Federal Reserve Bulletin April 1917

FEDERAL RESERVEBULLETIN

ISSUED BY THE

FEDERAL RESERVE BOARDAT WASHINGTON

APRIL, 1917

WASHINGTON

GOVERNMENT FEINTING OFFICE

1917

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

FEDERAL RESERVE BOARD.

EX OFFICIO MEMBERS. ' W. P. G. HARDING, Governor.

WILLIAM G. MGADOO, P A U L M * W A R B U R G > Vice Governor.Secretary of the Treasury, FEEDERIC A DELANO.

Chairman. ADOLPH 0 MILLER.

JOHN SKELTON WILLIAMS, C H A E L E S S ' H A M L I N '

Comptroller of the Currency. _ „ ^T o

H. PARKER WILLIS, Secretary.

SHERMAN ALLEN, ^ssisfan^ Secretary and FiscalAgent.

M. C. ELLIOTT, Counsel.


SUBSCRIPTION PRICE OF BULLETIN.

The Federal Reserve Bulletin is distributed without chargeto member banks of the system and to the officers and directorsof Federal Reserve Banks. In sending the Bulletin to others theBoard feels that a subscription should be required. It hasaccordingly fixed a subscription price of $2 per annum. Singlecopies will be sold at 20 cents. Foreign postage should be addedwhen it will be required. Remittances should be made to theFederal Reserve Board. Member banks desiring to have theBulletin supplied to their officers and directors may have it sentto not less than ten names at a subscription price of $1 per annum.

No complete sets of the Bulletin for 1915 are available.Bound copies of the Bulletin for 1916 may be had at $5 per copy.

01


TABLE OF CONTENTS.

Page.

Review of the month 235Investments in foreign loans 239Treasury certificates of indebtedness 240Purchase of United States bonds 240"Hevision of discount-rate schedule 241Shipment of unfit Federal Reserve notes 242Conference on trade acceptances 243The revenue act 248Argument of counsel before Supreme Court in fiduciary case 254New national-bank charters 266Fiduciary powers granted 267Commercial failures during February 267Operation of the clearing system .» 268Gold settlement fund 268Uniform accounting by hank borrowers 270Informal rulings of the Federal Reserve Board 285Law department 289Business conditions throughout the Federal Reserve districts 293Discount operations of the Federal Reserve Banks 316Acceptances 319Resources and liabilities of the Federal Reserve Banks 322Federal Reserve note accounts of Federal Reserve Banks and agents 324Earnings on investments of Federal Reserve Banks 326Discount rates in efleet 327Gold imports and exports 327Foreign exchange rates 328Gold reserves and note circulation of principal European banks 329

Charts showing 332

IV


FEDERAL RESERVE BULLETINVOL. 3 APRIL 1, 1917. No. 4

REVIEW OF THE MONTH.

Congress adjourned on March 4 without hav-inp taken any action on the

Proposed legis- a m e n d m o n t a " t o t h e F e d e r a llation i i i T

Kcserve Act which had boonrecommended by the Board and had been ap-proved with modifications and reported by theCommittees on Banking and Currency of thetwo Houses. In neither House was there de-bate on the subject matter of the amendments.The failure to bring them to a vote was due tothe congestion of business and the differingviews of opposing groups as to the measureswhich should be given precedence during thelast days of the short session. The Presidenthas, however, summoned the new session ofCongress to meet on April 2, and it has beenagreed to make a fresh recommendation atthat time in the expectation that Congress willresume consideration of the subject and takeaction with respect to the proposed legislation.The desirability of placing the member banksas soon as possible upon their final reservebasis has become increasingly evident, whilethe urgency of the need for the changesin the act has become more and more ob-vious, due to the further development of in-ternational difficulties and the expectation thatdomestic financial and banking problems grow-ing out of them will necessarily have to be pro-vided for. Other considerations due to thenecessities which would in any event havemanifested themselves have likewise becomemore and more urgent. Particularly is thistrue of the collection situation. Experience ismaking it plainer from day to day that the ex-tension of the system upon equitable terms soas to include more of the State banks and trust

companies of the country will be facilitated hvthe adoption of the proposed legislation author-izing such State institutions to maintain bal-ances with Federal Reserve Banks. It is con-fidently expected that discussion and actionupon the amendments proposed by the Boardwill take place at an early date in the newsession of Congress.

It has been thought wise to bring about ageneral revision and standard-

of disacountlrates! i z a t i o n o f discount rates inview of the increase in the num-

ber and complexity of the rates previouslyestablished, and accordingly the matter hasbeen taken up with the various Federal Re-serve Banks, and a new schedule developed.This schedule is as follows:

1. Paper maturing within 15 days, includingcollateral notes.

2. Paper maturing within 16 to 60 days.3. Paper maturing within 61 to 90 days.4. Trade acceptances maturing within 60

days.5. Trade acceptances maturing within 90

days.6. Bankers' acceptances maturing within 90

days.7. Commodity paper maturing within 90

days.8. Agricultural paper maturing within 90 to

180 days.It will be observed that whereas, under con-

ditions existing on March 1, there were thirteenclassifications of paper of various kinds andmaturities, the number is now reduced to eight.Minor changes have been made in the periodsfor which paper runs, but no general or far-reaching alterations of policy have been intro-

235


236 FEDEKAL RESERVE BULLETIN. APRIL 1, 1917.

duced. The rates applied to paper at the vari-ous banks are substantially the same as thosepreviously charged for paper of the same varie-ties and maturities. Only in the case of bank-ers7 acceptances has there been a change, the"spread" within which bankers' acceptancesmay be taken having been changed from 2-4per cent to 2-J-4 per cent. This, however, isnot an increase in effect, inasmuch as the pro-vailing rate for bankers' acceptances is nowabout 3 per cent. Practically all of the FederalReserve Banks have either adopted or willshortly adopt the new schedule of rates, andthe result will be a much more complete andthorough standardization than has existed inthe past. The rates themselves are likewisetending more strongly toward a uniform basis.

On March 8 the Federal Reserve Board gaveto the press for publication on

Foreign loans fae following morning a state-as bank invest- -* , . -, •ments. ment, elsewhere reprinted in

this issue, further explainingthe position it had assumed with reference tothe purchase of foreign securities in this coun-try. The statement was intended as an ampli-fication and explanation of the statementissued on November 28, 1916, under the head of"Bank investments in foreign securities.77 Inthe latter statement it was pointed out thatproposed issues of so-called short term noteswere not suitable as permanent investmentsfor banks, and could not be regarded in anytrue sense of the term as short-term paper,while the Board further noted that investorsshould take pains to assure themselves of thesoundness of foreign issues that might beoffered to them. In the statement of March 9the Board again reaffirms its original position,but points out that misunderstanding hasapparently arisen with reference to the wholesubject, the statement having been interpretedin some quarters as a caution against the takingof any foreign securities either by the banks orinvestors. The Board wished to make it clearthat it did not seek to create an unfavorableattitude on the part of American investorstoward desirable foreign securities, and to

emphasize the point that American fundsavailable for investment may, with advantageto the country's foreign trade and the domesticeconomic situation, be employed in the pur-chase of such securities.

Clearing-house reports received during Marchfrom principal eastern centers,

Changes in re- on the whole indicate a slightserves. improvement in the reserve sit-

uation of the larger banks.Tims the reserve percentage of the 60 banksforming the New York Clearing House Asso-ciation, as gauged by the ratio of their totalreserves to their net demand deposits, from22.9 per cent on February 17 and 24, went up to23.7 per cent on March 17. I t is notable thatthe decline from 23 per cent on March 3 to22.3 per cent on March 10 followed a week dur-ing which the outward gold movement was inexcess of the inward movement. The reservepercentage of the trust companies in GreaterNew York, as computed by the State BankingDepartment, between February 17 and March17, shows the following changes: February 17,25.3 per cent; February 24 and March 3, 26.1per cent; March 10, 27.2 per cent, and March17, 27.6 per cent. On the other hand, thereserve ratio for the State banks in GreaterNew York, whose resources represent, however,but a small proportion of the city's combinedbanking resources, shows a decline during thesame period from 29.3 to 29.1 per cent.

Average excess reserves of the 41 nationalbanks and trust companies forming the Phila-delphia Clearing House Association show a de-cline from $29,910,000 for the week endingFebruary 17 to $29,572,000 for the week end-ing March 17. Similar figures for the 10 na-tional banks and the Old Colony Trust Co.,constituting the Boston Clearing House Asso-ciation, indicate a movement of excess reservesmore in harmony with the movement shownfor the New York Clearing House banks, thepublished figures indicating an increase in ex-cess reserves from $26,110,000 to $35,787,000for the week ending February 24, and to$37,079,000 for the week ending March 3, a


APRIL 1,1917. FEDERAL RESERVE BULLETIN". 237

decline to $36,524,000 for the week endingMarch 10, and a rise to $40,293,000 for theweek ending March 17.

The past month has seen a resumption ofofferings of foreign securities in

Security issues the United States; some pro-gold. i m P° r t S °f tected by collateral, others not.

Prominent among the issueswhich have been placed on this market duringMarch are the following:Central Argentine Railway gold notes $15,000,00010-year 6 per cent gold bonds of the Province

of Buenos Aires, transferred from Londonto New York 8,098,000

12-year 6 per cent bonds of the BolivianGovernment 2,400,000

Moreover, $100,000,000 of two-year 5i percent convertible notes of the French Govern-ment are offered. These notes, dated April,1917, are secured by State, municipal, andcorporate securities, issued in American andneutral countries.

The large gold imports for the four-weekperiod ending March 16 came chiefly fromCanada and to a smaller extent via the FarEast. Gold imports were particularly heavyfor the weeks ending February 23 and March 16.

The country's stock of gold has increased by$114,774,000 between February 17 and March16, 1917, the total gold imports for the fourweeks under discussion amounting to $135,-574,000 and the total gold exports to $20,-800,000. The net addition to the country'sstock of gold through net imports since August1, 1914, is shown in the following exhibit:

Gold imports and exports of the United States from Aug. 1,1914, to Mar. 16, 1917.

[000 omitted.]

Aug. 1 to Dec. 31,1914Jan. 1 to Dec. 31,1915Jan. 1 to Dec. 31,1916Jan. 1 to Mar. 16,1917

Total

Imports.

$23,253451,955685,745248,041

1,408,994

Exports.

8104,97231,426

155,79350,857

343,048

Excess ofimports

overexports.

a 881,719420,529529,952197,184

1,065,946

Excess of exports over imports.

Investment operations of the Federal Re-serve Banks during March, asi n d i c a t e d hJ t h e s e v e r a l c l a s s e s

of earning assets held on March2 and 23, were on a smaller

scale than during the immediately precedingmonth. Liquidation (on a considerable scale)of acceptances and of discounts account largelyfor the decrease in total earning assets held bythe banks on March 23, as compared with likeholdings on March 2.

The following table shows the bill holdingsof each Federal Reserve Bank and holdings ofother investments for all the banks on March2 and 23, 1917:

Bank.

BostonNew YorkPhiladelphiaClevelandRichmondAtlantaChicagoSt. LouisMinneapolisKansas CityDallasSan Francisco

Total billsTotal municipal warrantsTotal United States bonds and

Treasury notes

Total investments onhand

Mar. 2.

814,271,00031,564,00014,482,00011,113,00010,701,0005,546,00011,334,0008.253,0008; 955,0004.974,0003,381.0008,324; 000

132,898,00016,798,000

48,118,000

197,814,000

Mar. 23.

§512,481,00022,288,00011,873,0008,782,00010,786,0005,689,000li;011,0005,353,0006.263,0002,815,0003.169.0005,761,000

106,271,00015.761,000

48,093,000

170,125,000

Decrease.

$1,790,0009,276,0002,609,0002,331,000

185,000U43,000

323,0002,900,0002,692,0002,159,000

212,0002,563,000

26,627,0001,037,000

25,000

27,689,000

protecting noteissues.

i Increase.

The distribution of notes to subtreasuries andmints announced in the lastissue of the Bulletin has beensuccessfully carried through,and new notes are now lodged

at points where they will be most convenientlyaccessible. I t has been the view of the Boardthat two main objects were to be attainedin connection with the handling of the FederalReserve notes—one the elimination of delay inpresent methods of distribution at every pointwhere such delay could be avoided, the otherthe careful safeguarding of the notes and theprotection of the conditions under which theywere released. When notes are issued onlyoccasionally and in limited amounts, and when


238 PEDEBAL BESEBVE BULLETIN. APRIL 1, 1917.

such issues are made by direct shipments fromWashington to designated persons under all ofthe usual safeguards concerning the transmis-sion of registered mail accompanied by insur-ance, practically every known requirement ofprotection has been complied with. In sundrycases, however, where under present conditionsa quick release of notes by telegraph from asubtreasury is called for, there is possibility oferror. In order to guard against any sucfievent new regulations, framed with a view tothe new conditions made, have been adoptedby the Board, the purpose being that alreadyexplained. I t is believed that what has thusfar been done in this direction has resulted inmaintaining the protection of the notes underpractically all conceivable conditions while atthe same time greatly expediting the processof rendering the notes available when needed.

During the past month the question of usingthe gold settlement fund as a

Use of gold set- means of making transfers fortlement fund. the benefit of individual banks

—that is to say, transfers origi-nating with one member bank in the interest ofanother member bank at a distance, has beenpresented to the Board, but it has been decidedthat for the present at least no such extensionshall be given to the fund. As things nowstand, the gold settlement fund is carefully pro-tected, and it would seem that no possible losscould be incurred under the plan of operationin effect to-day. The suggested use of thefund would be extremely serviceable in manycases, but would involve the application of newsafeguards and the alteration of conditionsconcerning its. management. From time totime it has been suggested that the goldsettlement plan be extended by the establish-ment of an additional fund including all formsof lawful money, but thus far nothing has beendone to bring such a modification into use,due to a variety of considerations. It wouldseem that the extension of the use of the fundto cover transfers between banks in the w a}'already suggested should, if decided upon atall, be simultaneous with the establishment of

the additional fund already spoken of. Pre-liminary to either of these changes it is believedthat there might well be an increase in the fre-quency of the settlement, possibly placing itupon a daily instead of a weekly basis. Thegeneral desire to extend the applicability ofthe gold settlement fund and the great in-crease in the amount of the weekly clearingsand in the total of the fund itself testifystrongly to the success of the plan.

In accordance with the provisions of theFederal Reserve Act, the regu-

co^/erston " S l a r quarterly allotment of bondsbonds. for conversion and purchase has

been made as of April 1, and inconsequence $10,877,500 of 2 per cent bondshave been allotted to Federal reserve banks forpurchase by them under the terms of the law.Only in one case—that of the Federal ReserveBank of San Francisco—did it appear that thebank had purchased up to, or in excess of, itsproportion of $25,000,000—the theoreticalaggregate for the year—and only in that case,therefore, was it necessary to relievo the reservebank of the obligation to purchase a pro ratashare of the bond offerings of member banks.The total offerings, as above stated, were con-sequently apportioned on the basis of elevenbanks, each institution being assigned its prorata on that footing, the result being a distri-bution detailed elsewhere in this issue of theFederal Reserve Bulletin. In making actualassignments of specific lots of bonds, it was,of course, necessary to designate specific bondofferings to be taken over by specified re-serve banks, and this was done, the desig-nation being, however, so far as possible,made from the offerings presented by memberbanks in the district of the reserve bank towhich such bonds were allotted. Minor varia-tions from the theoretical allotment of bondsbased on capital consequently occurred in thecase of most of the banks, they being asked totake over slightly more than their actual allotment, or to accept slightly less, as the casemight be, in order to bring about an evenadjustment between offerings and assignments.


APRIL 1,1917. FEDERAL RESERVE BULLETIN. 239

As the total of open market purchases of bondssince the beginning of the year reported by theseveral banks up to the close of business onMarch 21, was $3,140,850, and as the totalofferings of member banks now allotted havebeen $10,877,500, as already stated, the aggre-gate amount of bonds absorbed by the reservebanks up to March 21 is shown to have been$14,017,850, the difference between this figureand $25,000,000 remaining for purchase orallotment during the remainder of the year.

The Philippine National Bank has beendesignated by the Federal Re-

The Philippine -n I * a T?bank. serve Bank ot San Francisco

as its agent and correspondentfor the Philippine Islands, and similar actionis expected to be announced shortly by one ormore other Federal Reserve Banks. The basisof the actual arrangement between the FederalReserve Bank of San Francisco and the Philip-pine National Bank includes the maintenanceof reciprocal accounts, the collection of draftsand claims, and when desired, the purchase ofbills by either institution for the other or byeither from the other for its own account ifconditions favor and such business is mutuallydeemed desirable. While the Philippine Is-lands are under the control of the UnitedStates, they are to all intents and purposesforeign territory, and the Philippine NationalBank is, therefore, designated as agent underthe provisions of section 14, relating to agen-cies in foreign countries. Business with thePhilippines, however, has this advantage overother foreign business, that it eliminates alldanger of exchange fluctuations, the currencyof the islands being maintained on a gold basisat a rate of two for one, the Government under-taking to sustain this parity between localcurrency and American money.

Relations between the Philippine NationalBank and the Federal Reserve System arethose which adjust themselves readily anddirectly to one of the essential functions of theFederal Reserve System, that of facilitatingthe growth of foreign trade. The PhilippineNational Bank is vested with large powers bythe terms of its charter, being authorized to

87199—17 2

issue notes, make ordinary commercial loans,buy paper, establish foreign branches, deal inforeign exchange, and in general transact allclasses of legitimate banking business. It isbesides a designated depositary and fiscal agentboth of the insular government and of pro-vincial and municipal governments in thePhilippine Islands,

Investments in Foreign Loans.

The following statement for the press wasissued by the Federal Reserve Board onMarch 8:

From statements which have been pub-lished from time to time, both in the Americanand foreign press, there appears to be a misun-derstanding of the attitude of the FederalReserve Board with respect to investments inforeign loans in the United States. On morethan one occasion the Board has endeavoredto remove this misunderstanding. So far fromobjecting to the placing of foreign loans in theAmerican market, it regards them as a veryimportant, natural, and proper means of set-tling the balances created in our favor hv ourlarge export trade. There are times when suchloans should be encouraged as an essentialmeans of maintaining and protecting our for-eign trade.

The Board has already stated that its an-nouncement of November 28, 1916, did notdeal with the finances or the credit of any par-ticular country, but only with banking princi-ples which it seemed desirable to emphasizeunder the conditions existing at that time.The objection then made by the Board was tothe undue employment by our banks of theirfunds in the purchase of foreign loans and notto the merits of foreign loans as investments.The Board was then, and is now, of the opinionthat the liquid condition of our banks shouldnot be impaired through undue or unwise useof their resources for investment operations.The position of the Board with respect to thisprinciple has not changed. It still takes theview that foreign borrowings should appeal


240 FEDERAL EESERVE BULLETIN. APRIL I, 1917.

primarily to the investor and not involve theuse of banking resources beyond the limits ofsound practice. In view, however, of existingconditions, especially as they affect our foreigntrade, the Board deems it desirable and in thepublic interest to remove any misconceptionthat may be left in the minds of those who readthe statement issued on the 28th of November,1916. Since that date the country's gold re-serve has been further materially strengthenedand supplies a broad basis for additional credit.The Board considers that banks may perform auseful service in facilitating the distribution ofinvestments, and in carrying out this processthey may, with advantage, invest a reasonableamount of their resources in foreign securities.So long as this does not lead to an excessivetying up of funds and does not interfere withthe liquid condition of the banks, there can notbe an}^ objection to this course.

The Board did not, of course, undertake togive advice concerning any particular loan.It desires, however, to make clear that it didnot seek to create an unfavorable attitude onthe part of American investors toward desirableforeign securities, and to emphasize the pointthat American funds available for investmentmay, with advantage to the country's foreigntrade and the domestic economic situation, beemployed in the purchase of such securities.

Issue of Certificates.

In a statement to the press on March 28the Secretary of the Treasury said:

In anticipation of the payment of the corpo-ration and individual income taxes due inJune, 1917, I have determined to borrow atthis time on 90-day Treasury certificates ofindebtedness $50,000,000, with interest at 2per cent per annum. Tnese certificates wereoffered on the 27th of March to the 12 FederalReserve Banks, which are fiscal agents of theGovernment. Before 3 o'clock to-day thesebanks subscribed for more than the entireissue.

This is extremely gratifying, and shows notonly a fine spirit on the part of the ReserveBanks but is an additional demonstration ofthe usefulness of the new Reserve System to

the country. A statement of the allotmentsto the subscribing banks will be given oufc assoon as the details are completed.

It is possible that an additional issue of$50,000,000 of these temporary certificates ofindebtedness may be issued before the end ofthe present fiscal year. No statement can bemade about possible issues of Governmentbonds until further developments in theinternational situation.

The allotment was as follows:Boston, $3,000,000; New York, $20,000,000; Philadel-

phia, $3,500,000; Cleveland, $3,500,000; Richmond,$2,000,000; Atlanta, $1,500,000; Chicago, $5,000,000;St. Louis, $2,500,000; Minneapolis, $2,000,000; KansasCity, $2,500,000; Dallas, $2,000,000; San Francisco,$2,500,000.

Purchase of Bonds from Member Banks.

On January 8 the Federal Reserve Boardsent out to member banks a letter, as follows:

The Federal Reserve Board has to-day de-termined, in the exercise of the discretion vestedin it under the provisions of section 18 of theFederal Reserve Act, that it will not requireFederal Reserve Banks to purchase during theyear 1917 more than $15,000,000 of UnitedStates bonds offered for sale by member banksthrough the Treasurer of the United States.It will require Federal Reserve Banks to pur-chase on April 1, 1917, the full amount of this$15,000,000, or so much thereof as may beoffered for sale on or before March 21.

Under the provisions of section 18 FederalReserve Banks are not permitted to purchasefrom member banks through the Treasurermore than $25,000,000 of bonds in any oneyear, less the amount of bonds bearing the cir-culation privilege acquired in the open marketduring that year. If, therefore, Federal Re-serve Banks are desirous of giving memberbanks an opportunity to sell the full amount of$15,000,000 under the provisions of section 18,they should refrain from investing in the openmarket during the first quarter anything inexcess of the difference between $15,000^000and $25,000,000.

Please bring this to the attention of yourexecutive committee.

Pursuant to the plan outlined in this letter,the receipt of applications from member banksfor the sale of bonds was closed on March. 21,and the Treasury Department at that time no-tified the Board of the aggregate amount ofsuch allotments received. This aggregate was


APRIL 1,1917. FEDEEAL RESERVE BULLETIN. 241

$10,877,500. The Board then, as previouslyannounced, proceeded to the allotment of theofferings upon the basis of the relative capitali-zation of the several reserve banks. Eachbank was requested to state the total amountof its open-market purchases of bonds, whichturned out to be as follows:

Purchases of United States bonds with circulation privilegein open market from, Jan. 1 to Mar. 21,1917, in accordancewith telegrams from each Federal Reserve Bank.

BostonNew York $80,000PhiladelphiaCleveland 26,400Richmond. 48, 250Atlanta J 170,000ChicagoSt. LouisMinneapolis 70, 700Kansas City 475,000DallasSan Francisco 1, 795,000

Total 2: 665, 350

As it appeared that the Federal ReserveBank of San Francisco had purchased in theopen market an amount of bonds which repre-sented slightly more than its proportionateshare of the total of $25,000,000 required to betaken over during the year, it was omittedfrom the allotment of bonds which had beenoffered by member banks, and the proposedallotment was computed upon the basis of 11banks according to capitalization. The allot-ment was made as follows:Amounts and percentages of paid-in capital of all Federal

Reserve Banks except San Francisco2; also proportions oftotal offerings of 810,877,500 allottable to each of the 11banks.

Bank.Paid-ir. !

•. capital, Mar.: t! 16, 1917. j

I

BostonNew YorkPhiladelphia.ClevelandRichmondAtlantaChicagoSt. LouisMinneapolis..Kansas City - -Dallas

Total 52,114,000

$5,11,5,lh3,2,

I;3,2,

068,000880,000260,000089,000405,000418,000999,000795,000413,000089,000698,000

Per cent of;otal paid-in

capital.

9. 7248 i22.7962 :10.0933 |11.68406.53384.6398 !

13.4302 i5.3632 i4.63025.92745.1771

Amountallottable

to eachFederal lie-serve Bank.

SI, 057,8002,479,7001,097,9001,270,900

710,700504,700

1,460,900583,400503,600644,800563,100

100.0000 ! 10,877,500

! Purchases of bonds Avith circulation privilege by the Atlanta banksince Jan. l, as per schedules received by the statisticai division, total$645,000.

2 San Francisco having purchased in open market up to Mar. 21, atotal of $1,795,000, has exceeded its quota of the entire year's allotmentand has. there'ere. been left out oi." the above calculation.

Minor variations from these figures werenecessary in order to distribute the offeringsof bonds without breaking up denominations,and the several banks were at once advised ofthese minor variations above or below theirallotments. In general terms, however, nomaterial variation was made from the figuresset forth above. Payment for these bondsand accrued interest and for $1,732,000 of one-year 3 per cent notes of certificates of in-debtedness which had been sold by banks, and,therefore, did not cancel with reissue, wasmade through the gold settlement fund onMarch 31. The total payment was $12,-616',090.15.

Revision of Discount Rate Schedules.

For some time past it has been noted thatthe discount rate classifications of the Boardwere growing in number and complexity andthe matter was recently placed in the hands ofa committee of the Federal Reserve Board forinvestigation. The committee, after reviewingthe discount rates in effect at Federal ReserveBanks, found that there was a considerablelack of uniformity among them, while in somecases the policy followed by one bank wasslightly opposed to that of others. A summaryof the situation showed that there were ineffect 13 different discount rates, as follows:

1. Collateral notes, 1 to 15 days.2. Paper maturing within 10 days.3. Paper maturing within 15 days.4. Paper maturing between 11 and 30 days.5-. Paper maturing between 16 and 30 days,6. Paper maturing between 31 and 60 days.7. Paper maturing between 61 and 90 days.8. Agricultural paper within 90 days.9. Trade acceptances between 1 and 30 days.

10. Trade acceptances between 31 and 60 days.11. Trade acceptances between 61 and 90 days.12. Commodity paper within 90 days.13. Bankers' acceptances.

The committee consequently recommendedthat an attempt be made to simplify theserates by suggesting to the various banks theadoption in lieu thereof of eight standardquotations, as follows:1. Paper maturing within 15 days, including collateral

notes.


242 FEDERAL RESERVE BULLETIN. APRIL 1,1917

2. Paper maturing within 16 to 60 days.3. Paper maturing within 61 to 90 days.4. Trade acceptances maturing within 60 days.5. Trade acceptances maturing within 90 days.6. Bankers' acceptances maturing within 90 days.7. Commodity paper maturing within 90 days.8. Agricultural paper maturing within 90 to 180 days.

Replies were received from practically allthe banks expressing cordial approval of theBoard's suggestion, and in some cases immedi-ately adopting the revised classification andsubmitting it for formal approval by the Board.On March 20 iclcgrams of advice were sent outto all the banks which had taken such actionadvising them of the approval of the schedulein its revised form, and the terms of the sched-ule itself were thereupon made public. Sincethen other Federal Reserve Banks have takensimilar action, and the schedule as above indi-cated may accordingly be regarded as practicallyin force throughout the system. Little or nochange in rates of importance was made atany of the banks except the uniform action inraising the rate on bankers' acceptances bylimiting the spread formerly 2-4 per cent to2^-4 per cent. This, however, was a technicalincrease only, inasmuch as the actual rate forbankers' acceptances in the market was• already about 3 per cent.

Shipment of Unfit Notes.

It has been decided that in the case of ship-ments of unfit notes to Washington, FederalReserve notes should be included with classesof currency on which the transportationcharges should be assessed against the sender.Hitherto charges have been paid by the Gov-ernment on unfit national bank notes, FederalReserve notes, and Federal Reserve bank noteswhen shipped in "collect." A change in thisplan has now been authorized by the TreasuryDepartment, the facts in the case being con-veyed to Federal Reserve Banks under date ofMarch 19, in a letter addressed to them:

DEAR SIR: By direction of the Federal Re-serve Board, you are advised that the Boardis in receipt of a letter from Hon. B. R. New-

ton, Assistant Secretary of the Treasury, read-ing as follows:

"Referring to the recommendation of theFederal Reserve Board to the effect that thetransportation charges on all Federal Reservenotes, whether fit or unfit, sent to the Treas-urer of the United States for redemption beassessed against the sender, you are advisedthat the Secretary has approved the recommen-dation and has directed a change in departmentpractice to accord thereto. Paragraph 20 inSection IX of department circular No. 55-A

i (1916), regarding the issue, exchange, and re-: demption of money, will be amended by the\ omission of the words "Federal Reserve notes/'| The change, for convenience of the Treasurer! in order to permit the proper adjustment of| his accounts and in order to give due notice to; all parties concerned, will be made on April 15,| 1917, and will not be retroactive."! Attention is especially called to the dateI named by Mr. Newton upon which the newplan becomes effective.

Section IX of Department Circular No, 55-Aj referred to by Assistant Secretary Newton,| when amended in the way directed hj him willI now read as follows:

i IX. SHIPMENT Oi1 UNFIT NOTES TO WASH-; INGTON.

! 20. Charges are paid by the Government oni unfit national-bank notes* and Federal Reserve; bank notes when sent to the department at; Washington, charges collect. No charges areI paid by the Government on any other kind ofj currency sent for redemption.; 21. All charges must be prepaid by the| sender on shipments for exchange or reclerap-I tion of gold coin, standard silver dollars, sub-I sidiary silver coin, and minor coin.| 22. National-bank depositaries must pay alli charges incurred by them on account of trans-; fer of public funds.| 23. In order to save time and expedite ship-| ments in return for currency redeemed whenthe amounts are large, orders should be fororiginal packages of 4,000 notes each of thesame denomination; that is, ones in packagesof $4,000; twos, $8,000; fives, $20,000; tens,$40,000; and so on.

24. The Government has no contract forcarrying money or other securities, and ship-ments will be made as herein provided unlessspecific instructions are . received designatingthe particular manner in which the same isdesired.


APRIL 1, 1917. FEDERAL BESEBVE BULLETIN. 24S

Conference on Trade Acceptances. j

On March 9 the National Credit Men's Asso- •ciation held a conference on trade acceptances jat the Hotel Astor, in New York City, at whichthe trade acceptance question was discussedfrom a variety of angles. Extracts from theaddresses of some of the speakers are herewithpresented: j

Mr. K. H. Treman, acting governor of the jFederal Reserve Bank of New York, said in jpart: ' !

" I t is difficult in a period like the present,when credit can he easily secured at low ratesand banks are seeking loans, properly to appre-ciate the necessity of providing ways andmeans for making credit more easily availableat reasonable rates when we shall have enteredupon a period of restricted and contractedcredits with a certainty of higher rates for

. loans."One of the main objects of the introduction

of trade acceptances in place of open-bookaccounts is to make those open-book accounts—which, until maturity, are 'dead' accounts—available as 'live' capital, thus making thecredit represented by the book accounts im-mediately available for discount, if needed, atone's bank, and furnishing that bank withpaper which can be readily discounted at apreferential rate with its Federal ReserveBank.

"The demands for credit from other nationsupon us unquestionably will grow more andmore, even after war has ceased, at least forsome time, and in addition wo shall have tofurnish credit for our own commercial needs,the demands being greater by reason of thevery much higher prices for all commoditiesand material, as well as labor. So that to-daythe average manufacturer and distributorneeds from 50 to 100 per cent more capital tohandle the same amount of business than wasthe case in 1914 at prices then ruling.

"These facts emphasize the wisdom at thepresent time, when financial conditions arecomparatively easy, of having an educationalcampaign and of using every other influenceavailable to induce the commercial interests ofthe country wherever possible to consider andinaugurate the use of the trade acceptance planin their own business. While at first such effortwill probably meet with objections and the useof the trade acceptance be only gradual, thefact that the system is being inaugurated—the

testimony of those who are using it beingfavorable—will help much when the period ofstrain does come.

" One of the difficulties is that manufacturersand merchants have become so accustomed totheir present methods that many believe thesecan not be bettered. There is a traditionalaversion to making any change, as it is easierto adopt the laisser-faire method and postponean}^ new method, even if it is better, until thenecessity is upon them.

"A recent canvass of the extent to which theterms of payment are observed by manufac-turers and jobbers in one line resulted in show-ing that maity manufacturers' usual terms are60 days net, 2 per cent allowed for cash pay-ment in 10 days. The facts show that if thebill is discounted the buyer generally takes anaverage of 15 or more days instead of the 10days under the contract. As to those who electto take the option of the 60-day credit, pay-ment is made generally in from 75 to 80 days,fully 10 per cent of the customers taking morethan 90 days to pay.

"Among jobbers in this line the results varyaccording to their location in the United States.It is safe to say that probably 40 to 50 per centdiscount their bills, but generally the discountis taken in from 12 to 20 days after the date ofthe bills, and some try to take the discount evenlater. Of those electing the 60-day optionabout 20 per cent pay within 75 days, about20 per cent pay in from three to four 'months,and 10 per cent take four' months. or evenlonger.

"As one writer has recently stated, 'Thesystem of open accounts and cash discount iswasteful and inefficient. The cash discount isshamefully abused by some buyers, who takeunearned discount after the 10 days allowedand manage to retain the advantage becausesellers dislike to antagonize customers/ Underour system of granting eas y and generous cred-its, buyers have become very careless aboutrecognizing and adhering to the strict terms ofpayment, and some overlook the fact that whenthe cash discount is deducted contrary to theterms it is, in essence, a form of graft, and thispractice has an unfavorable effect on businessethics.7'

Mr. D. C. Wills, chairman of the board-Federal Reserve Bank of Cleveland, Ohio, said,in part:

"A recent writer on trade acceptances statesthat 'fundamentally7 the proposition is a


244 FEDEKAL RESERVE BULLETIN, APSIL 1, 1017.

'general financing and sales problem' and 'isof interest to the banks only so far as they arestriving to better serve their commercial de-positors/ Acknowledging that those first con-cerned are sellers and buyers of goods, it is,nevertheless, a problem which vitally and fun-damentally affects the business of banking,and the writer above quoted proceeds to enu-merate several important benefits to bankingthat the general use of trade acceptances willaccomplish.

"Three of the most vital factors in the suc-cessful conduct of the business of banking are:(1) Assurance of an elastic and responsive cur-rency; (2) proper separation of investment andcommercial credit; (3) safety in making loans.All three of these are favorably influencedthrough the introduction and establishment ofsettlements by trade acceptances, as com-pared with the open account system.

"(1) Elastic and responsive currency.—Fed-eral Reserve notes and coin certificates even-tually will be our only forms of currency. Ifthe amount of Federal Reserve notes be in-creased and diminished only by the supply ofinstruments representing actual sales, it wouldtruly be responding to the real needs of com-merce and industry with all fictitious elementseliminated. Trade acceptances, supersedingsingle-name direct notes of borrowers, andconstituting the one class of paper to be hy-pothecated by Federal Reserve Banks withtheir agents for the issue of Federal Reservenotes, will mean that the amount of FederalReserve notes outstanding will depend on thedemands created by the business being donein the country. This seems so obvious thatfurther explanation and enlargement appearunnecessary.

" (2) Separation of investment and commercialcredit.—A noticeable weakness in the plan ofmaking advances to commercial customers ontheir direct unsecured single-name notes is thetendency to confuse fixed needs with currentrequirements. A 60-day, 90-day, or fotirmonths7 note, while ostensibly a liquid note tobe paid at maturity, may be dependent forpayment on the ability of the maker to obtain arenewal, at least in part, through placing hispaper in other quarters. The necessity forrenewal is usually due to the fact that part ofthe permanent financing is being carried inshort-time obligations. Persistent carrying offixed requirements in debts of short maturitiesis always fatal. Bankers know how such acourse terminates, and use every means attheir command to discover when a customer is

getting into this danger zone. No method ofanalyzing credit now available is so conclusiveas to the commercial character of any desiredloan as the evidence presented by a tradeacceptance. Every element of doubt exceptthe possibility of actual fraud is removed; anda fraudulent trade acceptance is so dangerousthat the possibility is remote. Surely this isworthwhile.

"There are two weak links in the credit-chain set up by present banking methods:

"When a bank's customer borrows for astated time $5,000 to buy certain goods, thebank must depend on the good faith of theborrower to use the money borrowed for thepurpose stated. (Weakness No. 1.)

"Frequently the goods are received, sold,and payment obtained before the note is ma-tured. The proceeds remain in the hands ofthe borrower for a time, therefore, with thetemptation to make another investment with-out the knowledge or consent of the lendingbank. (Weakness No. 2.)

"With universal giving and getting accept-ances both these weaknesses will be elimi-nated, and when the buyer pays for his goodsall parties to the transaction are released andpaid at the same time, including the very muchinterested banker who advanced the funds.

" (3) Increased safety in credits.—It was veryilluminating to me as a banker when I learnedhow mercantile credit men rate the differentclasses of credit information. The order oftheir importance and value, I am informed, isas follows: (1) Ledger information (preferablythrough interchange bureaus); (2) property orfinancial statement; (3) trade opinions; (4)mercantile or attorneys7 reports; (5) bank re-plies. The banker should be flattered to findthat he ranks first, in the reverse order.

"Bank credit men rate their sources of in-formation, I am told, as follows: (1) Propertyor financial statement; 02) ledger information;(3) bank replies; (4) trade opinions; (5) mer-cantile or attorneys' reports.

"One feature asserts itself in these lists.Ledger information is the most important dataobtainable in order to determine intelligentlythe value of a credit risk. Bankers usually haveto depend on second-hand sources in gettingledger information. It is true that a bank isenabled to obtain a fairly reliable line on acustomer's methods and financial habits byexperience and observation in handling hisbusiness, and, if the borrower be not an activecustomer of that particular bank, the informa-tion can. be obtained by inquiry. However,


R:I 1,1917. FEDERAL RESERVE BULLETIN". 245

the items on his financial statement of 'Ac-counts receivable7 and 'Accounts payable'are not very capable of scrutiny and continuousobservation by the banker. The ledger in-formation a bank has on its customer is:'Does he keep a satisfactory balance?'1 Does he overcheck ?' c Does fi he meet hisnotes promptly?7 The very important ques-tions of whether the people to whom thiscustomer sells pay him promptly, and whetherhe pays his own bills when due to the partiesfrom whom he buys, are not covered in abank's everyday ledger dealings with a de-positor or borrower.

"The issuing and obtaining of trade accept-ances do give the banker this line on its cus-tomers. The acceptances he issues instead ofaccounts payable will be collected through thebank, and the acceptances he carries insteadof accounts receivable will be deposited forcollection or discounted at the bank. Thus thebank will know how promptly he pays and thecharacter of the houses he patronizes, and alsowill know the class of customers who purchasehis goods and their methods of payment.Trade acceptances automatically furnish thathighest class of credit data—namely, accurateledger information, enabling bankers to esti-mate more intelligently the responsibility ofof their borrowers.

"A fourth advantage which I have carefullyavoided mentioning, for reasons which neednot be elaborated, is, nevertheless, one thatshould appeal to every ambitious banker aswell as to the ambitious business man.

" I t is indisputably true that Great Britaindoes a vastly greater volume of business inproportion to its fixed capital investment, andwith unquestioned safety, than does the UnitedStates, and the principal reason is that Englishbusiness is transacted on the acceptance princi-ple. I t is therefore certain that we can vastlyincrease our volume of business without pro-portionate increase in capital investment whenthe regular method of payment for all goodsbecomes the trade acceptance instead of cashor open account.

Mr; Beverly D. Harris, vice president of theNational City Bank of New York, said in part:

"We have for long years operated under asystem in which the cash discount has been abasic principle, and under business standardsgrowing out of this fundamental fact. It isdesirable as a basis of sound trade and creditconditions that cash payments should be en-

couraged in the case of those who are in a posi-tion to pay cash for their purchases. Evidentlyuntil very radical and universal changes areeffected in the matter of selling terms, cashdiscounts and the long established customs andethics, as well as the practical machinery ofdoing business, the financing of a very largeproportion of the commercial business of tnecountry will continue to be done, as at present,through the medium of single name paper.There are unassailable elements of merit in aproperly adjusted system of cash discounts,and in my opinion it would be unwise for thepresent to make any effort to supplant singlename paper with trade acceptances, in the caseof those who borrow in this way for the purposeof discounting their bills.

" Even if it were desirable—which I am verymuch inclined to question—it is safe to saythere is no immediate prospect that singlename paper could be universally supplanted bydouble name paper. It is obvious the mer-chant who can go to his bank and discount hisplain paper at rates ranging all the way, say,from 3 to 6 per cent, as the case may be, willcontinue to do so, when he can use the proceedsto discount his bills and take advantage of acash discount out of all proportion to currentinterest rates. Under the present sales sys-tem there is an abnormal and unwarranteddifference between the cash discount allowedin trade and current interest rates for money.This is an exorbitant, inconsistent, and un-necessary tax which merchants are offering topay to avoid tying up working capital in openbook accounts, and as it stands, is not so muchan element of strength as an admission of weak-ness in existing collecting methods, which thegeneral adoption of trade acceptances oughtto gradually correct. This constitutes one ofthe principal sources of profit to firms who arein a position to discount their bills, and strongopposition may naturally be expected to chang-ing it. It goes without saying that the sellingprice on goods must be correspondingly in-creased to bear this burden, as well as the lossand expense of doing business under a systemof this kind. The accumulated burden falls onthe ultimate consumer in the end, and is oneof the factors in the high cost of living in thiscountry. The attitude of the trade on thismatter, however, will probably be found to beaverse to any immediate radical changes inmethods, and my feeling is that the readjust-ment of the cash discount system can onlybe accomplished, or partially accomplished,


246 FEDEBAL RESERVE BULLETIN. APRIL 1, 1917.

through the process of time and a gradual re-adjustment in sales terms, possible only throughgeneral cooperation.

"My feeling and conviction, after looking atit from all angles, is, that for the present noparticular occasion exists to seek to change thepractices of those who discount their bills, inputting out single-name paper. I t is a ques-tion for the future to determine as to whetherit may at some time appear expedient anddesirable, in connection with the workings ofour Federal Reserve System, in the develop-ment of broad domestic and internationalmarkets for commercial paper, to graduallybring about, partially or wholly, the substitu-tion of trade acceptances, in the operations offirms of this character. Should this be accom-plished it will come through a developed com-prehension of the matter, not as of any indi-vidual necessity, but in the furtherance, com-pletion, and rounding out, as a measure ofbroad public policy, of a new system whichhas been tried out successfully in its initialstages, and which has established beyond per-adventure that the trade acceptance system,as a uniform system for the country at large tooperate under, would afford better safeguards,more liquid and convertible assets, a moresound, stable, and scientific basis for our creditand currency system, less loose credit, less op-portunity for inflated and falsified statements,better collections, less losses, greater economyof operation, and less capital to do a givenamount of business, and a far greater poten-tiality and stability in the general credit situa-tion.

"The primary problem to which our effortsshould first be directed is that of putting thecountry's mass of book credits into liquid andnegotiable form through the adoption of tradeacceptances in transactions with buyers whodo not discount their bills. An acceptanceverifies the account, puts unrnatured creditinto negotiable form, and is a strong lever onthe debtor to meet obligations promptly, forthe protection of his signature and his credit,with many other advantages, too numerous tomention, but which have been within the lastyear convincingly presented through the effortsof your association.

"As I view it, our daily experience is demon-strating that we can use to advantage threedistinct types of credit instruments, each serv-ing its appointed function, without usurpingthe functions of the other, i. e., single-name

paper, bank acceptances, and trade accept-ances.

"A bank acceptance—which is nothing morethan single-name paper indorsed by one bankand discounted by another—is invaluable tothe Federal Reserve System as a means ofstandardizing credit in international and openmarket transactions, through which the coun-try's foreign exchanges and domestic moneymarkets may be stabilized and regulated. I tis especially useful in foreign transactions andin domestic transactions between distantpoints, particularly in carrying the heavy bur-dens of the country's products—cotton, grain,and other commodities—on a large scale.The exigencies of war conditions have givenimmediate impetus to this form of financing,and its great value is evidenced in the pub-lished statements of the banks of this city,and of open market transactions of the FederalReserve Banks, indicating a continually increas-ing volume of banker's acceptances, runningin the last year into hundreds of millions ofdollars. While of the highest value and useful-ness, however, in serving its appointed func-tion, the bank acceptance does not strengthenthe credit situation in the same way that it isstrengthened by the trade acceptance. Thatis to say, except where secured by commodities,the banks accepting the paper have no furthersecurity for their own protection, in so doing,than the credit of the drawer, to whom theyare in the same attitude as lending directly onhis single-name paper, so far as security isconcerned, the difference being that they guar-antee his obligation in the open market insteadof lending him their own funds.

