages and yields in the secondary market for Federally insured mortgages rose somewhat in April; In both cases the increases were the first in many months. Inflows of savings funds to nonbank thrift Institutions slowed, but they remained at a relatively advanced pace. At commercial banks, business loans outstanding expanded in April at a faster pace than in the first quarter, and real estate and consumer loans continued to grow rapidly. Banks added only a small amount to their holdings of Government securities and reduced slightly their holdings of other securities; in the first quarter, they had added substantial amounts of both. Growth in the narrowly defined money stock (private demand deposits plus currency in circulation, or M ) slowed to an annual x rate of about 8 per cent in April from an average rate of about 12 per cent in February and March. Inflows of savings funds to commercial banks continued to slacken, and growth in the more broadly defined money stock (M plus commercial bank time and t savings deposits other than large-denomination CD's, or M ) also 2 moderated to a rate of about 8 per cent, from an average rate of 13 per cent in February and March. However, expansion in the bank credit proxy—daily-average member bank deposits, adjusted to include funds from nondeposit sources—remained rapid, reflecting increases in both U.S. Government deposits and the volume of large-denomination CD's outstanding. System open market operations since the April 18 meeting of the Committee had been directed at fostering growth in reserves available to support private nonbank deposits (RPD's) at an annual rate in the April-May period of 7 to 11 per cent and growth in the monetary aggregates at somewhat more moderate rates than earlier, while at the same time avoiding sharp day-to-day fluctuations and large cumulative changes in money market conditions. It appeared at present that RPD's would actually grow over the 148 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

April-May period at an annual rate of 7.5 per cent. Since the April meeting the Federal funds rate had continued to fluctuate around the 414 per cent level reached in early April. Member bank borrowings averaged about $115 million in the 5 weeks ending May 17 compared with about $105 million the preceding 4 weeks. In pursuit of its open market objectives, the System needed to provide fewer reserves than it would otherwise have provided because a large amount of reserves was supplied by a reduction in the Treasury's balance at the Federal Reserve Banks and by the moneti/.ation of the gain in the dollar value of the gold stock that resulted from the recent increase in the U.S, official price of gold. In late April the System met temporary needs for reserves by making repurchase agreements with nonbank dealers; interest rates on those agreements were established by competitive bidding, in accordance with a Committee decision on April 17, lc)72 In this initial use of the experimental auction procedure, no major difficulties were encountered. The Committee agreed that the economic situation called for growth in the monetary aggregates over the months ahead at rates somewhat slower than those recorded in recent months. After taking account of recent changes in deposits and lagged reserve requirements, the Committee decided to seek growth in RPD's at an annual rate in a range of 7.5 to 11,5 per cent dining the May-June period while continuing to avoid sharp fluctuations and large cumulative changes in money market conditions. If was recognized that growth in RPD's within that range might be associated with some firming of money market conditions. The members also decided thai some allowance should be made in the conduct of operations if" growth in the monetary aggregates appeared lo be deviating significantly from the rates expected and that account should be taken of capital market developments and possible Treasury refunding. A^ at other recent meetings, if was understood that the Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if it appeared that the Committee's objectives and constraints were not being met satisfactorily, The following current economic policy directive was issued to the Federal Reserve Bank of New York: 149 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

'The information reviewed at this electing, including recent data for such measures of" business activity as industrial production and employment, suggests that real output ol' goods and services may be growing at a faster rate in the current quarter than in the two preceding quarters, but the unemployment rate remains high. In April wholesale prices of farm and food products changed little-— after having declined in March-—hut the rise in prices of industrial commodities remained substantial. The consumer price index, which had been stable in March, increased somewhat. Wage rates continued to rise at a substantial pace. The U< ,S balance of payments on the otlieial settlements basis has been in small surplus since mid-March, but the payments balance on the net liquidity basis has apparently remained in deficit. In March merchandise imports continued to be considerably in excess of exports, Growth in both the narrowly and broadly defined money stock slowed in April from the rapid rates in February and March. Inflows ol savings funds to nonbank thrift institutions also slowed, but they remained at a relatively advanced pace, Reflecting it further Increase In U.S. Government deposits and a rise in ihc outstanding volume of large-denomination CD's, the bank credit proxy continued to expand at a rapid rale. In recent weeks, market interest rates have fluctuated in a narrow range. fn light ol the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to sustainable ical economic growth and increased employment, abatement ot inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, while taking account of capital market developments and possible Treasury refunding, the Committee seek\s to achieve bank reser\e mid money market conditions that will support somewhat slower growth in monetary aggregates over the months ahead Vote** for thi> action; Messrs, Burns, Hayes. Hriioiiiii. Ci»lvl\sell. Daaik-. Hastburu. MaeLaury. Mitchell. Sheeban, and Wim\, Votes auainst tins action; None. Ak'-cnt and noi voting: Me>%is. Maisej and Robertson. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON JUNE 19-20, 19721 Current economic policy directive. The information reviewed at this meeting suggested that real output of goods and services was rising in the second quarter at a faster pace than the 5.6 per cent annual rate recorded in the first quarter. A moderately higher rate of growth appeared to be in prospect for the rest of 1972. In May retail sales increased sharply, according to the advance report, and were well above the first-quarter average. Industrial production continued to expand, with gains reported among consumer goods, business equipment, and materials. Payroll employment rose substantially further in manufacturing and other nonfarm establishments, but because of another large addition to the civilian labor force, the unemployment rate remained at 5.9 per cent. Wholesale prices of farm and food products rose considerably in May, following little change in April, and prices of industrial commodities continued upward at about the average rate of earlier months this year. Average hourly earnings of production workers on private nonfarm payrolls advanced at a slower pace than they had in the preceding 3 months. The latest staff projections of real GNP for the second half of 1972, which suggested some further increase in the over-all rate of expansion, were similar to those of 4 weeks earlier. It was anticipated that disposable income and consumption expenditures would rise at a somewhat faster pace; that business capital outlays would continue to expand, although not so rapidly as had been suggested in the previous projections; and that inventory investment would increase appreciably. It was expected that Federal purchases of goods and services would expand moderately further and that residential construction would level off. In foreign exchange markets, speculation involving a number of European currencies had developed since the last meeting of the Committee. The exhange rate for sterling against the dollar had declined significantly while rates for most continental currenlrThis meeting was held over a 2-day period beginning on the afternoon of June 19, 1972, in order to provide more time for the staff presentation concerning the economic situation and outlook and the Committee's discussion thereof. 151 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

cies had risen; the spread between sterling and several other currencies had widened to the maximum specified under the European Community monetary agreement. Through early June the U.S. balance of payments was in surplus on both the official settlements basis and the net liquidity basis, as recorded and unrecorded inflows of short-term capital to the United States continued to exceed the deficit on current and long-term capital account. The excess of merchandise imports over exports in April, however, had been even larger than in February and March. Since the Committee's meeting on May 23, market interest rates oe both short- and long-term securities had fluctuated in a narrow range—declining somewhat early in the period and rising again later. Rates had edged down in late May in part because of a Treasury decision not to refund $1.2 billion of bonds maturing on June 15 and expectations in the market that the Treasury would not borrow new funds until late July. Moreover, the combined volume of new publicly issued corporate and State and local government bonds had declined somewhat further in May and appeared likely to remain at a reduced level in June. Later in the period rates moved up again, in part because of the effects oe investor expectations of reports that suggested further strengthening in economic activity and indications of some firming in money market conditions. Markets for Treasury notes and bonds also were influenced by discussion of the possibility that the Treasury might undertake an advance refunding. The market rate for 3-month Treasury bills was 3,92 per cent on the day before this meeting compared with 3.79 per cent 4 weeks earlier. Contract interest rates on conventional new-home mortgages were unchanged from April to May while yields in the secondary market for Federally insured mortgages rose slightly. Inflows of savings funds to eonbank thrift institutions continued to moderate. At commercial banks, business loans outstanding expanded in May at about the stepped-up rate of April, and real estate and consumer loans continued to grow rapidly. Banks also added a substantial amount to their holdings of securities, especially securities of State and local governments. Growth in the narrowly defined money stock (private demand deposits plus currency in circulation, or M) slowed further in May. t However, inflows of savings funds to commercial banks increased, 152 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

after having fallen off in the preceding 3 months, and growth stepped up somewhat In the more broadly defined money stock (Mj plus commercial bank time and savings deposits other than large-denomination CD's, or M ). Over the April-May period, M 2 t and M grew at annual rates of about 6 and 8 per cent, respectively, 2 compared with rates of about 9 aed 13 per cent in the first quarter of 1972.2 Expansion in the bank credit proxy—daily-average member bank deposits, adjusted to include funds from eoedeposlt sources—remained rapid as baeks, especially those experiencing strong demands for business loans, acted aggressively to Increase the volume of large-denomination CD's outstanding. System open market operations since the May 23 meeting of the Committee had been directed at fostering growth le reserves available to support private nonbank deposits (RPD's) at an annual rate ie the May-June period between 7.5 aed 11.5 per cent and growth In the monetary aggregates at rates somewhat slower than those recorded earlier this year, while avoiding sharp day-to-day fluctuations and large cumulative changes In money market conditions, It appeared at present that RPD's would grow over the May—June period at a rate of about 7 per cent. The average Federal funds rate had been slightly below 4Vi per cent since the beginning of June, compared with about 4lA per cent In May, In the 4 weeks ending June 14 member bank borrowings had averaged about $115 million, approximately the same as In the preceding 5 weeks. As at its May meeting, the Committee agreed that the economic situation called for moderate growth in the monetary aggregates o\zv the months ahead. After taking account of recent changes m deposits and the 2-week lag in reserve requirements, the Committee decided to seek growth in RPD's at ae anneal rate ie a iiinvx of 4.5 to 8,5 per cent during the June-July period while continuing to avoid sharp fluctuations and large cumulative changes in money market conditions. As before, it was recognized that pursuit oi the objective for RPD's might be associated with some iirming of money market conditions. The members also decided iliiil some allowance should be made in the conduct of operations tf grow Hi IE the monetary aggregates appeared to be deviating -Rased ««n the change ie the daily-average levels from March to May and from lV*.omJ"vr u* March. 153 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

significantly from the rates expected, and that account should be taken of capital market developments and possible Treasury financing. As at other recent meetings, it was understood that the Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if it appeared that the Committee's objectives and constraints were not being met satisfactorily. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting, including recent data for such measures of business activity as industrial production, employment, and retail sales, suggests that real output of goods and services is growing at a faster rate in the current quarter than in the two preceding quarters, but the unemployment rate remains high. In May wholesale prices of farm and food products advanced appreciably—after having changed little in April—and the rise in prices of industrial commodities remained substantial. The most recent data suggest some moderation in the pace of advance in wage rates. The U.S. balance of payments has been in surplus in recent weeks on both the official settlements basis and the net liquidity basis. In April, however, the excess of merchandise imports over exports was even larger than in February and March. Some strains have developed in international financial markets recently, involving European currencies. Growth in the narrowly defined money stock slowed further in May, while growth in the broadly defined money stock stepped up somewhat as inflows of consumer-type time and savings deposits to banks expanded considerably; over the April-May period, growth in both measures of the money stock was well below the high rates in the first quarter of the year. The outstanding volume of large-denomination CD's increased substantially further in May. and expansion in the bank credit proxy remained rapid. In recent weeks, market interest rates have continued to fluctuate in a narrow range. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to sustainable real economic growth ami increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, while taking account of possible Treasury financing and developments in capital markets, the Committee seeks to achieve bank reserve and money market conditions 154 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

that will support moderate growth in the monetary aggregates over the months ahead. Votes for this action: Messrs. Burns, Brimmer, Bucher, Cold well, Daane, Eastburn, MacLaury, Mitchell, Robertson, Sheehan, Winn, and Treiber. Votes against this action: None. Absent and not voting: Mr. Hayes. (Mr. Treiber voted as his alternate.) Subsequent to this meeting, on July 6, 1972 Committee ? members voted to amend this current economic policy directwe by adding a reference to international developments ie the final paragraph. As amended, that paragraph read as follows: To implement this policy, while taking account of possible Treasury financing, developments in capital markets, and international developments, the Committee seeks to achieve bank reserve and money market conditions that will support moderate growth in monetary aggregates over the months ahead. Votes for this action: Messrs. Brimmer, Bucher, Cold well, Daane, Eastburn, MacLaury, Robertson, Sheehae, Wine, and Treiber. Votes against this action: None. Absent and not voting: Messrs. Burns, Hayes, and Mitchell (Mr. Treiber voted as Mr. Hayes' alternate.) In the 3 days preceding this action, foreign central banks had actiitiivd fan1!* amounts of dollars in the process of maintaining L xdtiiftge rales for their currencies within the internationally agreed margins. The System Account Manager advised that, insofar as flit investment of these and any additional fends that might be acquired by the foreign central banks took the form of purchases o{ U.S. Treasury bills ie the market, they would teed to exert Juwnward pressures on bill rates. In the interests of the U.S. I ,ilance of payments and International confidence in the dollar, the members decided that open market operations should be conducted valti a view to avoiding significant declines ie bill rates, insofar 155 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

as that was consistent with the objectives agreed upon by the Committee on June 20, 1972. Specifically, It was decided that (1) to the extent feasible, reserve additions required to meet the Committee's objectives should be made by means other than purchases of Treasury bills, and (2) foreign official demands for bills, If heavy, should be met to the extent feasible by sales of bills from the System's portfolio, with any undesired reserve effects offset by other means. The members agreed that the dlrecti¥e should be amended to affirm the Committee's intention to authorize such operations. In casting their affirmative Yotes, a number of members indicated that while they believed the authorization desirable they thought it should be used with restraint. Mr. Brimmer noted that he favored the action not only on the international grounds cited but also because he thought a significant decline in bill rates would have adverse domestic implications. 156 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON JULY 18, 1972 Current economic policy directive. The information reviewed at this meeting suggested that growth in real output of goods and services in the second quarter of 1972 had been much faster than the annual rates of between 5.5 and 6 per cent recorded in the two preceding quarters and that the rise in prices had slowed considerably from the first to the second quarter of the year. Staff projections suggested that growth in real GNP would remain rapid in the second half, although not so rapid as in the quarter just ended. In June industrial production continued to expand, reflecting gains in output of business equipment and of materials, but the pace of the expansion—as in May—was well below that in the first 4 months of the year. Total nonfarm payroll employment was unchanged from May, following three sizable monthly increases. Although employment in manufacturing declined somewhat, the average factory workweek remained relatively high. The unemployment rate dropped to 5.5 per cent from 5.9 in May, but the decline was concentrated among younger workers and might have reflected in part seasonal adjustment problems at the end of the school year. Retail sales declined, according to the advance report, after having increased sharply in May; sales in the second quarter as a whole were substantially higher than in the first quarter. Wholesale prices of farm and food products rose considerably further in June, and prices of industrial commodities continued upward at about the average rate of earlier months this year. The advance in hourly earnings of production workers on private nonfarm payrolls, which had slowed in May, remained small in June. Staff projections of real GNP for the second half of 1972 were generally similar to those of 4 weeks earlier. However, the rate of growth anticipated was less rapid than that in the second quarter, which now appeared to have been substantially greater than had been expected. It was anticipated that the rise in disposable personal income in the second half would be somewhat faster than in the second quarter and that expansion in consumption expenditures would remain strong—with the recently enacted increase of 20 per cent in social security benefits contributing to the gains in the fourth quarter. It was still expected that State and local government 157 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

purchases of goods and services would increase substantially; that business capital outlays would rise moderately and inventory investment appreciably; and that residential construction would level off. In foreign exchange markets, speculation Intensified in mid-June. The United Kingdom lost a substantial amount of reserves In supporting its exchange rate, and early on June 23 it announced that the rate for sterling would be allowed to float and that its exchange markets would be closed for 2 days. Uncertainty and speculation then focused on the dollar and led to the closing of official markets in all major countries—although in some European countries, not before central banks had acquired a substantial amount of dollars in the process of maintaining their currencies within the limits of the Smithsonian Agreement. When exchange markets were reopened around the end of June, controls on capital inflows into some countries were tighter. At the time of this meeting of the Committee, speculative pressures against the dollar had abated somewhat, hut exchange rates for most major foreign currencies were at or close to their ceilings against the dollar. The rate for sterling had declined about 5 per cent from the level prevailing before it was allowed to 11 oat. U.S. merchandise exports increased in May while imports changed little, and the trade deficit receded from the exceptionally large figure in April. The average deficit in the April-May period, however, was substantially greater than that in the first quarter of the year. Since the last meeting of the Committee, interest rates on most short-term market securities had risen somewhat, partly in response to gradual finning in money market conditions. Rates on shorterterm Treasury bills were an exception, reflecting anticipations of demands for Treasury securities by those foreign official institutions that had been acquiring dollars; at 3.c)2 per cent on the day before this meeting, the market rale on 3-month bilts was unchanged from 4 weeks earlier. In maikets for long-term securities, interest rales on corporate and Slate and local government bonds rose somewhat in the latter part of June but declined again in early July: at the time of this Committee meeting yields on long-term bonds generally were little changed from 4 weeks earlier. The combined volume of new [58 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

publicly issued corporate bonds and of Slate and local government bonds changed little from May to June; the volume appeared likely to expand in July, Contract interest rates on conventional new-home mortgages and yields in the secondary market for Federally insured mortgages both were unchanged from May to June. Inflows of savings funds to nonbank thrift institutions increased somewhat In June, hut the average rate of inflows in the second quarter of fhe year was well below the exceptional pace in fhe firs! quarter. At commercial banks, real estate and consumer loans outstanding continued to expand rapidly in June, but business loans declined after having expanded substantially throughout the first 5 months of the year—and banks reduced their holdings of securities other than those of the U.S. Government. Despite fhe measured decrease in business loans, part of which may have been attributable to seasonal adjustment problems, loan demand was reported to have remained basically strong, In late June most major banks raised their prime rales from 5 to 5*4 per cent. Growth in the narrowly defined money slock (private demand deposits plus currency in circulation, or ,V/,) in June remained ''!•*•.r to the relatively slow rate recorded in May, Sluggishness in June, however, may have reflected temporary effects of the speculation in foreign exchange markets and outflows of funds from the iTni?ed States after midmonth. and weekly data suggested a sharp increase in the rate of expansion in early July. Growth in the more broadly defined money stock (Alj plus commercial bank time and savings deposits other than large-denomination CD's, or ,Vf ) icrnained 2 substantial in June, as inflows of eonsu ner-type time and sa\ ings deposits to banks continued at a relatively high rate. Hxpnnsion in the hank credit proxy---daily-itveraiK: member hank deposits, adjusted to include funds from nondeposii sources- slowed sharply, reflecting a marked reduction in I].S. (}overnnu;nt deposits. System open market operations in the petiod since the June 19-20 meeting of the* Committee had been directed at fostering growth in reserves available to support private nonhank deposits fRPD'si at an annual rate in the Junc-Jul> period of between 4,5 anil H»5 per cent, while avoiding sharp day-to-day fluctuations: and large cumulative changes m money market conditions. Since JuK U Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

when Committee members voted to amend the current economic policy directive to take international developments into account, operations also had been conducted with a view to providing and absorbing reserves in ways thai avoided significant declines in Treasury bill rates that might otherwise have resulted from heavy foreign official demands for bills. It appeared at present that RPD's would grow over the June-July period at a rate of about 8.5 per cent. The Federal funds rate rose to about 4% per cent from just under 4l6 per cent shortly before the preceding meeting. In the 4 weeks ending July 12 member bank borrowings averaged about $180 million, compared with about $115 million in the preceding 4 weeks. The Committee agreed that the economic situation continued to call for moderate growth in the monetary aggregates over the months ahead, and it decided to seek growth in RPD%s at an annual rate in a range of 3 to 7 per cent during the July-August period while continuing to avoid sharp fluctuations and large cumulative changes in money market conditions. The members also decided that account should be taken of the forthcoming Treasury financing, of developments in capita! markets, and of international developments, and that some allowance should be made in the conduct of operations if growth in flic monetary aggregates appeared to be deviating significantly from the rates expected. As al other recent meetings, it was understood thai the Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if it appeared that the Committee's objectives and constraints were no! being met satisfactorily, The following current economic policy directive mas issued to the Federal Reserve Rank of New York: The information reviewed at this meeting suggests that real output of goods and servuvs increased :tt y faster rate in the second quarter than in the t\M> preceding quarter^. In June the unemployment rale declined, bin it was still substantial. Wholesale prices of farm nnd food produces advan* ed appreciably further in June and the rise in prices of industrial commodities remained substantial Recent data MigL'esi moderation "m 'he puce of advance in wage rales. In forciiin exchange markets. !'«>iJowing disturbances leading to a floating, of the pound sterling, the dollar has come under pressure1 and the tesen es of Fi?r*«pe:in • Yiifmf banks ba\c increased xharph In May. 160 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

the excess of merchaedise Imports over exports remained large, though a little less than in April. Growth in the narrowly deieed moo.ey stock was relatively slow in May and June, but preliminary weekly data suggest a pickup in early July. Growth in the broadly defined money stock was more substantial as iniows of consumer-type time and savings deposits to banks remained strong. Expansion in the bank credit proxy slowed sharply in June as U.S. Government deposits declined markedly. In recent weeks, long-term interest rates have changed little; rates in short-term markets have advanced, except for those oe shortermaturity Treasury bills. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to sustainable real economic growth and increased employment, abatement of ielationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, while taking account of the forthcoming Treasury financing, developments in capital markets, and international developments, the Committee seeks to achie¥e bank reserve and money market conditions that will support moderate growth in monetary aggregates over the months ahead. Votes for this action: Messrs. Burns, Hayes, Brimmer, Bucher, Daane, Eastburn, MacLaury, Robertson, Sheehan, and Wine. Vote against this action: Mr. Cold well. Absent and not voting: Mr. Mitchell. Mr. Coldwell dissented from this action, because in his judgment average growth in bank reserves within the speciied range for July and August and the associated expansion in the money supply might build a base for excessive economic stimulation. He was concerned about the effects both on the domestic economic situation, in the context of heaYy stimulation from iscal policy, and oe international inanciai problems. 161 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON AUGUST 15, 1972 Current economic policy directive. Preliminary estimates of the Commerce Department, indicated that real output of goods and services had grown at an annual rate of about 9 per cent in the second quarter—compared with upward revised rates of about 6.5 per cent in the two preceding quarters— and that the rise in prices in the private economy had moderated. Staff projections suggested that economic growth would remain rapid in the second half of the year—although it would slow appreciably from the second-quarter rate. It was expected that growth would be somewhat more rapid in the fourth than in the third quarter. In July retail sales rose sharply—according to the advance report—and more than recovered the decline in June. However, industrial production registered only a small increase and employment in nonfarm establishments declined somewhat, in part because floods following tropical storm Agnes curtailed output and employment in the eastern part of the country. The over-all unemployment rate remained at 5.5 per cent, as the rate declined for men aged 25 and over but increased for those under 25. The advance in hourly earnings of production workers on private nonfarm payrolls, which had been slow in May and June, was moderately faster in July. The rise in wholesale prices of industrial commodities was small, but prices of farm and food products rose sharply further, registering their largest monthly increase of the year to date. In June the consumer price index rose very little. Staff projections suggested that expansion in consumption expenditures and in business inventory investment would be strong in the current quarter, although less so than in the second quarter; that business capital outlays would rise less rapidly; and that residential construction would level off. For the fourth quarter, it was anticipated that consumption expenditures would be stimulated by payment of the 20 per cent increase in social security benefits, scheduled to begin in early October, and that growth in State and local government purchases of goods and services would be increased if, as assumed, Federal revenue sharing was enacted. 162 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In foreign exchange markets, relative calm had been restored since the July meeting of the Committee, following a month of turbulence during which I lie I'nitcd Kingdom had allowed sterling to float and some F.uropean countries had acquired substantial amounts of dollars in the process of keeping exchange rates for their currencies within the limits of the Smithsonian Agreement. After a meeting on July 17-IS, the Finance Ministers of the European Community reaffirmed their intention to maintain ihe exchange rates and margins of the Smithsonian Agreement, and speculation on a joint Huropean Community iloat against the dollar subsided. Also in support of the Smithsonian Agreement, the Federal Reserve renewed operations in the foreign exchange markets and reactivated its swap network with other central banks. in subsequent weeks, the reserves of the central banks of most industrial countries changed little* and exchange rates Cot some major currencies backed away from their upper limits. U.S. merchandise exports, imports, and the trade deficit changed little in June. For the second quarter as a whole, the deficit was substantially greater than thai in the firs! quarter of the year, On July 26 the Treasury announced that in its mid-August refunding it would offer holders of notes and bonds maturing during the remainder of 1^72 an opportunity to exchange their holdings for the following issues: it 3'2-year, 51U per cent note priced to yield 5.96 per cent; a 7-year, 6V per cent note at par; and a 12-year. 4 b3/n per cent bond priced to yield 6.45 per cent. In addition, holders of securities maturing in November lS^-4 and February ic>75 were given the opportunity to exchange them tor the longer-ten?] note and the bond. This combination of a refunding and pre- re fund ing wits highly successful. Of Ihe $19.6 billion of eligible securities held by the public, about $8 billion were exchanged for the new issues--$3.9 billion for the shorter-term note. $3 billion for the longer-term note, and $L! billion for the bond. Only about $600 million or 26 per cent of the pubiich held issues maturing this August were redeemed for cash. Since the Committee's meeting on July IS, market interest rales on both short- and long-term securities had declined somewhat on balance, in part because the Treasury's o\er-ail demands for new cash in recent months had fallen short of those that had been widely expected. Moreover, the combined volume of new publicly issued 163 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

corporate bonds and of State and local government bonds had declined somewhat from June to July, and a further decline had appeared in prospect for August. In markets for short-term securities, the absence of a short-term issue in the Treasury's August financing had exerted sonic downward pressure on rates for 'Treasury hills and private instruments. The market rate on 3-month bills was 3.87 per cent on the day before this meeting, compared with 3.(>2 per cent on the day before the July meeting and an interim low of 3,77 p | t the er €en a beg I fining of August, Contract interest rates on conventional mortgages on new homes rose slightly from June to July, but rates on the much larger volume of new loans on existing homes remained stable. Yields also were stable in the secondary market for Federally insured mortgages. Inflows of savings funds to nonbank thrift institutions increased further in July and were substantially above the second-quarter rate. At commercial banks, real estate and consumer loans continued to expand rapidly in July, and outstanding business loans rose substantially after having declined in June. Ranks reduced their holdings of U.S. Government securities, as the Treasury's net borrowing demands were smaller than customary in July. Growth in the narrowly defined money stock (private demand deposits plus currency in circulation, or M,) was unusually rapid in July following low rates of growth in May and June. Expansion in the more broadly defined money stock (Af, plus commercial bank time and savings deposits other than large-denomination CD's, or M ) was a little faster in July than in June, despite a 2 marked reduction in inflows of consumer-type time and saving deposits to banks. Growth was substantial in the bank credit proxy—daily-average member bank deposits, adjusted to include funds from nondeposit sources—reflecting not only a sharp rise in private demand deposits but also an increase in the outstanding volume of large-denomination CD's. System open market operations in the period since the July 18 meeting of the Committee had been directed at fostering growth in reserves available to support private nonbank deposits (RPD's) at an annual rate of between 3 and 7 per cent in the July-August period, while avoiding sharp day-to-day fluctuations and large cumulative changes in money market conditions. Through most 164 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

of ihe period it had appealed thai growth in RPl.Vs might exceed the target ran^e. For that reason, and also because the monetary aggregates were expanding rapidh . the System undertook to slow the increase in reserves to the extent feasible in light of the large-scale Treasury refunding then in piocess, At present it appeared that MPP\s would grow o\er the July -August period at a rate of about 6 5 per cent. The Federal funds rate had risen from about 4%. per Lent at the time of the preceding meeting to around 4v4 per cent in recent days. In the 4 weeks ending August 9 member hank borrowings averaged about $250 million, compared with about $180 million in the preceding 4 weeks. The Committee agreed that the economic situation continued to call for moderate growth in the monetary aggregates over the months ahead. If ileekied to seek growth in RPD"s during the August-September period at an annual rate in a range of 5 to c) per cent • a rate which was expected to be associated with some moderation m monetary growth. While recognizing that pursuit of the objective for KPITs might he associated with some firming of mone\ market conditions, the Committee agreed that a marked (inning, v*. hieh might precipitate unduly sharp increases in interest rales in a sensitive market atmosphere, should be a\oided The memhcis also decided that in the conduct of operations, account should be taken of developments in capital markets and international developments, and that sonic allowance should also be made in operations if growth in the monetary aggregates appeared to be deviating significantly from the rates expected, It was understood that the Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if financial developments suggested that the Committee's purposes ami constraints were not being met satisfactorily The following current economic policy directive was issued to the Federal Reserve Bank oi New York; The information reviewed at this meeting indicates that real output nf goods and services increased at «t rapid rate in the second quarter, ant! continued though less rapid growth appears in prospect for the current quarter. 'The unemployment rate v,i\s lower in June and July* but it was still substantial. The pate of advance in wage rates hits slowed on balance in recent months, and the rate of increase in tiveiaiie prices ol all goods and services in the private economy- 165 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

moderated in the second quarter. In July, the rise in wholesale prices of industrial commodities slowed, but wholesale prices of farm and food products rose sharply further. Since mid-July foreign exchange market conditions have been quiet and the central hank reserves of most industrial countries have changed little. In June, the large exeess of U.S. merchandise imports over exports persisted. The narrowly defined money stock grew at an unusually rapid rate in July, following relatively slow growth in May and June. Growth in the broadly defined money stock remained substantial, although inflows of consumer-type time and savings deposits to banks slowed appreciably. The bank credit proxy expanded sharply in July, reflecting strength in both private demand deposits and large-denomination CD's, fn recent weeks, interest rates on most market securities have declined somewhat on balance, and the Treasury completed a highly successful refunding. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions con ducive to 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, while taking account of developments in capital markets and international developments, the Committee seeks to achieve bank reserve and money market conditions that will support moderate growth in monetary aggregates over the months ahead, Votes for this action: Messrs. Burns. Hayes, Brimmer. Bueher. Cold well, Daane. Eastburn. MacLaury, Mitchell, Robertson. Sheehan, and Winn. Votes against this action: None. 166 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON SEPTEMBER 19, 1972 Current economic policy directive. The information reviewed at this meeting suggested that growth in real output of goods and services in the third quarter would be substantial although well below the annual rate of 9.4 per cent recorded in the second quarter. Growth was expected to be more rapid in the fourth quarter than in the third and to remain at a fast pace in the first half of 1973. In August retail sales continued to expand, according to the advance report, and they were substantially greater than the monthly average in the second quarter. Industrial production rose moderately, after having increased little in June and July; part of the gain was attributable to recovery from the effects of tropical storm Agnes. Nonfarm payroll employment, which had been adversely affected by strikes as well as by the storm, rose appreciably in August. Reflecting a large increase in the labor force as well as in employment, the unemployment rate—at 5.6 per cent—was essentially unchanged from the rate in June and July. The advance in hourly earnings of production workers on private nonfarm payrolls in August, as in July, was moderately faster than in the second quarter. The rise in wholesale prices of farm products and foods remained rapid, and the advance in prices of industrial commodities, which had slowed in July, resumed the somewhat faster pace of earlier months this year. In July the increase in the consumer price index was larger than in the immediately preceding months, chiefly because of a sharp rise in retail prices of foods. Staff projections continued to suggest that expansion in consumption expenditures would be strong in the fourth quarter, in part because of the 20 per cent increase in social security benefits scheduled to begin in early October. It was also anticipated that growth in State and local government purchases of goods and services would be raised by enactment of Federal revenue sharing; that business fixed investment would continue to increase, in line with recent surveys; that residential construction would level off; and that, in response to sustained expansion in final takings of goods, inventory investment would rise appreciably further. Foreign exchange markets had remained relatively quiet since 167 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

mid-August. Ae Increase ie short-term interest rates In the United States relative to those Ie other major countries had contributed to a further strengthening of the dollar against major European currencies, and central bank reserves of most industrial countries had continued to change little. In July both U.S. merchandise Imports and exports Increased, and the trade deficit was virtually unchanged from the high ieYei of the two preceding months. Market Interest rates generally advanced In the Interval between the August and September meetings of the Committee. Increases In rates were significantly larger for short-term than for long-term securities and were greatest for Treasury bills. Bill rates had been unusually low relative to other short-term rates, reflecting mainly demands for bills associated with foreign central bank acquisitions of dollars and with the absence of a short-term Issue IE the Treasury's August refunding. Ie the intermeeting period, however, foreign central banks sold bills on balance, and Treasury financing operations added to the market supply of bills. The impact of the change In supply—demand relationships was magnified when a firming In money market conditions just before the Labor Day weekend strengthened market expectations of farther Increases In Interest rates In an environment of strong economic expansion. On the day before this meeting the market rate on 3-month bills was 4.65 per cent, compared with 3.87 per cent on the day before the August meeting. In markets for long-term, securities. Increases in rates were greater for Treasury Issues than for other securities, chiefly because the rise In short-term rates Induced dealers to reduce their Ie¥eetorles of the new longer-term Issues acquired Ie the Treasury's August refunding. The volume of new publicly Issued corporate bands had declined moderately from July to August, and a large decline appeared In prospect for September. While the volume of new State and local government bonds had Increased somewhat In August, It appeared likely to decline again In September. Contract Interest rates on conventional new-home mortgages and yields Ie the secondary market for Federally Insured mortgages were stable from July to August. Inflows of saYings to nonbank thrift institutions slowed from the rapid rates in June and July. At commercial banks, outstanding business loans Increased sharply further IE August, and real estate and consumer loans 168 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

continued to expand inputly. Flank-; aj'tun reduced theii holdings of U.S. Government securities—-as the Treasury's net borrowing demands remained smaller than eustomarv t\>r that season of the year—-but they incieastd their holdings oi other securities. Late in the month, in response lo the strength in loan demands and to Increases In short-term market rales of interest most banks raised I heir prime rates from 5% to 5% per cent Growth in the narrowly defined money slock (M).k which was t rapid In July following relatively slow rrowth on the average in May and June, fell back In August. Hxpansion in ilie inure broadly dcieed money stock (M T and in the batik credit proxy3 also 2 slowed, despite substantial increases in eonsiuner-iype time and savings deposits and le the outstanding volume of iar^e-denomination CD's. In late August and early September, however, the money stock grew more rapidly than It had on the average In August. System open market operations in the period since the August 15 meeting had been guided by the Committee's objective of fostering growth in reserves available lo support private eoebaek deposits (RPD's) at an annual rate of between 5 and 9 per cent in the August-September period, subject to the proviso that money market conditions should not be permitted to firm markedly. Pursuit of the RPD target was complicated b> the need to absorb reserves at a time when the market supply of Treasury bills was increasing. Early in the period, RPD's—and the monetary aggregates—appeared to be expanding rapidly. As the System acted to restrain growth in reserves, short-term, interest rates began to rise sharply and financial markets became increasingly sensitive; this was especially evident just before the Labor Day weekend when a number of banks misjudged their reseiYe needs and bid the Federal funds rate up as high as 5% per cent. In order to aYoid a marked firming in money market conditions and unduly sharp increases ie interest rates, for a time the System supplied reserves more generously. 1Private demand deposits plus currency in circulation, 2Mj plus commercial bank time and savings deposits other than large-denomination CD's, 3DaIly-average member bank deposits, adjusted to include funds from nondeposit sources. 169 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

At the time of this meeting it appeared that growth in RPD's would be quite rapid in September, and that the average rate of growth in the August-September period would exceed the upper limit of the target range by a significant amount. However, most of the overage evidently would reflect a temporary increase in excess reserves—and member bank borrowings—around the Labor Day weekend. Apart from the rise In excess reserves, growth in RPD's appeared to be at about the upper limit of the target range. The Federal funds rate, which had been around 4% per cent at the time of the preceding meeting, currently was about 5 per cent. In the 5 weeks ending September 13 member bank borrowings averaged about $440 million, compared with about $250 million ie the preceding 4 weeks. The Committee agreed that the economic situation called for growth in the monetary aggregates in coming months at rates less rapid than those that now appeared likely to be recorded for the third quarter. At the same time, the members noted that conditions in financial markets were still highly sensitive. They also noted that the prospective relationships among bank reserves, monetary aggregates, and money market conditions were more than usually uncertain because of the difficulties of forecasting the behavior of banks during the period of adjustment to the amendments to Regulations D and J that were scheduled to become effective September 21, 1972. The situation was further complicated by uncertainty as to whether implementation of the regulatory actions would be delayed as a consequence of certain coyrt proceedings currently under way. The Committee took note of a staff analysis suggesting that an average rate of expansion in RPD's in September and October in a range equivalent to 9,5 to 13.5 per cent4 would be likely to lead to more moderate growth ie monetary aggregates over the months ahead. The members decided to seek an RPD growth rate 4The RPD range originally considered by the Committee incorporated adjustments for the estimated effects that the scheduled changes in the Board's Regulations D and I would have on the prospective relationship between growth rates in RPD's and in the monetary aggregates. However, It was agreed that those adjustments would be inappropriate if there were a delay in Implementing the changes, and since such a delay in fact occurred, the adjustments are omitted in the figures cited. 170 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in that range—-preferably, in the lower part-—unless disturbances arose in financial markets or unless growth rates in the monetary aggregates appeared to be falling far short of expectations. In view of the sensitive stale of financial markets and the uncertainties associated with Regulations I) and J, the\ also decided that the System Account Manager should have more than the usual degree of discretion in making operating decisions and that he should give more than customary attention to money market conditions, while continuing to avoid marked changes In such conditions. Ft was agreed that account also should be taken of international financial developments, and it was understood that the Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if it appeared that the Committee's objectives and constraints were not being met satisfactorily. The following current economic policy directive was Issued to the Federal Reserve Bank of New York: The Information reviewed at this meeting suggests a substantial increase In real output of goods and services In the current quarter, although well below the unusually large rise recorded in the second quarter. In July and August, wages and prices advanced somewhat more rapidly on balance than in the Immediately preceding months, while the unemployment rate remained substantial. Foreign exchange market conditions have remained quiet In recent weeks and the central bank reserves of most Industrial countries ha¥e continued to change little, le July, the large excess of U.S. merchandise imports over exports persisted. In August on average, growth slowed in the narrowly and broadly defined money stock and in the bank credit proxy, but in recent weeks the money stock has been expanding more strongly. Since mid-August, Interest rates on Treasury Mils have Increased sharply, while yields on most other market securities have advanced more moderately. ID light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster ieaecial conditions coeduclve to 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, while taking special account of the effects of possible bank regulatory changes, developments in credit 171 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

markets, and international developments, the Committee seeks to achieve hank reserve and mone> market conditions that will support more moderate growth in monctarv aggregates over the months ahead, Votes for this action: Messrs, Burns, Hayes. Brimmer, Bueher, Coldwell, Daane. Hastburn, Mayo. Mitchell, and Sheehan. Votes against this action: Messrs. MacLaury and Robertson, Absent and not veiling: Mr. Wirin. (Mr. Mayo voted as Mr. WinrTs alternate.) Mr. MacLaury dissented from this action because he had become increasingly disturbed by the rapid rates of growth in the aggregates, given the prospective strength of the economy, and he felt that the Committee's current operating procedures did not assure that money market conditions would be permitted to tighten sufficiently to slow this excessive monetary growth in the near future. Mr. Robertson dissented because of his belief that with the existing potentiality for increased inflationary pressures, the* Committee was not doing enough to curb the rate at which reserves were being fed into the banking system by the federal Reserve and to slow down the rate of growth in the monetary aggregates, in his view, the fall ore to do so might result in a new ground swell of inflation later on. 172 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON OCTOBER 17,1972 Current economic policy directive. The information reviewed at this meeting suggested that expansion in real output of goods and services in the third quarter had been substantial, although well below the unusually large gain recorded in the second quarter. Staff projections continued to suggest that growth would be more rapid in the fourth than in the third quarter and that it would remain at a fast pace in the first half of 1973. In September industrial production rose appreciably for the second successive month, and nonfarm payroll employment also continued to expand at a substantial rate. However, the labor force again grew at about the same pace as total employment and—at 5.5 per cent—the unemployment rate was essentially unchanged from its level in the three preceding months. Retail sales declined in September, but because of the sizable gains that had been recorded in July and August, sales were considerably higher in the third quarter than in the second. Average hourly earnings of production workers on nonfarm payrolls continued to advance at a moderate pace in September, and the rise in wholesale prices of both industrial commodities and farm and food products slowed appreciably. In August the total consumer price index rose at a moderate rate although retail prices of foods increased substantially further. Staff projections continued to suggest that expansion in consumption expenditures would be strong in the fourth quarter, in part because of the 20 per cent increase in social security benefits beginning in early October. It was still anticipated that State and local government purchases of goods and services would grow somewhat more rapidly; that business fixed investment would continue to expand; that residential construction would level off; and that inventory investment would increase further. It was expected, moreover, that defense expenditures would rise following a marked drop in the third quarter. In foreign exchange markets the dollar had strengthened further against most European currencies since mid-September. Inflows of capital to the United States—reflecting both improved confidence in the dollar and a firming in short-term interest rates in this country relative to those abroad—had continued to offset the persistent 173 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

deficit in the current account of the U.S. balance of payments, and the centra! bank reserves of most industrial countries had continued to change little. In August U.S. merchandise exports expanded more than Imports, and the trade deficit declined somewhat. Long-term interest rates had been stable in recent weeks. Markets generally had been influenced by growing optimism about peace in Vietnam and by the possibility of enactment of a ceiling on Federal expenditures, and bond markets also had been affected by a sharp drop in the volume of new publicly issued corporate bonds from August to September. Although the volume of such issues appeared likely to rebound in October, it was expected to be relatively small for the fourth quarter as a whole. Interest rates on short-term securities had edged higher, in part because the Treasury had increased the size of its monthly auctions of 1-year bills. On the day before this meeting the market rate on 3-month bills was 4,80 per cent, compared with 4.65 per cent on the day before the September nieeting. Contract interest rates on conventional mortgages rose slightly from August to September, but yields in the secondary market for Federally insured mortgages changed little. Inflows of savings funds to noobank thrift institutions remained substantial in September, although well below the rapid pace in June and July. At commercial banks, outstanding real estate and consumer loans continued to grow rapidly In Septeniber. However, expansion in outstanding business loans slowed sharply from the rapid pace in August, apparently in association with less than the usual amount of corporate borrowing to meet September tax payments, Banks increased their holdings of U.S. Government securities—-after having reduced them in July and August—and continued to add to their holdings of other securities, le early October, primarily in response to increases in short-term market rates of interest, most banks raised their prime rates from SVi to 544 per cent. Both the narrowly defined money stock (M)1 and the more t broadly defined money stock (M )2 grew in Septeniber at about 2 'Private demand deposits phis currency In circulation. 2Mi plus commercial bank time and savings deposits other than large-denomination CD's. 174 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

the moderate rates recorded In August. Over the third quarter, however, Mi and M grew al rates of about 8.5 and 9,5 per cent, 2 respectively, compared with rales of about 5.5 and H,5 per cent over the second quarter.3 Growth in the bank credit proxy4 was somewhat more rapid In September than in August, mainly because of an increase In U.S. Government deposits. System open market operations in the period since the September 19 meeting had been guided by the Committee's decision to seek growth in reserves available to support private nonbank deposits (RPP's) a! an annual rate in a range of 9.5 to 13,5 per cent In the September-October period—in order lo support more moderate growth in the monetary aggregates in the months ahead-—ynless disturbances arose in financial markets or unless growth in the monetary aggregates appeared to be falling far short of expectations. In fact, financial markets were calm and both M, and M 2 seemed to be growing moderately. At the time of this meeting it appeared that growth in RPD's over the September-October period would be close to the lower limit of the target range. The Federal funds rate was about 5 per cent in the days before this meeting, unchanged from the level prevailing just before the preceding meeting. In the 4 weeks ceding October 11 member bank borrowings averaged about $560 million, compared with about $440 million in the preceding 5 weeks, The Committee agreed that the economic situation called for growth in the monetary aggregates over the months ahead at rates less rapid than those recorded over the third quarter as a whole. Taking account of a staff analysis of the relationship between reserves and the monetary a^giegaies, the Committee decided that its objectives for the aggregates would be fostered by growth in RPD's during the October-November period at an annual rale within a range of 6 to 11 per cent. Accordingly, the members agreed that open market operations should be directed al constraining RPD growth within that range, while continuing to avoid marked changes in money market conditions. The members also 3Growth rates cited are calculated on the bastN of the daily-average level in the last month of the quarter relative to that in the last month of the preceding quarter. 4Daily-average member bank deposits, adjusted to include funds from nondeposit sources. 175 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

decided that account should be taken of the effects of bank regulatory changes, should they be implemented; of 'Treasury financing operations; and of developments in credit markets.5 Moreover, they agreed that some allowance should be made in the conduct of operations if growth in the monetary aggregates appeared to be deviating from an acceptable range. As at other recent meetings, it was understood that the Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if significant inconsistencies appeared to be developing among the Committee's various objectives and constraints. The following current economic policy directive was Issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests a substantial increase in real output of goods and services in the third quarter, although well below the unusually large rise recorded in the second quarter. In September wages and prices advanced moderately, while the unemployment rate remained substantial. In the U.S. balance of payments, the current account deficit has been largely offset by capital inflows in recent weeks, and the central bank reserves of most industrial countries have continued to change little. In August, the excess of U.S. merchandise imports over exports declined somewhat, The narrowly and broadly defined money slock expanded at moderate rates in August and September, following large increases in July, but the bank credit proxy continued to grow rapidly. Since mid-September, short-term interest rates have increased somewhat, while yields on most long-term securities have changed little. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to sustainable real economic growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. 5It was noted at the meeting that the amendments to Regulations D and J, Initially scheduled to become effective on September 21, 1972, but postponed as a result of court proceedings, might be implemented during the October-November period. Following the Board's decision on October 24 to implement the amendments as of November 9, 1072, the range of tolerance for the RPD growth rate was modified to 9 to 14 per cent in a technical adjustment to take account of the effects of those regulatorv actions cm the relationship between reserves and the monetary aggregates. 176 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

TY« if?i|*l;*oit" in <hi'« polk'v. v.utlc Tafcut< .«' * ^ UJF?» of tho HUTK of possible bank tv^ohtion chides. lrea>ttcv luiiifk ITI-/ ,»pcraifuns, and development* in er« nil fiirtrl.els, the Coi]!iHiff«\' v/oks to <K'liu*\e bank fcsci" c ^Pcd mom.") ii»«n k*. t ^nndiiier.s tudt ".ill support mor* nKHicrati* ^lowth in m*5iitvu<i\ ;ii^:ic|.-li^"^ <«^»>k? the nh»nth.\ aht-ai) r Thai'i rcTorJcv( n\ tho thirtl qiin'iri". \'otcs for this action: Messrs BIJH?V Haj'i.s, Brirmnrr, Ruchcr. <'<>ldwr!i. D^JJUC r.asthufn. Ma^i.aiif)1, Milch<'li. R«>h*,'rff,»>fi Sht*rh«o, und Winii Votes against thi.s action: None. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON NOVEMBER 20-21, 19721 Current economic policy directive. The information reviewed at this meeting suggested that real output of goods and services, which had expanded at an annual rate of about 6 per cent in the third quarter, was growing more rapidly in the current quarter. Moreover, staff projections continued to suggest that growth would remain at a fast pace in the first half of 1973. In October expansion in industrial production remained rapid, reflecting widespread advances among consumer goods, business equipment, and materials. Employment in manufacturing again rose substantially, contributing to another large gain in total nonfarm payroll employment. As in the preceding 3 months, however, the labor force also increased appreciably, and the unemployment rate—at 5.5 per cent—was stable. Retail sales, according to the advance report, continued to expand in October about as fast as they had from the second to the third quarter. Housing starts remained near the high level of August and September. The rise in wholesale prices was exceptionally small in October as industrial commodities were virtually unchanged, on the average, and farm and food products rose little. Among industrial commodities, prices of a number of materials advanced but prices of automobiles and trucks declined. Average hourly earnings of production workers—which had risen sharply in September, according to revised data—continued to advance at a faster rate than earlier in the year. In September the consumer price index increased considerably, reflecting a sharp rise in foods and substantial increases among other commodities; services continued upward at a slow pace. Staff projections suggested that strong expansion in consumption expenditures would continue in the first half of 1973, in part because of Treasury refunds of the unusually large overwithholdings of personal income taxes in 1972. It was also anticipated that business 1This meeting was held over a 2-day period beginning on the afternoon of November 20, 1972, in order to provide more time for the staff presentation concerning the economic situation and outlook and the Committee's discussion thereof. 178 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

fixed investment would rise at a fairl\ fast pace, as suggested hy recent survey.s of business spending {'thins: that Stale and local j.'.overnment purchases oi <;oods and services would continue to urow rapidly; and thai inventor) investment would rise- somewhat further in response to sustained expansion m linai Miles oi goods, In foreign exchange markets the dollar had strengthened further against most fuiropean currencies in recent weeks, hut the Japanese \en had remained al its ceiling rate against the dollar. The persistent detieit in the current account of the lT.S. balance of payments had been otl'set in lar^e part by continuing inflows of private capital to the United Slates. In September U.S. merchandise imports were stable while exports declined somewhat and the trade deficit remained large I rom the second to the third quarter, imports rose somewhat less than exports, and most of the rise in imports reflected increases in industrial materials in association with the strong growth in domestic business acfh ity On October .15 the T/casurv announced that in Hs mid-November linaiicini? it would jucuon a 4-\cai. C>! ; per cent note to redeem SI.3 billion of matining uofes and tu raise SI."' billion of new cash; the notes were issued on Novemixr 15 at an aveiage price to yield 6.20 per cent. The October announcement also indicated that the Ticavtm would nice! the bulk o; iis hir^e IK'ccinber January cash, requirements through a combinatii">n of bill an*i note issues. Later, ihe 'lrea-iif"\ announced thai on Xove**' >rr 1~ and 2^ U Wiuikl auction a total of S4 5 billion o! tax-anticipation bills with April and June maturities. The more favorable cliinate in securities maikeis that had cfnefLT0il in mid October in respond (o optimism about peace in \ ietn.un and j>rospt. cts ihat 1 edi nil expejuhtures would he held down had continued in reeeel veef^. and nhukci rates of Miietesl Meneri.iK had d eJiiH.d. i\-*rcase> had hi\u f.rejlci in Uii^e ten)i tlum io slivirt-ted-t markeb. refleefini! tiivKJeration ir. over-aM dei ni:uids f\>r U^ny-icuv iiifnis •i,hiii>;.irh the \*>iiuite ol iv*\\ pubikly issucvi corporate i*<Hius !\i'H^:ru!^ d ii; ^ >ci<?'rf Ironj a Ml!Jil (>!s « *hicei! h:\kl in Sep!e;rJv(. a., h.id beer* e eck\h \he V e^i!I;litv Mich K- tK's ,?^jn tii'/.s hK*.]} I-« iui! ;;j';nn ; 2: ID maikot.N tor shoit-tcrru veeiiriiies, de in r > hod heen vO Jaie s had fiee n 179 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

anticipated. On the day he Tore this meeting the market rate on 3-month Treasury bills was 4.70 per cent, compared with 4.80 per cent on the da\ before the October meeting. Contract inteiest rates on conventional mortgages and yields in the secondary market for Federally insured mortgages both were virtually unchanged in October. Although inflows of savings funds to nonbank thrift institutions slowed somewhat from September to October, they remained substantial. At commercial banks, expansion in outstanding business loans was again rapid in October, after having slowed sharp!)' in September, and growth in must other categories of loans also was strong. However, bank holdings of securities declined, reflecting a sizable drop in portfolios of U.S. Government securities. Growth in both the narrowly defined (A7)- and the more broadly t defined ihl f money stock changed little in October from the 2 moderate rule-, in the preceding 2 months and lemained well below the rates til about H.5 per cent tot \l and kK5 per cent for Mj t recorded over the third quarter as a whole.i I/Apansion in the bank credit proxy"' changed little from the rates in the preceding 2 months, although the increase in the outstanding volume of largedenomination CD's was the smallest since March. S\stem open market operations in the fecent penod had been guided h\ the Committee's decision ui it-, October meeting to seek bank reserve and money market conditions that would support more moderate rate> of monetary growth than thos^ recorded in the third quarter. S\sicm operations had been directed tow aril maintaining growth in reserve^ available to support pn\ale nonhauk deposits fRPDVf at an annual rale in a range of {) to 14 per cent in the October- November period, while continuing to avoid marked chanues tn mohe\ uiurkif cuidnioiis .md Liknnf account ol Treasurx "'Privace \Jt-n«111M> J '^'"'JK pU *<jftn\!h j\iU'^ cfk'J arc >..('*. <i:;'k''t i>tt ilu, ?*;'\|N . *t \\\c viail^ :J\LT:II:C level in Ik /,(• i i K nil, «ii t \\ .iiKiKi }.*'i iJive «•» sl.a1. i'. :!.'. :..'•' .I'VMil'i »>! tin- ;^! v-.-', Jinr •"Oi»i{\ -'tXvhii'c me? iher Ur.»K Jcpo-{{v, .u:i<jsK'ii to Mi'vtutie (tuvj>. j'rom nun 180 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Itlh'if H'UI'" O|K fitfioUs itJKJ h.illk ?e\.%ul.Hot\ ciUd'iS'v' I hH •U< <1h rIiOv? ol tin' in1v nnerbm: p^nod (he *'a*e • *( :'iu>U!' in Ki'j) •• had appcux^l |M be wjihstf ilia! mine, ulfh*4i°!> ncai r'u* iuun (unit. 'I em aid (he end ot *he period, ;i\ nlaMe d.>ki %in\:v^frd that ivowlh \u>uid Lli! Ivlou the fatU.V, alld a! llii,' IJDK' of ; J', j <* MiiMlHi.' fl apjK a»vd Uu»f RPI)*' nini't! ;i|'.i\\ f»\er {he Oetrivr VivuiMhci period n? ;s fjte '»f ou!\ jhou? ,^ ^ pel eeni liov. ever. liit, ??ionciar\ ,i\fiMe:\ite-, xtppean'd H1 JNe •*. \pandm?1 «it ,j-teeptahJ\* i-fft*. 1*^ a >'.>i»Mvieiabie I'NK'iH. the siiorftaJ! \t\ fiV\)'^ o* ,.iiticd ^d'atise the u:laHt>nship between resoixe^ and nn>!Klar\ ai't'ivi!att^ (hat e"\<>hed :iikir the dill'eieu Uofn the K'I'.IIMIINIHP t JI;H1 i">e-. r> e^ueted Thi1 ehaiu'.e*. m Re',:u!aliu!t\ and I, **, hi»."h K\..inn: ei]-\>i\e on VM.unbcr u, ;u.*tijfale>j i uosidriu^h* uu^'Lin.l\ tt!«*nn ilkniaiiatieiMefi! ol fc^cru^s, bv>lls lur njeiuber bank*-* and for the S\sleni (HH\ the Sv*ien« Jhatie hi\n \ MH- of r«,'puuha^e /.vreeuK nts and matched 'MIC (HIKIKJM^ {. an- a; is- MI1, h»( k inpur,ti\ inie^li^n^ «\hd ^ H!H Jt'T'A aJ*- i'! :nu's;' iff Kfdei h1 *. -», \ K »t M lh,. '»•< > ail ;i.ii!>i abiiu\ of r..-sv'i\es Alliion^l"! d,»\ lo ila\ r»neuia(i^ns ip |}iL l-rder.d iiHul^ tak" u ur lnijH't lhar. usual ?!v lev^a'1'.1 KIU1 \hnjj«ji the niierHieehn^ peii(Ki--ai t iiine niou' tii,?n ?• pei . eut '\\ai< alnna the s.ifiH' tis fh^ rate lhal IKK! pte\ade<l fir I lnJn!\ 'die < h'lnlKT Jhcetinj1 In the 5 v vvk*» eiuiin.' NVV.IHIVI L" (rt;iMbi'i bank biWfuwinr^ a\e?atvd ab»HH N ^ K^ ni'binu . i*ihpaK:d with about W-4) riiilh^!! >n tin \>w^ d m, 4 ^i el- The C *s>*11r»siitfov ai'ieed Iha* !*u ce^i^nniH. -auan^ii eeaiiiimetl **; vail foi inuwfh h'i the monelai \ .i^t-iet'oU1 •• o\vij ilie :m»nth-. ahvad lit lafi'- less <;«pid tirMf fh«<;>c »etoidvi! * # \ * • r the. thud i;ii:nloi ,IN a .\ lioic rak»n;f 4u«, ^tin! <»i ,t sta!- ai;jJ\^.i^ ol llir pii»ie«.ted Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Committee decided that its objectives regarding the aggregates would be served by open market operations directed at fostering growth in RPD's during the November-December period at an annual rate within a ratine of 6 to 10 per eent. while continuing to avoid marked changes in money market conditions. The members also decided that allowance should be made in the conduct of operations if growth in the monetary aggregates appeared to be deviating from an acceptable range and that account should be taken of the continuing effects of the bank regulatory changes implemented in early November, ft was understood that the Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if significant inconsistencies appeared to be developing among the Committee's various objectives and constraints. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting, including recent data for industrial production, employment, and retail sales, suggests that real output oi goods and services is growing more rapidly in the current quarter than in the third quarter. However, the unemployment rale has remained substantial. The increase in wages has been larger in recent months than earlier this vear. Consumer prices rose considerably in September, but the October rise in wholesale prices was small. In recent weeks, the current account deficit of the U.S. balance of payments has been offset in large part by capital inflows; while the reset yes of Japan have increased substantially further, those of other industrial countries have changed little. In September the excess of U.S. merchandise imports o\er exports remained large. In October rates of growth in the monetary aggregates changed relatively little from preceding months, with expansion in the narrowly defined money stock again quite moderate. Since mid-October interest rates generally have declined. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to sustainable real economic growth and increased employment, abatement o( inflationary pressures, and attainment <»f reasonable equilibrium in the country's balance of payments. To implement this policy, while taking account of" the effects 182 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

of recent hank reyr'iiatory cliiiin:e\, the Committee seeks to achieve hank ieser\e and mone\ market conditions that nil! support inure modeiale tirowth in monetary aggregates over the months alieatf than reeorded m the thiui quarter. Votes for this action: Messrs Burns, Hayes. Brimmer, Rueher. Daane. Fasthuni. Mael aur\ . Miti'heil. Robertson. Sheehan, W'inn. and Francis. X'ofes against this action; \oiie Absent and not \olim1.: \h. <\>ldweii. (Mr. Francis' \~uteti as Mr. CoklwelFs alternate.) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEETING HELD ON DECEMBER 19, 1972 Current economic policy directive. The information reviewed at this meeting suggested that real output of goods and services, which had expanded at an annual rate of 6.3 per cent in the third quarter, was growing at an appreciably faster pace in the current quarter. Staff projections for the first half of 1973 continued to suggest that growth in real output would remain strong, although not so rapid as now seemed indicated for the current quarter. Industrial production increased substantially further in November and output indexes for September and October were revised upward; expansion over the 3-month period was very rapid. Led by employment gains in manufacturing, total nonfarm payroll employment continued to rise at a fast pace in November. The unemployment rate, which had been virtually stable around 5.5 per cent from June through October, fell to 5.2 per cent in November. Retail sales in November, according to the advance report, remained near the level attained in October, which was sharply above the third-quarter average. The wholesale price index—which had risen little in October when prices of automobiles and trucks declined—advanced considerably in November, reflecting sizable increases in both industrial commodities and farm and food products. Average hourly earnings of production workers increased little, but their average rate of advance from August to November exceeded the rate earlier in the year. In October consumer prices again rose considerably, in large part because of the annual adjustment in the price measure for health insurance and increases in prices of other consumer services. Retail as well as wholesale prices of automobiles declined, and prices of foods increased little. Staff projections continued to suggest that expansion in consumption expenditures would remain strong in the first two quarters of 1973, in part because of large refunds of personal income taxes withheld in 1972. Recent surveys of business spending plans reinforced earlier expectations that fixed investment would rise at a fast pace throughout the first half of 1973. It was also anticipated that business inventory investment would rise somewhat further and that State and local government purchases of goods and services 184 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

would continue to grow rapidly but that residential construction outlays would level off and then turn down. The deicit in the over-all U.S. balance of payments had continued large in recent months. In October, however, merchandise exports had risen more than imports, and the average trade deficit ie September and October—although still substantial-—-had been moderately below the high levels of last spring and summer. In foreign exchange markets over recent weeks, the dollar had remained firm against major currencies other than the Japanese yen. Interest rates on short-term securities had advanced since the Committee's meeting in late November, in response to seasonal expansion in private credit demands, a large increase ie market supplies of Treasury bills, and some inning in money market conditions: on the day before this meeting the market rate on 3-month Treasury hills was 5.17 per cent, up from 4.76 per cent 4 weeks earlier. Rates on most types of longer-term securities also had advanced, although the volume of new public offerings of corporate and State and local government bonds had declined moderately from October to November and appeared likely to fail further in December, in part because of the holidays. In mid-December the Treasury announced that on December 20 it would auction $2 billion of 2-year, S7/U per cent notes for payment on December 28. Moreover, the Treasury indicated that in early January it would oiler $500 million to $750 million of 20- to 30-year bonds. Contract interest rates on conventional mortgages and yields in the secondary market for Federally insured mortgages remained stable in November. From October to November inflows of savings funds to nonbank thrift institutions continued to slow, although inflows were still large by historical standards. At commercial banks, loans outstanding to businesses and to most other types of borrowers continued to expand at rapid rates in November. Bank holdings of U.S. Government securities— which had declined in October—rose in association with a substantial increase in Treasury deposits that resulted in part from two Treasury financings during the month. Banks also added a substantial amount to their portfolios of other securities. Growth in the narrowly defined money stock (M,J1—which had 1 Private demand deposits plus currency in circulation. 185 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

been slow in October—Increased appreciably in November but nevertheless was still moderate, while growth in the more broadly defined money stock (M f remained at about the moderate rate 2 of October. The bank credit proxy3 grew at a relatively fast pace, reflecting the substantial increase in Treasury deposits and a rise in the outstanding volume of large-denomination CD's. In early December expansion in M quickened, and it now appeared that t the average rates of growth in the monetary aggregates over the second half of the year would be relatively rapid. System open market operations since the November meeting had been guided by the Committee's decision at that meeting to continue to seek bank reserve and money market conditions that would support more moderate monetary growth than the annual rates of about 8.5 per cent for Mi and 9.5 per cent for M recorded over 2 the third quarter.4 Accordingly, operations had been directed toward fostering growth in reserves available to support private nonbank deposits (RPD's) at an annual rate in a range of 6 to 10 per cent in the November-December period, while avoiding marked changes in money market conditions and taking account of the continuing effects of the bank regulatory changes implemented in early November. Through much of the inferineeting period the rate of growth in RPD's had appeared to be substantially above the specified range, and the System had acted to restrain expansion in nonborrowed reserves. As a result, money market conditions had firmed. The Federal funds rate had risen to about 5Vi per cent in the days before this meeting from about 5 per cent at the time of the preceding meeting. Member bank borrowings had increased to an average of about $655 million in the 3 weeks ending December 13 from about $640 million in the preceding 5 weeks, and in the last few days before this meeting borrowings had risen substantially. At the time of this meeting it still appeared that RPD's would grow over the November-December period at a rate somewhat -M\ plus commercial hank time and savings deposits other than large-denomination CD's. •'^Daily-average member hank deposits, adjusted to include funds from nondeposit sources, 'Growth rates cited are calculated on the basis of the daily-average level in the last month of the quarter relathe to that in the last month of the preceding quarter. 186 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

above the specified range. However, the excess was not large, and in part it was attributable to a shift in the multiplier relationship between reserves and deposits that reflected greater-than-anticipated expansion in deposits at large member banks—which are subject to higher marginal reserve requirements—and lower-than-anticipated expansion at smaller banks. The Committee agreed that the economic situation called for growth io the monetary aggregates at slower rates than those that appeared likely to be recorded for the second half of 1972. At the same time, the members noted that financial markets were still adjusting tii the firming in money market conditions thai had occurred in recent weeks. They took account of a staff analysis of prospective reserve-deposit relationships which suggested that the Committee's objectives for the aggregates might be served by fostering growth in RPITs during the December-January period at an annual rate within a range of 7 to II per cent. However. tn view of the rapid expansion in monetary aggregates since the preceding meet ing, the members concluded that reserve-supplying operations that would result in an easing of money market conditions should be avoided unless the annual rate of RPD growth appeared to be dropping below 4 per cent. Accordingly, they decided that open market operations should be directed at fostering RPD growth during the 2-month period within a range of 4 to 1 1 per cent, while continuing to avoid marked changes in money market conditions. They also agreed that io the conduct of operations account should be taken of the forthcoming Treasury financings and possible credit market developments, and that allowance should be made in operations if growtli in the monetary aggregates appeared to be deviating from an acceptable range. It was understood that the Chairman might consider calling upon the Committee to appraise the need for supplementary instructions before the next scheduled meeting if significant inconsistencies appeared to be developing among (he Committee's various objectives and constraints. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting, including strong recent gains In industrial production, employment, and retail sales, suggests that real output of goods and services is growing more rapidly 187 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in the current quarter than in the third quarter. The unemployment rate has declined. Wage rates increased little in November, following 2 months of large increases. Consumer prices rose considerably again in October, and wholesale prices rose sharply in November. The over-all deficit in the U.S. balance of payments has remained substantial in recent months, but there has been a moderate reduction in the excess of U.S. merchandise imports over exports since last spring and summer. In November rates of growth in the monetary aggregates generally remained moderate, but expansion in the narrowly defined money stock quickened in early December. In recent weeks most market interest rates have tended upward. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to 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, while taking account of Treasury financing operations and possible credit market developments, the Committee seeks to achieve bank reserve and money market conditions that will support slower growth in monetary aggregates over the months ahead than appears indicated for the second half of this year, Votes for this action: Messrs. Burns. Hayes. Brimmer, Bucher, Coldwell, Daane. Eastburn. MacLaury, Mitchell, Robertson. Sheehan. and Winn. Votes against this action: None. 188 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Operations in Foreign Currencies During 1972 the System reduced its outstanding commitments to foreign central banks under the reciprocal swap network by $1,230 million equivalent (at pre-August 15, 1971 exchange rates). The foreign currencies required to effect these repayments were obtained through a combination of market purchases, purchases directly from the foreign central banks, and a U.S. Treasury drawing on the International Monetary Fund of $217 million equivalent in sterling. At the year end outstanding drawings, which had totaled $3,045 million at the time of suspension of use of the network on August 15, 1971, stood at $1,585 million equivalent in Swiss and Belgian francs. Losses realized on repayments during 1972 totaled $55 million. The suspension of the use of the swap network was lifted by the President in July in conjunction with his decision that the System should intervene in the exchange markets to help end speculation against the dollar, which followed the floating of the British pound. To this end the System sold $21 million equivalent of German marks and $10 million equivalent of Belgian francs in late July and early August. The marks were sold from System and Treasury balances, while the Belgian francs were obtained through a swap drawing on the National Bank of Belgium. This drawing was repaid within a few days, as the Belgian franc moved below its ceiling and the System was able to purchase the requisite amount of francs in the market. Other market operations involved the purchase of marks and guilders for possible future market sale and the purchase of sterling, Swiss francs, and Belgian francs for the purpose of effecting swap repayments. 189 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Voluntary Foreign Credit Restraint Program The Voluntary Foreign Credit Restraint (VFCR) program continued without major change during 1972, on the basis of the guidelines as revised in November 1971. Most of the amendments adopted by the Board during 1972 were designed to clarify existing provisions or to simplify reporting procedures. However, one amendment extended to one class of. bank affiliates the same limited foreign-borrowingoflEset provision that had already been made available to other bank affiliates, and another exempted foreign assets acquired in connection with acts taken by the Overseas Private Investment Corporation to settle claims. As intended, the impact of the 1972 amendments on the general level of restraint was negligible. Since November 1971, banks previously without VFCR ceilings could adopt a ceiling for nonexport foreign lending and investing equal to 2 per cent of their total assets as of December 31, 1970. During 1972, 87 commercial banks adopted such ceilings, amounting in the aggregate to $406 million. However, some of these "newcomer" banks either did not engage in foreign lending during the FOREIGN ASSETS OF U.S. BANKS 1972 1971, Item Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Number of reporting banks 194 200 205 203 219 Millions of dollars Aggregate ceiling.... . 10,032 10,069 10,103 10,121 10,252] Assets held for own account subject to restraint 8,955 8,835 8,684 8,807 9,109 Aggregate net leeway , 1,078 1,254 1,419 1,314 1,143 Assets exempted from VFCR 3,347 4.516 4.571 4,765 5,348 Canadian assets 536 799 830 876 927 Export credit other than to residents of Canada 3,299 3,586 3,546 3,690 4,222 Other 112 131 195 199 199 TOTAL assets held for own account 12,302 13,351 13,255 13,572 14,457 191 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOREIGN ASSETS OF U.S. AGENCIES AMD BRANCHES OF FOREIGN BANKS 1972 1971. Item Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Number of reporting institutions. 53 53 57 60 Millions of dollars Assets of the types subject to restraint...... 1,943 2,183 2,110 ! 2,277 2,878 Assets of the types not subject to restraint. 1.066 1,213 1,290 i 1,458 1,799 Canadian assets..................... 273 335 315 1 335 389 Export credits 793 878 975 1 1,123 1,410 TOTAL assets held for own account 3,009 3,396 3,400 j 3,735 4,676 year or did not acquire enough foreign assets to report them. The total number of banks actively participating in the VFCR program increased in 1972 by 25—to a total of 219—and the aggregate ceilings by $220 million, to $10,252 million. The volume of foreign lending and investment by U.S. banks that was subject to VFCR ceilings remained little changed during 1972. At the end of 1972 banks' foreign assets held for their own account and subject to restraint were $154 million more than the $8,955 million held at the end of 1971; however, because of the entry of additional banks into the program, the aggregate net leeway at the end of 1972 was $65 million above the end-of-1971 level of $1,078 million. Of the foreign assets not subject to restraint, banks' holdings of Canadian claims rose by $391 million. Following the removal of all export credits from restraint in November 1971, banks substantially expanded their lending activity in that field. At the end of 1972, export credits outstanding (other than to residents of Canada) were $923 million, or 28 per cent, above the December 1971 level. While banks' own foreign assets (including those exempt from the VFCR) rose by $2,155 million from the end of 1971 to December 31, 1972, their foreign assets subject to restraint rose by $154 million, as mentioned earlier. U.S. agencies and branches of foreign banks were requested to continue to act in accordance with the spirit of the VFCR guidelines 192 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

throughout 1972. In addition, they were asked for the first time to submit monthly reports on their foreign asset positions. Because these institutions rely on foreign sources of funds to a much higher degree than do U.S. commercial banks and because they operate differently from U.S. banks in other respects, they have been treated FOREIGN ASSETS OF U.S. NONBANK FINANCIAL INSTITUTIONS AND NONPROFIT ORGANIZATIONS REPORTING UNDER VFCR GUIDELINES Amounts shown in millions of dollars Changes from Dec. 31, Amount j 1971 Item Dec. 31, ! 1972 Amount i Per cent Deposits and money market instruments, foreign countries except Canada j 69 + 48 + 228.6 Short- and intermediate-term credits, foreign countries except i Canada * : 140 -10 -6.7 Long-term investments, developed countries except Canada; ! \m Net investment in subsidiaries, affiliates, and branches -.,.....! + 21 + 12.5 L St o o n c g k - s t e :i r . m .. . b . o . n .. d s , a , n d credits i j 4 2 4 2 5 4 -208 -15.7 i TOTAL holdings of assets subject to celling..,..,., 1,067 -232 Foreign-borrowing offset 156 + 79 + 102.6 TOTAL holdings less offset,,....,,.,.,...,,,.... 911 -31! -25.5 Ceiling 1,556 -226 Net leeway , . 645 + 85 ASSETS NOT SUBJECT TO CElLlNtI Export credits 96 + 16 + 20 Investments In Canada: Deposits and money market instruments. 325 -5 Short- and intermediate-term credits l 185 _ 4 Net investment in subsidiaries, affiliates, and branches 2,.. 952 + 80 + Long-term bonds and credits. 9,121 + 582 Stocks mi - 305 -23. Direct obligations of international institutions of which IU..S. is a member i .199 + 159 + 15,3 Long-term imestments in developing countries: Net investment in subsidiaries, affiliates, and branches-... 59 + 47 Long-term bonds and credits. .... 1 ,118 + 222 + 24 Stocks, 109 -23 Otherwise "covered" stocks acquired after Sept. 30, 1965, U.S. markets from U.S. investors. + 20 + 2.3 Otherwise "covered" assets acquired after Dec. 31, 1967, "free delivery" items ....,,, 34 -3 TOTAL holdings of assets not subject to ceiling.... 15,083 ^737 + 5. MEMO: Total holdings of foreign assets ...... . 16,149 + 5113 + 3. 1 Bonds and credits with final maturities of 10 years or less at date of acquisition. - Net investment in foreign branches, subsidiaries, or affiliates in which the U.S. institution has an ownership interest of iO per cent or more. 3 Except those acquired after Sept. 30, 1965, in U.S. markets from U.S. investors. 193 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In a special category under the program. During 1972 the number of these institutions reporting increased by 9 to a total of 60, as shown in the table oe page 192. The agencies and branches that reported at the end of 1972 showed holdings of foreign assets of the types subject to restraint of $2,878 million; this was $935 million above their holdings at the end of 1971, an increase of more than 48 per cent. As was true of U.S. commercial banks, export credits granted by agencies and branches of foreign banks increased rapidly; on December 31, 1972, these credits were $617 million above the 1971 level— an increase of 80 per cent. By the end of 1972, holdings by nonbank financial institutions of assets subject to ceilings had declined by nearly $250 million—or 18 per cent—from the level of $1,300 million at the end of 1971. This development left the VFCR reporting institutions with a net leeway of about $650 million after adjustment for the foreign borrowing offset. On the other hand, holdings of assets not subject to restraint increased by about $750 million. About $200 million of this increase resulted from new investment in developing countries, about $160 million represented increased investment in direct obligations of international institutions of which the United States is a member, and the $360 million remaining rclected increased investments in Canada. 194 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legislative Recommendations Reserve requirements. The Board recommends that reserve requirements set by and held with the Federal Reserve be made applicable to all financial institutions that offer money-transfer services in essentially the same manner as do member banks. This would provide the most rational and equitable system of reserve requirements, particularly in view of the evolution toward the use of checktype transfers by thrift institutions. The present limited application of Federal Reserve reserve requirements—to member banks alone—is an anachronism. Formerly, member banks held a much larger proportion of the deposits of all commercial banks, so inequities were considerably less significant. In 1945, for instance, member banks held approximately 86 per cent of total commercial bank deposits. This figure had eroded over the years, however, reaching 80 per cent in 1970 and approximately 78 per cent by the end of 1972. The principal reason for this erosion unquestionably is the variance that exists between reserve requirements imposed on member banks compared with those set for nonmember banks. Banks that are not members of the Federal Reserve System have a competitive advantage. Although in most States the nominal reserve percentage for banks is comparable with that imposed on member banks, the reserves required by the States may be carried in the form of what are effectively earning assets: Government obligations and correspondent balances. Reserves maintained with the Federal Reserve, on the other hand, are nonearning assets, even though they are used to some extent for clearing purposes. Therefore, as banks strive for greater earnings, there is an ever-present incentive for member banks to withdraw from the System or for newly chartered State banks to elect not to join the System. During 1972 five banks with deposits of $100 million or more withdrew from Federal Reserve membership. One of these banks had deposits of nearly $500 million. Of the 265 newly formed commercial banks in 1972, 199 elected nonmember status as State banks while only 13 State banks elected to become members upon organi- 195 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

zation. An additional 53 newly chartered national banks became members of the Federal Reserve System, pursuant to Federal statutory requirements. Since I960, 701 banks have left the System through withdrawals (including conversions from national to State charters) and mergers. During the same period 67 newly chartered State banks elected to join the System, but 1,483 newly chartered State banks declined to do so. Member banks in 1960 totaled 6,174 out of a total commercial bank population of 13,472. At the end of 1972 there were 5,705 member banks out of a total of 13,928 batiks. Part of the Federal Reserve's concern that reserve requirements apply to all depositary institutions has arisen because of the growing volume of financial transactions that are taking place outside member banking institutions. With respect to commercial banks, for instance, fully one-quarter of the increase in demand deposits over the past decade has been at nonmember institutions. Yet all demand deposits—whether they be in member banks, nonmember banks, or mutual savings banks—are equally a part of the Nation's money stock. In order to facilitate the implementation of monetary policy, the same reserve requirements should apply to these increasing deposits. The proposal to extend reserve requirements to institutions other than commercial banks has become increasingly relevant as savings banks and other financial institutions have begun to seek, and in some cases obtain, power to offer third-party transfer services. In the State of Massachusetts, for example, savings banks have instituted a form of interest-bearing account subject to a "negotiable order of withdrawal" (NOW)—an instrument similar to a check. The NOW accounts add somewhat to the effective money stock outside the direct control of the monetary authority. In California, savings and loan associations arc seeking entry into an electronic money transfer system operated by California banks. Direct entry would enable them to charge and credit the savings accounts of their customers as if those accounts were checking accounts, (The Board has submitted comprehensive legislative suggestions dealing with a number of the problems created by these developments.) The Board by regulation in 1972 restructured its reserve requirements for member banks so that required reserves now are a function 196 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

simply of bank size, (See page 78.) The regulatory modifications have produced a smoother progression of reserve requirements against increasing deposit-size categories. If the Board's proposal regarding the extension of reserve requirements is enacted, the Board intends to make additional changes in the structure of Its requirements to provide greater equity and flexibility among all institutions covered by the requirements and to facilitate the transition for those newly covered. Accordingly, the Board recommends that: (1) Federal Reserve reserve requirements be applied to the demand deposits of all depositary institutions that accept deposits subject to withdrawal by check. The Reserve Banks would be authorized to extend credit to such institutions on the same basis as they now extend it to member banks. (2) All institutions offering to individuals and families savings accounts that are subject to withdrawal by check or similar means ("family accounts") should be required to maintain identical reserves against these accounts with the Federal Reserve System, in accordance with regulations to be established by the Board. Limited access to the Federal Reserve's discount window might be provided to institutions maintaining such reserves. Lending authority of Federal Reserve Banks, As a complement to the Board's recommendation regarding the extension of reserve requirements to financial institutions offering checkingaccount-typc services and the extension of Federal Reserve Bank borrowing privileges to these same institutions, the Board again urges enactment of legislation that would permit member banks to borrow from their Reserve Banks on the security of any sound assets without paying a "penalty" rate of interest whenever technically ineligible paper is presented as collateral. Under Section 13 of the Federal Reserve Act, Federal Reserve Banks may extend short-term credit to member banks on their promissory notes secured by obligations eligible either for purchase or for discount by the Reserve Banks. Obligations eligible for purchase include those issued or fully guaranteed as to principal and interest by the United States or aey agency thereof, cable transfers, bank acceptances, bills of exchange, and certain municipal warrants. Obligations eligible for discounting are limited to notes that are issued or drawn for agricul- 197 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

tural, industrial, or commercial purposes and that ha¥e a maturity at the time of discount of not more than 90 days (or 9 months In the case of agricultural paper). Under Section 10(b) Reset¥e Banks are authorized to extend credit to member banks secured simply by collateral Yiewed as satisfactory by the Reserve Banks. HoweYer, Section 10(b) also provides that such credit extensions "shall bear interest at a rate not less than one-half of 1 per centum per annum higher than, the highest discount rate in effect" at the Reserve Bank making the loan. The result of this prcwision is that many perfectly sound member bank loans cannot qualify as security for Federal Reserve advances except at the penalty rate of interest prescribed in Section 10(b). This is true men though the quality of the "ineligible" collateral may be equal to that of presently "eligible" paper. Examples of currently "ineligible" paper include home mortgages and municipal obligations. Presumably, all FHA-insured and VAguaranteed loans would become eligible as collateral for advances under the Board's proposal; such a development would tend to encourage member banks to increase their portfolios of such obligations. Moreover, the Board could, by regulation, prescribe limitations on the extensions of such credit to prevent abuses. Federal Reserve Bank branch buildings. Under Section 10 of the Federal Reserve Act the aggregate costs of branch bank buildings constructed by the Federal Reserve System after July 30, 1947, may not exceed $60 million. This amount has been almost fully utilized or earmarked for construction projects, thus making it necessary for the Board to seek additional legislative authority. Branches of Federal Reserve Banks perform important public services, including especially the handling of currency and coin and the processing of checks. As the economy grows, the workload of the Banks and branches also expands. The Board, in its legislative recommendations in 1971 and 1972, said it believed the present dollar limitation on costs of branch bank buildings to be unnecessary and recommended that the limitation be repealed. The Board reiterates this recommendation. The Board estimates that $71 million will be needed over the next 5 years to cover costs of buildings proper for branch baek building programs. Analysis of the System's building needs is continuing, to ensure the maximum public benefits for each dollar spent. 198 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Proposals relating to the regulation of holding companies. a. Cease-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 banks). The Board may either refer the violation to the Department of Justice as a criminal violation or work the matter out with the holding company, or it may lake no action. The Board recommends that the Financial Institutions Supervisory Act of 1966 be expanded to authorize the Board to initiate ccasc-and-desist proceedings to prevent an unsafe or unsound practice in conducting the business of the holding company or to prevent 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; and to issue appropriate cease-and-desist orders against any bank holding company or subsidiary thereof under the Act including, and notwithstanding any other provision of law, authority to require prompt divestiture of a nonbanking subsidiary by a bank holding company where the continuation of ownership or control of such eonbanking subsidiary by a bank holding company would be inconsistent with the public interest. b. Acquisition by holding company of a "failing harnkT The Board recommends that Section 1Kb) of the Bank Holding Company Act be amended to include provisions, similar to those in the Bank Merger Act, under which (1) comments by a bank supervisor on a proposed take-over of a "failing*' bank may be required to be submitted within 10 days (rather than the usual 30 days); (2) the Board may inform the Attorney General of an emergency requiring expeditious action and thereby shorten from 30 to 5 the number of days between approval of the transaction by the Board and the day consummation becomes permissible; and (3) the Board may dispense with comments from the bank supervisors and the Attorney General where immediate action has been found to be necessary to prevent a probable bank failure and the transaction may be consummated immediately upon approval by the Board, c. Retention by holding company of hank stock acquired as a result of a debt previously contracted. Section 4 of the Bank Holding Company Act authorizes the Board to extend from 2 to 5 199 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

years the time within which to dispose of stock in nonbanking organizations acquired by a holding company pursuant to a debt previously contracted. The reasons underlying that authorization seem equally applicable in the case of bank stock. Accordingly, the Board recommends that Section 3 be amended to parallel the provisions of Section 4 in this respect. d. Limitations on reducing, lending on, or paying out a bank holding company's capital. Member banks are required to comply with several limitations on reducing, lending on or paying out 5 capital. (See Federal Reserve Act, Section 9, paragraphs 6 and 11, and Revised Statutes, Sections 5199, 5201, 5204, and 5205.) The Board believes there is a need for some similar limitations OE bank holding companies and their nonbank subsidiaries, so as to prevent the undermining of the capital position of the entire bank holding company system. e. Intercorporate dealings. Federal Reserve Act Section 23A (12 U.S.C. 371c) limits extension of credit between banks and their affiliates, including bank holding company parents and collateral affiliates. The Board favors legislation to extend this provision to cover some purchases of assets by banks from affiliates, sales by banks to affiliates, or fees or other charges paid to affiliates. In the Board's judgment such legislation may be necessary in some instances to prevent misuse of bank resources. Loans to bank examiners. Title 18 of the U.S. Code, "Crimes and Criminal Procedure," prohibits loans to a bank examiner by any bank that the examiner is authorized to examine. For several years the Board has favored modification of this prohibition to permit a Federally insured bank to make a home mortgage loan to a bank examiner under appropriate statutory safeguards. The Board now believes that a bank examiner may experience difficulties in being prevented from obtaining other forms of bank credit, such as loans to finance the education of his children, automobile loans, home improvement loans, credit-card loans, and other types of consumer credit. For that reason, the Board favors legislation to permit loans to a bank examiner to be made in accordance with regulations prescribed by the agency employing the examiner. Purchase of obligations of foreign governments by Federal Reserve Banks, Under present law, balances that the Reserve Banks 200 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

acquire in foreign central banks In connection with the System's foreign currency operations may be invested in prescribed kinds of bills 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 regulation of the Board, to invest in obligations of foreign governments or monetary authorities that will mature within 12 months and are payable in a convertible currency. The Board again recommends such legislation. Interlocking hank relationships. Section 8 of the Clayton Act generally prohibits interlocking relationships between a member bank 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 purpose of the law would be better served by limiting the applicability of the prohibition to service as a "director or an officer or an employee with management functions," Bank investments for community development. As leading institutions in their communities, banks arc expected to participate in programs for the improvement of the community. In some cases this responsibility can be fulfilled by contributing funds or services. In others, the appropriate form of participation is an investment in stock of a corporation established for a particular purpose, such as to promote the economic rehabilitation and development of lowincome areas, In the Board's judgment, limited investments in such corporations arc in the public interest and should be encouraged by appropriate legislation. 201 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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. To assure that the investments do 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. 202 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Litigation Bank holding companies—Antitrust actions. During 1972 the Federal courts announced actions in three cases brought by the U.S. Department of Justice to prevent the consummation of bank acquisitions by registered bank holding companies. Two other such cases filed by the Department of Justice are pending in the Federal courts. 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 caption of each case and a brief description of its status are as follows: United States v. First National Bancorporation, Inc., et al., filed July 1970, U.S.D.C, District of Colorado. 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 accepted for review. The case was argued before that Court during October 1972 and is awaiting decision. United States v. First National Bancorporation, Inc., et al., filed December 1970, U.S.D.C, District of Colorado. 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 Virginia Bankshares Incorporated, et al., filed February 1970, U.S.D.C, Eastern District of Virginia. A stay against consummation of the acquisition was lifted by the District Court in February 1971. The case was then tried and 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 Prince William County market (Memorandum Order September 1972). The time to file an appeal has not yet expired. 203 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