"The third class—trade acceptances—whendeveloped as they should be, will strengthenthe general underlying situation in making bookcredits liquid and available, and creating a largevolume of self-liquidating paper, arising fromactual transactions in consumable merchandise,available for discount with the Federal ReserveBanks, and not previously available. This willhave not only the advantage of two-name pa-per, but the added advantage of representingactual transactions in commodities. A tradeacceptance is an order to pay. A note is apromise to pay either a debt or a loan, and itsself-liquidating character is not prima facie.

"In the face of the fact that trade accept-ances in the New York market, the operationsof the Federal Reserve Banks, and the banksand money markets of the country in general,


APRIL 1,1917. EEDEEAL EESERVE BULLETIN. 247

have so far appeared only in limited volume,evidence is nevertheless accumulating that thismovement is now in process of steady develop-ment. In the cotton trade particularly, in thepast year, its development has been rapid, infinancing cotton going into consumption, bothin the New England and Southern mills. There Iis no doubt both trade acceptances and bankacceptances will continue to grow in favor andusefulness, in connection with the financing ofthe important cotton industry to which bothare so well adapted. Cotton mill acceptances,secured by the cotton going into consumption,are now appearing in the open market, and arereadily absorbed.

"To obtain effective cooperation and suc-cessful results, I think the following thingsshould bo established by common consent:

"Credit should be graded in three divisions—"First grade.—Buyers who discount their

bills."Second grade.—Buyers who avail them-

selves of trade terms, closing with acceptanceand meeting their obligations promptly.

" Third grade.—The remainder, which will,by this process, classify themselves into theleast desirable clement of trade credit.

" I t should be thoroughly established andunderstood that both giving and rediscount-ing acceptances are in furtherance of a newand broader financial policy, designed to givescope and effectiveness to the workings of theFederal Reserve Banking System, the crea-tion of broad discount markets, and puttingthe underlying credits of the country on aliquid and sound basis, for the encouragementof which all interests should cooperate inrecognizing that such transactions are entirelylegitimate and in the line of advanced publicpolicy, and to remove the impression of anyimpairment of credit. As trade acceptancescome into general use this feeling will dis-appear, and a new standard should be estab-lished, under which buyers who are not dis-posed to put their debts into definite and ac-knowledged form through trade acceptances,or sellers who do not safeguard their credit iby closing invoices with acceptances, will have ja less favorable credit rating on that account. I

"As to the obstacles which stand in the way jof a general adoption of trade acceptances, my ;correspondence develops a practical unanimityof opinion, as I have said, that the general in-troduction of trade acceptances in many linesof business is regarded as desirable and practi-cable, and that there are no obstacles which j

87199—17 3

can not be overcome by combined effort anda more general understanding of the advan-tages to be gained, and particularly the valueof this movement in supplementing the FederalReserve System and strengthening the generalcredit situation.

"The principal obstacles at present are—"(1) Lack of sufficient initiative and com-

bined effort on the part of wholesalers; thefeeling that trade might bo offended or lost,and the disposition to hang back until othershave tried it out; and not enough backbone inthe matter. The feeling is general that as themovement gains ground through the satisfac-tory experience of those taking the initiative,the impetus thus given will help the wholething along. Numerous firms advise me thatthey are making satisfactory headway and arepleased with their experience with it, and theadditional expense and inducements offered insome cases to obtain trade acceptances aremore than offset by the preferential rates atwhich they can discount such receivables,in connection with many other advantagesgained;

"(2) Other things being equal, customersprefer the open account system because of theleeway and indulgence it has afforded in meet-ing their obligations, and the fear that theircredit might be impaired by giving acceptances.There is also a feeling that if an acceptance isgiven it would be to their disadvantage in casethey should later desire to either make prepay-ment or need some additional time. In deal-ing with this there is, or should be, a real testof credit, in which the dealer who buys on cer-tain terms should find his credit greatlystrengthened by putting the obligation in defi-nite and businesslike shape, according to con-tract. Those who meet their bills promptlyand deserve credit should be made to realizehow much their credit is strengthened thereby,and should be shown eveiy consideration inconsequence. In the case of prepayment itwould be good policy to allow them to take uptheir acceptances, with a rebate for the unex-pired time. On the other hand, where condi-tions justify it, there is no reason why addi-tional time should not be granted. The whole-saler would have the management of this in hisown hands, taking up the acceptance at ma-turity and either carrying it past-due, or takinga renewal obligation. The latter should alwaysbe by note, however, as obviously the tradeacceptance should be only used in the originaltransaction.


248 FEDERAL EESERVE BULLETIN. APRIL 1.1917.

The Revenue Act.

In view of the interest which the so-calledrevenue bill, passed by the last session ofCongress, has for business men and bankersgenerally, the act is here reprinted in full, to-gether with the House report on the bill:

IPublic, No. 377—64th Congress. H. R. 20573.]

AN ACT To provide increased revenue to defray the ex-penses of the increased appropriations for the Army andNavy and the extensions of fortifications, and for otherpurposes.

Be it enacted by the Senate and House of Rep-resentatives of the United States of America inCongress assembled,

TITLE I.—SPECIAL PREPAREDNESS FUND.

SECTION 1. That the receipts from the taximposed by Title II and one-third of the re-ceipts from the tax imposed by Title III of thisact shall constitute a separate fund in theTreasury to be used only for the expendituresincurred under the act entitled " An act makingappropriations for the support of the Armyfor the fiscal year ending June thirtieth, nine-teen hundred and seventeen, and for otherpurposes," approved August twenty-ninth,nineteen hundred and sixteen; the act entitled"An act making appropriations for the navalservice for the fiscal year ending June thirtieth,nineteen hundred and seventeen, and for otherpurposes, a; August twenty-ninth,nineteen hundred and sixteen; and the act en-titled " An act making appropriations for forti-fications and other works of defense, for thearmament thereof, for the procurement of heavyordnance for trial and service, and for otherpurposes/' approved July sixth, nineteen hun-dred and sixteen, or any other act or actssubsequent thereto making appropriations forArmy, Navy, or fortification purposes. Inaddition to such receipts from the taxes im-posed under Titles II and III of this act, thereshall be credited annually, beginning with thefiscal year ending June thirtieth, nineteen hun-dred and eighteen, to such separate fund, thesum of $175,000,000, such sum being theestimated additional revenue to be derivedunder the act entitled "An act to increase therevenue, and for other purposes," approvedSeptember eighth, nineteen hundred and six-teen, in excess of the revenue to be derivedunder then existing laws: Provided, That theSecretary of the Treasury may use such fundfor other purposes, but such fund shall be re-imbursed lor any portion thereof so used.

TITLE II.—EXCESS PROFITS TAX.

SEC. 200. That when used in this title—The term "corporation77 includes joint-

stock companies or associations, and insurancecompanies;

The term "United States'7 means only theStates, the Territories of Alaska and Hawaii,and the District of Columbia; and

The term "taxable year7' means the twelvemonths ending December thirty-first, except inthe case of a corporation or partnership allowedto fix its own fiscal year, in which case it meanssuch fiscal year. The first taxable year shallbe the year ending December thirty-first,nineteen hundred and seventeen.

SEC. 201. That in addition to the taxesunder existing laws there shall be levied,assessed, collected, and paid for each taxableyear upon the net income of every corpora-tion and partnership organized, authorized, orexisting under the laws of the United States,or of any State, Territory, or District thereof,no matter how created or organized, except-ing income derived from the business of life,health, and accident insurance combined inone policy issued on the weekly premium pay-ment plan, a tax of eight per centum Oi theamount by which such net income exceeds thesum of (a) $5,000 and (b) eight per centum ofthe actual capital invested.

Every foreign corporation and partnership,including corporations and partnerships of thePhilippine Islands and Porto Rico, shall payfor each taxable year a like tax upon theamount by which its net income received fromall sources within the United States exceedsthe sum of (a) eight per centum of the actualcapital invested and used or employed in thebusiness in the United States, and (b) that pro-portion of $5,000 which the entire actualcapital invested and used or employed in thebusiness in the United States bears to theentire actual capital invested; and in case nosuch capital is used or employed in the businessin the United States the tax shall be imposedupon that portion of such net income which isin excess of the sum of (a) eight per centumof that proportion of the entire actual capitalinvested and used or employed in the businesswhich the net income from sources within theUnited States bears to the entire net income,and (b) that proportion of $5,000 which thenet income from sources within the UnitedStates bears to the entire net income.

SEC. 202. That for the purpose of this title,actual capital invested means (1) actual cash


APRIL l f 1917. FEDERAL EESEBVE BULLETIN. 249

paid in, (2) the actual cash value, at the timeof payment, of assets other than cash paid in,and (3) paid in or earned surplus and undi-vided profits used or employed in the business;but does not include money or other propertyborrowed by the corporation or partnership.

SEC. 203. That the tax herein imposed uponcorporations and partnerships shall be com-puted upon the basis of the net income shownhj their income tax returns under Title I ofthe act entitled "An act to increase the reve-nue, and for other purposes," approved Sep-tember eighth, nineteen hundred and sixteen,or under this title, and shall be assessed andcollected at the same time and in the samemanner as the income tax due under Title I ofsuch act of September eighth, nineteen hundredand sixteen: Provided, That for the purpose ofthis title a partnership shall have the sameprivilege with reference to fixing its fiscal yearas is accorded corporations under section thir-teen (a) of Title I of such act of Septembereighth, nineteen hundred and sixteen: Andprovided further. That where a corporation orpartnership makes return prior to March first,nineteen hundred and eighteen, covering itsown fiscal year and includes therein any incomereceived during the calendar year ending De-cember thirty-first, nineteen hundred and six-teen, the tax herein imposed shall be that pro-portion of the tax based upon such full fiscalyear which the time from January first, nine-teen hundred and seventeen, to the end of suchfiscal year bears to the full fiscal year.

SEC. 204. That corporations exempt from taxunder the provisions of section eleven of Title Iof the act approved September eighth, nineteenhundred and sixteen, and partnerships carryingon or doing the same business shall be exemptfrom the provisions of this title, and the taximposed by this title shall not attach to in-comes of partnerships derived from agricultureor from personal services.

SEC. 205. That every corporation having anet income of $5,000 or more for the taxableyear making a return under Title I of such actof September eighth, nineteen hundred andsixteen, shall for the purposes of this title in-clude in such return a detailed statement of theactual capital invested.

Every partnership having a net income of$5,000 or more for the taxable year shall rendera, correct return of the income of the partner-ship for the taxable year, setting forth specifi-cally the actual capital invested and the grossincome for such year and the deductions here-inafter allowed. Such returns shall be rendered

at the same time and in the same manner andform as is prescribed for income-tax returnsunder Title I of such act of September eighth,nineteen hundred and sixteen. In computingnet income of a partnership for the purposesof this title there shall be allowed like deduc-tions as are allowed to individuals in sectionsfive (a) and six (a) of such act of Septembereighth, nineteen hundred and sixteen.

SEC. 206. That all administrative, special,and general provisions of law, including thelaws in relation to the assessment, remission,collection, and refund of internal-revenue taxesnot heretofore specifically repealed and notinconsistent with the provisions of this title arehereby extended and made applicable to all theprovisions of this title and to the tax hereinimposed, and all provisions of Title I of suchact of September eighth, nineteen hundred andsixteen, relating to returns and payment of thetax therein imposed, including penalties, arehereby made applicable to the tax required bythis title.

SEC. 207. That the Commissioner of InternalRevenue, with the approval of the Secretaryof the Treasury, shall make all necessary regu-lations for carrying out the provisions of thistitle, and may require any corporation or part-nership subject to the provisions of this title tofurnish him with such facts, data, and infor-mation as in his judgment are necessary tocollect the tax provided for in this title.

TITLE III.—ESTATE TAX.

SEC. 300. That section two hundred and one,Title II, of the act entitled "An act to increasethe revenue, and for other purposes," approvedSeptember eighth, nineteen hundred and six-teen, be, and the same is hereby, amended toread as follows:

"SEC. 201. That a tax (hereinafter in thistitle referred to as the tax), equal to the follow-ing percentages of the value of the net estate,to be determined as provided in section twohundred and three, is hereby imposed upon thetransfer of the net estate of every decedentdying after the passage of this act, whether aresident or nonresident of the United States:

" One and one-half per centum of the amountof such net estate not in excess of $50,000;

" Three per centum of the amount by whichsuch net estate exceeds $50,000 and does notexceed $150,000;

" Four and one-half per centum of the amountby which such net estate exceeds $150,000 anddoes not exceed $250,000;


250 FEDERAL RESERVE BULLETIN". APRIL 1,1917.

" Six per centum of the amount by which suchnet estate exceeds $250,000 and does not ex-ceed $450,000;

" Seven and one-half per centum of the jamount by which such net estate exceeds j$450,000 and does not exceed $1,000,000; j

"Nine per centum of the amount by which jsuch net estate exceeds $1,000,000 and does jnot exceed $2,000,000; j

" Ten and one-half per centum of the amount;by which such net estate exceeds $2,000,000and does not exceed $3,000,000;

"Twelve per centum of the amount by whichsuch net estate exceeds $3,000,000 and doesnot exceed $4,000,000;

"Thirteen and one-half per centum of theamount by which such net estate exceeds j$4,000,000 and does not exceed $5,000,000;and

" Fifteen per centum of the amount by whichsuch net estate exceeds $5,000,000."

SEC. 301. That the tax on the transfer of thenet estate of decedents dying between Septem-ber eighth, nineteen hundred and sixteen, andthe passage of this act shall be computed at the Irates originally prescribed in the act approvde |September eighth, nineteen hundred and six- Iteen. I

TITLE IV.—MISCELLANEOUS.

SEC. 400. That the Secretary of the Treasuryis hereby authorized to borrow on the creditof the United States from time to time suchsums as in his judgment may be required to jmeet public expenditures on account of theMexican situation, the construction of thearmor-plate plant, the construction of the.Alaskan Railway, and the purchase of theDanish West Indies, or to reimburse the Treas-ury for such expenditures, and to prepare andissue therefor bonds of the United States notexceeding in the aggregate $100,000,000, insuch form as he may prescribe, bearing interestpayable quarterly at a rate not exceeding threeper centum per annum; and such bonds shallbe payable, principal and interest, in UnitedStates gold coin of the present standard ofvalue, and both principal and interest shall beexempt from all taxes or duties of the UnitedStates as well as from taxation in any form byor under State, municipal, or local authority,and shall not be receivable by the Treasurer ofthe United States as security for the issue ofcirculating notes to national banks: Provided,That such bonds may be disposed of by theSecretary of the Treasury at not less than par,under such regulations as he may prescribe,

giving all citizens of the United States an equalopportunity therefor/ but no commissions shallbe allowed or paid thereon; and a sum notexceeding one-tenth of one per centum of theamount of the bonds herein authorized is herebyappropriated, out of any money in the Treasurynot otherwise appropriated, to pay the expensesof preparing, advertising, and issuing the same:And provided farther, That in addition to suchissue of bonds, the Secretary of the Treasurymay prepare and issue for the purposes speci-fied in this section any portion of the bonds ofthe United States now available for issueunder authority of section thirty-nine of theact entitled "An act to provide revenue, equal-ize duties, and encourage the industries of theUnited States, and for other purposes," ap-proved August fifth, nineteen hundred andnine: And provided further, That the issue ofbonds under authority of this act and anyPanama Canal bonds hereafter issued underauthority of section thirty-nine of the actentitled "An act to provide revenue, equalizeduties, and encourage the industries of theUnited States, and for other purposes/7 ap-proved August fifth, nineteen hundred andnine, shall be made redeemable and payableat such times within fifty years after the dateof their issue as the Secretary of the Treasury,in his discretion, may deem advisable.

CERTIFICATES OF INDEBTEDNESS.

SEC. 401. That section thirty-two of an actentitled "An act providing ways and meansto meet war expenditures, and for other pur-poses,'' approved June thirteenth, eighteenhundred and ninety-eight, as amended bysection forty of an act entitled ' 'An act to pro-vide revenue, equalize duties and encouragethe industries of the United States, and forother purposes/7 approved August fifth, nine-teen hundred and nine, be, and the same ishereby, amended to read as follows:

"SEC. 32. That the Secretary of the Treas-ury is authorized to borrow, from time to time,at a rate of interest not exceeding three percentum per annum, such sum or sums as, inhis judgment, may be necessary to meet publicexpenditures, and to issue therefor certificatesof indebtedness in such form and in such de-nominations as he may prescribe; and eachcertificate so issued shall be payable, withthe interest accrued thereon, at such time,not exceeding one year fron the date of itsissue, as the Secretary of the Treasury may-prescribe: Provided j That the sum of such


Antir. 1. 11)17. FEDERAL RESERVE BULLETIN. 251

certificates outstanding shall at no time exceed j$300,000,000, and the provisions of existing |law respecting counterfeiting and other fraud- julent practices are hereby extended to the jbonds and certificates of indebtedness au- jthorized by this act.77

RETURNS OF DIVIDENDS.

SEC. 402. That Title I of the act entitled i'•'An act to increase the revenue, and for other jpurposes/7 approved September eighth, nine-teen hundred and sixteen, be amended byadding to Part III a new section, as follows:

"SEC. 26. Every corporation, joint-stockcompany or association, or insurance com-pany subject to the tax herein imposed, whenrequired by the Commissioner of InternalRevenue, shall render a correct return, dulyverified under oath, of its payments of divi-dends, whether made in cash or its equivalentor in stock, including the names and addressesof stockholders and the number of sharesowned by each, in such form and manner asmay be prescribed by the Commissioner ofInternal Revenue, with the approval of theSecretary of the Treasury.77

Approved, March 3, 1917.

HOUSE REPORT.[64th Congress, 2d Session. House of Representatives. Report No.

1366. Revenue bill to provide funds to meet the additional extraor-dinary appropriations for the Army and Navy and fortifications.January 29, 1917.—Committed to the Committee of the Whole Houseon the state of the Union and ordered to be printed. Mr. Kitchen,from the Committee on Ways and Means, submitted the followingreport, to accompany H. R. 20573.]

The Committee on Ways and Means, towhom was referred the bill (H. R. 20573) toprovide increased revenue to defray the ex-penses of the increased appropriations for theArmy and Navy and the extensions of fortifi-cations, and for other purposes, having had thesame under consideration, report it back tothe House without amendment and recommendthat the bill do pass.

NECESSITY FOR THIS LEGISLATION.

This legislation is made necessary becauseof the urgent need of funds with which to meetthe extraordinarily large appropriations for themilitary and naval establishments and fortifi-cations.

Taking the appropriations for the fiscal yearending June 30, 1916, carried in the Army,Navy, and fortifications appropriation bills,together with the appropriations for arsenals

and military posts carried in the sundry civilappropriation bill, as representing the normalappropriations for national defense, the likeappropriations for the fiscal year ending June30, 1917, and the similar estimates for thefiscal year ending June 30, 1918, will show anincrease in the appropriations for nationaldefense during these two years amounting toover $873,000,000.

The following table shows the appropriationscarried by the Army, Navy, and fortificationsbills and the appropriations for arsenals andmilitary posts carried in the sundry civil ap-propriation bill for the fiscal years ending June30, 1916 and 1917, and the like estimated ap-propriations for the fiscal year ending June30, 1918.

Item.

Appropriation bill:ArmyNavy..."FortificationsSundry civil-

ArsenalsMilitary posts..

Supplemental esti-mates for Armyand Navy

Appropriations, fiscal year ending June 30—

1916

$101,974,195.87149,661,864.886,060,216.90

053,600.00570,924.99

1917

$267,596,530.10313,300,555.8425,747,550.00

5,214,395.001,727,859.99

Total 258,920,802.64 613,586,890.93 2 777,564,784.39

18181

$298,630,011.28379,151,701.0756,999,481.21

6,435,700.008,841,890.23

27,500,000.00

1 Estimates.2 Does not include any estimate for the Mexican situation.

ESTIMATED APPROPRIATIONS, DISBURSEMENTS,AND RECEIPTS FOR THE FISCAL YEAR ENDINGJUNE 30, 1918.

The regular annual estimates and the sup-plemental estimates of appropriations for thefiscal year ending June 30, 1918, amount to$1,711,000,000. In this total is included$60,748,000 for the sinking fund, which ismerely a bookkeeping account, and$325,355,820 for the Postal Service, whichtakes care of itself. In estimating the neces-sary revenue to meet appropriations it istherefore proper to deduct both of these esti-mates. The amount for which it is necessaryto provide revenue after deducting the afore-mentioned estimates is therefore $1,324,896,180.

During the fiscal year ending June 30, 1918?the Secretary of the Treasury estimates thatbecause of the expenditures to meet authori-zations under existing law the total disburse-ments will be $1,368,445,910, or $43,549,730greater than the estimated appropriations afterdeducting the estimates for the sinking fundand the Postal Service.


252 FEDERAL RESERVE BULLETIN. AraiL 1,1917.

The following statement shows the esti-mated disbursements for the fiscal year endingJune 30, 1918, the estimated revenue to be col-lected under existing law, the estimated excessof disbursements over receipts, and the amountnecessary to be raised by bond issues or newrevenue legislation:Total estimated disbursements for the

fiscal year ending June 30,1918 $1.368,445, 910Estimated revenue under present law:

Customs $230,000,000Internal revenue—

Ordinary 325,000,000Emergency reve-

nues and re-ceipts from muni-tion manufac-turers ' and estatetaxes 134,000,000

Income tax—Corporation . . . 133,000,000Individual . . . I l l , 750,000

Miscellaneous 56,000,000Panama Canal tolls.etc. 10,000,000Deposits for postal sav-

ings bonds 2,000,000

Total 1,001,750,000

Estimated excess disbursements over re-ceipts 366, 695, 910

Deduct estimated balance in general fund,June 30, 1917 64, 305, 971

Estimated deficit in general fund, June30,1918 302,389,939

For necessary working balance in theTreasury 100,000,000

Estimated amount necessary to be raisedby bond issues or new revenue legisla-tion 402,389, 939

THE PROBLEM PRESENTED.

The question that immediately arises is, howshall this money be raised? After carefullyconsidering the various available sources ofadditional revenue, your committee recom-mends that the necessary funds to meet theextraordinary appropriations for the Army andNavy and fortifications be secured by addi-tional internal taxation upon excess profits and

• by increasing the estate tax. Your committeealso recommends that the expenditures inci-dent to the Mexican situation, the constructionof the armor-plate plant, the Alaskan railway,and the purchase of the Danish West Indies bemet by the receipts from bonds. The amountof Panama bonds unissued being insufficient,your committee recommends that a new issueof bonds similar to the Panama bonds bo au-thorized. In the opinion of your committee itis an unwise and unsound policy to issue bonds

to meet current expenditures of the Govern-ment, and it believes that we should pay as wego. Your committee, however, believes thatit is proper to issue bonds to meet expendituresfor permanent improvements, in the nature ofpermanent investments, such as the construc-tion of the Alaskan railway, the construction ofthe armor-plate plant, ancl the purchase of theDanish West Indies. It also believes that ex-traordinary expenditures, due to nationalemergencies, which are impossible to anticipatein revenue legislation, such as the Mexicansituation, should also be financed by bondissues, as is always done by this and othernations under similar circumstances,

THE PROPOSED BILL,

The proposed bill is divided into four sepa-rate parts called titles, viz, Title I, which speci-fies that the revenue collected under Title II ofthis act and one-third of the receipts collectedunder Title III. together with the additionalrevenue collected under the act of September 8,1916, to the extent of $175,000,000, shall con-stitute a special preparedness fund; Title II,the excess profits tax; Title III, the amendedestate tax; and Title IV, miscellaneous, whichprovides (1) for a bond issue, (2) for the issue ofadditional certificates of indebtedness, and (3)that the Commissioner of Internal Revenuemay have authority, within his discretion, torequire a corporation to state in its return towhom it has paid dividends and the amountthereof.

TITLE I.—SPECIAL PREPAREDNESS FUND,

This title provides that the receipts from theexcess profits tax and one-third of the receiptsfrom the estate tax provided in this bill, to-gether with $175,000,000, the additional reve-nue collected from the taxes levied in the reve-nue act of September 8, 1916, shall be set asideas a special preparedness fund to be usedtoward defraying the expenses for the Armyand Navy and fortifications. It is provided,however, that should there be no other moneyavailable in. the Treasury to meet current obli-gations that the Secretary of the Treasury mayuse this fund for other purposes, but any sumsso disbursed must be returned to this fund.

TITLE II,—EXCESS-PROFITS TAX,

This title places a tax of 8 per cent on. thenet profits of corporations, joint-stock com-


APRIL 1,1917. FEDERAL RESERVE BULLETIN. 253-•

panies or associations, insurance companies,and partnerships, which are in excess of$5,000 and in excess of an amount equiva-lent to 8 per cent of the actual capital invested.That is, before the tax attaches there is a flatdeduction of $5,000 from the total net profitsand a further deduction of 8 per cent on theactual capital invested.

Section 202 of this title defines " actual capi-tal invested" to mean (1) actual cash paid in,(2) the actual cash value, at the time of pay-ment, of assets other than cash paid in, and (3)paid in or earned surplus and undivided profitsused or employed in the business. . Money bor-rowed through bonds or otherwise is not in-cluded in the actual capital invested.

This title also provides that the excess taxupon corporations shall be computed upon thecorporation returns made in accordance withthe corporations'' income tax returns. It re-quires partnerships to make returns and givesthem the privilege of selecting their fiscal year,giving them the same privilege as is now al-lowed to corporations. Corporations, joint-stock companies or associations, and insur-ance companies exempt under section 11 of theincome tax, and partnerships carrying on ordoing the same business, and the income ofpartnerships derived from agriculture or fromprofessional services, are exempt from theexcess-profits tax. The income derived fromthe business of life, health, and accident insur-ance combined in one policy under the weeklypremium plan is also exempt from this tax.

The tax imposed upon corporations andpartnerships is to be computed upon the basisof the net income shown by their income-taxreturns made under the income-tax law, and isto be assessed and collected at the same timeand in the same manner as the income tax.Every corporation having a net income of $5,000or more is required to return a detailed state-ment of its actual capital invested. Partner-ships are required to make a return of the in-come of the partnership for each taxable yearsetting forth the actual cash invested and thegross income for such year. In determiningthe net income, partnerships will be allowed thesame deductions as are allowed individualsunder sections 5 (a) and 6 (a) of the income-tax act.

It is estimated that the proposed tax uponexcess profits will yield during a 12-month pe-riod $226,000,000, distributed as follows: Uponcorporations $170,000,000 and upon partner-ships, $56,000,000.'

TITLE III.—ESTATE TAX.

This title increases the present estate-taxrates 50 per cent. The proposed rates are asfollows:

1J per cent of the amount of the net estatenot in excess of $50,000.

3 per cent of the amount by which the netestate exceeds $50,000 and does notexceed $150,000.

4 - per cent of the amount by which the netestate exceeds $150,000 and does not ex-ceed $250,000.

6 per cent of the amount by which the netestate exceeds $250,000 and does notexceed $450,000.

1\ per cent of the amount by which the netestate exceeds $450,000 and does notexceed $1,000,000.

9 per cent of the amount by which the netestate exceeds $1,000,000 and does notexceed $2,000,000.

10 \ per cent of the amount by which the netestate exceeds $2,000,000 and does notexceed $3,000,000.

12 per cent of the amount by which the netestate exceeds $3,000,000 and does notexceed $4,000,000.

13 J per cent of the amount by which the netestate exceeds $4,000,000 and does notexceed $5,000,000.

15 per cent of the amount by which the netestate exceeds $5,000,000.

It is estimated that the proposed increase inthe estate tax will yield during the first 12-month period $22,000,000 additional revenue.

TITLE IV—MISCELLANEOUS.

BONDS.

This title gives the Secretary of the Treasuryauthority to issue an additional $100,000,000worth of bonds to meet public expenditureson account of the Mexican situation, the con-struction of the armor-plate plant, the con-struction of the Alaskan railway, and theEurchase of the Danish West Indies, or to reixn-

urse the Treasury for such expenditures.The Secretary of the Treasury at the present

time has authority to issue $222,000,000 worthof Panama Canal bonds to reimburse theTreasury.

The act commonly known as the " shippingbill" authorizes the issuance of $50,000,000worth of Panama Canal bonds, the proceedsfrom which are to be used for the construction


254 FEDERAL RESERVE BULLETIN. APRIL 1,1917.

or purchase of ships. The act authorizing theconstruction of the nitrate plant also author-izes the sale of $20,000,000 worth of PanamaCanal bonds and the use of the proceeds for theconstruction of the nitrate plant. In additionto meeting these extraordinary appropriationsby bonds, your committee recommends that thedisbursements incident to the Mexican situa-tion and to the construction of the armor-plateplant, the Alaskan railway, and the purchaseof the Danish West Indies, be met by theissuance of bonds. Your committee thereforerecommends the following, bond issues:

Bond issues:To meet the expenditures

incident to the Mexicansituation to June 30,1917, estimated at $162,418,000

Construction of Alaskanrailway 35,000,000

Armor-plate plant 11,000,000Danish West Indies 25,000,000

Total $233,418,000Bonds already authorized:

Shipping act $50,000,000Nitrate plant 20,000,000

Total 70,000,000

Total proposed bond issue 303,418,000Panama Canal bonds which can be issued at

this time 222,000,000

Addition authorization of bonds necessary.. 81,418,000

CERTIFICATES OF INDEBTEDNESS.

Under the present system of taxation a con-siderable portion of the receipts are not dueand payable until the last month of each fiscalyear. It is therefore deemed advisable to in-crease the authority of the Secretary of theTreasury to issue certificates of indebtednessfor a period not exceeding one year from thedate of issue. At the present time the Secre-tary of the Treasury has the power to issue$200,000,000 worth of such certificates. Thisact proposes to give the Secretary of the Treas-ury authority to issue an additional $100,000,-000 worth of such certificates.

RETURN OF DIVIDENDS.

Section 402 of this act merely provides thatthe Commissioner of Internal Revenue may athia discretion require a corporation to includein its return a statement of its dividend pay-ments, stating whether the same are made incash or its equivalent, or in stock, and mayrequire the names and addresses of the stock-

holders and the number of shares owned bjr

each. The purpose of this provision is merelyto enable the Commissioner of Internal Revenueto check doubtful individual returns.

RECAPITULATION.

Estimated amount necessary to be raised bybond issues and new revenue legislation.. $402,389,939

Bond issues to reimburse the Treasury:For expenditures incident

to the Mexican situa-tion to June 30, 1917... $162,418,000

For construction of Alas-kan railway to June 30,1918 21,838,292

For construction of armor-plate plant 11,000,000

Total 195,256,292

| Estimated amount to be raised by taxation. 207,133,647j Estimated additional receipts under pro-i posed bill:

Excess-profits tax $226,000,000Estate tax 22,000,000

Total 248,000,000

Your committee believes that the margin of$41,000,000 above shown, between the esti-mated receipts under the proposed bill and theestimated revenue required, is necessary inorder to be on the safe side. Allowance must bemade for the fact that the amount of revenue

| which it is estimated the excess-profits tax will| yield is after all only an estimate, and because| of this a substantial margin is advisable.

Claude Kitchin, chairman; Henry T. Rainey,Lincoln Dixon, Cordell Hull, John N. Garner,James W. Collier, Clement C. Dickinson,Michael F. Corny, William A. Oldfield, DanielJ. McGillicuddy, Alfred G. Alien, Charles R.Crisp, John T. Casey, Guy T. Helvering.

Fiduciary Powers of National Banks.

The case of Bank v. Fellows, brought to testthe constitutionality of section ll(k) of theFederal Reserve Act, was argued before theSupreme Court of the United States on March22, and submitted. The case was arguedorally by the Solicitor General of the UnitedStates, appearing for the United States, bycounsel for the Board, and counsel for thebank, appearing on behalf of the plaintiff inerror, and by Mr. Henry M. Campbell, ofDetroit, and Mr. John G. Johnson, of Phila-delphia, appearing for defendants in error.


APRIL 1, 1917. FEDERAL RESERVE BULLETIN. 255

The brief prepared by counsel for the Board,acting in conjunction with the Solicitor Gen-eral of the United States, which was filed onbehalf of the United States in the relation ofamicus curue, >was in substance as follows:

STATEMENT OF THE CASE.

This case involves the validity of sectionll(k) of an act of Congress approved December23, 1913, known as the Federal Reserve Act.(38 Stat., 251, 262, c. 6.) That section givesto the Federal Reserve Board created by theact the following power:

"SEC. ll(k). To grant by special permit tonational banks applying therefor, when not incontravention of State or local law, the rightto act as trustee, executor, administrator, orregistrar of stocks and bonds under such rulesand regulations as the said board may pre-scribe.'1

The First National Bank of Bay City, Mich.,plaintiff in error, was chartered as a nationalbank on December 1, 1882, under the NationalBank Act of June 3, 1864. (13 Stat., 99, o.106, as amended; see the National Bank Actof June 20, 1874, 18 Stat.,t 123, c. 343; Rov.Stat.,*sec. 5133, 5136.) After the passage ofthe Federal Reserve Act it became a memberof the system of banks therein established,and, on application, was granted by the Boardthe right to act as trustee, executor, adminis-trator, and registrar of stocks and bonds.On the relation of five trust companies theattorney general of Michigan filed an informa-tion in the nature of quo warranto in the Su-preme Court of Michigan to prevent plaintiffin error from thus acting. The respondentbank pleaded the statutes and the authoritygranted in pursuance thereof. The State at-torney general demurred to the plea on thegrounds (1) that section 11 (k) is unconstitu-tional in that it is beyond the authority ofCongress to confer the power specified uponnational banks; (2) that even if Congress pos-sessed such authority it can not delegate it tothe Federal Reserve Board; (3) that tho grant-ing of the corporate power specified is in con-tra volition of the laws of the State. Tho Statecourt sustained the demurrer on tho firstground, six of the eight justices expressly find-ing no contravention of State law. By writof error the case comes before this court onthe pleadings.

Leave having been obtained, the UnitedStates files this brief as amicus curiae.

87199—] 7 4

SPECIFICATION OF ERROR.

The second assignment of error is as follows :The Supreme Court of Michigan erred in

entering a judgment of ouster against theabove-named respondent, said judgment beingbased solely upon the decision that the act ofCongress above mentioned [sec. Ilk] was andis void as beyond the powers conferred uponthe Congress of the United States by the Con-stitution of tho United States.

Two issues are thus raised:1. Has Congress power to authorize a na-

tional bank to act as trustee, executor, admin-istrator, or registrar of stocks and bonds ?

2. Does the Federal Reserve Board in grant-ing the permission authorized by section 11 (k)exercise nondelegable powers of Congress ?

ARGUMENT,

I. JURISDICTION.

A State court is without jurisdiction to enjoin the opera-tion of a Federa agency.

In the case of Ableman v. Booth (21 How.,506), the Supreme Court of Wisconsin held thatthe fugitive slave law was unconstitutionaland discharged a prisoner held under a war-rant issued by a United States commissionerfor aiding and abetting the escape of a fugitiveslave, and also discharged the same personfrom confinement after indictment and con-viction in the United States District Court.This judgment of the Supreme Court of Wis-consin was reversed by the Supreme Court oftho United States.

The same question was presented in Tarble'scase (13 Wall., 397), where a soldier in theUnited States Army was discharged on habeascorpus by a supreme court commissioner of theState of Wisconsin on the ground that he hadbeen unlawfully enlisted while a minor with-out the consent of his guardian.

In both cases the courts of the State weredeclared by the Supreme Court of the UnitedStates to have been without jurisdiction.

The fundamental proposition upon whichthe Ableman and Tarble cases rest is that noState has power to obstruct a Federal officerin the discharge of his duties. It is true, aswas argued in the Ableman case, that theSupreme Court of Wisconsin had generaljurisdiction to pass upon the constitutionalityof the fugitive slave law; it had power to dothis in any proceeding which did not directlyinterfere with or arrest the functions of the



Federal Government, but no State can law-fully do an act which will suspend the machin-ery of the Federal Government. As stated bythe court in Tennessee v. Davis (100 U. S., 257,262)—

"The General Government must cease toexist whenever it loses the power of protectingitself in the exercise of its constitutionalpowers."

The principle of these cases would seem toapply to an attempt by the State to enjoinor restrain any Federal agency from the exer-cise of a right or the performance of a dutyarising under a Federal statute.

'•'The right of Congress to determine to whatextent a State court shall be permitted toentertain actions against national banks andhow far these institutions shall be subject toState control, is undeniable. National banksare quasi-public institutions, and for thepurpose for which they are instituted arenational in their character, and, within con-stitutional limits, are subject to the control ofCongress and are not to be interfered with byState legislative or judicial action, exceptso far as the lawmaking power of the Govern-ment may permit." (Van Reed v. People'sNational Bank, 198 II. S., 554, 557.)

Whether the Federal or State courts havejurisdiction in quo warranto proceedings againstnational banks was the subject of discussionin the case of State ex rei Wilcox v. Curtis (35Conn. 374), in which it was held that an infor-mation in the nature of a quo warranto wouldnot lie in a State court to try the right to theoffice of director in a national bank.

II. CONSTITUTIONALITY OF SECTION 11 (K) OFTHE FEDERAL RESERVE ACT.

(1) Every intendment is in support of the constitution-ality of the act. The courts invariably hold that anact of Congress is constitutional unless its repugnancyto the Constitution is clearly apparent. (Several casescited.)

(2) It is well settled that Congress has the power toincorporate banking associations to be used asinstrumentalities of the Government in the conductof its fiscal affairs. (Numerous cases cited.)

(3) The power to create carries with it the power topreserve. Congress may vest national banks withany powers it deems necessary to preserve the na-tional banking system or the corporate entity ofindividual banks.

(a) The powers granted to such an association may be either publicor private in nature.

This question was considered by this courtwhen the constitutionality of the act of Con-

gress creating the first bank of the UnitedStates was before it. An effort was made atthat time to sustain the contention that whileCongress might have the power to incorporatea bank to be used as an instrument of theGovernment in the conduct of its fiscal affairsit could not vest corporations so created withthe capacity to engage in private business, butcould only authorize the exercise of functionsto be performed for the Government. (Osbornv. U. S. Bank, 9 Wheat., 738, 861; McCullochv. Maryland, 4 Wheat., 316, 401.)

It is clear that a banking corporation createdby Congress may be vested with powers of aprivate nature to be used for its own advantageas well as with the power to perform publicfunctions.(b) Every banking association organized under Federal law since

1791 has been endowed with powers purely private in nature,which powers have been exercised for its own advantage in legiti-mate competition with other corporations.

When the first Bank of the United. States wasorganized (1791), powers of the most generalcharacter were conferred upon it. It wasenacted (Feb. 25, 1791, 1 Stat., 191, 192, c. 10)that a bank of the United States should beestablished with a prescribed capital stock, thesubscribers to which were made a corporation,with power to take personal property, to selland dispose of it, and to "put in execution suchby-laws, ordinances, and regulations as shallseem necessary and convenient for the govern-ment of the said corporation, not being con-trary to law, or to the constitution thereof,"and "generally to do and execute all and singu-lar acts, matters, and things which to them itshall or may appertain to do/ ; subject to therestrictions * prescribed by the act. Thoserestrictions limited the real estate holdings ofthe bank, prohibited the purchase of publicdebts and trade in commodities, and limitedthe amount of indebtedness which could beincurred. The bank was thus clothed withgeneral powers to transact a banking businesssubject to few restrictions.

The charter of the second United StatesBank (1816) was of a similar broad and com-prehensive nature. (Act Apr. 10, 1816, 3 Stat.,266, 269, c. 44.)

While the powers granted to national banksby the act of 1864 were more restricted thanthe powers granted to the first and second banksof the United States, they were, nevertheless,intended to enable such associations to engagein the banking business to the same extent asother banking corporations organized at thattime under State laws.


AruiL 1,1917. FEDEBAL RESERVE BULLETIN. 257

(c) These powers, though private in nature, need not be even inci-dental to the conduct of the Government's fiscal affairs. It issufficient if they are necessary to the successful operation of thebank. The character of the powers and the degree of their necessityare matters «f legislative discretion.

It is not essential that any particular power

vested in a national bank shall be incidental ornecessary to the conduct of the Government's Ifiscal affairs, but it is sufficient ifsucli power is,in the discretion of Congress, necessary to the,successful operation of the hank. (Osborn v. U.S. Bank, supra.)

It is clear that Congress not only has author-ity to grant to national banks powers which inthemselves are not incidental to the perform-ance of a public function, but it is necessarythat it should do so in order that the agencyselected by it may efficiently serve the Gov-ernment when called upon to render any pub-lic service.

When national banks were created the powersvested in them were designed to enable themto perform public services and to engage inprivate business for their own advantage. Intheir public capacity they may be used as fiscal jagents of the Government, as Government de- jpositories, and can and do help materially in jthe emission of currency and in the transfer of jGovernment funds from one part of the country •to another. j

It is at once manifest, however, that if Con-gress had. limited the powers of national banks jto the exercise of these functions the}" couldnot have existed as corporations, and hencecould not have performed the services required |of them. i

The deposit of Government funds in. a na-tional bank designated, as a depository involvesan expense to the bank, which is required to ipay interest on such deposits, and unless it ispermitted to lend these "funds to its customers jit will receive no compensation for the serviceof acting as a Government depository. Itsrevenue is earned from the use of its funds. Itmust, of necessity, derive its sustenance pri-marily from its banking operations conductedfor its own advantage, as distinguished from jits banking operations conducted as an agent |or instrument of the Government, and since !this is true those powers which are necessary to ipreserve and sustain the corporation are to that jextent necessary to the Government, and the |grant of such powers has been repeatedly held to Ibe within the constitutional power of Congress, j

That Congress in the exercise of reasonablediscretion must determine what means arenecessary to accomplish the proper executionof any power conferred on it by the Consti-

tution, is settled beyond all dispute. (Casescited.)• That the addition of the powers specified insection 11 (k) does not constitute an unreason-able exercise of this discretion, will appear froma consideration of the character of such powers.(d) While it is not essential that the powers conferred be Incidental

to the ordinary banking functions, nevertheless the powers specifiedin section 11 (k) are, in fact, exercised quite generally by corpor-ations which also exercise commercial banking powers and aresimilar in many respects to other corporate powers exercised bycommercial banks, including national banks.

While Congress is given a wide discretion indetermining what means shall be employed topreserve the integrity of the national-bankingsystem and the several national banks, andmight, if it deemed necessary, vest in suchbanks powers not ordinarily exercised bybanking corporations, in the present case thepowers added are peculiarly appropriate tobanking institutions.

It is probably true that at the time the na-tional-bank act was passed the right to act inthe capacity of trustee, executor, or adminis-trator was not regarded as a banking functionnor as incidental to any banking power.

It is probably equally true, however, thatthis right was not then generally regarded as acorporate function at all, since the selection ofcorporations to act in fiduciary capacities is ofcomparatively recent development in this coun-try. An individual rather than a corporationwas then selected and this is still true in manysections of the United States. In so 1'ar asthese powers have become functions of corpo-rations, other than trust companies organizedfor the sole purpose of doing a trust business,they may be said to have been confined to thatclass of corporations the earnings of which arederived from the loan or investment of fundsat interest and that they are more nearly alliedto the banking business than to any othor.

It woud be difficult to define with any degreeof accuracy what constitutes ''recognized bank-ing powers/7 since there is little uniformity inthe laws of the several States prescribing thepowers which may be engaged in by bankinginstitutions. A composite definition oi bank-ing, including an enumeration of the charterpowers of banks organized under State laws,would include a very large proportion of allcorporate powers, and it is this fact that nodoubt influenced Congress in determining toextend the powers of national banks in orderthat they might be placed on a more nearlyuniform basis with other banking institutions.In enlarging the powers of national banks, how-ever, it added only those which have in the


258 FEDERAL RESERVE BULLETIN. AntiL 1, 1917.

natural development of banking become inci- Idental to this class of business. !

The argument has been made that the rela- \tionship which exists between a national bankand its customer is ordinarily that of debtorand creditor; that this relationship differs fromthat of trustee and cestui que trust, and accord-ingly a national bank can not consistently bevested with the power to act as trustee or inany other fiduciary capacity.

It is somewhat difficult to appreciate theforce of this argument when we consider thatthe relationships of "debtor and creditor,""principal and agent/' and "trustee and cestuique trust" have been demonstrated by experi-ence to be so interrelated as corporate func-tions and so frequently incidental each to theother that it is the rule rather than the excep-tion for the same corporation to act in each ofthese capacities.