United States v. Trans Texas Bancorporation, inc., et al. This case was filed March 1972, U.S.D.C., Western District of Texas, to prevent formation of a proposed bank holding company to consist of four banks in the El Paso market. The case was then tried and dismissed by the District Court on the grounds that the Government failed to prove that the proposal would substantially lessen competition or tend to create a monopoly in commercial banking in the El Paso market (Memorandum Order November 1972). Consummation of the proposal has been stayed. The time to file an appeal has not yet expired. United States v. County National Bancorporation. This case was filed April 1972, U.S.D.C., Eastern District of Missouri, to prevent consummation by the County National Bancorporation, Clayton, Missouri, of the acquisition of Big Bend Bank, located In Webster Groves, Missouri. The case was then tried and dismissed by the District Court on the grounds that the Government had failed to prove that the acquisition would substantially lessen competition or tend to create a monopoly in commercial banking in the St. Louis market (Memorandum Order December 1972). The tinie to file an appeal has not yet expired. Bank holding companies—Review of Board actions. Eight civil actions raising questions under the Bank Holding Company Act were lied during 1972; one of the cases filed during 1971 remains pending. In National Association of Insurance Agents, Inc. v. Board of Governors, filed September 1971, U.S.C.A. for the District of Columbia Circuit, petitioner asked the Court to review and set aside a regulatory action by the Board to simplify certain procedures in connection with applications under Sections 3(a)(l) and 4(c)(8) of the Bank Holding Company Act. In December 1971 the Board suspended the operation of that regulatory action as it relates to Section 4(c)(8) and published proposed regulatory amendments that include modifications of the suspended procedures. The Court proceedings have been suspended pending final outcome of the Board's proposed amendments. (For the action establishing the procedures, see the Federal Reserve Bulletin for September 1971, page 723; for the proposed amendments, see the Federal Register for December 28, 1971, page 25048.) 204 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In National Association of Insurance Agents, Inc., el ah v. Board of Governors, filed October 1972, U.S.C.A. for the District of Columbia Circuit, petitioners asked the Court to review and set aside an interpretation issued by the Board relating to the types of insurance agency activities that are considered by the Board to be closely related to banking and in which bank holding companies or their subsidiaries may engage. {The Board's interpretation was published in the Federal Register for September 13, 1972, pages 18520 and 18521, and it appears in the Federal Reserve Bulletin for September 1972, pages 800 and 801.) In Western Bancshares, Inc. v. Board of Governors, filed September 1972, U.S.C.A. for the Tenth Circuit petitioner has requested the Court to review and set aside an Order of the Board denying applications for retention of a bank and continuation of the activities of a general insurance agency, (For the Board's Order, see the Federal Reserve Bulletin for September 1972, page 843.) In Gravois Bunk, el al. v. Federal Reserve Bank of St. Louis, et al., filed July 1972. U.S.C.A. for the Eighth Circuit, petitioners have urged the Court to review and set aside an Order of June 12, 1972, of the Federal Reserve Bank of St. Louis, acting under delegated authority, approving the application of Manehester Financial Corporation, St. Louis, Missouri, to acquire The National Bank of Affton, Affton, Missouri, a proposed new bank. In Lewis & Clark State Bank v. William B. Camp, et al., filed July 1972, U.S.D.C. Eastern District of Missouri, an action challenging an application by Boatmen's Bancshares, Inc., St. Louis. Missouri, to acquire Boatmen's National Bank of North St. Louis County, a proposed new bank, was dismissed by the Distriet Court for lack of subject-matter jurisdiction. In Lewis & Clark State Bank v. Board of Governors, et ah, filed October 1972, U.S.C.A. for the District of Columbia Circuit petitioner has requested judicial review of a Board Order approving the application of Boatmen's Bancshares, Inc., St. Louis. Missouri, to acquire Boatmen's National Bank of North St. Louis County, a proposed new bank. A motion by petitioner for a stay of the Board's Order pending judicial review was granted during December 1972. (For the Board's Order, see the Federal Reserve Bulletin for October 1972, page 923.) 205 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

In Missouri State Bank & Trust Company v. William B. Camp, et aL, filed July 1972, U.S.D.C., Eastern District of Missouri, an action challenging an application by Commerce Bankshares, Inc., Kansas City, Missouri, to acquire Commerce Bank of St. Louis, National Association, a proposed new bank, was dismissed by the District Court for lack of subject-matter jurisdiction. In Bankamerica Corporation v. Board of Governors, iled July 1972, U.S.C.A. for the Ninth Circuit, petitioner asks the Court to review and set aside an Order of the Board denying an application of Bankamerica Corporation, San Francisco, California, to engage in certain personal property leasing activities under Section 4(c)(8) of the Bank Holding Company Act. In American Fletcher Corporation v. Board of Governors, filed October 1972, U.S.C.A, for the District of Columbia Circuit, petitioner asked the Court to review and set aside a regulatory action by the Board declining to include at the present time operation of sa¥ings and loan associations on its list of acuities in which bank holding companies may engage. (For the Board's statement, see the Federal Reserve Bulletin for August 1972, page 717.) The petition for judicial review on agreement of the parties was dismissed by the Court during January 1973. .Regulation J—Collection of Checks and Other Items by Federal Reserpe Banks. In Independent Bankers Association of America, et aL v. Board of Governors, Iled September 1972 U.S.D.C. for ? the District of Columbia, and in Community Bank, et aL v. Federal Reserve Bank of San Francisco, et aL, iled September 1972, U.S.D.C. for the Central District of California, actions were brought challenging certain amendments to the Board's Regulation J that require payment of cash items on the day of presentment. In each case the Board's motion for summary judgment was granted during early 1973. 206 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 27 of the 1,092 State member banks were examined during 1972. 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 207 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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 public disclosure requirements of the Securities Exchange Act of 1934, as amended, with respect to equity securities of State member banks within its jurisdiction under the 1934 Act, and the provisions of the Act giving responsibility to the Board for regulating security credit transactions; prescribes regulations pursuant to the Truth in Lending Act for financial institutions and other firms engaged in extending consumer credit and administers these regulations in their application to State member banks; administers the provisions of the Fair Credit Reporting Act, the Currency Transaction Reporting Act, and the Civil Rights Act of 1968 in their application to State member banks; 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 arc 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 1972, 32 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. Upon receipt of reports involving changes in control of State member banks, the Reserve Banks are under instructions to forward such reports promptly to the Board, together with a statement (1) that the new owner and management are known and acceptable to the Re- 208 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

LOANS TO EXECUTIVE OFFICERS Total loanK to Period covered executive officers Ranges of (condition report interest rate dates) charged (per cent) Nu ni her Amount (dollars) Oct. 29, 1971 - - Dec.31, 1971..... 7,483 21,655,792 1 -18 Jao. 1, 1972^- Apr, 20, 1972 . .. 8,833 24.959,692 1-18 Apr. 2!. 1972 — June30, 1972.,... 7.485 22,257,060 1-18 July 1, 1972 — Sept.30. 1972.... 8,085 25.118,261 1-18 Oct. 1, 1972--- Dec.31, 1972..... 0) 1 CoinDilation of data f condition report of Dec. 31, 1972, has not been completed. serve Bank or (2) that they are not known and that an investigation is being made. The findings of any investigation and the Reserve Bank's conclusions based on such findings are forwarded to the Board. By Act of Congress approved July 3, 1967 (Public Law 90-44), each member bank of the Federal Reserve System is required to include with (but not as part of) each report of condition and copy thereof a report of all loans to its executive officers since the date of submission of its previous report of condition. Since the Board's 1971 ANNUAL RI-.PORT was released, member banks have submitted, as required by law, the data that appear in the table above. Federal Reserve membership* As of December 31, 1972, member banks accounted for 41 per cent of the number of all commercial banks in the United States and for 61 per cent of all commercial banking offices, and they held approximately 78 per cent of the total deposits in such banks; these figures compare with 42 per cent, 62 per cent, and 79 per cent, respectively, at the end of 1971. Stale member banks accounted for 12 per cent of the number of all State commercial banks and 25 per cent of the banking offices, and they held 50 per cent of total deposits in State commercial banks. Of the 5,705 banks that were members of the Federal Reserve System at the end of 1972, there were 4,613 national, banks and 1,092 209 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

State banks. During the year there were net Increases of 13 national and net declines of 36 State member banks. The decline in. State member banks was offset in part by the organization of 53 new national banks and by the conversion of 12 nonmember banks to national banks. The decrease in State member banks reflected mainly 36 withdrawals from, membership and 12 conversions to branches incident to mergers and absorptions. At the end of 1972 member banks were operating 17,954 branches, facilities, and additional offices, 869 more than at the close of 1971; this included 946 de novo branches and 3 established facilities. Detailed figures on changes in the banking structure during 1972 are shown in Table 18, pages 254 and 255. Bank mergers. Under Section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1828 (c)), the 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 convenience 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 ind that the anticompetitive effects of the transaction would be clearly 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 from the Attorney General, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation on the competitive factors in- 210 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

voked in each transaction. The Board in turn responds to requests by the Comptroller or the Corporation for reports on competitive factors in¥olved when the acquiring, assuming, or resulting bank is to be a national bank or an insured nonmember State bank. Bering 1972 the Board disapproved one and approved 19 of these applications, and it submitted 145 reports on competitive factors to the Comptroller of the Currency and 95 to the Federal Deposit Insurance Corporation. In addition, the Federal Reserve Banks approved three merger applications on behalf of the Board of Governors pursuant to delegated authority, As required by Section 18(c) of the Federal Deposit Insuran.ce Act, a description of each of the 22 applications approved by the Board or the Reserve Banks, together with other pertinent information, is shown in Table 21, pages 258—79. 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. 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 1972, pursuant to the provisions of the Bank Holding Company Act of 1956, as amended, the numbers of proposals acted on by the Board, and by the Federal Reserve Banks under delegated authority, were as follows: BoJRt Rcscrvtj Banks Section Approved Denied Approved Permit ted Section 3(a)(l).......... 68 11 44 3(a)(3). ......... 248 IS 30 3(a)('5) 2 "' i .i' " ' 4(v)iH). 59 251 4(cMl2). ........ .......... 68 4(d)............ In addition to the above, 36 determinations were made by the Board pursuant to Section 4(a)(2) of the Act. Board statements and/or orders with respect to applications, whether approved or denied, arc released immediately to the press 211 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

[Tabulation referred to on facing page.] Abu Dhabi ............ 1 Liberia ................ 2 Argentina .............. 38 Luxembourg ........... 1 Austria ................ 1 Malaysia .............. 5 Bahamas .............. 94 Mariana Islands ......... 1 Bahrain ............... 2 Marshall Islands ........ 1 Barbados .............. 4 Mexico ............... 5 Brand ................ 2 Monaco ............... 1 Belgium ............... 7 Netherlands ............ 6 Bolivia ................ 3 Netherlands Antilles ..... 3 Brazil ................. 21 Nicaragua ............. 3 Canal Zone ............ 2 Pakistan ............... 4 Colombia .............. 28 Panama ............... 32 Dominican Republic ..... 15 Paraguay .............. 6 Dubai ................. 3 Peru .................. 8 Ecuador ............... 15 Philippines ............. 4 El Salvador ............ 1 Puerto Rico ............ 19 Fiji Islands ............. 3 Qatar ................. 1 France ................ 17 Saudi Arabia ........... 2 Germany .............. 27 Singapore .............. 11 Greece ................ 14 Switzerland ............ 8 Guam ................. 6 Taiwan ............... 3 Guatemala ............. 3 Thailand .............. 2 Guyana ............... 1 Trinidad and Tobago ..... 6 Haiti ................. 1 Truciai State of Sharjah ... 1 Honduras .............. 3 Truk Islands ........... 1 Hong Kong ............ 19 United Kingdom ........ 49 India ................. 11 Uruguay ............... 4 Indonesia .............. 6 Venezuela ............. 4 Ireland ................ 4 Vietnam ............... 3 Israel ................. 2 Virgin Islands (U.S.) .... 20 Italy .................. 7 Virgin islands (British) , . 3 Jamaica ............... 7 Japan ................. 21 Other (West Indies) ..... 13 Korea ................. 3 Lebanon ............... 3 Total ................. 627 212 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

and the public, and orders accompanied by statements are published in the Federal Reser¥e Bulletin. The material sets forth the factors considered, the conclusions reached, and the vote of each Board member present, Actions by the Federal Reserve Banks are reported to the press and the public in the Board's weekly H.2 release. Board actions on applications under Sections 4(c)(9) and 4(c)(13) are not published, but reports of such actions are a¥ailable for inspection upon request. Annual reports for 1971 were obtained from all registered bank holding companies pursuant to the provisions of Section 5(c) of the Act. At the end of 1972, there were 1,567 bank holding companies in operation. Foreign branches of member banks. At the end of 1972, 107 member banks had in active operation a total of 627 branches in 73 foreign countries and overseas areas of the United States; 79 national banks were operating 565 of these branches, and 28 State member banks were operating 62 such branches. The number and location of these foreign branches were as shown in the tabulation on page 212. Under the provisions of the Federal Reserve Act (Section 25 as to national banks and Sections 9 and 25 as to State member banks), the Board of Governors during the year 1972 approved 80 applications made by member banks for permission to establish branches in foreign countries and overseas areas of the United States. During the year, member banks opened 67 branches overseas and dosed 17. Foreign banking and financing corporations. At the end of 1972 there were six corporations operating under agreements with the Board pursuant to Section 25 of the Federal Reserve Act relating to investment by member banks in the stock of corporations engaged principally in international or foreign banking. Four of these "agreement" corporations were examined during the year by examiners for the Board of Governors, Another one did not sign an agreement with the Board until the second half of the year. The remaining agreement corporation is a national bank in the Virgin Islands and is owned by a State member bank in Philadelphia. During 1972, under the provisions of Section 25(a) of the Federal Reserve Act, the Board issued final permits to 10 corporations to engage in international or foreign banking or other international or 213 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

foreign financial operations, and 10 corporations commenced operations, while three were merged into other corporations and ceased to exist. At the end of the year there were 87 corporations in active operation under Section 25(a). Nine of these corporations operate a total of 14 overseas branches. Examiners for the Board of Governors examined 80 of these corporations during 1972. Actions under delegation of authority. Pursuant to the provisions of Section 11 (k) of the Federal Reserve Act, the Board of Governors has delegated to the Reserve Banks (1) authority to approve, on behalf of the Board, certain applications of State member banks to establish domestic branches, to invest in bank premises, to declare 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 257 branch applications, 61 investments in bank premises, 10 applications of State member banks to declare certain dividends, and 39 waivers of notice of intention to withdraw from membership in the Federal Reserve System. Under authority granted in (2) above, the Reserve Banks approved 1,071 applications. The Board has delegated certain, authorities to the Director or Acting Director of the Division, of Supervision and Regulation. Under this authority 255 actions were taken. In addition, the Director or Acting Director of the Division of Supervision and Regulation is authorized under Section 18(c)(4) of the Federal Deposit Insurance Act (12 U.S.C. 1828(c)(4)) to furnish to the Comptroller of the Currency and the Federal Deposit Insurance Corporation reports on competitive factors involved in a bank merger required to be approved by one of those agencies if each of the appropriate departments or divisions of the appropriate Federal Reserve Bank and the Board of Governors are of the view that the proposed merger either would have no adverse competitive effects or woeld have only slightly adverse competitive effects, 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 210 competitive factor reports were approved. Bank Examination Schools. In 1972 the Board's Bank Examination School conducted two sessions of the School for Examiners, three 214 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

sessions of the School for Assistant Examiners, and one session of the 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 Federal Deposit Insurance Corporation, Since the establishment of this program, 4,796 persons have attended the various sessions. This number includes representatives of the Federal bank supervisory agencies; the State Banking Departments of Arizona, Arkansas, California, Connecticut, Florida, Georgia. 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 20 foreign countries. Truth in Lending. A report entitled Annual Report to Congress on Truth in Lending hn* the Year 1972 was submitted separately, pursuant to the Truth in Lending Act (Title I of the Consumer Credit Protection Act (Public Law 90-321)). 215 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. Earnings and expenses. The accompanying table summarizes the earnings, expenses, and distribution of net earnings of the Federal Reserve Banks for 1972 and 1971. Current earnings of $3,792 million in 1972 were 2 per cent higher than in 1971. The principal changes in earnings were an increase of EARNINGS, EXPENSES, AND DISTRIBUTION OF NET EARNINGS OF FEDERAL RESERVE BANKS, 1972 AND 1971 In thousands of dollars Item 1972 1971 Current earnings 3,792,334 3,723,370 Current expenses 414,606 377,185 Current net earnings 3,377,728 3,346,185 Net addition to or deduction from (—) current net earnings -49,616 94,266 Net earnings before payments to U.S. Treasury 3,328,112 3,440,451 Dividends paid 46,183 43,488 Payments to U.S. Treasury (interest on F.R. notes) 3,231,268 3,356,560 Transferred to surplus 50,661 40,403 216 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ST6 million on l),S. Government securities and a decrease of $6 million on loans. Cifftvnf expenses were S3? million, or 10 per cent more than in 1971, Statutory dividends to member bank> totaled S46 million, an increase of $3 million from 1971. I'his rise in dividends reflected mi increase in capital and surplus of member batiks and a consequent increase in the paid-in capital slock of the Federal Reserve Banks, Payments to ihe Trcasiuy as interest on Federal Reserve notes totaled $3,231 million for the year, compared with $3,357 million io 1971. This amount consists of all Met earnings aftci dividends and the amount necessary io bring surplus \o the level ol paid-in capital. Expenses of the Federal Reserve Banks also included costs of $83,75 for one regional meeting incident io the Treasury Department savings bond program. A detailed statement of earnings and expenses \4 each Federal Reserve Bank (kiting 1972 is shown in 1 able 7 on pages 238 and 239 and a condensed hKtorical siatemcui in Table -S on pages 240 and 241. Holdings of loans and securities. The table on page 218 shows holdings, earnings, and average interest rales on loans and securities of the Federal Reserve Banks during the past 3 years, Average dailv holdings of loans, and securities during 1972 amounted to **»? 1.391 million—an increase of $5,571 million over 197L Holdings of loans decreased $9 { million, whereas there were increases of $5,654 million in l-.S. Government securities and $8 million in acceptances. The average rates of interest on holdings were down from 5,06 per cent to 4,47 per ceni on loans, from 4,94 pet cent Io 4,61 per cent on acceptances, and from 5,66 per cent to 5.31 per cent on U.S. Government securities. J'olume of operations* Table 9 on page 242 shows the volume of operations in the principal departments of the Federal Reserve Banks for 1960-72. Loans decreased ilitriog IIK year as the number of borrowing banks fell to 8 10 from 901 in 1971. The establishment of several new regional clearing centers and the expansion of immediate payment area*- during the year, together 217 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

RESEE¥E BANK EARNINGS ON LOANS AND SECURITIES, 1970-72 U.S. Acceptitern and \ear Iota! Loans Govt. ances securities1 In millions of dollars Average dally holdings:2 1970 ........ .. 59.072 ! 826 65 58,181 1971 ........ , ... 65,820 ; 413 81 65,326 1972 ......... . . 71,391 ! 322 89 70,980 1 Earnings: 1970.................. .... 3,827.1 | 50.6 4.7 3,771.8 1971 • 3 719.6 ' 20.9 4.0 3,694,7 1972 i 3,789.7 ! 14.4 4.1 3,771.2 i i In percent Average rate of interest: 1970.................. 6.48 : 6.13 7.23 6.48 1971.................. ....*' 5,65 5.06 4.94 5.66 1972.................. ....' 5.31 i 4.47 4.61 5.31 1 Includes Federal agenc\ obligations. - Based on holdings at opening of business. with continuing growth in the movement of funds, are reflected in a significant increase in the volume of checks handled, A further indication of growth in the movement of funds, through the use of the Federal Reserve communications network, is the 17 per cent increase in the volume of transfers of funds. The number of coins received and counted posted a sizable increase^ responding to heavier demand. Payments mechanism developments. During the year Federal Reserve Banks continued the expansion and development of improved check-processing arrangements, as they pursued the objectives established in a policy statement issued by the Board of Governors on June 17, 1971. This statement placed high priority on efforts to improve the Nation's payments mechanism. By the end of 1972 24 regional clearing centers were in operation, with an ? additional 15 scheduled to become operational by mid-1973. Six of 218 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

these centers are entirely new operations, begun in cities other than the previous 37 locations of Federal Resef¥e offices. In addition to providing faster clearing of checks, such centers will offer a new level of service to remotely located commercial banks. Loan guarantees for defense production. Under the Defense Production Act of 1950, the Departments of the Army Navy, and ? Air Force, the Defense Supply Agency of the Department of Defense, the Departments of Commerce, Interior, and Agriculture, the 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 1972 the guaranteeing agencies did not authorize the issuance of any new guarantee agreements. Loan authorizations outstanding on December 31, 1972, totaled $52 million, which was also the total, of outstanding loans. Of total loans outstanding, 15 per cent on the average was guaranteed, During the year approximately $4 million was disbursed on guaranteed loans, all of which are revolving credits, Aethority for the V-loan program, unless extended, will terminate ofl June 3O 1974 5 Table 15 on page 248 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 $8,758 million in 1972. At the end of the year they totaled $65,156 million: $11,450 million of earmarked gold, of which $905 million represented the increase resulting from the change in par ¥aiue of the U.S. dollar in May 1972; $50 934 million of U.S. Government ? securities (including secerities payable in foreign currencies); $325 million in dollar deposits; $179 million of bankers* acceptances purchased through Federal Reserve Banks; and $2,268 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 increased $1,377 million to $13,191 million; this amount includes an increase of $322 million 219 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

in earmarked gold resulting from the change In par ¥alee of the U.S. dollar. In 1972 new accounts were opened In the names of Bangladesh Bank, Narodowy Bank Polski, and the Central Bank of Yemen; the account ia the'name of the Yemen Currency Board was closed. The Federal Reserve Banks did not make any Joans on gold in 1972. The Federal Reserve Bank of New York continued to act as depositary and fiscal agent for international and regional organizations. As fiscal agent of the United States, the Bank continued to.operate the Exchange.Stabilization Fund pursuant to authorization and instructions of. the Secretary of the Treasury, Also on behalf of the Treasury Department, it administered foreign assets control regulations pertaining to assets in the United States of North Vietnam, Cuba, the People's Republic of China (pertaining to assets blocked before May 7, !()7J), and North Korea, and their nationals, and to transactions with those countries and their nationals. Federal Reserve bank premises. During 1972 the Board authorized construction of new buildings for the Philadelphia and Boston Banks, a coin vault addition to the Pittsburgh Branch and a temporary coin facility addition to the present Boston Bank, With the approval of the Board, the Dallas and Atlanta Banks and the Helena Branch acquired properties for future expansion. The Boston Bank acquired an existing underground facility in Amherst, Massachusetts, for use as a duplicate records storage center. An annex building for records storage was purchased by the Chicago Bank to replace rented facilities lost through termination of a lease agreement. The Cincinnati and Memphis Branches occupied their new banking quarters, and the ¥acated Memphis Branch, building property was sold. Table 6- on page, 237 shows the cost and book value of bank premises owned and occupied by the Federal Reser¥e Banks and of real estate acquired for banking-house purposes. 220 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 1972 were audited by the public accounting firm of Touche Ross & Co. 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, 1972, and the related statements of assessments and expenses, and changes in financial position 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. The financial statements for the preceding year were examined by other independent public accountants. In our opinion, the aforementioned financial statements present fairly the financial position of the Board of Governors of the Federal Reserve System at December 31, 1972, and the results of its operations and the changes in its financial position for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Touche Ross & Co. Certified Public Accountants Washington, DC. January 29, 1973 221 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM BALANCE SHEET December 31 ASSETS W n ^^ ~ "1971 OPERATING FUND: Cash.,, $ 5,564,301 $ 55OO211 } f Miscellaneous receivables and advances. 92,076 58,222 Stockroom and cafeteria inventories—at cost (firstin, first-out method) 5! 950 39,195 ? Total operating fund,................. 5,708,327 5,597,628 PROPERTY FUND: Land and improvements....................... 792,352 792,852 Building 4,298,315 4,284,181 Furniture and equipment, ..................... 2,015,858 1,673,599 Construction-in-progress. .............. ... 22,031,509 9,771,715 Total property fund................... 29,138,534 16,522,347 $34,846,861 $22,119,975 LIABILITIES AND FUND BALANCO OPERATING FUND: Accounts payable and accrued expenses. ........ $ 2,827,929 S 1,722,014 Income taxes withheld. ....................... 187,054 157,997 Accrued payroll.. . 368,533 327,602 Retention on construction-in-progress........... 1,662,319 ............ 5,045,835 2,207,613 Fund balance: Balance, beginning of year 339OO15 1,120,546 ? ? Assessments over (under) expenses............ (2,727,523) 2,269,469 Balance, end of year........................ 662492 3,390,015 ? Total operating fund,................. 5,708,327 5,597,628 PROPERTY FUND: Fund balance: Balance, beginning of year................... 16,522,347 8,868,106 Additions—at cost.......................... 12699,379 7,720,419 ? Disposals—at cost.......................... (83,192) (66,178) Net Increase. 12,616,187 7,654,241 Total property fund, end of year. ............ 29,138,534 16,522,347 $34,846,861 $22,119,975 See notes to financial statements. 222 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM STATEMENT OF ASSESSMENTS AND EXPENSES Year ended December 31 ^ J 9 7 2^ ~ 1971 ' ASSESSMENTS LEVIED ON FEDERAL RESERVE BANKS: For Board expenses and additions to property..... $35,234,500 $32,634,000 For expenditures made oe behalf of the Federal Reserve Banks................................. 23,957,493 22,882,713 Total assessments. .................... 64,191 993 55,516,713 ? EXPENSES : For the Board: Salaries. . 17,167,836 15,101,752 Retirement and insurance contributions. ....... 1,605,754 2,005,986 Travel expenses. 718,917 687,419 Legal, consultant and audit fees. .............. 535,104 431,034 Contractual services. ...'..................... 400,714 346,746 Printing and binding—net .. 663,988 628,287 Equipment, office space and other rentals ...... 2,658,376 2,189,655 Telephone and telegraph 304,183 271,489 Postage and expressage 298,855 227,229 Stationery, office and other supplies............ 217,391 194^298 Heat, light and power 103,566 93,778 Operation of cafeteria—net. .................. 134,438 121,319 Repairs, maintenance and alterations,.......... 222,274 131,639 Books and subscriptions 56,472 52,855 System membership, Center for Latin America Monetary Studies.......................... 27,645 28,338 Miscellaneous—net.......................... 168,796 138,041 25,284,309 22,649,865 For additions to property—net of recovery on disposals of $21,665 in 1972 and 55,753 in 1971. .... 12,677,714 7,714,666 37,962,023 30,364,531 Expenditures for printing, issue and redemption of Federal Reserve Notes, paid on behalf of the Federal Reserve Banks/...................... 28,957,493 22,832,713 Total expenses. ....................... 66,919,516 53,247,244 ASSESSMENTS OVER (UNDER) EXPENSES. ............. $(2,727,523 > S 2,269,469 See notes to financial statements. 223 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

BOARD OF GOVERNORS-OF THE FEDERAL RtstR\t SYSTEM- STATEMENT-OF CHANGES IN FINANCIAL POSITION Year ended December 31 SOURCE OF FUNDS: Assessments of er (under) expenses............... S < 2,727,523 > S 2,269,469 Net increase in property fund,;.7;...;..... 12,616,187 7,654,241 Increase in retention on construction-in-progrcss... 1,662,319 ........... Increase in accounts payable and accrued expenses.. 1,105,915 669,830 Increase in accrued payroll.....,....,.,.....,,. 40,931 92,748 Increase in Income taxes withheld,.....,,., 29,057 ........... Decrease in miscellaneous receivables and advances ... , 99,374 12,726,886 10,785,662 APPLICATION OF FUNDS: Additions to property—net: Construction-in-progress. .................... 12,259,794' 7,332/893 Furniture and equipment.......:.............. 342,259 314,442 Building........7,............ ,V..':......... •.. 14,134 6,906 .. 12,61"6,187 7,654,241 Increase in miscellaneous receivables and advances.. • ' 33,854 . Increase in stockropni and cafeteria inventories..... 12,755 7,930 Decrease in income taxes withheld. 66,196 12,662,796 7,728,367 INCREASE IN CASH. S 64,090 $ 3,057,295 NOTES TO FINANCIAL - STATEMENTS SIGNIFICANT ACCOUNTING POLICIES Assessments made by the Board on the Federal -Reserve Banks for Board expenses aad additions to property are calculated based upon expected cash needsand ( are accrued when assessed. Board expenses and property additions are recorded on the accrual basis- of accounting. Assessments and expenditures made on behalf of the Federal Reserve Banks for the printing, issue 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. Property additions are charged to expense in the Operating Fund in the year of acquisition; recoveries on the-disposal of'property are-recorded as a reduction in expense in the Operating Fund in the year of disposal. When property is acquired or sold, the property accounts in the Property Fund are increased or reduced at full cost, with a corresponding increase or decrease in the property fund balance. Because of the short duration and temporary nature of the Board's leases, leasehold improvements have not been capitalized in the Property Fund. The Board is self-insured against loss of its building and furniture and equipment from ire or other casualty. The construction-In-progress is covered by builder's 224 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

B()'\RD OF G()M KNORS OF 'T iif*. FtOERAt Rl-Sr.KW: SVSI I'M NOTES TO FINANCIAL STATEMENTS—Continued risk insurance in excess of the cost of the work to December 31, U)72. Coverage for other customarilv insured risks, such as workmen's compensation insurance and comprehensive general liability insurance, is carried bv the Board, CONST RUC HON-I N- PR* K « RI-:SS The Martin Building and North Garage are currently under construction. The estimated cost is $41.300.000. 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. The retention on eonstruction-in-progress represents five percent of the general construction contract and is to be paid at satisfaetor> completion of the contract, expected to be during 1974, LONG-TERM LEASES The Board leases outside office and parking space under leases expiring from December 31, 1973 to December 31. 1077. Because the leases may be terminated with six months notice commencing in 1974, the onl\ fixed future rental commitments are: 1973-$1,093,000 1974^- 557,000 RETIREMENT PLANS There are two contributory retirement program* for employees of the Board, About 84r of the employees are covered by the Federal Reserve Board Plan. All r new members of* the stall* who do not come directly from a position in the Government arc covered by this plan. The second, the Civil Service Retirement Plan, covers till new eniplo>ees who come directly from Government service, Employee contributions are the same under both plans, and benefits arc similar, being based upon the Civil Service Plan, Under the Civil Service Plan. Board contributions match employee payroll deductions while under the Federal Reserve Plan, Board contributions are actuariaily determined annual!}. Additionally. emplo\ees of the Board have been authorized to participate in the Federal Reserve Svstem's Thrift Plan. Under this plan, the Board adds a fixed percentage to allowable employee savings. Total Board contributions to these plans totaled SI,394,036 in 1972 and SI,831,173 in ll)7I, The reduction in Board contributions to the Federal Reserve Retirement Plan reflects utilization of surplus reserves, which resulted from investment gains. Such gains are being utilized to reduce contributions in the current and future years. There arc no unfunded prior service costs under either plan. 225 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 RESERVE BANKS COMBINED, DECEMBER 31, 1972 (In thousands of dollars) ASSETS Gold certificates on hand........................................... 1,278 Gold certificates due from U.S. Treasury: Intcrdistrict settlement fund .......*.............. 7,741,12! F.R. Agents* fund. . , . 2, 56!,000 Total gold certificate account 10,303,399 Special Drawing Rights certificate account , 41)0,000 F.R. notes of other F.R. Banks 1,158,876 Other cash: United States notes ...... , 279 Silver certificates. 102 National bank notes and F.R, Bank notes. . 133 Coin 312,709 Total other cash , , 313,223 Loans to member banks secured by— U.S. Govt. and agency obligations. . 877. 554 Other eligible paper,.",,,. . . 1,049, 380 Other paper (Sec. 10<b>> 54.020 1,980,954 Loans to others. . .................... Foreign loans on gold Total loans............................................. 1,980,954 Acceptances: Bought outright 70,461 Held under repurchase agreement ......... 36,306 Federal agency obligations: Bought outright , 1,311,364 Held under repurchase agreement 13.000 U.S. Govt. securities: Benefit outright: "Bills. ...... ..................... 29,664.685 Certificates. Notes . . 36.681,435 Bonds 3,462,370 Total bought outright 69,8O8.4tO Held under repurchase agreement. . 97,500 Total U.S. Govt. securities 69,905,990 Total loans and securities. 73,318,075 Cash items in process of collection: Transit items 8,443,753 Exchanges for clearing house 345,850 Other cash items 1,992,928 Total cash items In process of collection . 10,782,531 Bank premises: Land 64,865 Buildings (including vaults) . 1 30,810 Fixed machinery and equipment. 81,036 Construction account 37,980 Total builcllnes. , . 249,826 Less depreciation allowances. ................. 120,827 128,999 Total bank premises. If3»S64 Other assets: Claims account closed bonks Denominated in foreign currencies 192, 341 Gold clue from U.S. 1 reasury for account International Monetary Fund Reimbursable expenses and'other items receivable. * 11,$92 Interest accrued . 680,072 Premium on securities. 73,447 Deferred charges ...... 4,552 Real estate acquired for banking-house purposes 3;055 Suspense account , 88978 All other......... 11,114 Total other assets. 1,065,451 Total assets. ..... 97335,419 228 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1.—CONTINUED LIABILITIES KR. notes: OiuMundJm' 'issued to I'M. Ranks' ... ..... Less lick! h> «ssuin«i KK. Banks . . . .. hot warded foj redemption , , . . , , I .R. notes, net unelndes notes hold In U.S. f icasti'y and b} F.R, Banks other than is.sura« Bank': 59,913,141) Deposits. MemK'i Hank teserves. ... , .... U.S. Ircasutvr General ;uv<>uni ,, ,. , 1,8?5.6(W j-orcitiii..... ... . . . , , . . , , . . Other deposns, Nonmeinber bank Cle.<unu accounts OHiccis'viiul ccnifk'd CIK-VKS . Reserves ot' corpora lions iloini.1 Io4cl*-*ii b.niknir <n finanduj',. . .... . . . . . , . . , lntenuuon.il orj.'jpi/atioir; . . . . . , , St'crciaiv uj I K\>siny sjv«.ittl ucjoum. AlUnhe'f. . . . .. I out oilier dcpoMt> ... DcfVi^if auHlaNiir, Kjsh item* Ofhcr tf.iWliiK's: Veined dividends unpaid l.Vearned tliscuiini Hisconnt on seviniues . . Snndrs items pa>able. Alt tAiiJi * " . hnat other liablliiic 5S4.272 Total !i,*b»hues. . . CAPITAL ACCOUNTS CapiUtl paid in . . . .. ?«I2,845 Sin plus 191,845 Other caj'ttai accounts : loiai iiibilities and capita1 .ueonnt*. ,535,419 C vMttin^ent liabilsi> <>» atwpiancci ptuvhas^d fm on 1 nutinj' the w n* this iicsn inc{>itlcs ihc sui nfVutHituw, o\fvn\c% pi>»li! atu! I dividends, winch are ,;iov;d «>ur o-i l\\ , >L MV I^Ne 7, ,\r>, J 5H ami :.t'», N»>n. -\nk)tiiifs m bonlfa^e luv inv'tva»e Hems shown in ihe iioani'^ \\>.vl;i\ of the F.K. Banks 229 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2. STATEMENT OF CONDITION OF EACH FEDERAL RESERYE BANK, DECEMBER 31, 1972 AND 1971 (In millions of dollars unless otherwise indicated) Total Boston New York Philadelphia Cleveland Richmond Item i 1972 1971 1972 1971 1972 1971 1972 1971 1972 1971 1972 1971 ASSETS Gold certificate account ..,..,.....,.,,. 10,303 9,875 504 572 2,064 1,957 632 471 885 973 1,013 894 Special Drawing Rights cert if. acct. 400 40D 23 23 93 l)3 2^ 23 33 33 36 36 F.R. notes of other F.R.. Banks. 1,157 1,135 16*) 144 206 164 54 82 76 69 121 100 Other cash..... 313 261 14 17 21 10 11 39 27 36 38 Loans: Secured by U.S. Govt. and agency obligations. 1,975 39 59 926 17 93 194 52 3 Other ........... 7 ........ Acceptances: Bought outright. 70 70 80 i lekt under repurchase agreements............ 36 18801 36 181 ........ Federal agency obligations: Bought outright. 1,311 485 62 23 332 117 72 27 98 39 98 36 Hold under repurchase agreements............ n 101 13 101 U.S. Govt. securities: Bought outright. . . . i69»808 ^68,996 3»28i 3,334 17,702 16,714 3,841 3,823 5,225 5,492 5,216 5,162 Held under repurchase agreements............ 98 1,222 98 1,222 Total loans and securities............... 73,318 71,104 3,402 3,357 19,177 18,432 4,006 3,850 5.517 5,53! 5,366 5,201 Cash items in process of collection. 10,782 15,648 376 840 2,543 2 922 447 303 597 981 965 1,088 Bank premises 194 150 29 2 7 5 3 27 24 13 13 Other assels: Denominated In foreign currencies............ 192 17 9 i 50 4 10 1 17 2 10 1 IM F gold deposited 2....................... 144 . . 144 All other.................................. 874 757 41 58 211 183 45 39 71 54 71 53 Total assets............................ 97,533 99,491 4,567 5,006 24,368 23,928 5,232 5,283 7,262 7,694 7,631 7,424 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