Trust companies organized for the purpose ofacting only in the capacity of fiduciaries have,as an incident of the performance of some trustfunction, become debtors or creditors of theircustomers. Beneficiaries of trust estates havefound it advisable or convenient to leave ondeposit with the trust company which acted astrustee their share of the proceeds of a distri-bution of an estate to be held subject to theorder of the beneficiary and not for reinvest-ment by the trustee. In such case the rela-tionship between the trust company and thebeneficiary is changed from that of trustee andcestui que trust to that of debtor and creditor.It was probably due to a development of thispractice that trust companies by a process ofevolution gradually entered the field, of whatwas popularly known as commercial banking.That is to say, having received deposits fromthose for whom they had acted as trustees andhaving thus been placed in funds held subjectto the same conditions as demand depositsheld by commercial banks, trust companiesnaturally sought investments in those short-term self-liquidating securities invested in bycommercial banks. This was obviously neces-sary because the deposits so held were subject jto check and were payable on demand. Thesedemands could not be met in due course if suchdeposits were invested in those long-termsecurities in which trust funds are ordinarilyinvested. The practice of receiving funds ondeposit from beneficiaries of estates held intrust having proved remunerative to trustcompanies, it was natural that such companiesshould solicit similar deposits from others,thus increasing their earning power.

As the demand deposits of such companiesincreased, the demand on their part for short-term investments in commercial paper andother securities increased as a matter of course,thus bringing them into greater and moreactive competition with national banks.

The increasing activity of the trust com-panies in the general commercial banking busi-ness is clearly illustrated in one of the exhibitswhich accompanies the report of the Comp-troller of the Currency made to Congress pur-suant to the requirements of law for theyear 1915. This exhibit consists of an analy-sis of the business of trust companies madeup from reports furnished the comptroller bymore than 90 per cent of the trust companiesdoing business in the United States. Fromthis report it will appear that the aggregatedeposits in trust companies have increasedfrom $85,025,371 in 1875 to $4,216,017,244 in1915. National bank deposits, according tothe comptroller's report, increased during thesame period from $696,652,020 to $6,611,218,-000. The trust companies, therefore, helddeposits in 1875 equal to about 12 per cent ofthe amount held by national banks, while in1915 the deposits in trust companies amountedto approximately 66 per cent of the depositsheld by national banks.

While the trust-company deposits are notclassified in this report until 1909, it will beobserved that in 1915 demand deposits subjectto check amounted to $2,652,323,201, whereasdemand certificates of deposit aggregated$94,827,754, certified checks $14,787,783, andcashiers' checks $23,386,418. These figuresindicate what a great proportion of the totaldemand deposits is of the kind formerly con-sidered peculiar to the business of a commercialbank; that is, deposits subject to check with-out notice. They equal approximately 96 percent of the total demand deposits of the trustcompanies exclusive of savings deposits whichmay be either demand or time deposits.

It thus appears that the commercial bankingbusiness has become so closely allied to theother activities of trust companies that it maybe said now to be incidental to the business ofa trust company.

On the other hand, commercial banks, evenprior to the passage of the Federal ReserveAct, were at times required to assume trustrelations as an incident of their business.

They not infrequently came into the pos-session of funds impressed with a trust. Forexample, in the case of American Can Co. v.Williams (178 Fed. Rep., 420) it was held that


AT KM. 1, 1917. FEDERAL RESERVE BULLETIN. 259

when sight drafts attached to bills of ladingwere delivered to a national bank for collectionand remittance the relation of trustee andcestui que trust undoubtedly existed. (Othercases cited.)

The powers specified in section 11 (k) of theFederal Reserve Act appear, therefore, to bemore nearly incidental and more-closely relatedto the business of banking than to that of anyother class of corporations, except those organ-ized solely for the purpose of acting in fiduciarycapacities. Such powers do not differ ma-terially from other powers vested in nationalbanks.

Under the provisions of the National BankAct, banks may receive deposits; may dis-count notes, drafts, bills of exchange, and otherevidences of debt; may lend money on per-sonal security and may make such investmentsof their funds as are permitted by the NationalBank Act. All of these operations are con-ducted in their private capacity and for theirown advantage. They necessarily involvetrading with persons and dealing in propertywithin the borders of a State.

The relation created is contractual whetherfunds are received on deposit subject to in-vestment by the national bank in accordancewith the laws of the United States or whethersuch funds are received in trust subject to in-vestment according to the provisions of theinstrument creating the trust or the laws of theState which relate to the administration of thetrust estate. But without the aid of section 11(k) national banks are confined to trusteeshipswhich result from the operation of law, whiletheir competitors—trust companies and manyState banks—may voluntarily act in the capac-ity of fiduciaries and at the same time may com-pete with national banks in the more limitedHeld of commercial banking.

That there is no inconsistency in combiningin one corporation fiduciary powers and com-mercial banking powers is abundantly illus-trated by an analysis of the State laws relatingto the incorporation of financial institutions.(e) The laws of 44 of the 48 Slates and also of the District of Columbia

provide for the formation of corporations with authority to exerciseboth fiduciary powers and commercial banking powers.

An examination of the laws of the variousStates shows that though there were very fewcorporations of any kind possessing fiduciarypowers prior to the passage of the NationalBank Act in 1864, at the present day the lawsof every State in the Union authorize corpora-tions to exercise certain trust powers, and in44 of the 48 States the laws permit a single

corporation to exercise not only fiduciarypowers but also commercial banking powers.

Whether commercial banks are allowed toexercise trust powers or trust companies areallowed to exercise commercial banking powersis, for the purpose of this discussion, immaterial.The point to be considered is the competitiveforce given to a single corporation endowed

|. with both, classes of powers. It was that fact! which Congress was under the necessity of con-i sidering and which not only justifies the actionof Congress in giving trust powers to nationalbanks but which made swell action imperative.

I The court's attention is directed to the facti that in various States corporations may, upon: compliance with various rules and regulations| dependent upon the laws of each State, excr-! cise at one and the same time both fiduciarypowers and general banking powers. (Refer-

= ences to State statutes.)| The only States not included are Michigan,; Nebraska, Pennsylvania, and Wisconsin. In: many of the States, State banks, and in some of| them, even national banks are expressly au-i thorized by the State laws to do a trust busi-; ness; in others the State law provides for the; formation of joint banks and trust companies,: and in the majority of them the law expresslyauthorizes trust companies to do a general

i banking business. The result in all cases,: however, is a single corporation, whetherj called a bank, a trust company, or a bank and| trust company, possessing the power to do both1 a commercial banking and trust business.

| (f) In order to compete successfully with corporations organized or; operating under State banking laws, national banks must be giveni powers substantially similar io those enjoyed by such State cor-i purations. It was therefore not an unreasonable exercise of its! discretion for Congress to determine that the powers of national

banks should be enlarged by the addition of "those specified in. section 11 (k) of the Federal Reserve Act.

| When the act of 1864 became a law a national| bank organized under that law was authorizedl (13 Stat., 10.1), to exercise by its board of' directors, or duly authorized officers or agents,I subject to law—I "all such incidental powers as shall be neces-sary to carry on the business of banking; bydiscounting and negotiating promissory notes,drafts, bills of exchange, and other evidencesof debt; by receiving deposits; by buying andselling exchange, coin, and bullion; by loaningmoney on personal security; and by obtaining,issuing, and circulating notes according to theprovisions of this act."

The genesis of the legislation creatingnational banks, as well as the subsequentcourse of such legislation, is consistent only


260 FEDERAL RESERVE BULLETIN". APRIL 1,1917.

with the theory that Congress intended thatthese banks should have in general powerssimilar to those exercised by other bankinginstitutions organized under State laws. Thewords quoted were not intended as a limita- Ition upon the incidental powers appropriate to a 'banking business but were intended to confer jin broad outline the usual banking powers, j(Pattison v. Syracuse National Bank, 80 N. Y.,82, 89.)

Since that time a number of powers andprivileges have been conferred upon Stateinstitutions so that the powers enumerated jin section 5136, 'Revised Statutes, above 'quoted, can no longer foe said to constitutethe "usual formula, descriptive of the bankingbusiness, contained in bank charters.77

Congress has found it necessary from time ;to time to modify the restrictions imposedupon national banks in order to enable themto compote) successfully with State institu-tions. For example, by the act of June 22, :1906 (34 Stat., 451, c. 3516), it permittednational banks to lend to one person, firm,or corporation an amount equal to 10 per centof the capital and surplus of the lending bankinstead of an amount equal to 10 per cent of !

its capital. By the act of March 14, 1900 (31 iStat., 45, 48, c. 41), it authorized the incorpora-tion of banks with $25,000 capital under cer-tain conditions, thus reducing the minimumamount ($50,000) required before the passage ,of this act. By the act of June 20, 1874 (18 !Stat., 123, c. 343), it amended section 5191, ;Revised Statutes, so as to require no reserve !to be carried against circulation, thus increas- !ing the lending power of such banks. i

Prior to tho passage of the Federal ReserveAct, however. Congress had not in any sensekept paco with State legislatures in tho exten-sion of corporate banking powers, and the dis-crepancy between State banking powers andnational banking powers had become a sourceof serious concern to those engaged in thebanking business under national charters. j

When section 9 was incorporated in theFederal Reserve Act, giving to State banks andtrust companies tho right to obtain the benefitsof the Federal Reserve System, this discrepancybecame a matter of even more serious moment,since it deprived national banks of certain ad-vantages which up to that time had served tooffset to some extent the broader powers en-joyed by State banks and trust companies.State banks becoming members of the FederalReserve System under section 9 of the Act areentitled to the privilege of obtaining Federal

Reserve notes and of rediscounting commercialpaper. They may be designated as Govern-ment depositories by the Secretary of the Treas-ury and enjoy practically all of the privileges ofnational banks except the privilege of issuingcirculating notes against the security of Gov-ernment bonds, and this is largely offset by theprivilege of obtaining Federal Reserve notes.

With these faculties added to the advantagesalready enjoyed by reason of the broader cor-porate powers of State banks and trust com-panies, it became imperatively necessary forCongress, in order to preserve the integrity ofthe national banking system and of the bankscomposing this system, to enlarge to some ex-tent the competitive powers of national banksby giving them rights and privileges somewhatsimilar to those already enjoyed by competingState corporations.

In addition, therefore, to extending thecorporate powers of national banks by au-thorizing them (1) to increase their loaningpower (section 19, Federal Reserve Act), (2)to loan money under certain restrictions onthe security of real estate (section 24, FederalReserve Act), and (3) to accept drafts or billsof exchange based on the exportation or im-portation of goods (section 13, Federal ReserveAct), Congress also provided that, with thepermission of tho Federal Reserve Board, suchbatiks should have the right to act as trustee,executor, administrator, and registrar of stocksand bonds (section 11 (k), Federal ReserveAct), in order to enable them to compete with,those State corporations which possess bothfiduciary and commercial banking powers.By an amendment to the act approved Sep-tember 7K 1916 (39 Stat., 752), 'Congress hasattempted to still further coordinate thopowers of national banks and those createdand organized under State laws, (1) by au-thorizing national banks to accept drafts andbills of "exchange in certain domestic trans-actions (section 13, as amended); (2) by au-thorizing banks under certain conditions tosubscribe to stock of banks engaged in inter-national or foreign business; (3) by permittingbanks to lend on city real estate under certainconditions and subject to certain restrictions;(4) by permitting those banks located in placesof less than 5,000 inhabitants to act as theagent for insurance companies and as brokeror agent for others in making loans under cer-tain prescribed conditions.

The burden of showing that Congress hasexceeded its powers in enacting section 11 (k)into law rests upon the defendants in error, and


APRIL 1,1917. FEDEKAL BESEEVE BULLETIN. 261

(assuming for the moment that there is noquestion of the delegation of legislative au- !thority) unless proven affirmatively to thesatisfaction of the court that Congress hasgrossl}' exceeded its discretion in determiningthat the powers conferred by section 11 (k)are necessary to the successful operation of thenational banking system, it is respectfullysubmitted that there is no basis for the con-tention that this section is unconstitutionaland void.

It is to be noted that, notwithstanding this !burden is upon defendants in error, they have !failed to present any evidence to indicate thatCongress abused its discretion in determiningthat fiduciary powers were necessary adjunctsto the operations of national banks at the ;present time.

(4) Section II (k) has a direct relation to the underlying Ipurpose of the Federal Reserve Act, to wit, the crea- ition of a new basis for nonmetallic currency, to be jsupported by a cohesive banking system which should !include a majority of the banks of the United States,and insure a currency stable in character and elasticin volume.

"Wliile it is in no sense necessary under the ;decisions of this court that the private powersgranted to national banks should be related orincidental to the public functions performed by j

such banks, nevertheless the grant of powers :specified in section II (k) was in fact an appro-priate means selected by Congress not only, ofinsuring to banks composing the Federal Re- 'servo system an adequate supply of commer- ;cial paper to be used as security for Federal Ireserve notes, but also of establishing the sys- jtern itself upon the broadest basis of member- Iship. It was designed both to protect bankswithin the system from unequal competitionwhich might destroy their allegiance, and toinduce those without the system, to enter it. jOne of the purposes of the act, which is aided jby section 11 (k), was the creation of a new!basis of nonmetallic currency to be supportedby a cohesive banking system, such system to \include a largo majority instead of a minorityof the banks of the United States as at present, jThis new system, while insuring by appro-priate safeguards the stability of notes circu-^fating as currency, will also provide for elasti- 'city in its volume. In this view the grant ofthese powers is directly connected with animportant governmental function, namely, thecreation of a uniform, sound, and stable cur-rency system. An analysis of the purposes ofthe Federal Reserve Act will show the relationof section 11 (k) to the new currency system.

Such an analysis makes necessary a briefreview of the history of currency legislationand a consideration of some of the defects ofthe financial system which the Federal ReserveAct was intended to correct.(a) The currency system created by the national bank act was

made necessary by lack of uniformity and by instability of theState bank note.

After the liquidation of the second bank ofthe United States in 1836 the fiscal affairs of theGovernment were conducted without the aid ofany banking institution organized under thelaws of the United States until tho nationalbanking system was created at the close of theCivil War. Collections and disbursements ofGovernment revenues during this period weremade in specie.

In the stress of the Civil War, when the Gov-ernment was under the necessity of borrowinglarge sums of money and the people at largewore struggling with tho evils of a depreciatedpaper currency, consisting of United Statesnotes and notes of some 1,400 State banks,some good and more bad, the national banksystem was created.

This system was in brief the incorporation ofa number of banks under national charters andunder Federal supervision which were author-ized to engage in a general banking business inthe several States. Each of these nationalbanks was permitted to issue its bank notes,uniform in character, against and based uponan equal amount of United States bonds ownedby the banks but deposited with the Treasurerof the United States as collateral security forthe notes issued. Two of the main purposesof the act which brought this system" intoexistence were to create an enlarged marketfor United States bonds and to establish inthe country at large a uniform and reliablenonmetallic currency. (Cases cited.)

While tho national bank note was issued andpermitted 'to circulate under appropriate safe-guards designed to insure its stability, so longas several hundred State banks placed theirnotes in circulation, without these safeguards,it was of course impossible to bring about uni-formity in the value of this form of currency.Accordingly, on July 13,1866 (14 Stat., 98, 146,c. 184), Congress found it necessary to pass anact which placed a prohibitive tax on all circu-lating notes of State banks. This act drovemany of the State banks into the nationalsystem—just as Congress intended. (VeazieBank v. Fenno, 8 Wall., 533, 549.)

The initial failure of the system of nationalbank currency came from the fact that the


262 FEDERAL RESERVE BULLETIN. APRIL 1, 1917.

State banks continued to do the main bankingbusiness of the country and to be the mainhandlers of currency. The success of the sys-tem was expedited by the statute above re-ferred to, which put the State banks out ofbusiness as banks of issue and. thus left in cir-culation only those notes which were issuedand redeemed under appropriate safeguards.

t j(b) Experience has demonstrated that while the national bank ac

provided a uniform and stable currency system it lacked elasticity •and was otherwise defective.

In the period following the Civil War, andparticularly in the period from 1885 to 1913,difficulties developed in the national banking jsystem.. I

The first difficulty lay in the fact, clearly junderstood by the banking community, that |the currency was not sufficiently elastic. Inas- jmuch as it was based on a nonelastic basis, i. e., jthe United States bonds owned by the banks,there was no way in which the bank-note cur-rency could quickly and easily adapt itself to |the varying demands for a proper circulating !medium—as, for instance, in crop-moving pe- !riods, when there was need for a much greater jamount of currency.

A second defect in the national banking sys-tem was the immobility of bank reserves—due jto rigid reserve requirements by which each |bank kept its metallic reserve against liabilities jin its own vaults or with some other bank in jthe large cities. The result of this system ofscattered reserves was that in times of financialstress and falling prices there were likely to |occur currency panics, which paralyzed the |credit of the whole country and demoralized jprices and markets. At such times each bank, jselfishly fearing for its own position, hoarded \currency and at the very worst of times calledloans, with the inevitable result of shaking:public confidence in the soundness of the jcountry's financial institutions. This was |demonstrated in the panic of 1907. ' I t is need- jless to describe in detail these currency panics |peculiar to the United States. They were Irightly attributed to the lack of cohesion in our jbanking structure and illustrated the worstdefect of our currency and banking system.1

1 The reports which accompanied the introduction of the Fedora1

Reserve Act in both the House and Senate show how keenly Congresswas alive to these difficulties.

Thus the House report (II. Kept. No. 69, 63d Cong., 1st sess., p. 4)states:

" I n view of the lack of any factor of unity the national banks have |failed to furnish to the Nation as a whole a single and powerful system jof credit. The strength of the credit situation in each community has •depended upon the strength of the banks there situated, and. evcept in !

times of stress, has even in these communities boon measured by the istrength not of the strongest, but of the weakest institution "there ;located." j

In addition to these inherent defects theconstantly increasing activities of trust com-panies in the field of commercial banking hadproven a serious menace to the national banks.From 1895 to 1907 there had been an enormousand, as compared with the national banks, adisproportionate growth in the commercialbanking business done by trust companieswhich were outside the national-bank system.They shared, and still share, banking predom-inance with the largest and strongest"nationalbanks. The result was that by 1913 the trustcompanies had become the "department storesof finance."

It was therefore evident that any newbanking system which sought to check currencypanics like the panic of 1907, by joining thesound commercial banking institutions of thecountry together, could not leave out of consid-eration the trust companies which had becomesuch important factors in this field of activity.(c) The Federal Reserve Act is designed to remedy these defects

while preserving uniformity and stability.

In order to remedy these defects in our finan-cial system the Federal lieserve Act providesfor (a) the creation of a new basis of" issue ofcirculating notes, (6) for the mobilization ofbanking reserves, and (c). for the inclusion ofState banks and trust companies in the Federalreserve system.

Under the Federal Reserve Act the countryis divided into 12 districts. The nationalbanks of each district are compelled to con-tribute a certain proportion of their capital toform a strong Federal reserve bank, the re-

The Senate committee was unable to agree on detaiJs and reported theHouse bill without recommendation. (S". Repi. No. 133, pt. 1? 63d Con<..1st sess.) The views of the members of the committee wore printed asparts 2 and 3 of the report. The report states (pt. 2, pp. 7. 8):

" [Join sections of the committee, however, agreed'on the great funda-mentals of the 1 >ill—that is:

"First. On the necessity for greater concentration of the bankingreserves of the country.

"Second. The volume of such reserves."Third. The volume of the capital of the proposed banks."Fourth. The mobilization of such reserves."Fifth. The promotion of an open discount market."Sixth. The provision for an elastic currency; the issuance of Fedora]

reserve notes.* * * * *

" The chief purpose of the banking and currency bill is to give stabilityto the commerce and industry of the United States, prevent financialpanics or financial stringencies: mate available effective commercialcredit for individuals engaged in manufacturing, in commerce, in finance,and in business to the extent of their just deserts; put an end to the

"pvramiding of the bank reserves of the country and the use of suchre'ser res for gambling on the stock exchange.

" In order to accomplish these results there are certain great funda-mentals recognized by all experts as essential and necessary, to wit:

'•First. The proper concentration of the bank reserves of the countryunder the control of the banks themselves, safeguarded by governmentalsupervision.

"Second. A suitable banking capital as a margin of safety."Third. Placing the larger part of the Government'funds with such

banks, where they may be used in the service of the national commerce."Fourth. Authorizing the issuance of elastic currency against liquid

commercial bills under proper safeguards." * * *


APRIL l, 1917. FEDERAL RESERVE BULLETIN. 263

sources of which are conserved primarily for themember banks of that district. Any memberbank may at any time take to its Federal re-serve bank sound, short-time commercial paper(which it has discounted for the business com-munity), indorse it, and rediscount it with theFederal reserve bank.

The Federal reserve bank may deposit thispaper with its Federal reserve agent (the localrepresentative of the Federal Reserve Board)as security for an issue of Federal reserve notes,and upon setting aside a gold reserve equal to40 per cent of the amount of commercial paperdeposited may obtain Federal reserve notesecjual in amount to 100 per cent of the commer-cial paper deposited. These notes, which areobligations of the United States, are a newform of currency redeemable ultimately by theFederal reserve bank but which are backed bythe credit of the United States.

By the scheme thus generally outlined,which is carried on under the supervision ofthe Federal Reserve Board, a new basis ofcurrency is provided. These notes, instead ofbeing issued against United States bonds, asthe national bank notes are, are based upon,and the amount of them is measured by, thecommercial paper received by the memberbanks in the ordinary course of their so-calledprivate business and rediscounted with theFederal reserve banks: Thus, under the newsystem, because the member bank can alwaystransform its sound commercial paper intocurrency at the Federal reserve bank, it is ex-pected that the amount of currency out-standing will, as in other countries, auto-matically vary with the demands of businessand will be immediately obtainable at anytime it may be needed by the banks.

The volume of Federal reserve notes issuedmust necessarily depend upon the volume ofcommercial paper obtainable from memberbanks.

It is therefore apparent that, in so far as theState banks and trust companies remain but-side the Federal reserve system, by so muchthe Federal reserve system must fail in fur-nishing a completely elastic currency.

To make the new currency basis efficient itshould ultimately include all the sound com-mercial banks of the country, and to avoid thecurrency panics, such as the panic of 1907, allthe sound commercial banks as opposed to thespeculative institutions of the country shouldbe united and their credit and reserves mobil-ized through the Federal reserve system. The

87199—17 1

Federal Reserve Act by admitting State banksand trust companies to membership makesthem Federal agencies for regulating the cur-rency.(d) Section 11 (k) is a necessary factor in providing a more elastic

currency and in insuring stability of the new currency systemprovided by the act.

It follows from this review that section 11(k) is not an unrelated phrase, flung in toplease some national bank stockholder so thathe may make more profit; it is not simply ascheme to increase the private faculties andprivate business of the national banks, but ittoo has a real place and part in the scheme ofthe Federal Reserve Act. Undoubtedly ittends to enlarge the powers of the nationalbanks, and tends to invade the fields of ac-tivity of the State trust companies. Ouropponents see in that its vice; on the contraryit is a constitutional justification.

Section 11 (k) is obviously an importantfactor in the creation of a new basis of currencyissue. It is necessary to offset the invitationto State banks and trust companies to join thesystem. If trust companies become memberbanks, they receive all the advantages of mem-bership in the system, including the stabilityand standing that comes from Federal super-vision and the ability to obtain currencythrough their Federal Reserve Banks—and,since they already enjoy broader corporatepowers than national banks, will become stillmore dangerous competitors unless the powersof national banks and trust companies are morenearly coordinated.

On the other hand, even if trust companies donot, in large numbers, join the Federal ReserveSystem (and as a matter of fact they have not),nevertheless, unless the powers of nationalbanks are enlarged in order that they may com-pete with the trust companies which remainoutside of the Federal Reserve System, thesetrust companies will continue their growth andthe gradual acquisition of the commercialbanking business of the country at the expenseof the national banks. If this process goes onfor the next 10 years as it has in the last 20, thenin 10 years the Federal Reserve System may failor break in a panic—just because the basis ofthe currency will have become not the com-mercial paper of the country but only a smallpart of it, and because there will again be lack-ing the necessary cohesion among the mainbanking institutions of the country.

A successful and sound plan to regulate thecurrency of a country must have the coopera-

| tion of the predominant financial institutions


264 FEDERAL RESERVE BULLETIN. APBEr, 1,1.917.

of the country which are engaged in loaningmoney and credit. The true purpose of sec-tion 11 (k) is to coordinate the powers of na-tional banks and trust companies so that trustcompanies shall not, by their success andpower outside the Federal Reserve System, con-tinue such a menace to the system as to curtailits usefulness.

It may be unimportant to the Federal Gov-ernment whether or not national banks makeany considerable profit from the trust businessso long as the profits earned from all sources aresufficient to sustain them and to enable them toperform satisfactorily their public functions.It is important, however, to the Governmentthat national banks shall continue bankingpreeminence and shall continue to do theirshare of the commercial banking business. Toretain banking preeminence it is most importantthat the national banks should be able to offerto the general public the same conveniences(as to execution of trusts) afforded by theirchief rivals, the trust companies, the " depart-ment stores of finance.77

The fact that the trust companies have anenormous advantage in gaining commercialbanking business is made evident in severalways. First, the stockholders of national,banks of the large cities have in many instancesunited to form a trust company to be operatedby the same officers which operate the bank,and have thus practically started trust depart-ments, but with the necessary handicap ofmaintaining a separate organization. Second,it is notable that some of the States, in order toprotect their State banks against the compe-tition of the trust companies (operating underthe laws of the same State), have permittedtheir banks to exercise some or all of the func-tions of trust companies.

This is true of Illinois, Georgia, Idaho, andNevada. (See statutes, supra, pp. 28-31.)The same course has been followed m the lawsof New Zealand and England. The FederalGovernment in granting trust powers to na-tional banks by section 11 (k) is simply protect-ing the banks against trust company competi-tion in the way which the States themselveshave pointed out.

It is in the light of that history and thosepurposes that we must consider the constitu-tionality of section 11 (k) as a part of a com-plete scheme wisely adopted by the NationalGovernment to regulate the currency of thecountry, and to protect commerce between theStates "from the destructive effect of recurrentpanics.

(5) The section is not a delegation of the legislativeauthority. The Federal Reserve Board is not em-powered to permit any national bank to exercise anyfiduciary power not enumerated in section 11 (k).Its power is administrative, not legislative.

The second ground of demurrer assigned bydefendants in error was—

" Because, even if Congress itself possessedthe authority to confer upon national banksthe corporate powers specified in said section 11(k), it can not lawfully delegate such authorityto the Federal Reserve Board."

It was argued that Congress by this sectionhas not granted any powers to national banks,but has undertaken to delegate to the FederalReserve Board the power to legislate on thissubject. (Many cases cited.)

In the present case the congressional rule isas fully defined as the circumstances will per-mit. National banks are to have the power toact as executor, administrator, and trustee onlywhen not in contravention of the State or locallaws, and when the particular bank is theproper institution to act in the fiduciarycapacity. The definite standard is the Statelaw and the fitness of the bank. The bankswhich may apply are many, and their circum-stances varied. Higher capitalization or alarger surplus may be necessary in some com-munities than in others. The banks in theFederal reserve system-, moreover, constituteone single system under the general businessand governmental supervision of the reserveboard. Discretionary power is appropriatelyvested in their general managers.(6) Neither the granting nor the exercise of the powers

in question involves any Invasion of the sovereignrights of the States. The opinions of the Illinoisand Michigan courts in this regard are based upon amanifest misapprehension of the effect of the exerciseof these powers.

In declaring section 11 (k) unconstitutional,the Supreme Court of Illinois, like the SupremeCourt of Michigan, reached the conclusionthat when Congress undertook to vest trustpowers in national banks it invaded therights of the States. (People v. Brady,supra.) It is somewhat difficult, however,to determine from either opinion in just whatway the rights of the States are supposed to beinvaded. The powers specified in the actcan not be exercised except "when not incontravention of State or local law/7 and sono conflict can arise as between any State lawand the Federal statute under consideration.The right of a State to legislate on the subjectof trust estates is not impaired nor affected.The administration of State laws is in no way


ATB.U, 1, 1917. J'EDEEAL EESEBVE BULLETIN. 265

interfered with. No State is deprived of anycontrol over persons or corporations acting astrustees, executors, or administrators withinits borders. Congress has merely vested innational banks the capacity to act whenselected by the parties in interest and whenpermitted by State or local law. It hasexpressly given to the State the right to placenational banks in the class of those underdisability.

It would seem, therefore, that the Illinoisand Michigan courts have concluded thatnational banks vested with trust powersmay invade the field .of activity of trustcompanies and that such an invasion con-stitutes an invasion of the "sovereignty ofthe States" because trust companies arecreated by the States. Such a contentionis merely a revival of the argument that noFederal agency can be vested with any privatepower. It is at once manifest that the sameargument would apply with equal force to aninvasion by national banks of the field .of•commercial banking, since State banks whichengage in this class of business are likewisecreated by the States. While this appearsto be the only basis for the contention thatthere has been an invasion of the rights of theStates, even this theory is not consistent withother parts of the opinions of the Illinois andMichigan courts since both courts concedethe right of Congress to create national banksand to vest them with private powers. The !underlying thought in 1x>th opinions appears jto be that in some vague and indefinite way jnational banks, if vested with trust powers, jmay prove a menace to the State's control |over property within its borders and for this Ireason the act is unconstitutional. |

The Illinois court held that the exercise oftrust powers by national banks would contra- ivene the laws of that State. That part of thedecision., therefore, which declared section 11(k) unconstitutional was in the nature of dicta.It might be assumed that under these circum-1stances it would not have deemed it neces- 's&ry to consider the constitutional question jinvolved unless it was apparent that Congress !grossly abused its authority. An analysis ofthe opinion, however, makes it clear that there jv/ero no facts before the court indicating any 'such abuse. \

It will be observed that after conceding that,Congress had the right to grant trust powers to j.national ba:.iks "if they were reasonably nccos- jsiiry to the efficiency of sach corporations ior •

the purposes of their creation as governmentalagencies/' the court says:

" I t not being shown such added powers arenow necessary to the further success of suchpurposes * * * wTe think the act, in so faras it attempted to confer such powers uponnational banks, is unconstitutional and void."

It thus appears that the court recognizes thatCongress is vested with a discretion in this mat-ter, but contrary to the ordinary rules of evi-dence, sustained by a long line of decisions ofthis court, it held that the burden was on therespondent, now plaintiff in error, to show thatCongress had not abused this discretion, andnot on the relators, now defendants in error,to show that Congress had exceeded its consti-tutional powers. In other words, it presumedthe. act to be unconstitutional and in supportof its position contended that Congress itselfcould not have believed, these powers to benecessary to national banks because it left itto the banks to determine whether or not theyshould be exercised. If this test should beapplied to all corporate powers of nationalbanks it would be difficult to sustain the con-stitutionality of any.

It should be borne in mind that in order toobtain the right to exercise the powers speci-fied in section 5136, Revised Statutes, to whichthe Illinois court referred, it is necessary forthose forming an association to comply withcertain statutory conditions, which include thefiling of an organization certificate with theComptroller of the Currency; that wheneverany corporation so organized desires to changeits name, to increase or reduce its capital stock,to change its location, or in any wise to alter oramend its charter, an application must first bemade to the Comptroller of the Currency andmust be approved by him.

Congress might have provided for a similarprocedure on the part of national banks desir-ing to have trust powers added to their othercorporate powers. Inasmuch., however, as thepenalty prescribed by section 2 of the FederalReserve act for the violation of any of theprovisions of that act is to be enforced underthe direction of the Federal Reserve Board, itwas entirely consistent with the purpose andintent of the act to have application made tothe board and not to the comptroller for theaddition of the powers in question.

The Michigan, court likewise concedes theright of Congress to create national banks andto vest them with private powers. Unlike theIllinois court, it holds that "undoubtedly, all



presumptions are in favor of the constitution-ality of the act in question here and Congressis the judge, within the exercise of its powers,of the functions a national bank should per-form."

The court does not suggest that any evidencehas been submitted or considered tending toshow that Congress has abused the discretionwhich it recognizes, but in holding the actunconstitutional says:

"But in the reasoning of the judges, in theopinions to which I have referred, I find, Ithink, a conclusive argument supporting theproposition that Congress has exceeded itsconstitutional powers in granting to banks theright to act as trustees, executors, and admin-istrators. If for mere profit it can clothe thisagency with the powers enumerated, it cangive it the rig;hts of a trading corporation, ora transportation company, or both. Thereis, as Judge Marshall points out, a naturalconnection between the business of bankingand the carrying on of Federal fiscal operations.There is none, apparently, between suchoperations and the business of settling estates,or acting as the trustee of bondholders. Thisbeing so, there is in the legislation a direct inva-sion of the sovereignty of the State. * * *Such an invasion I think the court maydeclare and may prevent by its order operatingupon the offending agency."

It thus appears that the sole justification forconcluding that Congress has abused its discre-tion in granting to national banks the powersspecified in section 11 (k) is an assumption onthe part of the court that some natural connec-tion exists between what it terms the businessof banking and the fiscal operations of the Gov-ernment and that none exists between the busi-ness of trust companies and the Government'sfiscal operations. The court does not pointout how any particular private power hereto-fore exercised by national banks has a closerrelationship to the fiscal operations of theGovernment than the private powers in ques-tion.

it will be observed that in the case of McCul-loch v. Maryland (supra, p. 364), counsel fordefendants in error stated that a banking cor-poration "in its proper and natural character* * * is a commercial institution, a part-nership incorporated for the purpose of carry-ing on the trade of banking," and, continuing,said: "But what natural connection is therebetween the collection of taxes and the incor-poration of a company of bankers ?•" (Seealso Osborn v. U. S. Bank, 9 T\Tieat., 733,860.)

It would have been useless to concede theright of Congress to create a corporation to beused as an agency of the Government but todeny its right to endow this agency with, thosefaculties which are necessary for its existenceand support.

By analogy, it is equally useless to concedethe right of Congress to endow such an agencywith faculties which a half century ago weresufficient to enable it to live and to perform thefunctions for which it was created, but to denythe right of Congress to add such new powersas may have been made necessary by changedconditions to enable it to meet the increasinglyactive competition of corporations created andorganized under State law.

In the last analysis, the question to be de-termined is, Has Congress the power to preservethe national banking system ? If it can give tonational banks powers similar to those enjoyedby their competitors, the national system canbe preserved and the banks composing this sys-tem can continue to perform the public servicesfor which they were created. On the otherhand, if the legislative discretion of Congress isdetermined to be so limited that it can not co-ordinate the powers of national banks, Statebanks, and trust companies, it is inevitable thatsooner or later the national system will dis-

: integrate and those who have embarked upon| the banking business will seek their chartersfrom that sovereignty which offers the widerfield of activity and the more certain source ofrevenue.

CONCLUSION.

It is an interesting fact that the reason as-signed for its conclusion that Congress has nopower to grant trust powers to national banks 'is substantially similar to one of the reasonsadvanced by the opponents of the first Bank ofof the United States against vesting that bankwith any private powers.

As illustrating the similarity between thearguments made at that time and the reason-ing of the Michigan court in the present case,

The decision of the Supreme Court of Michi-gan should be reversed and the cause remandedwith instructions to dismiss the information.

New National Bank Charters.

The Comptroller of the Currency reports thefollowing increases and reductions in the num-ber of national banks and the capital of


APRIL 1,1917. FEDERAL BESEEVE BULLETIN. 267

national banks during the period from Febru-ary 24, 1917, to March 23, 1917, inclusive:

Banks.New charters issued to 12With capital of $1,150,000Increase of capital approved for . . 20With new capital of 1,519,990

Aggregate number of new charters andbanks increasing capital 32

With aggregate of new capital authorized 2,669,990

Number of banks liquidating (other thanthose consolidating with other nationalbanks) 8

Capital of same banks 1,325,000Number of banks reducing capital 2Reduction of capital 50,000

Total number of banks going into liquida-tion or reducing capital (other than thoseconsolidating with other national banks). 10

Aggregate capital reduction 1,375,000

The foregoing statement shows the aggregate ofincreased capital for the period of the banksembraced in statement was 2,669,990

Against this there was a reduction of capitalowing to liquidations (other than for con-solidation with other national banks) andreductions of capital of 1,375,000

Netincrease 1,294,990

Fiduciary Powers.The applications of the following banks for

permission to act under section 11 (k) of theFederal Reserve Act have been approved sincethe issue of the March BULLETIN.

DISTRICT NO. 1.

Trustee, executor, administrator, and registrar of stocksand bonds:

Home National Bank, Brockton, Mass.

DISTRICT NO. 2.


Farmers National Bank, Sussex, N. J.Second National Bank, Soinerville, N. J.

Registrar of stocks and bonds:First-Bridgeport National Bank, Bridgeport, Conn.Oneida Valley National Bank, Oneida, N. Y.

DISTRICT NO. 3.


May town National Bank, Maytown, Pa.West Branch National Bank,"Williamsport, Pa.

Trustee, executor, and administrator:National Bank of Topton, Topton, Pa.

DISTRICT NO. 5.Trustee, executor, administrator, and registrar of stocks

and bonds:National Bank of New Berne, New Bern, N. C.


and bonds:Lowry National Bank, Atlanta, Ga.

Trustee, executor, and administrator:Central National Bank, St. Petersburg, Fla.

DISTRICT No. 7.Trustee, executor, administrator, and registrar of stocks

and bonds:Merchants National Bank, Muncie, Ind.First National BanK, Mishawaka, Ind.First National Bank, Council Bluffs, Iowa.

DISTRICT NO. 8.Trustee and registrar of bonds:

American National Bank, Bowling Green, Ky.DISTRICT NO. 10.


First National Bank, Kansas City, Mo.Trustee, executor, and administrator:

First National Bank, Hugo, Colo.DISTRICT NO. 11.

Trustee, executor, and administrator:Citizens National Bank, Roswell, N. Mex.


and bonds:Continental National Bank, Salt Lake City, Utah.

Commercial Failures During February.Commercial mortality in the United States

during the month of February not only showedthe customary falling off from the previousmonth, but displayed a most gratifying improve-ment, both in number and amount of liabilitiesas compared with the corresponding month forseveral 3 ears past. The total number of fail-ures in the past month reported by R. G. Dun& Co. was 1,165, as against 1,540 in January,1,688 in February last year, 2,278 the samemonth two years ago, which was the maximumfor that month, and 1,505 for the correspond-ing period in 1914, while the liabilities were$16,617,883 and §18,283,120, respectively, forFebruary and January this year, and $18,744,-165 in February, 1916.

Separation of these statistics into Federaldistricts reveals sharp contraction in numberin every instance, with the falling off especiallypronounced in the second, third, fifth, seventh,and eighth districts. On the other hand, lia-bilities show gain over last year in three dis-tricts, an increase of approximately $567,000appearing in the fourth, $122,000 in the tenth,


268 FEDERAL. RESE&VE BULLETIN. A:»RIL 1, 1917.

and $1,709,000 in the twelfth. The remainingdistricts, however, all report substantial im-provement, notably the first, with a contractionamounting to about $691,000; the third,$767,000; the sixth, $1,226,000, and the elev-enth, $694,000.

The number of commercial failures and lia-bilities in each district for the month of Febru-ary, this year and last, are compared below:

District.

No 1\\Q 2No 3No 4 . . . .No 5No 6No 7No 8No 9No 10No 11No. 12

Total

Number

1917

99204

659058

11414190515150

152

1,165

1916

I

137W81381?7139157185130626588

162

688

Liabiliti

1917

$657,8283.891.882'470,444

J,461,654934,923

1,098,9381,871,188

770,043375,790680,471518,042

3,886,680

16,617,883

es.

1916

51,348,2004,194,9901,237,250

894,5001,138,6002,224,8502,253,800

976,075527,670558,010

1,212,7202,177,500

18,744,165

Operation of the Clearing Plan.The following table shows briefly the clearing

operations of the Federal Reserve System forthe monthly period ending March 15, 1917,with comparative figures for each of the sevenpreceding months:Operations of the Federal Reserve deariny system, Febru-

ary 16 to March 15, 1917.'

BostonNew YorkPhiladelphia...ClevelandRichmondAtlantaChicagoSt. LouisMinneapolis;Kansas City...DallasSan Francisco..

I Averagei number

of itemshandledclaiiv.

37,56543.56532,89815,73016.79913.35919,87210.03013^30812,88512.8915.773

Total, Feb. 10 to Mar. 15,1917 '..

Jan. 16 to Feb. 15,1917

Dec. 16, 1916, toJan. 15,1917

Nov. 16 to Dec. 15,1916

Oct. 16 to Nov. 15,1916 !

Sept. 16 to Oct. 15. j1916 :..'.!

Aug. 16 to Sept. 15,11916 1

July 16 to Aug. 15,1916

231.475

220,421

241.933

236.033

227,489

204,89i

177.397

133.113

A verageamountof dailyclearing.

313,156,97328,526,56417,164,2826,949,2187,873,1393,906,71912,043.1316,102:3596:333.5537,545.3915,035:8211,767,280

116.404,430

110,188.028

121,814,589

125,603,732

!ll5;061.224

' 97,666,107

78,559,704

59,301.696

Memberbanksin thedistrict.

402625632753518389

1.045467718941619521

7,630

7? 630

7.622

7,627

7,623

7,618

7,618

7,624

. on-member

banksfromwhichchecksare col-lectedat par.

242311240487269394

1,445'8671,0421.398211

1,098

8.007

8,086

8,130

8,065

8,059

7,459

7,449

7,032

GOLD SETTLEMENT FUND.

For the present, at least, payments fromcredit balances of Federal Keserve Banks inthe Gold Settlement Fund will not be madedirectly to member banks of the system or toindividuals. This question was raised early in.March through the request of a Federal Re-serve Bank that its account be charged with astated amount and payment made to a desig-nated member bank. After consideration theBoard voted not to authorize payments of thischaracter.

There has been an increasingly large volumeof transactions between the Federal ReserveBanks through the Gold Settlement Fund dur-ing March. The settlement of March 22amounted to $297,765,000, the largest weekly-settlement yet made. An unusually largenumber of transactions between Federal Re-serve Banks and Federal Reserve Agents hasoccurred.

Below are the figures covering the periodbetween the settlements of February 23 andMarch 22. They show obligations settledamounting to $1,080,800,000 by means of theweekly settlement, and $15,839,000 by meansof transfers between the banks during the week.Changes in ownership in the fund amounted to5.12 per cent of the total obligations settled.Boston, Philadelphia, and San Francisco showthe largest increases.

Amount of clearings and transfers, Federal Reserve Banks.from Feb. 24, 1917, to Mar. 22, 1917, inclusive.

[000 omitted.)

Settlement of—Mar, 1,1917Mar. 8,1917Mar. 15,1917Mar. 22.1917

TotalPreviously reported Tor 1917

Total since Jan. 1,1917Total transfers Jan. 1.1917, to dateTotal for 191(5, including transfers.Total for 1915, including transfers.

Total clearings and trans-fers, Mav 22,1915, to Mar.22,1917.*...!

Totalclearings.

S244.625282,950255,450297, 765

Balancesadjusted.

$17,90316,237

9,31018,376

Transfers,

85009,5501.000i 733

1,030,8002', 141,068

3, 221,80S70,482

5, 833,966.1, 052,649

9, 97S, 953

01121

182

,835,036

,871

15,54,

833643

432

. . .


APRIL 1,1917. FEDERAL •RESERVE BULLETIN". 269

Changes in ownership of gold.

[000 omitted.]

Federal iteserve Bank

BostonNew York... .Philadelphia.ClevelandRichmond....AtlantaChicagoSt. Louis . . . . .Minneapolis..Kansas City.Da-

Total to Feb. 23,1917.

! From Feb. 24.1917, to Mar. 22,1917,inclusive.1

Decrease.

§305,232

Dallas.San Francisco.

Total i 305,232

Increase.

325,595

65,43528,79023,10622,9572,9545,1225,45748,75032,11744,949

305,232

Balanceto credit,Feb. 23,

1917,plus netdepositsof goldsince

that date, i

BalanceMar. 22,

1917.

I

811,82573,7688,24522,20018,4065,49725,5143,4824,57722,227.57,749.57,779

$21,01520,24117,44126,01717,0854,431

43,8704,2408,641

26,152.57,567.5

14,569

Decrease,

$53,527

1,3211,066

182

211,270 211,270 56. G

Increase.

§9,190

9,1963,817

18,350758

4,0643,925

6,790

50,096

Total changes fromMay 20, 1915, toMar. 22,1917.2

Decrease.

$358,759

358,759

Increase.

$34,785-

74,63132,80721,78521,89121,3105,8809,521

52,67531,93551,739

358,759

2 Changes in OTvnership of gold during period Feb. 24,1917, to Mar. 22,1917, equal 5,12 per cent of obligations settled.- Totalchanges in ownership of gold since May 20,1915, equal 3.60 per cent of total obligations settled.

Gold settlement fund—Summary of transactions from, Feb. 24, 1917, to Mar. 22, 1917, inclusive,

[000 omitted.]

Federai Beserve Bank: of—

Gold.BalanceFeb. 23,

1917. With-drawn.

Depos-ited.

Boston ! $17,825" " • 53768

26,4(3016,8265,197

New YorkPhiladelphiaClevelandRichmond..AtlantaChicago | 32,694St. Louis ' 1,802Minneapolis ; 4,457Kansas City I 27,357.5Dallas I 7,659.5San Francisco ! 8,409

86,000 '53,768 : §20,00010,855 ! 4,300 j l',690°* -tan : 4,310 ! 50

i 1,580

8,680 ;200 I

5,30080

1,000

Total. 213,310 30,400

8301,5001,880120170170370

28,300

Transfsrs.

Debit. Credit.

Weekly settlements from Feb. 24,1917, toMar. 22,1917.

Total netdebits.

813,589 !81,000

250 i 840,188

2,000250

15,839

14,089 i500 !

816

182

15,839 j 41,186

Totaldebits.

Totalcredits.

; Total netcredits.

887,139282,101159,99476,81567,68937,397

134,30899,12623,36965,57028,55918,733

1,080,800

§95,329241,913169,19080,63268,36836,581138,57599,38427,43369,49528,37725,523

88,190

9,1963,817679

Mar. 22,1917, bal-ance infund atclose of

business.

1,080,800

4,

4,3,

267258064925

6,790

41,186 |

$21,01520,24117,44128,01717,0854,43143,8704,2408,64i29,152.57,567.514,569

211,270

Federal Reserve Agents9 Fund—Summary of transactions, Feb. 24, 1917, to Mar. 22, 1917, inclusive.

[020 omitted.!

Federal Preserve Agent at—i Balance: to creditj Feb. 23,1 1917.

Philadelphia..ClevelandRichmondAtlantaChicagoSt. Louis

812,130

10,00013,45013,210G.430

With- I De-drawn. I posited

§390

1,000430600380

$4,1504,000

4007,080

Balance sMar. 22, I

1917. I

$15,8904,0009,00013,42020,290•0.053:

Federal Heserva Agent at—

Minneapolis..Kansas Cifcv.-.Dallas....."....San Francisco

Total...

M l W1U,| DeFeb. 23, (drawn. iDosited.

1917. "

§3,25013,3809,33015,380

8120620450370

$4,900

90,500 ; 4,360 j 21,130

$3,13017,6608,88015,010

IIS, 333



Uniform Accounts.

The following tentative proposal has beensubmitted by the Federal Reserve Board forthe consideration of banks, bankers, andbanking associations; of merchants, manu-facturers, and associations of manufacturers;and of auditors, accountants, and associationsof accountants:

Through the courtesy of the Federal TradeCommission the Federal Reserve Board hasbeen enabled to take advantage of a largeamount of information and data which theTrade Commission acquired in connectionwith the study of the statements made bymerchants, manufacturers, etc., as showingthe condition of their business. Because thismatter was clearly of importance to banksand bankers, and especially to the FederalReserve Banks which might be asked to redis-count commercial paper based on borrowers'statements, the Federal Reserve Board hastaken an active interest in the consideration ofthe suggestions which have developed as aresult of the Trade Commission's investiga-tion, and now submits in the form of a tenta-tive statement certain proposals in regard tosuggested standard forms of statements formerchants and manufacturers.

The problem naturally subdivides itselfinto two parts. (1) The improvement in stan-dardizjation of the forms of statements; (2)the adoption of methods which will insuregreater care in compiling the statements andthe proper verification thereof.

In recent years bankers through theirassociations and otherwise have made rapidprogress in the direction of more uniform andcomplete forms of statements. Much hasalso been accomplished in the improvement ofthe quality of the statements rendered andin securing statements which do not dependfor their accuracy on the borrowers' statementalone but are verified to a greater or less ex-tent by independent scrutiny and audit.The advantage of a statement certified bytrustworthy public accountants over an un-verified statement is evident. At the presenttime, however, there is no uniformity as tothe extent of verification in the case of state-ments put forward as having been verified.

The Federal Trade Commission in the courseof its investigation of business conditions hasbeen strongly impressed with the lack of uni-formity and has enlisted the aid of the Amer-

ican Institute of Accountants with a view toremedying the condition. It has found thatverified statements may be divided broadlyinto—(a) Those in which the certificate isbased on an examination of the books withoutpersonal superivsion of inventories and inde-pendent appraisal of all assets with the aid oftechnical appraisers, and (6) statements veri-fied with the personal supervision of inven-tories and independent appraisal of all assets.

The value of the two classes of audits andtheir relation to each other depends to a greatextent upon the character and magnitude ofthe business involved.

In some cases method (b) has advantagesover method (a). In other cases, notably thoseof large companies in which personal super-vision of inventories is arduous and perhapsimpracticable and the value of an independentappraisal of assets is liable to be considerablyexaggerated, the reverse may be true. Thatis to say, a verification based upon the booksthemselves without an appraisal may be andoften is the safer method of procedure. I t ishighly desirable gradually to educate the busi-ness world to the great importance of a com-plete form of audit statement, although anyplan for immediate adoption intended to pro-duce practical results must recognize that un-der present practice probably more than 90per cent of the statements certified by publicaccountants are what are called balance-sheetaudits, such as are described in paragraph (a)above referred to.

As a first step toward the standardization ofbalance-sheet audits and to insure greater carein compiling and verifying statements the Fed-eral Trade Commission requested the AmericanInstitute of Accountants to prepare a memo-randum on balance-sheet audits. This memo-randum was duly prepared and approved bythe council of the institute representingaccountants in all sections of the country.

After approval by the Federal Trade Com-mission the memorandum was placed beforethe Federal Reserve Board for consideration.

| The Federal Reserve Board, after conferenceswith representatives of the Federal TradeCommission and the American Institute ofAccountants, and a careful consideration of thememorandum in question, has accepted thememorandum, given it a provisional or tenta-tive indorsement, and submitted it to thebanks, bankers, and banking associationsthroughout the countay for their considerationand criticism.



The recommendations in the memorandumapply primarily to what are known as balance-sheet audits. This is an initial step which mayeasily be succeeded by future developmentstending still further to establish uniformityand covering more fully the field of financialstatements.

GENERAL INSTRUCTIONS FOR A BALANCE SHEETAUDIT OF A MANUFACTURING OR A MER-CHANDISING CONCERN.

The scope of a balance sheet audit for a fiscalyear or other operating period of an industrialor mercantile corporation or firm comprises averification of the assets and liabilities, a gen-eral examination of the profit and loss account,and, incidental thereto, an examination of theessential features of the accounting.

Trial balances of the general ledger, both atthe beginning and end of the period under re-view, should be prepared in comparative formand checked with the ledger. The items in thetrial balances should be traced into the balancesheets before the assets and liabilities are veri-fied, to prove, among other things, that no"contra" asset or liability has been omittedfrom the accounts, that the assets and liabili-ties have been grouped in the same manner atthe beginning and end of the period, and alsothat the balance sheets are in accordance withthe books. The disposition of any generalledger assets and liabilities that may have beenscrapped, sold, written off, or liquidated duringthe period under review should be traced andnoted in the working papers. Furthermore, ageneral scrutiny of the general ledger should bemade to see that the accounts, if any, that havebeen opened and closed during the year have nobearing on the company's financial position atthe close of the fiscal period.

The auditor should obtain a copy each of thebalance sheet at the beginning and the end ofthe period to be audited, and should make acomparison between them, so that a compre-hensive view may be had by him of the changesin the figures during the period under review.A statement of the disposition of the profitsshould then be prepared from this comparativebalance sheet as a further aid in impressing themeaning of the figures upon the mind of theauditor.

The verification of assets and liabilities forconvenience will be considered in the order inwhich the items appear in the form of balancesheet attached hereto. This form of statementhas been determined by the desire to meet as

87199—17 6

nearly as possible the requirements and practiceof Federal Reserve Banks.

SPECIFIC INSTRUCTIONS AND SUGGESTIONSRELATING TO THE SEPARATE HEADINGS.

CASH.

The cash on hand preferably should becounted after banking hours on the last day ofthe fiscal period to be covered by the audit,and the amount thereof, together with the cashstated to be in the bank, reconciled with thatshown by the cashbook. The cash, bills re-ceivable, and investments must be examinedon the same day, so as to make it impossiblefor a treasurer to make up a shortage in oneasset by withdrawing negotiable funds tem-porarily from another.

In counting the cash on hand the auditormust see that all customers7 checks producedto him as part of the cash balance have beenduly entered in the cashbook prior to the closeof the period and should note the dates anddescriptions of such checks, and also the datesand descriptions of all advances made fromcash and not recorded on the books. Advancesto employees should be strictly investigated,and if any are secured by personal checks theauditor should see that the checks are certifiedby the bank on which they are drawn beforethe close of the audit.

Certificates must be obtained, as of the even-ing of the closing date, from the banks in whichcash is deposited, by or mailed directly to, theauditor himself. The balances as shown bythe certificates must be reconciled with thoseshown on either the cashbook, the checkbookstubs, or bank registers, taking into considera-tion outstanding checks.

In verifying the outstanding checks there isonly one safe and satisfactory method of prov-ing their accuracy, and that is to compare thecredit side of the cashbook from the last dayof the fiscal period backward, item by item,with the checks returned from the bank forsuch period as may be necessary to account forall current outstandings. Any old checks notyet cashed by banks should be made the sub-ject of special inquiry. When this work iscompleted, a list of the outstanding checks soascertained should be prepared, showing thedates of the checks and compared with theactual checks returned from the bank at a laterdate/and any not so returned should be spe-cially investigated. Special care is necessary tosee that no checks for cash purposes are drawn


272 FEDERAL RESERVE BULLETIN. APEIL 1,1917.

at the close of the period and entered in thenext period.

Where the currency and bank transactionsare kept together in the cashbook and theauditor does not count the cash until a datesubsequent to the close of the fiscal year, hemust, in addition to verifying the bank bal-ances as of the close of the year, verify them asof the date of the count of cash. This is abso-lutely essential when it is considered that,although the cash on hand, which forms onlypart of the balance, at the date of the count iscorrect, it does not follow that the total cashis correct.

When receipts are shown in the cash booksas being deposited in the bank on the last dayof the fiscal period, but are included in thereconciliation statement on account of their notbeing paid into the bank until the next day, theauditor must obtain letters from the banksacknowledging such deposits.

The deposits shown in the pass books shouldbe checked in detail for the last two or threedays of the fiscal period from the books to provethat they were composed of bona fide checks,and that no check drawn by the company wasdeposited in a bank without being credited tothe bank on -which it was drawn prior to theclose of the fiscal period.

So that the auditor may satisfy himself thatdeposits are promptly made in bank each day,ancl that the same checks are paid into bankas are received, it is advisable to call for anumber of deposit slips and compare them withthe receipts as shown by the cashbook for thedays in which the deposits are made. To makesuch verification absolute the deposit slipsshould be obtained from the banks.

When the practice of a company is to pay allof its cash receipts into bank, they should becompared and reconciled with the total de-posits, as shown by,the bank books, and simi-larly the disbursements should be reconciledwith the total checks drawn.

Outstanding checks not examined at a pre-vious audit on account of not having been re-turned by the banks must be called for andtraced into the cashbook at the beginning ofthe current audit.

NOTES RECEIVABLE.

A list of notes receivable outstanding at theend of the fiscal period should be preparedshowing the dates the notes are made, the cus-tomers7 names, the date due, the amounts ofthe notes and the interest, if any, contained

in the notes. If discounted the name of thediscounting bank should be noted and verifi-cation obtained from the bank.

The outstanding notes must be carefullyexamined with the notes-receivable book, andwith the list prepared by or produced to theauditor, the due dates and the dates of makingthe notes being carefully checked, and whennotes have been renewed the original datesshould be recorded. When notes have beenpaid since the close of the fiscal year, thecash should be traced into the books of thecompany, and when they are in the handsof attorneys or bankers for collection certifi-cates should be obtained from the depositaries.

When notes receivable arc discounted bybanks the company has a liability thereforwhich should appear on the balance sheet.Lists of discounted notes not matured at thedate of the audit should bo obtained from thebanks as verification and their totals enteredunder 20a if the cash therefor is shown as anasset.

The value of collateral, if any, held fornotes should be ascertained, as it frequentlyhappens that the notes are worth no morethan the collateral.

Notes due by officials and employees mustalways be stated separately from customers7

notes, as must also notes received for otherthan trade transactions.

Notes due from affiliated concerns mustnot be included as customers' notes, eventhough received as a result of trading transac-tions. Affiliated companies' notes should beshown as a separate item of current assets oras other assets as the circumstances warrant.They may be fairly included in current assets ifthe debtor company has ample margin of quickassets over its liabilities, including such notes.

The term "Quick assets7' is used here in thesense in which it is used by Federal reservepractice. "Current assets77 is used to com-prise these assets and other assets which

| though current are excluded in determiningthe eligibility of the paper for Federal Reservepurposes.

i Optional.—The best verification of notesreceivable is an acknowledgment by the partynamed in each note as the payor on the duedate that the note is a bona fide obligation.Therefore if time permits, and the client doesnot object, it is advisable to obtain suchwritten confirmation for each note. Theauditor should personally mail the letters,inclosing stamped envelope for reply addresseddirect to himself.


VRU, 1,1917. FEDEEAL BESEBVE BULLETIN. 273

ACCOUNTS RECEIVABLE.

The bookkeepers of the accounts-receivableledgers should fte asked to draw off lists of theopen balances at the end of the fiscal period,and distributions of the total columns shouldbe shown on the lists according to the ago ofthe accounts, e. g., not yet due, less than 30days past due, more than 30 days past due.The accounts paid since the close of the fiscalperiod should be noted in the lists before tak-ing up the matter of past due accounts withthe credit department, as payment is the bestproof that an account was good at the date ofthe audit.

The totals of the lists of outstanding ac-counts should agree with the controlling ac-count in the general ledger if separate ledgersare kept. When credit balances appear oncustomers' accounts they should be shown onthe balance sheet as a separate item and not-deducted from the total of debit balances; anddebit balances on the accounts-payable ledgersshould be treated in the same manner.

The lists must be footed and compared indetail with the customers' accounts in theledgers.

The composition of outstanding balancesshould always be examined, as it frequentlyhappens that while a customer may be makingregular payments on his account, old itemsare being carried forward which have been indispute for a considerable period of time.Such items and accounts which are past duoshould bo taken up with the credit departmentor some responsible officer, and tho corre-spondence with the customers examined, sothat the. auditor may form an opinion of thoworth of the accounts and satisfy himself thatthe reserve for bad and doubtful accounts sotup by the company is sufficient.

Trade discounts (and also so-called cash dis-counts, if exceeding 1 per cent) and freightsallowed by the company should be inquiredinto, and if they have been included in theaccounts receivable a reserve therefor shouldbe set up in tho balance sheet. Also inquiriesshould bo made regarding customers' claimsfor reductions in prices and for rebates andallowances on account of defective materials,so that it may be seen that a sufficient reservehas been established therefor.

Inquiry must be made as to whether any ofthe accounts receivable have been hypothe-cated or assigned, and the sum total of accountsso listed entered under 20b.

The auditor should satisfy himself that thebad debts written off have been duly authorizedby responsible officials.

Accounts due from directors, officers, andemployees must be stated in the balance sheetseparately and not included as trade accounts.This applies also to deposits as security, guar-anties, and other extraordinary items not con-nected with sales.

Accounts duo from affiliated concerns mustnot be included as customers' accounts, eventhough arising as a result of trading transac-tions. Affiliated companies' accounts should beshown as a separate item of "current assets"or as "other assets," as the circumstances war-rant. They may be fairly included as " currentassets" if the debtor company has ample mar-gin of quick assets over its liabilities, includ-ing such accounts.

Optional.—The best verification of an openbalance is a confirmation by the customer;therefore, if time permits and the client doesnot object, it is advisable to circularize the cus-tomers. The auditor should personally seethe circulars mailed after comparing them withthe lists of outstanding accounts. The envel-opes for replies sent with the circulars should.bo addressed direct to the auditor.

In largo concerns the system of accountingis generally so arranged that it would be almostimpossible for accounts to be paid and not cor-rectly credited on the accounts-receivable lod-gers, but in small concerns, with imperfect"systems, such occurrences are quite possible,so much so, in fact, that it is generally admittedthat the risk of errors and omissions decreasesin direct proportion to an increase in book-keeping.

SKGi: U-IT1ES.

i Under this caption must bo listed securitiesi in which surplus funds of tho company or firmI have boon temporarily invested and which are! considered as available as "quick assets/5 i. e.,I can bo turned into money in time of need.Where stocks or bonds represent control or amaterial interest in other enterprises the owner-ship of which carries more or less value to the

1 holder outside of the return thereon the?should be considered as fixed assets.

A list of investments should be preparedshowing—

The dates of purchases.Descriptions of the investments.Far value of the investments.The denomination of the shares.



The number of shares or bonds owned.The total capital stock of the various com-

panies.The amounts paid for the investments.The interest and dividends received.The market values of the investments.The surplus or deficit shown by the balance

sheets of the companies where no marketquotations are available.

If hypothecated, with whom and for whatpurpose.

This "list must be compared with the ledgeraccounts concerned and the total of amountspaid according to the list must agree with thebalance of the investment account or accounts.

The securities must be examined by theauditor in person or he must secure confirma-tion of their existence from those who hold themas collateral. Those in possession of the com-paii}7' must be counted and examined as soon aspossible after the audit starts, and all of themmust be submitted to him at one time. It ismuch more satisfactory to see the actual se-curities than to verify cash receipts and otherevidences therefor after the audit has progressedsome time.

Certificates out for transfer must be verifiedby correspondence.. Where the market values of securities are

less than the book values, save where the vari-ation is so small as to be trifling, a reserve forloss in value on the balance sheet date must beset up.

Care must be taken to see that the certificatesare made out in favor of the company, or thatthey are indorsed or accompanied by powers ofattorney when they are in the names of indi-viduals.

Coupons on bonds must be examined to seethat they are intact subsequent to the latestinterest payment date.

The investment schedule must show that thetotal interest and dividends receivable by thecompany have been duly accounted for; the in-come from the investments shown in the profitand loss account must be in accord with thisschedule.

When market quotations can not be obtainedfor investments, the balance sheets of the com-panies in which investments are held must beexamined so that the auditor may form an ideaof their value.

In verifying purchases of stock exchangesecurities the brokers' advices must in all casesbe examined in connection with the verifica-tion of the purchase price.

Investments in deeds and mortgages mustbe supported by both the mortgages and insur-ance policies, and, furthermore, it must beshown that all assessed taxes on the propertyhave been duly paid, that the mortgages havebeen properly recorded, and that the insurancepolicies are correctly made out to the company.

If any of the securities have been hypothe-cated the fact and amount (book value) mustbe stated under 20d of the balance sheet.

INVENTORIES.

Under this caption must be included onlystocks of goods owned and under control of theowner. Stocks are often hypothecated and ifthis is the case the fact should be stated on thebalance sheet.

Inasmuch as the accuracy of the profit andloss account is absolutely dependent upon theaccuracy of the inventories of merchandise atthe beginning and end of the period underreview, this part of the verification should re-ceive special attention. When a balance-sheetaudit is being made for the first time, theinventory at the beginning of the period shouldreceive as much attention as that at the end,and the auditor should take every precautionto satisfy himself that both inventories weretaken on the same basis.

An acceptable program of audit for invento-ries is as follows:

(1) Secure the original stock sheets if theyare in existence and carefully test the type-written copies with them and with tickets,cards, or other memoranda that show theoriginal count.

(2) See that the sheets are certified to orinitialed by the persons who took the stock,made the calculations and footings, and fixedthe prices, and satisfy yourself that they aredependable and responsible persons. Obtaina clear and detailed statement in writing asto the method followed in taking stock andpricing it; also a certificate from a responsiblehead as to the accuracy of the inventory as awhole.

(3) A thorough test of the accuracy of thefootings and extensions should be made,especially of all largo items.

(4) The inventories should be comparedwith the stores ledger, work in progress ledgersand finished product records and stock recordsas to quantities, prices, and values, and anymaterial discrepancy should be thoroughlytraced.



(5) Where stock records are kept and nophysical inventory is taken at the time of theaudit, ascertain when the last physical inven-tory was taken {and compare it with the bookrecords. If no recent comparison is possible,select a few book items of importance and per-sonally compare with the actual stock on hand.

(6) Where no stock records are kept, a physi-cal inventory should be taken preferably underthe general direction of the auditor. After theinventory is completed, he should apply thesame tests to verify its accuracy as if the in-ventory had been taken before his arrival uponthe scone.

(7) When the cost system of a company doesnot form a part of the financial accountingscheme there is always a chance that ordersmight be completed and billed, but not takenout of the work in progress records. Espe-cially is this the case when reliance is placedon such records to the extent that a physicalinventory is not taken at the end of the periodto verify the information shown therein. Inthese cases the sales for the month precedingthe close of the fiscal period should be carefullycompared with the orders in progress as shownby the inventory, to see that nothing that hasbeen shipped is included in the inventory inerror. Cost systems which are not coordi-nated with the financial accounts are unreliableand frequently misleading. Special attentionshould be called to every case in which the costsystem is not adequately checked by the resultsof the financial accounting.

(8) Ascertain that purchase invoices for allstock included in the inventory have beenentered on the books. Look for postdatedinvoices and give special attention to goods intransit.

(9) See that nothing is included in the in-ventory which is not owned but is on consign-ment from others. If goods consigned toothers are included, see that cost prices areplaced thereon, less a proper allowance for loss,damage, or expenses of possible subsequentreturn. This does not include goods atbranches, as the valuing of such stocks will begoverned by the same principles as apply atthe head office.

(10) Ascertain that nothing is included whichhas been sold and billed, and is simply awaitingshipment.

(11) If duties, freight, insurance, and otherdirect charges have been added, test them toascertain that no error has been made. Dutiesand freight are legitimate additions to the cost

price of goods, but no other items should beadded except under unusual circumstances.

(12) As a check against obsolete or damagedstock being carried in the inventory at an exces-sive valuation, the detailed records for stores,supplies, work in progress, finished products,and purchased stock in trade, should be ex-amined and a list prepared of inactive stockaccounts, which should be discussed with thecompany's officials and satisfactory explana-tions obtained.

(13) The auditor should satisfy himself thatinventories are stated at cost or market prices,whichever are the lower at the date of thebalance sheet. No inventory must be passedwhich has beem marked up to market pricesand a profit assumed that is not and may neverbe realized. If the market is higher than costit is permissible to state that fact in a footnoteon tlie balance sheet.

(14) It may be found that inventories arevalued at the average prices of raw materialsand supplies on hand at the end of the period.In such cases the averages should be comparedwith the latest invoices in. order to verify thefact that they are not in excess of the latestprices, and also with the trade papers, whenmarket prices are used, to see that they are notin excess of market values.

(15) Make an independent inspection of theinventory sheets to determine whether or notthe quantities are reasonable, and whether theyaccord in particular instances with the averageconsumption and average purchases over afixed period. Abnormally large quantities ofstock on hand may be the legitimate result ofshrewd foresight in buying in a low market, butmay, on the other hand, arise from seriouserrors in stock taking.

(16) Always attempt to check the totals bythe "gross profit test" and compare the per-centage of gross profit shown with that of pre-vious years. In a business where the averagegross profit remains fairly constant this test isa dependable one, because, if the rate of grossprofit is apparently not maintained and the dis-crepancy can not be satisfactorily accountedfor b} a rise or fall in the cost of production orof the selling price, the difference will usuallybe due to errors in stock taking.

(17) In verifying the prices at which thework in progress is included in the inventory, ageneral examination and test of the cost systemin force is the best means of doing this worksatisfactorily. In a good cost system littledifficulty will be found with the distribution of


276 EEDEEAL EESEEVE BULLETIN, APHIL 1,1917.

the raw materials, stores, and pay roll, but thedistribution of factory overhead cost is one thatshould receive careful consideration, the mainpoints to be kept in view being:

(a) That no selling expenses, interest charges,or administrative expenses are included in thefactory overhead cost.

(b) That the factory overhead cost is dis-tributed over the various departments, shops,and commodities on a fair and equitable basis.

(18) No profit should be included in the priceof finished products or stock in trade. Theprice list should be examined to see that thecost prices of stock are below the selling pricesafter allowing for trade discounts, and if theyare not a reserve should be set up on the balancesheet for this loss. If the company takes im-mediate steps to increase the selling price, how-ever, the amount of this reserve may be limitedto the loss on goods which may have been soldsince the close of the period to the date of thediscovery.

(19) In the case of companies manufacturinglarge contracts it is frequently found necessaryto make partial shipments thereof. The ques-tion then arises as to whether it is permissibleto include the profits on these partial shipmentsin the profit and loss account. As a matter offact, it is evident that the actual cost can notbe known until the order is completed. It maybe estimated that a profit will ultimately bemade, yet unforeseen conditions, such asstrikes, delays in receiving material, etc., mayarise to increase the estimated cost. It is bet-ter not to include the profits on partial ship-ments, but information of this character whichmay have its influence in the decision of thebanker upon a proposed loan may properly belaid before him. Of course, an exceptionshould be made in cases where the profit on thepartial shipments largely exceeds the sellingprice of the balance of the order.

(20) The selling prices for contract work inprogress should be ascertained from the con-tracts, and where it is apparent that there willbe a loss on the completed contract a due pro-portion of the estimated loss should be chargedto the period under audit by setting up a reservefor losses on contracts in progress.

(21) If a company has discontinued themanufacture of any of its products during theyear, the inventory- of such products should becarefully scrutinized and, if unsalable, theamount should be written off.

(22) The inventory should be scrutinized tosee that no machinery or other material that

has been charged to plant or property accountis included therein.

(23) Partial deliveries received on account ofpurchase contracts for material, etc., should beverified by certificates from the contractors,both as to quantities and prices.

(24) Advance payments on account of pur-chase contracts for future deliveries shouldnever appear in an inventory, but be shownon the balance sheet under a separate heading.

(25) Trade discounts should be deductedfrom inventory prices, but it is not customaryto deduct cash discounts. However, this maybe done when it is the trade practice so to do.

(26) While the inventory is being verified,the auditor should ascertain the aggregate salesfor the last year. If the turnover has "not beenrapid, it may be due to a poor stock of goods.Some business men dislike to sell below cost andwould rather accumulate a big stock of oldgoods than dispose of the old and unseasonablestock at a sacrifice. The usual outcome is thatthe stock becomes unwieldy and funds arelacking to purchase new goods. The inventoryand the gross sales may, therefore, have adirect connection.

(27) It may be well to reiterate that interest,selling expenses, and administrative expensesform no part of the cost of production, andtherefore should not be included in the inven-tory in any shape.

COST OF FIXED PROPERTY.

In preparing the leading schedules for theaccounts grouped under this heading, such asreal estate, buildings, plant, machinery, etc..the balances at the beginning of the period, theadditions to or deductions from the accountsduring the year, and the balances at the end ofthe period must be shown.

The total of the balances at the beginningof the period must agree with the cost of prop~erty figures given in the balance sheet at thatdate, and the balances at the end of the periodwith the amount shown in the balance sheetthat is being audited. The charges enteringinto the additions must be verified in detail, andin this connection the following notes are ofvalue:

(1) Authorizations for the expenditure madeduring the year should be examined, and wherethe costs of the additions have overrun thesums authorized, inquiries should be made inregard thereto. The authorizations shouldshow the accounts to which the expendituresare chargeable, the amounts thereof, the ap-


APRIL 1,1317. FEDERAL 2ESEKVJ-: BULLETIN 277

provals of the comptroller and manager, anddescriptions of the jobs. When the authoriza-tions are not specific as to the work done, theactual additions should, if possible, be in-spected.

(2) The auditor should satisfy himself be-fore approving additions that they were madewith the object of increasing the earning ca-pacity of the plant, and that they are not ofthe nature of either renewals or improve-ments, and in this connection changes in theproduction and capacity of the plant shouldreceive consideration.

(3) To verify the pay roll and store andsupply charges to jobs, one or two pay roll dis-tribution reports should be examined in detail,and also one or two storehouse reports. Incases where large purchases have been madefrom outside parties for capital constructionwork, the vouchers therefor should be exam-ined and the usual precautions taken to seethat they are properly approved for the re-ceipt of materials, prices, etc.

(4) For purchases of real estate the titledeeds should be examined, together with thevouchers, and it should be seen that the deedshave been properly recorded.

(5) While it may be considered permissibleto make a charge for factory overhead cost toadditions to property such as, e. g., time ofsuperintendent and his clerical force employedon construction work, etc., it can not be deemedconservative business practice, inasmuch as theprobabilities are that the overhead charges ofa plant will not be decreased to any extenteven though additions are not under way, and,therefore, the absorption of part of thesecharges when additions are in progress, has theeffect of reducing the operating costs, as com-pared with months in which no constructionwork is under way.

(6) Construction work in progress at the endof the fiscal period should be shown in the bal-ance sheet under the heading of fixed assetsand not as part of the inventories. This isimportant to bear in mind because construc-tion work is not an asset that can be quicklyturned into money, while everything in theinventory is supposed to be realizable in cashwithin a reasonably short time,

(7) The auditor should inquire as to whetherany installments are due on account of con-struction work in progress which is being car-ried on by outside parties; and if so, the lia-bilities for these installments should be includedin the balance sheet, as they may have a direct

bearing on the amount of available cash onhand.

(8) When a company uses leasehold proper-ties the leases should bo examined and notesmade of the periods covered, so that it maybe seen that improvements, etc., on such prop-erties are written off over the periods coveredby the leases.

(9) The auditor should satisfy himself thatthe reserves for depreciation of buildings, ma-chirery, equipment, etc., arc adequate to reflectthe deterioration in the value of the fixed prop-erties. If in his opinion the reserves shown onthe balance sheet are insufficient, ho should callattention to the matter in his certificate.

(10) Care should bo taken to insure thatproperty destroyed by fire or otherwise prema-turely put out of service is correctly treated inthe books. Any portion of the original chargefor such property which is not recoverablethrough insurance, as salvage or otherwise,and has not been provided for by the deprecia-tion scheme should be written off.

It is to be observed that the foregoing notesare to be applied only to cost of propertiesincurred during the period under audit. Inaddition, information may usefully bo obtainedon broader lines in regard to the compositionof the real estate, building, and machineryaccounts, and showing what principal propertyis represented thereby and how the accountshave been built up from year to year for areasonable time past if not from the inceptionof the business. The information derivedtherefrom is valuable only in indicating theprogressive policy of the concern, the extent towhich it reinvests undivided surplus in its plant,etc. Beyond these facts the banker who isasked for ordinary discounts or short-termloans is not interested; he looks more to thequick assets for his security.

Optional.—When the loan is greater thanthe quick assets seem to justify the auditorshould suggest a reliable verification of the costof property prior to the period under audit.Such action may become necessary even tothe extent of calling for an appraisement bydisinterested outside experts.

DEFERRED CHARGES TO OPERATIONS.

Under this heading in the balance sheetare grouped such items as unexpired insurance,bond discounts applicable to a future period,prepaid royalties, experimental charges, etc.After the clerical accuracy of the deferred



charges has been verified the auditor shouldsatisfy himself that they are properly carriedforward to future operations.

Wherever possible, documentary proof mustbe produced in support of the items car-ried forward, as,, for example, with unexpiredinsurance the policies must be examined toverify the dates of expiration, the amounts cov-ered, and the proportion of the premiums car-ried forward; with royalties the agreementsmust be examined; with experimental chargesthe vouchers and particulars of the work donemust be looked into, etc.

The examination of the deferred charges willusually furnish the auditor with valuable in-formation in regard to the accounts of thecompany, as, e. g.:

(1) The verification of experimental chargescarried forward will generally furnish infor-mation as to the production and future policyof the company.

(2) Royalty vouchers will generally fur-nish a check on the production of mines.

(3) An examination of the insurance poli-cies will show if the properties are mortgagedor covered by lien, and thus be an additionalverification of the liability for mortgageson real estate, buildings, etc., shown in thebalance sheet.

(4) The assets covered by insurance will beascertained and if any omissions are dis-covered they should be mentioned.

NOTES AND BILLS PAYABLE.

Under this caption appear notes payable anddrafts accepted. Schedules should be preparedunder the subcaptions, and in columns headed:

Date of making the notes or drafts.Due dates.Names of creditors.Collateral hypothecated.Additional indorsers.Interest accrued to date of audit.Notations of renewals (as information of

this nature furnishes a guide to the stateof the concern's credit).

The schedule must bo compared with thenotes-payable book and the total of the aggre-gate must agree with the balance of the ledgeraccount of notes payable.

Statements must be obtained from all banksand brokers with whom the concern does busi-ness, showing all notes and drafts discounted orsold by them for the benefit of the concern.These statements when received must bechecked against the loans shown on the con-

cern's books and approved in the minutes of acompany.

Inasmuch as a note is a negotiable instru-ment, care must be taken to see that all of thoserecorded as paid during the year under audithave been properly discharged, and the can-celed notes are the best evidence of this fact.

Careful attention should be given to the col-lateral deposited for loans and statements as tothe existence of such collateral should be ob-tained from the holders thereof. Such hypoth-ecation of any of the concern's assets should beaccounted for on the balance sheet.

When practicable the auditor might suggestto the client the advisability of drawing notes

j payable on blanks bound in a book, like a checkj book, with a stub for each blank, the blank andj the stub to bear identical numbers. The offi-i cer, or officers, signing the notes could, in suchI case, initial the stub as a certificate to theamounts, payees, and terms of the notes issued.If this were done, the auditing of bills payablewould be greatly facilitated.

ACCOUNTS PAYABLE.

A list of balances due on open accounts mustbe prepared and carefully checked with theledger accounts, care being taken to see that noopen account on the ledger has been omittedfrom the list. It should be ascertained that thebalances represent specific and recent itemsonly. When any account does not appearregular a statement from the creditor shouldbe obtained. If there are many such accountsin dispute, and the;y amount to so large a sumas to affect appreciably the total of currentliabilities, the general causes for the disputesshould be inquired into and note made of thematter for the consideration of the banker.

In concerns with modern voucher systemsaccounts payable are easily verified, as all lia-bilities are then included in the books whenincurred. Care should be taken, however, tosee that all goods received on the last day of thefiscal period, as shown by the receiving records,and also all goods that were in transit and be-longed to the concern on that date, are in-cluded as liabilities, and the correspondingassets included in the inventories. This testis necessary, as an increase in the accountspayable may have a very important bearingon the financial position of the concern if thecash on hand is small.

Monthly expenses outstanding can usuallybe ascertained by a comparison of the expensesof the last month of the fiscal period with



previous months, and those of the year with theprevious year. The voucher record should,however, be examined for the months subse-quent to the close of the fiscal yc&T, in caseany expenses included therein are applicable tothe fiscal period under audit.

When a first-class voucher system is not inoperation the auditor must take additionalprecautions to satisfy himself that all lia-bilities are included in the accounts, amongwhich may be mentioned:

(1) Payments made in the months subse-quent to the date of the fiscal period as shownby the cashbook, which should be carefullyscrutinized to see that none of them is applicable to the period under review.

(2) The file of bills not vouchored or enteredon the books should be examined to see thatnone of them belongs to the period under audit.

(3) A careful perusal of the minutes of acompany may further assist the auditor in de-termining liabilities.

When a company has large purchase con-tracts in force for future deliveries they shouldbe examined, for if the contract prices are greaterthan market prices, it might be necessary to setup a reserve for this loss. Any debit balancedue to advance payments on such contracts orto any other cause should be shown on thebalance sheet under a separate heading.

If the business under audit is one where thereis any possibility of goods having been receivedon consignments, and part or all of such goodshaving been sold without a liability thereforhaving been shown in the books, the auditormust use all due diligence to cover the pointfully. This may readily happen, as consign-ment accounts are usually treated as memo-randa only.

If inquiry develops the fact that goods havebeen received on consignment, all records inconnection therewith should be called for. Ifthe goods have all been sold, the consignor'saccount should show the full amount due, andif the debt is a current one, the amount willappear among accounts payable due to tradecreditors. Where only part of the goods havebeen sold? the net proceeds due to the consignorsshould be shown on the balance sheet under thecaption of "Accounts payable consignors.'7

\s an additional precaution against the omis-sion of liabilities a certificate should be ob-tained from the proper officer or member of theconcern stating that all outstanding liabilitiesfor purchases and expenses have been includedin the accounts of the period under review or of

87199—17 7

former periods. In many cases it is also ad-visable to obtain a certificate from the presidentstating that all liabilities for legal claims, in-fringements of patents, claims for damages,bank loans, etc., have been included, as he maybe the only executive officer of the company toknow the extent of such obligations.

CONTINGENT LIABILITIES.

It is not enough that a balance sheet showswhat must be paid; it should set forth withas much particularity as possible what mayhave to be paid. It is the duty of an auditorwho makes a balance sheet audit to discoverand report upon liabilities of every description,not only liquidated debts but possible debts.The following are the usual forms under whichcontingent liabilities will be found: ,

Indorsements.—Inquiry oi the officers orparti]ers of the concern should bo made as towhether any indorsement of outside paper hasbeen made and as to any security received toprotect the concern. Such inquiry should beparticularly strict if it is known that any ofthe officers or partners are interested in otherenterprises. Similar action should be takenin the matter of—

GUARANTIES.

Unfulfilled contracts.—Contracts to accept thedelivery of goods contracted for before thedate of the balance sheet, may call for thepayment of large sums of money within a shorttime. In the case of raw materials for amanufacturer, this might be a perfectly legiti-mate reason for socking a temporary loanponding production and sale, but for a mer-chant whose balance sheet shows a large stockof goods on hand, it might indicate a realliability impending with assets of a doubtfulcharacter to offset it. In every audit, there-fore, the auditor should call for copies of allorders for future delivery, and if such orderscall for stock in excess of the current and rea-sonable prospective demand, mention shouldbe made on the balance sheet and a reportsubmitted, the details depending on tho cir-cumstances of each particular case.

Items other than those arising from thespecific hypothecation of current assets to belisted under item 20 should appear as a foot-note on the liability side of the balance sheet,the total amounts being stated for each sub-heading and such additional report made aswill convey clear information to the banker.


230 FEDEKAL RESERVE BULLETIN. APRIL 1,1917.

ACCRUED LIABILITIES.j

Under this caption are grouped such items jas interest, taxes, wages, etc., which have ac- jcrued to the end of the period under audit, but jare not due and pa3^able till a later date. The jverification of such items can be accurately!made from the books and records. Specialattention may be directed to the following:

Interest payable.—Many of the liabilitieswhich appear on a balance sheet carry interest.Such items as bonds and notes payable are ob- jvious, but the auditor should also consider the jpossibility of accounts also bearing interest, as jenough book accounts, when past due, do bearinterest to warrant inquiry being made. Loanaccounts of partners and officers of corpora-tions almost invariably bear interest; alsojudgments, overdue taxes, and other liens.

Taxes.—The amount of accrued State andlocal taxes can bo ascertained from an exami-nation of the latest tax receipts; though in some jcases, as the period for which the taxes are paidis not shown on the face of the receipt, it may benecessary to make inquiries of the proper taxing jauthorities as to the period covered.

Under the Federal income tax law a tax of 2per cent is imposed upon the net profits of a cor-poration, which must be paid even if the cor-poration is dissolved before the end of the yearduring which the tax is imposed. As the tax isspecifically based upon the net profits of aparticular period, although payable somemonths thereafter, the tax accrues throughoutthe specified period, and if a net profit is dis-closed upon the closing of the books at anydate during the year, a reserve of 2 per cent,must be shown on the balance sheet as an ac-crued tax.

Wages.—Where the date of the balance sheetdoes not coincide with the date to which thelast pay roll of the period under audit has beencalculated, the amount accrued to the date ofthe balance sheet must be ascertained and en-tered as a liability, unless such amount istrifling. It will suffice to take the proportionof a full week's pay roll (six days) withoutreference to possible daily "variations.

Water rates, etc.—Where bills for such ex-penses as water, gas, etc., are not renderedmonthly, the auditor must enter the accrualof the proper proportion since the last bill as aliability.

Traveling expenses and commissions.—It isimportant to note whether the accounts of alltraveling salesmen have been received andentered before the books are closed. Theauditor should secure a list, and if &ny report

was not so entered, provision should be madefor it unless the amount is likely to be trifling.

Ample provision should be made for all com-missions eventually payable on sales which havebeen billed to customers. As commissions arefrequently not payable to salesmen until thesales have been collected from the customers,accrued commissions are often omitted from thebooks. As they must, however, be paid out ofthe proceeds of the sales on which the full profit .has already been taken into the accounts, theyshould be set up as an accrued liability.

Legal expense.—All concerns have more orless litigation. Before the books are closed thelawyers should be requested to send in a bill todate. If one is not found, the auditor shouldascertain the amount, if any, probably due andset it up as an accrued liability.

Damages.—If the concern is insured againstliability for damages to employees or the publica proportion of the premiums paid in advancefor the unexpired time covered by the insurancewill appear in "Deferred charges." But theremay be claims or suits for other damages notcovered by insurance and where the auditorfinds any evidence which leads him to suspectthere may be liability of this nature he shouldinsist upon being informed of all the facts. Hecan then form an opinion as to the amount thatshould be set up as an accrued liability, or if theoutcome is uncertain as a reserve against pos-sible loss.

BONDED AND MORTGAGE DEB.T.

A copy of the mortgages must be examinedand the terms thereof noted. The amount ofbonds registered, issued, and in treasury, rateof interest, and duration of the bonds, should beshown on the face of the balance sheet. Acertificate should be obtained from the trustcompany certifying the amount of bonds out-standing, etc., as verification of the liabilitystated in the balance sheet. The interest onthe bonds outstanding, shown in the balancesheet, should be calculated and reconciled withthe interest on bonds, as shown in the profit andloss account.

Sinking-fund provisions in mortgages shouldbe carefully noted and care should be taken tosee that they are provided for in the accountsof the company, and any default noted in thebalance sheet.

Bonds redeemed during the period or pre-viously should be examined, to see that theyhave been properly canceled, or, if they havebeen destroyed, a cremation certificate shouldbe obtained from, the trustees.


APRIL 1,191T. FEDERAL RESERVE BULLETIN". 281

Mortgages sometimes stipulate that the cur-rent assets must be maintained at a certainamount in excess of the current liabilities, andthe auditor must give due consideration tosuch matters and any other stipulation inregard to the accounts, or any audit thereof,that may be referred to in the trust deed, andsee that they have been complied with.

Mortgages.—As a mortgage derives its chiefvalue from the fact that upon registry it be-comes a lien, the auditor should verify the ex-istence of such an obligation by inspecting thepublic records, not only with reference to suchas may be found on the company's books butalso any that may still appear on the publicrecords as unsatisfied. If the auditor lacksthe necessary facilities for making a search itwill be worth his while to arrange with a locallawyer or title company whereby, for a smallfee, any mortgages or judgments enteredagainst the concern under audit will be re-ported to him.

In any event the auditor must verify theamount as recorded in the account, the rate,the due date, and the property covered thereby.

It should be borne in mind that a paymenton account of a mortgage must be recorded orthe entire amount will remain as an encum-brance on the property. Therefore, if pay-ments on account appear, the auditor shouldascertain if they have been so recorded; if notthe fact should be noted on the balance sheet.

Judgments.—The same procedure should befollowed in verifying judgments as in verifyingmortgages. As many business men considerthat the entry of an invoice is an admission ofliability, and will not permit the entry of aclaim which they propose to fight, it is some-times difficult for an auditor to find any evi-dence of such liens. Even admitting the factthey may still refuse to allow the judgment tobe entered on the books as a liability in whichcase it is proper for the auditor to include it asa footnote on the balance sheet as a contingentliability.

Unpaid interest.—When considering the mat-ter of liens it should be noted that interestunpaid is a lion as well as unpaid principal, sowhere the auditor finds evidence of interest onliens being in default, he should add it to theprincipal in each case.

CAPITAL STOCK.

As a rule trust companies are the transferagents for the capital stock of large corporationsand for verification purposes it is sufficient to

obtain letters from them certifying to the capi-tal stock outstanding.

Where companies issue their own stock, thestock registers and stock certificate booksshould be examined and compared with thelists of outstanding stockholders.