LIABILITIES F.R, notes. .......... . 5l)»9i4 54,954 3,116 2,925 14,809 13,462 3,647 3,237 4,752 4,473 5,315 4,803 Deposits: Member bank reserves ,.,...., 25,505 27,748 936 1,116 7,073 6,960 1,011 1, 164 1 5^2 11969 1,248 1,515 U.S. Treasurer—General account. . 1,855 2,020 lid 149 388 387 121 155 144 164 164 98 Foreign 325 294 13 13 111 88 15 14 26 25 15 14 Other; I A M ll F o t g h o e l r d deposits -.... .. . . . . . . :' "84<V 1,2 1 3 4 7 4 12 17 "570 7 1 0 4 6 4 "24" " ' 24 *2l' '33* " ii' 41 Total deposits..... ...... 28,525 3 i,443 1,071 1,295 8,142 8,285 1,171 1,357 1,743 2,191 1,458 1,668 Deferred availability cash items. , .... ....... 6.951 10.963 285 689 863 1,627 307 581 5S2 847 734 834 557 647 27 29 140 168 29 41 47 40 43 Other liabilities and accrued dividends.....,,. 95,94? 98,007 4,499 4,938 23,954 23,542 5,154 5,207 7,118 7,558 7,547 7,348 Total liabilities. C. AP! I AL ACCOUNTS 793 742 34 34 207 193 39 38 68 42 38 Capita! paid in . , . ..... 793 742 34 34 207 193 39 38 72 68 42 38 Surplus ... , ... Oilier capita! accounts.... Total liabilities and capital accounts 99,491 4,567 5,1)06 24,368 23,928 5,232 5,283 7,262 7,694 7,63! 7,424 Contingent liubilit} tin acceptances purchased tor foreign correspondents.. . .,,.,........ 179 254 8 47 66 9 13 16 23 9 13 i'.li, NOTE STATFMFNT F.R. notes: Issued to F.R. Bank by F.R, Agent and outstanding. ...... 62,492 57,490 3,306 5,107 15,482 f4,0l>3 3,725 3,335 4.92'"> 4 691 5,482 4.%2 Less held by issuing Bank, and forwarded for redemption. , 2 578 2,53d 190 182 673 Ml 78 98 177 218 167 159 F.R. notes, net '...,.. 59 ,914 54,954 3,116 2,925 14,809 1 3»462 3,647 3,237 4,752 4.473 5,315 4,803 Collateral held by F.R. Agent for notes issued to Bank; Gold certificate account. 2,561 2,670 250 175 500 6<»») 35D 501 485 U.S. Cio\t. securities.. . . . (>l ,015 55,875 3,070 3,000 "j 5]560" 13,800 3,300 3,150 4,700 4,400 5,025 4,520 lotal collateral 63,576 5S.545 3,320 3,175 15,560 14,300 3,90(1 3,450 5,050 4,750 5,526 5,005 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Is) to 2. STATEMENT OF CONDITION OF EACH FEDERAL EESEEVE BANK, DECEMBER 31, 1972 AMD 1971—Continued (In millions of dollars unless otherwise indicated; Atktnta Chicago St. Louis Mi nntapolis Kansas City Dallas San Franeisco Item 1972 1971 1972 1971 1972 197! 1972 1971 1972 1971 1972 1971 1972 197! ASSETS Gold ceitiftcate account. 647 375 1, K46 1,785 534 346 78 25 433 546 378 98 i, 289 1,833 Special Dravmii', Rights certif. acct, 70 70 15 15 7 7 15 15 14 14 49 49 KR. notes of oihcr l-.R. Hanks 166 205 102 X2 }5 40 27 31 39 41 44 48 118 129 Other cash 40 40 2H 21 17 5 8 42 26 14 14 35 30 Loans: Secured by L'.S. Govt. and agency obligations 88 262 3 52 2 1 7 5 41 199 10 Other ' 7 Acceptances: Bought outright , Held under repurchase agreements Federal agency obligations: Bought outright.,, , 72 27 211 79 47 19 26 9 52 20 57 22 184 67 Helti under repurchase agreements ........ U.S. Govt. securities: B H o el u d g h u t n d o e u r t r r i e g p h u t r , c ,, h ase agreem .. e . n . t . s . . ..... 3,H3I 3,784 11,231 11,282 2,508 2,649 ... 1 . ,3 . 6 . 7 .. 1,252 2,753 2,795 3tO48 3,180 9,805 9,529 1 otal loans and securities. . 3,811 11,704 11,364 2,607 2,668 i»395 1,262 2,812 2,820 3,146 3,202 10,188 9,606 Cash hems in process of"collection. ....,.,. 928 1,528 1,459 2,498 444 854 457 70s) 678 969 707 1,102 1,181 1,354 Bank premises...... . 15 16 16 15 15 30 17 17 9 8 Other assets: 12 Denominated in foreign currencies, 13 29 7 1 4 1 25 2 I A M ll F o t g h o e l r d deposited 2 43" '" " " 4 i ' 126* '"'in' ""27' 26* """is" 35' 10 """'33' ""isi" '" ' U4 ' ""*35' Total assets...................... 5,872 6, Oil 15,392 15,958 3,705 3,982 2,021 2,076 4,079 4,463 4,360 4,521 13,044 13,125 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

LIABILITIES F.R. notes. 3,191 2,809 I 10,064 9,573 2,320 I 1,041 2,315 ! 2,045 2,298 7,046 Deposits: Member bank reserves,.,,..,.,., 1,682 1,725 3,516 ' 3,751 814 | ,015 549 682 1,003 1,328 1,373 : 1,437 I 4,748 : 5,086 U.S. Treasurer- -General account, 144 139 190 : 255 142 ! 154 52 59 102 164 124 l 83 I 174 • 213 Foreign........ ............... 20 19 43 ' 42 10 i 10 "7 16 1 16 ! 37 j 35 Other: IMF gold deposits s. ........ AM other................... 20 57 « 51 27 13 12 66 1 81 Total deposits.............. I, 866 1,940 ! 3.800 j 4,185 976 1»206 760 1J 29 t 1,585 : 1,530 i 1,556 j 5,025 j 5,415 Deferred availability cash items. 672 1,150 1 1,192 j 1,884 335 585 315 356 546 ! 746 I 422 715 ! 69K ' 949 Other liabilities and accrued dividends 33 I 32 j 88 k)4 2fJ 15 23 I 24 I 35 1 77 ! 110 Total liabilities,...... ) _! ..__ I.___ 4,399 ! 4,274 \ 4,439 12,846 ; 12,935 5,762 i 5,931 j 15,144 I 15,736 i 3,651 CAPO At ACCOUNTS Capital paid in.., 55 50 ' 124 27 25 ! 43 41 ' 99 • Surplus 55 50 ' 124 27 32 43 4i ; 99 ! Other capital accounts. . ....... Total liabilities and capital ' accounts . ... 5,872 I 6,031 15,3*12 | 15,958 j 3,705 j 3,982 2,021 4,1)79 4,463 | 4,360 j 4,52! 13,044 j 13,125 Contingent liability on acceptances pur- < 1 chased for foreign correspondents,.......! 12 17 27 M j 6 ' 0 1 4 b 8 it \ 10 i 14 23 j 52 1 F.R. NOTE STATEMENT j i 1 1 F.R. notes. t Issued to F.R. Bank by F.R, Agent and j j outstanding. . , « 399 3,039 10,399 9,909 j 2,431 ; t,078 94 H 2,405 2, I 24 | 2,418 ! 2.275 7,438 i ft,825 Less held by issuing Bank, and for- 1 warded for redemption.., 208 20) 335 336 ! in j 93 j 37 34 90 79 j 120 | 142 392 364 F.R. notes, net3. ................ 3*19! 2 10,064 9,573 j 2,321) j 1 s 1,041 914 2,315 2,1)45 | 2,298 j 2J}} 7,046 i 6, 46 f Collateral held b> F.R, Agent for notes 1 issued to Bank. i G U o .S ld . C c i e o r v ti L fi c s a e t c e u r a i c ti c e o s. unt.. . .... ... 5110 ' '3, ioo 9,9 7 0 0 0 0 9,3 7 0 0 0 0 ; ! 2,3 1 3 5 0 5 1 j 2,1 1 3 5 0 5 j , " i, ioo ' "970 ' -\45lV '2J75* 2,480 5 1 ' 2,330 5 7,600 j | •7;o66 Total collateral... , , . ....... i, 500 3,10U 10, 10,000 1 2,485 ! 2,285 j 1.100 970 2 450 2,175 • 2,485 1 2,335 7,600 j 7, 000 i * Less than $500,000, by foreign countries for the purpose of making gold subscriptions 10 the IMF under ts) * Includes securities loaned—fully secured by U.S. Govt. securities pledged with F.R, quota increases. The United States has a corresponding gold liability to the IMF. |*> Banks. •J Includes F.R, notes field by U.S Treasury and by KR. Batiks other than the issuing ^ a (iold deposited by the IMF to mitigate the impact on the U.S. gold stock of purchases Bank, 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, 1970-72 (In millions of dollars) December 31 Increase or decrease (—) Type of* Issue Rate of ! during— and date Interest \ '«per cent) j 1972 I 1971 1970 1971 Treasury bonds: 1966-71. .. 155 -155 1967-72 June.,.. 89 58 -89 31 1967-7 2 Sept...., - '2 j 108 89 -1(18 19 1967-72 Dec. . . . 2 '•<> 1 130 125 -130 5 1971 Aim 4' !' 188 -188 1971 Nov. 3?g ;. 260 -260 1972 Feb 4 197 -197 1972 Aug 4 I 149 126 -149 * *23" 1973 Aug 4 331 264 199 67 65 1973 Nov 41^ j 411 381) 312 31 68 1 1 9 9 7 7 4 4 F M e a b y . .... . . . 4 4! i 4 v i ' 2 3 0 0 0 4 2 1 9 8 2 0 2 1 5 4 4 1 2 1 0 2 3 3 9 7 1974 Nov....... 3?- 8 l 68 68 53 15 1 1 1 9 9 9 8 7 7 0 5 8 - F 8 - e 5 8 b . 3..... X 4 i 4 * ; ! 1 17 3 48 2 5 1 1 7 2 2 6 2 4 9 7 1 9 3 9 23 4 2 5 9 6 8 1980 Nov. . . . ^ i '•> i 74 73 41 1 33 1981 Aug ^j'" 1 114 105 9 105 1982 Feb. 270 270 1984 Aug 6 i H i 283 283 1985 May..... . 3(4 • 47 47 16 1 1 9 9 8 8 6 7 - N 92 o . v . ... . . .. . . . 6 4 l 3 4 s 1 ' 2 4 9 9 2 6 2 4 0 6 7 2 338 * " 3 8 4 5* 2 1 0 2 7 4 1988-93 4 ; 24 24 24 I 1989-94........ 4'x i 77 72 45 26 1990 Feb...... 1 '') i 84 84 80 4 1995 Feb.. 2 2 1998 Nov 3.12 3? 3? Total. 3,286 I 2,940 176 346 Treasury notes: Feb. 15, 1971—C... 74 ^74 Feb. 15, 1971—D. . 63 May 15, 1971 —A... 1,578 -1,578 May 15, 1971—E... 456 Aug. 15, 1971 —F... 286 -286 Nov. 15, 1971—B .. HI -81 Nov. 15, 1971— G. . 7,233 -7,233 Feb. 15, 1972—A... 4»4 140 137 ^140 3 Feb. 15, 1972—C... 234 225 -234 9 Apr. I, 1972—EA. *> ....... May 15, 1972—B... 2,38? ,37? -2,381 May 15, 1972—1). . 129 -129 17 Aug. 15, 1972—E... 1,345 -1,345 1,345 N F F e e o b b v . . . 1 1 1 5 5 5 , , , 1 1 1 9 9 9 7 7 7 3 3 2 — — — D C F . . . . . . . . 1,770 1,71 4 8 8 3 2 _4 4 3 0 1,71 4 8 8 3 2 May 15, 1973-4... 2,626 2,618 ~8 10 May 15, 1973—E.. . 4»* 2,513 2,513 Aug. 15, 1973—B.. . 232 *"* 223' 202 9 " "21 " Feb. 15, 1974—C... 284 250 181 34 69 May 15, 1974—D. . 963 952 888 II 64 Aug. 15, 1974—B... 5 2^3 5,180 5,005 53 175 Nov. 15, 1974—A... 1,876 1,849 1,103 27 746 Feb. 15, 1975-A... 1 ,087 1,076 995 tl 81 Feb. 15, 1975—E... 90 31 59 31 May 15, 1975—B... 6 3,728 3,722 '3]707' 6 15 May 15, 1975--F... 5-8 67 67 Aug. 15, I975--C... 2 372 2,314 *2,*3t4* Nov, 15, 1975—D. . 462 390 72 390 Feb. 15, 1976—A... 2,507 2,507 2,506 I Feb. 15, 1976-F... 898 "'898' May 15, 1976—B... *335* " *"308" 10 "*27* May 15, 1976-E... 456 456 Auu. 15, 1976—C... 714 * * * 609 * 57 " " 48' Nov. 15, 1976—D. . 47 16 3! 16 Feb. 15, 1977— A... 2,448 2 392 "2 292' 56 100 Aue. 15, 1977—B... 336 30') '217 27 92 Feb. 15, 1978-A... 2.568 2.462 106 2,462 Nov. 15, 1978—B.. . 2 425 2,201 224 2,201 Aug. 15, 1979—A... 512 512 Total.......... .. 36,681 35,554 33.236 1,127 2,318 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

3.—CONTINUED Decomber 3 Increase or ck\.reuse (- T\ pe of issue Rate of during and date interest t per vent; 1972 1971 j>70 1972 1971 Treason bills: lax anticipation. ,,,,... j,, if n»i 751 ._ i)t) — 650 Other, due - j Within 3 mos i 18,670 14,128 981 4.342 3-6 iiios 6,516 7, H2(> ?,740 - 1,310 H6 After fy mos .*, 486 3. 558 3, 345 -72 213 Total 29,665 30.155 25,%5 -490 ; 4.191 Repurchase agreements, . . . 1,222 -1,124 1,222 U.S. Govt. securities—Total holdings \, . , ..... 69,906 70.218 §2,142 8,076 Maiuriim - - j Within 90 <Ja\s. ....... J 2!.671 19 741 14,670 1,930 i 5,071 91 da\s to i >car .. . . I, . . 16,097 16,5X3 2!,667 -486 -5,0X4 O\or 1 >car to 5 \ears ,;.,....... 24,484 ">5 100 19, 089 -616 6,011 Cher 5 >cars to 10 \e.trs. ! 6, 108 ~7Ji64 6,046 -1,556 i 1,618 Over 10 years.. . * . . .j, . i , 54b 1,129 669 417 461 Federal agency securities: j Held outright: Banks for coops ... .! 24 - 24 24 Export-Import Bunk . I«MV 9 Fed home loan banks, ! 156 76 80 76 Fed. intermediate • crctiit banks i......... 22 122 -100 122 Federal land banks !......... 14? 35 106 35 Farmers Home Admin. 36 36 Fed. Natl Mori. Asso i 785 '20l" 584 201 Govt. Natl. Moil, ; Assn.- P.C.'s ..... 48 19 2i) 19 U.S. Postal Service. , . 14 14 Wash, Metro. Area Transit Authority.. . 4 4 Total 1,311 485 826 485 Held under Rp's........ 13 101 101 4. FEDERAL RESERVE BANK HOLDINGS OF SPECIAL SHORT-TERM TREASURY CERTIFICATES PURCHASED DIRECTLY FROM THE UNITED STATES, l%7-72 (fn millions of dollars! Date Amount Date Amount Date Amount Date Amount 1967 1968 1969 1970 none Mar. 10 149 Dec. 14 430 Apr. 15 502 1 i 149 15' 430 16 627 1971 12i 149 16 447 Sept, 5 322 June 8 79 June 15 87 17 596 6 322 9 582 Sept. 8 153 7 1 10 610 9 153 8 653 It 593 !0i 153 1969 9 83(1 593 Apr. 8 15! 10 1,102 13i 593 9 519 11 862 14 243 1968 10 490 12 75() 15 588 Sept. 9 87 li 976 13 759 16 349 Dec. 10 9"* 12 976 14i 759 12 45 13 i 976 15 513 1972 13 430 14 514 16 972 Sept. 12 38 1 Sunday or holiday. NOTE,-—Under authority of Section 14(b) of the Federal Reserve Act. Throughout the period* shown the interest rate was ,'+ per cent below prevailing discount rate of F.R. Bank of New York. Fo»" data for prior years beginning with 1942. see previous ANNUAL REPORT. NO holdings on dates not shown. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

5. OPEN MARKET TRANSACTIONS OF THE FEDERAL RESERVE SYSTEM DURING 1972 (In millions of dollars) Out 1 I ,b. tun 1ota I (Treasury biIs , Other within 1year Month ! F,\ch., c G h p r a u o s r s - e s s , [ i j G s r li 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- 1 c G h p a r u o s r e - s s s G sa ro le s s s sh o if r ts, * redemp. ---'•••,- January.,.. 248 110 499 24M 1 10 16 February.... 2,036 \ ,481 410 I, Sl>4 3,4x1 410 10 ... . * i *3oi" March.... . 2,009 1 155 I^S2S> 2liK 155 1! April. . .... 2,666 ; 1,478 135 2 254 !, 478 133 7 •> May..., .. 475 i 29(1 475 ! ' 3) 1 2,626 June....... 1,294 ; }}5 96 I,0)4 ! 335 2 ; — 90 Inly 2,753 , 286 2, 753 3,286 August..... I WO I i.'752 432 I,274 . 1,752 432 - 1,089 September... l),36*) I 8, b7 I 850 <, )36') ; 8,673 850 October... . 2,795 2!425 150 2 iVS 2,425 150 '"42 Vovembei. . 2,638 2.880 351 2 638 2,880 300 ' ' 360 December.., 5,083 .1, M0 135 5 4,640 -135 Total.. . 33,423 j 29,786 2,824 31 841 29,786 2,545 87 2,971 ON or 10 vears c G h p r a u o s r s e - s s G sa ro le s s : - m t s a : h \ t c i u f h n ts . t\ G p r u o r s - s .. a 1 l W e . s , ; I j m L s a o h \c t i r u f h t t s r . i t ' y i \ ; Cf c ; , r j r o u f s e " s j - G ; ro s s a s te s j | i ' m o l s - h a r .x , i t f c u t h s r . i * ty January..... 187 February.... 73 52 \ . '1-2,260 I *"«•".'.""("""" March... . . . 92 31 April 255 126 May.... . . . -2,026 '. June,. .... * 6<> j 20 July August '79 166'| ' ' '15' 250 Septembei,.. October.... November... December.. Total.. i-2,0'-)4 I 167 j. Rerun' * j FVdcr t! B tut'ci agree m oblii'.iititMi» •, net' t net ^ vi'.s. (iovi.sccuriues ! Net i chanue Net '. hi I'.S. Repur- Under change1 ; (itni. Out- chase re pur- Gross J Gross i securities ri-ht I agree- riuht chase pur*,:luses , sales | ments agree- ! nients January.... 4 722 j 5,l>45 j - 6(>6 165 -101 4 - 181 -787 hebruarv.... f, 6l)4 i 1 ] W4 |- 1,854 77 - t,789 March,." ., , 2 6*}> i 2.022 : 2,22*) S3 ' 16 61 2,408 A M p a r y i . l . .. . . . . . . ... . 2 ? . , 6 1 2 1 5 5 j !. 312l>8 ! ! 1 3 , S 2l 0 ii) lm - 2 1 5 6 — i 4 65 1,3 4 8 7 6 2 June...... 211 ! '1,326 'i -251 " "ill ': -• 2^ — 6 — 65 -221 July.. ..... 1, 736 1 1.736 ! _533 — 2h _io -570 August..... ,171 1 2.451) J —82 - 3 '74 4 * 30 22 September.,. i j T-> i 1 ,844 J — 866 ... 35 _ 74 -4 — 30 -1,009 October.... . ,'594 ! 3.594 j 220 _ *>^ 7 206 November... 3, 547 > 3,547 157 — (-, -442 December.. . 4.8(>3_J 4,765 j 405 134 13 7 36 5% Total... 31, 103 ' 32,228 j - 3 12 - 8H — 145 1 Net chaii, U.S. tit •ities. I'cder.i .Irenes obli nil ban es. Digitized for FRANSoiEr,.R- -Sales, redemotions. and neiiati\'C figures reduce S\stem holdings; all other figures increase http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

6. BAME PREMISES OF FEDERAL EES1EVE BAMKS AMD BRANCHES, DECEMBER 31, 1972 (In dollars) F.I. Bank Net or branch Buildings | Fixed mu- hook yd i tie Land tjncluding j chinery and Total vaults1) l equipment Boston,,,,... 23,926,695 i 10.289,176 j 2.«>43.179 37,159,050 28,782,511 New York 5,215,656 13,331,975 8,078,616 26,626,247 4,517,832 Annex,, . ,. 592,679 1,491,116 716,472 2,800,267 477,863 Buffalo. ., . 673,076 2 562 224 i,565,400 4,800,700 2,486,571 Philadelphia, . 1,884,357 7,304, 311) ! 2,154.452 i1,343,128 4,515,171 Cleveland 1,295,49(1 6,779,694 3,572.665 11,647,849 1,170,977 Cincinnati, , , 1,444,35s 13,498,836 7,503,746 22 446,940 22,446,940 Pittsburgh.. , , 1,667,994 3,577,294 2,525,243 7,770,531 3,563,118 Richmond 2,342,774 5,142.569 2,500.681 9,986,024 4,147,454 Annex 1 , 146,875 256,000 2,313 405.188 200,208 Annex 2 .. 394,763 3,468,206 2.903.991 6,766/160 6,050,385 Baltimore, , . 801,779 2,009,3K1 1,097,455 3,908,615 1,746,599 Charlotte. 347,071 i,069,026 625,121 2,041,218 1,055,357 Atlanta 1.304,755 5,804,778 3,558,580 10,668,114 6,079,519 Birmingham, , 410,775 2,000,619 l,0f9,6ig 3,431,012 1,725,308 Jacksonville . 164,004 1,706,794 17$,871 2,649,669 1,232,865 Annex 107,924 76,236 15,843 200,003 173,318 Nashville , . . . 592 *42 1,474,678 t ,t)*?K (»24 3,165,944 1,654,111 New Orleans 557.663 2,754,272 I,448,1 Hi 5,760,115 4,444,083 Chicago . , 6,275,490 ! 17,664,7110 ! 10.454,359 34,394,639 13,591,006 Annex.... 50,000 [ 150,132 I 52,739 252.871 248,054 Detroit, 1,147,734 I 3,054,697 i 1,641,650 5,844,08! 2,579,483 1 1 St. Louis. , 1,675,780 ' 3,171.719 : 2,913,664 7,761,164 1,604,987 Little Rock.. SOU, 104 i 1,963,152 ; 9(»5,202 3,728,458 3,004,108 Louis\iilo, . . . 700,075 | 2,859,819 i 1,056,659 4,616,553 2,732,898 Memphis. , , , 1,135,623 i 4,216,382 ; 2,086,133 7,438,138 7,267,256 Minneapolis...... 1 ,189,784 | 28,553,613 29,743,397 ! 29,743,397 Helena , 15,709 , 126,401 62,977 205,087 1 45,731 Kansas City,. .. , . 1,340,561 ! 7,567,420 3,053,232 11,961,213 5,498,829 Den\cr, ,..,,. 2,997,746 I 3,224,957 2,274,946 8,497,649 7,383,354 Oklahoma City . . , 647,686 ' 1 ,511,600 853,051 3,012,337 1,758,353 Omaha. .....".... 996.489 , I,601,728 731 ,{)25 3,330,142 2,063,502 Dallas 3,723,160 : 4.H26 832 3,570 804 12,120,796 6.500,523 Ft Paso. 262,47? ! 806,341 393,301 1,462,119 832,499 Houston. 1 ,959,770 ! 1,408 574 714,!B7 4,082,531 3,135,342 San Antonio . 448,596 | 1,400 390 570,846 2,419,832 | 1,514,478 San Francisco 684,339 ! 3,783, 530 1,862.686 6,330,555 I 532,383 Annex ,,.,... 247,201 i 124.000 M 1.000 401,201 ! 336,481 Los Angctvs. ... , !,022,6^6 ! 4,103,844 i 608,576 6,735,116 2,691,003 Portland ..,..,.., 207,?80 • 1,678,512 649,432 2,535,324 1,158,537 Salt take City, . . , 480 222 ' 1.878 2*8 707,575 3.066,035 1,832,558 Seattle. ",.,,. 274,777 ; I , 89,0965 I 058.744 3,224t481 i 1,338,822 Total, . ..I 73,154,424 !182.164,829 j Si,422,039 336,741,292 1193,863,774 OTHER REAL ESTA 1E ACQU1RI1D FOR BANKING-HOUSE PURPOSES Boston. .... 60,000 60,001) 60,000 Philadelphia, 1,374,514 1,374,514 I ,374,514 Ck'voland 395,875 ; 381,(MM) • , . . 776,875 i 395,875 Cincinnati. . , 40t), 891 j 1,171,259 , 1 , 587,496 3,159,646 j 265,406 Richmond, , , 326,403 ' 326.403 I 326,403 Charlotte. ., 195,404 195.404 i 195,404 Atlanta 305,133 305,133 305,133 Helena....... 131,739 131,739 131,739 Total, 3,189,959 i 1, 552,25li I 1,587, 496 6,329,714 3,054,474 1 Includes expenditures far construction at some offices pending allocation to appropriate accounts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 237

7. EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS DURING 1972 (In dollars1) New- Phila- Cleve- Rich- Minne- Kansas San Item Total Boston York delphia land mond Atlanta Chicago St. Louts apolis City Dallas Francisco <CURRENT EARNINGS Loans 14,376,315 1,264,110 5 894 02 S 509,} 29 648 885 538,548 1,099,813 1 927 020 2«\098 168,386 526,694 629,906 887,701 Aceepiances 4,095,809 4,095,809 U.S. Ciovt. securities 3,771,209,607 174,721,108 960,264,085 199,459,565 289,932,494279,471,258 201,495,170609,927,134 141,189,525 73,638,392 153,516,165171,213,105:516,381,606 Foreign currencies. 1,117,244 49,9 W 288,375 57,654 100,905 57,655 75,398 173,510 37,705 25,507 46,577 61,007 143,021 All other 1,535,548 19,044 753,586 20,536 68,068 33,324 86,393 126,696 34,204 216,217 49,132 4B.698 79,650 Total 3,792,334,523 176,054,192 971,295,880 200,046,88429OJ5D, 352280,100,785 202,756,774612,154,360 141,543,532 74,048,502 154,138,568171,952,716517,491,978 CURRENT IiXPl:NSl-> Salaries; Orticers. . . 15,596,648 978.622 3,265,214 1,073,640 979,183 1,387,653 1,224,608 1,389,221 1,167,821 840,074 1,048,084 903,427 1,339,101 Lmplo>ees. 186 278 70S 11,852,095 46,858,145 8 690 898 11,705,149 14,470,549 14,989,181 24,879,063 10,634,589 7,041,604 10,836,861 8,819,050 15,501,524 Retirement and other benefits.. 33,728,876 2,328,685 7,929,114 1,563,087 2,140,240 2,62i\6f7 2,662,741 4,332,488 1,996,171 1,263,156 1,974,380 1,616,005 3,296,192 Fees Directors and others 3,291,1 36 149,745 1,030,298 507,915 133,435 145,735 327,401 175,661 132,964 362,250 98,996 78,847 147,889 Traveling expenses. 4,873,832 312,155 662,562 203,295 363,691 394,882 709,644 572,900 270,900 318,714 315,850 285,141 464.0J8 Fostaue and expressane... 46,048,583 2 H^S \H2 5,775,079 1,695,052 3,759,710 5,329,081 5,106,516 S 912 17 * 3,198,913 2,014,005 3,001,292 2,502,565 4,898,915 Telephone and telegraph....... 5 049,075 287,139 1,023,5X4 192,399 221,099 430,935 634,293 719.768 273,387 200,324 399,100 320,008 347,039 Printing and supplies. 15,397,840 879,818 2,837,919 783,267 873,014 1,513,381 1,616,496 2,108,556 1,106,346 643,584 1,070,432 736,570 1,228,457 Insurance. 702,230 44,566 137,192 26,91)8 55,128 I>1,682 71,505 70,310 47,254 2d,8i2 59,922 31,145 69,806 Faxes on real estate. 8,705,367 1,059,60') f ,449,480 202,714 t>76,328 344,978 483.067 1,531,680 430,446 835.002 564,522 398,889 728,652 Depreciation (buildings)........ 5,091,938 161,37(1 853,550 76,596 228,847 519,759 780,812 402,879 446,243 2 020 866,300 377,974 375,588 Lit»ht heat, power, and water.. . 3,879,733 229,897 702,051 166,463 426 586 333,623 319,049 515,076 291,693 153,376 343,015 178,598 220,306 Repairs and alterations 2,751,013 74,483 335,622 499,468 135,027 302,770 119,327 321,270 527,604 50,391 133,169 74,825 187,057 Rent... 3,254,400 531,073 1,848,801 118,370 72,602 146,070 355,915 153,517 18,943 483 4,269 2,570 1,787 Furniture and equipment: Purchases 11,414,870 363,214 1,653,004 537,308 1 676 909 557,499 627,052 1,083,504 700,681 1,559,077 489,797 1,659,066 507,759 Rentals. . 22,480,935 1,386 202 3,617,006 1,220,282 1 335,563 2,034,590 2,103,613 3,222,015 1,433,856 1,036,397 2,035,368 1,162,516 1 89 * 527 Alt other 7,173,338 576,464 1,970,859 419,663 57OO2H 301,075 379,321 1,203,741 181,359 327,001 362,213 586,646 297,419 filter-office expenses........... -2,451 109,984 -1,504,676 121,940 215,961 — 211.607 188,187 365,296 90,469 63,376 111,521 140,888 306,210 Subtotal 375,728,542 24.180,403 80,444,804 18,099,265 25 568 500 30,689,292 32,698,728 48,959,118 22,949,639 16,737,646 23,715,0)1 19,874,730 31,811,326 F.R. currency. 31,454,740 1,609,898 6,042,779 1,984,684 1,843,399 3,015,015 2,754,940 4,946,457 1,306,336 555,884 1,528,108 1,644,267 4,222,973 Assessment for expenses of Board of Governors. 35,234,499 1,583,800 9,148,300 1,816,200 3,221,900 1,821,100 2,397,000 5,295,000 1,187,600 801,600 1,496,500 1,939,699 4,525,800 Total.............. 442,417,781 27,374,10! 95,635,883 21,900,149 30,633,799 35,525,407 37,850,668 59,200,575 25,443,575 18,095,130 26,739,699 23,458,696 40,560,099 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Less reimbursement for certain fiscal agency and other expenses , 27,811,430 1,473,551] 5,561,418) 1,211,666 2,539,40! !,689,468j 2,368,240- 4,877,671 > 1,686,350; 832,820 1,913,808 i 933,336! 2,723,701 Net expenses........ 414,606,351 25,900,550 90,074,465! 20,688,483 28,094,398; 33,835,939 35,482,428 54,322,904) 23,757,225 17,262,310! 24,825,89! ] 22,525,360! 37,836,398 PROFIT AND LOSS Current net earnings. 13,377,728,169 150,153,642! 881,221,4151179,358,401 262,655,954!246,264,846' 167,274,347!557,831,455| 117,786,305; 56,786,191 il 29,312,677|l49,427,356j479,655,580 Additions to current net earnings: Profits on sales of U.S. Govt, securities, . . , . . 3,009,1 142,702 769,744) 181,411! 229,7611 213,656! 153,507 485,247 113,958i 57,2681 123,703! 137,148 401,006 All other 2,002,(196 87,064; 515,813: 62,994! 97.522J 128,7371 113,898 459,774 177,00')' 126,643 = 107,65O| 1,271 ] 123,72! Total additions. 5,011,207 229,766 1,285,557! 244,4051 327,283! 342,393 267,405 290,967« 183,911! 231,353 138,419, 524,727 Deductions from current net earnings: Losses on foreign exchange transactions............. 51,897,303 2,332,558 13,477,0051 2,695,401' 4,716,952! 2,695,401; 3,524,7551 7,723.360' 1,325,046 1,192,1971 2,177,055! 2,850,905' 6,686,668 All other 2,729,69! 2,387,289: 106,638; 2,575J 2,917 11,765, 2,354! 53,12?! 55,77f 88,127j 3,326' 5,743 10,059 Total deductions. , . . 54,626,994 4,71*1,8471 13,583,643, 2,697,976! 4,719,869 2,707,1661 3,527,109! 7,776,487j 1,880,817} 1,280,324* 2,180,381 j 2,856,648J 6,696,727 i 1._!_. _!___!_ ! j L ! Net deduction from ( —) current ect earnings -49,615,787 -4,490,081 j - 12,298,086; - 2,453,571! - 4,392,586, • 2,364,773 - 3,259,704J -6,831,466' - 1,589,85()' - 1,096,413, --1,949,028; - 2,718,229|- 6,172,000 Net earnings before payments to U.S. Treasury,.,..,.,, 3,323,112,382 145,663,561 868,923,329] 176,904,830J258,263,368243.900,073! 164,014,643j550?9W}989(l 16,196,455; 55,689,778; 127,363,649 146,709,127:473,483,580 Dividends paid. ..,..,,. 46,183,719 2,006,870 ,928,649 2,344,496. 4,205,725 2,419,254i 3,174,260 7,126,10! 1,544,018 !,05i»262| l,964,630| 2»5I9,55&| 5,898,898 Payments to U.S. Treasury (in- I ! 1 1 1! terest on RR. notes)......... 3,231,267,663 143,785,791} 843,245,!80; 174,072,684 250,144,793 23K.204,519iI55,898,833'530,384,188 112,873,437! 53,401,066! 123,529,669! 142,050,921 ;463,676,582 Transferred to or from (—) surplus. ...,,.. . , , 50,661,000 —129,100i 13,749,500 487,650 3,912,850^ 3,276,300 4,941,550- 13,489,700; 1,779,000 1,237,450; 1,869,350 2,138,650! 3,908,100 Surplus, January 1 742,184,050 33,636,750; 192,854,450 38,408,9001 67,881,900! 50*378)00u! 110*660,*450j 25J76*it)Gj 16*895* 150j 31»52?*45t3j 41'014*700 95*461*550 Surplus, December 31.......... 792,845,050 33,507,650 206,603,950 38,896,550 71,794,750! 41,564,950J 55,319,550 124,150,150j 26,955,100] 18,132,6Oo| 33,396,800 43,153,350 99,369,650 NOTE,—-Details may not add to totals because of rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

8. EAENINGS AND EXPENSES OF FEDERAL RESEEYE BANKS, 1914-72 (In dollars! Met earnings Payments to U.S. Treasury Current Current before pay- Dividends Transferred Transferred Period or Bank earnings expenses U.S. m e T n r t e s a s t u o ry l paid Franchise Under Interest on ( t S o e c s . ur 1 p 3 lu b s ) to (S s e u c rp 7 l s us tax Sec. 13b F.R. notes AH F.R. Banks, by vears: 1914-15.. 2,175,252 2,320,586 -141 ,459 217,465 ! 1916.... ..... .... 5.217,998 2,273,999 2.750,998 1,742,775 !. 1917... ..... ., 16.128.339 5,159.727 9,582,067 0,804,186 ! i134 i 23 * 1,154,234 1918.... . 67.584,417 10,959,533 52,716,310 5,540,684 j. 48,354,554 1919 ............. 102,380,583 19,339,633 78,367.504 5,011,832 70,651,778 1920.............. 181,296,711 28,258,030 149,294,774 5.654,018 I 60.724,742 82,916,014 1921......... 122,865,866 34,453,845 82,087,845 6,119,673 i 59,974,466 15 w 80S 1922... 50,498,699 29,559,049 16 497,75li 6,307,035 ! 10,850,605 -65), 904 1923... 50,708,566 29.764,173 12,711,286 6,552,717 I 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....... ... 41,801), 706 27,528,163 9,449,066 6,915,958 I 59,300 2,473,80S 1^26. 47,599,595 27,350J82 16,611,745 7,32^,169 I 818,150 8.464.42S 1927... 45,024,484 27 518,443 13,048.249 5,014, 119 I1) 28.. 64,O52,8(»O 26,9(14,810 52,122,021 8! 458^463 j 2, 584' 65-) 21 078 89<> 1929... 70,955,496 29.691. 113 56,402,741 9,58*,911 j 4,283,231 22 535,597 WO,.,.. . 36,424.044 28,542,726 7,988,182 IO,2O8,5\>8 ! 17,308 -2,297,724 1931.,,.. 29,701,279 27,040,664 2.972.066 10.029,7(>0 ;. -7,O57,6>4 1932. 50,018,817 26,291,381 22.514,244 9,282,244 • ll.O2O.5S2 1933 4^,487,318 29.222,837 7,957,41)7 8,874,262 ! -916.851 1934,.... ......... 48,902,813 29,24!,596 15,231.40-) S,781,661 - -60,521 6,510.075 1955 . . 42.751.959 31,577,445 9,417,758 8,504,974 !. 297, 667 27,695 607,422 1956........... 37,900,639 29,874,023 8,512.433 7,829,581 |. 227,44H 102,880 352,524 1937... . 41,253,135 28, HIM), 614 10.801,247 7.^4(1,966 I 176,62* 67,304 2.616,552 1958,. 36,261,428 28,911, t>00 9,581,954 8,019,137 •. 119,524 -419, 140 !,862,433 1959.............. 58,500,665 28,646,855 12,245,365 8,110,462 j. 24,579 -425,653 4,533,*->77 1940... 43,537,805 29,165,477 25,,S 60,02 5 8,214,971 !. 82, 152 -54,456 17,617,358 4t,580,095 32,963,150 9,157,581 8,429,936 j 141,465 -4,333 570.513 1942... 52,062,704 38,624,044 12,470,45! 8.66 >,076 I. 3,554.101 1943... 69,305,715 | 43,545,56+ 49,528,455 8,911,342 I. 244!72o 135 !o;>3 40,257,562 1944. 104,391,829 | 49,175,921 58,437.788 9,500,126 j, 326,717 201.150 48,4tJ>,795 1945........ 142 209 546 | 48,717,271 92,662,268 10,182,851 ] 247, 659 262,135 81,969,625 1946... 150,385,033 57,235,107 92,523,935 10,962,160 !. 67,054 27 70S 81,467,013 1947.... 158,655,566 j 65,592,975 95,235,592 11,523,047 i. ^5,605 75,223,818 86,772 "6, 3o6. 550 1948.... ... 304,160,818 j 72,710,188 197,152,685 I 1.919,80,) i 166,690,356 18,522,518 1949.,.. 316,536,930 . 77,477,676 226,936,980 12 329 373 I 193,145,837 21,461,770 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1950. 275,838,994 HO,571,771 231,561,340 H,0S2 991 196 628 f<58 21,849,4911 1951. 394,656,072 95,469,086 297,059,,097 13,864,750 254,873, %$H 28 *20 75) 1952. 456,000,260 104,694,091 352/150,,157 14,681,788 291,934,1>34 46, 333i735 1953 513,0*7,237 ft *,515,020 398.463,(224 15,558,337 342,567/ ig5 40, 3*6,862 1954 4*8,486.0-40 109.,732,931 328,619.!46S 16,442,236 276 157 35, 887,775 412.487,931 110,060,023 502,162,,452 17,71 l/)37 251,740, 721 32, 70), 79 4 1956 595,649,092 121, IK2,4*Jf) 174,44^, 18,904,8^7 401 \SI K ^ *982,6S2 763^47^530 131.814,00* 624, *92. 2O.OMJ.527 5 42' 70S,' *405 61 ]60*. 68 2 1958. 742,068,150 137,721,655 604,470.670 21 ,197,452 524,05 s >5i 5), 214,56 1 1959. 886,226,116 144,702,706 839,770,663 22,721.687 9|0 ,64').768 601), 7 >1 tWifJ. 1,103,385,2^7 153.882,275 963, *77. 25/148,225 89 <>.816, 42, 613.I Of W6L 941,648,170 !6l .274,575 783.855. 25,569,54! 68 7, ^9 *,i82 70.812,30. I.048.508,335 176,1*6,134 K72,316,422 7,412,241 7Q9l36>/>sl 45, 5*8. 20:» 1,151,120,060 187.,273,357 964 46 i 879, 6'S 5.219 «;s" 86 4, 301) 1964 1,343,747, *03 197[395[S89 1,147,077,362 0,781.548 !,5S2,118,'ill - 465 *H22,8O:» 1965 1,559,4X4,027 204,290,186 i , \5h 21s 455 2 35t 602 1 , 296.810,(•53 27,O5*.8Oi) 1,908,4*19,896 207,401,I 26 !.702,0*5. 3.090,3*6 i , h49,455, 64 2 190,403 7^2 22«».,120,846 1 ,972,376.782 s,O27.312 1 ,907.4>S..!7i> y>'KM '20.J 2,764.44 V-* 3 242, 350, no 6/)5 »]336 2,463,62S/ )S * *o027. 2""\ 3 , 37 *, *6O, 55^ 2^4/>73, O) *>]2*6.5 >9 *.(*!9 39 4*2!4?w 3,877,2«N,444 ,573, iS'6 *, 5671 286,8s 7 41,1*6,551 574,7«r. 1 1 * 9 * 7 7 2 ! , 3 * , , 7 7 4 2 '2 3 . , 3 3 6 * 9 4 , . 9 5 2 2 1 3 4 3 1 7 4 7, , 6 1 0 8 6 -4 ,5 ,8 5 0 1 0 5 < , t4 3 4 2 0 8 , , 4 1 5 1 1 2 , . 1 * 9 8 6 2 4 46 < , ,4 1 8 8 8 ^, , 7 0 1 7 ' 4 J ; ! 3.231,267,063 40 4 O 0 n ! v \l 2 ' ^ S ioial 1914 -7 2 36,954,419,771 | 5l42«».2Oi^ 1,662,I4X,277 ' 897,90),000 , IKS, 893 2.9. 6'M , 3os,492 ,ifc ft)! cacti I .R".Bank, 1914 72: ! B N Ph e o U w st a o d Y n e• o I r p k l tia . . ,. 9 2 I * , . _9 l» 3 5 8 3 2 6 l> , * i , < 8 7 > 4 2 4 7 2 5 , . ,4 0 1 0 ) 7 5 3 0 2 < : | 1 , 3 ? 6 1 0 1 6 0 8, . , 9 2 6 1 4 9 1 ' 8 8 ) , , , 9 S } 3 0 5 9 ) ? 8 I 1 . . , 5 2 7 9 5 4 S 5 1 , , U , 4 2 ' 0 ) 9 J 8 0 , , ,3 7 U 2 9 7 4 4 2 4 6 6 9 5 0 , . . 9 3 0 2 6 ') 7 9 8 , . 3 . 1 3 5 4 9 M 0 9 6 7 5 8 , , . 5 1 0 5 1 0 8 1 6 , , . 9 2 ~ 0 6 ^ 1 2 5 7 2 > 8 2 6 ( 2 » 9 , T , 4 8 { 0 4 \b 3 6 7 i . , ( 6 > 2 7 1 7 , V 6 W 78 *' . , 4 6 8 5 9 5 4 2 1 ' * » 0 3 *5, , , 4 6 4 1 6 1 1 1 1 l ; ' 2 4 5 4 . '. > , ^ ,8 6 2 6 2 0 0 f 2 > , . , 4 77 2 2 S t R le ic x h e n la u f ) i f d td..., i 2 \ , 0 5 0 * 0 S , , 7 2. ^ 5 7 * ^ ,2M) ! 4 f >, , 7 7 1 2 * , 6.5 1 6 2 H 6 2 2 . , 5 1 6 5 3 2 .?s (» > 2 8 2 . , 3 3 6 8 6 * 4 K ! 4 , 9 8 1 4( ! > ,* ,8 0 5 7 O 4 6 , f 2 8 0 4 0 2 , , I 4 N 4 > 7 I7 8 2 2 * ,o 4 (H m 2,057,' IN I ,0S9 - . _ 7 ». 1 ) .% rf 5 \) J h 7 : 4 .^ 7 5 1 , 4 O 1 4 !> , ''5 7> f \ » ; Attautii L 324, 501 ' 369.974."<>56 f ,602, 5.XX. 122 45, ^79,29o 79,204 1 ,487.5.^7,418 5A'H 0t»,5S«>. )0 Chicao;> 6,043,v'21 ,hl7 756,672, *l > '20, 586,0.07 25,313,526 151.045 5,oi,s. 261 ,913 i 1, 6S 2 i 1*9, «)01 St. I ot;iis. . ! .427,751 ,200 ' 30! , 2M).494 I,!30,0)>,K8i *0,802,458 2,755,629 7.4o4 I 0,4,432,'117 -26 515 i 5,2 ,074! 72N Minnci:i polls. i 803,637, 423 1 196,063, I7<) M 1, VJ3, 133 20.877,395 5,202,900 55,615 56*,S32.541 64,874 ; 0;) >,8H KansasCit> . 1.519,314. K69 j 310.8^3, 711 1,212,941!74I 35,386,536 6/) 39, 100 64,213 1, 1^3,021,817 -•8,674 ! 37*5 *6,750 Dallas. 1.557 0o8, 5 |i) "»67/)23,219 i,294,166.660 4 *. 62 ?, 9lM 560 04'* 102,08 3 I,202,394,368 55.337 ! 4"?,4*0^82s San l*rt.HKhCO 4. 719, 165, 627 54! .153.258 4,193.958. *S1 99,100,140 7,(^7. Ml 101.421 3,97 7.8*9,502 • ) "f.089 '> IO.».2^7, o7 'lota! i 36,954,419,771 5,420.205, 72«> *1,662, J48,2?7 J 8v)7/»O»,000 : 149.138. WO 2, IJJ8,8« H i 29,691 . 39s, 44 2 -921,517.24^ 1 C iinent earnings less current expenses, plus or minus adjustment for profit and loss Sec. 13h suiplus «'1958i, and was increased by $11,131.013 transferred from reserves for items, contingencies < 1945., leaving a balance of $792,845,050, on Dec, M, 1972. • I he $921.5t7,24(> transferred u» surplus w,h rediweJ h> ilircct chames of S500.000 for eharye-otl' (»« Bank picmLscN i!927t; $139,299,55 7 ror'etmiribiHinns u> capital of Noir. -Details may not add to totals because of rounding. the I ederal Deposit Insurance Corporation >1^34>, and $%657 net upon elin\ination 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, 1969-72 (Number In thousands; amounts in thousands of dollars) Operation 1972 1971 1970 1969 NUMBER OF PIECES HANDLED * Loans......................... 6 7 13 23 Currency received and counted .... 6.453.899 6,270,732 '6.029,373 5,720,499 Currency verified and destroyed . , . 2.246,740 2,446.244 2,174.444 2,115,564 Coin received and counted 14.716.546 13,736,840 •'13,402,165 12,873,277 Checks handled: U.S. Govt. checks 617,408 628,602 622,144 575,118 Postal money orders. .......... 177.257 181,054 183,574 187,123 All other 8,453,733 r7,704,742 r7,158,441 6,503,449 Collection items handled: U.S. Govt. coupons paid ....... 11,911 13,523 M4.210 13,118 All other 25,720 ^26,928 ^27,364 27,895 Issues, redemptions, and exchanges of U.S. Govt. securities 258.947 '258,152 «• 276,172 283,175 Transfers of funds 9, 494 8,148 r 7,363 6,662 Food stamps redeemed.......... 1,849,647 1,842,026 r1,277,007 519,595 AMOUNTS HANDLED Loans. 61.620,130 85,254 860 129.578,588 154,305,388 Currency received and counted .... 51.535,480 48,783,022 45,718,990 43,273,577 Currency verified and destroyed . . . 12.068,786 13,261,100 12,092,137 It,832,628 Coin received and counted 1.755,727 1,602,994 1,533,972 1,432,623 Checks handled: U.S. Govt. checks. 2^ 163 523 211.996,633 208,858.062 208,155,031 Postal money orders 4,718,577 4,806.963 4,736,564 4,603,938 All other • 3,317,«73.664 r3,824,868,058 «• 3, 330.673,6902,774,422,163 Collection items handled: U.S. Govt. coupons paid....... 5.825,599 6,239,761 5,702,894 6,849,373 All other 24,770.140 r20,879,111 21,022,409 19,782,240 Issues, redemptions, and exchanges of U.S. Govt. securities 2,052.735,038 1,951,122,313r1,433,118,703 1,151,579,538 Transfers of funds.. 17,916,041,090! 14.858,172,824 12,332,001,386! 9,800,324,538 Food stamps redeemed . . . 3,525,383! ' 3,116,904 r 1.840 JOO 694,394 r 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, 1972 President Federal Reserve Bank (Including branches) Annual salary Boston........ $ 53000 New York 90 000 Philadelphia... 48 000 Cleveland 51 Richmond 51 Atlanta....... 51 Chicago....... 67 St. Louis 56 Minneapolis. .. 48 Kansas City . . . 56 Dallas. ....... 51 San Francisco. 70 Total. . .. . $692 ooo Other oilicers Employees l Total Num- inua Num- Annual Num- Annua: ber s:tla rte* ber salaries ber salaries 36 : s 913,900 1,584 $ 12,917,002 1,621 $ 13,883,902 100 3 172,200 4,779 47,120,899 4,880 50,383,099 41 958,700 1,239 9,436,681 1,281 10,443,381 39 1000,750 1,464 It,778,985 1 ,504 12,830,735 56 1 349,800 1,968 15,342^400 2,025 16,743,200 51 • 1 330,SOD 2,247 15,364,471 16,549,271 500 54 1 330,UK) 3,243 25,176,574 3,298 26,574,174 000 47 1 114,800 1,529 11,152.803 1,577 12,323,603 000 30 786,700 860 7,742,400 000 43 ; 965,600 1,505 10.661), 593 1,549 11,682,193 000 37 848,350 1 ,314 9,560,441 1,352 10,459,791 000 58 i 1 319,250 1,949 15,469,036 2.008 16,858,286 500 592 | $14 893,950 23,650 5190,887,585 24.254 $206,474,035 1 Includes 1,072 part-time employees. 242 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