On the balance sheet each class, if more thanone, of stock must be stated, giving amountauthorized, issued, and in treasury, if any. Inthe case of companies with cumulative pre-ferred stocks outstanding a note must be madein the balance sheet of the dividends accruedbut not yet declared.

If stock has been sold on the instalmentplan, the auditor should ascertain that thecalls have been promptly met and whether anyare in arrears. If special terms have been ex-tended to any stockholder, approval of theboard of directors is necessary and the minutesshould be examined accordingly.

If any stock has been sold during the periodunder audit, the auditor should verify theproceeds of the sales.

SURPLUS.

The auditor should give consideration to thesurplus at the beginning of the period. Thisitem represents the accumulated profits priorto the beginning of the fiscal period under review,and should be compared with the surplusshown on the balance sheet of the previous year,and with the ledger account, to see that it cor-responds, and if it does not, a reconciliationstatement should be prepared giving full de-tails of the differences.

PROFIT AND LOSS.

The auditor should obtain the profit and lossstatement for three years, at least, includingthe period under audit, and after verifyingthem by comparison with the ledger account,prepare a statement in comparative form.This comparison will furnish valuable infor-mation to the banker as to the past progress ofthe concern under audit.

A satisfactory form of profit and loss ac-count is annexed hereto, but any other formgiving substantially similar information isacceptable.

While it would be impracticable in an ordi-I nary balance sheet audit, and, at the sametime, somewhat useless to make a detailedcheck of all the transactions entering into thecomposition of the profit and loss account,there are certain main principles to be kept inview which are briefly outlined below:



SALES.

Whenever it is possible, the quantities soldshould be reconciled with the inventory onhand at the beginning of the period, plus theproduction, or purchases, during the period,less the inventory on hand at end of the period.

Where a good cost and accounting system isin force, the sales records will very probablybe in good shape, but nevertheless, the auditorshould satisfy himself from the shipping rec-ords that the sales books were closed on thelast day of the fiscal year, and that no goodsshipped after that date are included in thetransactions.

When an audit is being made for the firsttime, the auditor should satisfy himself thatthe sales at the beginning of the period wererecorded in accordance with the dates of ship-ments. Such verifications can be made con-veniently by a direct comparison of the ship-ping memoranda with the invoices billed.

Allowances to customers for trade dis-counts, outward freights, reductions in prices,etc., should be deducted from the sales in theprofit and loss account, as the amount of netsales is the only figure of interest to thebankers.

The future bookings at the close of the fiscalyear should be looked into, as a comparison oforders on hand with corresponding periods ofother years furnishes the bankers with anidea of the concern's business outlook.

COST OF SALES.

The inventory at the beginning of the period,plus purchases during the period, less in-ventory at the end of period, gives the cost ofsales. In a manufacturing concern the fac-tory cost of production takes the place of pur-chases. These items will have already beenverified in auditing the balance sheet, butnevertheless care should be taken to see thatthis heading has not been made a dumpingground for charges which would be moreproperly embraced under the heading of spe-cial charges. The composition of the itemsentering into the cost of sales should be tracedin totals into the cost ledgers or accounts.

GROSS PROFIT ON SALES.

This is obtained by deducting the cost ofsales from the net sales. The ratio of grossprofits to net sales should be calculated andcompared.

SELLING, GENERAL AND ADMINISTRATIVE EX-PENSES.

Under these general headings should beset down the expenses itemized to correspondwith the titles of the ledger accounts kept ineach division. In checking the totals of eachaccount with the statement for the period underaudit, special attention to credits in these ac-counts should be given to see that none havebeen made for the sale of capital assets and forother items which should not appear in expenseaccounts. The percentages of the totals ofeach division and of the aggregate total to netsales should be calculated for each year for

i comparison.Ij NET PROFIT ON SALES.

! This is obtained by deducting the aggregate| total of the selling, general, and administrative| expenses from the gross profit on sales, and| shows the net earnings of the concern on.itsi real business. Ratio to sales should be cal-culated for each year for comparison.

OTHER INCOME.

Under this heading is embraced any incomethat may be derived from sources outside ofsales, such as income from investments, in-terest, discounts, etc. Schedules should beprepared of each item, and the auditor shouldsatisfy himself of their accuracy and of thepropriety of including them as income.

DEDUCTIONS FROM INCOME.

Under this heading are grouped such itemsas interest on bonded debt, interest on notespayable, etc. The same procedure of verifica-tion as in the case of other income should befollowed.

NET INCOME—PROFIT AND LOSS.

Adding other income to gross income anddeducting deductions from income gives thenet income or profit and loss for the period,which is the amount that should be carried tothe surplus account.

SURPLUS ADDITIONS AND DEDUCTIONS.

Items of unusual or extraordinary profitwhich do not belong strictly to the periodunder audit, or can not be said to be the



legitimate result of the ordinary transactionsof the concern, should be entered here andverified with the surplus account. Similarly,deductions should be treated. Also dividendsdeclared should be entered in the surplus ac-count and as an item, under this caption,inasmuch as.it is the usual custom to declaredividends "from net earnings and surplus.''After adding special credits to and deductingspecial charges from the net income we havethe total profit and loss for the whole periodfrom all sources which, added to the surplusbalance at the beginning of the period, givesus the surplus at the end of the period, whichshould agree with the surplus us stated on thebalance sheet.

GENERAL.

These instructions cover audits of small ormedium-sized concerns. In large concernshaving, for instance, tens of thousands of ac-counts or notes receivable, the detail proced-ure suggested would be impracticable, and in-ternal check should make it unnecessary. Insuch cases only tests can be made, but theauditor must always be prepared to justify hisdeparture from, a complete program by show-ing that the purposes sought to be accom-plished thereby have been adequately effectedby his work.

Any extensive clerical work, such as prepa-rations of lists of notes receivable, etc., shouldbo performed by the client's staff, so as toavoid unnecessary employment of professionalstaff in merely clerical work and consequentundue expense.

FORM OF CERTIFICATE.

The balance sheet and certificate should beconnected with the accounts in such a way asto ensure that they shall be used only con-jointly. This rule applies also to any reportor memorandum containing any reservationsas to the auditor's responsibility; any qualifica-tion as to the accounts, or any reference tofacts materially affecting the financial posi-tion of the concern.

The certificate should be as short and conciseas possible, consistent with a correct statementof the facts, and if qualifications are necessarythe auditor must state them in a clear and con-cise manner.

If the auditor is satisfied that his audit hasbeen complete and conforms to the generalinstructions of the Federal Reserve Board,and that the balance sheet and profit and lossstatement are correct, or that any minor

qualifications are fully covered by the foot-notes on the balance sheet, the following formis proper:

I have audited the accounts of Blank & Co. for theperiod from to

andI certify that the above balance sheet and state-

ment of profit and loss have been made in accordance withthe plan suggested and advised by the Federal ReserveBoaid and in my opinion set forth the financial conditiono£ the firm at and the resultsof its operations for the period.

(Signed) A. B.C.

[Form for profit and loss account.]

Comparative statement of profit and loss for three yearsending 19

Year ending—

Gr oss sales.Less outward freight, allowances, and

Net sales - - - - -

IJurohaso*s not-

Cost of sale?

Selling expenses (itemized to correspondwith ledger accounts kept)

Total selling expenseGeneral expenses (itemized to corre-

spond with ledger accounts kept) . . .

Administrative expenses (itemized tocorrespond with ledger accounts kept)

Total administrative expense

Total expenses

Net pro/it on StilusOther income:

Income from in vestmentsInterest on notes receivable, etc

Cross incomeDeductions from income:

Interest on bonded debtIn tores si on n o t e pavable. . .

Total deductions

Net income—profit and lossAdd special credits to profit and loss..Deduct special charges to profit and Joss

Profit and loss for periodSurplus beginning of period

"Dividends paid

Surplus ending of period. . . .

19—

= = =

19—

3

= =

. = = • =

19—

•

= =

= = = = =

| !

- • : _ _ •


284 FEDEBAL RESERVE BULLETIN. APRIL 1,1917.

[Form of balance sheet.]

ASSETS.Cash:

la. Cash on hand—currency and coin.,1b. Cash in bank

Notes and accounts receivable:3. Notes receivable of customers on hand

(not past due)5. Notes receivable discounted or sold with

indorsement or guaranty7. Accounts receivable, customers (not

past due)9. Notes receivable, customers, past due

(cash value, $ )11. Accounts receivable, customers, past

due (cash value, 3 )Loss:

13. Provisions for bad debts..15. Provisions for discounts,

freights, allowances, etc

Inventories:17. Raw material on hand19. Goods in process21. Uncompleted contracts

Less payments on accountthereof

LIABILITIES..

Bills, notes, and accounts payable:Unsecured bills and notes—

2. Acceptances made for merchandiseor raw material purchased

4. Notes given for merchandise or rawmaterial purchased

6. Notes given to banks for money bor-rowed 1

8. Notes sold through brokers10. Notes given for machinery, additions

to plant, etc ."12. Notes due to stockholders, officers,

or employees

Unsecured accounts—14. Accounts payable for purchases (not

yet due)16. Accounts payabla for purchases

(past due)18. Accounts payable to stockholders,

oflicors, or employees

23. Finished goods on hand

Other quick assets (describe fully):

I

Secured liabilities—20a.. Notes receivable discounted or sold

with indorsement or guaranty(contra)

20b. Customers' accounts discounted orassigned (contra)

20c. Obligations secured by liens on in-ventories

20d. Obligations secured by securities de-posited as collateral

22. Accrued liabilities (interest, taxes,wages, etc ;

Other current liabilities (describe fully):

Total quick assets (excluding all investments).

Securities:25. Securities readily marketable and salable

without impairing the business27. Notes given by oificers, stockholders, or

employees29. Accounts due from officers, stockholders,

or employees

Total current assets.

Fixed assets:31. Land used for plant33. Buildings used for plant35. Machinery37. Tools and plant equipment39. Patterns and drawings-11. Oflice furniture and fixtures43. Other fixed assets, if any (describe fully).

Less:45. Reserves for depreciation.

Total fixed assets...

Deferred charges:47. Prepaid expenses, interest, insurance,

taxes, etc.Ot her assets (49)

Total assets.

Total current liabilitiesFixed liabilities:.

24. Mortgage on plant (duo date ) . .28. Mortgage on other real estate (due

dato . . . . . . . . )28. Chattel mortgage on machinery or equip-

ment (due date )30. Bonded debt (due date )

32. Other fixed liabilities (describe i'ully):

Total liabilities.

Not worth:34. If a corporation—

(a) Preferred stock (less stock intreasury)

(6) Common stock (loss stock intreasury)

(c) Surplus and undivided profits - .Less—

(d) Book value of goodwill

(e) Deficit

30. If an individual or partnership—(a) Capital(b) Undistributed profits or deficit.

Total.


APRIL 1,1917. FEDESAL RESERVE BULLETIN. 2 8 5

INFORMAL RULINGS OF THE BOARD.Below are reproduced letters sent out from . and 3 per eoni of time deposits in the reserve

time to time over the signatures of the officers i bank. ^ As Air. argues that the countryor members of the Federal Reserve Board ! b a n k a l ^ J * has to keep more than 4 per centwhich contain information believed to be of i ^ ™ j P % C e ^ O i l hffd f ^ "loiiey his

. . . - • -n i •• -n T> •• i j a-rSum(J'nt evidently, as already stated, relatesgeneral, interest to loaerai Eeserve Banss and , T l l o r o l y t o t h o r o s c ^ e b a n k balance.member banks of the system.: j 2. As is shown in tho table printed on pageReserve Balances. ! 110 of the Federal Reserve Bulletin for Fcbru-

(To an individual.) j ary. to which Mr. makes reference inI return herewith letter from —, cashier ;-his letter (p. 5), it is shown that the total

of the Bank of . j amount of reserve balance required under theThis letter has been referred to me and I j amendments to be in a Federal Reserve Bank

have asked that the statements made therein ! on iho present basis is 8574,000,000, whilebe analyzed, and inclose herewith copy of such I under the new plan it would be $901,000,000.analysis. " * j This, however, is on the basis of a supposed till

The case of this bank seems to be an exeep- j money requirement of 5 per cent additional,tional one, but it does not seem that he has | Bearing this in mind, it is seen that the totalgiven sufficient consideration to the provision I amount of funds required under the new plan,in. the bill which was recently reported to the j as stated on the line next to the bottom in theSenate from committee, and winch entirely ! table referred to, is $1,332,000,000, while onrelieves national hanks from the necessity of " the present basis it is $1,369,000,000, a reduc-carrying gold or lawful money or any specific j tion, therefore, of some $37,000,000. In the

ticularly to those having large pay roll require- \ is based throughout on tho assumption thatments. I think it will be admitted, entirely i much more than this has to be carried. In-apart from any legal requirements as to vault j deed, he shows that on September 2, 1916, thecash, that banks located in industrial centers i country banks actually did carry 5.37 per centwhich have large pay rolls to take care of, must j in vault. If Mr. refers entirely to thenecessarily carry "a larger proportion of vault ; gold likely to be put into the Federal Reservecash than those located"in towns whore there j Banks by the new amendments, as he seemsare no large manufacturing establishments. I t j to do when he calls attention to the estimateis usually the rule, however, that banks located j of 1200,000,000 given in the Senate report asin industrial towns have exceptional oppor- i likely to be added to the holdings of Reservetunities for building up their savings depart- j Banks, and contrasts that with the $327,-ments. Your bill provided that the reserve j 000,000 apparently to be added if tho figureson savings was to be only 3 per cent, which is | of the table referred to are correct, it may bethe figure that Mr. himself advocates. \ noted that these figures vary considerably from

MARCH 9, 1917. I time to time, accordingly as deposits vary, andthat the figures given in the table in the Federal

(Memorandum.) Reserve Bulletin relate entirely to reserve1. Mr. :—

?s request is that the change in \ money, whereas the figures given in the Senatereserve requirements, if any, bo such as to callj report relate to gold. There is no such dis-for a reserve of not more "than 5 per cent on | crepancy there as appears to be suggested,demand deposits and 3 per cent on time de-! 3. All of the first part of Mr. 's argu-posits for country banks. This • evidently re-lates only to the requirements for balance to becarried with reserve banks and has no referenceto the question of till money. The. amend-ments reported by the Banking and CurrencyCommittee of the Senate would have providedfor reserves of 6 per cent of demand deposits

mont was designed to show that at the presenttime country banks do actually carry in theirvaults more than 5 per cent of till money, sothat computations regarding the effect of thenew amendments based upon the assumptionthat 5 per cent till money is sufficient- fallshort of the fact, and hence point to an increase


286 FEDEBAL RESERVE BULLETIN. APRIL 1,1917.

in reserve rather than a reduction as applies tocountry banks. Accepting Mr. 's figuresas correct, we may yet decline to accept hisaverage figures for central reserve city banks,reserve city banks, and country banks, be-cause the Wo former classes have no directrelation to the point he is arguing, which is thecondition of the country banks under the pro-posed amendments. What he does show is thatwithin the past two years the vault cash car-ried by country banks has varied from 5.37per cent to 5.75 per cent. What he neglects isthat under the proposed plan the requirementsof the bill would permit him to use nationalbank notes and Federal Reserve notes in placeof reserve money which he has been carryingheretofore. He could, from a study of his re-quirements, ascertain the dates on which fundswould bo needed, and could have notes for-warded to him from his Federal Reserve Bank.In other words, the proposed plan wouldenable him to carry his vault-cash reserve verymuch more economically than at present.The same, of course, is true of the other classesof banks of the country.

4. It should, however, be admitted thatnational banks located in places where thereare heavy pa}r-roll requirements need to keepconstantly available very much more than4 per cent or 5 per cent of vault cash, andthat in the case of some such banks the re-quirements of the proposed amendments arelikely to be onerous. This would be true ofalmost any requirement that could bo framed.It does not moan that the banks as a whole areunfavorably affected, but merely that in spo-radic cases the banks by reason of their specialnecessities may be subjected to hardship.

MARCH 8, 1917.

Limitations Imposed by Section 13 of Act(To a Federal Reserve Bank.)

I wish to acknowledge receipt of your letterof March 12, involving the construction ofthat part of section 13, which reads as follows:

"No member bank shall accept, whether in aforeign or domestic transaction, for any oneperson, company, firm, or corporation, to anamount equal at any time in the aggregateto more than 10 per cent of its paid-up andunimpaired capital stock and surplus, unlessthe bank is secured either by attached docu-ments or by some other actual security, etc.'*

This clause places a 10 per cent limit uponthe amount of acceptances which any memberbank might make for any one person, company,

firm, or corporation. That limit, however,does not apply if "the bank is secured eitherby attached documents or by some other actualsecurity growing out of the same transactionas the acceptance." I understand that } ourconstruction of this provision is the currentone; that is, that if documents which were at-tached at the timo of the acceptance are sur-rendered and no other actual security growingout of the same transaction is substituted,then the 10 per cent limit will apply. Theaccepting bank must remain secured" in themanner prescribed during the life of the ac-ceptance in order to be "exempt from the 10per cent limit.

The only doubtful question is as to whatconstitutes "some other actual security grow-ing out of the same transaction as the accept-ance." Shipping documents accompanying abill of exchange are ordinarily surrenderedupon acceptance, and unless the acceptingbank is given some other actual security intheir* place the 10 per cent limit would applyas soon as the original documents are sur-rendered. If a warehouse receipt for thegoods is given upon the surrender of the ship-ping documents, the bank would undoubtedlybe secured in the manner contemplated by theact, but if an ordinary trust 'receipt whichenables the purchaser to obtain the goods forhis own uso is substituted for those shippingdocuments the Board understands that the10 per cent limit would apply, inasmuch as sucha trust receipt would not constitute an "actualsecurity>? within the meaning of the sectionquoted. The 10 per cent limit, however,should not apply in any case where the acceptoris secured by a trust receipt whose terms pre-clude the possibility of the goods coming intothe hands of or under the control of the pur-chaser, as where the goods are held by someperson, firm, or corporation, independent ofthe purchaser.

There is no doubt, therefore, that in any casewhere shipping documents or warehouse re-ceipts are held by the acceptor the 10 per centlimit does not apply; so also in any case wherethe acceptor holds a trust receipt which doesnot enable the borrower to obtain the goods forhis own use, the 10 per cent limit does notapply; but in any case where the bank holdsmerely the ordinary trust receipt which givesit only a lien on the goods in the hands of thepurchaser or on their proceeds, the 10 per centlimit should apply.

As you intimated in your letter, this questionof limiting the right of a member bank to acceptis separate and distinct from the limit imposed



by section 5200 discussed in the opinion ofcounsel on page 195 of the March Bulletin.That opinion holds merely that a member bankmay discount trade acceptances without refer-ence to the 10 per cent limit, if they are drawnagainst actually existing values, but it shouldnot be construed to imply that a member bankmight accept, without limit, domestic draftswith shipping documents attached, if suchshipping documents are to be surrenderedwithout the substitution of some other actualsecurity growing out of the same transaction. I

MARCH 13, 1917. j

(To an individual.)

I beg to make the following reply to yourinquiries made to-day over the telephone: j

A bank having a capital and surplus of j$288,000 may, under the National Bank Act,lend to a customer on his own obligation a sumnot to exceed $28,800 (10 per cent of capital jand surplus). The bank may, however, in!addition to such loan, discount for the samecustomer (although he may have a direct line jof credit in bank up to the 10 per cent limit), |bills of exchange drawn against actually ox- |isting value, or commercial or business paper |actually owned by him. The bank may, there-fore, legally discount for the customer bills ofexchange drawn by him for the purchase priceof commodities sold, and accepted by thedrawee; or it may discount for the customerthe note of the purchaser if actually owned byhim, without reference to the 10 per centlimitations prescribed by section 5200.

A member bank acquiring such acceptancesor notes may rediscount them with its FederalReserve Bank. There is no limitation uponthe acceptances, but the notes would be subjectto the limitations prescribed by section 13 ofthe Federal Reserve Act; and the FederalReserve Bank can not discount paper bearingthe signature of the same borrower in an amountgreater than 10 per cent of the capital and sur-plus of the member bank offering such paper.

Bills of exchange drawn against actually ex-isting value and accepted by the drawee withina reasonable time after the shipment of thegoods, may be rediscounted with the FederalReserve Bank without reference to the limita-tions imposed by section 13 of the FederalReserve Act. I am informed by counsel forthe Comptroller of the Currency that underthe practice followed by his office bills or noteswhich are renewed at maturity are not to betreated as bills drawn against actually existingvalue or as commercial or business paper owned

by the person negotiating them, and that re-newals are therefore subject to the limitationsof section 5200.

MARCH 21, 1917.

Trade Acceptances.(To a Federal Reserve Bank.)

In response to yours of the 5th instant, youare advised that in accordance with the opinionof counsel, approved by the Board, only thosetrade acceptances which are drawn at the timeof, or within a reasonable time after, the ship-ment or delivery of goods sold can be treatedas bills of exchange drawn against actuallyexisting value.

A bill drawn for a balance due on openaccount, of long standing, which is acceptedby the debtor, might constitute a trade accept-ance, but in order for it to be excepted fromthe limitations imposed by section 13 of theFederal Reserve Act as a bill drawn againstactually existing value it must have beendrawn contemporaneously with, or within sucha reasonable time after, the shipment of thegoods as to justify the assumption that thegoods are in existence in the hands of thedrawee in their original form or in the form ofproceeds of sale.

As evidence of this fact Federal ReserveBanks might reasonably require such tradeacceptances as are offered as "bills of exchangedrawn against actually existing values" toshow the date of invoice, so that it may bedetermined whether or not the account is oneof long standing.

MARCH 12, 1917.

StocSi Subscriptions.(To a Federal Reserve Bank.)

Your letter of March 5 has been received andconsidered. You submit the following twoquestions for the Board's consideration:

(1) Whether the Board has any objection topayments on account of stock subscription andreserve deposits being received by your bankfrom now member banks pending receipt ofadvice of the Board's approval of the applica-tions.

(2) Whothor a member bank should carryits required reserve with the Federal ReserveBank from the date its first deposits are re-ceived by the Federal Reserve Bank even thoughits application for stock has not been filed withthe Federal Reserve Bank or approved by theFederal Reserve Board.



In reply you arc advised that the Board doesnot feel that it would be consistent with its reg-ulations or with the more conservative businessprinciples to treat applicants for membershipin the "Federal Reserve System as members un-til their applications have been formally ap-proved by the Board. Should you receivedeposits or payment of stock subscription froman applicant and the Board should subse-quently decline to approve the application,some complications might result.

The Board will be glad in all cases to expe-dite action on all applications as far as possible,but, as stated, does not feel that any pay-ments should be accepted nor deposits receivedfrom applicants until the applications havebeen approved by the Board.

MARCH 7, 1917.

War Department Obligations.

(To Federal Reserve Banks.)

The Board has been advised by the Secretaryof War that, owing to the failure of Congress atits last session to pass the general deficiencyappropriation bill, no funds are available forthe payment of many obligations which havebeen contracted by the War Department, asevidenced by official "Public vouchers for pur-chases and services other than personal." Nodoubt is entertained that Congress at the ap-proaching extra session will promptly enactthis appropriation bill, so that the necessarymonejr will be available. In the meanwhileit is earnestly desired that holders of thesevouchers be enabled to realize upon them at assmall a cost as possible, and you are requestedto send your member banks a copy of this let-ter. The Board understands from the WarDepartment that each voucher will have arider attached as follows:

"This account is not payable at this date byreason of the fact that no funds are now avail-able owing to the failure of Congress to passthe general deficiency measure. This is theoriginal voucher, and payment will be madewhen funds are available only on presentationthereof. No other voucher will be issued cov-ering this transaction except on conclusiveproof of the loss of the original."

Your member banks in giving accommoda-tion to holders of Government claims as evi-denced by these vouchers, could take the noteof the firm or contractor with the voucher

attached as collateral security. The Boardholds that such notes will be eligible for redis-count by Federal Reserve Banks at the 15 dayrate, or at the regular commercial paper ratesaccording to maturities.

MARCH 21, 1917.

(To Federal Reserve Agents.)

The Board's attention has been called to thefact that office letter dated March 21, 1917,

j may have been construed to mean that mem-i ber banks may purchase outright Government| vouchers assigned by contractors or others! having claims represented by such voucherswithout taking the note of the claimant. Itwas not the intention of the Board, however, tosuggest such a course. Under section 3477,Revised Statutes, these claims are not assign-able and in the ordinary sense would not con-

i stitute bankable security. In view of all thej circumstances, however, it was suggested that| notes with these vouchers attached might be| rediscounted by member banks with a FederalReserve Bank. The notes would be eligiblewithout security, and, notwithstanding section3477, it was the view of the Board that wherecontractors have amounts due them from theGovernment which will be paid as soon as theproper appropriations have been made by Con-gross, banks might reasonably extend accom-modations to such contractors.

The Government officers might refuse to rec-ognize the assignment of a claim—

| "But if those officers chose to make paymentj to the person whom the claimant, by formalpower of attorney, has accredited to them asauthorized to receive payment, the claimantcan not be permitted to make his own disregardof the statute the basis for impeaching the set-

: tlement had with his agent/' (Bailev v. UnitedI States, 109 U. S.) | ^ _ _ _| In other words, section 3477 was^passed in; order to protect the Government and to makeit unnecessary for disbursing officers to deter-mine the merits of disputed claims. Under thepresent circumstances it may reasonably be an-ticipated that the Government officers will seek

i to protect the banks which extend these accom-! modations to those having contracts with theGovernment. It is expected that the neces-sary appropriation will be made within a shorttime and that these loans can and will beadjusted.

MARCH 31, 1917.


APRIL 1.19rj. FEDEEAL EESEEVE BULLETIN. 289

LAW DEPARTMENT.The following opinions of counsel have been

authorized for publication by the Board sincethe last edition of the Bulletin:Place of Payment of Acceptances.

An acceptance to pay at a particular place differentfrom the residence of the acceptor is a general acceptance,unless it expressly states that the bill is to be paid thereand not elsewhere, and does not render the bill nonnego-tiable.

FEBRUARY 27, 1917.Slit: The question has been raised whether

an acceptance to pay at a place different fromthe residence of the acceptor is a qualified ac-ceptance and whether the bill is thereby ren-dered nonnegotiable.

The broad rule is that an acceptance mustassent without qualification to the order of thedrawer, but section 140 of the Negotiable In-struments Law provides that—

"An acceptance to pay at a particular placeis a general acceptance, unless it expresslystates that the bill is to be paid there only andnot elsewhere.'7

Under this section it would seem that themere fact that an acceptance is made payableat a place other than the residence of theacceptor is not such a qualification of theorder of the drawer as to render the acceptancenonnegotiable unless the acceptance is in suchform as to make the bill payable only at aplace other than the place indicated by thedrawer.

It is, of course, clear that the drawer ofa bill may direct that the bill is to be paid ata specified place, other than that of the resi-dence of the drawee, and an acceptance to payat that other place is a valid general acceptance.In other words, A, in Boston, may draw on B,in Springfield, directing B to pay the bill inNow York and an acceptance by B, in Spring-field, to pay at any place in New York would bea valid acceptance in compliance with theterms of the bill as originally drawn. So alsothere is no doubt that A, in Boston, may drawon B, in Springfield, directing B to pay the billeither in Springfield or in New York and anacceptance by B, in Springfield, to pay either in

Springfield or New York would be a valid ac-ceptance in compliance with the terms of theoriginal bill.

A more doubtful case would be that of a billdrawn by A. in Boston, on B, in Springfield,with no particular place of payment desig-nated. According to the rule in Englandprior to the passage of an act similar to sec-tion 140 of Negotiable Instruments Law, whichwas followed by some courts in this country,the implication in such case was that A in-tended the bill to be paid at the place ofdrawee—that is, at Springfield—and anyacceptance by B to pay the bill at any placeoutside of Springfield was considered a quali-fied acceptance such as would release thedrawer and prior indorsers.

The decisions of the American courts whichadopted the English rule were rendered priorto the passage of the Negotiable InstrumentsLaw and, therefore, have no application to thepresent case unless it can be said that it wasbecause of these decisions that it became nec-essary to incorporate section 140 in this lawjust as it became necessary, because of therule adopted by the courts in England to passa statute similar in terms.

Section 140 of the Negotiable InstrumentsLaw provides, however, that '' an acceptanceto pay at a particular place is a general ac-ceptance unless it expressly states that the hillis to be paid there only and not elsewhere.7'Consequently it is the opinion of this officethat an acceptance by B, in Springfield, topay the bill in New York is not a qualifiedacceptance unless it expressly states that thebill is to be paid in New York only and notelsewhere.

It has been contended that the drawer andall indorsers "would very likely be discharged7'in the case of an acceptance to pay at a placeother than the residence of the drawee wherethe drawer did not specify any particular placeof payment. The force of the provisions ofsection 140 of the Negotiable Instruments Lawwas recognized, but it was suggested that sec-



tions 124 and 125 apparently negatived thoseprovisions.

It is to be observed that sections 124 and125 relate to the "alteration'7 of a negotiableinstrument, specifying that any material altera-tion without the assent of all parties avoids theinstrument. Section 125 specifically providesthat any alteration which changes the time orplace of payment or which adds a place ofpayment, where no place of payment is speci-fied, is a material alteration.

These sections manifestly refer to an un-authorized alteration of, or physical change in,the terms of an executed instrument by theholder or some one else, e. g., where the holderchanges the date or amount after the instru-ment has been executed. In the case underconsideration the acceptance of the drawee jconstitutes an acknowledgment on his part jthat the drawer had authority to draw the draftor bill, and the terms of the acceptance are theterms under which the acceptor agrees to paysuch draft or bill at maturity. It is, therefore,a part of the execution of the instrument inquestion and not an alteration of an executedinstrument.

The acceptor may render a bill or draft non-negotiable as an acceptance if he imposes cer-tain conditions or qualifications, but such anacceptance is made non-negotiable by thefailure of the drawee to assent without qualifi-cation to the .order of the drawer and not be-cause of any alteration of a completed instru-ment. When the instrument is complete as anacceptance—that is to say when it has beenaccepted by the drawee—it may be either aqualified or a general acceptance, and itsnegotiability will depend upon whether it isqualified or general. A qualification imposedby the drawee stipulating the terms underwhich he agrees to pay the order, should not,however, be confused with an alteration eitherof a bill or of an acceptance by an unauthorizedperson.

In the opinion of this office, sections 124 and125 do not, therefore, have any application tothe form of acceptance executed and do notnullify section 140. In the present case, so long

as the acceptor does not stipulate that the billwill be paid only at a particular place notdesignated by the drawer and not elsewhere itis not a qualified acceptance; is not an altera-tion within the meaning of section 125, and istherefore negotiable.

Respectfully,M. C. ELLIOTT, Counsel.

To Hon. W. P. G. HARDING,Governor Federal Reserve Board.

Holding Over of Federal Reserve Bank Directors.

A director of a Federal Reserve Bank has no authorityto continue to serve as such after the expiration of histerm even though his successor has not been elected.

MARCH 23, 1917.SIR: This office has been asked for an

opinion on the question of whether a directorof a Federal Reserve Bank may continue toserve after the expiration of his term of officeuntil his successor shall have been elected andqualified.

The general rule established by the courtsappears to be that when a term of office hasbeen definitely fixed or limited by law, theofficial authority of the person appointed forsuch term ceases upon the expiration thereof.The authorities, however, are not agreed onthe right of an officer to hold over pending thequalification of his successor. There arc twodistinct lines of cases on this point. In somejurisdictions it has been held that where theappropriate authorities have failed to appointa successor, an officer can not hold over unlessthe law expressly authorizes him to do so.(23 Am. & Eng. Enc. of Law, 2d ed., 412.)In many other jurisdictions, however, it hasbeen held that an officer may hold over untilhis successor is appointed and qualified, unlesssome restrictive words are used expressly orimplicdly prohibiting such holding over.

Applying these alternative doctrines to thequestion under consideration, the situation isas follows:

First, there is no express provision of lawauthorizing a director of a Federal ReserveBank to hold over until his successor has been



elected and qualified. Under the decisionsfirst referred to, therefore, which hold that anofficer can not hold over in the absence of ex-press authority, it is clear that a Federal Re-serve Bank director could not act as such afterthe expiration of his term of office.

Second, the courts generally agree thatwhere an officer is elected for one }Tear only hecan not hold over beyond the end of that year.Such a provision is necessarily construed toprohibit the right to hold over. (Keg. v. Dur-ham, 10 Mod., 147; State v. Perkins, 139Mo., 106.)

The Federal Reserve Act provides that thedirectors of classes A, B, and C, respectively,shall, at the first meeting of the board ofdirectors, designate one of the members ofeach class—

" whose term of office shall expire in one yearfrom the 1st of January nearest to date of suchmeeting, one whose term of office shall expireat the end of two years from said date, andone whose term of office shall expire at the endof three years from said date. Thereafterevery director of a Federal Reserve Bankchosen as hereinbefore provided shall holdoffice for a term of three years."

It will be observed that in fixing the termsof office of the directors first selected or ap-pointed, Congress specifically provides thatthe term of office of such directors shall expireat a fixed period—that is to say, one, two, orthree years from the 1st of January nearest tothe date of meeting at which the terms areallotted. In the opinion of this office, thislanguage impliedly prohibits any of the direc-tors first elected or selected from holding overafter the date on which their terms definitelyexpire.

While the language used in fixing the termof office of those subsequently elected is moregeneral, the act providing that such directors"shall hold office for a term of three years/7 itis reasonable to assume that Congress did notintend to make any distinction between thedirectors elected when the Federal ReserveBanks were first opened and those subse-

quently elected, and accordingly the impliedprohibition against the first directors holdingover should apply with equal force to thoseelected after that time.

In this view, whether the rule adopted bysome courts that an officer may not hold overunless expressly authorized to do so, or whetherthe more liberal view is adopted that officersmay. hold over unless the statute fixing theterm of office prohibits it, it would seem thata Federal Reserve Bank director will have noauthority to continue to serve after the expira-tion of his term and until the election of asuccessor.


To Hon. W. P. G. HARDING,Governor Federal Reserve Board.

Drafts Payable On or Before Certain Date.

Drafts payable "ninety days from date or before on fivedays after demand (i. e., on five days' notice) by the holderhereof" are negotiable and eligible for discount with aFederal Reserve Bank.

F E B R U A R Y 23, 1917.

SIR : The question has been raised whether adraft is negotiable and eligible for discountwith a Federal Reserve Bank which is payable" Ninety days from date or before on five daysafter demand by the holder hereof.''

This language is understood to mean thatthe draft is payable "ninety days from date orbefore on five days7 notice by the holder."

Section 4 of the Negotiable Instruments Lawprovides that:

"An instrument is payable at a determinablefuture time within the meaning of this actwhich is expressed to be payable. * * *

"(2) On or before a fixed or determinablefuture time specified therein,'7 etc.

The effect of the language under considera-tion seems clearly to make the draft payable90 days from date or at some date priorthereto, provided the holder has given fivedays notice to the acceptor. In this view itwould not be nonnegotiable.


292 FEDERAL RESERVE BULLETIN. , 1917.

To eliminate any possible ambiguity it issuggested that the wording be changed so as tosubstitute the word "notice" for the words"after demand.7'


To Hon. P. M. WARBURG,Vice Governor Federal Reserve Board.

Usurious Charges by National Banks.

Where a national bank, in addition to charging interestat the highest legal rate, requires a borrower to give anadditional note, accept a certificate of deposit for a likeamount, and put up such certificate as additional collateralto his entire loan the transaction appears to be usurious.

MARCH 12, 1917.SIR: There has been submitted to this office

for an opinion the following case:

A man owes a national bank $14,000 on notessecured by good collateral. In order to preventa suggested immediate demand of payment theborrower is asked to give an additional note for$3,000 and accept a certificate of deposit for theproceeds of this additional note and put saidcertificate up as collateral for his entire loan of$17,000. In other words, a borrower is payingthe legal rate of 6 per cent on $17,000 and hasthe benefit of only $14,000. Is this usurious ?

This transaction on its face would appear tobe usurious, but I have been unable to find anyadjudicated case dealing with this precise ques-tion. There are cases holding that claimsfor services and expenses may be madea cloak for usury. In other words, bankscharging excessive rates of interest have incertain cases claimed that the consideration forthe excess was services rendered or expensesincurred. (See in re Wilde's Sons, 133 Fed.^562.) The courts have generailj held in casesof this sort that whether the charge is a cloakto cover usury or is made in good faith for

expenses actually incurred, or services actuallyrendered, is one for the jury to determine uponall the facts in each individual case. (Do For-rest v. Strong, 8 Conn., 513; Sanders v. Nichol-son, 111 Ga., 739; Massey, McKessom & Go, v.McDowell, 20 N. C, 120.)

In the case of New England Mortgage Secur-ity Co. v. Gay (33 Fed., 636), the lender'sagent charged $1,700 for a loan of S8,500 to theborrower, the lender being chargeable withnotice of his act. The court, in instructing thejury, said, on page 653:

"If the services were actually performed forthe defendant at his request, if the commissionswere for specific services and actual expensesauthorized by him, and if they were reasonable,they would not be usurious. If they wore notperformed for his benefit, at his request forspecific services and actual expenses author-ized by him, and if they are unreasonable andwithout meritorious consideration, you will bejustified in finding that the charge Is a merecloak for usury and the plaintiff forfeits theamount of such excessive charges.'1

The jury found the commission usurious.In the case presented for consideration it

does not appear that the bank claims to haverendered any services or to have incurred anyexpense in the matter. It has merely agreedto extend, or at least not to demand payment of,the loan on the condition that the customeiborrows an additional 83,000 from the bankand hypothecates the certificate representingthis $3,000 as security for his indebtedness tothe bank.

In the absence of any proof of considerationother than the lending of the money in question,a jury would no doubt find this to be a usurioustransaction.

Eespectfully,M. C. ELLIOTT, Counsel.

To Hon. JOHN SKELTON WILLIAMS,Comptroller of the C;./.''TV.<><??/,


rnir. l, 1917. FEDEKAL EESEKVE BULLETIN. 293

SUMMARY OF BUSINESS CONDITIONS MAR. 23, 1917.

General business..

District No. 1—Boston.

District No. 2Ncw York.

District No. 3— jPhiladelphia. j

District No. 4—Cleveland.

District No. 5-Richmond.

District No. 0-Atlanta.

Crops:Condition.

Unsettled: await- j Satisfactory; con-ing d e v e l o p - : servatism" inmerits. , some lines.

Good. Satisfactory "i Good Good,

Outlook.

Industries of the dis-trict.

Small supply ofi grain on farms;: prices high.

Busy Active '

Construction, building, i Below last year.. .| Larger than a yearand engineering. i ;

ago.

iIi |

Foreign trade I Decreased j Contraction in im-I t d!

B ank clearings I Increased

Money rates I Dull, but firm

i

ports and ex-ports.

Increased.

J Average.

Fair.,

Very busy i Active

Number of per- Some labor trou-mits decreasing. bles in building

trades.

Preparations de-layed by badweather.

Encouraging

Running full; pro-duction limitedby scarcity ofsupplies andfreight facilities.

Interference by Fair.badweather,butmaterials in gooddemand.

Congested at ports. Limited.

Winter g r a i n spoor; plantingdelayed.

Labor* shortage;orders plentiful.

Kailroad, post office,and other receipts.

Labor conditions

Outlook

About the same aslast month.

Market quiet aivifirm.

Increased

Exports reachednew high record |during Febru- jary. " j j

Far ahead of last ' Increased Slight increaseyear. . I

Rales have sof- i Unchanged...tened somewhat.

.1 Well employed i Well employed at! high wage's.

Uncertain, pond- ; Favorable; ing international I ;j developments. J '

RemarVs ; \ Business in largej volume: some re-:

' ; lief in traffic con-'gestion; indica- :

lions of activespring season, j

Gross receipts in- Slight increase >.creasing; net jearnings de- j \creasing. i

Fair ; Unsettled :

Good Favorable ;

4 to 0 per cent; in-crea'sing d c -mand for nowcrops.

Normal or higher..

Fully employedat good wages. ;

Favorable...."

Increasing.

Stationary.

Steady.

Growingshortage.

Fair.

labor

Improvement in General conditions Itransport a t i o n sat isfactory. :

situation. ;

District No. 7—Chicago.

General business..

Crons:'Condition ,Omiook

Industries of the dis-irict.

Construction, building,and engineering.

foreign trade...

Ban!,-, clearings..

Money rates

District No. 8—St. Louis.

District No. 9—Minneapolis.

District No. 10—Kansas City.

DistrictNo.il—Dallas.

District No. 12—San Francisco.

Very active Good

. | ; ' ImprovedGood : Uncertain ; FairActive ; Good : Active Busy..

Slow ; Loss in St. Louis; .• increase else- ji where.

: Fine prospects

Incrcasin g ; In crease

Steady ; No change.

Railroad, post office, j Post-office receipts i Post office gain in iand oiher receipts.' • increasing. j St. Louis; slight "

! ! decrease eisc-i | where; railroad i; ! increase. ;

Labor conditions | Good i ;Onilook i do I Promising jRemarks : Railroad situation • '

j unsatisfactory. ! j

! i

j Decreased.

D ecrease i Increased..

About the same...j Steady

Large I Increased.

UnsettledVery goodUnderlying situa-

tion in districtis thoroughlysound. Feelingthat good busi-ness will con-tinue.

Satisfactory iEncouragingCar shortage and I

embargoes ham- jpering all lines. !

: Satisfactory;some j Good.caution account i

i in ternat ional :

conditions.

: Very ircod :1 Promising : Favorable.

: Active, though , Active,hampered by ;

transportation :

problems. ;Above normal for ! Slight increase.

I season.

Increase over 1910. Large and increas-; iiiiz.

; 14 per cent increase 30 per cent increaseover March, 1916.

Slight increase is Easy.• noted.

Increase : Increasing.

Above normal : Fairly settled.Favorable ; Favorable.Business cqndi- j Early indications

tions satisfac- ! give promise oftory; car short- • unusually largeage felt; agricul- : production oftiiral conditions i foodstuffs,promising; col-lections all lines i-good and condi- •tions sound.



GENERAL BUSINESS CONDITIONS.There is given on the preceding page a sum-

mary of business conditions in the UnitedStates by Federal Reserve districts. The re-ports are furnished by the Federal ReserveAgents, who are the chairmen of the boards ofdirectors for the Reserve Banks of the severaldistricts. Below are the detailed reports as ofapproximately March 23:

DISTRICT NO. 1—BOSTON.

Domestic and international problems of suchgrave importance have been pending during thepast month that in this district a general un-settled feeling pervades the commercial andfinancial atmosphere. The threatened rail-road strike caused a great deal of uneasinessin every quarter. Now that it is settled, alleyes are directed toward the international sit-uation. Pending the outcome of this, banksare running unusually strong so as to be pre-pared to meet any emergency and to assist infinancing any requirements of the Government.Manufacturers in most lines are not anxiousto accept new business until they know towhat extent, if any, their capacity will be re-quired for Government work. However, millsand factories, for the most part, are very busyand report orders covering a considerable fu-ture period.

Continued increases in prices of commoditiesare causing retailers and consumers to antici-pate their needs as far ahead as possible andthis is reacting on the wholesaler and producer.Raw materials of all kinds hold firm at or nearrecent high levels, while in some cases advancesare registered.

Collections are reported to be good, and incertain lines well ahead of last year.

The new season with manufacturers of bootsand shoes is just opening and few concerns havehad their salesmen out more than 10 days.Those who have begun to receive returns, how-ever, report satisfactory business. The con-sensus of opinion is that the demand will be

good in spite of the fact that prices are high,almost beyond precedent, and that retailersare supposed to have considerable stock onhand purchased at lower figures. Retail busi-ness is reported good. Leather holds firm,although not up to the high level reached sometime ago. There is a wide variety of opinionsamong buyers as to the value of skins, somecases having occurred where this differenceamounted to as much as 20 per cent.

Woolen and worsted mills continue busy,many having contracts for deliveries for agood while into the future. The NationalAssociation of Wool Manufacturers in theirquarterly statement report a smaller percent-age of idle woolen spinning spindles than atany period in the last year and a half and thepercentage of idle worsted spinning spindles isbut little in excess of last fall and summer.Trading in wool is somewhat quieter than lastmonth, although prices hold firm. Some deal-ers claim that wool is so scarce the world overthat notwithstanding the high price level ofthis commodity, little reaction can be expectedfrom present prices under any circumstances.There is considerable wool in Boston, but muchof this is supposed to be owned by mills tocover orders already taken.

A considerable improvement is noted in thecotton industry, there being more inquiriesand sales the last week than for some time.Mills are running at capacity, and many are wellsold ahead. A good demand for print clothsis in evidence, and this has caused a slight in-crease in prices. Quotations for nearly allclasses of cotton goods have reacted somewhatfrom the top, but owing to the high cost ofproduction and the ability to sell yarns at goodprices these have not been reduced materially.The interest taken recently by buyers hasserved to make prices firm, and the outlook forthe next six months is encouraging.

The paper trade is particularly unsettled be-cause of the high cost of materials and the un-



certainty of the news-print industry. Somemills are running on part time, feeling doubtfulas to the future. The demand for pulp woodhas stimulated farmers to an effort to cut offfrom their land much wood which has hereto-fore been sold at a low price for firewood.

The money market is dull. Banks are ap-parently accumulating money, but are not ad-verse to running strong of reserve. The de-mand is light, but the complicated situationtends to keep rates firm. Call money, 4 porcent; time money, 4-J- to 4J per cent for sixmonths, 4-| to 4f per cent for a year. Townnotes, 31 per cent upward for fall maturities.Bankers' acceptances, 3 per cent indorsed, 31per cent upward unindorsed.

Loans and discounts on March 17, 1917,amounted to $465,298,000, as compared with$472,293,000 last month and $409,061,000 onMarch 18, 1916. Deposits on March 17, 1917,totaled $371,143,000, as compared with $366,-275,000 on February 17, 1917, and $342,502,000on March 18, 1916. The amount "due tobanks77 on March 17 was $146,369,000, as com-pared with $146,432,000 on February 17. Theexcess reserve of these banks increased from$26,110,000 on February 17 to $40,293,000 onMarch 17.

Exchanges of the Boston Clearing House forthe week ending March 17, 1917, were $221,-114,491, compared with $219,789,796 for thecorresponding week last year and $199,304,087for the week ending March 10, 1917.

Building and engineering operations in NewEngland from January 1 to March 14, 1917,amounted to $29,235,000, as compared with$32,153,000 for the corresponding period of1916, the highest previous year on record.

Exports from the port of Boston for Feb-ruary, 1917, amounted to $22,390,613, as com-pared with $24,193,104 for January, 1917 (thelargest amount previously recorded), and$11,796,694 for February, 1916.

Imports amounted to $21,743,471, as com-pared with $32,419,881 for January, 1917, and$28,581,611 for February, 1916,

The receipts of the Boston post office forFebruary, 1917, show a decrease of $16,939.21,or about 2\ per cent less than February, 1916.For the first 15 days of March, 1917, receiptswere about 8 per cent, or $29,205.64 morethan for the corresponding period last year.

Boston & Maine Railroad reports net oper-ating income, after taxes, for January, 1917, as$987,780, as compared with $1,138,447 forthe corresponding month of 1916. New York,New Haven & Hartford Railroad reports netoperating income, after taxes, for January,1917, as $1,726,687, as compared with$1,420,462 for the same month last year.

During the period in wThich a strike wasthreatened, a very rigid embargo was putinto effect on all lines in this district, but assoon as a settlement was made this was liftedand the embargoes in force previously werereestablished. The freight situation is nowabout the same as last month.

DISTRICT NO. 2—NEW YORK.

Business in this district continues in largevolume and there is every indication of an activespring season. The serious turn in our foreignrelations and the uncertainty of transportationconditions have produced a feeling of conserva-tism in many lines, but, reviewing the situationas a whole, commercial and industrial transac*tions are larger than at this time last year. Thefeeling of hesitancy is most apparent in connec-tion with future buying, and the general ten-dency seems to be against stocking up with high-priced merchandise. In some branches, how-ever, supplies on hand are inadequate and for-ward needs are so heavy that activity is un-checked in spite of rapidly advancing prices.

A further rise has occurred in the generallevel of wholesale prices, and index numbers forMarch 1 were 25 per cent higher than on thesame da}^ last year. The widest changes oc-cur in food products, especially potatoes andother vegetables. There was also a note-worthy advance in cereals and certain meatsand provisions.



The congestion on thq railroads, which hasseriously hampered nearly every branch ofindustry, has been somewhat relieved and withthe approach of milder weather decidedprogress is expected. The settlement of thethreatened railroad strike has had a stimu-lating effect in many directions.

The past few weeks have brought an im-provement in operating conditions in the ironand steel industry, and production in both pigiron and finished steel has been increasing.The output of pig iron in February showeda marked falling off, due largely to the seriousshortage of coke. Prices of iron and steelcontinue to rise under a heavy demand andthe strength of the market has been accentuatedby actual and prospective Government orders.Inquiries for finished steel, both foreign anddomestic, continue in large volume. Thesteel plate mills are overwhelmed with con-tracts from shipbuilding interests.

In mercantile lines there has been a slightlull during th6 past month, due mainly to thefact that it is between seasons in some branches.The volume of business, however, is large forthis period of the year and confidence remainsa conspicuous feature.

The silk trade has experienced a slight fallingoff in business, but the textile industries arevery busy. The market for woolen goods hasbeen affected by the prospect of Governmentorders for uniforms in case of war. Businessin the cloak and suit line has been very activewith some difficulty experienced in obtainingcertain fabrics, and labor conditions havecaused considerable annoyance. In spite ofthese drawbacks, however, the trade hasbeen prosperous and a record spring seasonis anticipated.

There has been no change in the past fewmonths in the large volume of business inheavy chemicals. The railroad congestionhas hampered manufacturers to some extent,but has not been a very serious difficulty inthis quarter. Although sales in the drug tradeare also very large, manufacturers are suffer-ing from an insufficient supply of raw materials.

In the hide and leather trade the outlook fora heavy spring ousiness in the Middle West andWest is very bright. In the East conditionsare more uncertain, as buyers are apparentlynervous concerning the foreign situation.Manufacturers generally feel that the recent.British embargo on importations of shoes andleather will not prove a serious handicap toexporters and that these articles will be classedas necessities and admitted under licenses.

The supply of grain which the farmers ofNew York State had on hand on March 1 wassubstantially less than the amount held on thesame date last year. A summary of the Gov-ernment crop report for March estimatingstocks of grain on farms in this State shows adecrease of 48 per cent in wheat, 62 per cent incorn, 5.7 per cent in oats, and 45 per cent inbarley, compared with March 1, 1916.H The stock market has been quiet and steadyin the face of many disturbing developments,and has recently displayed evidence of renewedactivity and strength. Transactions in bondsin February were on a restricted scale. Therewere few offerings in new municipal issues andcorporation financing was light.

The call money market has been quiet, withrates practically stationary, the prevailingrange being 2 to 2J per cent. Time loans onregular mixed collateral ruled at about 3f- to4 per cent for 60 to 90 days, and 4 to 4-| per centfor longer maturities. Trading in commercialpaper has been light, most business beingtransacted from 4 to 4J per cent.

In foreign exchange, sterling yielded slightlyduring the month, but recovered, and francshave remained steady. Lire declined to a newlow record of 7.87 on March 15. Marks androubles were irregular, while guilders showedslight recessions.

The statement of the New York ClearingHouse dated March 17, 1917, shows loans, etc.,$3,558,906,00.0, deposits $3,831,403,000, andexcess reserves $163,838,970. Since February 3loans have increased $47,000,000, deposits in-creased $57,000,000. excess reserves decreased$1,600,000.



The following statistics have been obtainedfrom reliable sources:

'Bank clearings, New York City JNew York Stock Exchange— i

SharesNew York Stock Exchange— |

Bonds . . . . . !Pig iron production—tons !ITnfilled orders, United States

Steel Corporation—tons IBuilding Dermits, New York City.jPostal receipts, New York City.. . .Merchandise exports at New York.'Merchandise imports at New York.New incovperar i o n s—E a s t e r n

States...'New 11 ii a rjci rig ,

February, 1917.

812,794,087,245

13,608,769

$75,971,0002,637,042

11,576,697S10,852,177$2,697,455

S223,464,135897,834,888

8283,815,0003213,872,600

Changes fromFebruary, 1916.

+ 81,687,349,968

4- 1,588,633

- 84,419,000- '450,170

3,007,73181,734,057

$47,75481,470,80585,249,647

$82,180,300389,681,700

DISTRICT NO. 3—PHILADELPHIA.

While less active than recently, the volumeof business transacted in most lines continueson a large scale. Stimulated by the UnitedStates Government's inquiries and orders,prices of many articles have been further ad-vanced. Because of the uncertain foreignsituation, however, commitments are being un-dertaken with caution.

The very heavy demand for plates has beenthe feature of the steel situation and hasbrought about another advance in prices.Pig iron is higher, but there is great uncer-tainty as to the course of prices. Old materialis in demand at higher prices.

Buying is not active in the cotton yarn trade,as most manufacturers have their needs coveredby contracts for yarns for about three monthsahead, and are not anxious to make furtherpurchases at the present prices, which havebeen rising during the past month.

Business continues good among the localwool houses. Prices are firm but are not nowcarried forward by speculation as has been thecase during the previous months.

The transportation situation continues to bethe determining factor in the local coal market.During the period when the railroad strike wasimpending extreme fluctuations occurred.Since the settlement no concessions have beenmade in prices, which, however, are muchsteadier. Less labor trouble is reported than

a month ago, Coke production is increasingslightly. Spot prices are somewhat higher, butthe contract prices are higher as the belief isgeneral that there will be a shortage of coke forsome time.

As the result of special inquiries it is evidentthat concerns which are consumers of coal to aconsiderable extent have been much hamperedby the scarcity of coal.

Below is a table showing the result of in-quiries made of representative concerns in thisdistrict as to industrial and business conditions.

Summary of replies.

Industries reporting.

Agricultural implementsAutomobiles and partsBuilders supplies,rooQi]g,etc.Carpets, rugs, oilclothCement, iime, etcChemicals, fertilizers, drugs.,

soaps,etcCoal and coal miningConfectioneryCotton and cotton goodsDental suppliesDepartment storesDrygoods and notionsDyeing and finishing

i l dDyeing and finishingElectrical and gas apparatus.Flour, grain and grist mill

productsFurnitureGlassGroceries and food products.HardwareHosiery and knit goodsIron and steelLeather, hides, and glazed

kid...'.Locomotives, boilers, en-

gines, etcLumber and mill workMachinery, foundry prod-

ucts, machine tools,, e tc . . .Men's and women's wearMetals: Copper, brass, zinc

and tin .'Musical instruments, pianos

and talking machinesPaints and coloring matter..Paper and paper products...Petroleum and refiningPlumbers' suppliesPottery and pressed brick...Railway cars and partsRubber goodsShipbuildingShoesSiik, laces, etc.Slaughtering and packing..,Tobacco, cigars, etcWire.Woolens and worstedMiscellaneous (adverfcising,

hair,, hotels, ink, pens,rope', toys, etc.) .,

Total..

Repliesre-

ceived.

20

332

Outlook.

Ex-cel-lent.

Good. Fair.

185

Uncer-tain.

43 !

Bad.



Summary of replies—Continued.


Approxi-mate in-crease in

costs of pro-duction

during pastyear.

* • » • • r i a l !

Agricultural implementsAutomobiles and parts . . . .Builders supplies, roofiing, etc.Carpets, rugs, oilclothCement, lime, etcChemicals, fertilizers, drugs, soaps, etc.Coal and coal miningConfectioneryCotton and cotton goodsDental suppliesDepartment storesDrygoods and notionsDyeing and finishingElectrical and gas apparatusFlour, grain and grist mill products. . .FurnitureGlassGroceries and food productsHardwareHosiery and knit goodsIron and steelLeather, hides and glazed kidLocomotives, boilers, engines, etcLumber and mill workMachinery, foundry products, machine

tools, etcMen's and women's wearMetals: Copper, brass, zinc and t i n . . .Musical instruments, pianos and talk-

ing machinesPaints and coloring matterPaper and paper productsPetroleum and refiningPlumbers' suppliesPottery and pressed brickRailway cars and partsRubber goodsShipbuildingShoes . .Silk, laces, etcSlaughtering andTobacco, cigars, eiWire ,Woolens and worstedsMiscellaneous (advertising, hair, hotels,

ink, pens, toys, etc.)

Total

Are yourprofits

being cutby rising

costs?

Inmate- Yes.

Percent.

18172319292219152610141922212017242025.1738242016

12

19

121

Percent.

Are youseriouslyhandi-capped

by laborshortage?

41363418513026166236623383 |37 !62 j58 I73 !57 |76 • 239 | 6

58 9

37 24

102

11

No.

149 205 137

Yes.

192

No.

158


Is your labor asefficient as it was?

A yearago.

Yes.

Agricultural implements..Automobiles and partsBuilders supplies, roofing,

etcCarpets, rugs, oilcloth

No.

Beforethe war.

Yes. No.

Is yourprogressmateri-ally re-tarded

throughdifficultyin pro-curing

raw ma-terials

andsupplies?

Yes. No.

Length oftime in which

present de-mand for andconsumptionof your prod-uct is reason-ably certainto continue.

Oneyear.

Sixmonths

Summary of replies—Continued.


Cement, lime, etcChemicals, fertilizers,

drugs, soaps, etcCoal and coal miningConfectioneryCotton and cotton goods...Dental suppliesDepartment storesDrygoods and notionsDyeing and finishingElectrical and gas appara-

tusFlour, grain and grist mill

productsFurnitureGlass....Groceries and food prod-

uctsHardwareHosiery and knit goods....Iron and steelLeather, hides and glazed

kidLocomotives, boilers, en-

gines, etcLumber and mill workMachinery, foundry prod-

ucts, machine tools, etc..Men's and women's wear..Metals: Copper, brass, zinc

and t i n . . . ; . . .Musical instruments,

pianos and talking ma-chines

Paints and coloring matter.;Paper and paper products.!Petroleum and refining ;Plumbers' supplies !Pottery and pressed brick.'Railway cars and partsRubber goodsShipbuildingShoesSilk, laces etc iSlaughtering and packing. ITobacco, cigars, etc iWi re . . . . . . . :Woolens and worsteds IMiscellaneous (advertising,1

hair, hotels, ink, pens, irope, toys, etc.) ; 8

Total i 172

Is your labor asefficient as it was?

A yearago.

Yes. No.

10

174

Beforethe war.

Yes.

137

No.

12

Is yourprogressmateri-ally re-tarded

through

in pro-curing

raw ma-terials

andsupplies?

Yes.

11

11

215 j 184

No.

151

Length oftime in which

present de-mand for and.consumptionof your prod-uct is reason-ably certainto continue.

One I Sixyear.: months

5

131032

207 !

5

102

i Approximate average.

One deduction which may be drawn from thereplies received is that business men regard thesituation with more confidence now than inSeptember of last year, but with less optimismthan in March, 1916. A greater percentage ofconcerns are now reporting the outlook as " ex-cellent" or "good," and a smaller percentageas "fair" or "uncertain," than was the case atthe time of our last inquiry. A comparison of


Amir, 1,1917. FEDERAL RESERVE BULLETIN. 299

the replies received to similar questions sixmonths and a year ago is as follows:

Percentage of concerns reporting busi-n e s s -

Excellent or goodFairUncertain or bad

Number of concerns reporting outlookto be—

Excellent or goodFair, uncertain, or bad

March,1917.

G71320

237118

Septem-ber, 1916.

541927

157135

March,1916.

75178

24483

Production costs continue to increase, thefigures below showing that wages and the costof materials are steadily rising:

Report of March, 1917Report of September, 1916Report of March, 1916

Approximate in-crease in costs ofproduction dur-ing past year.

Per cent.211811

Per cf.nt.494346

Answers to the question, "Are your profitsbeing cut by rising costs?" indicate that a largerproportion of concerns are now able to raisetheir selling price sufficiently to cover the in-creased production costs:

Report of March, 1917Report of September, 1916Report of March, 1916 .

Are your profits be-ing cut by risingcosts?

Yes. 1 No.

205 ! 137205 ! 84212 ' 97

i

The transportation .situation is disturbingbusiness concerns in this district. More than75 per cent of the reporting concerns declarethat their business is seriously hampered byinadequate railroad service, while nearly aslarge a proportion report that they are seri-ously hampered by lack of steamship facili-ties. The difficulty in the latter instance isdue primarily to an actual shortage of availableships.

I t is interesting to note that a substantialmajority of concerns report the prospects ofbusiness as good. Out of 362 replying, 207

anticipate the demand for their goods will con-tinue as at present for at least a year, and 102for at least six months.

The value of building permits issued in Phila-delphia during February was $4,042,115, com-pared with $2,437,750 in the same month oflast year. This represents 815 operations, ascompared with 1,086 in February, 1916. The66 per cent increase in value is no doubt chieflydue to higher costs of materials, etc., and is notnecessarily indicative of larger building oper-ations.

All previous records in the history of the portwere broken by the exports from the port ofPhiladelphia during the month of February.They wore valued at $57,652,322, an increaseof $47,851,310 over those for the same monthof last year, and $14,018,276 more than thosefor January, 1917. The value of imports forFebruary was $9,041,989, compared with$9,176,185, February, 1916, and $9,093,450, forJanuary of this year. The largest gain in theimport trade was in the receipts of crude petro-leum, which amounted to 4,872,000 gallons, asagainst 2,544,024 gallons for February of 1916.

Bradstreet's report 51 failures in this districtduring February, compared with 75 in January,1917, and 95 in February of last year. R. G.Dun & Co. report 65 failures, with liabilities of$470,444, during February, compared with 77and $1,702,861 in January, 1917, and 138 and$1,237,250 in February of last year.

The large volume of business is reflected inthe increased bank clearings, shown in the fol-lowing table:

Bank clearings.

Clearings at—

AltoonaChester ,HarrisburgLancasterNorristownPhiladelphia-ReadingScrantonTrentonWilmington..Wilkes-Barre.York

February—

1917

Total.

S2.358,7024,835,4667,632,8558,563,7562,075,656

1,251,517,4079,671,274

13.476,46410)845,76412,808,3397,326,6694,207,016 |

1916

In-creaseor de-

crease.

l

82,213,8595,055,3587,059,4647,479,3042,095,033

960,702,3048,361,115

12,716,46710,935,7269,822,3276,848,8993,700,911

Per ct.+ 7— 4+ 8+15

+30+16+ 6

. ~ 1+30+ 7+14

1,335,319,368 I 1,036,990,767 +29


300 FEDEBAL KESEEVE BULLETIN. 1,1917.

Bank clearings—Continued.

CJearings at—

AltoonaChesterEarrisbiugLancasterNorristownPhiladelphiaReading . . .ScrantonTrentonWilmingtonWilkes-liarreYork .

T o t a l ••

First 2 months—

1917

$5,193,98411,058,66817,065,28318,362,6694,547,205

2,649,208,58221,670,94130,378,60320,781,38626,082,39316,517,2029,144,458

2,830,011,374

1916

$4,597,8409,607,285

14,963,61615,340,5634,787,627

1,975,601,49518,163,29926,168,72619,568,39922,227,61614,338,0066,974,583

2,132,339,055

In-creaseor de-crease.

Per ct.- 1 3+15+14+20— 4+34+19+16+ 6+17+15+31

+33

The condition of the Philadelphia banks isabout the same as a month ago. Rates forpaper are slightly lower. Invested funds ofthe Federal Reserve Bank have decreased over$3,600,000 during the past month, largely dueto the bank being out of the market for bank-ers7 acceptances.

DISTRICT NO. 4—CLEVELAND.

During March, especially for the weekended March 17, there was a noticeable hesi-tancy and uncertainty in many lines of busi-ness throughout district No. 4. The foreignrelations of our Government and the trans-portation situation caused considerable unrestin commerce and industry. Indications at thiswriting point to general relief from this feelingand resumption of all activities to the fullestextent.

Agriculture.—Present indications are for afair yield only of the winter-wheat crop. Fromthe Kentucky section the reports show thatthe tobacco and hemp crops of last year weremarketed at greatly increased prices to thefarmer, and preparations are being made nowfor increased production of these crops in thesection. Specific inquiry throughout the dis-trict reveals a rather unsatisfactory condi-tion regarding plans for increased productionof foodstuffs. The lack of sufficient or compe-tent farm laborers is urged as the chief diffi-culty, due, of course, to the demand for laborin industry at wages higher than the farmer

can afford. There are indications that insome agricultural sections farming machinerywill be used to a greater extent than hereto-fore, by which the effect of the labor scarcitywill be modified.

Live stock.—The reports received from vari-ous sections of the district indicate that thesurplus supply of live stock used for foods is atmost not greater than the average of preced-ing years, and there has apparently been littlereal effort to improve the situation.

Industries.—Since the middle of March theindustries of the district have resumed theirforward movement with energy, and the indi-cations are for continued aggressiveness. Prac-tically all lines reporting show a strong demandfor raw materials and manufactured products,regardless of price, and there has been someevidence of making contracts, even at thepresent abnormally high prices for 1918 de-liveries.

Iron and steel.—Pig iron, billets, plate, bar,rail, and sheet producers and manufacturersreport very strong demand for all classes ofproduction with rising prices. The prosperityand capacity of producers is apparentlylimited only by insufficient transportation,labor, and fuel supplies. A great many of theproducers have indicated intentions of supply-ing Government needs in advance of all theirorders, and in some instances this conditionhas rendered necessary the postponement ofprivate deliveries. I t is entirely fair to saythat the observations above made apply withequal force to finished materials and otherfabricated articles.

Coal and coke.—The producers are entirelyujiable to secure an adequate labor supply forthe production of a sufficient amount of out-put to meet their demand. Reports showthat in the Pennsylvania, Ohio, and Kentuckycoal regions overtures have been made forentire outputs of the mines at advancedprices. In some instances contracts havebeen made, and in others refused either 021account of conditions or in the hope of makingbetter arrangements, or, as noticeable in the


APRIL l, 1917. FEDERAL BESEBVE BULLETIN. 301

Pennsylvania fields, producers have felt the jnecessity and desirability of maintaining a!percentage of output as free coal. j

Foundry coke.—Foundry coke has been veryscarce, and prices have run wild. The fuelsituation really is the most serious drawbackat present existing in industrial enterprises inthis district.

Oil.—A new field in the Irvine district inKentucky is being developed, with very prom-ising results. It is reported that strata ofoil-bearing sands have been struck at shallowdepths, and extensive developments are inprogress. Other fields in this district con-tinue to capacity of existing equipment, withhigh prices maintained.

Glass, pottery, and clay products.—All of theseindustries have been affected by fuel andtransportation problems, but the correspond-ents present a hopeful view for the future*In some localities where gas has been usedpreviously, it is reported that the use of coalis contemplated.

Rubber goods.—Akron reports continued ac-tivity with increased production in all branchesof the rubber industry. Laborers recentlyemployed in the rubber goods factories aresaid to be less efficient than former help, anddemand higher wages.

Mercantile business.—There is not muchchange from the preceding months in commer-cial activities, unless it be a lessening of stocksof goods by reason of inability to secure ship-ments; but collection conditions have becomea little less favorable.

Foodstuffs continue to advance in price,and there is in the cities evidence of decreasingsurplus supplies, indicating perhaps furtheradvances.

Building operations.—The table followingshows the comparison of building operationsfor February of this year and of last year. InCleveland a lockout of building trades byemployers has affected 20,000 workmen andpractically stopped construction of buildingsof estimated value of over $15,000,000. Thiscondition will undoubtedly have its effect on

future operations. Housing facilities in manu-facturing centers are reported as inadequate.

Unfavorable labor conditions in buildingtrades are reported from most localities.

Akron, OhioCincinnati, OhioCleveland, Ohio.Dayton, Ohio...Columbus, OhioErie, PaPittsburgh, Pa..Toledo, Ohio....Youngs town ,

Ohio".

•Total

Permitsissued.

Feb.,1917.

2538726653789778

141152

75

2,711

Feb.,1916.

1661,128

70449

16361

298

43

2,851

Valuations.

Feb., 1917.

841,4902,784,2601,932,090

223,655138,315251,535

255,420

7,780,458

Feb., 1916.

8435,575596,120

1,552,72599,749

314,22587,455

1,312,686700,781

85,665

Increase

decrease.

S529,985245,370

1,231,5351,832,041

90,57050,860

1,061,151312,648

169,755

Percentin-

creaseor de-crease.

55294495

14037

142180

5,184,981 2,595.177 1 33.3

1 Decrease.

Money and investments.—A cursory examina-tion of the published statements of banks underthe Comptroller's and State Banking Depart-ment's calls for reports of condition as ofMarch 5 indicates further gains in the de-posit lines generally, though in some localitiesthe increase has been merely nominal. Thesupply of loanable funds in banks is more thanadequate for the needs of the respective locali-ties, and rates continue for the most part un-changed. There was a lessened demand atlower prices for investment securities duringthe first half of the month of March.

Bank clearings.—-Bank clearings maintain in-creases over the corresponding period of thepreceding year, as indicated below, in nine ofthe principal cities:

Akron, OhioCincinnati, OhioCleveland. OhioDavton, OhioColumbus, OhioErie, Pa..l:Pittsburgh, PaToledo, Ohio..Youngstown, Ohio

Total

Feb. 16 to Mar. 15,inclusive—

1917

$23,114,000149.950,702230', 711,10015,382; 03036,957,2006,506,079

304,998,557•41,807,79312,201,597

191(5

$15,124,000129,280,850144,0(55,22831,849,25642,198,100

5,023,012243,029,42234,455,002

9,193.730

821,029,(14 3 ! 634,213,602

Increase ordecrease.

87,900,00020,669,85286,645,7713,532,754

i 5,240,9001,483,667

61,969,1357,352,7013,009.. 800

187,412,939

Percentin-

creaseor de-crease.

35143723

U 423201825

22.8



Post-office receipts.—The postal receipts innine of the largest cities of the district for themonth of February, as compared with thesame month last year, are as follows:

Akron, OhioCincinnati, Ohio..Cleveland, Ohio...Dayton, OhioColumbus, Ohio...Erie, PaPittsburgh, Pa....Toledo, OhioYoungstown, Ohio

Total

February,1917.

869,371244,932339,38761,812

102,53922,954

314,95890,48325,587

1,272,027

February,1916.

858,237258,231309,55063,61599,43221,947

337,60094,41624,983

1,268,015

Increaseor de-

decrease.

$11,133U3,298

29,83711,802

3,1071,006

122,64113,932

603

4,012

Percentin

creaseor de-crease.

16i 5

51714

2

.003

i Decrease.

Labor conditions.—Labor is fully employedin all lines, skilled and unskilled, except in thebuilding trades. There is a decided scarcityin farm hands and high-grade mechanics, andthere does not seem to be any hope of relief.There are indications of unrest in mining andmilling centers, though general conditions areprobably not less favorable than formerly.

The outlook for commerce and industry isgood, and fair as regards agriculture; neces-sarily, the agricultural situation will affect un-favorably the general conditions later. Therehas recently been renewed effort to encouragefarm production, and if this should instillgreater energy into the farmer the prospectswould be better. It does not seem that themovements for increased acreage or morescientific methods in farming have been organ-ized or developed to such an extent as to bepromising of results before the planting season.

DISTRICT NO. 5—RICHMOND.

There has been little or no change in condi-tions during the past month. Basic conditionscontinue sound, but bad weather has ratheraccentuated the " between-seasons" quiet.Everybody, however, seems to be busy, at leastin preparations for the full opening of springactivities.

The uncertainties of our foreign situation andthe possibilities of a railroad strike have been

general subjects of comment and more or lessanxiety, particularly as to their bearings on ourown business conditions. Manufacturing con-cerns appear to have abundant orders, but in-ability to obtain supplies of raw material andrestricted freight facilities are limiting produc-tion. Ocean freight room is in restricted sup-ply and to be had only at almost prohibitiverates. This condition is causing the continuedaccumulation of goods at the ports for export,actual figures for exports necessarily indicat-ing a material decline.

Postal revenues, clearing-house returns, andrailroad earnings continue on a normal basis,and general trade is in good volume, collectionskeeping pace with sales.

Actual building has been retarded by.badweather, but many new buildings and exten-sions of various plants are in contemplation,building materials continuing to be in gooddemand.

The damage reported from the severe freezesomething over a month ago proved to be ex-aggerated, as was indicated in last month's re-port. Only young berry plants were seriouslydamaged, there has been considerable replanting,and an increased production of strawberriesin the district is anticipated. The presenthigh prices for potatoes are stimulating pro-duction of this crop, the acreage planted islimited only by seed and labor conditions, and asufficient crop may be reasonably anticipated.This should materially reduce prices, with agood margin of profit left to the producers.Manufacturers of fertilizers appear to havepractically sold out, leaving a considerable de-mand unsatisfied. This, however, is not likelyto lead to any hardship, but, on the contrary,will induce conservatism in operations.

On February 27 Governor Seay issued tomember banks and others in the district a foodcircular which has aroused general interest inthe subject and, it is anticipated, will stimulatethe production of food supplies in every line.Applications have been received from memberbanks and others for over 25,000 of these circu-lars, for general distribution in the various sec-tions and communities of the district.



Money continues in abundant suppty for •legitimate business, adequate supplies are ap- Iparontly. being kept at the chief centers of the •district, and the larger banks are in reasonably ;liquid condition. Demands from countrybanks arc, however, increasing, especially for''agricultural purposes. Offerings of bankers' ,acceptances continue in considerable volume,especially for the purpose of carrying aceumu- !lated exports at the ports.

General relief is expressed at the settlementof the railroad strike recently called. If, with !the removal of anticipated trouble in this direc-tion, the railroads can lift embargoes and sup- 'ply sufficient cars promptly to move theabundant offerings of freights, a healthy im~"petus will be lent to the already strong tide of |trade. :

DISTRICT NO. 6—ATLANTA. j

The greatest handicap to further industrial jdevelopment and normal agricultural produc-;tion in the Sixth Federal Reserve District is 'the growing scarcity of labor. This shortage •is being felt by almost every industry and ap- jparontly there is no relief in sight. The ex-!odus of southern negroes to northern rnanufac" !taring centers has continued with a steadyflow during the winter months. Little of thislabor has drifted back, and with the coming ofspring weather a still larger movement is ex-pected. The movement is general. Until re-."cently it consisted largely of negro farm hands,but considerable complaint is now heard of lossof labor by mining concerns and industrialplants. Agricultural communities are alreadycomplaining of shortage of help for springwork. Labor agents are picturing to thembettor living conditions, with high wages andless restriction of personal liberty, in the north.The freight embargoes and car shortages are anadditional source of serious consideration.

The demand for yellow pine is strong andvalues firm. Yard stocks are low and badlybroken. Mill stocks are reported normal.Production is below normal owing to transpor-tation conditions and the weather. A great

many mills are receiving not to exceed 50 percent of ordinary car requirements and prevent-ed from shipping to many sections on accountof embargoes. Following the period of en-forced idleness during bad winter months manysouthern mills will begin operations with thebetterment of railroad conditions. There isconsiderable congestion of lumber at variouspoints, several thousand carloads being tied upin the Mobile mill yards.

Car shortages and embargoes are also seri-ously affecting the naval stores lines in con-junction with no movement of foreign ship-ments. With conditions improved, spring andsummer demands are expected to be as heavyas usual.

Figures for February show 114 failures inthis district as compared with 157 in 1916.

: The submarine menace has handicappedj shipment of iron to foreign customers, but do-l mestic demand continues good, with pig-iron; prices ranging from $24 to $25. Producers haveI sold heavily and it is predicted that prices will\ go over §30 by midsummer.j Tennessee winter wheat suffered severely! from the cold spells of February and Marchi owing to the fact that there was no snow on theI ground. Winter grains have been practicallyj a failure in the district, and it is not likely that| there will be any considerable decrease in cot-ton acreage. Increased planting is expected inmany parts of the district, which will be par-tially offset in boll-weevil counties, where theplanting will largely be peanuts, velvet beans,and corn. The weather has been seasonablefor marketing the balance of a full-averagetobacco crop, with prices double that of pre-vious season.

Preparation of soil and spring planting is con-siderably behind owing to unseasonableweather. Early planting is a strong factor inthe boll-weevil fight and some fear is felt onaccount of the unavoidable delay. Littledamage is reported on account of floods, asplanting had not begun.

The potato crop of Florida will maturewithin the next six weeks, and prospects are



bright for a large harvest. Keports from theFlorida east coast as to prospects of orangetrees recovering from the cold-wave damage areencouraging. Estimates now place damagefrom freeze at not more than 25 per cent asmuch as first reported.

Georgia peach growers were anticipating anextra large crop prior to the freeze. Peaches inthe territory north of Atlanta were heavily |damaged and suffered to considerable extent in Ithe territory south of Atlanta. The crop south jof Macon will be practically as large as last;season. Provided no further damage occurs |Georgia expects to ship about 4,000 cars ofpeaches. The fruit crops in Alabama andFlorida will also be reduced from like damage.Little damage was done to the new tobacco-plant beds, as only a very limited amount of seedhad come up at the time of the freeze.

Hog and cattle prices continue to advance.There is a widespread activity in these lines,which gives evidence of a "banner year" in di- |versified farming. There is a scarcity of sheepand lambs in the district. In answer to in-quiry regarding hog and cattle raising, one of |our correspondents reports: !

1' This county has already shipped several jcarloads of hogs, the first time in its history.There is a rapid increase in hog growing andcattle raising—diversified farming is enteredinto vigorously."

Aiiother correspondent advises: "First timein the history of the county that our fannershave a surplus of hogs and are shipping themto market."

There is no considerable demand for moneyInterest rates are stationary. The producerssold last season's crops at prices that de-creased the usual demand for money at thisseason of the year. A large amount of thefertilizer being used was paid for in cash. |Bank clearings and deposits are largely in Iexcess of this time last year. Collections Ishow less activity during March, with the jexception of Florida, where increased collec-tions are reported. Purchases remain steady.

In that part of the sixth district allottedto the New Orleans Branch of the Federal

Reserve Bank of Atlanta the money market isreported firm with seasonable demand. Ac-tivity is noted in lumber, cement, and otherbuilding materials notwithstanding many build-ing projects are awaiting more favorableprices.

The demand for sea food products con-tinues in excess of the supply. This industrypromises to reduce the high cost of living andat the same time build up the Gulf coast.

Increased acreage is assured throughoutthe district, with diversification a decidedfeature everywhere. One of the largest pack-ing houses of Chicago has just purchased the.plant of the Crescent City Slaughterhouse Co.,of New Orleans, and will enlarge its capacityand operations, thereby creating a bettermarket for cattle and giving added stimulus tothe cattle raisers.

The commerce of the port of New Orleansbeing largely with Latin America, lies outsidethe prohibited war zones and there is conse-quently no interruption. The field of endeavoris largo and lack of tonnage is the only obstacleat present. Owing to the largo trade with thecountries to the south the port of New Orleanswas not only able to retain its trade as hereto-fore but largely increase it. With the rest of thecountry reporting loss of imports, New Orleansis able to show an increase of over 50 ~pQT cent,

I DISTRICT NO. 7—CHICAGO.

The banks throughout District No. 7 arewell supplied with funds, as is evidenced bytheir small borrowing requirements and thelow rate for money. It is true that the pastmonth has seen a stiffening in the going inter-est rate effective in the larger cities, where thebanking reserves approach more nearly thelegal requirements than is the case withcountry institutions. Despite the uncertain-ties both at home and abroad, savings banksreport increased deposits and an increase inthe number of accounts on their books. Theinvestment situation is difficult to analyze, yetit appears to be the consensus of opinion thatinvestors are holding back and are in positionto enter the market with considerable capital


AritiL 1.1917. FEDEEAL EESEEVE BULLETIN". 305

should the general situation clear up or shouldthere be an attractive offering of conservativesecurities. Bond houses are having a quietbusiness, with the city banks practically outof the market and the ultimate consumertaking but a small volume of securities.

While it is early to estimate with any degreeof accuracy the prospects for winter wheat,nevertheless, weather conditions have favoredthe crop over the greater part of this district,and, unless a reversal of form occurs, it is be-lieved that this district will produce morewinter wheat than was the case last year.The grain markets have been very much dis-turbed because of the foreign situation, thesubmarine campaign, and the railroad dis-turbance. Fluctuations have been violentand shipping conditions have aggravated thesituation. Authorities believe that the under-lying conditions are sound and that the re-quirements of the foreign nations will main-tain prices at high levels for some time tocome, although it is natural to expect specu-lative Hurries based on transient conditions.

The manufacturing industries arc activelyengaged and report a good, demand, for theirproducts, with serious difficulty in makingshipments and in securing the necessary rawmaterial. The transportation situation hasbeen a serious problem and still is the causefor considerable thought to manufacturers anddistributors in this part of the country. Morecars are available than was the case a monthago, yet the supply is inadequate and in somecases has brought about the closing down ofplants in this district. The agricultural im-plement concerns are finding a good demandfor their products at advanced prices, and thevolume of their output is satisfactory, al-though shipping difficulties are encounteredboth in the distribution of the finished articleand in the purchase of the raw material.

Automobile companies are confident of acontinuing demand and are expanding theirplants, although the more conservative areproceeding in this direction with caution.

The demand for building material is fair,although there is a tendency to postpone con-

struction on account of the high cost of mate-rials and labor. Coal is selling at a somewhatlower price than prevailed during the past fewmonths, but is substantially above normal.One of the largo mining concerns in our terri-tory reports that their properties were oper-ated 75 per cent of capacity last month andthat they were able to secure cars with lessdelay than heretofore,

Maltsers are enjoying a prosperous business,with a strong demand for their product, andgood collections. Distillers are satisfied withpresent conditions, but the action of variouslegislatures will .tend to cut down the wet ter-ritory. It seems to be the general opinionthat the so-called "'bone-dry bill" will, ifanything, benefit the legitimate distilleries.

In the dry-goods trade recent business hasboon of smaller volume than a year ago, anda tendency toward conservative purchases isevidenced by letters from wholesalers andretailers. Collections are fair, and concernstransacting business with the country dis-tricts are better placed than those in thelarger centers. This is attributed by some ofour friends to the wealth of the farming com-munities and the fact that in the centers thehigh cost of foodstuffs has decreased the pur-chasing power of individuals whose salarieshave not kept pace with the increased cost ofliving. The furniture business is fairly good.Lumbering concerns which have enjoyed afavorable winter are experiencing considera-ble difficulty in the matter of transportation,and the demand for the retail product is lessthan a year ago in the larger centers, whichmay be due to the high cost of building.

Grocers are generally selling a satisfactoryvolume of goods, and collections are fair. Themoney required to handle a grocery businessat this time is considerably more than normal,and collections, therefore, should be watchedwith care. Consumers are substituting to aconsiderable degree in an attempt to econo-mise. Hardware is in excellent demand, withcollections prompt over most of this district.

Steel continues in strong demand, at highprices, with great activity in wire products.


306 FEDERAL RESERVE BULLETIN. APRIL 1, 1917.

We understand that large tonnages have beenbought for shipment during 1918, and someconcerns are trying to buy for 1919. Ship-building is active.

Leather has shown some falling off during thepast few weeks, and shoe manufacturers arebuying very cautiously. There is a waitingmarket, but prospects are considered favorable at least for the duration of the European war.Live stock in the Chicago market has regis-tered new high marks on light receipts ofcattle, and hog receipts have also decreasedmaterially.

The output of piano companies has beeninterfered with through inability to securecertain lines of supplies, and manufacturersreport a falling off in new orders. They, how-ever, are busy on accumulated business, andthis, together with the present demands, iskeeping the factories working full time.Jewelry concerns are receiving business inexcess of a • year ago and look forward to acontinuation of favorable conditions.

Clearings in Chicago for the first 21 days ofMarch were 81,544,000,000, being §328,000,000more than for the corresponding 21 days inMarch, 1916. Clearings reported by 20 citiesin the district outside of Chicago amountedto $288,000,000 for the first 15 days of March,1917, as compared with $207,000,000 for thefirst 15 days of March, 1916. Deposits in eightcentral reserve city member banks in Chicagowere $733,000,000 at the close of businessMarch 20, 1917, and loans were $510,000,000.Deposits show a decrease of approximately$10,000,000 over last month, while loans haveremained at approximately the same figure aslast month.

DISTRICT NO. 8—ST. LOUIS.

Although the past month has been one olgreat uncertainty, it can not be said that thishas had more than a healthy deterrent effecton the business activities in this district. Onthe whole business continues to be extremelyactive, but has not increased in the same ratioas during the previous month. Comments on

general business from well-informed men inthis district range from "good" to "extra-ordinarily active." Comment of this charac-ter covers practically every branch of industry.

Department stores report a large and profit-able business with a demand for high grademerchandise of all classes. The buying powerof the public is extremely large and the in-creased cost of many articles, particularlyshoes and other leather goods, does not seemto have lessened the demand. Jobbing inter-ests, especially dry goods, shoes, and wooden-ware, report satisfactory increases in ship-ments, unusually heavy orders for future de-livery, and collections seem to be entirely sat-isfactory. Furniture manufacturers are re-ported to be sold up. Paper interests seem tobe handicapped by slow deliveries. Electricalsupply companies report sufficient orders onhand to insure capacity operations for somemonths. Wholesale drug houses and chemicalmanufacturers report a very satisfactory busi-ness. Prices have continued to advance and itappears that there is a scarcity in certain lines.

Climatic conditions in the past 30 days havenot been wholly favorable. Generally speak-ing the rainfall throughout the district wasconsiderably less than the normal in both Jan-uary and February of this year, and it isfeared that this may have a bad effect on thecoming crops, as sufficient subsoil moisture isessential. As it is still early in the season,sufficient rainfall from now on may improveagricultural conditions materially.

There has been little change in the cottonsituation in the southern portions of the dis-trict. A very large stock of cotton is carriedin Memphis; at this date approximately355,000 bales as compared to 245,000 in 1916,and 211,000 in 1915. The largest part of thisstock is held in the hands of cotton factors whoare holding for higher prices and all reportsindicate that their position this year is ex-tremely strong. The movement from. Mem-phis is still handicapped by embargoes. Somerelief was afforded in the middle of March.One correspondent reports that in his opinion


1, 1917. FEDERAL RESERVE BULLETIN. 307

50,000 bales of cotton would be shipped fromMemphis if the railroads were restored to anormal working basis.

The new crop conditions are of course stilluncertain. Planting has not begun and itappears that crop preparations in some sec-tions arc a little late. Reports on the acreagevary considerably. It is estimated that therewill be a substantial increase in acreage ineastern Arkansas but that the presence of theboll weevil in Mississippi will have a deterrenteffect. Spring plowing is reported well ad-vanced. There have been a number of heavyfreezes in the cotton belt, so that the ground isin excellent shape, and it is hoped that thesevere winter weather will at least retard thenorthward movement of the boll weevil. Acorrespondent writes as follows:

From observation I would judge that the cotton acreagewill possibly increase from 5 to 10 per cent on accountof so much land having been made ready for cultivationduring the past winter. I also think that there will be amaterial increase in both the corn and forage crops, and itseems to be the idea of each individual farmer to at leastraise enough of the food crop to supply the farm.

The gross and net earnings of those railroadsthat serve this district for January and thegross railroad earnings for February are nowavailable. Large increases in gross earningscontinue, and in fact these increases are sosubstantial that the net earnings are increasedin spite of the increased cost of railroad suppliesand operation, a reversal of the position show nby the December figures. The gross earningsin February do not in many cases show thesame proportion of increases as in January andthis is attributed to the restrictions on move-ment of grain and cotton. Within the last dayor two the freight situation has materially im-proved. A car shortage in February is a veryunusual occurrence and in my February reportI stated that this shortage had hampered busi-ness activity. Owing to the efforts of thebusiness interests throughout the district, con-ditions improved during the latter part ofFebruary, but the condition again becameserious with the announcement of the threat-ened railroad strike. The settlement of the

strike has removed this and freight conditionsare now reported to be more nearly normal thanat any time during the last month or two.Freight embargoes on lines connecting with theAtlantic seaboard have been lifted in manycases and the movement of freight is generallyfreer, although there are still some complaintson account of delay. The freight movementsouth and west is practically normal.

Index figures on the cost of living and com-modity prices show further increases. It isreported that this increase has reduced con-sumption in some lines. Eggs, potatoes, onions,and cabbage are lower than a month ago.High prices of provisions in general have shutoff the demand and the provision business isnot as active as usual. The stock of cannedfruits and vegetables is reported to be low.

Postal receipts for February in Little Rock,Louisville, and Memphis show a slight decrease,while postal receipts at St. Louis show a slightincrease as compared with February, 1916.Building permits for February, 1916, in LittleRock and Memphis show a slight increase ascompared with a year ago, while St. Louis showsa loss in building permits for the same period.A restraining influence is attributed to thescarcity and high price of material and of labor.