11. FEDERAL EESEEYE BANK INTEREST MATES, DECEMBER 31, 1972 (Per cent per annum) Loans to member banks-™ Federal Reserve Loans to all others Bank Under Under under last par. See. 13 : Sees. 13 and 13a Sec. 10ih> Boston 4V2 New York...... Philadelphia 4l/2 6V2 Cleveland....... 4l/2 6V2 Richmond...... 414 Atlanta......... 4Vz Chicago. ....... St. Louis........ 4 6% Minneapolis. 4Vi Kansas City 414 Dallas 4'A San Francisco. . 5 Discounts of eligible paper and advances secured by si ch paper or by U.S. Govt. obligations or anv other oblinations eliaible ' r Federal Reserve Batik pur hase. Ma\l n\aturit> ; l)0 da\s except that diseoui minks. •s' acceptances and of agrict \i\ pape; v have maturities not over 6 months a td 9 month- .hely. - Advanci isfaetion of the F.R. Bank.Maximum r uritv: 4 months. 3 Adva •ed by direct obligations of", 01* oblig;.tions fu!l> gutranteed as to principal and ti by, the U.S. Ciovt. or any agcnc> thereof. Maxim .in maturit} : ^0 da\s. •» As of Sept, I1), 1^)7 (except for Boston, Oct. 2; and Atlanta, Oct. 3P, a rate of 4'/2 per cent was approved on advances nonmember banks, to be applicable in special circumstances resulting from implementation of the t n pending changes in Regulation j. 243 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

12. MEMBER BANK RESERVE REQUIREMENTS (Per cent of deposits) Through July 13, 1966 Net demand deposits ~ } lime deposits Effecthe date1 'all classes Central teserve Reserve city Counirv of banks) ut\ banks banks 1917-June 21 . 13 10 1 3 1936—AUK. 16. .. WVz 15 w 414 1937-M M a" a r y . I t . . . . . . , . . . . . 2 2 2 6 ", 2 I7 0 '/2 1 1 2 4 6 5!/4 1938 -Apr, 16. .. 22' s 17'/i 12 1941 -Nov. 1 . ...... 26 20 14 1942 Aug. 20, .... . 24 Sept, 14. . 22 Oct. 3...... 20 1948-Feb. 27. . . . 22 June 11. . . ... 24 Sept. 24, 16. . . . 26 i?" II) 714 1949- May 5, 1. 24 2? 15 7 June 30, Jul\ I. . 20 14 6 Aug. 1 ... . n Am, 11, 16. ' " 23 '-,'•> 12 Aug. 18. . , . 2\ 19 Aug. 25.... . . . 18' . Sept, I. 22 18 * 1951—Jan. 11, 16. . 2^ 19 13 Jan. 25, Feb. 1 . . 24 20 14 1953- July 9, 1, . 22 19 13 1954 --June 24, 16 .. 2? Jul> 2{), Aug. 1 . 20 18 12 1958- Feb. 27, Mar. 1. 19 "2 17',: tt MM; 20, Apr. I . 19 I 7 I! Apr. 17.... 18'. Apr. 24. 18 16 Vz I960—Sept. I 17'; Nov. 24. . 12 Dec. 1 . lev/: 1962 -July 28 Oct. 25. Nov. 1... July 14, 1966. fhroiieti November 8, 1972 Net demand I Inte deposits 4 tie pewits ' •all classes of banks) Resenc Country Other EffectiYe date l cit> banks banks' time Sa\- Uiulc-r j Over Tinier j Over U nder ! Over y\tnil- | $5 mil- S5 mil- i S5 mil- $5 mil- ! $5 million ! lion i lion < lion lion lion 1966—July 14,21,... ;. 4 Sept. 8, 15... . 1967—Mar. 2 3'A Mar. 16 . 1968— Jan. 11, 18.. .. 17 | 1969-- Apr, 17 17'j I 1970 —Oct. 1....... For notes see opposite page. 1AA Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

12. MEMBER BANK RESERVE REQUIREMENTS—C Nt'J demand deposits ' ; I line deposits l I ' Othct time : $2 - S: S10 *l>')n Ow r I million million % million i i.nliiru $ MM S.<v i I ami j lo j to I to mil- , ni-'s j S3 • Over I under ; SIO ! 5100 j SIUO | hon • • J million • S5 i ' million ! million < million ' I dnd ' inillioii ! i • : 1 : n.idet H72 No\. *>.... , X - 10 , 1: ; Jc. - i"7'''- ' ' ' '3 i No\. If) . . . | . . |. . . . . i . . • H I ! ! , I ' j In effeei Pec. 31, ic*72, . . , • S | 10 , 12 H j I?". ; \ \ X \ Le-uul requirements- -Dee.. ^1, l'/72; Net demand deposit: Minimum Mt.ivimum Reserve city banks....... . .. ...... . . . 10 ?2 Other banks . . , . ., ., . .. 14 Time deposits ,, . , , . 1 When two date** aiv shown, m« firs'. applies <a> the * ii.itiiv ,,i cctsti.il ICWM' at r^i.-u cit\ hanks and the seeond to ih.: ciKUi*.',e ,it s-><nuv% hanks. :'<ti> Demand deposits subject to ics^vve jvguiicmcnts, which iv.',inninsi with \«»a 2\ i'HS, have IHCH Jt)tal tleiiiand ticpuvtts nums eash in-sns in pi,>:esN u!\olfv,'tn>n .Mij'deiu.snd baUincc-. du.. iiu.n domestic banks <aho minus \\,n !o.m ,ntd S'.'ries f i>ond ,UCOH;U> c!tn <;»•-', I:H (Vfiod -\pi. i *. i'M.% June 30. J')47 . ib< All iCifuii-eU »e<er\e> «crc held on tlcfcuf wiih F.K, Bank, Ism. .?!, I'^P, until LiK !'>5'>. Siiu.e then, member Kinks ha\c also hu -UIIMVA, J to vo.ut! \.uili c >-!J .,-, .- ^TUS, ,S hii!o,v>: «.•> inu- b >uU> speetivelv . central icsene u»^ ,md u-ser\e cii> KiiiKs -m (^vv\s o; ? k«ud 1 per eem e'KvJt'.e Dec. *. i')35), and Sept. 1, 1UC>», lespecti^elv . .ill ujemhVr lntH.s WCK UW^^K- \ j,*v«>'sni all v.uiii ^..sh .»> •> *« ruis eilecti\e No\. -N, l^fiU. •c; When requiiement vwhei!u'1es are uiadikif'J, c $ch ikposii tn;et\.!; applies to to,a p n i »»f rlie deposits of eteis hank. ,0' Since Oct. \i\ \UW-), membci l\4ttk.t ha\e be-, u rc^uiici muk't Reivuknio'; M tf» m.mn.m1. ie>< ive> • t^.unst balaiKo ano^e a spc.'ificJ base due iumi doaicsu, oft'. \-\ to :'v.-ir r»>u:i'.'i\ inanJtc. I mil Jan. 7, 1<J7 j, the appfte.ible reset ve. percent ii»c was it) per <.-.*ut, ^ flecu ,c d,.ii vl tie it be» aiw 2\i pt. < . cm. Regulation I) imposes a Minilar M.sef\e i.-ijuiu'iiK ui on IVIHHUIS.M .i*>me a .^pc.iftc.! b INC lions }\u.'j^n banks b\ de>mestie offices oJ a membej bank, I <n details «.oucc«';i>ia these te..{<uremetHs, s«v amendnunts to Kegtihitions 1") jra! M .<% des:i ibed in eashci \ w\ \) U\}-,}y\>-, - \uiiiojit\ vi the Hoaid t»f < iir.euiois to wlav.ii^ o> ieJ..»-»u.. cities as centra1 tvseive cities %\ is teiminated etVeetive Jui> 2S, |9o^. '• 1 tloeti\e J.«n. 5, !lhJ7, time deposits sacii as ('hvJsi«na^ a id .aciimi eitib .KUHIIHS became subicct U> the same requitenunts >u» savings vlep'Osits. See also notes 2(b.% 2<: , aiui :«J. abo\e « See columns alnne ior curlksi efleur.e date of this ..tie. * Hkvihe N«»v. l), 1^72, a new csituioa was adopted to desf.tn.-.t.: KM-IVC cities, ,.IH! on \\w same date lvquiivnitnis lor tcsenes ajjahist net deuiaud den..sits nt number banks \u-ic .esuiuJmed to proude thai each mcuibei bank will m.mu i»n k-.<hc> >eio!.'.i to the ^i/x. ot iis net vicinau-J Acp^His I he new icvi\c cit\ desumaiiiins arc as folU>\\% \ hauk b,a\ia" net dcaidnd depo-,?!-, o!" mon than. S4tM) millmn iseonsi'deted !oh,ue the Jiara. fur ot business,n .. us.-t-.e cit\ bank, an.f UK ine^nce of the heaii oUiee of such t< bank er-iruitute* desi-.-u t(ion ot ma: place ;s a seseru cit> t iti-.s in which these are I M Batiks or branches are also icseiu i'mci, ,\\w banks hasine. net ikmmd tkpostts ut' $400 million or less ate consideicl to have the dn\rjcu-r of business ol iu«uks otUsklc i»t !VhCi\e eiucj. and viie permitted to maintain teserv*.s af ratios s'. t fo( bank•.<••<of ia u -.ci \c oilie*. I'or details conceruinu the restnieturinji o| lescix-c reqii'UiHeuts, see amendmenti to Re^'iil iih>n I) a> vles.'jibeil on p, 7N-NI of" this Rf f'Din. • ilk* 16 : Pv'i" tent lequhetnem apphcci t'or ! %seek, on)% w> loMnet rescue ut\ banks. I o< oshcr bunks, tiic 13 percent reciuiienteiu \^<is continued m < hi* tit j~/os<t mtervak 245 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

13. MAXIMUM INTEREST RATES PAYABLE ON TIME AND SAYINGS DEPOSITS (Per cent per annum) Rates Nov. 1, 1933—July 19, 1966 Rates beginning July 20, 1966 Effects/e date Effective date Type of deposit Type of deposit Nov. 1, Feb. 1, Jan, 1, Jan. 1, Jan. I, July 17, Nov. 24, Dec. 6, July 20, Sept. 26J Apr. 19, Jan. 21, 1933 1935 1936 1957 1962 1963 1964 1965 1966 1966 196H 1971) Saving deposits: Savings deposits......... 4 414 12 months or more.......... \ 3 2% Vk 3 ; 4 4 ) 4 4 Other time deposits: - Less than 12 months. \ 3 Vi V/z Multiple maturity:3 9 30 0 d 8 a 9 y d sa ! y s year. . . 4 4 4!/2 1 year to 2 years. . . . 5 Postal savings deposits: l 2 years it nil over, 12 months or more I 3 Vh 3 4 I 4 4 Sinitle maturity: Less than 12 months. . { 3 Vi 3/2 Less than $100,01)0: 30 days to i year. . 1 year to 2 years. . 5Vz 2 years and over... Other time deposits:2 $100,000 and over: 12 months or more. i 3 2Vz lxh 3 ( 4 1 H)-59 days f p, 6 months to 12 months I 314 i 4 60-89 days....... 9 L 0 e s d s a t y h s a n to 9 6 0 m da o y n s t . hs 3 3 2Vi • I" 2 1 Vz 4 1 f 5V'2 9 18 0 0 - 1 d 7 a 9 y s d a to y s. 1 y .. e . a . r. SVz !6'/ 7 (30- 89 days> 1 year or more. . . . ll/z 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 arc automatically renewable on like deposits under the laws of the Slate 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 comnotiee of* withdrawal. mercial banks, as established by the 1:OIC» have been the same as those in efleet for 4 The rales in effect beginning Jan. 21 through June 23, 1970, were 6lA per cent on member banks. maturities of 30-59 days and 6Vz 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

14. MAEGIN REQUIREMENTS (Per cent of market value) Period For credit extended under Regulations F (brokers and dealers1, U shanks:, and G (others than brokers,dealers, or banks? On margin stocks • On convertible- bonds Beginning Ending On short sales date date (Ti 1937—Nov. t 1945- • Feb. 4 50 1945—Feb. 5 July 4 50 July 5 1946—Jim. 20 75 1946—Jan. 2! I 1947—Jan. 31 100 1947—Feb. 1 1949—Mar. 29 75 1949—Mar. 30 1951—Jan. 16 50 1951—Jan. 17 1953—Feb. 19 75 1953—Feb. 20 1955—Jan. 3 50 1955—Jan. 4 Apr. 22 60 Apr, 23 1958—Jan. 15 70 1958—Jan. 16 Atis;, 4 50 Aug. 5 Oct. 15 70 Oct. 16 i960—July 2? 90 I960—July 28 1962—July 9 7(1 1962-July 10 1963—Nov. 5 50 1963—Nov. 6 1968—Mar. 10 70 1968—Mar, 11 June 7 ! 70 June 8 1970—May 5 ! 80 1970—May 6 j 1971—Dec. 3 i 65 1972—Dee, 4 I 1972—Nov. 22 j 55 Effective Nov. 24, 1972,.. 50 65 NOTE.—Regulations G, T, and U, prescribed In accordance with the Securities Exchange Act of 1934, limit the amount of credit to purchase and carry margin stocks that may be extended on securities as collateral by prescribing a maximum loan value, which is a specified percentage of the market value of the collateral at the time the credit is extended; margin iwjitire.njnB are the difference between the market value (100 pet* cenn and the maximum loan value. The term margin stocks is defined in the corresponding regulation. Regulation G and special margin requirements for 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. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

15. FEES AND RATES UNDER REGULATION V ON LOANS GUAR- ANTEED PURSUANT TO DEFENSE PRODUCTION ACT OF 1950, DECEMBER 31, 1972 Fees Payable to Guaranteeing Agency by Financing Institution on Guaranteed Portion of Loan Guarantee fee j Percentage of Percentage of loan guaranteed (percentage of i any commitment Interest payable j fee charged by borrower) j borrower 70 orless 10 ID 75... 15 15 80... 20 20 85,., 25 90 30 30 95,. 35 Over95'.! '. , , '. '.'.'. . . '.'.'. , . '.'. ", , ' " 40-50 Maximum Rules Financing Institution May Charge Borrowe Interest rate,.,.,,. 7 s/z per cent per annum * Comniitment rate. . Vi per cent per annum 1 Except that the agency guaranteeing a particular loan may from time to time prescribe a higher rate if it determines the loan to be necessary in financing any contract or other operation deemed bv such agency to be essential to the national defense. NOTK.—In any case in which the rate of interest on the loan is tti excess of 6 per cent, the guarantee fee shall be computed as though the interest rale were 6 per cent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

16. PRINCIPAL ASSETS AND LIABILITIES, AND NUMBER OF COMMERCIAL AND MUTUAL SA¥INGS BANKS, BY CLASS OF BANK, DECEMBER 11, 1972, AND DECEMBER 31, 1971 J Asset and Ha hi) it Coiiinicicia! hanks Mutual sauit^ hank* Nonmembei banks Injured No "I.-.ul National Siaic December >!, W72 ' i *>VH0 017 !! t II '};"•'> 7 ^ n a I), S. JN4 '«,>(-, \ » & I ? ' •'. 2 S 0 04 0 1 1 2 ^ > -i ( W 2 i I i ! ; : 47|40 7 2 1 70, { 5 ,< !'i ( > ) I V I u\tsur> <»'? <•>' 60S 4< , 500 S M h^ ,t|.f,< ' 2^ ] s 2 *, 150 ?«»2 279 X7,<>t>3 ; ' ; iVo-?{> ,54ft VX1 oO! 731 ,v>7 ; ! • - 1 1 1 ,7 K» ,5N» ?;»\» Ut, 260 Ij ,}}*) ; ! i 2.910 252 5? < 2 •-'„>] 44* , 173 ^tf 450 W i a 10 2}h i 4 34 ; ! . j 743Hi ! '•) I,420 52 950 ^2,!50 41 ; ; ! 10,'*00 | HIM i 14 t! ' 4 «,}"•' MM1 X ^ 2? 5,017 fI7,J44 15,570 2i(*2, 75<i 102,-Si t 1 1 ! J J47 15,O4K loans 41 ?, 4C*2 317, tils) 20f>, 75H 7i]441 (ft 41 1 5(».5.S7 2 ",r 171 31, >7 > 42 261 41,140 i 8,49! 7i.t'>7 47 '(,•? \ >6* 1S6 I!, 247 |7 297 1,III Cash < . c h « h so e t r s > , ,i V . ii! hit s 79,7>S . ^ ^ V M 0 9 1 2 r 20. j 2> 2 1 4 \(43 24', 282 1,551 J , VKi !! 273 2 0 1 8 2 2 3 !<•»; 2 S 11 ^ * > , , » v 7 > 7 1 2 7 2 . I H . I 1 S 4 5 , , O ' t 0 o 8 0 5 1 ') •) i 4 n 1 S 1 . ', 7 I 7 5 7 8 ! 4 1 " f 2 J• 7 7 m I 6 7 4 i 0 >, SI! 2 1 , , 9 4 2 + 5 > 8l,l> 7 7 2 4 5 10,477 lov O tl t iv , : . . i r- l ! i f n a s ! e acccv.nn J \1 O ,J ' 75 ?i| I W 17 ) s O 4< b > 5 0 * 4 1 9 0 2 7 1 j 4 7 f-, V 3 v 0 . > ) 2 8 61i949 i , 4 1 S 4 0 9 Sf,249 70 5 , , 4 .S 1 I 5 4 10,435 4^ IXui»(>-« ••> !'i»n^s 1,128 i S,05r 7,875 489 326 163 n,,i. Not available, N(>ir.--Ali banks hi the United States, Digitized for F^REAsiSi mEaRte d http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

17. MEMBER BANK RESERVES, FEDERAL RESERYE BANK CREDIT, AND RELATED ITEMS—END OF YEAR 1918-72 AND END OF MONTH 1971 AND 1972 (In millions of dollars) Factors supplying reserve funds F.R, Bank credit outstanding Spe- Treascial ury Period U.S. Govt. securities l Dra w- cur- Gold ing rency Other stock Rights out- Held Loans Float Ail F.R. Total certif. standunder other assets acct. ing Bought repur- Total out- chase right agreements 1918. 239 239 1,7661 199; 2941 2,4s 2,873 1,795 1919. 300 300 2,215i 20li 575|. 3,292| 2,707j. 1,707 } 1 1920. 287 2.687J 262 . 3,355; 2,639|. 1,709 1 1 9 9 2 2 1 2 , . 2 4 3 3 4 6 4 2 3 34 6 ! ! 1,1 6 4 1 4 81 4 78 0 1 j 2 1 7 4 3 6 ! i . . 1 l, , 4 5 0 6 5 3 i , 3 3, , 6 3 4 7 2 3 ! ;, 1 1 , , 8 9 4 5 2 8 1923. 134 80 i 541 723! 27; 355i. 12i 2,009 1924. 540 536 4 320' 390|. 1,302; 4,212i. 2,025 I 1925. 375 367 643! 63i 378!. 1,459? 4,112: 1,977 1926, 315 312 3 637: 45 3841. 1,381; 4,205:. 1,991 1927. 617 560 57 582 63! 393;. ! ,655s 4,092|. 2,006 1928. 228 197! 31 1,056' 24i 500|. 1,8091 3,854j 2,012 1929. 511 23 632| 405 1,5831 3.997 . 2,022 1 1 1 1 9 9 9 9 3 3 3 3 1 3 2 0 . . . . 2 1 , ,8 4 7 8 5 3 2 1 5 7 9 7 2 1, , 8 4 7 5 3 7 1 5 5 4 4 3 2 4 2 2 2 6 3 5 3 5 1 8 : ' ' 2 1 0 4 ! ! 3 3 1 4 7 7 3 1 2 8 7 2 2 1 1 , , , , 8 1 6 3 5 4 8 7 3 5 8 3 - | 4 4 4 , , , 2 0 1 2 3 7 6 6 3 1 ! | . . . 2 2 2 2 , , , , 3 0 2 0 0 2 3 0 3 7 5 4 1934. 2,430 2,430 l 21 2,463 8,238}. 2,511 1935. 2,431 2,430 38 2,486 10,125}. 2,476 1936, 2,430 2,4301 3 28 2.5OO1 It, 258! 2,532 1937. 2,564 2,564! 10) 391 19 2,612! 12,760|. 2,637 1938. 2,564 2,564! 4; 19: 2,601! 14,512i. 2,798 1939, 2,484 2,484: 7 I | 2, 593; 17,644{. 2,963 1940. 2,184 2,184:. 80| 2,274 1 9951- 3,087 1 1 1 1 9 9 9 9 4 4 4 4 3 2 1 4 . . . . 1 1 2 6 1 8 , , , , 1 2 5 8 8 5 4 4 9 3 4 6 1 1 2 6 1 8 , , , , 2 1 5 8 5 8 4 4 4 9 3 6 ' : , ( . . 6 3 3 5 : ; i ; 4 6 8 9 8 7 1 4 ! 1 5, 1 1 1 4 4 0 0 , ! . '. , . 1 1 2 6 2 9 , , . 3 6 7 2 6 7 4 3 1 9 5 9 2 . 2 : 0 l 2 , , , 7 , 6 7 9 2 1 3 3 6 9 7 8 - ' ! ! , . 4 4 3 3 , , , , 2 0 1 6 4 4 3 9 7 8 1 4 so; 1 1 1 1 1 9 9 9 9 9 4 4 4 4 4 5 8 9 7 6 . . . . . 2 2 2 2 1 3 3 4 2 8 ] , , , 3 3 2 8 5 3 5 8 6 5 3 0 5 2 9 2 2 2 2 1 3 3 4 2 8 . , , , , 2 3 5 3 8 6 3 5 5 8 2 9 3 0 5 t j : ; j . . , . . 2 2 1 2 4 7 8 6 3 9 8 5 3 ' ; ! : 5 S 5 5 5 7 3 4 3 8 8 0 4 1 5 ! : ; | ! 2 2 2 2 1 5 4 4 3 9 , , , , , 0 4 0 0 1 9 9 9 9 8 9 1 7 3 ! ; ) ; : i 2 2 1 : 4 4 2 0 , , , , 4 2 7 5 2 4 5 2 7 4 4 9 ; , ' j , 4 4 4 4 4 , , , , , 5 5 3 5 5 8 3 6 6 9 9 9 2 2 8 1950. 20,778 2O.725; 53 67 1,368! 22,216 22,706;, 4,636 1951. 23,801 23,605| 196 19 1,184; 25,009! 22,695 4,709 1952, 24,697 24,034; 663 156 9671 25,8251 23,187 4,812 1953. 25,916 25,3I8| 598 28 935 s 26,880 22,030 4,894 1954. 24,932 24,888' 44 143 808 25,885 21,713 4,985 i 1955. 24,785 24,391s 394 108 1,585' 29" 26,507 21,690 5,008 1956, 24,915 24,610' 305 50 !,665i 70 ! 26.699 2!,949' 5,066 1 1 1 9 9 9 5 5 5 8 9 7 . . . 2 2 2 6 4 6 , , , 3 2 6 4 3 4 7 8 8 2 2 2 3 6 6 , , , 7 2 6 1 0 5 9 7 2 " 5 9 4 1 5 ! 9 45 6 5 8 4 5 1 1 1 , , . 5 4 2 2 9 l) 4 0 6 ! : ; 6 7 49 5 6 : j ' . . 2 2 2 5 8 7 , , , 7 7 7 8 5 7 4 1 5 ) ] 2 2 1 2 0 9 , , , 7 5 4 8 3 5 1 4 6 ! 5 5 5, , , 3 1 2 1 4 3 1 6 4 I 1 1960. 27,384 26.984! 400. 1,847: 74 29,338' 17,767^ . 5,398 1961 . 28,881 28,722^ 159; 2.300s 5V 31,362i I6,889i. . 5,585 1962. 30,820 30,478' 342; 38 • 2,903- HO: 33,871, 15,978;. . 5,567 1963. 33,593 33,582; 63' 2,600' 162 36,418, 15,513!. . 5,578 1964. 37,044 36,506 538, 186 2,606; 94 , 39.931) 15,388'.. 5,405 For notes see last two pages of table. 250 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

17.—CONTINUED Factors absorbing reserve funds 32,869 33,918 35,338 37,692 39,619 For notes see last two pages of table. 251 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

MEMBER BANK RESERVES, FEDERAL RESERVE BANK CREDIT, AND RELATED ITEMS—END OF YEAR 1918-72 AND END OF MONTH 1971 AND 1972—Continued (In millions of dollars) rucioih suppiyini* rest,rvc HintJS -— F.R. Bankcredit outstanding Spe- Treascial ury Period U.S. Ciovt. securities 3 i Draw- cur- I Gold ing rency i Other stock Rights out- Held toans Float AH F.R. Total certif. stand- Bought under 2 other assets acct. ing out- repur- 3 4 6 Total right cha se 10 agreements 1 1965.. , 40,768 40,478 290 137' 2,248 18? 43,340' 13,733 5,575 1 1 19 9 9 6 6 6 8 7 6 , . , . , . . . . 4 4 5 l 4 1 > , , 3 9 1 1 1 6 7 50 4 4 5 8 3 2 , , , 9 6 9 8 3 5 0 7 5 6 1 6 7 1 0 1 1 18 7 4 6 3 b 1 ! 2 2 3 , , , 4 5 4 9 7 4 « 6 3 1 1 6 5 9 4 8 3 4 5 5 2 7 6 t. , 1 0 6 7 3 2 7 1 4 : ! : I 1 1 t ( 3 1 . , 9 , 1 3 8 5 6 2 9 7 6 6 6; , , 7 3 7 8 1 9 4 7 5 1%9 , . . 57,154 ^57,154 183; 3,440 64 2 743 63,584i 10,367 6,852 1970, . , 62,142 62,142 335. 4,261 57 ! 123 67,918' 10,732 400 7,149 1 19 9 7 7 2 1 , . . . . . 7 7 0 1 , , 8 2 0 3 4 0 6 7 « 1 » ,1 (4 1 8 1) I M2 11 3 1 ; ! 1 39 i 4 3 , , 3 ^ 4 7 , 4 1 2 1 6 0 1 6 1 I.0 2 6 6 8 0 7 78 6 , , 5 5 5 1 1 5 i ; 1 1 0 0 , , 4 1 1 3 0 2 4 4 0 0 0 0 7 8 , ,3 7 1 1 3 0 1971 — Jan . 61,783 61.783 308 2 750 59 1 267 66.167' 10,732 400 7,172 Feh, . 62,462 62,462 263; 2,832 54 832 66.443 10 712 400 7,213 Mar , 64,345 62.841 i.*5O4 391 i 2,550 138 997 (>8,42I 10,732 400 7,270 Apr. . 63.721 63.721 81 2 H24 56 1 169 67,85! 10,732 400 7,329 May , 64,764 64,764 I,051 2,414 112 927 69,268; 10.332 400 7,390 June 65,518 65» 518 446 2,549 62 ! 086 69,661i 10,332 400 7,420 July. 65,841 65,841 778 2,618 55 1 209 70,501( 10,332 400 7,445 Aug . 66,937 66,633 " " 302 858 2,250 107 786 70,938' 10,132 400 7,479 Sept . 67,627 67,627 198 3. 1 39 51 1001 72.016: 10,132 400 7,504 Get. . 67,301 67,301 212 3,585 52 1 208 72,358'' 10.132 400 7,526 Nov , 68,157 "6KJ57 146' 2,707 5$ 841 71,9y9 10,132 400 7,563 Dec. 70,804 69,481 1*323 39! 4,343 261 i,068 76,515 10,132 400 7,710 j 1972—• Jan .. 70,202 70,202 1,884 75 i, 280 ?3,456i 10,132 400 7,759 Feb, , 68,425 '•68,425 tV 2,715 63 656 71,865; 9,588 400 7,824 Mar , 70,754 70,065 " " 689 2551 3,217 143 K78 75,247! 9,588 400 7,895 Apr , 71.286 7t,2S6 60' 2 97^ 83 1,080 75,490: 9,588 400 7,949 May . 72,611 71,471 "ij4iV i. 594 2,84& 143 845 78.039 10.410 400 8,020 June , 72,462 72,462 1301 * 299 73 990 76.954. 10,410 400 8,066 July. 71,901 71.901 2^ 224 63 i,268 75,539, 10,410 400 8.095 Alia 71,8<>O 71. HM'"'786 ! .O92; 3, 396 % 774 77,'248, 10,410 400 8,152 Sept . 7O,l»15 70.915 23^i 3.643 62 i,050 75,909 111,410 400 8.200 Oct.. 71,114 71 ,114 48 3,511 70 1,328 76,504; 10,410 400 8,249 Nov . 70,678 7(1 678 501. 2,350 63 1,041 74.6331 10,410 400 8,283 Dec, . 71,230 71.119 ill 1 3^974 106 1,260 78,55i 5 10,410 400 8.313 j 1 U.S. Govt. securities in chide Federal agency obligations hold under repurchase agreement as of Dec, U 1966, and Federal agency issues bought outright as of Sept. 29, 1971. ~l Beginning with I960 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. *! file total of F.R. Bank capital paid m, 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 I-.K. accounts," 5 Before Jan, 30, 1934, Included gold held by F,R. Banks and in cheulation. 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 at" {he United Slates, Includes currency of these kinds held In the Treasury and the F.R. tlaiks as well as that in circulation. GGoldd th h h t hheldld g i g olldd tfit d kf dtk cludig th against United Slates notes and Treasury notes of IS-JO, monetary stiver other than that held against silver certificates and treasury tunes of IW-KK and the following coin and paper currency held in the 252 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

f.—CONTINUED Factors absorbing reserYe funds Deposits, other j , ; I iliaii me?nne? Kink i j I Member bank t'ur i IiCtiS- ' rese-ne^, . : Oiiicr 1 reserves i-cucv ! uiv ! v.Ith I" R, Bank'-- ! Oth.-r ' i .R in" ' cash _ _ • t M, tia • .. „ Cd- bold- : | >.C- ' hihru-s J ; cula- ings • ' 1 counts i ind Wjrh * "or- i ! tiou ' | li'.'as- ; r<>i ' ! > ojpn.jl ' ; l\k • letioy s Re- ! ! i m> , vii'n 'Other • i I ! Ba»ik«> ' .tnd j paired'' j 42,05ft 760 hm \ 21 i ! . iK ,447 i 4,IM S4S 2M 44,66 "4 U7f» 416 ; 174 58K ?47 Hf77«) . 4,'3 to 24,32! 232 47,226 1 , 344 1.123 ' I 'S 653 ii | ' 21«W , 4 6^1 25 V05 182 «\y 695 7»)3 • 216 M7 -- 1 , \ ** 3 ; 21, N18 ' 4 > 21 2?,439 • 700 5.1, 1,312 ; ! 14 so; UH? ! ' tS7 2h, 173 ! _901 57,l»93 4ii I, t % ! 145 t ,23* i 1 ->N6 24J*) ; 5,423 <0.0)3 1 _4611 61,"(ti-M 460 2,020 | 2C>4 j XJM 27 7SxS 1 , 74 1 32, 4^ 6 ' in 5 6b,516 345 1 125 »40 2 "*!O47 i 6jilo 52',044 i 98 1 55 548 467 976 1 J20 7<»9 21 449 2*>,723 • 29 i 6t I 471 1,064 1 >\7 776 2, M19 24*409 i 5,022 2p), 376 ! 55 56! 304 4S3 S5K 2^1 79 1 2, 2 "f > 5 124 29 >67 ! 489 56,5"' 2 1 $22 ! 162 7 jit 2 ?4o 24 s, 2M 3d. 41 K i 383 *V_> } <II7 80'* ' 20 *> 076 1 2, "^02 24 !2t9 >t; ti*.)2 j 726 5tf, 3^ 3 454 12/4 2 2v-?i 74, ^ ^U ; , 172 3s I,050 ! _1 2$- 5K ] 479 1,115 1 c»2 7*4 > 2 2'/) 2 s- 4 ^H 3s J. Hit ', 29 8 5K,X0O 4? 2 987 (22 (•At) , " 2' ".ol 25* 4(>7 ' 5 30, 199 i 6 J2 58',757 45* 2,102 : 1 66 77/ 2 )7 1 2*^.424 • s HlU 30', 7X2 ' 150 59, 157 477 f, N76 I ^ 7H 2, J :>7 2: . 6' * 7 e, S4K }0 >b3 ; 682 60, 55K 442 1(**9b * 177 097 2 < *« 1 2 ">) K2 ' 5 49(1 It i,*Ci89 1-- 1,417 bU 460 2,020 ( 2V4 . ," , ' .. 2, ! i I 27,7iSK , 5',745 .4V>6 I U3S 43) ^0* SoO • 1.17 hf 4 > 44 ?J. O^U 1 5,, XoO 32, 19u 1 hXO 5'),7ws 3?0 ' HS4 1 \7 07 7 94 2N ( 52s ! 5427 if f, 3 $ , _ SKI 60.' 3;s^ 40 2 {, 293 ivt 64? 2, 27, 8(.»9 ; 5 197 32*2^S i f, 02H 00 M!S 4u! 1h7l 22S t»31 46 27* 4i*5; •%, ^71 32 297 702 358 2J44 ' 5S4 2,. ss 39 5^ S f 1 *U'.72S ! 2,323 62. 20! Vsj 2,344 ! 2'"* 7 ^ 1^ j ^ VI 27'482 ! M,H05 ; 27 i 62, 415 33 7 1.208 7oo 6 !0 , j *. , -00 26,185 i , 789 L! 927 62, 744 31 »4 T,727 | ,*>*i2 20 2H, 227 ! 7k)h 32',566 j 1»457 62, 599 155 1.394 - \n j t>i 4 '."" j 2! 247 27,515 j s, HriH 33,501 _118 63,5h6 1.613 i 19? yij 26",75/ 1 ""I^ X47 3 4499 J 65. 137 P. 5 !,182 1 1H rf 62^ '".' ! 2*. 477 25 ct.K68 30]673 57 2 00 511> 543 f L!5 S*0 . .', 2, 43 0^7 <), 216 ,1)44 Trc.tsaiy; sub.sit.liiU1> mhvt and imu cits, I ,R iwh^., K K. llt.ik notes, ami ojtion.ii hank nuUs. -N.n, 2V ut Sept. II, 1968, fifties aiv csiifti.skd. fituiiLH toi n..scr\c pciiod 2 weeks ps..\ion>. HI <fp<nt ilatc. Ihcsv figures, iu-1 stntM U-d i!»otu*,h l**5H. Ilcfoic fs)2 > .njiLibl-: or,l> mi call dales -sit r*>0.i5ul S922, tin* call dates \mc Ike, 29«. Ik-MniuiV',: .vvpt 12, JS|6S, .tiimmH L? f),i«,cii t>n cliJic »>l4"usincss Himsvs fee resetvc period 2 week-* piovious u» import tlutc, 1(1 Ik'uinniu).', VH7) includes securities loaned --tuliv secuieii IH i>S, (\o\t s;x unties pledged ^tth F.K. Banks. r 1 his ligurc aisu includes securities sold, nod sehedu<td to t)e houuht H.K'k, ynciei matched Sis'.e purchase !i.invicii»jiis, !? BcKinitini: with week endinu Nov. I 5, f(i72, iiitludo ^4M) uuliion of lesefve deficiencies on winch F.H. Ua'.jKs JIC a(U)\\ed. 10 waivf jnnatiies fv>r a ti,<!ii,iuon i^rio-l m ev">utiec(it»n with h.ysk adaptation lo Regulation J as.tmvuiicd, etk\ tnc N<»v. 'i, 1972, thisanh.tmt was teihi<,t\t to $279 iiii'llton on Dee. 2K> Noir. —For desenption of figure*; and discussion of lbe.it signifieanco, see "Member Bank Reserves and Related Itcins," Section 10 of Sitpplenuni r«> />\/»iA/»of f#«<i SU/m'twy Stntivti> •>, Jan. 1962 253 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

to 18. CHANGES IN NUMBER OF BANKING OFFICES IN THE UNITED STATES DURING 1972 » Commercial banks (incl. stock savings banks and nondeposit trust companies) Mutual savings Type of Nature of All banks office change banks Member Nonniember Total ^ Na- Non- Non- Total tional ! State Insured Insured Insured insured BANKS... Dec. 31, 1971.................... 14,273 13,784 5,728 4, §00 1,128 7,875 181 32i 163 Changes during 1972: New banks 2. 266 265 66 53 13 162 37 1 Suspensions. -2 — 2 _t Ceased banking operations. I Consolidations and absorptions: Banks converted into branches. -109 -106 _44 32 Other. -10 -5 -1 Voluntary Liquidations 3. ........ 2 -2 '-2' Intcrdass changes; Nonmember to— National State member.............. State member to— National.................. Nonmember. .............. -36 -36 36 National to — State member.............. 1 Nonmember............... -22 22 N on insured to insured........ 5 c Net change 140 144 '-36* 142 25 -1 -3 Dec. 31, 1972. 14,413 13,928 5,705 4,613 1,092 8,017 206 325 160 BRANCHES AND ADDITIONAL OFFICES, Dec. 31, 1971 4. . . . . 24,083 22t8S8 16,902 13,102 3,800 5,946 40 983 212 Changes during 1972: Be tiovo.......... 1,684 1,523 946 707 239 570 7 13! 30 Banks converted. . 110 107 68 60 39 3 Discontinued 4. . , . -130 -123 -25 '-5' -2 Sale of branch. . . . , I 2 2 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Interclass changes; Nonmember to— National. .......... _59 Stale member. ...... 53 53 State member to—- National. .......... -22 Nonmember. .,,.,.. -111 -111 111 National to — State member. ...... -28 28 Nonmember. ....... -57 -57 57 Noninsured to insured, i _1 Facilities reclassitied as branches. ....... 5 5 3 3 2 Other .„.,.,..... 18 15 13 13 2 4 -1 Net change......... 1,686 1,526 876 708 168 §45 131) 30 Dec. 31, 1972 *.. . 25,769 24,414 17,778 13,810 3,968 6,591 1,113 242 BANKING FACILITIES Dec. 31, 1971 *........ 216 216 183 170 13 33 Changes during 1972; Established.,..,,,.,. 3 3 3 3 Discontinued........ -3 -3 -3 -2 Facilities reclassilied as branches. ...... _ s Other -3 3 I Net change...... -i :... Dec. 31, 1972. ........ 208 208 176 12 32 - Includes a national bank (8 branches) in the Virgin Islands; other banks or 4 Excludes banking facilities. branches located in the possessions are excluded. & Provided at military and other Government establishments through arrange- 2 Exclusive of new banks organized to succeed operating batiks. ments made by the Treasury. 3 Exclusive of liquidations incident to succession, conversion, and absorption of banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

19. NUMBER OF PAE AND NONPAR BANKING OFFICES, BY FEDERAL RESERVE DISTRICT, DECEMBER M 1972 f 1*% r Total Nonpar (nonmember) F.R. district -r Hal Member No,,,nembcr Branches Bra IKlies Brant Branches ! Branches Banks &oflices Banks '&offices Batiks & offices Banks & offices' Banks! & offices DISTRICT Boston....... 379 1 775 379 I,775 219 1. 160 582 New York 475 3 475 880 335 3,401. 140 479 Philadelphia. . 427 i 791 427 1,791 294 1,250! 133 541 C R l i e c v h e m la o n n d d 7 7 7 3 8 8 3 •> 5 1 0 9 3 5 7 7 7 1 8 3 3 4 1 ? 9 ^ 5 4 3 6 6 3 3 1.7 1 9 6 3 2 ' 3 3 5 1 0 5 1,3 4 1 0 1 2' 30 Atlanta t,742 1 859 1,693 1 .801 575 h133 1,118 668 49. 58 Chicago. i ,613 J 2,613 5K9 939 1,<W> 1,674 893 St. Louis, .... 1, 400 J 030 1 ,345 OIK 430 530 915 488 12 Minneapolis. 1,378 318 1,378 318 498 163 880 155 Kansas City. , i, 105 H6 2,105 376 813 225 1,292 151 Dallas. ../... i, 385 290 1,335 274 633 143 702 131 San Francisco. 402 5 244 402 244 143 4,312 259 932 Total. . . .13,S22 24 850 13,643 24,734 5,705 18,00! 7,938 6,733 179; 116 20. NUMBER OF PAR AND NONPAR BANKING OFFICES, BY STATE AND OTHER AREA, DECEMBER 31, 1972 Par Total Nonpar b State, or Member Notmteniher other area \ illmnches , Bfaiuhes1 [Branches !Brauches! Brttnches i Banks'& offices • Banks' & oftkes" Banks & offices Banks' &. offices! Banks & offices STATE Alabama . . . , 2771 334; 2771 33 4! 109 244 168! 90 Alaska....,,. to; HI 7o' 5 62 5. Arizona 15: 374! 15 U4! 4 265' i i toy Arkansas 252- 195 I'.) 7 181 SI Fl4, 1 16, 67 California .... 1 56| 3.258 156 3.25H 63 2, S66 <) > 392 Colorado... . 244; }5 244 35 140 22 104 ' 13 Connecticut, . . 631 49 K i 63'. 49 H1 27 31X 36 ISO Delaware.. . . I si I Id' t 8! 1 10J ~6 27 1 2\ 83 District of j j ! Columbia . . I4j 1 !2: 14 112 12 104 2 S Florida 57 5' 60 575' hi) 256 13 47 Georgia...... 431 4S3' 437 483 71 314 169 Hawaii 7, 143 ?. 143 } Id b 133 Idaho . . 24» 170; 24; t ID- 13 US 11 •>-, Illinois. ...... 1 ,150- US 1, I 50 198 491 1)5 654; 53 Indiana 407! 719 407 7M 180 442 277 Iowa h68' 344 344 150 10! 51 S 243 Kansas 6<>7 76 60 7 76 ji)7 40 4in 36 Kentuck\ 341' 394 341 3!>4 92 230 24') 164 Louisiana . . . 238: 443 153 60 237 93 1 >*> 85 74 Maine 43; 248' 43 24S 2^ i S21 is1 66 256 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

20.—CONTINUED Nonpar (noiimember,) State, i Menilvr other ai I 'Banks &o!lke Banks & office Hanks & otli.es Banks & offices Banks & offices SI ATE- i Cent, ! M.mtond ' 112 112 4fi Mass tehust its'.; j <S 813 155 SI 3 95 ft! 3 60- 200 Michigan . . . ; 1 \\ 1.330 331 130 201 127) 241' Minnesota . . . j 7 Ut 20 73ft 20 22^ 9: 511 It! Mississippi . i 181 406 IK1 40 (\ ~45 I 36" 230; Missouri, . \ 673 132 132 17< 503.' Montana . 14b 12 146 12 0<- 50 Nebiaska . . 441 4K 441 48 131 30 S Nevada ! h 93 New liainp- • shire. . . . j 77 77 28; 14; New Jersev . , . j 210 f ,174 210 I, 174 152 1,02ft. 58! 148* New Mexico ! 71 1 >t> 71 1 50 40, '•'5 New York . ., .! 209 2, bS>8 200 2,61>8 233, 2,535; North | Carolina , . . ! Xi> I ,331 71 1, 304 24j 677! 627! North Dakota , . . \ 1 6(* 7^ IW 73 47 57, Ohio, ... . . | 5d5 i , 448 1,448 335 170 230! Oklahoma . ; 437 H4 437 84 2U7 230 Oregon,, _...) 4% 3 SO 45 Mii) 8 17 Ho; Pcitnsvhustia j 4 %4 1 ,017 434 I ,(M7 206' 138. 524' Rhode Island .; \b 185 16 il! South i Ca rolina . . .' 04 400 84 40(1 24 273 C)Uj 223) South Dakota . < I *>9 1(12 159 102 SO 72 loo' 30! Ten!lessee . . . . 312 505 312 SOS 85 236i Texas .. . 1,237 "94 1 ,22 * 0 | 581 " 20. 1)5, 14 Utah . , . , 52 150 52 1 5U If i 14 45', Vermont , , , j 40 4i~ ON 24 30 16 50; * Virginia . ; 25b 9f,l 25ft l»f)l 151 742 106 2't9r Washim/ton ftoo HH (>t I1) 29 512 5' > • 07;, West Virginia • 20.? 203 K llo K4J \\ isconsin... • 609 t>00 207 161 44 51 Wyoming . ..; 71 2 71 16' OTHER I AREA | C.u..n;* I 1 13 1 American Samoa '•' . . , 1 f Puerto Rico3 " ' 14 204 14 204 Virgin Islands'5. . , , S ^ Includes 16 Nt Yt>rk C."it> branches v>C 3 insured nonmomher Puerto Rican banks. - American Sain ,-t! I purposes. AH men ;-r bianches in (itiatn aiv :^ of ("aiifoniia and New York banks, '< Fucno Rico an • Ness York District I'oi check clearing and coliee noil purp< All ot" banks locaievi in ( alii'omi't, Nvw \'ork, ami PeniiNvhani i (Vnain blanches t>f Canadian l\mks (2 k) Puerto Riui and 5 in the Virgin bl.mtK aie incltutcd abt>\e as nonmemher banks, and nomnembcr branches in Puerto Rica include 8 other branches of Cairulsan busks. Noir. -Cimipriscs.i!! eomtnereia! banking oflkev on which cheeks ate tlrawn. inducting 20S banking fitcilities. Number o! banks and branches diiieis front that in labie IS because this table includes banks in Puerto Rico and the Vitvjn Islar'.ils but excludes banks ant! tins! ct>mpauies o.ti which no checks are drawn. 257 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGKR, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING if)72 CONTENTS APPLICANT BANK OTHER BANK Page Ashland State Bank of Ashland, Ashlund lank & Savings Com- 264 Ashland, Ohio pany, Ashland, Ohio Auglaize County Bank, St. Marys, Home Blinking Company, St. 260 Ohio Marys, Ohio Bank of Idaho, Boise, Idaho Cassia National lank, Burley, 275 Idaho Beverly Hills Fidelity lank, Bev- Fidelity Bank, Beverly Hills, 267 erly Hills, Calif. Calif. BOL State lank, Lansing, Mich, lank of Lansing, Lansing, 278 Mich, Central Trust Company Rochester, First National Rank of Painted 271 N.Y., Rochester, N.Y. Post, Painted Post. N.Y, Citizens Bank of Schoolfield, Dan- Schoolfield Bank & Trust Com- 261 ville, Va. pany, Danville, Va. Citizens Central Bank, Arcade, Citizens State Bank, Lyndon- 268 N.Y. villc, N.Y, Citizens Commercial Bank, Colin a, Peoples Bank Company, Fort 272 Ohio Recovery, Ohio Commerce Union Bank, Nashville, Proadway State Bank, Nash- 262 Ten it. ville. Tenn. Grand Haven State Hank, Grand Security First Bank & Trust 278 Haven, Mich. Co Grand Ha\en, Mich, M Jefferson Street State lank, Hous- Houston-Citizens Bank & Trust 277 ton, Tex, Company, Houston, 'lex. Mechanics and Fanners" Bank of Tanners National Bank of 260 Albany, Albany, N.Y. Catskill, Catskill, N.Y. OK Bank, Grand Rapids, Mich, Old Kent Bank and Trust 274 Company, Grand Rapids, MiVh. Peoples Mid-Illinois lank, Bloom- Peoples Hunk of Bloomingtcn, 270 ington, 111. Bloomington, 111, Powhatan Community Bank, Pow- Bank of Powhatan, Powhatan, 265 hatan, Va. Va. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED CONTENTS Continued APPLICANT BANK OTHEE BANK Page St. Paul Trust Con?ptMJ) HuJti- I'niou I'rust Company of 270 s p.v.u'c, MJ. MarjImicL Haitimore. Md. vSati<lusk> Security Bsutk, Sandus Western Security Hank, San- 279 kv, Ohio ' iiis^kv, Ohio Sitvaitmiii B:«ik S. Trust Cotnpnn> Chatham .Savings lank, Savan- 265 c>l S»i* lillit'jli, SJ\ alh'ijh, I itu ihd'u lf<?. SutiThridtfv tiy^ik cif (*neiuhih« Siiutliricl^e National Hank of 274 '• i^\-^.\iiU: W'i:. <ir<kendah\ Orccudaic, Wis. <'nncrso f 'It> Hank aiicl "hus* lniver.se Ch> State Bank, 276 l"ujii|Mi<y, rj'.i'.tTso Ci!;, Mivl>. Tnuvrve City Mich. ("niofi i'«)Ufttv 1 r»st ^'oiiipaiij. Kvitusixfrj^-Middletown Niittonal 262 i-;i/.tk'ib. N.l. * Bank. Mkidiclown. NJ. 259 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 19723—Continued Banking offices Name of bank, and type of transaction2 Resources (in chronological order of determination) (in millions of dollars) To be operation operated No. 1—-The Aiglalze County Bank, (Newly organized bank; St. Marys, Ohio, not in operation) to merge with The Home Banking Company, 22 St. Marys, Ohio SUMMARY REPORT BY THE ATTORNEY GENERAL (No report received.) BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (1-18-72) The Auglaize County Bank, St. Marys, Ohio, a nonoperating bank applying concurrently for membership in the Federal Reserve System, proposes to merge The Home Banking Company, St. Marys, Ohio, which has deposits of $20,1 million and operates 3 offices. The proposal is a transaction to facilitate the acquisition of The Home Banking Company by The Central Bancorporation, Inc., Cincinnati, Ohio, 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. No. 2—Mechanics and Farmers Bank 39.0 4 of Albany, Albany, N.Y., { to merge with i The Tanners National Bank of 10.0 2 Catskill, Catskill, N.Y. j SUMMARY RI-PORT BY THE ATTORNEY GENERAL (1-28-72) The closest offices of the merging banks are separated by a distance of 33 miles. Numerous banking alternatives intervene. The amounts of deposits and loans originated by either bank in the service area of the other is de minimis. Thus, the proposed merger would not eliminate substantial existing competition. Although State branching laws permit intradistrict de novo branching, home-office protection precludes a consideration of Mechanics fartd Farmers' Bank of Albany, hereinafter Mechanics] as a potential de novo entrant into the village of Catskill. Due to the economic nature and growth prospects of Greene County, and the size and relative market position of Catskill Bank [The Tanners National Bank of Catskill, hereinafter Catskill BankJ, it would appear that the elimination of Mechanics, or BNY [The Bank of New York Company, Inc., a holding company], For notes see p. 279. 260 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED j Banking offices Name of bank, and type of transaction'' Resources i (in chronological order oi'determination/ in millions ol' dollars; In j To be j operation operated ; SUMMARY RFPORI BY TUT AT TORN IV (JrNrR.u-—Coot, as a potential entrant into that countv would not result in the elimination of substantial potential competition. Moreover, due to the sizes of C'atskill Bank and of the only other independent bank in Greene County, there does not appear to be any less anticompetitive merger alternative available to Mechanic^. We conclude that the proposed merger, if approved, would not have any significantly adverse effects on banking competition in Greene County, B\SIN FOR APPROVAL BY TUT BOARD or GOVJ RNOKS f 1-25-72) Mechanics Bank, a wholly owned subsidiary of The Bank of New York Company, hie.. New York, operates 2 offices in I lie cit\ of Albany and 2 offices in Albany County, in New York's Fourth Banking District. The holding company has no other banking subsidiary located in the Fourth District, wherein Mechanic Rank ranks as the Ifith largest of 35 commercial hanks, holding 1J per ce/u of the district's deposits. Tanners National Bank's 2 offices, both in the village of C'atskill (population 5,3001, arc 33 miles from the nearest offices of Mechanics Bank, Tanners National Brink, in Greene County, is the smaller of 2 commercial hanks in C'atskill. Four of ilk* 5 competing bank> in the county arc subsidiaries of rnultihank holding companies and are the largest banks headquartered in New York's Fourth Banking District. There is no significant competition existing between proponents, and home-office protection would not permit Mechanics Bank to establish a lie nova branch in the \illage of Calskill. The merger would not have an adverse effect on competition in any relevant area. 1 he transaction would benefit the residents of Catskill by the addition of an alternative, full-service facility. No, 3- Citizens Bank of Schoolfield. j *Newly organized bank; Danville, Va., j not in operation,! to nien^e with | SctinolfieW Bunk & Trust Company, j 19,0 Danville, Va. | SUMMARY REPORT BY THE ATTORNEY GENERAL (No report received.) 261 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 BOAR!) OF GOVERNORS DURING 1972 !— Continued • Banking offices Name of bank, and type of transaction2 ' Resources : iin chronological order of determination) • <in millions » j i of dollars,1 i In j To be ! | operation operated BASIS FOR APPROVAL BY THI; BCMRO OF GOVERNORS {2-11-72) The sole purpose of this proposed merger is to provide the organizational device whereby First Virginia Bankshares Corporation, Arlington, Virginia, a bank holding company, can acquire Sehoolfield Bank & Trust Company. The merger will have no effect on competition or banking structure in the Danville area. All other relevant factors also being satisfactory the Board finds approval of the application to be in the public interest. No. 4- Commerce Lnion Bank, | 487.0 i 26 | 26 Nashville, Tenn., to }}hjt"i'i' with Broadway State Bank, i,Newly organized bank; Nashville. Tenn. I not in operation) I SUMMARY Ri.PoR'r in mi ATTORNIY GFNT.IUL (No report received.) B\sis HJR AFPROVAI BY mr Kn\Ri> OF GOVI-RNORS (2-22-72) Commerce lliiior Bank, NaslnilJe, which hits deposits of $374.6 million and operates 26 offices, proposes to merge Broadway Stale Bank, Nashville, a nonoperalini: l*«ank applying coneurrenth for membership in the I cdcral Reserve System. 1 he proposal is :i Iransuction to facilitate the accjuisition of Commerce Union Bank by 'iennessee Valley Bancorp, Inc.. Nashville, Tennessee, a bank holding company. Hie proposed mu'ger would, in itself, have no adverse competitive effects, 1 he banking and convenience and needs factors are consistent with approval of the application. No. 5 Vtikm Ouwtv Trust Company, i IM.O I 11J >j lj"«/.abeih N J.. « j I1 to mervt wi>h | '} \ { 25 Kfiii!Klit!r«-Mid«!lt:tt)Bi! National i 80.(1 i 6 j i iinvn, N,J, f | For notes see p. 279. 262 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED : : BankJiii!, offers Name of bank, and type of transaction-' ' Resources ', iin chronological order of determination/ ; •:in ivnih».)iis | . j of dollar-..» : la j To be ! operation : opera h\\ SUMMARY RIPORI UV itir Ammsi v C.?i M V \: *2-}f»-72* All but 2 of Union Trusfs offices are hvafcd in I nioi; <ounf\, at least 25 miles ffom Middletown. Union Trust's single Monmouth i"ov,ni\ office, however, is located in Fatontown. 5 miles south of Middletuwn. Although several other banking offices intervene, there is pjohabh" >nwv competition between this ofiiee of Un«on htb! and Middletown Ha.:* Middletown Bank is the 5th largest of 1?. banks operating in MOT*mouth County, holding about h.5 per svnt of lolal :ount\ deposits t»n June 30, 1^70 Union Trust's Fatontown otliv.e was opcneil dc novn in August of 1970, Thus, Union Trust is no! now a substantial factor in Monmouth Count), and the increase in concentration resulting from !he merger would be slight. Mome-otlice protection provided by New Jersey li\w bars (Jnion 'fni'-i from branching dv fiava in Middlotown. Union Tmst coiiltl compete »r MiddioK>v\n. however, by opeuhiti branehe.-* on the periphen- or possjb}\ thrcuigh the charlci ing of a new bank s ia ihv holding compain dt:\i'.T. As noled above, Union I'rust has vilre*td\ uttered \U>nn)OMth C o<:'Mv i/t' inni/ through iis f'atontown ofticc. Union I tant also has appo^'i-. •.*» open a 2nd Moimiouth County office, in Ocean Tijwnslnip <t lew r-iiw *•• south ot' Fatontov. n. I here, are other banking oJ"gani7atk>n< w nich could be coosjde-jed potential entranu iuio Monmouth Cour'J.y, bn; in ^ic^ .>f Union Tpssi's deniousinucd desire to enter the coii'iH ,!< e>,\,> \nv ^wi'titf nuiv vjimjnatc some potential competition. B\sis ioR At»rkn\\i rr« rui. Htmni <»« ('iim.KNir^ » V** ?2) Union ( ount> Tins! fo)i»pan\, ii>caied i-j f'u Second U.tnkiM;' f>{N|Ti\if i)f New iersey, M*I\I^. prnn'.nily the \»s\.>tt:i NIM\,H\ m^rkei, \vh':'>,' i! ranks 6th itmonii 45 banks Joe.tied Ilhi'1 an-* H- »Ui- ^ pn1 CCHJ ;f the maiKet's deposits. Of its 18 blanches, Sti a». in Union ( •/nifil^ aiiii ! v.'".1; in Somerset ,*rd ,\1onnu»isi!; Counties K wn* but -.r-Mwudeiow n NjlL-^rii Ban!, v^ives pninanlv :he noithein H-JU'O^ oi MonfnoiMh f <HIV\\ %vhf. n encompasses me Township ';1 NTn.Ull'.%«ov, ?!— ui^n'in ;»\ main oi'Kv '«;kd -1 of !t> 5 biaiii*hc :«ie located —o1- neb ak Kviw^luiw. vhi1;-. ihc ;<.'-> ur.rK biafuh i\ jo,.u»v\i Th*. honn ~i4ii/e p,;\*!':. ••» n k.in-re •-{' St'iie -*:v . v.?«i'Ji pn.^ibits ,/.• >,}\,* ivi'Awh'iw iuio \tiddi- !•-«;, ^o.ld r,.u ;. .t-mow! in uMisumnMU'^n of the piopcv^\i meirej Th'1 relev.m' marke' in which :o a»iu'^ I lit.* «'ompi-mi'.': rff,\is ,bo A »bm \ PaiK market. •. on >i uiiir .'?»:*•«;. ral'. of M^^^av-'Th f < >wr d^k-pl for •! lew vommumt.i'\ In J be v^'-ifin '-xiion >, * v iif!*J< <n«"'r>>tcs iSe For notes see p. 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 1972 »—Continued Banking offices Name of bank, and type of transaction2 Resources (.in chronological order of determination) (in mil lions of dollars) In | To be operation ' operated BASIS FOR APPROVAL BY THI: BOARD OF GOYTRNORS—Cont. the eastern portion of the county. Twelve banks operate 92 offices in this market; the 4 largest hold 78.8 per cent of total deposits. Keansburg- Middletown Bank ranks 5th, with 6.7 per cent of deposits. The only office of Union County Trust in this market area is its Eatontown branch, which holds only a negligible percentage of market deposits. Thus, consummation of the merger would not Increase deposit concentration significantly in any area. Although the closest office of Union County Trust, the Eatontown branch, is only 5 miles from an office of Keansburg-Middietown Bank, their service areas do not overlap, and there is no significant competition between the 2 banks. It is not unlikely that the merger would eliminate some potential competition between the proponent banks; however, it is more likely that the merger will stimulate competition in the market area by increasing Keansburg-Middletown Bank's present ability to compete with the 4 larger banks and with 2 smaller banks that recently have become affiliated with 2 holding companies in the First Banking District, each of which holds approximately $1 billion in deposits. Keansburg- Middletown Bank is now less than half the deposit size of the 4th largest bank in the market. The financial and managerial resources of the applicant are satisfactory; the same k true of Kean»burg-Middletown Bank, except for the needed improvement in its capital position, which would attend consummation of this proposal. Therefore, bunking factors lend some support for approval of the proposal. Convenience and needs considerations also are consistent with approval in thai they would permit improvement and expansion of banking services now offered by Keansburg-Middletown Bank. In the judgment of the Board, consummation of the proposal would be in the public interest. No, 6—The Ashland State Bank of Ashland, (Newly organized bank; Ashland, Ohio. not in operation) to merge with The Ashland Bank & Savings 16.0 Company, Ashland, Ohio SUMMARY RF.PORT BY THI; ATTORNFY GENERAL (No report received.) 264 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 I-OR APPROVAI HV nil BOARD t>t Oovi KNORS (3-23-72) The sole purpose of this proposed merger is to provide the vehicle whereby First Bane Group of Ohio, Inc., Columbus, Ohio, a bank holding company, can consummate the acquisition of The Ashland Bank & Savings Company as approved by the Board on January 25, 1972. The merger will have no effect on competition or any other of the usual factors considered in merger proposals; therefore, the Board finds approval of the application to be in the public interest. No. 7—Powhatan Community Bank, (Newly organized bank; Powhatae, Va., not in operation) to merge with Bank of Powhatan, Powhatan, Va, 35,0 SUMMARY REPORT BY THI ATIORNLY GT.NKRAL (2-8-72) The proposed merger is part of a plan through which Powhatan Community Bank would become a subsidiary of Southern Bankshares, Inc., a bank holding company. The instant 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 Southern Bankshares, Inc., it would have no effect on competition. BASIS FOR APPRQYAL BY Tin; BOARD OF GOVERNORS (4-4-72) Powhatan Community Bank, Powhatan, Virginia, a nonoperating bank applying concurrently for membership in the Federal Reserve System, proposes to merge Bank of Powhatan, Powhatan, Virginia, which has deposits of $30,937,000 and operates 3 offices. The proposal is a transaction to facilitate the acquisition of Bank of Powhatan by Southern Bankshares. Inc., Richmond, Virginia, a bank holding company. The proposed merger would, in itself, have no adverse competitive effects. The banking and convenience and needs factors arc consistent with approval of the application. No. 8—Savannah Bank & Trust Company 117.0 10 ] of Savannah, Savannah, Ga, to acquire the assets and assume i the deposit liabilities of Chatham Savings Bank, 4,0 Savannah, Ga. 265 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MKRGER, CONSOLIDATION, ACQUISI- TION OF ASSISTS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 1972 !—Continued • • Banking offices Name of bank, and type of transaction" , Resources •_ _ (in chronological order of determination; | (in millions ; i of dollars) j In | To be ! | operation ! operated SUMMARY RF.PORT BY TIIL ATTORNI-Y GI-.NF.RAL (2-24-72) Savannah Bank's main office is located 95 feet from Savings Bank. Six branch offices of Savannah Bank are located within 3J--'2 miles of Savings Bank. Both institutions derive virtually all of their business from Chatham County. Although Savings Bank is a small institution, it has outstanding residential real estate loans of about $3 million, compared to about $7 million of Savannah Bank. Thus, at least in the savings deposit and residential real estate loan markets, the proposed merger would eliminate substantial existing competition. The Chatham County savings market is highly concentrated; the top firms already hold about 86 per cent of total county savings deposits. Savannah Bank ranks 3rd among institutions which accept such deposits, holding about 18.5 per cent of such deposits. Savings Bank holds about 1.3 per cent of such deposits. Thus, the proposed merger would substantially increase the already high concentration in this market. Finally, the proposed merger would eliminate one of the very few sources of potential deeoneent ration in the Chatham County commercial banking market, Georgia law permits a bank to branch only in the county where its home office is located or into a county where a previously "grandfathered" branch is located. Furthermore, bank holding companies are restricted to acquiring no more than 5 per cent of the voting shares of any bank. Therefore, any potential deconcentration in the Chatham County banking market must, for ait practical purposes, come from existing banks in the county. The proposed merger could eliminate existing competition for savings deposits and real estate loans, increase the already high concentration in those markets, and entrench Savannah Bank's leading position in those markets. It would also eliminate Savings Bank as a potential entrant into full commerical banking in Savannah and Chatham County, Since there are an extremely small number of potential deconcentrative forces in Chatham County, and since the branching and holding company laws as a practical matter prevent other banking organizations from entering the county. Savings Bank takes on a competitive importance out of proportion to its absolute size. Moreover, iis elimination by acquisition by one of the dominant banking organizations in the market has particularly serious competitive consequences. We conclude that, despite the small size of Savings Bank, the proposed merger would dearly have an adverse effect on both existing and potential competition in Savannah and Chatham County. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (4-6-72) Savannah Bank, the 7th largest banking organization in Georgia with 1,3 per cent of total commercial bank deposits in the State, operates 10 banking offices, all in Chatham County (population 187,800), Chatham Bank, a small savings institution prohibited from accepting demand 266 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED \ j Banking offk'vs Maine of hank, and typo of transaction" j Resources < _ (in chronological order of determination* | ('in million"; | j j of dollars' | In S To he I BASIS FOR APPRO\ \L BY TIP' BOARD ot- G'*\n?N(\r<v---(V'1!!. deposits under Stale Maiuies, operate; j stiu:k* office ^ ftei 1'joni Uic main office of bavunnah Bank. In Chatham C ounty Savannah Hank Is the 2nd fart'tsl commercial hanking or ".uni/ation in the market. With % respect to lime and savings dcposiU held h\ A\ liiirtncial institutions HI Chatham County, Savannah Bank and Chiiiham Batik hold 15.4 and 1,2 per tent of such deposits, 'ind following consummation of the piopo^od transaction. Savannah Hank would continue u> tank 31tl with \(\(\ per % cent of the market total ot lime and savings deposits. "I he tntnsuction m'ouki result in the elimination of some dinM vvmpeinton and the oj'.evt on cpnipetifiofl wcnikl be adverse. Chatham Bank, ovet ihe past 3 veins, has UVKH e\pciift»».mg a decline in deposits, and its net current earnings have iwn lowei than the average fin Georgia hanks of similar si/e. \:\u ihen*<ioi>.'. wilhiu I hi* past 2 \*::nn C'haiham Bjnk*s president and vice piesid^nt havt iiiod; novi (fia! Iin<inciiil institution's only «»iii\c oliiecr is appioathing retiiement age, Chatham Bank Joes not ha\t a stock-oFHic«!i plan, proiU-shann^, plan, or retirement syslem. In view of the above Chatham linik dues not appear capahle of attracting the type of indivuiual wh^ *vou«d bf ahl<; TO siiinulale its giowth I he likelihood of Chatham Bdiik ..on\ctItnc-, ;o a l«!lserviee eommeirial hank as other savinL^ !\»nki« h.»ve ilone i:. iemote as the individuals who own eoiurol of this bank li\e <»vei M)0 miles from Savannah, and the record indicates lint liiov an' n«*r inieiesk-d in %tic!t a conveision, 'I hits, the potential foi suh^iantiai !IKMeased ronipciiion developing hetucen Savannah Bank and Chafh.«m Jkink iv not likely, From the record, if appears that Savaiuiah Bank ts v\c onf\ financial institsuion that has sfiown :in\ inicrest u» actjJiii'iru'. Chatham flank, ati(i Snvann.ih BankN interest has arisen previously hi\:i\isv in the f.iilor instilulion's ownership of leal est<ile tuar Savannah Bank's nuihi otticc, which it desires for fiiiui\ expansion purposes. In the liiiht of Chatham Bank\ serious nmna.i(cment sueeeviion prohleni, there is no assurance that capable managemenj can be att»acted U> the Bank in the absence of approval of J he proposed transaetion, Consequemly, the financial and inanaceMai taelnis lend suhsiantial weieht for approval of this application, and the convenience and »et\ls aspect v»utweigh the adverse competitive consequences <»f this propost d mei>ier. No, 9 -Bcvorlj Hills Fidelity Bank, I '.Nesvh orgci'ii/ed bttiik; Beverly Hilts, Calif ! not in t»peration) % ft) in quire the assets and assume i ! j the deposit liabilities of j j Fidelity Bank, ' | ill 0 ! 3 1 Bevcrlv Hills, Calif. I i | 267 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISI- TION OF ASSETS OE ASSUMPTION OF LIABILITIES APPEOYED BY THE BOAED OF GOYERNOES DUEIMG If72 *—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 Sl-MMARY KfPORT BY Till- A'HORM-Y Gl-NI-RAL No report received. Requests for reports on the competitive factors were dispensed with as authorized by the Bank Merger Act to permit the Board [of Governors] to act immediately In order to safeguard depositors of Fidelity Bank. BASIS FOE APPROVAL BY THE BOAED OF GOVERNORS (4-19-72) On the basis of the information before the Board, including communications from the State Banking Department of the State of California, the Board finds that an emergency situation exists so as to require that it act Immediately pursuant to the provisions of the Bank Merger Act In order to safeguard depositors of Fidelity Bank. Such anticompetitive effects as will be attributable to consummation of the transaction will be clearly outweighed in the public interest by considerations relating to and involved in the emergency situation found to exist From the record In the case, It Is the Board's judgment that any disposition of the application, other than approval would be Inconsistent with the best Interests of the depositors of Fidelity Bank, arid the Board concludes that the proposed transaction should be approved on a basis that would not delay consummation of the proposal. No. Citizens Central Bank, 48.0 Arcade, MY., to merge with Citizens State Bank, 6.0 Lyndonville, N.Y. SUMMARY REPORT BY THE ATTORNEY GENERAL (3-17-72) Citizens* [Citizens Central Bank, hereinafter Citizens] nearest office to Citizens State Bank Is its Elba branch, approximately 30 road miles away. A branch of another subsidiary of Charter New York Corp., the Central Trust Company, Rochester, is located approximately 44 miles from Citizens State Bank, In the Eighth Banking District. The merging banks draw less than 1 per cent of their business from each other's service areas, and other subsidiaries of Charter do minimal business in Citizens State Bank's area. Therefore, no significant amount of existing competition would be eliminated by the proposed merger. Since New York law permits intradistrict branching subject to homeoffice protection. Citizens could be permitted to establish new branches In Orleans County, but not in Lyndonville. The much larger city of Medina (population 6,000), not closed to branching under the homeoffice-protectioE law, Is located only 7 miles south of Lyndonville, and For notes see p. 279, 268 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED Banking offices Name of hank, and t>pe of transaction" Resources (in chronological order of determination* 1 in millions of dollars) In To be operation operated Sl.MMARY Rr.PoRl' BY THY Ai'IORNlY Gl NI.RAL— Coilt, therefore could he considered a likely location for dv noxo entry by Citizens, Nevertheless, in view of Citizens Stale Hank's size and small share (about 9 per cent) of Orleans County deposits, the nature of its seivice area, and the existence of other potential entrants, we do not believe that the proposed merger would have a significantly adverse effect on potential competition. BASIS FOR APPROVAL BY mi. BOARD OF GOVLRNORS (4-19-72) Citizens Central Bank (hereinafter Citizens Central), a subsidiary of Charter New York Corporation, New York City, operates 6 offices in New York State's Mimh Banking District, wherein it holds 1.2 per cent of the district's commercial bank deposits as the 1 1th largest of the district's 31 banks. Stale Bank operates its only office In Lyndonville and is the only bank headquartered in Orleans County, the relevant market, where it controls approximately *) per cent of commercial bank deposits, A large New Yot k banking organization operates 4 banking offices in the market and controls the remaining ^i per cent of market deposits. Slate Bank ranks as the 29th largest bank in the Ninth Banking District, with 0.2 per cent of the district's total commercial bank deposits. The nearest offices of the merging banks arc approximately 30 miles apart and their service areas do no! overlap. Consummation of the proposal would not significantly increase the concentration of bunking deposits in any relevant area. No meaningful existing competition would be eliminated by the proposal between the proposed merging banks nor between any of the banking offices of Charier New York Corporation and State Bank. Citizens Central is prohibited from tie navo branching into Lyndonville by home-otFiee protection afforded by New York State laws, and, absent this* the growth potentials tit* the Lyndonville area would limit somewhat <((* tiovo entry. Stale Rank, as a small unit bank, is not likely to expand into the area served by Citizens Bank by (k' novo branching. Consequently, Ii appears unlikely that consummation of the proposed merger would foreclose an> significant amount of potential competition between Citizens Central, Stale Bunk, or between any of the banking offices of Charier New York Corporation, ft is concluded, therefore, that consummation of the proposed acquisition would not have an adverse effect on competition in any relevant market; rattier, the replacement of the small unit-banking office by the subsidiary of a large statewide holding company would likely increase competition with the offices of the large New York State banking organization. The financial and managerial resources of Citizens Central and State Bank are satisfactory and the prospects for the resulting bank would be favorable. Consummation of the proposed merger would improve the 269 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACOUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS Dl'RLNC; 1972 '—Continued I j Banking offices Name of bank, and type of transaction- sources (in chronological order of determination) in millions ofdollars,* in ; To be i O|pi!ration : operated BASIS FOR APPROVAL BY TIIF BOARD OF GOVERNORS-—Cunt present banking services available to customers oi State Bank by Increased lending capabilities and improving the hanking services to include the addition of credit-card services, automatic saving plans, and personal and corporate trust services. No. 11—St. Paul Trust Company, j • Newly organized bank; Baltimore, Md.« j not in operation) to merge with \ j Union Trust Company of Maryland, ,' 598,0 - 62 62 Baltimore, Md. SUMMARY REPORT BY THE ATTORNEY GENERAL (4-13-72) The proposed merger is part of a plan through which Union Trust Company of Maryland would become a subsidiary of Union Trust Bancorp, a hank holding compan>. The instant 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 Union Trust Bancorp, it would have no effect on competition. BASIS FOR APPROVAL BY FI DI R\L Rrsi RVK BANK ON BI.HAIF OF BOARD OF GOVERNORS UNDIR DM IX.ATI-.D AUTHORITY (4-25-72) St. Paul Trust Company, a nonoperating hank applying concurrently for membership in the Federal Reserve System, proposes to merge Union Trust Company of Maryland. The proposal is a transaction to facilitate the acquisition of Union Trust Company of Maryland by Union Tryst Bancorp, Baltimore. Maryland, a proposed hank holding company. The proposed merger would, in itself, have no adverse competitive effects. The bunking and convenience and needs factors are consistent with approval of the application. No, 12—Peoples Mid-Illinois Bank, .; {Newly organized bank; Bioomington, III, | not in operation) to merge with \ ! j Peoples Bank of Bloomington, | 64.0 \ f j Bloomington, ill j , j 270 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED j Banking offices •Nilr:ic oi hunk. and type oi' transaction" Resources t_ __ ___ • in chr^ik)!ui!icji oruor oi Uetcmtinaiiun < • in millions . of dulfarv i In . To be operation ; operated SI:MSURV ur in ifti AIIORNIV (IIM.RAL (4-26-72) 'I lie proposed rfKTi.tr is pad .>f a plan through which Peoples Bunk '.»f litiAn^.iifi'inii would Ivcomv a Mihsldiai v of Peoples Mid-Illinois c 'o$ porutiuu. <i hunk buk!ini.r company. 1 he instant merger, however, would nuely v<?mhine an existing bank with a nonoperilling institution: .is such, ,-itd vuihaiif fcguitf \o the actnnsition of the surviving bank by Peoples Mkf-IIIiiiOi.s Corputation, It would have no effect on competition. H\SH tttu Api'Hnvu in FFDIRII, RI-SI RVI HANK ON BFIIALF OF BOARD Ui- (jUVlKN««;f UNI)! R DJIKJAIID Al MIORIT\ (5-8-72) I'cooks Mul'Iiiiuois Bank, a nonoperuting hank applying concurrently tor membership in the Federal Reserve System, proposes to merge Peoples iionk of Bloonsiiigton. [he pjoposal is a '.ran^;jctk»n to facilitate the acquisition of Peoples Bunk oi Hloomin^ion by Peoples Mid-lllinoi.s Corporation, a proposed bank holding company. The pfoposeif merger would, in itself, have no adverse competitive effects. The blinking and convenience and needs factors are consistent with approval oi" the application. No. 13 C entral Trust Company 283.0 14 Rochester, N.Y., Rochester, N.Y., ttt tuvrge nil ft 16 lie First National Bank of JO.O Painted Post. Painted Post, N Y. RI FORT IIY IIII AITOKNLV GT.NTRAI (5-10-72) The closest office of Central Trust to Painted Post is located at Praitsbtirgb, about 35 miles north, 'The application indicates that neither bank draws appreciable banking business from the service area of the other. Other affiliates of Charter New Yoik Corporation also derive re!aii\ei\ .small business from the Fainted Post area. It does not appear that the proposed merger would eliminate significant existing competition. Under New York law. Central Trust could he permitted to establish Jt' iiovo branches in or nearer to the service area of Painted Post Bank [The First National Bank of Painted Post, hereinafter Painted Post Bank]. However, its opportunities 10 do so are limited by home-office protection, A number of other large holding companies arc also potential entrants info this area. 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 1972 "--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 Si MM RIPORI \i\ nu AIH»R\M Cii M R\J. Central Trust is the 4th largest bank In the Eighth Banking District, with approximately 8.5 per cent of its total commercial bank deposits. Painted Post Bank Is the smallest of 4 commercial banks In its area, with about 12 per cent of commercial bank deposits. The area's 2 leading banks are affiliates of large bank holding companies. Painted Post Bank holds about 5.2 per cent of total Steuben County commercial bank deposits, while Central Trust's Prattsburgh office holds about 2.4 per cent. Although the proposed merger would eliminate Painted Post lank as an entry YeMde for a bank holding company not already operating in the Eighth Banking District, we do not believe that the proposed merger would have a significantly adverse effect on potential competition. BASIS FOR APPROVAL BY THE BOARD OF GQYEENORS (5-22-72) Central Trust, a subsidiary of Charter New York Corporation, New York City, operates 14 offices in the State's Eighth Banking District—13 in Monroe County and 1 in the northern portion of Steuben County. The First National Bank of Painted Post (hereinafter Painted Post Bank) has 2 offices in the southeastern portion of Steuben County. The nearest offices of proponents are approximately 35 miles apart, and no significant competition exists between the subject banks. Further, no significant competition exists between Painted Post Bank and any of Charter's banking subsidiaries. It appears no substantial potential competition would be eliminated because of the limited economic prospects for the area ser¥ed by Painted Post Bank. As a result of the merger the customers of Painted Post Bank would be provided with expanded loan and deposit ser¥ices» trust department facilities, and automated banking services. The convenience and needs factor and the banking factors are consistent with approval. No. 14—Tie Citizens Commercial Bank, 28.0 Celina, Ohio, to merge with The Peoples Bank Company, 8.0 Fort Recovery, Ohio SUMMARY REPORT BY THE ATTORNEY GENERAL (6-30-72) The 2 banks are located about 12 [20] miles apart in Mercer County. Although Celina, home of Citizens Bank, is the county seat and trading center for county residents, the banks draw relatively little banking busi- For notes see p. 279, 272 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED ; I Banking offices Name of bank, and type of transaction- ! Resources i _ _ .._... (in chronological order of determination) ! *in millions j j of dollars) j in j To be I ! operation I operated REPORT IJV IMF ArrORNTY CII-M RAi.—Coilt. ness from each other's hometown. Hie proposed merger would appear to eliminate only a limited amount of existing corn pet i I ion. The 2 merging banks are available alternatives for a localized area in Mercer County. Within Mercer County as a whole, which may overstate the relevant market, Citizens Bank is the 2nd largest and Peoples Bank is the smallest of the 7 banks with offices in the county. The merger will increase Citizens Bank's share of deposits from 25 per cent to 31 per cent. The share of the 2 largest banks in the county will increase from 51 per cent to 58 per cent. If the pending proposal of the county's largest bank (also located in Celina) to acquire the 5th largest bank in the county is approved, the county will be left with only 5 banking organizations, the largest 2 of which will account for 66 per cent of county deposits. In addition to the elimination of one of only a few alternative sources of banking services for a significant number of customers in Mercer County, the proposed merger would increase the degree of concentration of banking resources in this localized market to a level that can be expected to dampen the vigor of actual and potential banking competition in that market. We conclude that the proposed merger would have an adverse effect upon competition, which could be compounded by consummation of the other pending Mercer County merger proposal. BASIS FOR APPROVAL BY n«: BOARD OF GOST.RNORS 17-28-72) The two offices of The Citizens Commercial Bank (hereinafter Celina Bank) and the single office of The Peoples Rank Company (hereinafter Fort Recovery Bank) are in Mercer County (population 35,600), where Celina Bank ranks as the 2nd largest of 7 banks, with 25 per cent of the aggregate deposits. The nearest offices of the 2 banks are 20 miles apart with no main road connecting the communities where such offices are located. Further, 2 banks are situated in the intervening urea and another bank is located in Foil Recovery. No meaningful competition exists between proponents, and the Fort Recovery area is not attractive for cfc m>vo entry since there are presently 2 banking offices serving this village of 1348 persons. The proposed merger would have only a slightly adverse effect on existing or potential competition and the increase in concentration of banking resources in Mercer County would not significantly affect competition in the relevant area. It would strengthen the Fort Recovery office and would solve its present management succession problems. The transaction would make possible expanded loans for Fort Recovery Bank's customers, as well us other services. 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 1*172 '—Continued Banking OlllCt'S Name of bank, and type of transaction2 Resources (in chronological order of determination} (in millions oi* dollars} ! In | To be i operation ' operated No. 15—OK Bank, (Newiy organized bank; Grand Rapids, Mich., not in operation) to consoiuhw with Old Kent Bank and Trust Company, 759,0 43 Grand Rapids, Mich. SUMMARY RIIPORT BY USE ATTORNEY GLNERAL (7-14-72) The proposed merger is part of a plan through which Old Kent Brink and Trust Company would become a subsidiary of Old Kent Financial Corporation, a bank holding company. The instant merger, however, would merely combine an existing bank with a nonopcrating institution; as such, and without regard to the acquisition of the surviving bank by Old Kent Financial Corporation, it would have no effect on competition. BASIS FOR APPROVAL BY FEDERAL RLSLRU-; BANK ON BEHALF OF BOARD OF GOVERNORS UNDER DEIEGATO) AUTHORITY (8-31-72) OK Bank, a nonoperating bank applying concurrently for membership in the Federal Reserve System, proposes to merge Old Kent Bank and Trust Company. The proposal is a transaction to facilitate the acquisition of Old Kent Bank and Trust Company by Old Kent Financial Corporation, 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, 16—Southridge Bank of Greendale, (Newly organized bank; Greendaie, Wis., not in operation) /••/ acquire the assets at11 assume the deposit liabilities of Southrldge National Bank of 10.0 Greendale, Greendale, Wis, SUMMARY REPORT BY THE ATTORNEY GENERAL (No report received.) Bxisis FOR APPROVAL BY THE BOARD OF GOVERNORS (10-18-72) Southridge Bank of Greendale, Greendale. Wisconsin, a nonoperating bank applying concurrently for membership in the Federal Reserve Sys- For notes see p. 279, 274 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Hanking oil icev'»r Javt jsii.tdli .jit n;illson-, To he as\t;t'. i$nd as1 t:?no flu* liabilities u^ Souihble, * «!t?rnd:dr.\ \\ iM:o?isui 's >'»v { j'iijLfii;' i|,r »t^wmi»li<>n vf Snufhndi:^ b'. Ri«.ir,c B sir orf'Hf<ff?oi! of ^ViMOfihin, a iJ, in ii'^if, ha1'.'-1 no a»j\tMsc ct^inpctitive iU1'J'<, lilt rdfiMii:' ,i- .k 'nit'ikC »inJ '!u'<ls I'luiorv arc ct'siKisicnl !'-'- Bj!llL Of til'tltO, 18,0 Si MV\(n R( S'uKi1 RV | U7 AiM'RiVJ\ (Ji'XI.HNf. (i)-2O-72| iiutr. ^t <>Hi. v' of Bank <x' hj:ttu> in ;* ( as^-a N';»iional ollkc U 38 vi!^. If afHwu*, rhaf fhe pjopovii r?uij..'<T v.i/Uki no! clioilnaie jijiv sii'f dionjjl ^ *hf* 2nd iar-AM IvniK in }<h"U'\v with abiiy! 3? per ! h Llii-*r •% IH kliiltr nvi" pd D)\in'A lo \)i\\Px U < \ii \\ hie, Ka?»k of kiaho is tiif i.-jvi'si >\'M;K in }«);?<'•. wiji.'h >'^c\ r<>; onuirtiv «if> t'iTirc in Binfey I lir 1 'ativ^l i\mk*. *t> Htc Si ah: h;t\'.' cr<!cH\! Hiiiicy i/r /j^v*; in the tasi (\ ytais, 'HMtft, the p«\MH>st*f nientci* v.oukl clifiisiialt' Hank of Idaho as liv niosf ^jLinft'. rA)\ pi»H!i!»,\f vnU'^ui »nfo the Burlov *H<,%L IlowfX'Cf, the ihiUUv"4 of 'inr luMsoirA of' i!«% Buik1- a;».\t <s •< lifiiifuig facttir on the pn»^p,vK of* ostenNiw «/'• /^M-^ HaiH'hinp in the !\><«'sec.iH}c fitftire, RuaMm; in Liaho is htr:h!'>r coivenlrvk-il As ot the end of 1 *>71. the >i {ar;rt;s! hanus in iho Siatt* henf appjo\ima*i:iy -S5 per reni of ils C\>m- .)KM\t;») ban I- JcpoM:*,, B.«nk »if Mahf* held :«h,mt 1.1! pel com of ihcse •Jxpe-'tH, uhiU1 C'jN-.i.i NtiiJona' hold n;ou ih<tn J per icriL 'There are oniv ?«i b(<i!k\ i;i !<)i. t'lifjce hi.Uc i^nd tcunonne iirowih in Idaho in f'ev;T>' \C"«r\ h;r- pc»! !V:'M sntnr5s.ni to tr^liwe nv\\ wAvy into the 'hanking PU inc^ In iht>o .MK"MH)siari«.\'s, accjinsiNtyiN of e\^finr; Iclalio hanks hy the S?;jtr\ pti'-H-al leader^ PK'vent die df.'elopnu',!!; <»f o'he» hanks of a size !v.ff)V;'*n! to onahio thoni !o c\unp/hfi^<.]*- vhaiii.nue I hoe leaders on a M.ii'.",1 ide -vale -iml Li'irpr .'.^i^H M'fite di\{in»*enti:Hion of banking in f'Jafio, Sn, b .Kqnisilions : ouid also ICMSI* in !in* same few haifl.tiiii in>ti hr'ion'. . onlVop/in.-.' vjrii other in ail of ihv Stitttr'N sitinineani local hank- 275 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH MERCER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 1*172 l—Continued , | Banking offices Name of bank, and t\pe of transaction2 : Resources ; __ _ (in chronological order of determination,) ; < in millions I j | of dollars) | In i To be ! ' operation I operated SUMMARY RI-PORT BY TIIL ATTORNLV GI.-NLRAL—Cont. Ing markets, with little if any independent coin petit ion. Therefore, we conclude that the proposed merger of the State's 10th largest kink by one of Its existing hanking leaders may have an adverse competitive effect. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-7-72) Bank of Idaho {hereinafter Boise Bank), the sole Idaho banking subsidiary of Western Bancorporation, Los Angeles, Is the 3rd largest bank in Idaho, with 12 per cent of the deposits held by ail banks situated therein. It operates 25 banking offices throughout Idaho. Cassia Bank maintains 3 offices. 2 in Burle\ (population 8300) and 1 in Lava Hot Springs (population 516). A 4th office, to be located in Heyburn, 4 miies northeast of Burley, has been approved but is not yet open. Proponents' nearest offices are about 39 miles apart, and there is no competition existing between them. Although Idaho permits statewide branching. It seems unlikely Boise Bank would be permitted to establish a de novo branch in Burley in the foreseeable future because within the last 2 years the Board has denied Boise Bank's request to establish a tie nova branch therein. It is concluded that the proposed transaction would not have an adverse effect on competition in any relevant area. Boise Bank plans to expand considerably real estate loans in the Burley area, a service that Cassia Bank has not provided to a significant degree. The banking factors and the convenience and needs factor are consistent with approval. No. 18—Traverse City Bank and Trust I (Newly organized bank; Company, • not in operation) Traverse City, Mich,, j ! to consolidate with < | Traverse City State Bank, ; 77.0 \ 9 Traverse Cit\, Mich. \ I SUMMARY REPORT BY THE ATTORNEY GENERAL (11-2-72) The proposed merger is part of a plan through which Traverse City State Bank would become a subsidiary of Pacesetter Financial Corporation, a bank holding company. The instant 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 Pacesetter Financial Corporation, it would have no effect on competition. 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 BO\RI> OF (M>VI;RNORS 11 1-30-72) Traverse City Bank and Trust Company, Traverse City, Michigan, a nonoperating bank applying concurrently for membership in the Federal Eeserve System, proposes to consolidate with Traverse City State Bank, Traverse City, Michigan, which lias deposits of $67,693,000 and operates 9 offices. The proposal is a transaction to facilitate the acquisition of Traverse City State Bank by Pacesetter Financial Corporation, Grand Haven, Michigan, a proposed bank holding company. The proposed consolidation would, in itself, have no adverse competitive effects. The banking and convenience and needs factors are consistent with approval of the application. No. 19—Jefferson Street State lank, (Newly organized bank; Houston, Tex. not in operation) s to merge with Houston-Citizens Hank & Trust 245.0 Company, Houston, Tex. SUMMARY REPORT BY THE ATTORNEY GENERAL (8-22-72) The proposed merger is part of a plan through which Houston-Citizens Bank & Trust Company would become a subsidiary of First International Baecshares, Inc., a bank holding company. The instant 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 First International Bancshares, Inc., it would have no effect on competition. BASIS FOR APPROVAL BY TTIF BOARD or GOVERNORS (11-30-72) Jefferson Street Stale Bank, Houston, Texas, a nonoperating bank applying concurrently for membership in the Federal Reserve System, proposes to merge Houston-Citizens Bank & Trust Company, Houston, Texas, which has deposits of $195 million and operates 1 office. The proposal is a transaction to facilitate the acquisition of Houston- Citizens Bank & Trust Company by First International Bancshares, Inc., Dallas, Texas, 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. For notes see p. 279. 277 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21. DESCRIPTION OF EACH FIERCER, CONSOLIDATION, ACQUISI- TION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THK BOAR!) OF (iOVKRXORS DURING V>72 "—Continued Bankiim offices Name of bank, and t\pe o( transaction'5 Resotsives Cm chronological order of determination) 'in millions of doll; Jo j To be operation ! operated No. 20 -Grand Haven State Bank, (New iyorganized bank; Grand Haven. Mich., not in operation* to consolidate with Security First Bank & Trust Co., 57.0 Grand Haven, Mich. SUMMARY Rl-PGRT BY IMF. A ITORNEY Gl NLRAl ( I 1-2-72) The proposed merger is part of a plan through which Security First Bank. & 'Trust Co. would become a subsidiary of Pacesetter Financial Corporation, a hank holding company. The instant merger, however, would merely combine an existing hank with a nonoperating institution; as such, and without regard to the acquisition of the surviving hank by Pacesetter Financial Corporation, it would ha\e no effect on competition. BASIS FOR APPROVAL BY IHI-. BOARD OF GOVE-.RNORS (11-30-72) Grand Ifa\en State Bank, Grand Haven, Michigan, a nonoperating bank applying concurrently for membership in the Federal Reserve System, proposes to consolidate with Security First Bank & Trust Co., Grand Haven, Michigan, which has deposits of $50,379,000 and operates 6 offices. The proposal is a transaction to facilitate the acquisition of Security First Bank & Tru^t Co. by Pacesetter Financial Corporation, Grand Haven, Michigan, a proposed bank holding company. The proposed consolidation would, in itself, have no adverse competitive effects. The hanking and convenience and needs factors are consistent with approval of the application. No. 21 -BOI. Slate Bank, (Newly organized bank; Lansing. Mich., not in operation.) to consolidate with Bank of Lansing, 143.0 Lansinu, Mich, SUMMARY REPORT BY TUI: ATFORNFY GF.NFRAI (12-22-72) The propo*ed merger is part of a plan through which BOL State Bank would become a suhsidiary of Northern Stales Financial Corporation, a bank holding company. The instant merger, however, would merely combine an existing hank with a nonoperating institution; as such, and without regard to the acquisition of the surviving bank by Northern States Financial Corporation, it \vould have no effect on competition. 278 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