The St. Louis National Stock Yards reportsan increase in the receipts of cattle for Februaryand a decrease in the receipts of hogs, sheep,and horses and mules. On March -20 hogssold at East St. Louis at $15.40 a hundred,which is a new high record and compares witha high record of $12.65 a month ago. ForeignGovernments are still buying horses and mulesat the National Stock Yards, but the UnitedStates Government is not purchasing at present.

The bond market is reported to be aboutnormal for this season of the year. The marketreceived a set back early in February, but con-ditions have improved somewhat from thattime, and the outlook is favorable.

Clearings for the principal cities in this dis-trict for the week ending March 10, 1917, thelast figures available, show increases ranging

| from 14.8 in Louisville to 51.4 in St. Louis.| Commercial paper is now quoted at 4 to 4J per


308 FEDEEAL RESERVE BULLETIN. AVIUL 1,1917.

cent. The market has shown in the last weeka less active demand and smaller offerings. Itis reported that firms have either completedtheir financial arrangements or are awaitingfuture developments. There has been littleor no chancre in hank rates to customers.

DISTRICT NO. 9—MINNEAPOLIS.

Frequent heavy snowstorms during the firsttwo-thirds of the month seriously interruptedrailroad transportation, and placed heavy bur-dens upon all lines of distributing business.For continuous cold and for the amount ofsnowfall, the winter has been the most severethe district has seen in 37 years. The totalsnowfall at Minneapolis breaks all records forthis period, and amounts to more than 80inches.

While this will be of great advantage in thefarming districts, it will likewise cause con-siderable trouble from high water, especially ifwarm spring weather comes on suddenly andthe snow goes off rapidly.

Local deliveries at urban centers were seri-ously interfered with by the storms during thegreater part of the month, and the coal situa-tion was acute. The car congestion at termi-nals was so great as to make it practically im-possible to switch loaded cars to deliverytracks, and coal companies wore compelled toput a 1-ton limit upon deliveries to house-holders. The car situation has been very bad,and seriously interfered both with the millingoutput at Minneapolis and with the movementof freight of all kinds. Relief measures under-taken early in the month were very hopefullyreceived by the grain and milling trade, butbroke down later and produced comparativelylittle effect. The principal milling concernshave lately been compelled to cut their produc-tion to a limit proportionate to the number of"empties" they have been able to obtain foroutgoing shipments, and have resorted to themovement of a considerable amount of flourand mill stuffs to Duluth and Superior, whereit has been warehoused in order to clear themills and give them opportunity to go ahead.

The railroads, coal companies, grain tradeconcerns, millers, and many of the larger ship-

pers, have acted concertedly in trying to im-prove the situation, but as compared with thefirst of the month it is not materially better.

Neither the possibility of war nor the possi-bility of a general railroad strike seemed tomake a very serious impression upon the evencourse of both banking and commercial busi-ness during the month, which is evidence of thesoundness of conditions generally throughoutthe district. Leading business men and bank-ers are of the opinion that the possibilities ofthe immediate future have been accurately fore-cast in both banking and business circles, andthat further developments need not necessarilybring serious effects.

The farm outlook in the district is bright.As a whole, the farmers realize that the condi-tions are very favorable, and that the outlookis for an extremely profitable year, and theyarc paying close attention to the suggestionthat all possible efforts be made to increasethe acreage planted. The agricultural dis-tricts face serious labor difficulties. Farmhands will be scarce and wages high. Thismay have the effect of somewhat cutting downthe acreage that would otherwise be planted.

Except as interfered with by storms, retailtrade has been satisfactory during the month,and the same general conditions have appliedto wholesale business.

The comptroller's call found the banks inthe district in a strong position. Ratesshowed some inclination toward firmness dur-ing the first 10 days of the month and stiffeneda fraction, but sagged off again to the pre-viously prevailing level, and are approxi-mately the same as a month ago. Savingsdeposits have materially increased since thelast call, and the demand has continued good,due partly to the railroad situation, which hascompelled the larger concerns, especially in thegrain and milling trade, to borrow at a timeof the year when they are usually paying offtheir bank obligations.

The consensus of opinion is that, war or nowar, conditions in the district are sound andthe outlook is good.

Should a recession occur in price of theprincipal articles entering into the cost of



living, the situation will be further improved.Some break is already apparent in the priceof potatoes, butter, eggs, and a few otherarticles; but the scale of prices that the house-holder has to pay is uniformly high and bur-densome.

DISTRICT NO. 10—KANSAS CITY.

The past month has witnessed events whichunquestionably would have, in less remarkabletimes, proven serious obstacles to the continu-ance of active conditions. The extension ofan unusual winter drouth, the growing serious-ness of matters affecting our foreign relations,and the threatened nation-wide railroad strike,together with the burdensome cost of living andhigh price of labor, have had surprisingly littleeffect other than a slight tendency towardfurther conservatism generally, and an evi-dence of preparation for any eventuality.Nothing seems materially to impede increasingprosperity. •

Agriculture.—The prediction pi $2 wheatwas realized early in March, the highest priceever paid on the local markets. Corn alsobroke all price records. This month also wit-nessed the breaking of a winter that has beenunprecedentedly arid, rain and snow givingtemporary relief to practically all the winter-wheat States, and the fields are taking on anew lease of life. Only the most favorableconditions, however, will bring about anythinglike a normal wheat crop, as there has undoubt-edly been severe damage in some localities.Kansas has planted almost 9,000,000 acres, thethird largest in its history; Nebraska 3,650,000against 3,300,000 the year before, while thearea in Oklahoma is 3,230,000 as comparedwith 2,780,000 a year ago. There was also aslight expansion in acreage in Missouri. Thebelated moisture will now permit the comple-tion of oats sowing and preparations for cornplanting will go forward. The four weeks end-ing March 24 witnessed a large shrinkage in thegrain movement to the markets of the district,while holdings of wheat on farms on March 1in the four principal wheat-producing States,as compared with the same date last year, show

a falling off in excess of 30,000,000 bushels,indicating that there will be an unusually smallsurplus carried over into the new crop year.

Live stock.—The highest ruling prices everknown for all classes of live stock were reachedon the markets in February. The lack offinish of the major portion of arrivals, how-ever, would indicate that shipments were madeat the expense of future supplies. Beef steersbrought from $1.25 to $2.75, hogs §4.50 to$4.80, and sheep from $3.35 to $4 per hundredpounds more than a year ago. During Marchthere has been a further advance in marketprices generally. Beet-pulp cattle are nowcoming to market from Colorado. Hogs easilyoccupy the center of interest in this industry,the unheard-of price of $15 having been reachedon the local market on March 9. There hasbeen a noticeable decrease in hog slaughteringas compared with the same period last year.Increased activity is reported in the horsemarket, the daily purchases by inspectorsfor the British Government recently being asheavy as at any other time since the beginningof the war.

Mining.—With silver, copper, lead and zincselling at record prices, there is in creasedactivity in the mining camps. Producers oftungsten report a better demand from easternsteel mills. Mine operators are forcing pro-duction up to the maximum in order to takefull advantage of the high prices. There hasbeen some new copper production in northernand southern Colorado. Deep mining in' theCripple Creek (Colo.) district is producingbetter results than ever anticipated and thedriving of many old shafts to new ore zones isin prospect. Colorado authorities claim thatChina's unexpected recent action in stoppingexportation of silver will mean that many mineswill be opened to help supply the world market.There has been a strong market for lead, andproducers in the Missouri-Kansas-Oldahomadistrict claim it is because of a large consump-tion.

Oil.—No material changes in prices havebeen posted, but the prediction is freely madethat, by reason of reduced production and


310 FEDERAL RESEEVE BULLETIN. L 1,1917.

increased consumption, further increases mustsoon arrive. When pipe-line facilities nowplanned for Wyoming become available, thatState's activities will take on a more substan-tial character. Three new oil refineries arenow being planned. In the older producingsections of the Mid-Continent field deeperdrilling is receiving considerable attention,some important developments having occurredat depths below the original producing forma-tion. The water situation, which was becom-ing more' and more acute, causing a shut downin many instances, was relieved by the snowand rainfall heretofore referred to. Manywells are on the waiting list pending an in-creased supply of casing and pipe, pipe millsrefusing to book any orders for deliverybefore August. Oklahoma showed an in-crease both in completed work and in newwork during the short month of February andnow that the water situation is better, themonth of March should show further activity.

Lumber.—Open weather and mild tempera-tures have stimulated the consumption of lum-ber and caused a proportionate increase in thedemand for yellow pine yard stock, especiallyfrom country yards. Prices have shown atendency to advance. Mills are apparentlyexperiencing difficulty in handling mixed or-ders, as their stocks are badly broken. Retaildealers are buying heavily and manufacturerswith offices in this territory are loaded up withordovrs. Conditions seem favorable, but muchwill naturally depend on wheat and corn pros-pects. One company controlling a large line ofcountry yards reports: ' i Our business thus farthis year is about 40 per cent in excess of lastyear's volume for the same period." Sash anddoor factories report actual orders as numerousnow as they often are a month later, with theoutlook for spring trade near the record. Lum-bermen interviewed lay stress upon the carsituation, but are without exception optimisticover trade prospects. A local real estate com-pany reports that by actual comparison thecost of erecting a certain residence has increased43 per cent since October, 1915.

Railroad earnings.—Ninety-four railroads,including practically all those operating in thisdistrict, show an increase in gross earnings ofalmost eleven and one-half million dollars, or 29per cent, in January, 1917, over January, 1916,as evidenced by reports just at hand. The netearnings of these same roads show an increase,in the same period of almost six and one-halfmillion dollars, or 66 per cent. This is a muchbetter exhibit than would have been deemedpossible considering the rise in operating cost.

Labor.—Labor conditions are quite satisfac-tory. In fact there may be said to be fewer evi-dences of unrest than for some time past. Em-ployment at unusual wages is general. Someuneasiness is expressed in the growing possi-bility that help on the farms for the openingspring will be scarce.

Wholesale and retail.—The flour mills of thedistrict have been running at about two-thirds capacity. New sales are quiet, busi-ness being limited largely to Central and West-ern States by reason of railway embargoes.A number of smaller mills and some of thelarge ones have discontinued operations fromthis cause.

General retail stores, with the opening ofspring lines, report an excellent business, theprospects for volume surpassing last year.

Automobile dealers are swamped with or-ders, but deliveries are exceedingly difficult.The winter's business is said to have been 50per cent greater than ever before. An ex-cellent spring business can only be interferedwith by factory limitations and deliveries.Some cases are reported of delivery of cars topoints of distribution under their own power.There are said to be four times as many auto-mobiles in the State of Nebraska as there werein 1913, this State standing second in numberof cars in proportion to population.

There are hundreds of cars of implementsfor spring use yet to be moved into this terri-tory and the dealers are fearing they will beunable to take care of second-order business.Retailers are enjoying a fine business and farm-ers are reported as buying a greater number


Arnih 1, 1017. FEDERAL RESERVE BULLETIN. 311

and variety of implements than usual and !paying cash for their purchases. |

Financial.—Banks continue in well-fortified jposition for any emergency. Short-time loans jof certain liquidity are in demand and rates jcontinue steady. The total clearings reportedfor February in 15 important cities indicatean average increase of 32.5 per cent over thesame month last year, each showing an in-crease, the lowest 9.9 per cent and the highest79.6 per cent. j

Failures reported are 14 fewer in number forFebruary than the same month last year, butthe liabilities aggregate a slight increase.

DISTRICT NO. 11—DALLAS.

Outstanding feature in the commercialactivities throughout the district the pastmonth has been the feeling of uncertaintyover our international relations and domesticproblems to be solved in the event the UnitedStates become involved in the war. Thesediscordant elements apparent in various lineshave tended to cause disquiet and have createdan attitude of conservatism and caution.

With the railroads already taxed to capacityand the necessitj^ of placing restrictions onshipments to northern and eastern territory,the possibilities of a general strike threatened toadd to the difficulties. Considering the effectthese unusual conditions naturally causedthroughout the district, business has held upremarkably well.

Following a custom established some timeago in the larger cities of this section, style \shows and exhibitions of a similar character |during March brought an influx of buyers to jthe markets and were especially beneficial to iretail trade. While there is a temporary lull:in mail-order business, attributable no doubt jto the unsettled conditions above mentioned, \this dullness, according to our advices, will be ]

of short duration. Retail merchants reportthat the car situation is extremely acute and :that it is next to impossible to got deliveries of jseasonable merchandise.

Agricultural conditions arc most favorablein the district.. All sections of the district"

report good, but scarcely adequate, rainsduring March, which have put an excellentseason in the ground and have been of materialbenefit in early planting. The drought ex-perienced in the southwestern part of thedistrict has within the past few days beenbroken, and crop prospects, especially for gar-den truck, are excellent. A very heavy in-crease in acreage in vegetables has been putin, especially in the Rio Grande Valley. Thedamage done by the cold weather to the truckindustry in the Southwest will be more thanoffset by the excellent prices for the output,and the returns will be satisfactory. Theonion crop from the Laredo country will beginmoving about April 1.

The crop is said to be in very good conditionand the yield will be fully up to the averageThe indications are that the price will be thebest for several seasons. According to theGovernment crop report for February, theacreage of onions in Texas will be about 12,000acres, an increase of 17.9 per cent over 1916.Last year's shipments were around 4,900 cars.At the high prices now obtaining for onions,the enormous returns from this commodityalone can be seen. The campaigns being madefor reduced acreage in cotton are having a goodeffect, and reports are that there will be a verysmall increase in this staple. It is too early tomake an estimate as to what this increase willamount to. It is certain, however, that theacreage in general feed crops will be larger thanever before and the campaign for diversifica-tion and the raising of larger feed crops will un-questionably bear fruit.

It is too early to make a prediction as to thepeach and fruit crops of the district, although atthe present writing conditions for a good cropare excellent. Reports indicate that on ac-count of the dry summer and fall of last yearthe fruit trees show little growth in buds, andone correspondent advises that an investigationof the Elberta trees in east Texas the early partof March showed that from 25 to 50 per cent ofthe buds were ruined hy cold weather. Othervarieties of peaches, however, show less damage,and plums and apples are damaged little, if at all.


312 FEDERAL RESERVE BULLETIN, APRIL 1,1917.

Our member banks continue in a strong posi-tion and are well prepared to meet any situationthat may develop as a result of our foreignaffairs. While figures are not obtainable fromall of the banks of the district showing theircondition on the comptroller's call of March5, such statements as have come to hand indi-cate a decrease in deposits over the December27 call. Demand with this bank is much moreactive than 30 days ago, with quite a substan-tial increase in offerings of cattle paper.

Figures of clearings obtained from Austin,Beaumont, Dallas, Fort Worth, Galveston,Houston, and Shreveport show an increase of15 per cent for February over the same monthof last year. The figures are as follows: 1917,$184,539,126; 1916, $160,668,648: increase,$23,870,478.

With two exceptions the cities above men-tioned show good increases, Dallas showingan increase of 52 per cent. There werehandled in our district clearing house fromFebruary 16 to March 15, 1917 (22 businessdays), 279,215 items, aggregating $110,788,072,or a daily average of 12,691 items, amountingto $5,035,821. This is an increase in bothnumber and amount over the preceding 30days.

This bank has, within the past 60 days, beencalled upon to make large shipments of goldto banks located at border points for use intransactions with the customs-house officialsof Mexico who decline to receive anything inpayment of duties except American gold.These shipments are still being made in con-siderable volume. The Mexican Governmentrecently- issued a circular changing the rate atwhich American money would be accepted inpayment of taxes. This has created a heavydemand for gold coin, and notwithstandingthe heavy payments made by banks at borderpoints and the heavy importations by theMexican Government and individuals, the coinseems to be tightly held as fast as importedinto that country and the same is not beingreturned.

bond market is steady and no specialactivity is noted. Demand is normal andprices are firm. There are a good many in-quiries for such securities.

Considering the high cost of lumber and otherbuilding materials, and the difficulties expe-rienced in obtaining suitable supplies onaccount of congestion in freight terminals, andthe unusually high prices of labor, buildingoperations in the district are considerablyabove normal. In nearly every large city inthis section building operations are active,especially in Dallas, where, within the pastmonth, permits have been issued for construc-tion of buildings aggregating over a milliondollars. Car shortages and embargoes have in

I some instances forced lumber mills and manu-facturers of materials to withdraw from the

| market as they are unable to secure sufficient-equipment to handle their orders. The vol-ume of business available is satisfactory if themanufacturers were in position to handle it.Scarcity of bottoms is seriously affecting ex-port business, and shipments by rail are notmore than 75 per cent normal on account ofthe embargoes. Local demand in the cities isgood both for structural timbers and yardstuff, and prices are strong.

Building permits issued in the principal citiesof the district for February show a decrease innumber, though a substantial increase in val-uation. The figures are: 1917—Number, 924;valuation, $1,863,950. 1916—Number, 1,087;valuation, $1,377,172.

One of our correspondents, a large manufac-turer of pressed brick, states that collectionsare below normal and slower than any monthlast year; that the uneasiness over the warscare is having a serious effect on his business.

The element of uncertainty in our foreignaffairs has affected wholesale lines, particularlydry goods. High prices for all classes of mer-chandise have caused conservative buying, andthere is a disposition among the trade to guardagainst carrying heavy stocks of high-pricedgoods. However, one of the largest wholesale


APRIL 1,1917. FEDERAL BESERVE BULLETIN, 318

houses in the district reports that its sales arefully 50 per cent heayier than a year ago, andcollections are in keeping with the increased vol-ume. Advices from various other wholesalersof merchandise are in line with this report.

The grocery trade is satisfactory, and thewholesale houses are showing a 50 per centincrease in sales and collections over the sameperiod of 1916. The rising prices of staples,however? with a normal consumption, present asituation that is fraught with danger, especiallywith the country merchant, who is obliged tocarry his customers until the crops are made,and distributors are endeavoring to discouragethe too liberal extension of credit. The unusu-ally high prices, therefore, while enabling thewholesale grocery houses to show a handsomeincrease in sales, tend to promote an inflationof credit to the consumer and develop a situa-tion which would be hard to overcome if cropsare poor and returns from same below normal.The prosperous condition of the farmer the pastyear enabled many country merchants to col-lect old obligations and "wipe the slate clean/'and this is a condition which the wholesalersare anxious to see continued.

The wholesale shoe trade shows a consider-able gain in sales. However, it is reported thatthe high price of leather has restricted orders,and dealers and the public are not buyingheavily, but, as one Large manufacturer stated,pursuing a "hand-to-mouth policy"; that whilethe gain in "dollars arid cents" is practicallydouble the same month last year, the number oforders is curtailed.

With oil bringing the highest prices ever paidin the fields, there is considerable activity inthe operations at the wells in Louisiana, south-east and northwest Texas. However, newdevelopments, both in the proven fields andupon favorable "wild-cat" acreage, is greatlydelayed owing to the difficulties in obtainingadequate supplies of pipe and machinery andwater for drilling operations. The outlook forthe industry is bright for every factor—pro-ducer, refiner, and distributor. If present

prices are sustained, which authorities generallybelieve, the future development of this veryimportant industry will be assured.

Commercial mortality in the district showedan appreciable decrease during the month ofFebruary, as compared with the same montha year ago, and a gratifying improvement inthe number of failures and amount of liabilitiesis noted.

Coastwise and export shipments from theport of Beaumont during the month of Febru-ary aggregated 63;989 tons. From Galvestonthe value of exports for February was$16,034,533.

High prices for all classes of live stock con-tinue, and notwithstanding heavy receipts thedemand has been equal to the supply. Thereis quite an active demand both for sheep andcattle in New Mexico, and unless dry weatherprevails there will be early shipments of one andtwo year old steers. At the present time rainis badly needed in New Mexico, as the rangesare getting short in that section.

All the copper mining companies are runningto their full capacity, and prices for the outputare higher than ever before. The high pricesfor copper have created a demand for miningproperties in Arizona which has resulted in thesmall claim holder and prospector being un-usually prosperous. When it is noted that theArizona district produces about ninety millionpounds of copper per year, which brings from19 to 30 cents per pound, the importance ofthat industry to the general business interestsof the district is realized.

Employment of labor is above normal. Thetransfer of unskilled men to the North and Eaststill continues and is causing concern. Authori-ties state that unless there is some decrease inthis activity, there will be a general shortage ofhelp for harvesting crops the coming season.No strikes or disturbances are in progress inthe district at this time, and employers; inmany instances, have been forced to meet thesoaring prices of foodstuffs and necessities byan increase in wages.



DISTRICT NO. 12—SAN FRANCISCO.

There is impressive evidence of the importantneed for the maximum possible production offoodstuffs during the current year, with thecertainty of extraordinary demand whetherthe war continues or ends. No general esti-mate can yet be reliably made as to productionin this district. The amount and chronologicaldistribution of precipitation are vital factors.Thus far there is a slight deficiency in Wash-ington, Oregon, and California, offset by unusu-ally heavy snows in the mountains, assuring thesupply of water for irrigation upon whichCalifornia agriculture, in particular, so largelydepends. In the vicinity of Yosemite Valle}^the snow is said to be the heaviest ever known.

Three-fifths of the Utah wheat is fall planted.Last fall 9,000 acres more were planted thanin any previous year. Idaho reports goodprospects in the section where there was practi-cal failure last year. In California it is esti-mated that barley acreage will be increasedfrom 650,000 to 800,000, and the crop from450,000 to 900,000 tons. Hops and alfalfa willbe considerably displaced for potatoes, beans,and sugar beets, and large increases are an-ticipated in these crops. In various sectionsconsiderable increases are reported of dairycattle and poultry. Conditions are favorablefor cattle and sheep, as green feed is now plenti-ful. To some extent high prices have inducedsale of cattle which should have been kept inthe herds. Sheep shearing has begun. Sales ofwool at prices above 40 cents are common, withreports of 50 cents and 60 cents in some cases.

It is predicted that in California 100,000acres will be planted to rice, the market forwhich is rapidly extending because of superiorquality.

Indications are for an exceptionally largecrop of deciduous fruits. Canned goods fromthe last crop are practically all out of firsthands, and prices are high.

The run of salmon is, according to fairlywell-known cycles, varying with differentvarieties. It is claimed that there will be a

conjunction of these various cycles this year,and that the pack of all varieties will conse-quently be heavy, possibly as much as 9,000,000or 10,000,000 cases, compared with 7,121,000cases last year.

So far as can now be judged, the generaloutlook is favorable for an exceptionally largeoutput of foodstuffs in this district this year.

Important contracts for British account havebeen placed with Pacific coast yards for con-struction of ships. This industry centerschiefly in Seattle and San Francisco, but Port-land, which a year ago had yards only forbuilding wooden ships, now has three forbuilding steel ships. This industry is expand-ing enormously and prices likewise. Contractsare said to have been placed by the UnitedStates Government for building two cruisersat Seattle and two at San Francisco.

Reports from about two-thirds of the millsindicate that in 1916 the lumber cut of thisdistrict increased 16.3 per cent over 1915, com-pared with an increase of 8.4 per cent for therest of the country. This district produced 38per cent of the total. Lack of transportationhas greatly hampered this and practically allother industries.

In February the petroleum production ofthe California field averaged 262,528 barrels,and the shipments 299,357? stored stocks de-clining 1,031,960 barrels.

Copper production is still expanding, withextraordinarily high prices, making an outputof enormous value.

Commerce with Alaska in 1916 was almost$120,000,000, an increase of $37,000,000 over1915. Copper worth $35,000,000 and cannedsalmon worth $21,500,000 both exceeded thevalue of the gold and silver output, aggregating$16,300,000. From 1867 to 1916, Alaskaproduced sea and fur products valued at$323,000,000 and minerals valued at$345,000,000.

In the totals of exports and imports during1916 Seattle stood fourth of the United Statesports with $360,527,000, Boston and Phila-


APRIL l r 1917. FEDERAL KESEKVE BULLETIN. 315

delphia leading by $26,000,000 and 363,000,000,respectively. San Francisco stood, ninth with$243,886,000. Gold imports and exports atPacific coast ports, during 1916, were asfollows:

I Imports. I Exports.

San Francisco ; 838,223*175 | $45,954,220LosAngelcs ! 33,525 ! 50,000Seattle ^ . . . . ; 5,042,105 j 5,623,222

Total j 43,898,805 I 51,627,442

Clearings for 19 principal cities of this dis-trict during February were 32 per cent greater (

than for the corresponding month last year,Seattle leading with an increase of 50 per cent,followed by Salt Lake City with 35 per cent,and Los Angeles with 30 per cent. Buildingpermits show only slight gain.

Southern California has had a record numberof visitors this season, estimated at 130,000,remaining an average of 30 days, and spend-ing on an average a total of over $1,000,000per day.

Mercantile conditions are favorable, and ingeneral the year promises to be one of pros-perity for this entire district.


316 FEDERAL RESERVE BULLETIN. APR::, 1,1917.

DISCOUNT OPERATIONS OF THE FEDERAL RESERVE BANKS.

Discount operations of the Federal ReserveBanks for the month of February, 1917, aggre-gated $22,408,604, compared with $18,326,286for January, 1917, and $7,664,600 for February,1916. Nearly 26 per cent of the total discountsfor the month is credited to the Richmondbank, 17.5 per cent to the Boston bank, and11.3 per cent to the Cleveland bank. A verylarge part of the discount business of the Rich-mond and Cleveland, as well as the New Yorkand Chicago banks, was made up of advances tomember banks on the latter's own notes securedby commercial paper.

Of the total discounts for the month,$11,433,362 is represented by member banks7

collateral notes, $856,078 by trade acceptances,and $814,106 by commodity paper. The totalof these three classes of paper, nearly all dis-counted at preferential rates, was $13,103,546,or about 60 per cent of the discounts for themonth. Discounts of trade acceptances forthe month reported by seven banks were almost50 per cent larger than in January. About 48per cent of this class of paper was handled bythe Boston bank, the names of several large Itextile manufacturers in Massachusetts ap- jpearing as drawers of trade acceptances on the |Reserve Bank's discount schedules. Com- jmodity paper, nearly all based on cotton, was jdiscounted by three banks, the total for themonth showing a considerable decline as com-pared with the amount handled in January.

The aggregate number of bills, exclusive of86 collateral notes discounted by 11 FederalReserve Banks, was 3,657. The average sizeof these bills was slightly in excess of $3,000,compared with an average amount of $132,946advanced on collateral notes. Of the totalamount of rediscounted paper 41.5 per cent isrepresented by largest-size bills (of over $10,000each) and 31.4 per cent by medium-size bills(in denominations of over $1,000 to $5,000). jSmall bills (in amounts up to $250) constitutedover one-quarter of the number, though less

than 1 per cent of the total amount of bills re-discounted during the month. Nearly 80 percent of these small bills, mostly trade accept-ances, were handled by the Philadelphia bank.

About two-thirds of the paper, including col-lateral notes, discounted during the month was15-day paper, i. e., paper maturing within 15days from the date of discount by the FederalReserve Banks; over 10 per cent was 30-daypaper; less than 14 per cent was 60-day paper,and over 8 per cent was 90-day paper. Febru-ary discounts of agricultural and live stock pa-per maturing after 90 days from date of redis-count with the Federal Reserve Banks (six-month paper) totaled $471,254, compared with$591,882 the month before, and $1,006,100 inFebruary, 1916.

Discounted paper held on the last Friday ofthe month aggregated about $20,267,000, asagainst $15,711,000 at the end of January and$22,827,000 on the corresponding date in 1916.Of the total held about the end of February ofthe present year $4,631,229 were memberbanks' collateral notes, $3,737,450 agriculturalpaper, $1,358,808 live stock paper, and $10,539,-717 industrial and commercial paper proper.Over 80 per cent of the agricultural paper washeld by the Richmond, Atlanta, Chicago, andMinneapolis banks, while over 88 per centof the live-stock paper holdings is reportedby the Minneapolis, Kansas City, and Dallasbanks.

Of the 7,625 member banks reported at theend of February, only 262, or 3.4 per cent,availed themselves of discount privileges dur-ing the month. The number of rediscountingbanks in the three southern Federal Reservedistricts was 143, compared with 287 in Febru-ary, 1916. The largest number of memberbanks accommodated by any of the FederalReserve Banks during the month—68—isshown for the Richmond district, while thesmallest number—6—is given for the Cleve-land district.



Commercial paper discounted by each Federal Reserve Bank during February, 1917, distributed by sizes.

NUMBER OF PIECES AND AMOUNTS.

Banks.

Boston :New YorkPhiladelphiaClevelandRichmondAtlanta (including

New O r l e a n s

Chicago.St. LouisMinneapolis....Kansas City...Dallas ,San Francisco.

TotalPercentMember banks' collat-

eral notes

To $100. Over $100 Over $250 Over $500 i Over $1,000to $250. ; to $500. to $1,000. I to $2,500.

2 81085; 370

489|15,190|

"i2i*i,i4i!

1813$2,518i 21j $8,681| 27$21,

3,093! 29; 10,932! 20

15 880l8! 800|

• - - ; !

31 2,9*10] 6761

7311,866|3 620

70J13,8471

43 7,62323j 4,02841 7284 .)14,030

65 25,353| 643,319| 7|

16,326!53,1541

4,954!166 67,139i 213jl63,064; 208

57222,075!0.2!

J 14,6531 5530; ll,916j 29

5,355i6890!

98; 33,670; 4848i 18,874! 544 1,540; 6

541208,322; 571433,. . . . : 1 .9 . . . .

42,319i21,289!11,782,21,23534,058

,0843.9

I$47,03042,543

18,126357,162

Over $2,500to $5,000.

75

112,477! 4835,891! 914,726! 1367,560: 6238,350; 892,003! 3625,383* 10

5981,053,959' 572 2,388,8929.61.. . .

$367,245206,259464,25634,324

582,445

Over $5,000to $10,000.

58 $571,832" 84,348

290,250200,000409,503

18,500

175,452 4129,226i '50,239293,61125,559126,42233,854

13

257 2.

12

Over$10,000.

8152.

111315

303,254, 1323,770:16,0001

251251,6 27

85,169 316,414 1

5,252,20820.5

113,856

176

5,526,400124,480144,445381,000319,931

Total.

304 $3;161947

873

254,012: 321i 126

105,000!632,500 205

29138,708 2582o,000j 39

4,551,476J3,65710,975,24!1,4761

7011,301,006, 8611,433,

1,545,258488,351

1,207,222642,343

1,914,232

32.34.4

11.05.8

17.4

910,670! 8.3126,920: 1.2203,8301 1.9

1,274,098 11.6148,577 1.4406,955 3.7106,7861 1.0

100.0

Member banks' collateral notes, trade acceptances, and commodity paper discounted during the month of February, 1917and 1916 and the two months ending February, 1917 and 1916.

Banks.

BostonNew YorkPhiladelphiaClevelandRichmondAtlanta (including New

Orleans branch)ChicagoSt. Louis

Collateralnotes.

3387,7301,437,000

475,0001,900,0003,870,000

242,3561,911,276

365,000

Tradeaccept-

Com-moditypaper.

$410,173

"21,721

'l45,"962 | $551,076

227,392 I 249,461

22,380 j .

Total.

$797,9031,437,000

496,7211,900,0004,507,038

719,2091,911,276

387,380

Banks. ; Collateralj notes.

Trade I Com- Iaccept- | modity. Total,ances. | paper.

Minneapolis , $520,000 ' $520,000KansasCity ! 10,000 I ! 10,000Dallas : 315,000 $13,465 j i 328,465San Francisco , 14,985 I $13,569 j 28,554

Total, Feb., 1917 11,433,362Total, Feb., 1916 \Total, Jan.-Feb., 1917 20,950,691Total, Jan.-Feb., 1916!

856,078 : * 814,106246,100 ! 1,794,700

1,430,542 ii2,378,759

13,103,5462,040,80024,759,992

690,500 ! 3,658,300 | 4,348,800

- Nearly all cotton paper.

Amounts of discounted paper, including member banks7 collateral notes, held by each Federal Reserve Bank on Feb. 23, 1917,distributed by classes.

Banks.

BostonNew YorkPhiladelphiaClevelandRichmondAtlantaChicago

Agricul-ture

paper.

$17,46653,04335,935737,477

1,152,507579,924

Livestock

paper.

$6,496

2,9683,56076,98930,365

Commer-1 Member jcialand I banks' !

industrial [collateral ipaper, j notes.

Total.

i

§2,889,195835,504901,295273,838

2,624,399905,90976,928

$80,0001,207,000

350,0001,650,000

345,00083,500

510,729

$2,969,1952,066,4661,304,3381,962,7413,710,4362,218,9051.197,946

Banks.

St. LouisMinneapolisKansasCityDallasSan Francisco

Agricul-ture

paper.

$107,603548,937242,816142,952118,790

Livestock

paper.

$36,399217,736243,296738,6072,392

Total 3,737,450 1,358,808 10,539,717 14,631,229 20,267,204I i j .

Commer-j Membercialand | banks'

industrial l collateralpaper. I notes.

$292,0221,490,055

12,983194,27743,312

$120,000210,00010,00065,000

Total.

$556,0242,466,728

509,0951,140,836

164,494


318 FEDERAL RESERVE BULLETIN, APUIT. 1, 3 9.17.

Distribution, by sizes, of bills bought in open market by all Federal Reserve Banks during February, 191.7, and the twomonths ending February, 1917 and 1916.

Acceptances boughtin open market.

February, 1917:Bankers ' ac-

ceptancesTrade accept-

Total Feb.,1917

Per centTotal Jan.,

1917Total Jan.-

Feb., 1917..

Total Jan.-Feb.,1916..

To 85,000. To 310,000. To J?25,000. To 850,000. To 5100,000. i Over 5100,000. Total.

© ; © i g ; « . o I I © 3 !§ j Amount.; g •" Amount, i g Amouni. • g Amount.1 g j Amount, g Amount. g ;Si i ** • 5v ' : iv : i S i '£* ol!

819!

390!

jAmount. •

jceat.

780-81,990,667! 055^5,130,252! 1,241 $22,280,674: 399i$10,405,433 178#15,165,000j 49 £8,012,105 3,302|§lii8,990.79lj 97.7

39; 184,972| 122! 1,187,700; 7 87,288i 2; 78,541-! 2| 107,821! 172J * l?040,388[ 2.3

2,175.039' 777, 6,324,018: 1,248 22,367,902. 401.'l0,483,974| 180il5,273,48l! 49. 8,012,105: 3,474'3 .1 ! 9 . 0 . . . . . . 31.7; 23.3: \ 21. t)| 11.3;

l,023.210i 483; 1,700,009; 300 5,238,200! 152j 0,898,412; 48: 3,891,515 ll-! 1,859,768! 1,384i i : • i ! i 1 :

70,637,179! 100.0100.01......

20,017,180|

l,209J 3,198,849' 1,260; 8,030,087j 1,54827,000,108: 553;23,382,386' 228!l9,104,990 00 9,871,873, 4,858J 91,254,359|

46l| 1,330,034! 379; 3,048,747; 413, 7,062,052 90 3,688,328 38 2,898,207! 15i 3,320,375 l,402J 21,940,3

1 Of the above total, bankers acceptances totaling.$62,272,593 were based on imports and exports and §0,718,198 on domestic traasactions.2 All of the above transactions were drawn abroad on importers in the United States and indorsed by foreign banks.


Arnu. 1,1917. FEDERAL RESERVE BULLETIN. 319

ACCEPTANCES.

Acceptances bought in open market and held by Federal Reserve Banks as per schedules on file with the Federal Reserve Boardon dates specified, distributed by classes of accepting institutions.

Jan. 3 . .Feb. 7. .Mar.6. .Apr. 3 . .M a y l . .June 5. .July 3 . .Aug. 7..Sept. 4.Oct. 2 . .Nov. 6..Dec. 4 . .

J a n . 1 . . .J a n . 8 . . .Jan. 15..Jan. 22..Jan. 29..Feb. 5 . .Feb. 12.Feb. 19.Feb. 26.Mar. 5 . .Mar. 12.Mar. 19.Mar. 26.

Date.

1915.

1916.

1917.

Bankers' acceptances.

Memberbanks.

$93,0003,653,0005,038,0005,242,0004,342,0005,350,0006,087,0009,000,0008,477,000

12.311,000

15,494,00015,681,00017,182,00021,000,00024,875,00024.680,00032; 989,00039,695,00041,413,00037,798,00037,770,00047,748,000

66,803,00060,066,00059,710,00056,334,00052,439,00050,361,00054,945,00059,165,00059,498,00053,274,00050,116,00046,157,00043,457,000

Nonmem-ber trust

companies.

Nonmem-ber State

banks.Privatebanks.

Foreignbranchesand agen-

! cies.

$7,820,0008,189,0004,516,0005,267,0005,407,0006,305,0004,898,0004,331,0005,172,000

7,160,0007,876,0008,670,000

13,573,000 I15,400,00017,029,00018,921,000 !19,060,000 !20,356,00021,782,00029,474,00033,232,000

34,625,00032,467,00030,691,00026,286,00022,744,00023,511,00033,473,00035,745,00036,478,00032,508,00028,759,00024,165,00022,515,000

$10,00010,00010,000

""26," 666'20,000132,000253,000275,000

362,000 :336,000 j408,000 ;473,000 I585,000 !644,000 i471,000 !738,000 :726,000712,000

1,014,000 i1,630,000 i

1,502,0001,325,0001,245,0001,146,0001,054,000972,000

1,265,0001,268,0001,094,000 I1,090,000845,000 !735,000 i045,000 .

$110,000110,000192,000161,000352,000472,000343,000204,000396,000

822,0001,456,000 I1,781,000 I3,262,0003,430,0007,007,00011,830,00013,940,00012,491,0009,944,00012,147,00016,069,000

18,224,00016,915,00015,862,00014,119,00012,949,00013,775,00017,952,00021,842,00020,389,00020.570,00019,592,00017.o96,000 j17', 504,000 i

$140,000668,000677,000677,000354,000379,000;;] 1,000250,000

Total.

$93,00011,593,00013,347,0009,960,0009,770,00011,129.00012,884) 00014,373,00013,265,00018,154,000

23,838,00025,349,00028,041,00038,308,00044,290,000•49,360,00064,211,00073,433,00074,986,00070,236,00080,405,00098.679,000

121,154,000110,773,000107,508,00097,885,00089,186,00088,759,000108,303,000118,697,000118.136,000LOT;796.0009.9,591.00088,964', 00084,371,000

Trade ac-ceptancesbought in

openmarket.

$489,000462,000722,000

1,477,0002,208,0003,422,0004,225,0003,673,0002,306,000 ,2,378,000 !4,487,000 !

4,585,0004,249,0004,386,0004,102,0004,041,0004,041,0004,896,0004,982,0005,068,0002,535,0002,276,0001,825,0001,212,000

Total ac-ceptances.

$93,00011,593,00013,347,0009,960,0009,770,00011,129,00012,884,00014,373,00013,265,00018,154,000

23,838,00025,838,00028,503,00039,030,00045,767,00051,568,00067,633,00077,658,00078,659,00072,542,00082,783,000103,166,000

125,739,000115,022,000111,894,000101,987,00093,227,00092,800,000113,199,000123,679,000123,204,000110,331,000101,867,00090,789.00085,583;000

Amounts of paper discounted and acceptances and warrants bought by each Federal Reserve Bank during February. 1917,distributed by maturities.

Federal Reserve Banks.

15-day maturities.

Discounts.

Boston ! ,11,882,783New York I lj502,805Philadelphia i 1,149,757Cleveland i 2,499,000Richmond •: 3,985.444Atlanta (including New Orleans branch) : 384 855Chicago j 1,926,449St. Louis I 384,908Minneapolis ! 577,600KansasCity 10,000 j

316,500 j25,931

$370,595158,027

645,000

105,556

Dallas.San Francisco

Total ! 14,646,032 !Per cent j .

54,00025,00010,608

Warrants, Total.

81,882,7831,873.4001,30717842.499,0004i630,444

'384,8552,032,005

384,908577,60064,000

341,50036,539

16,014,818! 16.2

30-day maturities.

Discounts.

$1,015,17022,354205,2679,748

373,112181,11223,96287,317396,50015,050

" I 4 3

Accept-ances.

$59,GOO1,684,8781,821,861694,629

2,924,97574,703

512,811226,35394,080151,524257,21143,003

2,355,001

Warrants. Total.

§1,074,7701,707,2322,027,128704,377

3,298,087255,815536,773313,670490,580166,574273,35452,269

8,545,628 10,900,62911.0


320 FEDERAL RESERVE BULLETIN. APRIL 1,1917,

Amount of paper discounted and acceptances and warrants bought by each Federal Reserve Bank during February, 1917,distributed by maturities—Continued.


BostonNew YorkPhiladelphiaClevelandRichmondAtlanta (including New Orleans branch)ChicagoSt. LouisMinneapolisKansas City.DallasSan Francisco ,

Total.Per cent

60-day maturities.

Dis-counts.

S702,647184,002234,028

7,490749,417177,40343,70484,994

743,56823,452

101,61834,705

3,087,028

Accept-ances.

§316,3504,412,3133,095,4181,953,5121,820,175

224,2032,592,8511,947,1591,618,5501,388,061

545,7921,523,896

21,438,280

War-rants . Total.

SI, 018,9974,596,3153,329,4461,961,0022,569,592

401,6062,636,5552,032,1532,362,1181,411,513

647,4091,558,601

24,525,30724.8

90-day maturities.

Dis- i Accept-counts. ances.

$332,388211,84288,29426,105639,635367,84319,69610,81119,70620,51580,11032,344

1,849,289

S4,827,66913,324,5294,933,5803,387,154

816,416645,885

3,490,2422,363,362

830,7221,091,284

837,6731,911,116

38,459,632

War-rants.

$25,20325,20325,203

S,20315,203

25,203

151,218

Total.

§5,160,05713,561,5745,047,0773,438,4621,456,0511,013,7283,535,1412,399,375

850,4281,137,002

917,7881,943,460

40,460,13940.9


Over 90-day maturities.

Dis-counts.

$4,3484,876

BostonNew YorkPhiladelphiaClevelandRichmond 36,624Atlanta (including New

Orleans branch)ChicagoSt. LouisMinneapolisKansas CityDallasSan Francisco

Total.Per cent

41,81324,385

80056,72489,560207,5844,540

471,254

Accept-

$58,603450,00050,000150,000

116,250

824,853

War-rants.

$126,9772,434,561

1,018,46215,000

963,456527,335

253,693361,960

5,701,444

Total.

$185,5802,888,909

54,8761,168,462

51,624

41,813987,841644,38556,724

343,253569,544

4,540

6,997,551

Totals.

Dis-counts.

S3,932,9881,925,3511,682,2222,542,3435,784,232

1,153,0262,038,196

568,8301,794,098

158,577721,955106,786

22,408,604

Accept-ances.

$5,262,22220,242,31510,058,8866,185,2956,206,566

944,7916,701,4604,653,1242,543,3522,684,8691,665,6763,488,623

70,637,179

War-rants.

$126,9772,459,764

25,2031,043,665

15,000

988,659552,538

278,896361,960

Total.

89,322,18724,627,43011,766,3119,771,303

12,005,798

2,097,8179,728,3155,774,4924,337,4503,122,3422,749,5913,595,409

5,852,662 98,898,445100.0

Per cent.

Dis-counts.

42.27.8

14.326.048.2

55.020.99.8

41.45.1

26.23.0

22.7

Ac-cept-

56.482.285.463.351.7

45.068.980.658.686.060.697.0

71.4

War-rants.

1.410.0

.310.7

.1

10.2

8.913.2

5.9

Total.

100100100100100,

100100100100100100100

100

Maturities of discounted bills, acceptances, and municipal warrants held by the Federal Reserve Banks on Friday,Feb. 23, 1917.

[In thousands of dollars, i. e., 000's omitted.]

Banks.

Bos ton . . .New YorkPhiladelphiaClevelandRichmondAtlanta .ChicagoSt. LouisMinneapolisKansas CityDallas.San Francisco. . .

TotalPer cent

1 to 15 days.

Billsdis-

count-ed.

1,6791,581

9851,8841,157

719724248

1,02686

20637

10,332

Accept-ances

bought.

2,4366,1573,2221,8302,134

8482,0371,7122,681

838429

2,259

26,583

Mu-nici-pal

war-rants.

12518

812

117114

15

411,242

Total.

4,2407,7564,2074,5263,2911,6842,8751,9603,722

924635

2,337

38,15723.7

16 to 30 days.

Billsdis-

count-ed.

8061019026

76042911416324180

16626

3,002

Accept-ances

bought.

1,8107,8643 2642,9461,446

6512,8432,5071,0151,885

5283,164

29,923

Mu-nici-pal

war-rants.

18831756

107

8034

3236

Total.

2,8048,2823,4103,0792,2061 080

31 to 60 days.

Billsdis-

count-ed.

30922315827

1,309fi77

3,037 ' 2012,7041,5791,971

mi37 3,227

1,148 ! 34,073. . 21.1

9676810732433

4,232

Accept-ances

bought.

4,75711,9635,1914,1642,3851,4593,9782,9432,5481,388

9623,645

45,383

Mu-nici-pal

war-rants.

135455

32

243625

3050

101

911

Total.

5,20112,2315,3544,2733,6942,1384,6153,0643,3161,5251,3363,779

50,52631.3

61 to 90 days.

Billsdis-

count-ed.

1751616318

4263368516

20792

24415

1,838

Accept-ances

bought.

3,7467,4002,4531,544

716486

1,8311,284

696839598484

22,077

Mu-nici-pal

war-rants.

36175103119

33125

25

517

Total;

3,9577,7362,6191,6811,142

8251,9471,325

903956842499

24,43215.1


APRI:- 1, 1917. FEDERAL RESERVE BULLETIN. 821

Maturities of discounted bills, acceptances, and municipal warrants held by the Federal Reserve Banks on Friday,Feb. 23, 1917—Continued.


Backs.

Boston . . .New York. . ;PhiladelDliiaCleveland .. .RichmondAtlantaChicagoSt LouisMinneapolis...Kansas CityDallasSan Francisco

TotalPercent

Billsdis-

count-ed.

s858587433

22514420153

862

Over 90 days.

Accept-ances

bought.

Mu-nici-pal

war-rants.

1274,9791,2671,842

152

2,1811,043

177431456786

13,306

Total.

1274,9791,2751,850

7360

2,2551,076

402575657839

14,1688.8

Total,

Bills dis-counted.

Amount.

2,9692,0661,3041,9633,7102,2191,198

5562,467

5091,141

164

20,266

Percent.

14.710.26.49.7

18.311.05.92.7

12.22.55.6.8

100.0

Acceptancesbought.

Amount.

12,74933,38414,13010,4846,6813,444

10,6898,4466,9404,9502,5179,552

123,966

Per-cent.

10.326.911.48.55.42.88.66.85.64.02.07.7

100.0

Municipalwarrants.

Amount.

6115,5341,4312,962

15124

2,8421,127

515492506965

17,124

Percent.

3.632.38.4

17.3.1.7

16.66.63.02.92.95.6

100.0

Total.

Amount.

16,32940,98416,86515,40910,4085,787

14,72910,1299,9225,9514,164

10,681

161,356100.0

Percent.

10.125.410.59.66.43.69.16.36.13.72.66.6

100.0

Billsdis-

count-ed.

18.25.07.7

12.735.738.48.15.5

24.98.5

27.41.6

12.6

Percentages.

Accept-ances

bought.

78.181.583.868.164.259.572.683.469.983.260.489.4

76.8

Mu-nici-pal

wai-rants.

3.713.58.5

19.2.1

2.119.311.15.28.3

12.29.0

10.6

Total.

100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0

loo. a

Total investment operations of each Federal Reserve Bank during the month of February, 1917.

Federal Reserve Bank.

BostonNew YorkPhiladelphiaClevelandRichmondAtlantaChicagoSt. LouisMinneapolisKansas CityDallasSan Francisco

Total, February, 1917Total, February, 1916Total, January-February, 1917Total, January-February, 1916

Billsdiscounted

formemberbanks.

$3,932,9881,925,3511,682,2222,542,3435,784,2321,153,0262,038,196568,830

1,794,098158,577721,955106,786

22,408,6047,664,60040,734,89018,779,600

Bills bought in open market. Municipal warrants bought.

Bankers'accept-ances.

$5,262,22219,292,3709,974,0415,977,1916,206,566

944,7916,511,7154,653,1242,461,0842,684,8691,665,6763,357,142

68,990,79111,894,800

21,348,300

Tradeaccept-ances.

$949,94584,845

208,104

189,745

131,481

1,646,388522,000

1,887,527671,000

Total. City.

$5,262,22220,242,31510,058,8866,185,2956,206,566944,791

6,701,4604,653,1242,543,3522,684,8691,665,676

$126,9772,459,764

25,203989,68015,000

70,637,17912,416,80091,254,35922,019,300

552,538

278,896361,960

5,798,67710,419,20013,000,58519,927,000

State.

$20,4002,040

256,400

All other.

$53,985

53,98511,200580,53773,700

Total,

$126,9772,459,764

25,2031,043,665

15,000

988,659552,538

278,898361,960

10,450,80013,583,16220,257,100

Federal Reserve Bank.

BostonNew YorkPhiladelphia...ClevelandRichmondAtlantaChicagoSt. LouisMinneapolis...Kansas City...DallasSan Francisco .

Total, February, 1917Total, February, 1916Total, January-February, 1917Total, January-February, 1916.....

United States bonds and Treasury notes.

2 per cent.

$57,500

2,000

25,000

"60*666'

144,5006,782,2502,514,650

11,176,050

3 per cent.

$200

2001,739,500

61,4402,142,880

4 per cent.

$250

250975,000

2502,805,000

1-yearnotes.

$456,000

456,000

456,000

Total.

$57,500

458,000

25,450

60,000

600,9509,496,7503,032,34016,123,930

Total investment operations.

February,1917. "

$9,322,18724,684,93011,766,3119,771,303

12,463,7982,097,8179,728,3155,774,4924,362,9003,122,3422,749,5913,655,409

99,499,395

148,604,751

February,1916.

$4,388,80010,442,1001,948,8002,036,5004,341,0001,797,9002,905,0002,436,0001,092,0005,255,9501,541,1001,843,800

40,028,950

77,179,930

Feb-ruary,1917.

Per ct.9.4

24.811.89.8

12.52.19.85.84.43.12.83.7

100.0

Feb-ruary,1916.

Per ct.11.026.14.95.1

10.84.57.36.12.7

13.13.84.6

100.0



RESOURCES AND LIABILITIES.

Resources and liabilities of each Federal Reserve Bank and of the Federal Reserve System at close of business on Fridays

Mar. 2 to Mar. 23, 1917.

RESOURCES.

[In thousands of dollars, i. e., 000's omitted.1

Boston. |

Gold coin and certificates in vault:Mar. 2Mar.9Mar. 16Mar. 23

Gold settlement fund: •Mar. 2 1Mar.9Mar.16 !Mar. 23 1

Gold redemption fund:Mar. 2..: !

Mar.9Mar.16Mar. 23 ,

Legal-tender notes, silver, etc.:Mar. 2Mar.9Mar.16Mar. 23

Total reserve:Mar.2Mar.9Mar.16Mar. 23

5 per cent redemption fund againstFederal Reserve bank notes:

Mar.2Mar.9.. jMar.16 jMar. 23

Bills discounted—Members:Mar.2Mar.9Mar.16Mar.23....

Bills bought in open market:Mar.2..... ,..-Mar.9 : . .Mar.16Mar.23. . . . . . . . .

United States bonds:Mar.2Mar.9Mar.16Mar.23

1-year Treasury notes:Mar.2.. . . ,Mar.9Mar.16Mar. 23

Municipal warrants:Mar.2Mar.9Mar.16Mar.23

Federal Reserve notes, net:Mar.2Mar.9Mar. 16Mar.23

Due from other Federal ReserveBanks, net:

Mar.2Mar.9Mar. 16Mar.23

Uncollected items:Mar.2Mar.9Mar.16Mar.23

12,94413,92013,28213,977

21,33320,68018,65321,015

50495050

802221213288

35,12934,87032,19835,330

162,508190,403209,672200,084

39,98419,84416,34721,241

250250250250

2,59011,4768,8623,985

205,332221,973235,131225,560

2,8122,5341,8721,743

11,45911,61511,77110,738

1,6061,6661,660.1,606

486

1,4031,2691,1601,335

2,5591,2163,0411,664

12,37310,91915,402

Phila-delphia.

25,14524,79124,47526,101

9,89814,92013,93616,841

250250250250

265335147240

35,55840,29638,80843,432

Cleve-land.

14,30313,98214,33017,380

26,49326,04329,82626,017

62574835

8590

112102

40,94340,17244,31643,534

Rich-mond.

5,3895,4205,4825,603

16,91016,54116,64516,085

481460450425

120137

97101

22,90022,55822,67422,214

At-lanta.

6,0205,9666,1566,147

5,4705,5345,0264,041

547542595620

1,3421,5911,4651,439

13,37913,63313,24212,247

Chi-cago.

28,87225,72229,15428,201

47,08645,65343,870

200200200200

4621,1981,017

679

73,41774,20676,02472,950

874785917

30,69028,64124,96021,400

7171

1,1771,5421,8191,387 j

13,305 j12,15211,587 I10,486 i

8181

726 i 1,999726 i 1,999 |626 1,999 |126 | 1,999 !

1,6572,0621,7282,240

9,4569,0927,3196,542

4,9854,9854,9854,985

1,8201,8201,8201,820

3,639 |3,388 ;3,541 j4,067

|7,062 I6.982 '6,7526,719

5,5345,5345,4035,199

15,80514,25815,10613,287

1,434 ! 2,952 I1,433 i 3,181 ,1,378 j 3,080 j1,378 ! 3,066 I

1,097 j.851 .820 !.878 I.

442 I442 !442 i442

1,969 !1,969 i1,969 !1,969 i

15 ;15 .15 !15 !

2,1972,1391,9802,034

3,3493,3153,6773,655

505050170

1,4911,4911,491

St.Louis.

9,4889,145

11,29312,935

3,1665,6855,1114,240

17415295

259

2,5682,2552,4642,003

15,39617,23718,96319,437

Minne-apolis.

11,54811,59911,65311,711

4,0976,4486,4868,641

155155155155

736743733705

16,53618,94519,02721,212

KansasCity.

7,8087,7787,7897,757

26,46325,65824,07226,153

141135174177

95816252

34,50733,65232,09734,139

Dallas.

7,1107,3127,4487,604

6,5067,1677,7197,568

22605783

876941940

1,013

14,51415,48016,16416,268

300 ! 100300 i 100300 | 100300 ! 100

1,6141,7861,3811,970

9,7209,0677,9609,041

5,9615,9625,9615,962

2,9622,9622,962

2,354 I

29,05223,15629,840

13,787 j 29,605

2,4442,5522,1481,920

22,008 i 12,08618,099 ! 9,73422,666 | 11,19418,514 ! 11,609

1,491 2,912

2,7282,728 ]2,698 I2,648 j

602 i534495 I798 j

7,651 j7,1505,8274,555

2,2032,2032,2032,203

891891891891

1,1271,1271,0941,094

2,465 i2,171 |3,208 j2,199

27 |

""*255"!

8,953 i8,232 i8,8688,567 1

398 2,172 ! 679610 I 5,250 672394 2,917 91

2,479 j 396 316

8,054 j 24,016 9,8817,098 19,961 I 8,750

23,008 I 9,52421,090 j 10,118

8,2877,367

2,4751, 736 •1,402 i1,093 I

6,480 !6,739 ;6,071 • J5,170 I

1,409 !1,434 ;1,454 i1,454 I

1,2301,230 i1,230 !1,230 I

499 ;499 :177177

468487447447

4,5064,2293,2022,368

8,1478,1478,147

1,7841,7841,7841,784

492492486486

1,1261,3131,4401,533

2,2552,1441,9751,636

3,4033,4033,4033,403

1,4301,4301,4301,430

559506506506 I

20 I

SanFran-cisco.

13,02814,14614,58413,236

7,8289,955

12,18713,569

15151515

30456458

20,90124,16126,85026,878

M23J 1,881421 ! 2,058

2,490

Total.

199194 i212273

8,1257,7345,9015,488

2,4292,4292,4292,429

1,5001,5001,5001,500

965924887887

2,3052,0591,6971 741

J 738i i 1,382.1 1,125J 1,7681,950 i 1,6

4,349 i 7,923 6,985 i 8,3464,547; 8,736| 5,885 1 5,2946,295 i 9,862 1 5,707 5,3233,723 I 9,814 |. 5,067 6,496

304,163330,184355,318350,736

212,031205,561201,661209,281

2,3472,3252,3392,519

9,97119,11316,17610,665

528,512557,183575,494573,201

400400400400

18,84018,50017,23418,473

114,058108,86097,00287,798

28,65029,12629,15529,275

19,46819,46819,36818,818

16,79816,93216,02915,761

23,09520,60821,99119,440

1 4,0231 3,14313,379

154,026130,411155,976145,757

1 Difference between net amounts due from and net amounts due to other Federal Reserve Banks.


n, 1. 101.7. FEDERAL RESERVE BULLETIN. 328

Resources and liabilities of each Federal Reserve Bank and of the Federal Reserve System at close of business on Fridays

Mar. S to Mar. 23, 1917- Continued.

R E S O U J J C E S—Continued.

[In thousands of dollars, i. e., 000's omit tod.]

All other resources:Mar. 2 . .Mar. 9Alar. 16 .Mar. 23

Total resources:Mar. 2 . . .Mar. 9Mar. 16Mar. 23

Boston.

94

519

67,98164,63007.45966,570

NewYork.

317373379400

288,401295,517312,443296,545

Phila-delphia.

458454316168

78,29375,97578,57377,364

Cleve-land.

Kieh- i At-mond. I hinta.

Chi-

250 I240 !158 I.181 i

77,69074,695

45,097 ;43,758 !

44,356 '76; 775 44,337 i

117 I145 !95 i

2,1781,5761,8621,603

31,10329,91930,99031,053

387 j662 !525 I500 i

125,442124,755[126,644119,667

1,523982S95551-

39,953 ;

39,546 :39,983 '39,963 !

I l l .103 :

159 i142 ;

34,21235,65435,815 i36,151 !

211249222206

1,758:1,0391,1001,389

59,769 i 32,15060,134 i 31,530 :59,037 I 31,825 !59,327 j 31,332 :

San

417 :517436442

15,92546,19446,36047,902 '

7,8210'. 4016,1985,680

915,691911,032942,226917,901

LIABILITIES.


Capital paid in:'Mar .2 i

Mar. 9 iMar. 16 !Mar. 23 i

Government deposits: |Mar. 2 :

Mar. 9Mar. 16 !Mar. 23 '

Due to members—reserve account: :Mar. 2 \Mar. 9 •Mar. 16 !Mar. 23— i

Collection items: IMar.2Mar; 9 ;Mar. 16 ;Mar. 23 !

Federal Iiesorv e notes, no t:Mar.2 'Mar. 9 !

Mar. 16Mar. 23

.Due to other Federal Reservebanks, net: •

Mar.2 ;

Mar. 9 1Mar. 16Mar. 23

All other liabilities:Mar.2Mar. 9Mar. 16Mar. 23

Total liabilities:Mar.2Mar. 9Mar. 16Mar. 23

$5,083 ISl 1,888 ; £5,259- " 52605,0645,0685,008

1,240- 1 4 81,408

11.880 •• 5,20011\ 880 : 5,26011,880 ; 5,260

2,507 ; 1,1284,382 i 9147,476 ; 1,063

1,224 i 7,375 | 1,378

53,280 |242,046 j 47,87051,193 [249,334 ! 48,98348.473 j260,551 i 47,32849l 108 '247,615 19,207

8,297 i 22,123 i 20,7908,120 • -' "

12,411 ______1.1,074 ! 22.577

19,198 17; 14524,990 i 20,433"~ "~" : 18,100

80,085 ; S3,409 : $2,4206,080 ; 3,404 i 2,4186,089 . 3,405 1 2,4180,090 '• 3,408 ! 2,4.14

737 i 892499 : 399240 : 8602.38 • 1,308

1,9881,3121,8252,210

§6,9996,9996,9996,999

$2, 7942, 7952,7952, 795

82,412 I S3,089 . S2,6H62,413 ! 3,089 2,6962,413 ! 3,089 2,6982,415 I 3,089 2,698

$3,911 i $56,0453,924 j 56,0283.940 ! 56,0543.941 ! 56,057

1,668 236 !1,055 1 - 2 6 i

665 I 589 ••912 I 317 :

59,530 ! 25 ,441 i 19,700 97 ,765 j 27 ,18858 .613 25 ,793 • 19,565 101,898 1 27,59459; 615 25 ,891 19,380 i 102,228 26 ,99158,993 ! 25,968 19,411 | 96,584 27,036

3,1022,7873,2051, 103

11,338 . 8,096 i 4,2489,497 I 7,255 ! 3,975

11,624 ! 7,260 4,71311,434 " 7,868 ; 4,643

7,021 2,7476,907 i 2,6496,878 I 2,6545, 785 : 2,375

19,010 ! 7,226 !14,803 ! 6,825 !16,752 ," 7,201 !15,172 ! 7,223 i

732 I 351882 i 281.895 ! 443888 ! 354

27,629 ! 47,53528,380 ; 46,79128,009 46,20827,834 47,405

5,444 :

7,522 =

926 i 1,757 I 14,1621,001 ! 1,850 ! 12,4011,091 ! 2,039 : 18,5941,167 i 2,311 i 19,702

24,372 j 36,53124,742 37,60224,072 I 37,358

708,893720,488726,104

2,3962,0552,566 i 7, 7592,433 i 7,227

23,746 I 38,150 j 711,117

3,716 • 3,6-16 : 116,3302,786 i 2,743 102,8242,8*0 ! 2,955 : 121,5502j 604 ' 3,429 113,784

2,509 1,043 ' 3,350 : ; 19,7722; 358 1,324 ' 2,451 311 = 18,7872,407 i 1,926 i 1,538 S36 : 19,4442,592 ! 2,555 1 1,252 763 : 16,725

si101

9,64710,533 i 748 :7,366 1,1510,913 1,819

190 138.190 138180 : 133186 137

23S 440 ;

242351

07,981 |288,401 . 78,29364,630 1295,517 75,97507,459 !312,443 78,57306,570 i296,5U> 77,304i2

I

77,69074,69577,50870', 775

45,097 . 31,103 125,41243,758 i 29,919 1124,755•14,356 30,990 i 126,644•14,337 31,053 1119,667 • 39,903

26 i

39,953 i 31,212 j 59,709 I 32.15039,540 35,054 ! 00,134 | 31^53639,983 "" """ ' " *"35,815 | 59,037 I 31,825

30,151 i 59,327 ! 31,332i I

68

71 :

45,925 !40,19446,360 ;47.902

489504480516

915,691911,032942,220917,901

1 Overdrafts.


324 FEDERAL RESERVE BULLETIN. APRIL I t 1917.

FEDERAL RESERVE NOTES.

Federal Reserve note account of each Federal Reserve Bank at close of business on Fridays, Mar. 2 to Mar. 23, 1917.


Federal Reserve notes receivedfrom agent, net:

Mar.2Mar. 9Mar. 16Mar. 23

Federal Reserve notes held bybank:


Federal Reserve notes in circula-tion:

Mar.2. . .Mar. 9Mar. 16Mar. 23

Gold and lawful money depositedwith or to credit of Federal Re-serve Agent:


Commercial paper delivered toFederal Reserve Agent:

Mar.2Mar. 9Mar. 16Mar.23

Boston.

15,47615,46015,42616,144

New I Phila-York. delphia.

143,361 j 22,103150,500 23,433157,866 23,199161,742 24,750

1,403 15,8051,269 14,2581,160 ! 15,106

9581,273

8551,335 j 13,287 j 1,947

14,073 1127,556 I 21,145 12,90614,191 (136,242 > 22,160 j 13,50614,266 1142,760 | 22,344 13.45814,809 |148,455 I 22,803 ! 14,529

15,476 |l43,36115,460 1150,50015,426 157,86616,144 161,742

18,04319,37319,13921,400

4,062 I

14,00314,35714,27815,407

4,099 |.3,390 j.

16,53616,32616,24516,047

9,5159,4199,367

10,262

8,4108,8638,1957,480

19,90120,13619,95619,969

17,15417,48717,30217,594

3,5593,5733,3732,977

Chi-cago.

15,36917,32319,15420,988

2,4653,1313,2082,199

12,90414,19215,94618,789

15,36916,36319,15420,988

9(50

St.Louis.

16,18416,14615,55515,125

1,3381,489

940755

14,84614,65714,61514,370

12,33712,29912,20811,778

3,8483,8483,3523,352

Minnc- Kansasapolis. ! City.

20,328 j 22,49620,184 i 22,71120,145 I 22,92620,113 . 23,327

2,0571,7761,174

545

18,27118,40818,97119,568

17,22817,08417,04517,013

3,1003,1003,1003,100

523586508742

21,97322,12522,41822,585

18,62319,67420,88021,333

3,8863,1572,1532,087

Dallas.

20,54021,04821,23721,404

SanFran-cisco.

16,18216,16915,78815,762

270 i 2,305489 I 2,059246 I 1,697545 ; 1,741

20,27020,55920,991 14109120,859 14,021

13,87714,110

20,290 ! 16,18220,248 I 16,16920,155 ! 15,78820,096 i 15.762

1,8352,0861,9172,000

Total.

343,847355,263363,278372,244

28,65127,21725,440

314,258326,612336,061346,804

317,581328,433338,608349,519

28,70029,68626,18924,386


APRIL l, 1917. FEDERAL RESERVE BULLETIN. 325

Federal Reserve note account of each Federal Reserve Agent at close of business on Fridays, Mar. 2 to Mar. 23, 1917.


| Boston.

Federal Reserve notes:Received from Comptroller-

Mar. 2Mar. 9Mar. 16Mar. 23

Returned to Comptroller-Mar. 2Mar. 9Mar. 16Mar.-23

Chargeable to Federal ReserveA g e n t -

Mar. 2..Mar. 9Mar. 16Mar. 23

In hands of Federal ReserveAgen t -

Mar. 2

33,88033,88033,880

8,8448,8609,0949,136

25,03625,02024,78624,744

Mar. 9 1Mar. 16 fMar. 23

Issued to Federal Reserve Bank,!net— ' I

Mar. 2 jMar. 9 iMar. 16Mar. 23

Amounts held by Federal ReserveAgent:

In reduction of liability on out-standing notes—

Cold coin and certificateson h a n d -

Mar. 2Mar. 9Mar. 16Mar. 23

Credit balances—In gold redemption

fund— iMar.2 |Mar. 9 1Mar. 16 jMar .23. . . . : I

With Federal Reserve !Board— ;

Mar.2Mar. 9 !Mar. 16 :

Mar.23 !

As security for outstandingnotes— '•

Commercial paper a— \Mar.2 !Mar. 9Mar. 16Mar.23

Total— :•Mar.2Mar. 9Mar. 16 ,Mar.23 '

9,5009,5609,3608,600

15,47615,46015,42616,144

14,65014,65014,65015,410

826810776734

NewYork.

Phila-delphia.

259,400263,800275,480287,480

61,71962,18062,41465,338

197,681201,620213,066222,142

54,32051,12055,20060,400

143,361150,500157,866161,742

136,946144,546152,144156,564

6,4155,9545,7225,178

37,52037,52037,52037,520

7,1777,2477,4817,570

30,34330,27330,03929,950

8,2406,8406,8405,200

22,10323,43323,19924,750

3,7303,7303,7303,730

1,1831,3131,2691,180

13, 130i 14,330I 14,140i 16,490

-j 4,060.1 4,060

4,0603,350

15,47615,46015,42616,144

1143,361 22,103! 150,500 23,4331157,866 I 23.199:161, 742 ! 24', 750

Cleve-land.

23,86023,86023,86023,860

4,7574,8034,8824,953

19,10319,05718,97818,907

5,1004,7004,7003,500

14,00314,35714,27815,407

13,23313,53313,51310,573

770

765834

4,000

14,00314,35714,27815,407

Rich-mond.

29,50029,50029,50029,500

At-lanta, cago. j Louis, apolis.

36,38036,38036,38036,380

8,480 j 4,6308,686 4,6978,829 4,9428,943 5,050

21,02020,81420,67120,557

3,9003,6003,6003,600

17,12017,21417,07116,957

515419367262

9,0009,0009,00010,000

7,6057,7957,7046,695 I

31,75031,68331,43831,330

11,06510,96510,80510,805

20,68520,71820,63320.525

2,9602,9602,8972,896

1,1741,107985878

13,02013,42013,42013,820

3,5313,2313,3312,931

I

17,12017,21417,07116,957

20,68520,71820,63320,525

Chi- St. I Minne-

18,72020,68022,52029,360

1,8511,8571,8661,872

16,86918,82320,65427,488

1,5001,5001,5006,500

15,36917,32319,15420,988

15,25016,25018,45020,290

960

22,54023,34023,34023,340

3,3163,3543,4453,875

19,22419,98619,89519,465

3,0403,8404,3404,340

16,18416,14615,55515,125

5,1655,1655,1655,165

119 742113 i 704704 613

563

6,4306,4306,4306,050

3,8473,8473,3473,347

15,369 ! 16,18417,323 I 16,14619,15420,988 !

15,55515,125

KansasCity.

32,00032,00032,00032,000

1,1521,3161,3552,237

30,84830,68430,64529,763

10,52010,50010,5009,650

20,32820,18420,14520,113

13,03013,03013,03013,018

948924

3,2503,1303,1303,130

3,1003,1003,1003,100

20,32820,18420,14520,113

28,72028,72029,72037,720

2,7362,9013,1713,295

25,98425,81926,54934,425

3,4883,1083,623

11,098

22,49622,71122,92623,327

4,3704,3703,3702,370

993944

1,3501,303

13,26014,36016,16017/660

3,8733,0372,0161,994

22,94622,71122,92623,327

Dallas.

35,32035,32035,72035,720

6,1446,1856,6076,800

29,17629,13529,11328,920

8,6368,0877,8767,516

20,54021,04821,23721,404

10,11010,11010,11010,110

1,1001,0581,1651,106

9,0809,0808,8808,880

250800

1,0821,308

Fran-cisco.

18,56018,56018,56018,560

2,3782,3912,7722,798

16,18216,16915,78815,762

16,18216,16915,78815,762

789778752

15,38015,38015,01015,010

20,540 i 16,18221,048 ; 16,16921,237 ! 15,78821,404 ; 15,762

Total.

576,400583,560598,480625,320

113,184114,477116,858121,867

463,216469,083481,622503,453

119,369113,820118,344131,209

343,847355,263363,278372,244

204,194212,094218,609219,836

15,58714,95915,37914,353

97,800101,380104,620115,330

26,26626,83024,07022,725

343,847355,263363,278372,244

a Actual amounts of paper delivered to the Federal Reserve Agents to secure circulation are shown in the note account of the Federal ReserveBasks on p. 324.


326 FEDERAL RESERVE BULLETIN. APEIf; 1, 1917.

EARNINGS ON INVESTMENTS OF FEDERAL RESERVE BANKS.

Average amounts of earning assets held by each Federal Reserve Bank during February, 1917, earnings from each class of. ' earning assets, and annual rales of earnings on the basis of February, 1917, returns.

Banks.

BostonNew York. . . ,Philadelphia..ClevelandRichmond.. . .Atlanta.,ChicagoSt. LouisMinneapolis...Kansas City...DallasSan Francisco.

! Average balances for the month of the several classes of earning assets.

Bills dis- i Bills boughtcounted, ! in open

members. ; market.

$1,817,1771,085,390

902,6721,264,4433,792,4742,242,5951,499,458

551,3352,216,400

509,3281,224,287

194,481

17,900,040

$13,057,84332,050,53813,884,4369,877,1745,434,9593,493,056

10,023,2307,382,6756,766,0004;130,1591,901,4079,863,426

117,864,903

United Statesbonds andTreasurynotes.

Municipalwarrants.

SI,683,893 I790,996 I

2,016,107 !6,821,510 i2,465,729 i1,543,843 i8,966,957 i3,093,900 !2,656,100 !9,480,850 j4,833,2503,920,179 !

$600,4535,121,0051,432,0162,670,188

12,705123,558

2,598,3701,019,434

529,100414,169334,717966,216

Total.

.$17,159,36639,647,92918,235,23120,633,31511,705,8677,403,052

23,088,01512,047,34412,167,60014,534,5068,293,661

14,944,302

48,273,314 | 15,821,931 | 199,860,188

Earnings from- Calculated annual rates of earnings from—

rBanks. I Bills dis-

I counted,mem-bers.

Boston ; So, 348New York 4,741Philadelphia | 2,700Cleveland • tf, 833Richmond , 11,140Atlanta c. .-...: 6,757Chicago 4,974St. Louis . . . ! 1,694Minneapolis \ 7,417Kansas City : 1,976Dallas I 4,222San Francisco | 704

I 55,306

Billsboughtin openmarket.

830,05578,27131,61422,42612,6828,501

21,53417,07715,2259,4114,891

21,648

273,335

UnitedStatesbondsand

Treasurynotes.

Munici-pal war-

rants.

S3,1,4,

15,5,3,

19,

911 :883 -:693 i167 !297 •553 I359 I025693509642277

81,41112,103

3, .1396,246

27345

6,2532,3841,186

901927

2,231

99,009 i 37,153

Total.Bills dis-counted,members.

340,72596,99842,14647,47229,14619,15652,12027,18029,52128,79719,68231,860

Per cent.3.843.663.903. 773.833.934.324.004.365.054.494.73

464,803 I 4.02

Billsboughtin openmarket.

Per cent.3.003.192.962.963.043.172.803.022.932.973.412.86

UnitedStates

bonds andTreasury

notes.

Per cent.3.033.003.032.902.803.002.592.542.792.272.572.23

Munici-pal war-

rants.

3.02 2.67

Per cent.3.063.082.853.052.793.643.143.052.922.843.593.01

Total.

Per cent.3.103.193.013.003.253.372.862.943.162.582.852.78

3.06 3.0


Apiur. 1,1917. FEDERAL BESEBVE BULLETIN. 327

DISCOUNT RATES.

Discount rales of each Federal Reserve Bank in effect Apr. 1, 1917.

Maturities.

Memberbanks'

! collat-! era!

loans.

Discounts. Trade acceptances.

Within 16 to 30

I

BostonNew YorkPhiladelphia..ClevelandRichmondAtlantaChicagoSt. LouisMinneapolisKansas City...DallasSan Francisco..

f43137, !

I Agricul-tural I

: Com-moditypapermatur-

ingwithin31 to 60 61 to 90 i and live-! To 30 : 31 to 60 •• 61 to 90

days, in- days, in- j stock days, in- days, in- days, in- 90 dayselusive. ; elusive. I paper " " •• - • - •

I over 90" ivs.

elusive. • elusive, elusive. :

NOTE.—Rate for bankers' acceptances, 2i to 4 per cent.

GOLD IMPORTS AND EXPORTS.

Gold imports and exports into and from the United States.


4

"31

3131

443131

Ore and base bullionUnited States mint or assay office bars..Bullion, refinedUnited States coinForeign coin

Total imports..

EXPORTS.Domestic:

Ore and base bullionUnited States mint or assay office barsBullion, refinedCoin

Excess of gold imports over exports since Jan. 1,1917, S197,184.Excess of gold imports over exports since Aug. 1,1914, §1,065,946.

Week ending—

Feb. 23, : Mar. 2, i Mar. 9, I Mar. 16,1917. ! 1917. ! 1917. ! 1917.

160

" 49," 567 "I

279

4111

2,433

234

25,275 j 49,232

2,448 4,935

49,727 ! 3,124

851 i70 I

6,485 ;

172

124,764 j

28,322 ! 54,401

1,200 ;17 I

1,891 i

132

3,450

Totalsince

Jan. 1,1917.

2,9526

143,21951,00650,858

Total forcorre-

spondingperiodduring

1916.

248,041

523,2381,19442,519

1.948776

5,97094

28,814

1192,7742,90612,659

Total

Foreign:Bullion, refinedCoin

Total r.

Total exports

7,406

1,197

1,197

8,603

4,795

453

453

5,248

3,108

36

36

3,144

3,483

322

322

3,805

47,003

313,823

3,854

50,857

18,458

1,43810,860

12,298

30,756


328 FEDERAL RESERVE BULLETIN. APRIL 1,1917,

FOREIGN EXCHANGE RATES.

Monthly ranges of exchange rates on leading foreign money centers, quoted in Neio York City during December, 1916, Janu*ary, February, and March, 1917.

[In continuation of figures published in December, 1916, Bulletin.]

I December, 1916. January, 1917.

j! Low.

London: !80-day bankers' bills dollars..' 4.71Sight drafts d o . . . . 4.7/

Paris francs..Berlin dollars..Petrograd do 29.25Vienna d o . . . . 11.03Milan lire.. 695Amsterdam dollars.. 40?Copenhagen do j 27Zurich francs..! 518Buenos Aires dollars..! 43.25Rio de Janeiro do 23.10Hongkong do 55.45Shanghai d o . . . . 87Yokohama d o — ! 50?

High. Low. | High.

4.75fi83|75*

30.7513.40

66640|

27.80493

44.8923.63

5889

February, 1917.

Low.

4.71t. 71£L75i

2810.60

76440§

27.30502

43.4022.9755.75

8550|

High.

4.7580584-i701

29.1011.10

70840|

27.55500

44.4623.46

5889£51

March, 1917.

Low. j High.

4.7114.7490

585J68

27.6011.05

78740ft

27.45504

42.2522.9055.25

8151

4.71|4.7555

28.6011.50

76340?

29.60501£

44.0323.1856.50

86$51



GOLD' RESERVES AND NOTE CIRCULATION OF PRINCIPAL EUROPEAN BANKS OFISSUE.

As the result of the war, certain changes havetaken.place in the reserve position of the prin-cipal European banks of issue, owing largely tothe vast amounts of notes issued to meet thedemands of the Governments of the belliger-ent countries. The following tabulation, com-piled from either original reports of the banksor official reports of the Governments, showsthe amounts of gold reserve—i. e., amounts ofgold coin and bullion held in vault, and of notesissued by the central banks at the end of thecalendar years 1913 to 1916.

It should be noted from the outset that theamounts of gold given as the gold reserves ofthe central banks by no means represent thetotal amounts of gold in Europe. Thesereserves do not include the gold held by theGovernment treasuries nor, as in the case of theUnited Kingdom and neutral countries, theconsiderable amounts of gold held by commer-cial and other banks, and the gold in actualcirculation. There are but few reliable data asto the volume of gold outside the control of theGovernments or central banks.

The British Government reports a total of£28,500,000, or $138,695,250, nominal, ofmetallic cover, largely gold, against a total of£150,144,177 ($730,676,637 nominal) of cur-rency notes and certificates issued since August,1914, and outstanding about the end of 1916,and smaller amounts are undoubtedly held byother European exchequers.

In addition, the Irish and Scotch banksreport for the four weeks ending December 30,1916, an average of £29,689,208 ($144,481,908nominal) of gold and silver held against an aver-age of £36,332,285 ($176,811,055nominal) of cir-culation outstanding, compared with £11,380,-813 ($55,384,726 nominal) of metallic reserveagainst £16,237,861 ($79,021,551 nominal) ofnotes in circulation about the end of 1913.These figures are exclusive of the small amountsof reserve and circulation of six private banksand three joint-stock banks in England proper.

The figures of gold reserves shown for theReichsbank and the Bank of France, it isgenerally conceded, more nearly approximatethe total monetary gold stock of these coun-tries, though it has been stated repeatedlythat the large addition to the gold reserve ofthe Keichsbank is due parity to the transferto its vaults of some of the gold held at theoutbreak of the war by the Austro-HungarianBank. The fact is that the latter bank has pub-lished no statement since July 23, 1914, whenits gold reserve was given as 1,237,879,000kronen ($251,289,437 nominal), compared with1,356,857,000 marks ($322,931,966 nominal)of gold reserve reported by the Reichsbank forthe same date.

In the case of Italy the figures of reserveand of note circulation relate to the Bank ofItaly only. To the figures given should beadded the gold reserves and note circulationof the Banco di Napoli and the Banco diSicilia, the other two Italian banks of issue.Through the courtesy of its New York agency,we are able to give the following data for theBank of Naples:

End of—

1913.19141916

Gold reserve.

Lire.218,439,000242,991,000212,715,000

Bank notecirculation.

Lire.417,806518,306797,732

Moreover, the Italian treasury held onNovember 30, 1916, 168,000,000 lire (32.4million dollars nominal) of metallic reserve,largely gold, against 1,293,000,000 lire of itsown notes in circulation.

In Belgium neither of the -two banks of issue,the National Bank of Belgium nor the SocieteG6n6rale de Belgique, have any substantialvault reserves, the former having removed itsreserve to London prior to the occupation ofBrussels by the German military forces, andthe latter having lost its vault reserve throughits forcible removal to Berlin.



An analysis of the reserve figures indicatesthat the combined gold resources of the centralhanks of the allied countries were at the endof 1916 practically as large as at the end of1913, the losses shown for the Russian, French,and Italian central banks being fully bal-anced by the gains in the metallic reserve(practically all gold) of the Bank of England.This transfer of reserves by the allies to Londonproceeded on a much larger scale than is indi-cated by the reserve figures of the central banksof issue, the bulk of the gold "pooled" havingbeen shipped oversea, largely to the UnitedStates.

The gold reserve of the Reichsbank shows anincrease during the three years of over 115 percent, though, as stated above, it is not knownwhat portion of the increase is represented bywithdrawals from circulation, as the result ofvoluntary offerings of gold coin and bullionin exchange for notes and what portion bygold formerly owned by the Austro-HungarianBank.

Substantial gains, absolute as well as rela-tive, are shown also for the gold reserves of thecentral banks of the neutral countries inEurope, these gains being especially large inthe case of the banks of Netherlands andSpain. The increases in the gold reserves of

the three Scandinavian banks are much smaller,as these banks for some time past, as the resultof changes in the mint acts of their countries,have refused to receive at the legal rate bullionor foreign gold coin.

While the reported gold reserves of theEuropean central banks show an increase dur-ing the three years 1914-1916 of over 18 percent, their reported outstanding note circula-tion shows an increase for the same period

of nearly 270 per cent. The rate of increasewould be considerably higher if the figures ofnote circulation of the Austro-Hungarian Bankat the end of 1916 were known. Some idea ofthe present volume of this circulation may behad from the fact that on June 23, 1914, thetotal circulation of the Austro-Hungarian Bankoutstanding was 2,129,759,000 kronen (S432,-341,000 nominal) and that since the outbreakof the war to June 30, 1916, the bank advancedto the Government a total of 6,424,900,000kronen ($1,304,250,000 nominal), most likelyin the shape of bank notes. Moreover, asstated above, large additions to the nationalcurrency have been made by the British, Ger-man, and Italian treasuries through the directissues of their own notes.

Furthermore, as the result chiefly of theenormous credit operations of the Governments,the deposits of the principal European banks ofissue show rates of increase about as large as,if not larger than, those shown above for theirnote circulation. The following exhibit givesthe deposit liabilities (in thousands of dollars)of the four leading European banks at the closeof the years 1913-1916:

At end of—

1913191419151916

Bank ofEngland.

$347,193754,249786,669870,339

Bank of j Bank: ofRussia, j France.

I§600,237 i $188,886500,177 i 549,762760,253 ! 444,532

1,216,852 | 439,120

GormanRoichsbank.

$188,763418,144561,445

1,086,281

The large increases in deposits shown aremade up chiefly of newT credits to the govern-ments or to commercial banks. The latter treatthese credits as reserve or cash, which, in turn,forms the basis of new deposit credits grantedto the customers of these banks.



Gold reserves and note circulation of 'principal Europeanbanks of issue at the end of 1913,1914,1915, and 1916.

[In millions of dollars.]

(A) GOLD R E S E R V E S .

I. ALLIED COUNTRIES.

Gold reserves and note cirdulation of principal Europeanbanks of issue at the end of 1913, 1914, 1915, and 1916—Continued.

(B) NOTE CIRCULATION.

I. ALLIED COUNTRIES.

IClose of calendar years-

Close of calendar years-

United KingdomRussiaFranceItaly

Total

1913

170781679214

1914

338800799216

1915

251 =830968 !208

1916

264758653174

1913 1914 1915

2,153 i 2,257 1,819

I United Kingdom..! Russiai France

Italy...:Belgium

Total.j

144859

1,103 !341 j203 !

11

176,475,927417312

2,650 : 4,307 , 6,432

II. CENTRAL EUROPE.

GermanyAustria-Hungary.

278 '252 ,

498 !

III. NEUTRAL COUNTRIES.

SwedenNorwayDenmarkNetherlands..Switzerland..Spain

Total...

29 !10 ]

25 i87 ;46 I

110

582

33 '1430

17348

167 !

600

4933

3 42236

67241

245 ! 307 465 i 668

1 Including small amount of silver.* No data."

3 Figures for Sept. 30,1916.

II. CENTRAL EUROPE.

GermanyAustria-ilungary..

617481

1,201 I 1,646 I(*) (a) |

III . NEUTRAL COUNTRIES.

1916

2,2,

172732569587372

1934,4253,219748

1372

8,957

1,917()

63294113461371

699

81365519888379

837

88435923290405

917

11267

3 72305104455

1,115

SwedenNorwayDenmarkNetherlands.Switzerland..Spain

Total..,

1 Figures for 1915: no complete data available for 1916.2 No data.3 Figures for Sept. 30, 1916.



GOLD RESERVES OF PRINCIPAL EUROPEANBANKS OF ISSUE AT END OF 19/3, IS/4,/9/5#/9/6.Z:ALim9 COUNTRIES. X - CENTRAL EUROPE. JTt NEUTRAL COUNTRIES.

aooo

IOQo\

o

T

ITALY

RUSSIA

FRANCE

ITALYUMTSPMNGPOM

RUSSIA

FRANCE-

UNITED KiH6P0M_

RUSSIA

FRANCE

IBUh I3/S

RUSSIA

FRANCE

13/6

•9,

30&

-iOGQ

IOCO\

10QQ

G

JI:

I 6ERMANYre/3

| GERMAHT

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! GERMANY

IBIS

I GSRMANY

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O

fOOO

0

I t. SWEDEN:~2.NORM4Y.~ 3.DEt

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WAftK- - ^ NETHERLANDS. - J". J

AW

/5V6:

W/TZERLANP. - £ ^ £ 2 L J


Ami!. 1, 1917. FEDERAL BESEBVE BULLETIN. 333

NOTE CIRCULATION OF PRINCIPAL EUROPEANBANKS OF ISSUE AT END OFIS/3,19I4-, ISIS^/916.I: ALLIED CQLWTRtSS. I : CENTRAL EUROPE. JT.- NEUTftAL COUNTRIES.

2OCQr

J3J3

•Sz

(9J±J_/. SWEDEN. -E

(9J5

£000

KXX>

o


INDEX.

Acceptances, distribution of, by sizes, maturities,etc * 319

Accounting, uniform, tentative proposal submittedby Board 270-284

Business conditions throughout the several dis-tricts 293-315

Charts showing gold reserves and note circulationof principal European banks 332, 333

Clearing system, operation of 268Commercial failures during February 267Discount operations of Federal Reserve Banks... 316-318Discount rates:

In effect 327Revision of 235, 241

Earnings on investments of Federal Reserve Banks. 326Federal Reserve Act, suit to test constitutionality

of section 11 (k),.argument of counsel before Su-preme Court 254-266

Federal Reserve Agents' fund, summary of trans-actions 269

Federal Reserve Banks, investment operations of. 319-321Federal Reserve notes:

Accounts of Federal Reserve Banks andAgents 324, 325

Shipment of unfit notes 237, 242Federal Trade Commission, collaboration with Fed-

eral Reserve Board on accounting plan 270-284Fiduciary powers:

Argument of counsel before Supreme Court incase to test constitutionality of section l l (k) . 254-266

Granted to national banks 267Foreign banks, gold reserves, and note circulation

of 329-331

! Page.

I Foreign exchange rates 328I Foreign loans, investments in 236, 239I Foreign securities, offerings of 237| Gold imports 237! Gold imports and exports, statement showing 327j Gold settlement fund, transactions under 268, 269Harris, 13. D., vice president National City Bank

of New York, address of, on trade acceptances-^.... 245Informal rulings of the Board:

Reserve balances 285Limitations imposed by section 5200, R. S 286Trade acceptances 287Stock subscriptions 287War Department obligations 288

Law department:Place of payment of acceptances 289Holding over of Federal Reserve Bank di-

rectors 290Drafts payable on or before certain date 291Usurious charges by national banks 291

National-bank charters granted 266Philippine National Bank designated as foreign

agent 239Reserves, changes in 236Resources and liabilities of Federal Reserve Banks. 322, 323Revenue act, reprint of 248-254Review of the month 235-239Trade acceptances, conference of National Credit

Men's Association on 243-247Treasury certificates of indebtedness 240Treman, R. II., address of, on trade acceptances 243United States bonds, purchase and conversion of. 238, 240Wills, D. C, address of, on trade acceptances 243

o


Federal Reserve Bulletin April 1917

Documents

Transcript of Federal Reserve Bulletin April 1917