21.—CONTINUED : Banking oil ices Name oi bank, and i}pe <MV tninsaetion-' )UrCCs tin chronological order ol dekTmsn<ilion) fii tiiliions ofdcAhtt'h * r To be O|x-nitSOtl , operated B\sis j OR APPROV.-U HY nir BU\RD or VJUVIRNORS f 12-22-72) BOL Stale Bank, t ;uiMn>i, Michigan, a nonoperating hank applying eoncuneitily for member*.hip in ihe Federal Resci ve System, proposes to consolidate with Bank of Linking, Linv-ln^ Michigan, which has deposits of $129,959,000 and operaies ? offices, The proposal is a Iransaelion U> facilstale fhe direct acquisition of the voting shares of Bank of Lansing by No/the; n Stales Financial corporation, Detroit Michigan, and the indirect acquisition of Bank of Lansing's shares hy I"win (kites Coiporation, Wilmington. Delaware, hecau.se of its ownership of 22.48 pci cent at' ihe voting shares of Northern Slates1 Financial Corporation. The pjoposed consolidation would, in itself, have no adverse etl'ect on hanking competition, on the convenience and needs i>J the area, or on baliking faUois. No, 22 The Sandusky Security Bank, I New!y organized bank; s Sandtisky, Ohio, j not in operation) to merge wiih The Western Security Bnnk. 48,0 Sanduskv, Ohio Y RI-P<>KT BY TIU- ATTORNI.Y CJI.NI-.RAL f 11-17-72) The proposed merger is part of a plan through which The Western Security Bank would become a subsidiary of BancOhio Corporation, a bank holding company. The instant oiergcr. however, would merely combine an existing bank with a nonoperatinu. institution; as such, and without regard io the acquisition of the surviving bank by BancOhio Corporation, it would have no effect on competition. B\sis FOR APPROVAL BY jin- BOVRD OF GOVERNORS (12-27-72) The Sandusky Security Bank, Sandusky, Ohio, a non ope rat ing bank applying concurrently for membership In the Federal Reserve System, proposes to merge The Western Security Bank, Sandusky, Ohio, which has deposits of $44.5 million and operates 3 offices. The proposal is a transaction to facilitate the acquisition of The Western Security Bank by BancOhio Corporation, Columbus, Ohio, 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 1972 the Board disapproved 1 merger application, However under Section 18(c) of the Federal Deposit Insurance Act, only those transactions approved by the Board must be described in its ANNUAL RLPOKI to ( oniiress. -Each transaction was proposed to be effected under the charter of the llrstnamed bank. 279 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

THE FEDERAL RESERVE SYSTEM ]• BOUNDARIES OF FEDERAL RESERVE DISTRICTS AND THEIR BRANCH TERRITORIES © • wo 4y « H? ^w, Urt 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

-federal 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, 1972) 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 ANDREW F. BRIMMER of Pennsylvania January 31, 1980 JOHN E. SHEEHAN of Kentucky January 31, 1982 JEFFREY M. BUCHER of California January 31, 1986 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 ROBERT L. CARDON, 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 WILLIAM W. LAYTON, Director of Equal Employment Opportunity BRENTON C. LEAVITT, Program Director for Banking Structure OFFICE OF THE SECRETARY TYNAN SMITH, Secretary MURRAY ALTMANN, Assistant Secretary NORMAND R. V. BERNARD, Assistant Secretary ARTHUR L. BROIDA, Assistant Secretary ELIZABETH L. CARMICHAEL, Assistant Secretary MICHAEL A. GREENSPAN, Assistant Secretary LEGAL DIVISION THOMAS J. O'CONNELL, General Counsel PAUL GARDNER, JR., Assistant General Counsel PAULINE B. HELLER, Assistant General Counsel ROBERT S. PLOTKIN, Adviser DIVISION OF RESEARCH AND STATISTICS J. CHARLES PARTEE, Director STEPHEN H. AXILROD, Associate Director SAMUEL B. CHASE, Associate Director LYLE E. GRAMLEY, Associate Director PETER M. KEIR, Adviser JAMES L. PIERCE, Adviser STANLEY J. SIGEL, Adviser MURRAY S. WERNICK, Adviser KENNETH B. WILLIAMS, Adviser JAMES B. ECKERT, Associate Adviser JOSEPH S. ZEISEL, Associate Adviser EDWARD C. ETTIN, Assistant Adviser ELEANOR J. STOCKWELL, Assistant Adviser STEPHEN P. TAYLOR, Assistant Adviser Louis WEINER, Assistant Adviser LEVON H. GARABEDIAN, Assistant Director *On leave of absence. 282 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

DIVISION OF INTERNATIONAL FINANCE RALPH C. BRYANT, Director JOHN E. REYNOLDS, Associate Director A, B. MERSEY, Senior Adviser ROBERT F. GEMMILL, Adviser REED J. IEVINE, Adviser SAMUEL I. RATZ, Adviser BERNARD NORWOOD, Adviser SAMUEL PIZER, Adviser RALPH C. WOOD, Adviser GEORGE B, HENRY, Assistant Adviser HELEN B. JUNZ, Assistant Adviser DIVISION OF FEDERAL RESERVE BANK OPERATIONS j \ \i! S A Ml JWM ^-?' /*'/*< ,'*// Ji»T.<v N\ Mi FK lk.% hi-A'i,/^' Pud'!-*' \V\! nil A. Ai »n j""Ti*. iwistiott Dtucriti i V \ \ n > G. JU'.-iiv tssls\;/>( f*titxh>? H SPNY I Ll'IM'k. / v>i*2/r //?,' .'/.* P I) kl's(., M\'wf;< /»/,-, , «f.f jvn-. I \ tNiv, JVV> /<//;/ /»(-'•(« »r>/ I H\Lirs I . \V\i< « !*, issf\ht"t lith^ler 1 , \l/,t7Kit i Mi \\ UIK j i j c /IL ! ' . id1* J l<<. >zrve Examiner ];(VfSIo?^ (» SI }<}t{\l\hfN \Ni> ?.»F<,{ 'I ATION 1-Pi f : iii< ,S'i * <*n .!, It),, ,'«•, I Vi I>I f(« 5' !(, $KT>I )\> >;/-,\'i /)"»""t / I M K N1 I M <UM^ I^IM '.'/ /»r;. - !•>; U)H\ V ?»M»jj'f'j, '< »\:,'.««(.' i'mt'in h\l i 1) Ji ui * „ 'h'iw%'r%; Oi .-/"/ JiUfi^ N F U N, 1 ,. >\\i<i} i •[/ , »,»« P!\lSiU\t'L <^RSri,NN7( vhMJNi.Mi! \ f(ON h«»*j ] M , •.. I -uJ,tu: Oft i L f DIVISION OF ADMINISTRATIVE SERVICES UfUTlTi i } I t ! ! Hi H Itiu ' U'} VV M ) 'P ^"V, [•,)<} I. 1'tN'L i;<, >:"u fr.ri; i JOHN KAKALEC, Controller DIVISION OF DATA PROCESSING JEROLD 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 EDWARD K. O'CONNOR, Assistant Director RICHARD S. WATT, Assistant Director 283 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FEDERAL OPEN MARKET COMMITTEE (December 31, 1972) 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) JEFFREY M. BUCHER (Board of Governors) PHILIP E. COLDWELL (Elected by Federal Reserve Banks of Atlanta, St. Louis, and Dallas) J. DEWEY DAANE (Board of Governors) DAVID P. EASTBURN (Elected by Federal Reserve Banks of Boston, Philadelphia, and Richmond) BRUCE K. MACLAURY (Elected by Federal Reserve Banks of Minneapolis, Kansas City, and San Francisco) GEORGE W. MITCHELL (Board of Governors) J. L. ROBERTSON (Board of Governors) JOHN E. SHEEHAN (Board of Governors) WILLIS J. WINN (Elected by Federal Reserve Banks of Cleveland and Chicago) OFFICERS ROBERT C. HOLLAND, Secretary ARTHUR L. BROIDA, EDWARD G. BOEHNE, Deputy Secretary Associate Economist MURRAY ALTMANN, RALPH C. BRYANT, Assistant Secretary Associate Economist NORMAND R. V. BERNARD, LYLE E. GRAMLEY, Assistant Secretary Associate Economist HOWARD H. HACKLEY, RALPH T. GREEN, General Counsel Associate Economist THOMAS J. O'CONNELL, A. B. HERSEY, Assistant General Counsel Associate Economist J. CHARLES PARTEE, WILLIAM J. HOCTER, Senior Economist Associate Economist STEPHEN H. AXILROD, JOHN H. KAREKEN, Economist (Domestic Finance) Associate Economist * ROBERT SOLOMON, ROBERT G. LINK, Economist (International Finance) Associate Economist ALAN R. HOLMES, Manager, System Open Market Account CHARLES A. COOMBS, Special Manager, System Open Market Account During 1972 most meetings of the Federal Open Market Committee were at intervals of four weeks, as indicated in the Record of Policy Actions taken by the Committee (see pp. 105-88 of this Report). *On leave of absence. 284 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FEDERAL ADVISORY COUNCIL (December 31, 1972) MEMBERS District No. 1—James F. English, Jr., Chairman of the Board, Connecticut Bank and Trust Company, Hartford, Conn. District No. 2—David Rockefeller, Chairman of the Board, The Chase Manhattan Bank (National Association), New York, N.Y. District No. 3—G. Morris Dorrance, Jr., Chairman of the Board and President, The Philadelphia National Bank, Ardmore, 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, The 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—David H. Morey, Chairman of the Board and Chief Executive Officer, The Boatmen's National Bank of St. Louis, St. Louis, Mo. District No. 9—Chester C. Lind, President, First American National Bank of Duluth, Duluth, Minn. District No. 10—Morris F. Miller, Chairman of the Board and Chief Executive Officer, The Omaha National Bank, Omaha, Nebr. District No. 11—Lewis H. Bond, Chairman of the Board and Chief Executive Officer, The Fort Worth National Bank, Fort Worth, Tex. District No. 12—A. W. Clausen, President and Chief Executive Officer, Bank of America National Trust and Savings Association, San Francisco, Calif. OFFICERS A. W. CLAUSEN, President G. MORRIS DORRANCE, JR., Vice President HERBERT V. PROCHNOW, Secretary WILLIAM J. KORSVIK, Assistant Secretary EXECUTIVE COMMITTEE A. W. CLAUSEN, ex officio G. MORRIS DORRANCE, JR., ex officio JOHN S. FANGBONER HARRY HOOD BASSETT GAYLORD FREEMAN Meetings of the Federal Advisory Council were held on February 3-4; May 4-5; September 14-15; and November 2-3, 1972. The Board of Governors met with the Council on February 4, May 5, September 15, and November 3. 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. 285 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FEDERAL RESERVE BANKS AND BRANCHES (December 31, 1972) CHAIRMEN AND DEPUTY CHAIRMEN OF BOARDS OF DIRECTORS Federal Reserve Chairman and Deputy Bank of— Federal Reserve Agent Chairman Boston James S. Duesenberry Louis W. Cabot New York Roswell L. Gilpatric Ellison L. Hazard Philadelphia Bayard L. England John R. Coleman Cleveland Albert G. Clay J. Ward Keener Richmond Robert W. Lawson, Jr. Stuart Shumate Atlanta John C. Wilson H. G. Pattillo 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 November 30 and December 1, 1972. Dr. Wilson, Chairman of the Federal Reserve Bank of San Francisco, who was elected Chairman of the Conference and of its Executive Committee in December 1971, served in that capacity until the close of the 1972 meeting. Mr. Lilly, Chairman of the Federal Reserve Bank of Minneapolis, and Mr. Wagstaff, Chairman of the Federal Reserve Bank of Kansas City, served with Dr. Wilson as members of the Executive Committee; Mr. Lilly also served as Vice Chairman of the Conference. On December 1, 1972, Mr. Lilly was elected Chairman of the Conference and of its Executive Committee to serve for the succeeding year; Mr. Wagstaff was elected Vice Chairman of the Conference and a member of the Executive Committee; and Mr. Wilson, Chairman of the Federal Reserve Bank of Atlanta, was elected as the other member of the Executive Committee. 286 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued 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: 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 Mark C. Wheeler President, New England Merchants National Bank, Boston, Mass 1974 Class B: F. Ray Keyser, Jr Vice President, Vermont Marble Company, Proctor, Vt 1972 G. William Miller President, Textron, Providence, R.I 1973 W. Gordon Robertson. .General Trustee, Bangor, Maine 1974 Class C.- 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 James S. Duesenberry.. .Professor of Economics, Harvard University, Cambridge, Mass 1974 287 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.E. BANES AND BRANCHES—Continued Term expires DIRECTORS—Continued District 2—MEW YORK Dee. 31 Class A: Arthur S. Hamlin. .... .President,The Canandaigua National Bank and Trust Company, Canandaigua, N. Y......... 1972 William S. Renchard... .Chairman of the Board, Chemical Bank, New York, N.Y... ........................... 1973 Norman Brassier. ......Chairman of the Board and Chief Executive Officer, New Jersey Bank, NLA., Passaic, N.J.................................... 1974 Class B: Maurice R. Forman. .. .Chairman of the Board, B. Forman Co., Rochester, N.Y.......................... 1972 Maurice F. Granville... .Chairman of the Board, Texaco, Inc., New York, N.Y.............................. 1973 Frank R. Milliken..... .President, Kennecott Copper Corporation, New York, N.Y,........................ 1974 Class C: Ellison L, Hazard. .... .Chairman of the Executive Committee, Continental Can Company, Inc., New York, N.Y.................". ................ 1972 Alan J. Pifer. . President, Carnegie Corporation of New York, N.Y. 1973 Roswell L. Gilpatric. , . .Partner, Cravath, Swaine & Moore, Attorneys, New York, N.Y......................... 1974 BUFFALO BRAN€Ii Appointed hy Federal Reserve Bank: David J. Laub. .... . . .Chairman of the Board, Marine Midland Bank- Western, Buffalo, N.Y,................... 1972 William B.Anderson... .President, The First National Bank of Jamestown, N.Y.. ............................ 1973 Angel© A. Costanza. . , .President and Chief Executive Officer, Central Trust Company, Rochester, N.Y........... 1973 Theodore M. McClure.. President, The Citizens National Bank and Tryst Company, Wellsvillc, N.Y........... 1974 Appointed hy Board of Governors: Morton Adams. ...... .President, Curtice-Burns, Inc., Rochester, N.Y, 1972 Rupert Warren......... President, Trico Products Corporation, Buffalo, N.Y............................ ....... 1973 Norman F. Beach. .... .Vice President and General Manager, Kodak Park Division, Eastman Kodak Company, Rochester, N.Y.......................... 1974 288 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued Term expires DIRECTORS- -Continued District 3 -PHILADELPHIA Dec. 31 Class A: William R. Cosby, .... .Chairman of the Board, Princeton Bank and Trust Company, Princeton, N.J............ 1972 Richard A. Herbstcr. . , .President, l.ewistown Trust Company, Lewistown, Pel.,.......... ... ............ 1973 (Vacancy)................ ........ 1974 Class J.- Edward J, Dwyer...... .Chairman and Chief Executive Officer, ESB Incorporated, Philadelphia, Pa.. . 1972 (Vacancy)..... 1973 C, Graham Bervvind, Jr.. President and Chief Executive Officer, Berwind Corporation, Philadelphia, Pa............. 1974 Class C: Bayard L. England..... Retired Chairman of Board, Atlantic City Electric Company, Ventnor, N.J.......... 1972 John R. Coleman President. Huverford College, Haveriord, Pa., . 1973 Edw. W. Robinson. Jr.. .President, Provident Home Industrial Mutual Life Insurance Co., Philadelphia, Pa......... 1974 District 4—CLEVELAND Class A: David L. Brumback, Jr.. President, Van Wert National Bank, Van Wert, Ohio ....................'..........' 1972 Edward W. Barker. . . . .President. First National Bank of Middletown, Ohio... , . ... 1973 A. Bruce Bovvden...... .Vice Chairman of the Board, Mellon National Bank and Trust Company, Pittsburgh, Pa... 1974 Class B: R. Stanley Laing....... Dayton, Ohio. 1972 John L. Gushman. .... .Chairman of the Board and Chief Executive Officer, Anchor Hocking Corporation, Lancaster, Ohio 1973 Donald E. Noble....... President and Chief Executive Officer, Rubbermaid incorporated, Wooster, Ohio........ 1974 289 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued Term expires DIRECTORS—Continued District 4—CLEVELAND—Cont. Dec. 31 Class C.- Albert G. Clay...... . .President, Clay Tobacco Company, Mt. Sterling, Ky................................ 1972 J. Ward Keener , .Chairman of the Executive Committee, The B. F. Goodrich Company, Akron, Ohio.. .. 1973 Horace A. Shepard. ... .Chairman of the Board and Chief Executive Officer, TRW inc., Cleveland, Ohio,...... 1974 C IMC INN ATI BRANCH Appointed by Federal Reserve Batik: Paul W. Christensen, Jr., President, The Cincinnati Gear Company, Cincinnati, Ohio 1972 Robert E. Hall.........President, The First National Bank and Trust Company, Troy, Ohio.................... 1972 William S. Rowe. ..... .President, The Fifth Third Bank, Cincinnati, Ohio..... .............................. 1973 E. Paul Williams.......President, Second National Bank, Ashland, Ky. 1974 Appointed by Board of Governors: Phillip R. Shriver...... .President, Miami University, Oxford, Ohio. . . 1972 Clair F. Vough.........Vice President, Office Products Division, IBM Corporation, Lexington, Ky., 1973 Graham E. Marx. President and General Manager, The G. A. Gray Company, Cincinnati, Ohio,.......... 1974 PITTSBURGH BRANCH Appointed by Federal Reserve Bank; 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, Md. 1972 Merle E. Gil Hand... . . .Chairman of the Board and Chief Executive Officer, Pittsburgh National Bank, Pittsburgh, Pa... 1973 Charles F. Ward. . . . . . President, Gallatin National Bank, Uniontown, Pa..................................... 1974 290' Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

RE. BANKS AND BRANCHES—Continued Term expires DIRECTORS—Continued District 4 - CLEVELAND—Cont. Dec. 31 PITTSBURGH BRANCH—Continued Appointed by Board of Governors: Lawrence E. Walkley. . , Retired President, Westinghouse Air Brake Company, Pittsburgh, Pa,... ............ 1972 Robert E, Kirby........ President, Industry and Defense Company, Westinghouse Electric Corporation, Pittsburgh, Pa... , 1973 Richard M. Cyert..... President. Carnegie-Mellon University, Pittsburgh, Pa............................... 1974 District 5—RICHMOND Class A: Hugh A, Curry,....... .President and Chief Executive Officer, The Kanawha Valley Bunk. Charleston, W. Va.. . 1972 Thomas P. McLachlen. .President, MeLaehlen National Bank, Washington, D.C.. 1973 Edward N. Evans. .... .President, Farmers & Merchants National Bank of Cambridge, Md.................. 1974 Class B: Robert S. Small........ President. Dan River Inc.. Greenville, S.C..... 1972 H. Dail Hoiderness. . . . .President, Carolina Telephone and Telegraph Company, Tarboro, N.C.................. 1973 HenryC. Hol'heimer, II..Chairman, Virginia Real Estate Investment Trust, Norfolk, Va....................... 1974 Chm C.- Robert \V. Lawson, Jr., , Managing Partner, Charleston Office, Steptoe & Johnson, Attorneys, Charleston, W. Va.. . 1972 Stuart Shumate.... ... President. Richmond, Fredericksburg and Potomac Railroad Company, Richmond, Va. 1973 E, Craig Wall Sr,......Chairman of the Board, Canal Industries, Inc., Conway. S.C............................ 1974 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES— Term expires Continued District 5—RICHMOND—Cont. Dec. 3! BALTIMGEE BRANCH Appointed by Federal Reserve Bank: J. R. Chaffinch, Jr...... President, The Denton National Bank, Denton, Md.................................... 1972 James J. Robinson.. Executive Vice President, Bank of Ripley, W. Va.. . 1973 J. Stevenson Peck. .... .Union Trust Company of Maryland, Baltimore, Md,................................... 1973 Tilton H. Dobbin, .... .President and Chairman of the Executive Committee, Maryland National Bank, Baltimore, Md.................................... 1974 Appointed by Board of Governors: Arnold J. Kleff, Jr., ... .Former Manager, Baltimore Refinery, American Smelting and Refining Company, Baltimore, Md.................. ........ 1972 John H. Fetting, Jr..... .President, A. H. Fettieg Company, Baltimore, Md.................................... 1973 James G. Barlow.......President, West Virginia University, Morgantown, W. Va............................ 1974 CHARLOTTE BRANCH Appointed by Federal Reserve Bank: 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 L. D. Coltrane III..... President, The Concord National Bank, Cons cord, N.C.............................. 1974 Appointed by Board of Governors: Robert C. Edwards..... President, Clemson University, CJemsoti, S.C... 1972 Charles W. DeBell...... General Manager, North Carolina Works, Western Electric Company, Inc., Winston- Salem, N.C............................. 1973 Charles F. Benbow. . . . .Vice President, R. J. Reynolds Industries, Inc., Winston-Salem, N.C..................... 1974 292 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.K. BANES AMD TtRASiZlUlS-Continued Term expires DIRECTORS—Continued District 6—ATLANTA Dec. 31 Class A: William B. Mills. ......President, The Florida National Bank, Jacksonville, Fla............................. 1972 A, L. Ellis.............Chairman of the Board, First National Bank, Tarpon Spr.in.gs, Fla...................... 1973 Jack P. Keith. .........President, First National Bank of West Point, Ga......... ............................ 1974 Class B.- Philip J. Lee...........Vice President, Tropicana Products, Inc., Tampa, Fla............................. 1*>72 Hoskins A. Shadow.... .President, Tennessee Valley Nursery, Inc., Winchester, Tene........................ 1^7,* Owen Cooper..........President, Mississippi Chemical Corporation, Yazoo City, Miss........................ 1974 Class C: F. Evans Farwell.......President, Milliken and Farwell, Inc., New Orleans, La................................ 1972 John C. Wilson........President, Home-Wilson, Inc., Atlanta, Ga.. .. 1973 H. G. Pattillo..........President, Pattillo Construction Company, Inc., Decatur, Ga........................ 1974 BIRMINGHAM BRANCH. Appointed by Federal Reserve Bank: Harvey Terrell..... . .Chairman •*! the Board, The First National Bank oi Birmingham, Ala................. 1972 Wallace D. Malone, Jr,. . President ami Chairman of the Board, The I irst Hittunnl Bank of Dothan, Ala........ 1973 C 1 ogan Taylor. . . .Chairman of the Board, The First State Bank or*O\tord, Ala. ........................ 1973 W. Eugene Morgan. . Prusidivsf and Chief Executive Officer, The Fitsf National Bank of Huntsville, Ala..... 1974 Appointed by Board of * h <tvr/>« >r.v * Frederick G. Koenig, Jr I'rostOont atkl < 'iwrf Executive Officer, Alabama ih PitHftu/i'. i ^iporation, Birmingham, Ala. 1972 David Matfaews.... , PrciJcni, I'«u\M\^ty of Alabama, University, Ala. . . . ......................... W73 William C. Bauer... , . . ?>asuiait, HoiilU Central Bell, Birmingham, \la.. . , ......................... i!i7J 293 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued Term expires DIRECTORS - -Continued District 6-- ATLANTA—Cont. Dec. 31 JACKSONVILLE BRANCH Appointed by Federal Reserve Bank: James G. Richardson. . .Chairman of the Board and President, The Commercial Bank and Trust Company of Ocala, Fla .. 1972 Malcolm C. Brown. . . . .President and Chairman of the Board, Florida First National Bank at Brent, Pensacola, Fla..... 1973 A. Clewis Howell..... . .President, Marine Bank & Trust Company, Tampa, Fla.. ........................... 1973 Guy W. Botts......... .Vice Chairman of the Board, Barnett Bank of Jacksonville, N.A., Jacksonville, Fia....... 1974 Appointed by Board of Governors: Henry K. Stanford. President, University of Miami, Coral Gables, Fla....... 1972 Henry Cragg. Vice President, The Coca-Cola Company Foods Division, Winter Park, Ha,............... 1973 Gert H. W. Schmidt. . . .President, Television 12 of Jacksonville, Fia.. 1974 NASHVILLE BRANCH Appointed by Federal Reserve Bank: Edward C. Huffman. . . .Chairman of the Board and President, First National Bank, Shelbyville, Tenn. 1972 Dan B. Andrews....... President, First National Bank, Dickson, Term. 1973 Edward G. Nelson...... President, Commerce Union Bunk, Nashville, Tenn. 1973 Thomas C. Mottern. . . .President, Hamilton National Bank of Johnson City, Tenn.............................. 1974 Appointed by Board of Governors: John C. Tune. ........ .Partner. Boiler, Me Hugh, Butler, Tune & Watts. Attorneys. Nashville. Tenn. 1972 James W. Long. ...... .President. Robertson County Farm Bureau, Springfield, Tenn, 1973 Edward J. Baling.......President, University of Tennessee, Knoxvilie, Tenn................................... 1974 294 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.E. BANKS AND BRANCHES—Continued Term expires DIRECTORS—-Continued District 6—ATLANTA—Cont. Dec. 31 NEW ORLEANS BRANCH Appointed by Federal Reserve Bank: H. P. Heidelberg, Jr.... .President, Pascagoula-Moss Point Bank, Pascagouia, 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 Archie R. McDonnell... President, Citizens National Bank, Meridian, Miss................................... 1974 Appointed by Board of Governors: Edwin J. Caplan. ......President, Caplan*s Men's Shops, Inc., Alexandria, La.......................... 1972 Broadus N, Butler,.... .President, Dillard University, New Orleans, La..................................... 1973 Fred Adams, Jr.........President, Cal-Maine Foods, Inc., Jackson, Miss................................... 1974 District 7^ Class A: Edward Byron Smith. . .Chairman of the Board, The Northern Trust Company. Chicago, 111.................... 1972 Melvin C. Lockard... . President, First National Bank, Mattoon, 111... 1973 Floyd,F. Whitmore... .President, The Okey-Vernon National Bank, Coining, Iowa........................... 1974 Class B.- William H. Da¥idsoo . President, Harley-Davidson Motor Co., Inc., Milwaukee, Wis......................... 1972 Howard M. Packard. , .Vice Chairman, S. C. Johnson & Son, Inc., Racine, Wis.. ........................... 1973 John T. Hackett...... . Executive Vice President, Cummins Engine Company, Inc., Columbus, Ind............ 1974 Class C: Emerson G. Higdon.. .Chairrian of the Board, The Maytag Company, Newton, Iowa..................... 1972 John W. Balrd....... . President, Baird & Warner, Inc., Chicago, 111.. 1973 William H. Franklin. .Chairman of the Board, Caterpillar Tractor Co., Peoria, 111.......................... 1974 295 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued Term expires DIRECTORS—Continued District 7—CHICAGO—Cont. Bee, 31 DETROIT BRANCH Appointed hy Federal Reserve Bank: George L. Whyei. .President, Genesee Merchants Bank & Trust Company, Flint, Mich. 1972 Roland A, Mewhort. . . .Chairman, Manufacturers National Bank of Detroit, Mich., . . 1972 Ellis B, Merry,........ .Chairman of the Board, National Bank of Detroit, Mich., 1973 Harold A. Elgas,....... President, Gaylord State Bank, Gaylord, Mich. 1974 Appointed by Board of Governors: W, M. Defoe, .........Chairman of the Board, Defoe Shipbuilding Company, Bay City, Mich..... ....... 1972 L. Wm. Seidman... .... Resident Partner, Seidman & Seidman, Grand Rapids. Mich.. . .. 1973 Peter B. Clark . Chairman of the Board and President, The Evening News Association, Detroit, Mich... 1974 District 8 -ST. LOUIS Class A: Cecil W. Cupp, Jr....... President, Arkansas Bank & Tru*>t Company. Hot Springs, Ark., 1972 Bradford Brett, ........ President, The First National Bank of Mexico, Mo.. . . . . 1973 Edwin S. Jones.........Chairman of the Board* First National Bank in Si. Louts, Mo. J974 Class B: iid\uti\! J. Sehnuck . , . .Chairman of the Board, Sehnuck Markets, Inc., Bridgeton. Mo... , 1972 Fred I. Brown. Jr. , . .President. Arkansas Foundry Company. Little Rock, Ark 1973 James M. Tuhokki ,. .President, Mead Johnson & Company, Evansville, Ind.... 1974 296 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

P.M. BANKS AND Term expires DIRECTORS—Continued District 8- ST. LOUIS -Cunt. Dec, 31 Class C: Sam Cooper....... ...President, HitniKo Products, Division oi Krafreo Corporation. Memphis, h-rm. 1972 Harry M. Young, Jr.. Vieiiose Farms, ilernclon, K\. , . 1973 Frederic M. Pelrce... ..Chairman of the Hoard and Chief Executive Otfieer. General American Life insurance Company, St. Louis, Mo... . .. . , 1974 L11TLF. ROtlK BRANCH Appointed by Federal Reserve Bank: Ellis E. Shelton. ...... .President, The First National Bank of Fayetteville, Ark.. , ...... , 1972 Wayne A. Stone....... .Chairman of the Board and Chief Executive Oflicer, Simmons First National Bank of Pine Bluff. Ark. 1972 Edward M, Penick. .... President and Chief Executive Officer, Wort hen Bank & Trust Company, Little Rock. Ark.. . 1973 Will H. Kelley...... . . President and Chief Executive Officer. The Suite First National Bank of Texarkana, Ark,.... 1974 Appointed hy Board oj Governors: Jake Hartz, Jr.. ........President, Jacob Hart/ Seed Co., Inc.. Stuttgart, Ark.. . . . , 1972 Roland R. Remmel. ,. Chairman of the Board, Southland Building Products Co., Little Rock. Ark. 1973 Al Pollard, ........... President. AI Pollard & Associates. Little Rock, Ark............. ......... ........... 1974 LOU1S¥1LLE BRANCH Appointed by Federal Reserve Bunk : Paul Chase, ......... .President. The Bedford National Bank, Bedford. Ind..... , , 1972 Herbert J. Smith, ..... .President. The American National Bank & Trust Company of Bowling Green, Ky.. . . 1972 Harold E. Jackson..... .President, The Scott County Stale Bank, Scottsburg. Ind......... ,. .. ....... . 1973 Hugh M. Shwab. ......Chairn-an of the Boards, First National Bank of Louisville and The Kentucky Trust Company, Louisville, Ky,..................... 1974 297 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND MRANCMES—Continued Term expires DIRECTORS—Continued District 8—ST. LOUIS—Gont. Dec, 31 LOUISVILLE BRANCH—Continued Appointed by Board of Governors: James H. Davis........ Chairman and Chief Executive Officer, Porter Paint Company, Louisville, Ky............ 1972 William H. Stroube.... .Associate Dean, College of Science and Technology, Western Kentucky University, Bowling Green, Ky........................... 1973 James C. Hendershot. . . President and Chief Operating Officer, Reliance Universal, Inc., Louisviile Ky............. 1974 ? MEMPHIS BRANCH Appointed by Federal Reserve Bank: James R. Fitzhugh...... Executive Vice President, Bank of Ripley, Tene. 1972 Wayne W. Pyeatt.......President, National Bank of Commerce, Memphis, Tenn.............................. 1972 J. J. White. ...........President, Helena National Bank, Helena, Ark. 1973 Garner L. Hickman.... .Chairman and President, The First National Bank of Oxford, Miss.................... 1974 Appointed by Board of Governors: William L. Giles. ......President, Mississippi State University, State College, Miss............................ 1972 Alvin Huffman, Jr...... President, Huffman Brothers Incorporated, Blytheville, Ark.. 1973 C, Whitney Brown,.... .President, S, C. Toof & Company Memphis, f Tenn................................... 1974 District 9—MINNEAPOLIS Class A: John Bosshard., ... Executive Vice President, First National Bank of Banger, Wis.......................... 1972 Philip H. Nason........Chairman of the Board, The First National Bank of Saint Paul, Minn,................ 1973 Roy H. Johnson........President, The First National Bank of NegauEee, Mich,........................... 1974 Class B: David M, Heskett...... President, Montana-Dakota Utilities Co., Bismarck, N.D.......................... 1972 Dale ¥. Andersen. .... .President, Mitchell Packing Company, Inc., Mitchell, S.D............................ 1973 John H. Bailey........ .President, The Cretex Companies, Inc., Elk River, Minn........ ................. 1974 298 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

P.iL BANKS AND BRANCHES—Continued Term expires DIRECTORS—Continued Dis trie t 9- - MINNKA POLLS - - Con I. Dec. 31 Class C: David M, Lilly,..... . .Chairman ot* flit* Board. The Toro Company, Minneapolis. Minn..., 1972 Russ B. Hart. ..... . .President, Hart-Alhin Company, Billings, Moot,... 1973 Bruce B. Dayton, ..... .Chairman of the Board, Dayton Hudson Corporation. Minneapolis, Minn,. . ....... 1974 IiFLEX\ BRANCH Appointed by Federal Reserve Bunk: E. Lowry Kunkel... , . ['resident. First National Bank, Buttc, Mont., . 1972 Robert I. Penner...... President, Citizen^ First National Bank, Wolf Point, Mont..... . . 1972 Richard D. Ruble.. ...President, Missoula Bank of Montana, Missoula, Mont.. ....... 1973 Appointed by Board of Governors: Warren. B. Jones. ..... Secretary-Treasurer, Two Dot Land and Livestock Company. Hariovvton. Mont.. , , . 1972 William A. Cordingles . Publisher, Great Falls Tribune, Great Falls, Mont..... . . . 1973 District 10- KANSAS CITY Class A: Roger D. Knight, Jr.... .Chairman of the Board, United Banks of Colorado. Inc.. Denver, Colo.............. 1972 C. Mose Miller........ Chairman ot* the Board and President, The Farriers and Merchants State Bank, Colby, Kan. 1973 John A. O'Leary...... Chairman of the Board, The Peoples State Bank, Luray, Kan....................... 1974 Class B: Cecil O. Emrich....... .President, C. O. Emrich Enterprises, Norfolk, Ncbr.. 1972 Alfred E. Jordan.,,,. .Vice President, Trans World Airlines, Inc., Kansas City, Mo........................ 1973 Frank C. Love........ .President. Kerr-McGee Corporation, Oklahoma City, Okla......................... 1974 299 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. HANKS AND BRANCHES—CmHhiued Term expires DIRECTORS -Continued District 10- KANSAS CITY-~-Cont, Dec. 31 Class C: Wiliard Deere Hostbrd, Jr................ . .Retired Vice President and General Manager, John Deere Company, Omaha, Nebr.. .... 1972 Robert T. Person,..... .President and Chairman of the Board, Public Service Company of Colorado, Denver, Colo. 1973 Robert W. Wagstatt*. . . .Chairman of the Board and President, Coca- Cola Bottling Company of Mid-America, Kansas City, Mo........................ 1974 DKNVER BRANCH i Appointed by Federal Reserve Bank: Robert L. Tripp....... .President. Albuquerque National Bank. Albuquerque, N. Mex. 1972 Dale E, Hinman. ..... .Chairman of the Board, The Greeley National Bank, Greeley, Colo...................... 1972 John W. Hay, Jr........ President, Rock Springs National Bank, Rock Springs, Wyo............................ 1973 Appointed by Board of Governors: David R. C. Brown.... .President. The Aspen Skiing Corporation, Aspen. Colo..,.. . . . . . . . 1972 Maurice B. Mitchell . , .Chancellor, University of Denver, Colo,...... 1973 OKLAHOMA CITY BRANCH Appointed by Federal Reserve Bank: Marvin Millard. ...... .Chairman of the Board, National Bank of Tulsa. Okla. 1972 Hugh C. Jones Executive Vice President, The Bank of Woodward, Okla..... 1972 W. H. McDonald. .... .Chairman of the Executive Committee, The First National Bank and Trust Company of Oklahoma City, Okla..................... 1973 Appointed by Board of Governors: Florin W. Zaloudek... .Manager, j. I. Case Implements, Kremlin, Okia. 1972 Joseph H. Williams. ... .President and Chief Operating Officer, The Williams Companies, Tulsa, Okla.......... 1973 300 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued Term expires DIRECTORS—Continued District li—KANSAS CITY—Gont. Dec, 31 OMAHA BRANCH Appointed by Federal Reserve Bank : Edward W. Lyman. . . . .President, The United States National Bank of Omaha, Nebr. 1972 S. N. Wolbach . . . President. The First National Bank of Grand island, Nebr, 1973 Glenn Yaussi., ..Chairman of the Board, National Bank of Commerce Trust & Savings, Lincoln, Nebr... 1973 Appointed by Board of Governors: Henry Y. Kleinkauf. . . . President, Natkin & Company, Omaha, Nebr.. 1972 A. James Ebel. ........Vice President and General Manager, Cornhysker Television Corporation, Lincoln, Nebr................................... 1973 District li^-DALLAS Class J.- Murray Kyger. ....... .Chairman of the Executive Committee, The First National Bank of Fort Worth, Tex... . 1972 J. V. Kelly.............President. The Peoples National Bank of Belton, Tex.. ......................... . 1973 A. W. Riter, Jr......... .President, The Peoples National Bank of Tyler, Tex.. .................................. 1974 Class B: C. A. Tatum, Jr........Chairman of the Board and Chief Executive Officer, Texas Utilities Company, Dallas, Tex. .. ..... 1972 Carl D. Newton....... Chairman of the Board, Fox-Stanley Photo Products, Inc., San Antonio, Tex.......... 1973 Hugh F, Steen. ....... .President, Ei Paso Natural Gas Company, El Paso, Tex............................ 1974 Class C; Philip G. Hoffman...... President, University of Houston, Tex,....... 1972 John Lawrence.........Chairman of the Board, Dresser Industries, Inc., Dallas, Tex....,,,... 1973 Chas. F. Jones. ....... .Dean, College of Business Administration, University of Houston, Tex............... 1974 301 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued Term expires DIRECTORS—Continued District il—DALLAS—Cont. Dec, 31 EL PASO BRANCH Appointed by Federal Reserve Batik : Archie B. Scott. .President. The Security State Bank of Pecos, Tex,. 1972 Sam D. Young, Jr..... .President, El Paso National Bank, El Paso, Tex.. . . . . . . 1972 Cuilen J. Kelly .. . . President, The First National Bank of Midland, Tex.. .................................. 1973 Wayne Stewart........ .President, first National Bank in Aiamagordo, N. Mex...... ........................... 1974 Appointed by Board of Governors: 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 Gage Holland..........Owner, Gage Holland Ranch, Marathon, Tex.. 1974 HOUSTON BRANCH Appointed by Federal Reserve Bank: W. G. Thornell. ...... .Chairman of the Board and President, The First National Bank of Port Arthur, Tex.. . . 1972 John E. Whitmore..... .Chairman of the Board and Chief Executive Officer, Texas Commerce Bank National Association. Houston, Tex. .............. 1972 Kline McGee. .........Chairman of the Board, Southern National Bank of Houston, Tex.. 1973 Seth W. Dorbandt..... .Chairman of the Board and President, First National Bank In Conroe, Tex.. 1974 Appointed by Board of Governors: Geo, T. Morse. Jr...... .Vice Chairman of the Board and Chief Operating Officer, Peden Industries, Inc., Houston, Tex. 1972 M. Steel Wright, Jr.... .Chairman of the Board, Texas Farm Products Company, Nacogdoches. Tex.. 1973 R. M. Buckley......... President and Director, Eastex Incorporated, SiLbee, Tex............................. 1974 302 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continueii Term expires DIRECTORS—Continued District 11—DALLAS-Cont. Dec. 31 SAX ANTONIO BRANCH Appointed by Federal Reserve Bank: Tom C, Frost, Jr.. ... .Chairman of the Board. The Frost National Batik of San Antonio, Tex,........ 1972 W. O. Roberson........ President, First National Bank at Brownsville, Tex.. ... . . . . . . 1972 Eay M. Keck, Jr....... .Chairman of the Board and President, Union National Bank of Laredo. Tex.. ..... 1973 Leon Stone............ President, The Austin National Bank, Austin, Tex,. ............ ..................... 1974 Appointed by Board of Governors: W. A. Belcher......... .Veterinarian and rancher, Corazon Ranch, Brackettviile, Tex. 1972 Irving A. Mathews, . . . .Chairman of the Board and Chief Executive Officer. Fro^t Bros., Inc., San Antonio, Tex.. 1973 Marshall Boykin, III... .Partner, Wood, Boykin & Wolter, Corpus Christi, Tex. 1974 District 12 -SAN FRANCISCO Class A: Carroll F. Byrd........Chairman of the Board and President, The First National Bank of Willows, Calif,.... . . 1972 Ralph J. Voss......... .President, First National Bank of Oregon, Portland, Orcg. 1973 Carl E. Schroeder. .... .President, The First National Bank of Orange County, Orange, Calif........ . ,. .... 1974 Class J.- Joseph Rosenblatt..... .Honorary Chairman of* the Board, The Eimco Corporation, Salt Lake City, Utah........ 1972 Matron Kendrick. ..... President and Chairman of the Board, Schlage Lock Company, San Francisco, Calif....... 1973 Charles R. Dahl........ President Crown Zellerbaeh, San Francisco, Calif..................... .............. 1974 303 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

P.M. BANKS AND BRANCHES—Continued Term expires Continued District 12^-SAN FRANCISCO—Cont. Dec, 31 Class C: S. Alfred Halgren...... Senior ¥ice President, Carnation Company, Los Angeles, Calif....................... 1972 O. Meredith Wilson.... President and Director, Center for Advanced Study in the Behavioral Sciences, Stanford, Calif................................... 1973 Mas Oji...............President, Oji Bros. Farm, Inc., Yuba City, Calif................................... 1974 LOS ANGELES BRANCH Appointed by Federal Reserve Bank: W. Gordon Ferguson. .. President, National Bank of Whittier, Calif.... 1972 Linus E. Southwick..... President, ¥alley National Bank, Glendale, Calif................................... 1973 Carl E. Hartnack....... President^ Security Pacilc National Bank, Los Angeles, Calif........................... 1973 Rayburn S. Dezember... Chairman of the Board and President, American National Bank, Bakersleld, Calif...... 1974 Appointed by Board of Governors; Leland D. Pratt........President, Kelco Company, San Diego, Calif.., 1972 Edward A. Sloan.......President, Sloan's Dry Cleaners, Los Angeles, Calif................................... 1973 Ruth Handler..........President, Mattel, Inc., Hawthorne, Calif,... 1974 PORTLAND BRANCH Appointed by Federal Reserve Bank: James H. Stanard...... Vice President, First National Bank of McMinnville, Greg,,..................... 1972 Frank L. Servoss.......President, Crater National Bank of Medford, Oreg................................... 1972 LeRoy B. Staver....... Chairman of the Board and Chief Executive Officer, United States National Bank of Oregon, Portland, Oreg...................... 1973 Appointed by Board of Governors: John R. Howard....... President, Lewis and Clark College, Portland, Oreg. 1972 Frank Anderson........Farmer, Heppner, Oreg.................... 1973 304 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued Term expires DIRECTORS—Continued District 12—SAN FRANCISCO—Cont. Dec, 31 SALT LAKE CITY BRANCH Appointed by Federal Reserve Bank: Roderick H. Browning , President, Bank of Utah, Ogcien. Utah. 1972 Roy W. Simmons. . . , , , President, Zions First National Bank, Salt Lake City, Utah... .... , . .... ........ ..... 1972 Joseph Bianco. ........Chairman of the Board and President, Bank of Idaho, Boise, Idaho . . . 1973 Appointed by Board of Governors: i Vacancy) . . . . . . 1972 TheodoreC. Jacobsen. . .Chairman of the Board, Jaeobsen Construction Company, Inc.. Salt Lake City, Utah.. 1973 SEATTLE BRANCH Appointed by Federal Reserve Bank: 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 Joseph C. Baillargeon. . .Chairman of the Board and Chief Executive Officer, Seattle Trust & Savings Bank, Seattle, Wash....... ... 1973 Appointed by Board of Governors: C. Henry Bacon, Jr.... .Vice Chairman of the Board, Simpson Timber Company, Seattle, Wash.................. 1972 Thomas T. Hiral. ......President, Quality Growers Company, Inc., Woodinville, Wash....................... 1973 305 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued PRESIDENTS AND VICE PRESIDENTS (December 31,1972) 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 Norman T. Byrnes Foster K. Cummings R. W. Eisenmenger Luther M. Hoyle, Jr. Niels O. Larsen Donald A. Pelletier Richard E. Randall Laurence H. Stone J. M. Thayer, Jr. James T. Timberlake Richard A. Walker New York... Alfred Hayes David E. Bodner W. H. Braun, Jr. William F. Treiber Charles A. Coombs Richard A. Debs Peter Fousek Edward G. Guy Alan R. Holmes John T. Keane Leonard Lapidus 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 M. Case Thomas K. Desch William A. James Joseph R. Joyce A. A. Kudelich G. William Metz L. C. Murdoch, Jr. William E. Roman Kenneth M. Snader Robert R. Swander Cleveland ... Willis J. Winn John E. Birky George E. Booth, Jr. W. H. MacDonald Paul Breidenbach Roger R. Clouse Elmer F. Fricek R. Joseph Ginnane W. H. Hendricks William J. Hocter John J. Hoy Harry W. Huning Frederick S. Kelly R. Thomas King Robert E. Showalter Donald G. Vincel Cincinnati Robert D. Duggan Fred O. Kiel Pittsburgh James H. Campbell Charles E. Houpt Richmond. .. Aubrey N. Heflin L. W. Bostian, Jr. W. T. Cunningham, Jr. Robert P. Black John G. Deitrick Welford S. Farmer H. Ernest Ford William C. Glover A. V. Myers, Jr. John L. Nosker James Parthemos C. D. Porter, Jr. John F. Rand R. E. Sanders, Jr. Aubrey N. Snellings Andrew L. Tilton William F. Upshaw 306 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued PRESIDENTS AND VICE PRESIDENTS—Continued Federal Reserve President Bank First Vice President Vice Presidents or branch Richmond— Cont. Baltimore H. Lee Boatwright, III A. A. Stewart, Jr. Gerald L. Wilson Charlotte Stuart P. Fishburne Jimmie R. Monhollon Culpeper1 J. Gordon Dickerson, Jr. Albert D. Tinkelenberg Atlanta Monroe Kimbrel Harry Brandt Robert P. Forrestal Kyle K. Fossum Billy H. Hargett Robert E. Heck Arthur H. Kantner J. E. McCorvey Brown R. Rawlings Richard A. Sanders Charles T. Taylor Pierre M. Viguerie Birmingham Dan L. Hendley Jacksonville Edward C. Rainey Miami1 W. M. Davis Nashville Jeffrey J. Wells New Orleans George C. Guynn Chicago Robert P. Mayo Carl E. Bierbauer George W. Cloos Ernest T. Baughman LeRoy A. Davis R. W. Dybeck Elbert O. Fults V. A. Hansen Edward A. Heath Ward J. Larson R. A. Moffatt J. R. Morrison R. M. Scheider Karl A. Scheld Harry S. Schultz Bruce L. Smyth 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 Little Rock John F. Breen 1 Not considered a branch. 307 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued PRESIDENTS AND VICE PRESIDENTS—Continued Federal Reserve President Bank First Vice President Vice Presidents or branch St. Louis— Cont. Louisville Donald L. Henry Memphis L. Terry Britt Minneapolis . Bruce K. MacLaury Frederick J. Cramer Ralph J. Dreitzler M. H. Strothman, Jr. L. W. Fernelius Lester G. Gable Thomas E. Gainor 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 H. R. Czerwinski John T. Boysen Thomas E. Davis Raymond J. Doll Joseph R. Euans Roger Guffey J. David Hamilton Wayne W. Martin M. L. Mothersead Robert E. Thomas Denver George C. Rankin Oklahoma City William G. Evans Omaha Robert D. Hamilton Dallas Philip E. Coldwell Robert H. Boykin Leon W. Cowan T. W. Plant Ralph T. Green Larry D. Higgins James A. Parker W. M. Pritchett T. J. Salvaggio T. R. Sullivan E. W. Vorlop El Paso Frederic W. Reed Houston James L. Cauthen Rasco R. Story San Antonio Carl H. Moore San Francisco.. John J. Balles A. S. Carella J. H. Craven A. B. Merritt D. M. Davenport W. H. Hutchins H. B. Jamison G. R. Kelly D. V. Masten Rix Maurer, Jr. Louis E. Reilly R. G. Retallick Kent O. Sims J. B. Williams T AO .LOS P. W. Cavan Angeles W. G. DeVries Portland W. M. Brown Salt Lake City A. L. Price Seattle W. R. Sandstrom 308 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

F.R. BANKS AND BRANCHES—Continued 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 a meeting on February 9, 1971, the Conference elected Mr. Francis (President of the Federal Reserve Bank of St. Louis) and Mr. Kimbrel (President of the Federal Reserve Bank of Atlanta) Chairman and Vice Chairman, respectively, for the remainder of 1971 and for the forthcoming Conference year, ending with the March 1972 meeting. At the meeting on March 20, 1972, Mr. Kimbrel and Mr. Coldwell (President of the Federal Reserve Bank of Dallas) were elected Chairman and Vice Chairman, respectively, for the remainder of 1972 and for the forthcoming Conference year, ending with the March 1973 meeting. At the February and March 1971 meetings, Mr. Joseph P. Garbarini (Federal Reserve Bank of St. Louis) and Mr. H. Terry Smith (Federal Reserve Bank of Atlanta) were appointed Secretary and Assistant Secretary, respectively. Mr. H. Terry Smith and Mr. Robert Smith, III (Federal Reserve Bank of Dallas) were appointed Secretary and Assistant Secretary, respectively, at the March 1972 meeting. CONFERENCE OF FIRST VICE PRESIDENTS The Conference of First Vice Presidents of the Federal Reserve Banks was organized in 1969 to meet from time to time, primarily for the consideration of operational matters. 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, respectively, 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. On May 2, 1972, the Conference elected Mr. Fossum as Chairman and Mr. Plant (First Vice President of the Federal Reserve Bank of Dallas) as Vice Chairman, and appointed Mr. H. Terry Smith and Mr. Robert Smith III, as Secretary and Assistant Secretary, respectively, for the forthcoming Conference year. 309 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index Page Acceptances, bankers': Authority to purchase and enter into repurchase agreements 107 Federal Reserve Bank holdings 217, 218, 228, 230, 232 Federal Reserve earnings 217, 218, 238 Open market transactions during 1972 236 Repurchase agreements 107, 120, 127, 135, 228, 230, 232, 236 Assets and liabilities: Banks, by classes 249 Board of Governors 222 Federal Reserve Banks 228-33 Balance of payments (See U.S. balance of payments) Bank Examination Schools 214 Bank examiners, loans to, legislative recommendation 200 Bank holding companies: Board and Reserve Bank actions with respect to 211 Delegation by Board of certain authority to Federal Reserve Banks regarding, amendment of rules 67, 90 Foreign credit restraint program guidelines, amendments relating to 71, 93, 20(M)3 Legislative recommendation 199 Litigation 203-06 Regulation Y: Amendments 68, 76, 96 Interpretations 69, 72, 75, 77, 81, 84, 85 Bank mergers and consolidations 210, 214, 258-79 Bank premises, Federal Reserve Banks and branches .220, 228, 230, 232, 237 Bank supervision and regulation by Federal Reserve System 207-15 Banking offices: Number, changes 254 Par and nonpar, number 256 Board of Governors: Audit of accounts 221 Delegation of certain authority: Actions under 211, 214 Amendment of rules 67, 90 Foreign credit restraint program 71, 93, 95, 191-94 Income and expenses 221-25 Legislative recommendations 195-202 Litigation 203-06 310 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Board of Governors—Continued Members and officers ......................................... 282 Policy actions ..............................................67-103 Regulations (See Regulations) Report to Congress ........................................... 215 Salaries ..................................................... 223 Truth in Lending (Sec Truth in Lending) Branch banks: Banks, by classes, changes in number ........................... 254 Federal Reserve: Bank premises .......................................... 220, 237 Branch buildings, legislative recommendation ................... 198 Directors ...............................................287^305 Vice Presidents in charge .................................. 306-08 Foreign branches of member banks, number and location ....... .212, 213 Capital accounts: Banks, by classes ............................................ 249 Federal Reserve Banks ............................... .229, 231, 233 Chairmen and Deputy Chairmen of Federal Reserve Banks ........... 286 Clearing and collection: Payments mechanism, guidelines for improving, and developments . .70, 218 Regulation J, amendment, and litigation ....................... .78, 206 Volume of operations ...................................... 217, 242 Commercial banks: Assets and liabilities .......................................... 249 Banking offices, changes in number ............................. 254 Foreign credit restraint program ................... .71, 93, 95, 191-94 Number, by class of bank ..................................... 249 Reserve requirements against demand deposits, legislative recommendation ........................................... 195 Condition statement of Federal Reserve Banks ....................228-33 Credit (Sec also Loans); Bank holding companies, extension by, amendment of Regulation Y , , 96 Federal Reserve Banks, lending authority ...................... .89, 197 Stock market credit (See Stock market credit) Truth in Lending (Sec Truth in Lending) Defense production loans .....................................219, 248 Demands for goods and services .................................. 15-24 Deposits: Banks, by classes ............................................ 249 Federal Reserve Banks ........................229, 231, 233, 251, 253 311 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Deposits—Continued Reserve requirements (See Reserve requirements) Time and savings, maximum permissible interest rates, table ........ 246 Deputy Chairmen of Federal Reserve Banks ........................ 286 Directors, Federal Reserve Banks and branches .................. .287-305 Discount rates at Federal Reserve Banks (See Interest rates) Discounts and advances by Federal Reserve Banks (See Loans) Dividends, Federal Reserve Banks ........................ ,216, 239, 240 Earnings, Federal Reserve Banks ..........................216, 238, 240 Examinations: Federal Reserve Banks ....................................... 216 Foreign banking and financing corporations ...................... 213 Member banks .............................................. 207 State member banks .......................................... 207 Executive officers of member banks, loans to, reporting requirements . .. 209 Expenses: Board of Governors ......................................... 221-25 Federal Reserve Banks ............................... .216, 238, 240 Federal Advisory Council ....................................... 285 Federal agency obligations: Federal Reserve Bank holdings and earnings . ,217, 218, 228, 230, 232, 234 Guidelines for operations in, revisions ........................ 128, 140 Open market transactions of Federal Reserve System during 1972 . . . . 236 Repurchase agreements .....107, 120, 127, 135, 228, 230, 232, 235, 236 Federal fiscal policy ............................................ 37-40 Federal Open Market Committee: Audit of System Account ...................................... 216 Continuing authorizations, review ............................... 136 Foreign currencies, review of operations ......................... 189 Meetings ................................................. 105, 284 Members and officers ......................................... 284 Policy actions .............................................. 105-88 Federal Reserve Agents ......................................... 286 Federal Reserve Banks: Assessment for expenses of Board of Governors .............. .223, 238 Bank premises ............................... 220, 228, 230, 232, 237 Branches (See Branch banks) Capital accounts ..................................... .229, 231, 233 Chairmen and Deputy Chairmen ............................... 286 Check clearing and collection, amendment of Regulation J and litigation ............................................ 78, 206 Condition statement ........................................ 228-33 312 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Federal Reserve Banks—Continued Delegation by Board of certain authority to ........... .67, 90, 211, 214 Directors .,'......................!.. ...... ............ .287-305 Discount rale* { S\\ Interest raic>> Dividends ........................ ...................216, 239, 240 Fnrnings and expenses ..... ..........................216, 238, 240 Lxamination ............ ............................... ... 216 Foreign and international accounts ....... , , , . . ............... 219 I,ending authority: Extension of credit to nonmember Kinks ............... ....... 89 Legislative recommendation ................................. 197 Officers and employee*, number and salarks ...................... 242 Payments mechanism, guidelines for improving, and developments . .70, 218 Presidents and Vice Presidents . .............................. 306—08 Profit and loss .............................................. 239 Purchase of foreign govt. obligations, legislative recommendation .... 200 U.S. Govt. securities (See U.S. Govt. securities) Volume of operations .............. ..................... ,217, 242 Federal Reserve notes: Condition statement data .................................... .228—33 Cost of printing, issue, and rede nipt Ion .......................... 223 Interest paid to Treasury .............................. 2 i 7, 239, 240 Federal Reserve S\slew: Rank Fxamination Schools ......... ....... ........... , . . . 214 Bank supers ision and regulation by . ......................... ,207-15 Foieiiin ciedit restraint ... ........... .......... 71, *>3, *>5, 191-94 Foreign jnrrenc> operations (See Foreign currency operations) Map of Federal Reserve districts .... ..... ............... . . . 280 Membeiship .............. .................... ............ 209 Payments mechanism, guide lines for improving, and developments . .70, 218 Financial markets and moneian- poiicv ....... . . . . . . ........... ,41-57 H\cai policy. Federal .......... ............................. . . 37-40 Fi'jreiiiii and internalit>nal accounts ot Fedcir*! Reserve Banks ........ 219 t-'orewn banking anti liiLtnciiig corpt»raiit)us, examination and operation , 2H Foreign branches of member hanks, number ant? location ,.,.... . .212, 213 Foreign credit restraint program ..................... .71, 93, 95, 191-94 Y'oreigfi cur^nc^' operations: Authorization and directive ........ ................ 106. If)1)-14, 136 Federal Reserve earnings on foreign eurreueies .......... ........ 238 irwestmenl of Reserve Banks1 fnrcii:n current if- in foieigu govt. obligations, legislative recommend.itiv>n , . , .................... 200 Mc\ icvv ...... ..... ...... .......................... .... 189 313 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Gold: Tables showing gold certificate accounts of KeserYe Banks and gold stock .......................228, 230, 231, 232, 233, 250, 252 Insured commercial banks: Assets and liabilities .......................................... 249 Banking offices, changes in number ............................. 254 Interest rates: Defense production loans ...................................... 248 Federal Reserve Banks: Decisions for year 1972 .................................... 97-103 Increases, disapprovals .................................... 101-03 Reductions, disapprovals .................................... 100 Table .................................................... 243 Maximum permissible rates on time and savings deposits, table ...... 246 Interlocking bank relationships, legislative recommendation ........... 201 Interpretations, Board of Governors: Bank holding companies: Activities closely related to banking ...................... .69, 75, 85 Activities not closely related to banking ................72, 77, 81, 84 Investments: Banks: By classes ................................................. 249 For community development, legislative recommendation ........ 201 Federal Reserve Banks ................................228, 230, 232 Labor costs—-wages and prices .................................. 29-35 Legislative recommendations: Bank holding companies ...................................... 199 Bank investments for community development .................... 201 Federal Reserve Banks: Branch buildings ........................................... 198 Lending authority .......................................... 197 Purchase of foreign govt. obligations .......................... 200 Interlocking bank relationships ................................. 201 Loaes to bank examiners ...................................... 200 Reserve requirements ......................................... 195 Litigation: Bank holding companies: Antitrust actions ........................................... 203 Review of Board's actions ................................... 204, Regulation J ................................................ 206 314 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Loans (See alsi> Credit): Bank examiners, legislative recommendation ..................... 200 Banks, by classes ............................................. 249 Defense production loans ................................. .219, 248 Executive officers of member bunks, reporting requirements ......... 209 Federal Reserve Banks: Holdings and earnings .............................. .217, 218, 238 Interest rates .............................................. 243 Lending authority ........................................ 89, 197 Volume ..................... .217, 218, 228, 230, 232, 242, 250, 252 Stock market credit (See Stock market credit) Manpower ....................................................25—27 Margin requirements: Securities credit transactions: Exemption of certain credit extended to block positioners and third-market makers, amendment of Regulation U ......... 88 Over-the-counter margin stocks, criteria for continued listing, amendment of Regulations G, T, and U ..................... 72 Stocks, increase, amendment of Regulations G, T. and U ........ 94 Technical amendment of Regulations Ci, T. and U .............. 32 Table ...................................................... 247 Member banks (See also National banks): Assets, liabilities, and capital accounts .......................... 249 Banking offices, changes in number .............................. 254 Borrowing from Reserve Bunks, legislative recommendation ......... 197 Examination ................................................ 207 Executive officers, loans to, reporting requirements ................. 209 Foreign branches, number and location ...................... .212, 213 Interlocking relationships, legislative recommendation .............. 201 Number ................................................. 2(W, 249 Reserve requirements {See Reserve requirements) Reserves and related items ..................................... 250 State member bunks (Sec Stale member banks) Membership in Federal Reserve System ............................ 209 Mergers and consolidations ........................... .210, 214, 258-79 Monetary policy, review of 1972 .................................. 3—64 Monetary policy and financial markets ............................. 41—57 Mutual savings banks ........................................ 249, 254 National banks: Assets and liabilities .......................................... 249 Banking offices, changes in number ............................. 254 315 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page National banks—Continued Foreign branches, number ..................................... 213 investments for community development, legislative recommendation . 201 Number ................................................. .209, 249 Nonniember banks: Assets and liabilities .......................................... 249 Banking offices, changes in number ............................. 254 Federal Reserve Bank credit, extension to, in certain instances ,.,.,. 89 Reserve requirements against demand deposits, legislative recommendatloE ........................................... 195 Over-the-counter securities (Sec Stock market credit) Par and nonpar banking offices, number ........................... 256 Payments mechanism, guidelines for Improving, and developments . .,70, 218 Policy actions: Board of Governors: Discount rates at Federal Reserve Banks: Decisions for year 1972 ................................. .97-103 Increases, disapprovals ................................... 101-03 Reductions, disapprovals .................................. 100 Federal Reserve Bank credit, extension to nonmember banks in certain Instances ....................................... 89 Foreign credit restraint program guidelines, amendments . ... .71, 93, 95 Payments mechanism, guidelines for improving ................ 70 Regulations (for details of Board's actions, see Regulations, Board of Governors) Federal Open Market Committee: Authority to effect transactions in System Account, including current economic policy directive ...106-14, 115, 122, 130, 138, 141, 146, 151, 157, 162, 167, 173. 178, 184 Continuing authority directive on domestic operations . ., .106, 120, 127, 128, 134, 136, 138, 140 Continuing authorizations, review ............................ 136 Foreign currency operations, authorization and directive ...................................... 106, 109-14, 136 Presidents and Vice Presidents of Federal Reserve Banks: Conference of Presidents and Conference of First Vice Presidents .... 309 List ....................................................... 306-08 Salaries of Presidents ......................................... 242 Prices—wages and labor costs .................................... 29—35 Profit and loss, Federal Reserve Banks ............................ 239 316 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Meal estate, loans to bank examiners, legislative recommendation ...... 200 Record of policy actions (See Policy actions) Regulations, Board of Governors: D, Reserves of Member Banks: Amendments to apply same requirements to- banks of like size .... 78 Delegation of authority, amendment of rules ..................... 67, 90 G, Securities Credit by Persons Other Than Banks, Brokers, or Dealers: Over-the-counter margin stocks, criteria for continued listing, amendments ............................................. 72 Stocks, increase in certain margin requirements, amendment ....... 94 Technical amendments ...................................... 82 J, Collection of Checks and Other Items by Federal ReserYe Banks: Amendments to require banks to pay for their checks same day presented for payment by Federal Reserve .................. 78 Litigation ................................................. 206 T, Credit by Brokers and Dealers: Mutual fund shares and insurance, credit for combined acquisition, amendment ............................................. 83 Over-the-counter margin stocks, criteria for continued listing, amendments ............................................. 72 Reporting requirements, new, for exchange specialists, amendment ............................................. 88 Stocks, increase in certain margin requirements, amendment ...... 94 Technical amendments ...................................... 82 U, Credit by Banks for the Purpose of Purchasing or Carrying Margin Stocks: Exemption from margin requirements of certain credit extended to block positioners and third-market makers, amendments ...... 88 Over-the-counter margin stocks, criteria for continued listing, amendments ............................................. 72 Stocks, increase in certain margin requirements, amendment ....... 94 Technical amendments ...................................... 82 Y, Bank Holding Companies: Nonbanking activities: Activities not closely related to banking, interpretations .72, 77, 81, 84 Insurance agency activities, interpretation ,.......,....,....,, 85 Investment advisory activity permitted; Amendments .......................................... 68, 76 Interpretation ......................................... 69 Investments in projects designed primarily to promote community welfare, interpretation ........................ 75 Underwriting credit life and credit accident and health insurance directly related to extensions of credit, amendment ., 96 317 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Regulations, Board of Governors—Continued Z, Truth In Lending: Amendments .............................................. 91, 92 Repurchase agreements: Bankers' acceptances ................ 107, 120, 127, 228 230, 232, 236 ? Federal agency obligations .................... 120, 127, 135, 228, 230, 232, 235, 236 U.S. Govt. securities ....... 107, 120, 127, 135, 228, 230, 232, 235, 236, 250, 252 Reserve requirements: Legislative recommendation .................................... 195 Member banks: Regulatory changes, amendment of Regulation D ................ 78 Table .................................................... 244 Reserves, member banks: Reserve requirements (See Reserve requirements) Reserves and related Items .................................... 250 Salaries: Board of Governors .......................................... 223 Federal Reserve Banks ........................................ 242 Savings bond meeting ........................................... 217 Securities (See specific types of securities) Special Drawing Rights ....................... .228, 230, 232 250, 252 ? State member banks: Assets and liabilities ......................................... 249 Banking offices, changes In number .............................. 254 Changes in control, reporting requirements ....................... 208 Examination ................................................ 207 Foreign branches, number ..................................... 213 Investments for community development, legislative recommendation ........................................... 201 Mergers and consolidations ......................... ,210, 214, 258-79 Number ..................................................209, 249 Stock market credit: Margin requirements: Exemption of certain credit extended to block positioners and third-market makers, amendment of Regulation U ............. 88 Increase In certain requirements, amendment of Regulations G, T, and U .. ........................ ^............. 94 Technical amendment of Regulations G, T, and U ............... 82 Mutual fund shares and insurance, credit for combined acquisition, amendment of Retaliation T ................................. 83 318 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX Page Stock market credit—Continued Over-the-counter margin stocks, criteria for continued listing, amendment of Regulations G. T, and U ....................... 72 Reporting requirements, new, for exchange specialists, amendment of Regulation T ............................................ 88 System Open Market Account: Audit ................................... .................. 216 Authority to effect transactions in ...... 106-14, 115, 122, 130, 138, 141, 146, 151, 157, 162. 167, 173, 178, 184 Foreign currencies, review of operations ......................... 189 Training activities .............................................. 214 Troth in Lending: Regulation 2, amendments ................................... .91. 92 Report to Congress ........................................... 215 U.S. balance of payments: Foreign credit restraint program ................... .71. 93, c>5, 191-94 Review ..................................................... 59-64 U.S. Govt. securities: Bank holdings, by class of bank ................................ 249 Federal Reserve Bank earnings ........................ .217, 218, 238 Federal Reserve Bank holdings ...217, 218, 228, 230, 232, 234, 250, 252 Open market operations ................................. 105-88, 236 Repurchase agreements ......... 107, 120. 127, 135, 228, 230, 232, 235, 236, 250, 252 Special certificates purchased directly from United States ........... 235 U.S. Govt. agency obligations (Sec Federal agency obligations) V loans (Sec Defense production loans) Voluntary foreign credit restrain! program ............. 71, 93, 95, 191-94 Wages, labor costs, and prices ................................... 29-35 319 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis