Federal Reserve Bulletin, 1917-04

FEDERAL RESERVE BULLETIN ISSUED BY THE FEDERAL RESERVE BOARD AT 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, PAUL M* WARBURG> Vice Governor. Secretary of the Treasury, FEEDERIC A DELANO. Chairman. ADOLPH 0 MILLER. JOHN SKELTON WILLIAMS, CHAELES S' HAMLIN' Comptroller of the Currency. _ „ ^ T o H. PARKER WILLIS, Secretary. SHERMAN ALLEN, ^ssisfan^ Secretary and Fiscal Agent. M. C. ELLIOTT, Counsel. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

SUBSCRIPTION PRICE OF BULLETIN. The Federal Reserve Bulletin is distributed without charge to member banks of the system and to the officers and directors of Federal Reserve Banks. In sending the Bulletin to others the Board feels that a subscription should be required. It has accordingly fixed a subscription price of $2 per annum. Single copies will be sold at 20 cents. Foreign postage should be added when it will be required. Remittances should be made to the Federal Reserve Board. Member banks desiring to have the Bulletin supplied to their officers and directors may have it sent to 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 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

TABLE OF CONTENTS. Page. Review of the month 235 Investments in foreign loans 239 Treasury certificates of indebtedness 240 Purchase of United States bonds 240 "Hevision of discount-rate schedule 241 Shipment of unfit Federal Reserve notes 242 Conference on trade acceptances 243 The revenue act 248 Argument of counsel before Supreme Court in fiduciary case 254 New national-bank charters 266 Fiduciary powers granted 267 Commercial failures during February 267 Operation of the clearing system .» 268 Gold settlement fund 268 Uniform accounting by hank borrowers 270 Informal rulings of the Federal Reserve Board 285 Law department 289 Business conditions throughout the Federal Reserve districts 293 Discount operations of the Federal Reserve Banks 316 Acceptances 319 Resources and liabilities of the Federal Reserve Banks 322 Federal Reserve note accounts of Federal Reserve Banks and agents 324 Earnings on investments of Federal Reserve Banks 326 Discount rates in efleet 327 Gold imports and exports 327 Foreign exchange rates 328 Gold reserves and note circulation of principal European banks 329 Charts showing 332 IV Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FEDERAL RESERVE BULLETIN VOL. 3 APRIL 1, 1917. No. 4 REVIEW OF THE MONTH. companies of the country will be facilitated hv the adoption of the proposed legislation author- Congress adjourned on March 4 without havizing such State institutions to maintain balinp taken any action on the ances with Federal Reserve Banks. It is con- Proposed legis- " amendmonta to the Federal fidently expected that discussion and action lation i i iT Kcserve Act which had boon upon the amendments proposed by the Board recommended by the Board and had been ap- will take place at an early date in the new proved with modifications and reported by the session of Congress. Committees on Banking and Currency of the It has been thought wise to bring about a two Houses. In neither House was there degeneral revision and standardbate on the subject matter of the amendments. of disacountlrates! ization of discount rates in The failure to bring them to a vote was due to view of the increase in the numthe congestion of business and the differing ber and complexity of the rates previously views of opposing groups as to the measures established, and accordingly the matter has which should be given precedence during the been taken up with the various Federal Relast days of the short session. The President serve Banks, and a new schedule developed. has, however, summoned the new session of This schedule is as follows: Congress to meet on April 2, and it has been 1. Paper maturing within 15 days, including agreed to make a fresh recommendation at collateral notes. that time in the expectation that Congress will 2. Paper maturing within 16 to 60 days. resume consideration of the subject and take 3. Paper maturing within 61 to 90 days. action with respect to the proposed legislation. 4. Trade acceptances maturing within 60 The desirability of placing the member banks days. as soon as possible upon their final reserve 5. Trade acceptances maturing within 90 basis has become increasingly evident, while days. the urgency of the need for the changes 6. Bankers' acceptances maturing within 90 in the act has become more and more obdays. vious, due to the further development of in- 7. Commodity paper maturing within 90 ternational difficulties and the expectation that days. domestic financial and banking problems grow- 8. Agricultural paper maturing within 90 to ing out of them will necessarily have to be pro- 180 days. vided for. Other considerations due to the necessities which would in any event have It will be observed that whereas, under conmanifested themselves have likewise become ditions existing on March 1, there were thirteen more and more urgent. Particularly is this classifications of paper of various kinds and true of the collection situation. Experience is maturities, the number is now reduced to eight. making it plainer from day to day that the ex- Minor changes have been made in the periods tension of the system upon equitable terms so for which paper runs, but no general or faras to include more of the State banks and trust reaching alterations of policy have been intro- 235 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

236 FEDEKAL RESERVE BULLETIN. APRIL 1, 1917. duced. The rates applied to paper at the vari- emphasize the point that American funds ous banks are substantially the same as those available for investment may, with advantage previously charged for paper of the same varie- to the country's foreign trade and the domestic ties and maturities. Only in the case of bank- economic situation, be employed in the purers7 acceptances has there been a change, the chase of such securities. "spread" within which bankers' acceptances Clearing-house reports received during March may be taken having been changed from 2-4 from principal eastern centers, per cent to 2-J-4 per cent. This, however, is Changes in re- on the whole indicate a slight not an increase in effect, inasmuch as the pro- serves. improvement in the reserve sitvailing rate for bankers' acceptances is now uation of the larger banks. about 3 per cent. Practically all of the Federal Tims the reserve percentage of the 60 banks Reserve Banks have either adopted or will forming the New York Clearing House Assoshortly adopt the new schedule of rates, and ciation, as gauged by the ratio of their total the result will be a much more complete and reserves to their net demand deposits, from thorough standardization than has existed in 22.9 per cent on February 17 and 24, went up to the past. The rates themselves are likewise 23.7 per cent on March 17. It is notable that tending more strongly toward a uniform basis. the decline from 23 per cent on March 3 to On March 8 the Federal Reserve Board gave 22.3 per cent on March 10 followed a week durto the press for publication on ing which the outward gold movement was in Foreign loans fa following morning a state- excess of the inward movement. The reserve e m as e n b ts a . n k invest- ment, e - l * se w , h ere repri . nted - , • in percentage of the trust companies in Greater this issue, further explaining New York, as computed by the State Banking the position it had assumed with reference to Department, between February 17 and March the purchase of foreign securities in this coun- 17, shows the following changes: February 17, try. The statement was intended as an ampli- 25.3 per cent; February 24 and March 3, 26.1 fication and explanation of the statement per cent; March 10, 27.2 per cent, and March issued on November 28, 1916, under the head of 17, 27.6 per cent. On the other hand, the "Bank investments in foreign securities.77 In reserve ratio for the State banks in Greater the latter statement it was pointed out that New York, whose resources represent, however, proposed issues of so-called short term notes but a small proportion of the city's combined were not suitable as permanent investments banking resources, shows a decline during the for banks, and could not be regarded in any same period from 29.3 to 29.1 per cent. true sense of the term as short-term paper, Average excess reserves of the 41 national while the Board further noted that investors banks and trust companies forming the Philashould take pains to assure themselves of the delphia Clearing House Association show a desoundness of foreign issues that might be cline from $29,910,000 for the week ending offered to them. In the statement of March 9 February 17 to $29,572,000 for the week endthe Board again reaffirms its original position, ing March 17. Similar figures for the 10 nabut points out that misunderstanding has tional banks and the Old Colony Trust Co., apparently arisen with reference to the whole constituting the Boston Clearing House Assosubject, the statement having been interpreted ciation, indicate a movement of excess reserves in some quarters as a caution against the taking more in harmony with the movement shown of any foreign securities either by the banks or for the New York Clearing House banks, the investors. The Board wished to make it clear published figures indicating an increase in exthat it did not seek to create an unfavorable cess reserves from $26,110,000 to $35,787,000 attitude on the part of American investors for the week ending February 24, and to toward desirable foreign securities, and to $37,079,000 for the week ending March 3, a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN". 237 decline to $36,524,000 for the week ending Investment operations of the Federal Re- March 10, and a rise to $40,293,000 for the serve Banks during March, as week ending March 17. indicated hJ the several classes The past month has seen a resumption of of earning assets held on March offerings of foreign securities in 2 and 23, were on a smaller Security issues the United States; some pro- scale than during the immediately preceding gold. imP°rtS °f tected by collateral, others not. month. Liquidation (on a considerable scale) Prominent among the issues of acceptances and of discounts account largely which have been placed on this market during for the decrease in total earning assets held by March are the following: the banks on March 23, as compared with like holdings on March 2. Central Argentine Railway gold notes $15,000,000 10-year 6 per cent gold bonds of the Province The following table shows the bill holdings of Buenos Aires, transferred from London of each Federal Reserve Bank and holdings of to New York 8,098,000 other investments for all the banks on March 12-year 6 per cent bonds of the Bolivian 2 and 23, 1917: Government 2,400,000 Moreover, $100,000,000 of two-year 5i per cent convertible notes of the French Govern- Bank. Mar. 2. Mar. 23. Decrease. ment are offered. These notes, dated April, Boston 814,271,000 §512,481,000 $1,790,000 1917, are secured by State, municipal, and New York 31,564,000 22,288,000 9,276,000 Philadelphia 14,482,000 11,873,000 2,609,000 corporate securities, issued in American and Cleveland 11,113,000 8,782,000 2,331,000 Richmond 10,701,000 10,786,000 185,000 neutral countries. Atlanta 5,546,000 5,689,000 U43,000 Chicago 11,334,000 li;011,000 323,000 The large gold imports for the four-week St. Louis 8.253,000 5,353,000 2,900,000 Minneapolis 8; 955,000 6.263,000 2,692,000 period ending March 16 came chiefly from Kansas City 4.974,000 2,815,000 2,159,000 Dallas 3,381.000 3.169.000 212,000 Canada and to a smaller extent via the Far San Francisco 8,324; 000 5,761,000 2,563,000 East. Gold imports were particularly heavy Total bills 132,898,000 106,271,000 26,627,000 Total municipal warrants 16,798,000 15.761,000 1,037,000 for the weeks ending February 23 and March 16. Total United States bonds and Treasury notes 48,118,000 48,093,000 25,000 The country's stock of gold has increased by Total investments on $114,774,000 between February 17 and March hand 197,814,000 170,125,000 27,689,000 16, 1917, the total gold imports for the four i Increase. weeks under discussion amounting to $135,- 574,000 and the total gold exports to $20,- The distribution of notes to subtreasuries and 800,000. The net addition to the country's mints announced in the last stock of gold through net imports since August issue of the Bulletin has been protecting note 1, 1914, is shown in the following exhibit: issues. successfully carried through, and new notes are now lodged Gold imports and exports of the United States from Aug. 1, at points where they will be most conveniently 1914, to Mar. 16, 1917. accessible. It has been the view of the Board [000 omitted.] that two main objects were to be attained in connection with the handling of the Federal Excess of Imports. Exports. im o p v o e r r ts Reserve notes—one the elimination of delay in exports. present methods of distribution at every point where such delay could be avoided, the other Aug. 1 to Dec. 31,1914 $23,253 8104,972 a 881,719 Jan. 1 to Dec. 31,1915 451,955 31,426 420,529 the careful safeguarding of the notes and the Jan. 1 to Dec. 31,1916 685,745 155,793 529,952 Jan. 1 to Mar. 16,1917 248,041 50,857 197,184 protection of the conditions under which they Total 1,408,994 343,048 1,065,946 were released. When notes are issued only occasionally and in limited amounts, and when Excess of exports over imports. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

238 PEDEBAL BESEBVE BULLETIN. APRIL 1, 1917. such issues are made by direct shipments from the additional fund already spoken of. Pre- Washington to designated persons under all of liminary to either of these changes it is believed the usual safeguards concerning the transmis- that there might well be an increase in the fresion of registered mail accompanied by insur- quency of the settlement, possibly placing it ance, practically every known requirement of upon a daily instead of a weekly basis. The protection has been complied with. In sundry general desire to extend the applicability of cases, however, where under present conditions the gold settlement fund and the great ina quick release of notes by telegraph from a crease in the amount of the weekly clearings subtreasury is called for, there is possibility of and in the total of the fund itself testify error. In order to guard against any sucfi strongly to the success of the plan. event new regulations, framed with a view to In accordance with the provisions of the the new conditions made, have been adopted Federal Reserve Act, the reguby the Board, the purpose being that already co^/erston "S lar quarterly allotment of bonds explained. It is believed that what has thus bonds. for conversion and purchase has far been done in this direction has resulted in been made as of April 1, and in maintaining the protection of the notes under consequence $10,877,500 of 2 per cent bonds practically all conceivable conditions while at have been allotted to Federal reserve banks for the same time greatly expediting the process purchase by them under the terms of the law. of rendering the notes available when needed. Only in one case—that of the Federal Reserve During the past month the question of using Bank of San Francisco—did it appear that the the gold settlement fund as a bank had purchased up to, or in excess of, its Use of gold set- means of making transfers for proportion of $25,000,000—the theoretical tlement fund. the benefit of individual banks aggregate for the year—and only in that case, —that is to say, transfers origi- therefore, was it necessary to relievo the reserve nating with one member bank in the interest of bank of the obligation to purchase a pro rata another member bank at a distance, has been share of the bond offerings of member banks. presented to the Board, but it has been decided The total offerings, as above stated, were conthat for the present at least no such extension sequently apportioned on the basis of eleven shall be given to the fund. As things now banks, each institution being assigned its pro stand, the gold settlement fund is carefully pro- rata on that footing, the result being a distritected, and it would seem that no possible loss bution detailed elsewhere in this issue of the could be incurred under the plan of operation Federal Reserve Bulletin. In making actual in effect to-day. The suggested use of the assignments of specific lots of bonds, it was, fund would be extremely serviceable in many of course, necessary to designate specific bond cases, but would involve the application of new offerings to be taken over by specified resafeguards and the alteration of conditions serve banks, and this was done, the desigconcerning its. management. From time to nation being, however, so far as possible, time it has been suggested that the gold made from the offerings presented by member settlement plan be extended by the establish- banks in the district of the reserve bank to ment of an additional fund including all forms which such bonds were allotted. Minor variaof lawful money, but thus far nothing has been tions from the theoretical allotment of bonds done to bring such a modification into use, based on capital consequently occurred in the due to a variety of considerations. It would case of most of the banks, they being asked to seem that the extension of the use of the fund take over slightly more than their actual allot to cover transfers between banks in the w^a}' ment, or to accept slightly less, as the case already suggested should, if decided upon at might be, in order to bring about an even all, be simultaneous with the establishment of adjustment between offerings and assignments. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 239 As the total of open market purchases of bonds issue notes, make ordinary commercial loans, since the beginning of the year reported by the buy paper, establish foreign branches, deal in several banks up to the close of business on foreign exchange, and in general transact all March 21, was $3,140,850, and as the total classes of legitimate banking business. It is offerings of member banks now allotted have besides a designated depositary and fiscal agent been $10,877,500, as already stated, the aggre- both of the insular government and of progate amount of bonds absorbed by the reserve vincial and municipal governments in the banks up to March 21 is shown to have been Philippine Islands, $14,017,850, the difference between this figure and $25,000,000 remaining for purchase or allotment during the remainder of the year. Investments in Foreign Loans. The Philippine National Bank has been designated by the Federal Re- The following statement for the press was The Philippine -n I * a T? issued by the Federal Reserve Board on bank. serve Bank ot San Francisco March 8: as its agent and correspondent From statements which have been pubfor the Philippine Islands, and similar action lished from time to time, both in the American is expected to be announced shortly by one or and foreign press, there appears to be a misunmore other Federal Reserve Banks. The basis derstanding of the attitude of the Federal of the actual arrangement between the Federal Reserve Board with respect to investments in Reserve Bank of San Francisco and the Philipforeign loans in the United States. On more pine National Bank includes the maintenance than one occasion the Board has endeavored of reciprocal accounts, the collection of drafts to remove this misunderstanding. So far from and claims, and when desired, the purchase of objecting to the placing of foreign loans in the bills by either institution for the other or by American market, it regards them as a very either from the other for its own account if important, natural, and proper means of setconditions favor and such business is mutually tling the balances created in our favor hv our deemed desirable. While the Philippine Islarge export trade. There are times when such lands are under the control of the United loans should be encouraged as an essential States, they are to all intents and purposes means of maintaining and protecting our forforeign territory, and the Philippine National eign trade. Bank is, therefore, designated as agent under The Board has already stated that its anthe provisions of section 14, relating to agennouncement of November 28, 1916, did not cies in foreign countries. Business with the deal with the finances or the credit of any par- Philippines, however, has this advantage over ticular country, but only with banking princiother foreign business, that it eliminates all ples which it seemed desirable to emphasize danger of exchange fluctuations, the currency under the conditions existing at that time. of the islands being maintained on a gold basis The objection then made by the Board was to at a rate of two for one, the Government underthe undue employment by our banks of their taking to sustain this parity between local funds in the purchase of foreign loans and not currency and American money. to the merits of foreign loans as investments. Relations between the Philippine National The Board was then, and is now, of the opinion Bank and the Federal Reserve System are that the liquid condition of our banks should those which adjust themselves readily and not be impaired through undue or unwise use directly to one of the essential functions of the of their resources for investment operations. Federal Reserve System, that of facilitating The position of the Board with respect to this the growth of foreign trade. The Philippine principle has not changed. It still takes the National Bank is vested with large powers by view that foreign borrowings should appeal the terms of its charter, being authorized to 87199—17 2 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

240 FEDERAL EESERVE BULLETIN. APRIL I, 1917. primarily to the investor and not involve the the country. A statement of the allotments use of banking resources beyond the limits of to the subscribing banks will be given oufc as soon as the details are completed. sound practice. In view, however, of existing It is possible that an additional issue of conditions, especially as they affect our foreign $50,000,000 of these temporary certificates of trade, the Board deems it desirable and in the indebtedness may be issued before the end of public interest to remove any misconception the present fiscal year. No statement can be that may be left in the minds of those who read made about possible issues of Government bonds until further developments in the the statement issued on the 28th of November, international situation. 1916. Since that date the country's gold reserve has been further materially strengthened The allotment was as follows: and supplies a broad basis for additional credit. Boston, $3,000,000; New York, $20,000,000; Philadelphia, $3,500,000; Cleveland, $3,500,000; Richmond, The Board considers that banks may perform a $2,000,000; Atlanta, $1,500,000; Chicago, $5,000,000; useful service in facilitating the distribution of St. Louis, $2,500,000; Minneapolis, $2,000,000; Kansas City, $2,500,000; Dallas, $2,000,000; San Francisco, investments, and in carrying out this process $2,500,000. they may, with advantage, invest a reasonable amount of their resources in foreign securities. Purchase of Bonds from Member Banks. So long as this does not lead to an excessive On January 8 the Federal Reserve Board tying up of funds and does not interfere with sent out to member banks a letter, as follows: the liquid condition of the banks, there can not be an}^ objection to this course. The Federal Reserve Board has to-day determined, in the exercise of the discretion vested The Board did not, of course, undertake to in it under the provisions of section 18 of the give advice concerning any particular loan. Federal Reserve Act, that it will not require It desires, however, to make clear that it did Federal Reserve Banks to purchase during the not seek to create an unfavorable attitude on year 1917 more than $15,000,000 of United the part of American investors toward desirable States bonds offered for sale by member banks through the Treasurer of the United States. foreign securities, and to emphasize the point It will require Federal Reserve Banks to purthat American funds available for investment chase on April 1, 1917, the full amount of this may, with advantage to the country's foreign $15,000,000, or so much thereof as may be trade and the domestic economic situation, be offered for sale on or before March 21. employed in the purchase of such securities. Under the provisions of section 18 Federal Reserve Banks are not permitted to purchase from member banks through the Treasurer more than $25,000,000 of bonds in any one Issue of Certificates. year, less the amount of bonds bearing the circulation privilege acquired in the open market In a statement to the press on March 28 during that year. If, therefore, Federal Rethe Secretary of the Treasury said: serve Banks are desirous of giving member In anticipation of the payment of the corpo- banks an opportunity to sell the full amount of ration and individual income taxes due in $15,000,000 under the provisions of section 18, June, 1917, I have determined to borrow at they should refrain from investing in the open this time on 90-day Treasury certificates of market during the first quarter anything in indebtedness $50,000,000, with interest at 2 excess of the difference between $15,000^000 per cent per annum. Tnese certificates were and $25,000,000. offered on the 27th of March to the 12 Federal Please bring this to the attention of your Reserve Banks, which are fiscal agents of the executive committee. Government. Before 3 o'clock to-day these Pursuant to the plan outlined in this letter, banks subscribed for more than the entire the receipt of applications from member banks issue. for the sale of bonds was closed on March. 21, This is extremely gratifying, and shows not and the Treasury Department at that time noonly a fine spirit on the part of the Reserve Banks but is an additional demonstration of tified the Board of the aggregate amount of the usefulness of the new Reserve System to such allotments received. This aggregate was Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDEEAL RESERVE BULLETIN. 241 $10,877,500. The Board then, as previously Minor variations from these figures were announced, proceeded to the allotment of the necessary in order to distribute the offerings offerings upon the basis of the relative capitali- of bonds without breaking up denominations, zation of the several reserve banks. Each and the several banks were at once advised of bank was requested to state the total amount these minor variations above or below their of its open-market purchases of bonds, which allotments. In general terms, however, no turned out to be as follows: material variation was made from the figures Purchases of United States bonds with circulation privilegeset forth above. Payment for these bonds in open market from, Jan. 1 to Mar. 21,1917, in accordanceand accrued interest and for $1,732,000 of onewith telegrams from each Federal Reserve Bank. year 3 per cent notes of certificates of in- Boston debtedness which had been sold by banks, and, New York $80,000 therefore, did not cancel with reissue, was Philadelphia Cleveland 26,400 made through the gold settlement fund on Richmond. 48, 250 March 31. The total payment was $12,- Atlanta J 170,000 616',090.15. Chicago St. Louis Minneapolis 70, 700 Revision of Discount Rate Schedules. Kansas City 475,000 Dallas For some time past it has been noted that San Francisco 1, 795,000 the discount rate classifications of the Board were growing in number and complexity and Total 2 665, 350 : As it appeared that the Federal Reserve the matter was recently placed in the hands of Bank of San Francisco had purchased in the a committee of the Federal Reserve Board for open market an amount of bonds which repre- investigation. The committee, after reviewing sented slightly more than its proportionate the discount rates in effect at Federal Reserve share of the total of $25,000,000 required to be Banks, found that there was a considerable taken over during the year, it was omitted lack of uniformity among them, while in some from the allotment of bonds which had been cases the policy followed by one bank was offered by member banks, and the proposed slightly opposed to that of others. A summary allotment was computed upon the basis of 11 of the situation showed that there were in banks according to capitalization. The allot- effect 13 different discount rates, as follows: ment was made as follows: 1. Collateral notes, 1 to 15 days. Amounts and percentages of paid-in capital of all Federal 2. Paper maturing within 10 days. Reserve Banks except San Francisco2; also proportions of 3. Paper maturing within 15 days. total offerings of 810,877,500 allottable to each of the 11 4. Paper maturing between 11 and 30 days. banks. 5-. Paper maturing between 16 and 30 days, Amount 6. Paper maturing between 31 and 60 days. Paid-ir. ! Per cent of allottable Bank. •. capital, Mar.: ;total paid-in to each 7. Paper maturing between 61 and 90 days. ! 16, 1917. j capital. Federal lie- 8. Agricultural paper within 90 days. I serve Bank. 9. Trade acceptances between 1 and 30 days. Boston $5,068,000 9. 7248 i SI, 057,800 10. Trade acceptances between 31 and 60 days. New York 11,880,000 22.7962 : 2,479,700 Philadelphia. 5,260,000 10.0933 | 1,097,900 11. Trade acceptances between 61 and 90 days. C R l i e c v h e m la o n n d d 3 l , h0 4 8 0 9 5 , , 0 0 0 0 0 0 1 6 1 . . 5 68 3 4 3 0 8 1,2 7 7 1 0 0 , , 9 70 0 0 0 12. Commodity paper within 90 days. Atlanta 2,418,000 4.6398 ! 504,700 13. Bankers' acceptances. Chicago I;999,000 13.4302 i 1,460,900 St. Louis 795,000 5.3632 i 583,400 The committee consequently recommended Minneapolis.. 413,000 4.6302 503,600 Kansas City - - 089,000 5.9274 644,800 that an attempt be made to simplify these Dallas 3,698,000 5.1771 563,100 2, rates by suggesting to the various banks the Total 52,114,000 100.0000 ! 10,877,500 adoption in lieu thereof of eight standard ! Purchases of bonds Avith circulation privilege by the Atlanta bank quotations, as follows: since 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, a 1. Paper maturing within 15 days, including collateral total of $1,795,000, has exceeded its quota of the entire year's allotment and has. there'ere. been left out oi." the above calculation. notes. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

242 FEDERAL RESERVE BULLETIN. APRIL 1,1917 2. Paper maturing within 16 to 60 days. ton, Assistant Secretary of the Treasury, read- 3. Paper maturing within 61 to 90 days. ing as follows: 4. Trade acceptances maturing within 60 days. "Referring to the recommendation of the 5. Trade acceptances maturing within 90 days. Federal Reserve Board to the effect that the 6. Bankers' acceptances maturing within 90 days. transportation charges on all Federal Reserve 7. Commodity paper maturing within 90 days. notes, whether fit or unfit, sent to the Treas- 8. Agricultural paper maturing within 90 to 180 days. urer of the United States for redemption be Replies were received from practically all assessed against the sender, you are advised the banks expressing cordial approval of the that the Secretary has approved the recommendation and has directed a change in department Board's suggestion, and in some cases immedipractice to accord thereto. Paragraph 20 in ately adopting the revised classification and Section IX of department circular No. 55-A submitting it for formal approval by the Board. i (1916), regarding the issue, exchange, and re- On March 20 iclcgrams of advice were sent out: demption of money, will be amended by the to all the banks which had taken such action \ omission of the words "Federal Reserve notes/' | The change, for convenience of the Treasurer advising them of the approval of the schedule ! in order to permit the proper adjustment of in its revised form, and the terms of the sched- | his accounts and in order to give due notice to ule itself were thereupon made public. Since ; all parties concerned, will be made on April 15, then other Federal Reserve Banks have taken | 1917, and will not be retroactive." similar action, and the schedule as above indi- ! Attention is especially called to the date I named by Mr. Newton upon which the new cated may accordingly be regarded as practically plan becomes effective. in force throughout the system. Little or no change in rates of importance was made at Section IX of Department Circular No, 55-A any of the banks except the uniform action in j referred to by Assistant Secretary Newton, raising the rate on bankers' acceptances by | when amended in the way directed hj him will limiting the spread formerly 2-4 per cent to I now read as follows: 2^-4 per cent. This, however, was a technical i IX. SHIPMENT Oi1 UNFIT NOTES TO WASHincrease only, inasmuch as the actual rate for ; INGTON. bankers' acceptances in the market was ! 20. Charges are paid by the Government on • already about 3 per cent. i unfit national-bank notes* and Federal Reserve ; bank notes when sent to the department at ; Washington, charges collect. No charges are I paid by the Government on any other kind of Shipment of Unfit Notes. j currency sent for redemption. ; 21. All charges must be prepaid by the It has been decided that in the case of ship- | sender on shipments for exchange or reclerapments of unfit notes to Washington, FederalI tion of gold coin, standard silver dollars, sub- Reserve notes should be included with classes I sidiary silver coin, and minor coin. | 22. National-bank depositaries must pay all of currency on which the transportation i charges incurred by them on account of transcharges should be assessed against the sender. ; fer of public funds. Hitherto charges have been paid by the Gov- | 23. In order to save time and expedite shipernment on unfit national bank notes, Federal | ments in return for currency redeemed when the amounts are large, orders should be for Reserve notes, and Federal Reserve bank notes original packages of 4,000 notes each of the when shipped in "collect." A change in this same denomination; that is, ones in packages plan has now been authorized by the Treasury of $4,000; twos, $8,000; fives, $20,000; tens, Department, the facts in the case being con- $40,000; and so on. veyed to Federal Reserve Banks under date of 24. The Government has no contract for carrying money or other securities, and ship- March 19, in a letter addressed to them: ments will be made as herein provided unless DEAR SIR: By direction of the Federal Re- specific instructions are . received designating serve Board, you are advised that the Board the particular manner in which the same is is in receipt of a letter from Hon. B. R. New- desired. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1, 1917. FEDERAL BESEBVE BULLETIN. 24S Conference on Trade Acceptances. jtestimony of those who are using it being favorable—will help much when the period of On March 9 the National Credit Men's Asso- • strain does come. ciation held a conference on trade acceptances j " One of the difficulties is that manufacturers at the Hotel Astor, in New York City, at which and merchants have become so accustomed to the trade acceptance question was discussed their present methods that many believe these can not be bettered. There is a traditional from a variety of angles. Extracts from the aversion to making any change, as it is easier addresses of some of the speakers are herewith to adopt the laisser-faire method and postpone presented: j an}^ new method, even if it is better, until the Mr. K. H. Treman, acting governor of the jnecessity is upon them. Federal Reserve Bank of New York, said in j "A recent canvass of the extent to which the terms of payment are observed by manufacpart: ' ! turers and jobbers in one line resulted in show- "It is difficult in a period like the present, ing that maity manufacturers' usual terms are when credit can he easily secured at low rates 60 days net, 2 per cent allowed for cash payand banks are seeking loans, properly to appre- ment in 10 days. The facts show that if the ciate the necessity of providing ways and bill is discounted the buyer generally takes an means for making credit more easily available average of 15 or more days instead of the 10 at reasonable rates when we shall have entered days under the contract. As to those who elect upon a period of restricted and contracted to take the option of the 60-day credit, paycredits with a certainty of higher rates for ment is made generally in from 75 to 80 days, . loans. fully 10 per cent of the customers taking more "One of the main objects of the introduction than 90 days to pay. of trade acceptances in place of open-book "Among jobbers in this line the results vary accounts is to make those open-book accounts— according to their location in the United States. which, until maturity, are 'dead' accounts— It is safe to say that probably 40 to 50 per cent available as 'live' capital, thus making the discount their bills, but generally the discount credit represented by the book accounts im- is taken in from 12 to 20 days after the date of mediately available for discount, if needed, at the bills, and some try to take the discount even one's bank, and furnishing that bank with later. Of those electing the 60-day option paper which can be readily discounted at a about 20 per cent pay within 75 days, about preferential rate with its Federal Reserve 20 per cent pay in from three to four 'months, Bank. and 10 per cent take four' months. or even "The demands for credit from other nations longer. upon us unquestionably will grow more and "As one writer has recently stated, 'The more, even after war has ceased, at least for system of open accounts and cash discount is some time, and in addition wo shall have to wasteful and inefficient. The cash discount is furnish credit for our own commercial needs, shamefully abused by some buyers, who take the demands being greater by reason of the unearned discount after the 10 days allowed very much higher prices for all commodities and manage to retain the advantage because and material, as well as labor. So that to-day sellers dislike to antagonize customers/ Under the average manufacturer and distributor our system of granting eas^y and generous credneeds from 50 to 100 per cent more capital to its, buyers have become very careless about handle the same amount of business than was recognizing and adhering to the strict terms of the case in 1914 at prices then ruling. payment, and some overlook the fact that when "These facts emphasize the wisdom at the the cash discount is deducted contrary to the present time, when financial conditions are terms it is, in essence, a form of graft, and this comparatively easy, of having an educational practice has an unfavorable effect on business campaign and of using every other influence ethics.7' available to induce the commercial interests of the country wherever possible to consider and Mr. D. C. Wills, chairman of the boardinaugurate the use of the trade acceptance plan Federal Reserve Bank of Cleveland, Ohio, said, in their own business. While at first such effort in part: will probably meet with objections and the use of the trade acceptance be only gradual, the "A recent writer on trade acceptances states fact that the system is being inaugurated—the that 'fundamentally7 the proposition is a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

244 FEDEKAL RESERVE BULLETIN, APSIL 1, 1017. 'general financing and sales problem' and 'is getting into this danger zone. No method of of interest to the banks only so far as they are analyzing credit now available is so conclusive striving to better serve their commercial de- as to the commercial character of any desired positors/ Acknowledging that those first con- loan as the evidence presented by a trade cerned are sellers and buyers of goods, it is, acceptance. Every element of doubt except nevertheless, a problem which vitally and fun- the possibility of actual fraud is removed; and damentally affects the business of banking, a fraudulent trade acceptance is so dangerous and the writer above quoted proceeds to enu- that the possibility is remote. Surely this is merate several important benefits to banking worthwhile. that the general use of trade acceptances will "There are two weak links in the creditaccomplish. chain set up by present banking methods: "Three of the most vital factors in the suc- "When a bank's customer borrows for a cessful conduct of the business of banking are: stated time $5,000 to buy certain goods, the (1) Assurance of an elastic and responsive cur- bank must depend on the good faith of the rency; (2) proper separation of investment and borrower to use the money borrowed for the commercial credit; (3) safety in making loans. purpose stated. (Weakness No. 1.) All three of these are favorably influenced "Frequently the goods are received, sold, through the introduction and establishment of and payment obtained before the note is masettlements by trade acceptances, as com- tured. The proceeds remain in the hands of pared with the open account system. the borrower for a time, therefore, with the "(1) Elastic and responsive currency.—Fed- temptation to make another investment witheral Reserve notes and coin certificates even- out the knowledge or consent of the lending tually will be our only forms of currency. If bank. (Weakness No. 2.) the amount of Federal Reserve notes be in- "With universal giving and getting acceptcreased and diminished only by the supply of ances both these weaknesses will be elimiinstruments representing actual sales, it would nated, and when the buyer pays for his goods truly be responding to the real needs of com- all parties to the transaction are released and merce and industry with all fictitious elements paid at the same time, including the very much eliminated. Trade acceptances, superseding interested banker who advanced the funds. single-name direct notes of borrowers, and " (3) Increased safety in credits.—It was very constituting the one class of paper to be hy- illuminating to me as a banker when I learned pothecated by Federal Reserve Banks with how mercantile credit men rate the different their agents for the issue of Federal Reserve classes of credit information. The order of notes, will mean that the amount of Federal their importance and value, I am informed, is Reserve notes outstanding will depend on the as follows: (1) Ledger information (preferably demands created by the business being done through interchange bureaus); (2) property or in the country. This seems so obvious that financial statement; (3) trade opinions; (4) further explanation and enlargement appear mercantile or attorneys7 reports; (5) bank reunnecessary. plies. The banker should be flattered to find " (2) Separation of investment and commercial that he ranks first, in the reverse order. credit.—A noticeable weakness in the plan of "Bank credit men rate their sources of inmaking advances to commercial customers on formation, I am told, as follows: (1) Property their direct unsecured single-name notes is the or financial statement; 02) ledger information; tendency to confuse fixed needs with current (3) bank replies; (4) trade opinions; (5) merrequirements. A 60-day, 90-day, or fotir cantile or attorneys' reports. months7 note, while ostensibly a liquid note to "One feature asserts itself in these lists. be paid at maturity, may be dependent for Ledger information is the most important data payment on the ability of the maker to obtain a obtainable in order to determine intelligently renewal, at least in part, through placing his the value of a credit risk. Bankers usually have paper in other quarters. The necessity for to depend on second-hand sources in getting renewal is usually due to the fact that part of ledger information. It is true that a bank is the permanent financing is being carried in enabled to obtain a fairly reliable line on a short-time obligations. Persistent carrying of customer's methods and financial habits by fixed requirements in debts of short maturities experience and observation in handling his is always fatal. Bankers know how such a business, and, if the borrower be not an active course terminates, and use every means at customer of that particular bank, the informatheir command to discover when a customer is tion can. be obtained by inquiry. However, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

R:I 1,1917. FEDERAL RESERVE BULLETIN". 245 the items on his financial statement of 'Ac- couraged in the case of those who are in a posicounts receivable7 and 'Accounts payable' tion to pay cash for their purchases. Evidently are not very capable of scrutiny and continuous until very radical and universal changes are observation by the banker. The ledger in- effected in the matter of selling terms, cash formation a bank has on its customer is: discounts and the long established customs and 'Does he keep a satisfactory balance?' ethics, as well as the practical machinery of 1 Does he overcheck ?' c Does he meet his doing business, the financing of a very large fi notes promptly?7 The very important ques- proportion of the commercial business of tne tions of whether the people to whom this country will continue to be done, as at present, customer sells pay him promptly, and whether through the medium of single name paper. he pays his own bills when due to the parties There are unassailable elements of merit in a from whom he buys, are not covered in a properly adjusted system of cash discounts, bank's everyday ledger dealings with a de- and in my opinion it would be unwise for the positor or borrower. present to make any effort to supplant single "The issuing and obtaining of trade accept- name paper with trade acceptances, in the case ances do give the banker this line on its cus- of those who borrow in this way for the purpose tomers. The acceptances he issues instead of of discounting their bills. accounts payable will be collected through the " Even if it were desirable—which I am very bank, and the acceptances he carries instead much inclined to question—it is safe to say of accounts receivable will be deposited for there is no immediate prospect that single collection or discounted at the bank. Thus the name paper could be universally supplanted by bank will know how promptly he pays and the double name paper. It is obvious the mercharacter of the houses he patronizes, and also chant who can go to his bank and discount his will know the class of customers who purchase plain paper at rates ranging all the way, say, his goods and their methods of payment. from 3 to 6 per cent, as the case may be, will Trade acceptances automatically furnish that continue to do so, when he can use the proceeds highest class of credit data—namely, accurate to discount his bills and take advantage of a ledger information, enabling bankers to esti- cash discount out of all proportion to current mate more intelligently the responsibility of interest rates. Under the present sales sysof their borrowers. tem there is an abnormal and unwarranted "A fourth advantage which I have carefully difference between the cash discount allowed avoided mentioning, for reasons which need in trade and current interest rates for money. not be elaborated, is, nevertheless, one that This is an exorbitant, inconsistent, and unshould appeal to every ambitious banker as necessary tax which merchants are offering to well as to the ambitious business man. pay to avoid tying up working capital in open "It is indisputably true that Great Britain book accounts, and as it stands, is not so much does a vastly greater volume of business in an element of strength as an admission of weakproportion to its fixed capital investment, and ness in existing collecting methods, which the with unquestioned safety, than does the United general adoption of trade acceptances ought States, and the principal reason is that English to gradually correct. This constitutes one of business is transacted on the acceptance princi- the principal sources of profit to firms who are ple. It is therefore certain that we can vastly in a position to discount their bills, and strong increase our volume of business without pro- opposition may naturally be expected to changportionate increase in capital investment when ing it. It goes without saying that the selling the regular method of payment for all goods price on goods must be correspondingly inbecomes the trade acceptance instead of cash creased to bear this burden, as well as the loss or open account. and expense of doing business under a system of this kind. The accumulated burden falls on Mr; Beverly D. Harris, vice president of the the ultimate consumer in the end, and is one National City Bank of New York, said in part: of the factors in the high cost of living in this "We have for long years operated under a country. The attitude of the trade on this system in which the cash discount has been a matter, however, will probably be found to be basic principle, and under business standards averse to any immediate radical changes in growing out of this fundamental fact. It is methods, and my feeling is that the readjustdesirable as a basis of sound trade and credit ment of the cash discount system can only conditions that cash payments should be en- be accomplished, or partially accomplished, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

246 FEDEBAL RESERVE BULLETIN. APRIL 1, 1917. through the process of time and a gradual re- paper, bank acceptances, and trade acceptadjustment in sales terms, possible only through ances. general cooperation. "A bank acceptance—which is nothing more "My feeling and conviction, after looking at than single-name paper indorsed by one bank it from all angles, is, that for the present no and discounted by another—is invaluable to particular occasion exists to seek to change the the Federal Reserve System as a means of practices of those who discount their bills, in standardizing credit in international and open putting out single-name paper. It is a ques- market transactions, through which the countion for the future to determine as to whether try's foreign exchanges and domestic money it may at some time appear expedient and markets may be stabilized and regulated. It desirable, in connection with the workings of is especially useful in foreign transactions and our Federal Reserve System, in the develop- in domestic transactions between distant ment of broad domestic and international points, particularly in carrying the heavy burmarkets for commercial paper, to gradually dens of the country's products—cotton, grain, bring about, partially or wholly, the substitu- and other commodities—on a large scale. tion of trade acceptances, in the operations of The exigencies of war conditions have given firms of this character. Should this be accom- immediate impetus to this form of financing, plished it will come through a developed com- and its great value is evidenced in the pubprehension of the matter, not as of any indi- lished statements of the banks of this city, vidual necessity, but in the furtherance, com- and of open market transactions of the Federal pletion, and rounding out, as a measure of Reserve Banks, indicating a continually increasbroad public policy, of a new system which ing volume of banker's acceptances, running has been tried out successfully in its initial in the last year into hundreds of millions of stages, and which has established beyond per- dollars. While of the highest value and usefuladventure that the trade acceptance system, ness, however, in serving its appointed funcas a uniform system for the country at large to tion, the bank acceptance does not strengthen operate under, would afford better safeguards, the credit situation in the same way that it is more liquid and convertible assets, a more strengthened by the trade acceptance. That sound, stable, and scientific basis for our credit is to say, except where secured by commodities, and currency system, less loose credit, less op- the banks accepting the paper have no further portunity for inflated and falsified statements, security for their own protection, in so doing, better collections, less losses, greater economy than the credit of the drawer, to whom they of operation, and less capital to do a given are in the same attitude as lending directly on amount of business, and a far greater poten- his single-name paper, so far as security is tiality and stability in the general credit situa- concerned, the difference being that they guartion. antee his obligation in the open market instead "The primary problem to which our efforts of lending him their own funds. should first be directed is that of putting the "The third class—trade acceptances—when country's mass of book credits into liquid and developed as they should be, will strengthen negotiable form through the adoption of trade the general underlying situation in making book acceptances in transactions with buyers who credits liquid and available, and creating a large do not discount their bills. An acceptance volume of self-liquidating paper, arising from verifies the account, puts unrnatured credit actual transactions in consumable merchandise, into negotiable form, and is a strong lever on available for discount with the Federal Reserve the debtor to meet obligations promptly, for Banks, and not previously available. This will the protection of his signature and his credit, have not only the advantage of two-name pawith many other advantages, too numerous to per, but the added advantage of representing mention, but which have been within the last actual transactions in commodities. A trade year convincingly presented through the efforts acceptance is an order to pay. A note is a of your association. promise to pay either a debt or a loan, and its "As I view it, our daily experience is demon- self-liquidating character is not prima facie. strating that we can use to advantage three "In the face of the fact that trade acceptdistinct types of credit instruments, each serv- ances in the New York market, the operations ing its appointed function, without usurping of the Federal Reserve Banks, and the banks the functions of the other, i. e., single-name and money markets of the country in general, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. EEDEEAL EESERVE BULLETIN. 247 have so far appeared only in limited volume, can not be overcome by combined effort and evidence is nevertheless accumulating that this a more general understanding of the advanmovement is now in process of steady develop- tages to be gained, and particularly the value ment. In the cotton trade particularly, in the of this movement in supplementing the Federal past year, its development has been rapid, in Reserve System and strengthening the general financing cotton going into consumption, both credit situation. in the New England and Southern mills. There I "The principal obstacles at present are— is no doubt both trade acceptances and bank "(1) Lack of sufficient initiative and comacceptances will continue to grow in favor and bined effort on the part of wholesalers; the usefulness, in connection with the financing of feeling that trade might bo offended or lost, the important cotton industry to which both and the disposition to hang back until others are so well adapted. Cotton mill acceptances, have tried it out; and not enough backbone in secured by the cotton going into consumption, the matter. The feeling is general that as the are now appearing in the open market, and are movement gains ground through the satisfacreadily absorbed. tory experience of those taking the initiative, "To obtain effective cooperation and suc- the impetus thus given will help the whole cessful results, I think the following things thing along. Numerous firms advise me that should bo established by common consent: they are making satisfactory headway and are "Credit should be graded in three divisions— pleased with their experience with it, and the "First grade.—Buyers who discount their additional expense and inducements offered in bills. some cases to obtain trade acceptances are "Second grade.—Buyers who avail them- more than offset by the preferential rates at selves of trade terms, closing with acceptance which they can discount such receivables, and meeting their obligations promptly. in connection with many other advantages " Third grade.—The remainder, which will, gained; by this process, classify themselves into the "(2) Other things being equal, customers least desirable clement of trade credit. prefer the open account system because of the "It should be thoroughly established and leeway and indulgence it has afforded in meetunderstood that both giving and rediscount- ing their obligations, and the fear that their ing acceptances are in furtherance of a new credit might be impaired by giving acceptances. and broader financial policy, designed to give There is also a feeling that if an acceptance is scope and effectiveness to the workings of the given it would be to their disadvantage in case Federal Reserve Banking System, the crea- they should later desire to either make prepaytion of broad discount markets, and putting ment or need some additional time. In dealthe underlying credits of the country on a ing with this there is, or should be, a real test liquid and sound basis, for the encouragement of credit, in which the dealer who buys on cerof which all interests should cooperate in tain terms should find his credit greatly recognizing that such transactions are entirely strengthened by putting the obligation in defilegitimate and in the line of advanced public nite and businesslike shape, according to conpolicy, and to remove the impression of any tract. Those who meet their bills promptly impairment of credit. As trade acceptances and deserve credit should be made to realize come into general use this feeling will dis- how much their credit is strengthened thereby, appear, and a new standard should be estab- and should be shown eveiy consideration in lished, under which buyers who are not dis- consequence. In the case of prepayment it posed to put their debts into definite and ac- would be good policy to allow them to take up knowledged form through trade acceptances, their acceptances, with a rebate for the unexor sellers who do not safeguard their credit ipired time. On the other hand, where condiby closing invoices with acceptances, will have j tions justify it, there is no reason why addia less favorable credit rating on that account. Itional time should not be granted. The whole- "As to the obstacles which stand in the way j saler would have the management of this in his of a general adoption of trade acceptances, my ;own hands, taking up the acceptance at macorrespondence develops a practical unanimity turity and either carrying it past-due, or taking of opinion, as I have said, that the general in- a renewal obligation. The latter should always troduction of trade acceptances in many lines be by note, however, as obviously the trade of business is regarded as desirable and practi- acceptance should be only used in the original cable, and that there are no obstacles which j transaction. 87199—17 3 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

248 FEDERAL EESERVE BULLETIN. APRIL 1.1917. The Revenue Act. TITLE II.—EXCESS PROFITS TAX. In view of the interest which the so-called SEC. 200. That when used in this title— The term "corporation77 includes jointrevenue bill, passed by the last session of stock companies or associations, and insurance Congress, has for business men and bankers companies; generally, the act is here reprinted in full, to- The term "United States'7 means only the gether with the House report on the bill: States, the Territories of Alaska and Hawaii, and the District of Columbia; and IPublic, No. 377—64th Congress. H. R. 20573.] The term "taxable year7' means the twelve AN ACT To provide increased revenue to defray the exmonths ending December thirty-first, except in penses of the increased appropriations for the Army and Navy and the extensions of fortifications, and for other the case of a corporation or partnership allowed purposes. to fix its own fiscal year, in which case it means Be it enacted by the Senate and House of Rep- such fiscal year. The first taxable year shall resentatives of the United States of America in be the year ending December thirty-first, nineteen hundred and seventeen. Congress assembled, SEC. 201. That in addition to the taxes TITLE I.—SPECIAL PREPAREDNESS FUND. under existing laws there shall be levied, SECTION 1. That the receipts from the tax assessed, collected, and paid for each taxable imposed by Title II and one-third of the re- year upon the net income of every corporaceipts from the tax imposed by Title III of this tion and partnership organized, authorized, or act shall constitute a separate fund in the existing under the laws of the United States, Treasury to be used only for the expenditures or of any State, Territory, or District thereof, incurred under the act entitled " An act making no matter how created or organized, exceptappropriations for the support of the Army ing income derived from the business of life, for the fiscal year ending June thirtieth, nine- health, and accident insurance combined in teen hundred and seventeen, and for other one policy issued on the weekly premium paypurposes," approved August twenty-ninth, ment plan, a tax of eight per centum Oi the nineteen hundred and sixteen; the act entitled amount by which such net income exceeds the "An act making appropriations for the naval sum of (a) $5,000 and (b) eight per centum of service for the fiscal year ending June thirtieth, the actual capital invested. nineteen hundred and seventeen, and for other Every foreign corporation and partnership, purposes, a; August twenty-ninth, including corporations and partnerships of the nineteen hundred and sixteen; and the act en- Philippine Islands and Porto Rico, shall pay titled " An act making appropriations for forti- for each taxable year a like tax upon the fications and other works of defense, for the amount by which its net income received from armament thereof, for the procurement of heavy all sources within the United States exceeds ordnance for trial and service, and for other the sum of (a) eight per centum of the actual purposes/' approved July sixth, nineteen hun- capital invested and used or employed in the dred and sixteen, or any other act or acts business in the United States, and (b) that prosubsequent thereto making appropriations for portion of $5,000 which the entire actual Army, Navy, or fortification purposes. In capital invested and used or employed in the addition to such receipts from the taxes im- business in the United States bears to the posed under Titles II and III of this act, there entire actual capital invested; and in case no shall be credited annually, beginning with the such capital is used or employed in the business fiscal year ending June thirtieth, nineteen hun- in the United States the tax shall be imposed dred and eighteen, to such separate fund, the upon that portion of such net income which is sum of $175,000,000, such sum being the in excess of the sum of (a) eight per centum estimated additional revenue to be derived of that proportion of the entire actual capital under the act entitled "An act to increase the invested and used or employed in the business revenue, and for other purposes," approved which the net income from sources within the September eighth, nineteen hundred and six- United States bears to the entire net income, teen, in excess of the revenue to be derived and (b) that proportion of $5,000 which the under then existing laws: Provided, That the net income from sources within the United Secretary of the Treasury may use such fund States bears to the entire net income. for other purposes, but such fund shall be re- SEC. 202. That for the purpose of this title, imbursed lor any portion thereof so used. actual capital invested means (1) actual cash Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL lf 1917. FEDERAL EESEBVE BULLETIN. 249 paid in, (2) the actual cash value, at the time at the same time and in the same manner and of payment, of assets other than cash paid in, form as is prescribed for income-tax returns and (3) paid in or earned surplus and undi- under Title I of such act of September eighth, vided profits used or employed in the business; nineteen hundred and sixteen. In computing but does not include money or other property net income of a partnership for the purposes borrowed by the corporation or partnership. of this title there shall be allowed like deduc- SEC. 203. That the tax herein imposed upon tions as are allowed to individuals in sections corporations and partnerships shall be com- five (a) and six (a) of such act of September puted upon the basis of the net income shown eighth, nineteen hundred and sixteen. hj their income tax returns under Title I of SEC. 206. That all administrative, special, the act entitled "An act to increase the reve- and general provisions of law, including the nue, and for other purposes," approved Sep- laws in relation to the assessment, remission, tember eighth, nineteen hundred and sixteen, collection, and refund of internal-revenue taxes or under this title, and shall be assessed and not heretofore specifically repealed and not collected at the same time and in the same inconsistent with the provisions of this title are manner as the income tax due under Title I of hereby extended and made applicable to all the such act of September eighth, nineteen hundred provisions of this title and to the tax herein and sixteen: Provided, That for the purpose of imposed, and all provisions of Title I of such this title a partnership shall have the same act of September eighth, nineteen hundred and privilege with reference to fixing its fiscal year sixteen, relating to returns and payment of the as is accorded corporations under section thir- tax therein imposed, including penalties, are teen (a) of Title I of such act of September hereby made applicable to the tax required by eighth, nineteen hundred and sixteen: And this title. provided further. That where a corporation or SEC. 207. That the Commissioner of Internal partnership makes return prior to March first, Revenue, with the approval of the Secretary nineteen hundred and eighteen, covering its of the Treasury, shall make all necessary reguown fiscal year and includes therein any income lations for carrying out the provisions of this received during the calendar year ending De- title, and may require any corporation or partcember thirty-first, nineteen hundred and six- nership subject to the provisions of this title to teen, the tax herein imposed shall be that pro- furnish him with such facts, data, and inforportion of the tax based upon such full fiscal mation as in his judgment are necessary to year which the time from January first, nine- collect the tax provided for in this title. teen hundred and seventeen, to the end of such fiscal year bears to the full fiscal year. TITLE III.—ESTATE TAX. SEC. 204. That corporations exempt from tax under the provisions of section eleven of Title I SEC. 300. That section two hundred and one, of the act approved September eighth, nineteen Title II, of the act entitled "An act to increase hundred and sixteen, and partnerships carrying the revenue, and for other purposes," approved on or doing the same business shall be exempt September eighth, nineteen hundred and sixfrom the provisions of this title, and the tax teen, be, and the same is hereby, amended to imposed by this title shall not attach to in- read as follows: comes of partnerships derived from agriculture "SEC. 201. That a tax (hereinafter in this or from personal services. title referred to as the tax), equal to the follow- SEC. 205. That every corporation having a ing percentages of the value of the net estate, net income of $5,000 or more for the taxable to be determined as provided in section two year making a return under Title I of such act hundred and three, is hereby imposed upon the of September eighth, nineteen hundred and transfer of the net estate of every decedent sixteen, shall for the purposes of this title in- dying after the passage of this act, whether a clude in such return a detailed statement of the resident or nonresident of the United States: actual capital invested. " One and one-half per centum of the amount Every partnership having a net income of of such net estate not in excess of $50,000; $5,000 or more for the taxable year shall render " Three per centum of the amount by which a, correct return of the income of the partner- such net estate exceeds $50,000 and does not ship for the taxable year, setting forth specifi- exceed $150,000; cally the actual capital invested and the gross " Four and one-half per centum of the amount income for such year and the deductions here- by which such net estate exceeds $150,000 and inafter allowed. Such returns shall be rendered does not exceed $250,000; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

250 FEDERAL RESERVE BULLETIN". APRIL 1,1917. " Six per centum of the amount by which such giving all citizens of the United States an equal net estate exceeds $250,000 and does not ex- opportunity therefor/ but no commissions shall ceed $450,000; be allowed or paid thereon; and a sum not " Seven and one-half per centum of the jexceeding one-tenth of one per centum of the amount by which such net estate exceeds j amount of the bonds herein authorized is hereby $450,000 and does not exceed $1,000,000; jappropriated, out of any money in the Treasury "Nine per centum of the amount by which jnot otherwise appropriated, to pay the expenses such net estate exceeds $1,000,000 and does j of preparing, advertising, and issuing the same: not exceed $2,000,000; jAnd provided farther, That in addition to such " Ten and one-half per centum of the amount;issue of bonds, the Secretary of the Treasury by which such net estate exceeds $2,000,000 may prepare and issue for the purposes speciand does not exceed $3,000,000; fied in this section any portion of the bonds of "Twelve per centum of the amount by which the United States now available for issue such net estate exceeds $3,000,000 and does under authority of section thirty-nine of the not exceed $4,000,000; act entitled "An act to provide revenue, equal- "Thirteen and one-half per centum of the ize duties, and encourage the industries of the amount by which such net estate exceeds jUnited States, and for other purposes," ap- $4,000,000 and does not exceed $5,000,000; proved August fifth, nineteen hundred and and nine: And provided further, That the issue of " Fifteen per centum of the amount by which bonds under authority of this act and any such net estate exceeds $5,000,000." Panama Canal bonds hereafter issued under SEC. 301. That the tax on the transfer of the authority of section thirty-nine of the act net estate of decedents dying between Septem- entitled "An act to provide revenue, equalize ber eighth, nineteen hundred and sixteen, and duties, and encourage the industries of the the passage of this act shall be computed at the IUnited States, and for other purposes/7 aprates originally prescribed in the act approvde | proved August fifth, nineteen hundred and September eighth, nineteen hundred and six- Inine, shall be made redeemable and payable teen. I at such times within fifty years after the date of their issue as the Secretary of the Treasury, TITLE IV.—MISCELLANEOUS. in his discretion, may deem advisable. SEC. 400. That the Secretary of the Treasury is hereby authorized to borrow on the credit CERTIFICATES OF INDEBTEDNESS. of the United States from time to time such sums as in his judgment may be required to j SEC. 401. That section thirty-two of an act meet public expenditures on account of the entitled "An act providing ways and means Mexican situation, the construction of the to meet war expenditures, and for other purarmor-plate plant, the construction of the poses,'' approved June thirteenth, eighteen .Alaskan Railway, and the purchase of the hundred and ninety-eight, as amended by Danish West Indies, or to reimburse the Treas- section forty of an act entitled ' 'An act to proury for such expenditures, and to prepare and vide revenue, equalize duties and encourage issue therefor bonds of the United States not the industries of the United States, and for exceeding in the aggregate $100,000,000, in other purposes/7 approved August fifth, ninesuch form as he may prescribe, bearing interest teen hundred and nine, be, and the same is payable quarterly at a rate not exceeding three hereby, amended to read as follows: per centum per annum; and such bonds shall "SEC. 32. That the Secretary of the Treasbe payable, principal and interest, in United ury is authorized to borrow, from time to time, States gold coin of the present standard of at a rate of interest not exceeding three per value, and both principal and interest shall be centum per annum, such sum or sums as, in exempt from all taxes or duties of the United his judgment, may be necessary to meet public States as well as from taxation in any form by expenditures, and to issue therefor certificates or under State, municipal, or local authority, of indebtedness in such form and in such deand shall not be receivable by the Treasurer of nominations as he may prescribe; and each the United States as security for the issue of certificate so issued shall be payable, with circulating notes to national banks: Provided, the interest accrued thereon, at such time, That such bonds may be disposed of by the not exceeding one year fron the date of its Secretary of the Treasury at not less than par, issue, as the Secretary of the Treasury mayunder such regulations as he may prescribe, prescribe: Provided j That the sum of such Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Antir. 1. 11)17. FEDERAL RESERVE BULLETIN. 251 certificates outstanding shall at no time exceed j and military posts carried in the sundry civil $300,000,000, and the provisions of existing |appropriation bill, as representing the normal law respecting counterfeiting and other fraud- j appropriations for national defense, the like ulent practices are hereby extended to the j appropriations for the fiscal year ending June bonds and certificates of indebtedness au- j30, 1917, and the similar estimates for the thorized by this act.77 fiscal year ending June 30, 1918, will show an increase in the appropriations for national RETURNS OF DIVIDENDS. defense during these two years amounting to over $873,000,000. SEC. 402. That Title I of the act entitled i The following table shows the appropriations '•'An act to increase the revenue, and for other j carried by the Army, Navy, and fortifications purposes/7 approved September eighth, nine- bills and the appropriations for arsenals and teen hundred and sixteen, be amended by military posts carried in the sundry civil apadding to Part III a new section, as follows: propriation bill for the fiscal years ending June "SEC. 26. Every corporation, joint-stock 30, 1916 and 1917, and the like estimated apcompany or association, or insurance com- propriations for the fiscal year ending June pany subject to the tax herein imposed, when 30, 1918. required by the Commissioner of Internal Revenue, shall render a correct return, duly Appropriations, fiscal year ending June 30— verified under oath, of its payments of dividends, whether made in cash or its equivalent Item. or in stock, including the names and addresses 1916 1917 18181 of stockholders and the number of shares Appropriation bill: owned by each, in such form and manner as Army $101,974,195.87 $267,596,530.10 $298,630,011.28 may be prescribed by the Commissioner of Navy..." 149,661,864.88 313,300,555.84 379,151,701.07 Fortifications 6,060,216.90 25,747,550.00 56,999,481.21 Internal Revenue, with the approval of the Sundry civil- Secretary of the Treasury.77 A M r i s l e it n a a r l y s posts.. 0 57 5 0 3 , , 9 6 2 0 4 0 . . 9 0 9 0 5 1 , , 2 7 1 2 4 7 , ,8 3 5 9 9 5 . . 9 0 9 0 6 8 , , 4 8 3 4 5 1 , , 7 8 0 9 0 0 . . 0 2 0 3 Supplemental esti- Approved, March 3, 1917. mates for Army and Navy 27,500,000.00 Total 258,920,802.64 613,586,890.93 2 777,564,784.39 HOUSE REPORT. 1 Estimates. [64th Congress, 2d Session. House of Representatives. Report No. 2 Does not include any estimate for the Mexican situation. 1366. Revenue bill to provide funds to meet the additional extraordinary appropriations for the Army and Navy and fortifications. ESTIMATED APPROPRIATIONS, DISBURSEMENTS, January 29, 1917.—Committed to the Committee of the Whole House on the state of the Union and ordered to be printed. Mr. Kitchen, AND RECEIPTS FOR THE FISCAL YEAR ENDING from the Committee on Ways and Means, submitted the following report, to accompany H. R. 20573.] JUNE 30, 1918. The Committee on Ways and Means, to The regular annual estimates and the supwhom was referred the bill (H. R. 20573) to plemental estimates of appropriations for the provide increased revenue to defray the ex- fiscal year ending June 30, 1918, amount to penses of the increased appropriations for the $1,711,000,000. In this total is included Army and Navy and the extensions of fortifi- $60,748,000 for the sinking fund, which is cations, and for other purposes, having had the merely a bookkeeping account, and same under consideration, report it back to $325,355,820 for the Postal Service, which the House without amendment and recommend takes care of itself. In estimating the necesthat the bill do pass. sary revenue to meet appropriations it is therefore proper to deduct both of these esti- NECESSITY FOR THIS LEGISLATION. mates. The amount for which it is necessary to provide revenue after deducting the afore- This legislation is made necessary because mentioned estimates is therefore $1,324,896,180. of the urgent need of funds with which to meet During the fiscal year ending June 30, 1918 ? the extraordinarily large appropriations for the the Secretary of the Treasury estimates that military and naval establishments and fortifi- because of the expenditures to meet authorications. zations under existing law the total disburse- Taking the appropriations for the fiscal year ments will be $1,368,445,910, or $43,549,730 ending June 30, 1916, carried in the Army, greater than the estimated appropriations after Navy, and fortifications appropriation bills, deducting the estimates for the sinking fund together with the appropriations for arsenals and the Postal Service. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

252 FEDERAL RESERVE BULLETIN. AraiL 1,1917. The following statement shows the esti- to meet current expenditures of the Governmated disbursements for the fiscal year ending ment, and it believes that we should pay as we June 30, 1918, the estimated revenue to be col- go. Your committee, however, believes that lected under existing law, the estimated excess it is proper to issue bonds to meet expenditures of disbursements over receipts, and the amount for permanent improvements, in the nature of necessary to be raised by bond issues or new permanent investments, such as the construcrevenue legislation: tion of the Alaskan railway, the construction of the armor-plate plant, ancl the purchase of the Total estimated disbursements for the fiscal year ending June 30,1918 $1.368,445, 910 Danish West Indies. It also believes that ex- Estimated revenue under present law: traordinary expenditures, due to national Customs $230,000,000 emergencies, which are impossible to anticipate Internal revenue— in revenue legislation, such as the Mexican Ordinary 325,000,000 Emergency reve- situation, should also be financed by bond nues and re- issues, as is always done by this and other ceipts from muni- nations under similar circumstances, tion manufacturers ' and estate taxes 134,000,000 THE PROPOSED BILL, Income tax— Corporation ... 133,000,000 The proposed bill is divided into four sepa- Individual ... Ill, 750,000 rate parts called titles, viz, Title I, which speci- Miscellaneous 56,000,000 fies that the revenue collected under Title II of Panama Canal tolls.etc. 10,000,000 Deposits for postal sav- this act and one-third of the receipts collected ings bonds 2,000,000 under Title III. together with the additional revenue collected under the act of September 8, Total 1,001,750,000 1916, to the extent of $175,000,000, shall con- Estimated excess disbursements over re- stitute a special preparedness fund; Title II, ceipts 366, 695, 910 the excess profits tax; Title III, the amended Deduct estimated balance in general fund, estate tax; and Title IV, miscellaneous, which June 30, 1917 64, 305, 971 provides (1) for a bond issue, (2) for the issue of Estimated deficit in general fund, June additional certificates of indebtedness, and (3) 30,1918 302,389,939 that the Commissioner of Internal Revenue For necessary working balance in the may have authority, within his discretion, to Treasury 100,000,000 require a corporation to state in its return to Estimated amount necessary to be raised whom it has paid dividends and the amount by bond issues or new revenue legisla- thereof. tion 402,389, 939 TITLE I.—SPECIAL PREPAREDNESS FUND, THE PROBLEM PRESENTED. The question that immediately arises is, how This title provides that the receipts from the shall this money be raised? After carefully excess profits tax and one-third of the receipts considering the various available sources of from the estate tax provided in this bill, toadditional revenue, your committee recom- gether with $175,000,000, the additional revemends that the necessary funds to meet the nue collected from the taxes levied in the reveextraordinary appropriations for the Army and nue act of September 8, 1916, shall be set aside Navy and fortifications be secured by addi- as a special preparedness fund to be used tional internal taxation upon excess profits and toward defraying the expenses for the Army • by increasing the estate tax. Your committee and Navy and fortifications. It is provided, also recommends that the expenditures inci- however, that should there be no other money dent to the Mexican situation, the construction available in. the Treasury to meet current obliof the armor-plate plant, the Alaskan railway, gations that the Secretary of the Treasury may and the purchase of the Danish West Indies be use this fund for other purposes, but any sums met by the receipts from bonds. The amount so disbursed must be returned to this fund. of Panama bonds unissued being insufficient, your committee recommends that a new issue TITLE II,—EXCESS-PROFITS TAX, of bonds similar to the Panama bonds bo authorized. In the opinion of your committee it This title places a tax of 8 per cent on. the is an unwise and unsound policy to issue bonds net profits of corporations, joint-stock com- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 253-• panies or associations, insurance companies, TITLE III.—ESTATE TAX. and partnerships, which are in excess of This title increases the present estate-tax $5,000 and in excess of an amount equivarates 50 per cent. The proposed rates are as lent to 8 per cent of the actual capital invested. follows: That is, before the tax attaches there is a flat 1J per cent of the amount of the net estate deduction of $5,000 from the total net profits not in excess of $50,000. and a further deduction of 8 per cent on the 3 per cent of the amount by which the net actual capital invested. estate exceeds $50,000 and does not Section 202 of this title defines " actual capiexceed $150,000. tal invested" to mean (1) actual cash paid in, 4^- per cent of the amount by which the net (2) the actual cash value, at the time of payestate exceeds $150,000 and does not exment, of assets other than cash paid in, and (3) ceed $250,000. paid in or earned surplus and undivided profits 6 per cent of the amount by which the net used or employed in the business. . Money borestate exceeds $250,000 and does not rowed through bonds or otherwise is not inexceed $450,000. cluded in the actual capital invested. 1\ per cent of the amount by which the net This title also provides that the excess tax estate exceeds $450,000 and does not upon corporations shall be computed upon the exceed $1,000,000. corporation returns made in accordance with 9 per cent of the amount by which the net the corporations'' income tax returns. It reestate exceeds $1,000,000 and does not quires partnerships to make returns and gives exceed $2,000,000. them the privilege of selecting their fiscal year, 10 \ per cent of the amount by which the net giving them the same privilege as is now alestate exceeds $2,000,000 and does not lowed to corporations. Corporations, jointexceed $3,000,000. stock companies or associations, and insur- 12 per cent of the amount by which the net ance companies exempt under section 11 of the income tax, and partnerships carrying on or estate exceeds $3,000,000 and does not doing the same business, and the income of exceed $4,000,000. partnerships derived from agriculture or from 13 J per cent of the amount by which the net professional services, are exempt from the estate exceeds $4,000,000 and does not excess-profits tax. The income derived from exceed $5,000,000. the business of life, health, and accident insur- 15 per cent of the amount by which the net ance combined in one policy under the weekly estate exceeds $5,000,000. premium plan is also exempt from this tax. It is estimated that the proposed increase in the estate tax will yield during the first 12- The tax imposed upon corporations and month period $22,000,000 additional revenue. partnerships is to be computed upon the basis of the net income shown by their income-tax returns made under the income-tax law, and is TITLE IV—MISCELLANEOUS. to be assessed and collected at the same time BONDS. and in the same manner as the income tax. Every corporation having a net income of $5,000 This title gives the Secretary of the Treasury or more is required to return a detailed state- authority to issue an additional $100,000,000 ment of its actual capital invested. Partner- worth of bonds to meet public expenditures ships are required to make a return of the in- on account of the Mexican situation, the concome of the partnership for each taxable year struction of the armor-plate plant, the consetting forth the actual cash invested and the struction of the Alaskan railway, and the gross income for such year. In determining Eurchase of the Danish West Indies, or to reixnthe net income, partnerships will be allowed the urse the Treasury for such expenditures. same deductions as are allowed individuals The Secretary of the Treasury at the present under sections 5 (a) and 6 (a) of the income- time has authority to issue $222,000,000 worth tax act. of Panama Canal bonds to reimburse the It is estimated that the proposed tax upon Treasury. excess profits will yield during a 12-month pe- The act commonly known as the " shipping riod $226,000,000, distributed as follows: Upon bill" authorizes the issuance of $50,000,000 corporations $170,000,000 and upon partner- worth of Panama Canal bonds, the proceeds ships, $56,000,000.' from which are to be used for the construction Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

254 FEDERAL RESERVE BULLETIN. APRIL 1,1917. or purchase of ships. The act authorizing the holders and the number of shares owned bjr construction of the nitrate plant also author- each. The purpose of this provision is merely izes the sale of $20,000,000 worth of Panama to enable the Commissioner of Internal Revenue Canal bonds and the use of the proceeds for the to check doubtful individual returns. construction of the nitrate plant. In addition to meeting these extraordinary appropriations RECAPITULATION. by bonds, your committee recommends that the Estimated amount necessary to be raised by disbursements incident to the Mexican situabond issues and new revenue legislation.. $402,389,939 tion and to the construction of the armor-plate Bond issues to reimburse the Treasury: plant, the Alaskan railway, and the purchase For expenditures incident to the Mexican situaof the Danish West Indies, be met by the tion to June 30, 1917... $162,418,000 issuance of bonds. Your committee therefore For construction of Alasrecommends the following, bond issues: kan railway to June 30, 1918 21,838,292 Bond issues: For construction of armor- To meet the expenditures plate plant 11,000,000 incident to the Mexican situation to June 30, Total 195,256,292 1917, estimated at $162,418,000 Construction of Alaskan | Estimated amount to be raised by taxation. 207,133,647 railway 35,000,000 j Estimated additional receipts under pro- Armor-plate plant 11,000,000 i posed bill: Danish West Indies 25,000,000 Excess-profits tax $226,000,000 Estate tax 22,000,000 Total $233,418,000 Bonds already authorized: Total 248,000,000 Shipping act $50,000,000 Nitrate plant 20,000,000 Your committee believes that the margin of $41,000,000 above shown, between the esti- Total 70,000,000 mated receipts under the proposed bill and the estimated revenue required, is necessary in Total proposed bond issue 303,418,000 Panama Canal bonds which can be issued at order to be on the safe side. Allowance must be this time 222,000,000 made for the fact that the amount of revenue | which it is estimated the excess-profits tax will Addition authorization of bonds necessary.. 81,418,000| yield is after all only an estimate, and because | of this a substantial margin is advisable. CERTIFICATES OF INDEBTEDNESS. Claude Kitchin, chairman; Henry T. Rainey, Under the present system of taxation a con- Lincoln Dixon, Cordell Hull, John N. Garner, siderable portion of the receipts are not due James W. Collier, Clement C. Dickinson, and payable until the last month of each fiscal Michael F. Corny, William A. Oldfield, Daniel year. It is therefore deemed advisable to in- J. McGillicuddy, Alfred G. Alien, Charles R. crease the authority of the Secretary of the Crisp, John T. Casey, Guy T. Helvering. Treasury to issue certificates of indebtedness for a period not exceeding one year from the date of issue. At the present time the Secre- Fiduciary Powers of National Banks. tary of the Treasury has the power to issue The case of Bank v. Fellows, brought to test $200,000,000 worth of such certificates. This act proposes to give the Secretary of the Treas- the constitutionality of section ll(k) of the ury authority to issue an additional $100,000,- Federal Reserve Act, was argued before the 000 worth of such certificates. Supreme Court of the United States on March 22, and submitted. The case was argued RETURN OF DIVIDENDS. orally by the Solicitor General of the United Section 402 of this act merely provides that States, appearing for the United States, by the Commissioner of Internal Revenue may at counsel for the Board, and counsel for the hia discretion require a corporation to include bank, appearing on behalf of the plaintiff in in its return a statement of its dividend payerror, and by Mr. Henry M. Campbell, of ments, stating whether the same are made in cash or its equivalent, or in stock, and may Detroit, and Mr. John G. Johnson, of Philarequire the names and addresses of the stock- delphia, appearing for defendants in error. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1, 1917. FEDERAL RESERVE BULLETIN. 255 The brief prepared by counsel for the Board, SPECIFICATION OF ERROR. acting in conjunction with the Solicitor Gen- The second assignment of error is as follows : eral of the United States, which was filed on The Supreme Court of Michigan erred in behalf of the United States in the relation of entering a judgment of ouster against the amicus curue, >was in substance as follows: above-named respondent, said judgment being based solely upon the decision that the act of STATEMENT OF THE CASE. Congress above mentioned [sec. Ilk] was and is void as beyond the powers conferred upon This case involves the validity of section the Congress of the United States by the Conll(k) of an act of Congress approved December stitution of tho United States. 23, 1913, known as the Federal Reserve Act. Two issues are thus raised: (38 Stat., 251, 262, c. 6.) That section gives 1. Has Congress power to authorize a nato the Federal Reserve Board created by the tional bank to act as trustee, executor, adminact the following power: istrator, or registrar of stocks and bonds ? "SEC. ll(k). To grant by special permit to 2. Does the Federal Reserve Board in grantnational banks applying therefor, when not in ing the permission authorized by section 11 (k) contravention of State or local law, the right exercise nondelegable powers of Congress ? to act as trustee, executor, administrator, or registrar of stocks and bonds under such rules ARGUMENT, and regulations as the said board may prescribe.'1 I. JURISDICTION. The First National Bank of Bay City, Mich., A State court is without jurisdiction to enjoin the operaplaintiff in error, was chartered as a national tion of a Federa agency. bank on December 1, 1882, under the National Bank Act of June 3, 1864. (13 Stat., 99, o. In the case of Ableman v. Booth (21 How., 106, as amended; see the National Bank Act 506), the Supreme Court of Wisconsin held that of June 20, 1874, 18 Stat., 123, c. 343; Rov. the fugitive slave law was unconstitutional t Stat.,*sec. 5133, 5136.) After the passage of and discharged a prisoner held under a warthe Federal Reserve Act it became a member rant issued by a United States commissioner of the system of banks therein established, for aiding and abetting the escape of a fugitive and, on application, was granted by the Board slave, and also discharged the same person the right to act as trustee, executor, adminis- from confinement after indictment and contrator, and registrar of stocks and bonds. viction in the United States District Court. On the relation of five trust companies the This judgment of the Supreme Court of Wisattorney general of Michigan filed an informa- consin was reversed by the Supreme Court of tion in the nature of quo warranto in the Su- tho United States. preme Court of Michigan to prevent plaintiff The same question was presented in Tarble's in error from thus acting. The respondent case (13 Wall., 397), where a soldier in the bank pleaded the statutes and the authority United States Army was discharged on habeas granted in pursuance thereof. The State at- corpus by a supreme court commissioner of the torney general demurred to the plea on the State of Wisconsin on the ground that he had grounds (1) that section 11 (k) is unconstitu- been unlawfully enlisted while a minor withtional in that it is beyond the authority of out the consent of his guardian. Congress to confer the power specified upon In both cases the courts of the State were national banks; (2) that even if Congress pos- declared by the Supreme Court of the United sessed such authority it can not delegate it to States to have been without jurisdiction. the Federal Reserve Board; (3) that tho grant- The fundamental proposition upon which ing of the corporate power specified is in con- the Ableman and Tarble cases rest is that no tra volition of the laws of the State. Tho State State has power to obstruct a Federal officer court sustained the demurrer on tho first in the discharge of his duties. It is true, as ground, six of the eight justices expressly find- was argued in the Ableman case, that the ing no contravention of State law. By writ Supreme Court of Wisconsin had general of error the case comes before this court on jurisdiction to pass upon the constitutionality the pleadings. of the fugitive slave law; it had power to do Leave having been obtained, the United this in any proceeding which did not directly States files this brief as amicus curiae. interfere with or arrest the functions of the 87199—] 7 4 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

256 FEDERAL RESERVE BULLETIN. APRIL 1,1917. Federal Government, but no State can law- gress creating the first bank of the United fully do an act which will suspend the machin- States was before it. An effort was made at ery of the Federal Government. As stated by that time to sustain the contention that while the court in Tennessee v. Davis (100 U. S., 257, Congress might have the power to incorporate 262)— a bank to be used as an instrument of the "The General Government must cease to Government in the conduct of its fiscal affairs exist whenever it loses the power of protecting it could not vest corporations so created with itself in the exercise of its constitutional the capacity to engage in private business, but powers." could only authorize the exercise of functions The principle of these cases would seem to to be performed for the Government. (Osborn apply to an attempt by the State to enjoin v. U. S. Bank, 9 Wheat., 738, 861; McCulloch or restrain any Federal agency from the exer- v. Maryland, 4 Wheat., 316, 401.) cise of a right or the performance of a duty It is clear that a banking corporation created arising under a Federal statute. by Congress may be vested with powers of a '•'The right of Congress to determine to what private nature to be used for its own advantage extent a State court shall be permitted to as well as with the power to perform public entertain actions against national banks and functions. how far these institutions shall be subject to (b) Every banking association organized under Federal law since State control, is undeniable. National banks 1791 has been endowed with powers purely private in nature, which powers have been exercised for its own advantage in legitiare quasi-public institutions, and for the mate competition with other corporations. purpose for which they are instituted are When the first Bank of the United. States was national in their character, and, within con- organized (1791), powers of the most general stitutional limits, are subject to the control of character were conferred upon it. It was Congress and are not to be interfered with by enacted (Feb. 25, 1791, 1 Stat., 191, 192, c. 10) State legislative or judicial action, except that a bank of the United States should be so far as the lawmaking power of the Govern- established with a prescribed capital stock, the ment may permit." (Van Reed v. People's subscribers to which were made a corporation, National Bank, 198 II. S., 554, 557.) with power to take personal property, to sell Whether the Federal or State courts have and dispose of it, and to "put in execution such jurisdiction in quo warranto proceedings against by-laws, ordinances, and regulations as shall national banks was the subject of discussion seem necessary and convenient for the governin the case of State ex rei Wilcox v. Curtis (35 ment of the said corporation, not being con- Conn. 374), in which it was held that an infor- trary to law, or to the constitution thereof," mation in the nature of a quo warranto would and "generally to do and execute all and singunot lie in a State court to try the right to the lar acts, matters, and things which to them it office of director in a national bank. shall or may appertain to do/; subject to the restrictions * prescribed by the act. Those II. CONSTITUTIONALITY OF SECTION 11 (K) OF restrictions limited the real estate holdings of THE FEDERAL RESERVE ACT. the bank, prohibited the purchase of public debts and trade in commodities, and limited (1) Every intendment is in support of the constitution- the amount of indebtedness which could be ality of the act. The courts invariably hold that an incurred. The bank was thus clothed with act of Congress is constitutional unless its repugnancy general powers to transact a banking business to the Constitution is clearly apparent. (Several cases cited.) subject to few restrictions. The charter of the second United States (2) It is well settled that Congress has the power to incorporate banking associations to be used as Bank (1816) was of a similar broad and cominstrumentalities of the Government in the conduct prehensive nature. (Act Apr. 10, 1816, 3 Stat., of its fiscal affairs. (Numerous cases cited.) 266, 269, c. 44.) (3) The power to create carries with it the power to While the powers granted to national banks preserve. Congress may vest national banks with by the act of 1864 were more restricted than any powers it deems necessary to preserve the nathe powers granted to the first and second banks tional banking system or the corporate entity of individual banks. of the United States, they were, nevertheless, intended to enable such associations to engage (a) The powers granted to such an association may be either public or private in nature. in the banking business to the same extent as This question was considered by this court other banking corporations organized at that when the constitutionality of the act of Con- time under State laws. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

AruiL 1,1917. FEDEBAL RESERVE BULLETIN. 257 (c) These powers, though private in nature, need not be even inci- tution, is settled beyond all dispute. (Cases dental to the conduct of the Government's fiscal affairs. It is sufficient if they are necessary to the successful operation of the cited.) bank. The character of the powers and the degree of their necessity are matters «f legislative discretion. • That the addition of the powers specified in It is not essential that any particular power section 11 (k) does not constitute an unreasonable exercise of this discretion, will appear from vested in a national bank shall be incidental or a consideration of the character of such powers. necessary to the conduct of the Government's I fiscal affairs, but it is sufficient ifsucli power is, (d) While it is not essential that the powers conferred be Incidental to the ordinary banking functions, nevertheless the powers specified in the discretion of Congress, necessary to the, in section 11 (k) are, in fact, exercised quite generally by corporations which also exercise commercial banking powers and are successful operation of the hank. (Osborn v. U. similar in many respects to other corporate powers exercised by S. Bank, supra.) commercial banks, including national banks. It is clear that Congress not only has author- While Congress is given a wide discretion in ity to grant to national banks powers which in determining what means shall be employed to themselves are not incidental to the perform- preserve the integrity of the national-banking ance of a public function, but it is necessary system and the several national banks, and that it should do so in order that the agency might, if it deemed necessary, vest in such selected by it may efficiently serve the Gov- banks powers not ordinarily exercised by ernment when called upon to render any pub- banking corporations, in the present case the lic service. powers added are peculiarly appropriate to When national banks were created the powers banking institutions. vested in them were designed to enable them It is probably true that at the time the nato perform public services and to engage in tional-bank act was passed the right to act in private business for their own advantage. In the capacity of trustee, executor, or administheir public capacity they may be used as fiscal jtrator was not regarded as a banking function agents of the Government, as Government de- jnor as incidental to any banking power. positories, and can and do help materially in j It is probably equally true, however, that the emission of currency and in the transfer of jthis right was not then generally regarded as a Government funds from one part of the country •corporate function at all, since the selection of to another. j corporations to act in fiduciary capacities is of It is at once manifest, however, that if Con- comparatively recent development in this coungress had. limited the powers of national banks jtry. An individual rather than a corporation to the exercise of these functions the}" could was then selected and this is still true in many not have existed as corporations, and hence sections of the United States. In so 1'ar as could not have performed the services required | these powers have become functions of corpoof them. irations, other than trust companies organized The deposit of Government funds in. a na- for the sole purpose of doing a trust business, tional bank designated, as a depository involves they may be said to have been confined to that an expense to the bank, which is required to iclass of corporations the earnings of which are pay interest on such deposits, and unless it is derived from the loan or investment of funds permitted to lend these "funds to its customers j at interest and that they are more nearly allied it will receive no compensation for the service to the banking business than to any othor. of acting as a Government depository. Its It woud be difficult to define with any degree revenue is earned from the use of its funds. It of accuracy what constitutes ''recognized bankmust, of necessity, derive its sustenance pri- ing powers/7 since there is little uniformity in marily from its banking operations conducted the laws of the several States prescribing the for its own advantage, as distinguished from jpowers which may be engaged in by banking its banking operations conducted as an agent | institutions. A composite definition oi bankor instrument of the Government, and since !ing, including an enumeration of the charter this is true those powers which are necessary to ipowers of banks organized under State laws, preserve and sustain the corporation are to that j would include a very large proportion of all extent necessary to the Government, and the | corporate powers, and it is this fact that no grant of such powers has been repeatedly held to Idoubt influenced Congress in determining to be within the constitutional power of Congress, jextend the powers of national banks in order That Congress in the exercise of reasonable that they might be placed on a more nearly discretion must determine what means are uniform basis with other banking institutions. necessary to accomplish the proper execution In enlarging the powers of national banks, howof any power conferred on it by the Consti- ever, it added only those which have in the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

258 FEDERAL RESERVE BULLETIN. AntiL 1, 1917. natural development of banking become inci- I As the demand deposits of such companies dental to this class of business. !increased, the demand on their part for short- The argument has been made that the rela- \term investments in commercial paper and tionship which exists between a national bank other securities increased as a matter of course, and its customer is ordinarily that of debtor thus bringing them into greater and more and creditor; that this relationship differs from active competition with national banks. that of trustee and cestui que trust, and accord- The increasing activity of the trust comingly a national bank can not consistently be panies in the general commercial banking busivested with the power to act as trustee or in ness is clearly illustrated in one of the exhibits any other fiduciary capacity. which accompanies the report of the Comp- It is somewhat difficult to appreciate the troller of the Currency made to Congress purforce of this argument when we consider that suant to the requirements of law for the the relationships of "debtor and creditor," year 1915. This exhibit consists of an analy- "principal and agent/' and "trustee and cestui sis of the business of trust companies made que trust" have been demonstrated by experi- up from reports furnished the comptroller by ence to be so interrelated as corporate func- more than 90 per cent of the trust companies tions and so frequently incidental each to the doing business in the United States. From other that it is the rule rather than the excep- this report it will appear that the aggregate tion for the same corporation to act in each of deposits in trust companies have increased these capacities. from $85,025,371 in 1875 to $4,216,017,244 in Trust companies organized for the purpose of 1915. National bank deposits, according to acting only in the capacity of fiduciaries have, the comptroller's report, increased during the as an incident of the performance of some trust same period from $696,652,020 to $6,611,218,function, become debtors or creditors of their 000. The trust companies, therefore, held customers. Beneficiaries of trust estates have deposits in 1875 equal to about 12 per cent of found it advisable or convenient to leave on the amount held by national banks, while in deposit with the trust company which acted as 1915 the deposits in trust companies amounted trustee their share of the proceeds of a distri- to approximately 66 per cent of the deposits bution of an estate to be held subject to the held by national banks. order of the beneficiary and not for reinvest- While the trust-company deposits are not ment by the trustee. In such case the rela- classified in this report until 1909, it will be tionship between the trust company and the observed that in 1915 demand deposits subject beneficiary is changed from that of trustee and to check amounted to $2,652,323,201, whereas cestui que trust to that of debtor and creditor. demand certificates of deposit aggregated It was probably due to a development of this $94,827,754, certified checks $14,787,783, and practice that trust companies by a process of cashiers' checks $23,386,418. These figures evolution gradually entered the field, of what indicate what a great proportion of the total was popularly known as commercial banking. demand deposits is of the kind formerly con- That is to say, having received deposits from sidered peculiar to the business of a commercial those for whom they had acted as trustees and bank; that is, deposits subject to check withhaving thus been placed in funds held subject out notice. They equal approximately 96 per to the same conditions as demand deposits cent of the total demand deposits of the trust held by commercial banks, trust companies companies exclusive of savings deposits which naturally sought investments in those short- may be either demand or time deposits. term self-liquidating securities invested in by It thus appears that the commercial banking commercial banks. This was obviously neces- business has become so closely allied to the sary because the deposits so held were subject j other activities of trust companies that it may to check and were payable on demand. These be said now to be incidental to the business of demands could not be met in due course if such a trust company. deposits were invested in those long-term On the other hand, commercial banks, even securities in which trust funds are ordinarily prior to the passage of the Federal Reserve invested. The practice of receiving funds on Act, were at times required to assume trust deposit from beneficiaries of estates held in relations as an incident of their business. trust having proved remunerative to trust They not infrequently came into the poscompanies, it was natural that such companies session of funds impressed with a trust. For should solicit similar deposits from others, example, in the case of American Can Co. v. thus increasing their earning power. Williams (178 Fed. Rep., 420) it was held that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

AT KM. 1, 1917. FEDERAL RESERVE BULLETIN. 259 when sight drafts attached to bills of lading corporation to exercise not only fiduciary were delivered to a national bank for collection powers but also commercial banking powers. and remittance the relation of trustee and Whether commercial banks are allowed to cestui que trust undoubtedly existed. (Other exercise trust powers or trust companies are cases cited.) allowed to exercise commercial banking powers The powers specified in section 11 (k) of the is, for the purpose of this discussion, immaterial. Federal Reserve Act appear, therefore, to be The point to be considered is the competitive more nearly incidental and more-closely related force given to a single corporation endowed to the business of banking than to that of any|. with both, classes of powers. It was that fact other class of corporations, except those organ-! which Congress was under the necessity of conized solely for the purpose of acting in fiduciaryi sidering and which not only justifies the action capacities. Such powers do not differ ma- of Congress in giving trust powers to national terially from other powers vested in national banks but which made swell action imperative. banks. I The court's attention is directed to the fact Under the provisions of the National Bank i that in various States corporations may, upon Act, banks may receive deposits; may dis- : compliance with various rules and regulations count notes, drafts, bills of exchange, and other| dependent upon the laws of each State, excrevidences of debt; may lend money on per-! cise at one and the same time both fiduciary sonal security and may make such investments powers and general banking powers. (Referof their funds as are permitted by the National = ences to State statutes.) Bank Act. All of these operations are con-| The only States not included are Michigan, ducted in their private capacity and for their ; Nebraska, Pennsylvania, and Wisconsin. In own advantage. They necessarily involve : many of the States, State banks, and in some of trading with persons and dealing in property | them, even national banks are expressly auwithin the borders of a State. i thorized by the State laws to do a trust busi- The relation created is contractual whether ; ness; in others the State law provides for the funds are received on deposit subject to in- ; formation of joint banks and trust companies, vestment by the national bank in accordance : and in the majority of them the law expressly with the laws of the United States or whether authorizes trust companies to do a general such funds are received in trust subject to in- i banking business. The result in all cases, vestment according to the provisions of the : however, is a single corporation, whether instrument creating the trust or the laws of the j called a bank, a trust company, or a bank and State which relate to the administration of the | trust company, possessing the power to do both trust estate. But without the aid of section 111 a commercial banking and trust business. (k) national banks are confined to trusteeships which result from the operation of law, while| (f) In order to compete successfully with corporations organized or ; operating under State banking laws, national banks must be given their competitors—trust companies and many i powers substantially similar io those enjoyed by such State cor- State banks—may voluntarily act in the capac- i purations. It was therefore not an unreasonable exercise of its ! discretion for Congress to determine that the powers of national ity of fiduciaries and at the same time may com- banks should be enlarged by the addition of "those specified in . section 11 (k) of the Federal Reserve Act. pete with national banks in the more limited Held of commercial banking. | When the act of 1864 became a law a national That there is no inconsistency in combining| bank organized under that law was authorized in one corporation fiduciary powers and com-l (13 Stat., 10.1), to exercise by its board of mercial banking powers is abundantly illus- ' directors, or duly authorized officers or agents, trated by an analysis of the State laws relating I subject to law— to the incorporation of financial institutions. I "all such incidental powers as shall be necessary to carry on the business of banking; by (e) The laws of 44 of the 48 Slates and also of the District of Columbia discounting and negotiating promissory notes, provide for the formation of corporations with authority to exercise both fiduciary powers and commercial banking powers. drafts, bills of exchange, and other evidences An examination of the laws of the various of debt; by receiving deposits; by buying and States shows that though there were very few selling exchange, coin, and bullion; by loaning corporations of any kind possessing fiduciary money on personal security; and by obtaining, powers prior to the passage of the National issuing, and circulating notes according to the Bank Act in 1864, at the present day the laws provisions of this act." of every State in the Union authorize corpora- The genesis of the legislation creating tions to exercise certain trust powers, and in national banks, as well as the subsequent 44 of the 48 States the laws permit a single course of such legislation, is consistent only Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

260 FEDERAL RESERVE BULLETIN". APRIL 1,1917. with the theory that Congress intended that Reserve notes and of rediscounting commercial these banks should have in general powers paper. They may be designated as Governsimilar to those exercised by other banking ment depositories by the Secretary of the Treasinstitutions organized under State laws. The ury and enjoy practically all of the privileges of words quoted were not intended as a limita- Inational banks except the privilege of issuing tion upon the incidental powers appropriate to a ' circulating notes against the security of Govbanking business but were intended to confer j ernment bonds, and this is largely offset by the in broad outline the usual banking powers, j privilege of obtaining Federal Reserve notes. (Pattison v. Syracuse National Bank, 80 N. Y., With these faculties added to the advantages 82, 89.) already enjoyed by reason of the broader cor- Since that time a number of powers and porate powers of State banks and trust comprivileges have been conferred upon State panies, it became imperatively necessary for institutions so that the powers enumerated j Congress, in order to preserve the integrity of in section 5136, 'Revised Statutes, above 'the national banking system and of the banks quoted, can no longer foe said to constitute composing this system, to enlarge to some exthe "usual formula, descriptive of the banking tent the competitive powers of national banks business, contained in bank charters.77 by giving them rights and privileges somewhat Congress has found it necessary from time ; similar to those already enjoyed by competing to time to modify the restrictions imposed State corporations. upon national banks in order to enable them In addition, therefore, to extending the to compote) successfully with State institu- corporate powers of national banks by autions. For example, by the act of June 22, : thorizing them (1) to increase their loaning 1906 (34 Stat., 451, c. 3516), it permitted power (section 19, Federal Reserve Act), (2) national banks to lend to one person, firm, to loan money under certain restrictions on or corporation an amount equal to 10 per cent the security of real estate (section 24, Federal of the capital and surplus of the lending bank Reserve Act), and (3) to accept drafts or bills instead of an amount equal to 10 per cent of !of exchange based on the exportation or imits capital. By the act of March 14, 1900 (31 iportation of goods (section 13, Federal Reserve Stat., 45, 48, c. 41), it authorized the incorpora- Act), Congress also provided that, with the tion of banks with $25,000 capital under cer- permission of tho Federal Reserve Board, such tain conditions, thus reducing the minimum batiks should have the right to act as trustee, amount ($50,000) required before the passage , executor, administrator, and registrar of stocks of this act. By the act of June 20, 1874 (18 !and bonds (section 11 (k), Federal Reserve Stat., 123, c. 343), it amended section 5191, ;Act), in order to enable them to compete with, Revised Statutes, so as to require no reserve !those State corporations which possess both to be carried against circulation, thus increas- !fiduciary and commercial banking powers. ing the lending power of such banks. i By an amendment to the act approved Sep- Prior to tho passage of the Federal Reserve tember 7 1916 (39 Stat., 752), 'Congress has K Act, however. Congress had not in any sense attempted to still further coordinate tho kept paco with State legislatures in tho exten- powers of national banks and those created sion of corporate banking powers, and the dis- and organized under State laws, (1) by aucrepancy between State banking powers and thorizing national banks to accept drafts and national banking powers had become a source bills of "exchange in certain domestic transof serious concern to those engaged in the actions (section 13, as amended); (2) by aubanking business under national charters. j thorizing banks under certain conditions to When section 9 was incorporated in the subscribe to stock of banks engaged in inter- Federal Reserve Act, giving to State banks and national or foreign business; (3) by permitting trust companies tho right to obtain the benefits banks to lend on city real estate under certain of the Federal Reserve System, this discrepancy conditions and subject to certain restrictions; became a matter of even more serious moment, (4) by permitting those banks located in places since it deprived national banks of certain ad- of less than 5,000 inhabitants to act as the vantages which up to that time had served to agent for insurance companies and as broker offset to some extent the broader powers en- or agent for others in making loans under cerjoyed by State banks and trust companies. tain prescribed conditions. State banks becoming members of the Federal The burden of showing that Congress has Reserve System under section 9 of the Act are exceeded its powers in enacting section 11 (k) entitled to the privilege of obtaining Federal into law rests upon the defendants in error, and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDEKAL BESEEVE BULLETIN. 261 (assuming for the moment that there is no Such an analysis makes necessary a brief question of the delegation of legislative au- !review of the history of currency legislation thority) unless proven affirmatively to the and a consideration of some of the defects of satisfaction of the court that Congress has the financial system which the Federal Reserve grossl}' exceeded its discretion in determining Act was intended to correct. that the powers conferred by section 11 (k) (a) The currency system created by the national bank act was are necessary to the successful operation of the made necessary by lack of uniformity and by instability of the State bank note. national banking system, it is respectfully submitted that there is no basis for the con- After the liquidation of the second bank of tention that this section is unconstitutional the United States in 1836 the fiscal affairs of the and void. Government were conducted without the aid of any banking institution organized under the It is to be noted that, notwithstanding this ! laws of the United States until tho national burden is upon defendants in error, they have ! banking system was created at the close of the failed to present any evidence to indicate that Civil War. Collections and disbursements of Congress abused its discretion in determining Government revenues during this period were that fiduciary powers were necessary adjuncts made in specie. to the operations of national banks at the ; present time. In the stress of the Civil War, when the Government was under the necessity of borrowing (4) Section II (k) has a direct relation to the underlying I large sums of money and the people at large purpose of the Federal Reserve Act, to wit, the crea- i wore struggling with tho evils of a depreciated tion of a new basis for nonmetallic currency, to be j paper currency, consisting of United States supported by a cohesive banking system which should ! notes and notes of some 1,400 State banks, include a majority of the banks of the United States, and insure a currency stable in character and elastic some good and more bad, the national bank in volume. system was created. "Wliile it is in no sense necessary under the ; This system was in brief the incorporation of decisions of this court that the private powers a number of banks under national charters and granted to national banks should be related or under Federal supervision which were authorincidental to the public functions performed by j ized to engage in a general banking business in such banks, nevertheless the grant of powers :the several States. Each of these national specified in section II (k) was in fact an appro- banks was permitted to issue its bank notes, priate means selected by Congress not only, of uniform in character, against and based upon insuring to banks composing the Federal Re- 'an equal amount of United States bonds owned servo system an adequate supply of commer- ;by the banks but deposited with the Treasurer cial paper to be used as security for Federal Iof the United States as collateral security for reserve notes, but also of establishing the sys- jthe notes issued. Two of the main purposes tern itself upon the broadest basis of member- Iof the act which brought this system" into ship. It was designed both to protect banks existence were to create an enlarged market within the system from unequal competition for United States bonds and to establish in which might destroy their allegiance, and to the country at large a uniform and reliable induce those without the system, to enter it. j nonmetallic currency. (Cases cited.) One of the purposes of the act, which is aided j While tho national bank note was issued and by section 11 (k), was the creation of a new!permitted 'to circulate under appropriate safebasis of nonmetallic currency to be supported guards designed to insure its stability, so long by a cohesive banking system, such system to \as several hundred State banks placed their include a largo majority instead of a minority notes in circulation, without these safeguards, of the banks of the United States as at present, jit was of course impossible to bring about uni- This new system, while insuring by appro- formity in the value of this form of currency. priate safeguards the stability of notes circu-^ Accordingly, on July 13,1866 (14 Stat., 98, 146, fating as currency, will also provide for elasti- 'c. 184), Congress found it necessary to pass an city in its volume. In this view the grant of act which placed a prohibitive tax on all circuthese powers is directly connected with an lating notes of State banks. This act drove important governmental function, namely, the many of the State banks into the national creation of a uniform, sound, and stable cur- system—just as Congress intended. (Veazie rency system. An analysis of the purposes of Bank v. Fenno, 8 Wall., 533, 549.) the Federal Reserve Act will show the relation The initial failure of the system of national of section 11 (k) to the new currency system. bank currency came from the fact that the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

262 FEDERAL RESERVE BULLETIN. APRIL 1, 1917. State banks continued to do the main banking In addition to these inherent defects the business of the country and to be the main constantly increasing activities of trust comhandlers of currency. The success of the sys- panies in the field of commercial banking had tem was expedited by the statute above re- proven a serious menace to the national banks. ferred to, which put the State banks out of From 1895 to 1907 there had been an enormous business as banks of issue and. thus left in cir- and, as compared with the national banks, a culation only those notes which were issued disproportionate growth in the commercial and redeemed under appropriate safeguards. banking business done by trust companies t j which were outside the national-bank system. (b) Experience has demonstrated that while the national bank ac provided a uniform and stable currency system it lacked elasticity • They shared, and still share, banking predomand was otherwise defective. inance with the largest and strongest"national In the period following the Civil War, and banks. The result was that by 1913 the trust particularly in the period from 1885 to 1913, companies had become the "department stores difficulties developed in the national banking j of finance." system.. I It was therefore evident that any new The first difficulty lay in the fact, clearly j banking system which sought to check currency understood by the banking community, that | panics like the panic of 1907, by joining the the currency was not sufficiently elastic. Inas- jsound commercial banking institutions of the much as it was based on a nonelastic basis, i. e., jcountry together, could not leave out of considthe United States bonds owned by the banks, eration the trust companies which had become there was no way in which the bank-note cur- such important factors in this field of activity. rency could quickly and easily adapt itself to | the varying demands for a proper circulating ! (c) The Federal Reserve Act is designed to remedy these defects while preserving uniformity and stability. medium—as, for instance, in crop-moving pe- ! In order to remedy these defects in our finanriods, when there was need for a much greater j cial system the Federal lieserve Act provides amount of currency. for (a) the creation of a new basis of" issue of A second defect in the national banking syscirculating notes, (6) for the mobilization of tem was the immobility of bank reserves—due j banking reserves, and (c). for the inclusion of to rigid reserve requirements by which each | State banks and trust companies in the Federal bank kept its metallic reserve against liabilities j reserve system. in its own vaults or with some other bank in j Under the Federal Reserve Act the country the large cities. The result of this system of is divided into 12 districts. The national scattered reserves was that in times of financial banks of each district are compelled to constress and falling prices there were likely to | tribute a certain proportion of their capital to occur currency panics, which paralyzed the | form a strong Federal reserve bank, the recredit of the whole country and demoralized j prices and markets. At such times each bank, j The Senate committee was unable to agree on detaiJs and reported the selfishly fearing for its own position, hoarded \ 1 H s o t u s s e e s s b .) il l w T i h t e h o v u ie t w re s c o o f m t m he e n m d e a m tio b n e . r s o (S f " . t h R e e p co i. m N m o. i t 1 t 3 e 3 e , p w t o . r 1 e? p 63 ri d n C te o d n < as .. currency and at the very worst of times called parts 2 and 3 of the report. The report states (pt. 2, pp. 7. 8): loans, with the inevitable result of shaking: " [Join sections of the committee, however, agreed'on the great fundamentals of the 1 >ill—that is: public confidence in the soundness of the j "First. On the necessity for greater concentration of the banking reserves of the country. country's financial institutions. This was | "Second. The volume of such reserves. demonstrated in the panic of 1907. 'It is need- j "Third. The volume of the capital of the proposed banks. "Fourth. The mobilization of such reserves. less to describe in detail these currency panics | "Fifth. The promotion of an open discount market. "Sixth. The provision for an elastic currency; the issuance of Fedora] peculiar to the United States. They were Ireserve notes. rightly attributed to the lack of cohesion in our j * * * * * banking structure and illustrated the worst " The chief purpose of the banking and currency bill is to give stability to the commerce and industry of the United States, prevent financial defect of our currency and banking system.1 panics or financial stringencies: mate available effective commercial credit for individuals engaged in manufacturing, in commerce, in finance, and in business to the extent of their just deserts; put an end to the 1 The reports which accompanied the introduction of the Fedora1 "pvramiding of the bank reserves of the country and the use of such Reserve Act in both the House and Senate show how keenly Congress re'ser res for gambling on the stock exchange. was alive to these difficulties. " In order to accomplish these results there are certain great funda- Thus the House report (II. Kept. No. 69, 63d Cong., 1st sess., p. 4) mentals recognized by all experts as essential and necessary, to wit: states: '•First. The proper concentration of the bank reserves of the country "In view of the lack of any factor of unity the national banks have | under the control of the banks themselves, safeguarded by governmental failed to furnish to the Nation as a whole a single and powerful system j supervision. of credit. The strength of the credit situation in each community has • "Second. A suitable banking capital as a margin of safety. depended upon the strength of the banks there situated, and. evcept in ! "Third. Placing the larger part of the Government'funds with such times of stress, has even in these communities boon measured by the i banks, where they may be used in the service of the national commerce. strength not of the strongest, but of the weakest institution "there ; "Fourth. Authorizing the issuance of elastic currency against liquid located." j commercial bills under proper safeguards." * * * Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL l, 1917. FEDERAL RESERVE BULLETIN. 263 sources of which are conserved primarily for the Federal Reserve Act by admitting State banks member banks of that district. Any member and trust companies to membership makes bank may at any time take to its Federal re- them Federal agencies for regulating the curserve bank sound, short-time commercial paper rency. (which it has discounted for the business com- (d) Section 11 (k) is a necessary factor in providing a more elastic munity), indorse it, and rediscount it with the currency and in insuring stability of the new currency system provided by the act. Federal reserve bank. It follows from this review that section 11 The Federal reserve bank may deposit this (k) is not an unrelated phrase, flung in to paper with its Federal reserve agent (the local please some national bank stockholder so that representative of the Federal Reserve Board) he may make more profit; it is not simply a as security for an issue of Federal reserve notes, scheme to increase the private faculties and and upon setting aside a gold reserve equal to private business of the national banks, but it 40 per cent of the amount of commercial paper too has a real place and part in the scheme of deposited may obtain Federal reserve notes the Federal Reserve Act. Undoubtedly it ecjual in amount to 100 per cent of the commertends to enlarge the powers of the national cial paper deposited. These notes, which are banks, and tends to invade the fields of acobligations of the United States, are a new tivity of the State trust companies. Our form of currency redeemable ultimately by the opponents see in that its vice; on the contrary Federal reserve bank but which are backed by it is a constitutional justification. the credit of the United States. Section 11 (k) is obviously an important By the scheme thus generally outlined, factor in the creation of a new basis of currency which is carried on under the supervision of issue. It is necessary to offset the invitation the Federal Reserve Board, a new basis of to State banks and trust companies to join the currency is provided. These notes, instead of system. If trust companies become member being issued against United States bonds, as banks, they receive all the advantages of memthe national bank notes are, are based upon, bership in the system, including the stability and the amount of them is measured by, the and standing that comes from Federal supercommercial paper received by the member vision and the ability to obtain currency banks in the ordinary course of their so-called through their Federal Reserve Banks—and, private business and rediscounted with the since they already enjoy broader corporate Federal reserve banks: Thus, under the new powers than national banks, will become still system, because the member bank can always more dangerous competitors unless the powers transform its sound commercial paper into of national banks and trust companies are more currency at the Federal reserve bank, it is exnearly coordinated. pected that the amount of currency out- On the other hand, even if trust companies do standing will, as in other countries, autonot, in large numbers, join the Federal Reserve matically vary with the demands of business System (and as a matter of fact they have not), and will be immediately obtainable at any nevertheless, unless the powers of national time it may be needed by the banks. banks are enlarged in order that they may com- The volume of Federal reserve notes issued pete with the trust companies which remain must necessarily depend upon the volume of outside of the Federal Reserve System, these commercial paper obtainable from member trust companies will continue their growth and banks. the gradual acquisition of the commercial It is therefore apparent that, in so far as the banking business of the country at the expense State banks and trust companies remain butof the national banks. If this process goes on side the Federal reserve system, by so much for the next 10 years as it has in the last 20, then the Federal reserve system must fail in furin 10 years the Federal Reserve System may fail nishing a completely elastic currency. or break in a panic—just because the basis of To make the new currency basis efficient it the currency will have become not the comshould ultimately include all the sound com- mercial paper of the country but only a small mercial banks of the country, and to avoid the part of it, and because there will again be lackcurrency panics, such as the panic of 1907, all ing the necessary cohesion among the main the sound commercial banks as opposed to the banking institutions of the country. speculative institutions of the country should A successful and sound plan to regulate the be united and their credit and reserves mobil- currency of a country must have the cooperaized through the Federal reserve system. The | tion of the predominant financial institutions 87199—17 1 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

264 FEDERAL RESERVE BULLETIN. APBEr, 1,1.917. of the country which are engaged in loaning (5) The section is not a delegation of the legislative money and credit. The true purpose of sec- authority. The Federal Reserve Board is not empowered to permit any national bank to exercise any tion 11 (k) is to coordinate the powers of nafiduciary power not enumerated in section 11 (k). tional banks and trust companies so that trust Its power is administrative, not legislative. companies shall not, by their success and The second ground of demurrer assigned by power outside the Federal Reserve System, condefendants in error was— tinue such a menace to the system as to curtail " Because, even if Congress itself possessed its usefulness. the authority to confer upon national banks It may be unimportant to the Federal Gov- the corporate powers specified in said section 11 ernment whether or not national banks make (k), it can not lawfully delegate such authority any considerable profit from the trust business to the Federal Reserve Board." so long as the profits earned from all sources are It was argued that Congress by this section sufficient to sustain them and to enable them to has not granted any powers to national banks, perform satisfactorily their public functions. but has undertaken to delegate to the Federal It is important, however, to the Government Reserve Board the power to legislate on this that national banks shall continue banking subject. (Many cases cited.) preeminence and shall continue to do their In the present case the congressional rule is share of the commercial banking business. To as fully defined as the circumstances will perretain banking preeminence it is most important mit. National banks are to have the power to that the national banks should be able to offer act as executor, administrator, and trustee only to the general public the same conveniences when not in contravention of the State or local (as to execution of trusts) afforded by their laws, and when the particular bank is the chief rivals, the trust companies, the " depart- proper institution to act in the fiduciary ment stores of finance.77 capacity. The definite standard is the State The fact that the trust companies have an law and the fitness of the bank. The banks enormous advantage in gaining commercial which may apply are many, and their circumbanking business is made evident in several stances varied. Higher capitalization or a ways. First, the stockholders of national, larger surplus may be necessary in some combanks of the large cities have in many instances munities than in others. The banks in the united to form a trust company to be operated Federal reserve system-, moreover, constitute by the same officers which operate the bank, one single system under the general business and have thus practically started trust depart- and governmental supervision of the reserve ments, but with the necessary handicap of board. Discretionary power is appropriately maintaining a separate organization. Second, vested in their general managers. it is notable that some of the States, in order to protect their State banks against the compe- (6) Neither the granting nor the exercise of the powers in question involves any Invasion of the sovereign tition of the trust companies (operating under rights of the States. The opinions of the Illinois the laws of the same State), have permitted and Michigan courts in this regard are based upon a their banks to exercise some or all of the func- manifest misapprehension of the effect of the exercise tions of trust companies. of these powers. This is true of Illinois, Georgia, Idaho, and In declaring section 11 (k) unconstitutional, Nevada. (See statutes, supra, pp. 28-31.) the Supreme Court of Illinois, like the Supreme The same course has been followed m the laws Court of Michigan, reached the conclusion of New Zealand and England. The Federal that when Congress undertook to vest trust Government in granting trust powers to na- powers in national banks it invaded the tional banks by section 11 (k) is simply protect- rights of the States. (People v. Brady, ing the banks against trust company competi- supra.) It is somewhat difficult, however, tion in the way which the States themselves to determine from either opinion in just what have pointed out. way the rights of the States are supposed to be It is in the light of that history and those invaded. The powers specified in the act purposes that we must consider the constitu- can not be exercised except "when not in tionality of section 11 (k) as a part of a com- contravention of State or local law/7 and so plete scheme wisely adopted by the National no conflict can arise as between any State law Government to regulate the currency of the and the Federal statute under consideration. country, and to protect commerce between the The right of a State to legislate on the subject States "from the destructive effect of recurrent of trust estates is not impaired nor affected. panics. The administration of State laws is in no way Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ATB.U, 1, 1917. J'EDEEAL EESEBVE BULLETIN. 265 interfered with. No State is deprived of any the purposes of their creation as governmental control over persons or corporations acting as agencies/' the court says: trustees, executors, or administrators within "It not being shown such added powers are its borders. Congress has merely vested in now necessary to the further success of such national banks the capacity to act when purposes * * * wTe think the act, in so far selected by the parties in interest and when as it attempted to confer such powers upon permitted by State or local law. It has national banks, is unconstitutional and void." expressly given to the State the right to place It thus appears that the court recognizes that national banks in the class of those under Congress is vested with a discretion in this matdisability. ter, but contrary to the ordinary rules of evi- It would seem, therefore, that the Illinois dence, sustained by a long line of decisions of and Michigan courts have concluded that this court, it held that the burden was on the national banks vested with trust powers respondent, now plaintiff in error, to show that may invade the field .of activity of trust Congress had not abused this discretion, and companies and that such an invasion con- not on the relators, now defendants in error, stitutes an invasion of the "sovereignty of to show that Congress had exceeded its constithe States" because trust companies are tutional powers. In other words, it presumed created by the States. Such a contention the. act to be unconstitutional and in support is merely a revival of the argument that no of its position contended that Congress itself Federal agency can be vested with any private could not have believed, these powers to be power. It is at once manifest that the same necessary to national banks because it left it argument would apply with equal force to an to the banks to determine whether or not they invasion by national banks of the field .of should be exercised. If this test should be •commercial banking, since State banks which applied to all corporate powers of national engage in this class of business are likewise banks it would be difficult to sustain the concreated by the States. While this appears stitutionality of any. to be the only basis for the contention that It should be borne in mind that in order to there has been an invasion of the rights of the obtain the right to exercise the powers speci- States, even this theory is not consistent with fied in section 5136, Revised Statutes, to which other parts of the opinions of the Illinois and the Illinois court referred, it is necessary for Michigan courts since both courts concede those forming an association to comply with the right of Congress to create national banks certain statutory conditions, which include the and to vest them with private powers. The !filing of an organization certificate with the underlying thought in 1x>th opinions appears jComptroller of the Currency; that whenever to be that in some vague and indefinite way j any corporation so organized desires to change national banks, if vested with trust powers, jits name, to increase or reduce its capital stock, may prove a menace to the State's control | to change its location, or in any wise to alter or over property within its borders and for this Iamend its charter, an application must first be reason the act is unconstitutional. | made to the Comptroller of the Currency and The Illinois court held that the exercise of must be approved by him. trust powers by national banks would contra- i Congress might have provided for a similar vene the laws of that State. That part of the procedure on the part of national banks desirdecision., therefore, which declared section 11 ing to have trust powers added to their other (k) unconstitutional was in the nature of dicta. corporate powers. Inasmuch., however, as the It might be assumed that under these circum-1 penalty prescribed by section 2 of the Federal stances it would not have deemed it neces- 'Reserve act for the violation of any of the s&ry to consider the constitutional question jprovisions of that act is to be enforced under involved unless it was apparent that Congress !the direction of the Federal Reserve Board, it grossly abused its authority. An analysis of was entirely consistent with the purpose and the opinion, however, makes it clear that there j intent of the act to have application made to v/ero no facts before the court indicating any ' the board and not to the comptroller for the such abuse. \ addition of the powers in question. It will be observed that after conceding that, The Michigan, court likewise concedes the Congress had the right to grant trust powers to jright of Congress to create national banks and .national ba:.iks "if they were reasonably nccos- jto vest them with private powers. Unlike the siiry to the efficiency of sach corporations ior •Illinois court, it holds that "undoubtedly, all Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

266 FEDERAL RESERVE BULLETIN. APRIL 1,1917. presumptions are in favor of the constitution- it will be observed that in the case of McCulality of the act in question here and Congress loch v. Maryland (supra, p. 364), counsel for is the judge, within the exercise of its powers, defendants in error stated that a banking corof the functions a national bank should per- poration "in its proper and natural character form." * * * is a commercial institution, a part- The court does not suggest that any evidence nership incorporated for the purpose of carryhas been submitted or considered tending to ing on the trade of banking," and, continuing, show that Congress has abused the discretion said: "But what natural connection is there which it recognizes, but in holding the act between the collection of taxes and the incorunconstitutional says: poration of a company of bankers ?•" (See also Osborn v. U. S. Bank, 9 T\Tieat., 733,860.) "But in the reasoning of the judges, in the opinions to which I have referred, I find, I It would have been useless to concede the think, a conclusive argument supporting the right of Congress to create a corporation to be proposition that Congress has exceeded its used as an agency of the Government but to constitutional powers in granting to banks the deny its right to endow this agency with, those right to act as trustees, executors, and admin- faculties which are necessary for its existence istrators. If for mere profit it can clothe this and support. agency with the powers enumerated, it can By analogy, it is equally useless to concede give it the rig;hts of a trading corporation, or the right of Congress to endow such an agency a transportation company, or both. There with faculties which a half century ago were is, as Judge Marshall points out, a natural sufficient to enable it to live and to perform the connection between the business of banking functions for which it was created, but to deny and the carrying on of Federal fiscal operations. the right of Congress to add such new powers There is none, apparently, between such as may have been made necessary by changed operations and the business of settling estates, conditions to enable it to meet the increasingly or acting as the trustee of bondholders. This active competition of corporations created and being so, there is in the legislation a direct inva- organized under State law. sion of the sovereignty of the State. * * * In the last analysis, the question to be de- Such an invasion I think the court may termined is, Has Congress the power to preserve declare and may prevent by its order operating the national banking system ? If it can give to upon the offending agency." national banks powers similar to those enjoyed by their competitors, the national system can It thus appears that the sole justification for be preserved and the banks composing this sysconcluding that Congress has abused its discretem can continue to perform the public services tion in granting to national banks the powers for which they were created. On the other specified in section 11 (k) is an assumption on hand, if the legislative discretion of Congress is the part of the court that some natural connecdetermined to be so limited that it can not cotion exists between what it terms the business ordinate the powers of national banks, State of banking and the fiscal operations of the Govbanks, and trust companies, it is inevitable that ernment and that none exists between the busisooner or later the national system will disness of trust companies and the Government's integrate and those who have embarked upon fiscal operations. The court does not point : | the banking business will seek their charters out how any particular private power heretofrom that sovereignty which offers the wider fore exercised by national banks has a closer field of activity and the more certain source of relationship to the fiscal operations of the revenue. Government than the private powers in question. CONCLUSION. It is an interesting fact that the reason as- The decision of the Supreme Court of Michisigned for its conclusion that Congress has no gan should be reversed and the cause remanded power to grant trust powers to national banks ' with instructions to dismiss the information. is substantially similar to one of the reasons advanced by the opponents of the first Bank of of the United States against vesting that bank New National Bank Charters. with any private powers. The Comptroller of the Currency reports the As illustrating the similarity between the arguments made at that time and the reason- following increases and reductions in the numing of the Michigan court in the present case, ber of national banks and the capital of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL BESEEVE BULLETIN. 267 national banks during the period from Febru- DISTRICT NO. 5. ary 24, 1917, to March 23, 1917, inclusive: Trustee, executor, administrator, and registrar of stocks and bonds: Banks. National Bank of New Berne, New Bern, N. C. New charters issued to 12 DISTRICT NO. 6. With capital of $1,150,000 Trustee, executor, administrator, and registrar of stocks Increase of capital approved for .. 20 and bonds: With new capital of 1,519,990 Lowry National Bank, Atlanta, Ga. Trustee, executor, and administrator: Aggregate number of new charters and Central National Bank, St. Petersburg, Fla. banks increasing capital 32 DISTRICT No. 7. With aggregate of new capital authorized 2,669,990 Trustee, executor, administrator, and registrar of stocks and bonds: Number of banks liquidating (other than Merchants National Bank, Muncie, Ind. those consolidating with other national First National BanK, Mishawaka, Ind. banks) 8 First National Bank, Council Bluffs, Iowa. Capital of same banks 1,325,000 DISTRICT NO. 8. Number of banks reducing capital 2 Trustee and registrar of bonds: Reduction of capital 50,000 American National Bank, Bowling Green, Ky. Total number of banks going into liquida- DISTRICT NO. 10. Trustee, executor, administrator, and registrar of stocks tion or reducing capital (other than those and bonds: consolidating with other national banks). 10 First National Bank, Kansas City, Mo. Aggregate capital reduction 1,375,000 Trustee, executor, and administrator: First National Bank, Hugo, Colo. The foregoing statement shows the aggregate of DISTRICT NO. 11. increased capital for the period of the banks Trustee, executor, and administrator: embraced in statement was 2,669,990 Citizens National Bank, Roswell, N. Mex. Against this there was a reduction of capital owing to liquidations (other than for con- DISTRICT NO. 12. solidation with other national banks) and Trustee, executor, administrator, and registrar of stocks and bonds: reductions of capital of 1,375,000 Continental National Bank, Salt Lake City, Utah. Netincrease 1,294,990 Commercial Failures During February. Fiduciary Powers. Commercial mortality in the United States The applications of the following banks for during the month of February not only showed the customary falling off from the previous permission to act under section 11 (k) of the month, but displayed a most gratifying improve- Federal Reserve Act have been approved since ment, both in number and amount of liabilities the issue of the March BULLETIN. as compared with the corresponding month for several 3^ears past. The total number of fail- DISTRICT NO. 1. ures in the past month reported by R. G. Dun Trustee, executor, administrator, and registrar of stocks & Co. was 1,165, as against 1,540 in January, and bonds: Home National Bank, Brockton, Mass. 1,688 in February last year, 2,278 the same month two years ago, which was the maximum DISTRICT NO. 2. for that month, and 1,505 for the correspond- Trustee, executor, administrator, and registrar of stocks ing period in 1914, while the liabilities were and bonds: $16,617,883 and §18,283,120, respectively, for Farmers National Bank, Sussex, N. J. Second National Bank, Soinerville, N. J. February and January this year, and $18,744,- Registrar of stocks and bonds: 165 in February, 1916. First-Bridgeport National Bank, Bridgeport, Conn. Separation of these statistics into Federal Oneida Valley National Bank, Oneida, N. Y. districts reveals sharp contraction in number DISTRICT NO. 3. in every instance, with the falling off especially Trustee, executor, administrator, and registrar of stocks pronounced in the second, third, fifth, seventh, and bonds: and eighth districts. On the other hand, lia- May town National Bank, Maytown, Pa. bilities show gain over last year in three dis- West Branch National Bank,"Williamsport, Pa. tricts, an increase of approximately $567,000 Trustee, executor, and administrator: National Bank of Topton, Topton, Pa. appearing in the fourth, $122,000 in the tenth, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

268 FEDERAL. RESE&VE BULLETIN. A:»RIL 1, 1917. and $1,709,000 in the twelfth. The remaining GOLD SETTLEMENT FUND. districts, however, all report substantial improvement, notably the first, with a contraction For the present, at least, payments from amounting to about $691,000; the third, credit balances of Federal Keserve Banks in $767,000; the sixth, $1,226,000, and the elev- the Gold Settlement Fund will not be made enth, $694,000. directly to member banks of the system or to The number of commercial failures and liaindividuals. This question was raised early in. bilities in each district for the month of February, this year and last, are compared below: March through the request of a Federal Reserve Bank that its account be charged with a Number Liabilities. stated amount and payment made to a desig- District. 1917 1916 1917 1916 nated member bank. After consideration the No 1 99 137 $657,828 51,348,200 Board voted not to authorize payments of this \\Q 2 204 W8 3.891.882 4,194,990 No 3 65 138 '470,444 1,237,250 character. No 4 .... 90 1?7 J,461,654 894,500 No 5 58 139 934,923 1,138,600 There has been an increasingly large volume No 6 114 157 1,098,938 2,224,850 No 7 141 185 1,871,188 2,253,800 of transactions between the Federal Reserve No 8 90 130 770,043 976,075 No 9 51 62 375,790 527,670 Banks through the Gold Settlement Fund dur- No 10 51 65 680,471 558,010 No 11 50 88 518,042 1,212,720 ing March. The settlement of March 22 No. 12 152 162 3,886,680 2,177,500 amounted to $297,765,000, the largest weekly- Total 1,165 I 688 16,617,883 18,744,165 settlement yet made. An unusually large Operation of the Clearing Plan. number of transactions between Federal Re- The following table shows briefly the clearing serve Banks and Federal Reserve Agents has operations of the Federal Reserve System for occurred. the monthly period ending March 15, 1917, Below are the figures covering the period with comparative figures for each of the seven between the settlements of February 23 and preceding months: March 22. They show obligations settled amounting to $1,080,800,000 by means of the Operations of the Federal Reserve deariny system, February 16 to March 15, 1917.' weekly settlement, and $15,839,000 by means of transfers between the banks during the week. . onmember Changes in ownership in the fund amounted to I i A nu v m er b ag er e A am ve o r u a n g t e M b e a m nk b s er b fr a o n m ks 5.12 per cent of the total obligations settled. h o a f n i d te l m ed s c o l f e a d r a in il g y . d in is t t r h i e ct. c w h h ec ic k h s Boston, Philadelphia, and San Francisco show claiiv. a l r e e c t c e o d l- the largest increases. at par. Boston 37,565 313,156,973 402 242 Amount of clearings and transfers, Federal Reserve Banks. New York 43.565 28,526,564 625 311 Philadelphia... 32,898 17,164,282 632 240 from Feb. 24, 1917, to Mar. 22, 1917, inclusive. Cleveland 15,730 6,949,218 753 487 Richmond 16.799 7,873,139 518 269 [000 omitted.) Atlanta 13.359 3,906,719 389 394 Chicago 19,872 12,043.131 1.045 1,445 S M t i . n L n o ea u p is olis; 1 1 0 3 . ^ 0 3 3 0 0 8 6 6: , 3 1 3 0 3 2 . : 5 3 5 5 3 9 4 71 6 8 7 1, ' 0 8 4 6 2 7 Total Balances Transfers, Kansas City... 12,885 7,545.391 941 1.398 clearings. adjusted. Dallas 12.891 5,035:821 619 211 San Francisco.. 5.773 1,767,280 521 1,098 Settlement of— Total, Feb. 10 to Mar. 15, Mar, 1,1917 S244.625 $17,903 8500 1917 '.. 231.475 116.404,430 7,630 8.007 Mar. 8,1917 282,950 16,237 9,550 Jan. 16 to Feb. 15, Mar. 15,1917 255,450 9,310 1.000 1917 220,421 110,188.028 7? 630 8,086 Mar. 22.1917 297, 765 18,376 i 733 Dec. 16, 1916, to No J 1 v 9 a . 1 n 6 . 1 6 1 5 t , o 1 D 91 e 7 c. 15, 2 2 4 3 1 6 . . 9 0 3 3 3 3 1 1 2 2 1 5 , , 8 6 1 0 4 3 , , 5 7 8 3 9 2 7 7, . 6 6 2 2 7 2 8 8 , , 1 0 3 6 0 5 Previo T u o sl t y al reported Tor 1917 2 1 ' , , 0 1 3 4 0 1 , , 8 0 0 6 0 8 12 0 1 1 , , 0 8 3 3 6 5 5 15 4 , ,6 8 4 3 3 3 Oc 1 t 9 . 1 6 1 6 to Nov. 15, ! 227,489!ll5;061.224 7,623 8,059 T To o t t a a l l t s r i a n n c s e f e J r a s n . J a 1 n ,1 . 9 1 1 .1 7 917, to date 3, 2 7 2 0 1 , , 4 80 8 S 2 182,871 432 Sept. 16 to Oct. 15. j Total for 191(5, including transfers. 5, 833,966 Au 1 g 9 . 1 1 6 6 to Sept. : . 1 . 5 '. , ! 1 204,89i' 97,666,107 7,618 7,459 Total for 1915, including transfers. .1, 052,649 ... 1916 1 177.397 78,559,704 7,618 7,449 Total clearings and trans- July 16 to Aug. 15, fers, Mav 22,1915, to Mar. 1916 133.113 59,301.696 7,624 7,032 22,1917.*...! 9, 97S, 953 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL •RESERVE BULLETIN". 269 Changes in ownership of gold. [000 omitted.] Total to Feb. 23, ! From Feb. 24.1917, to Mar. 22,1917, Total changes from 1917. inclusive.1 M M a a y r. 2 2 2 0 , , 1 9 1 1 9 7 1 . 5 2 , to Balance Federal iteserve Bank to credit, Feb. 23, 1917, Balance Decrease. Increase. plus net Mar. 22, Decrease, Increase. Decrease. Increase. deposits 1917. of gold since that date, i I Boston 325,595 811,825 $21,015 §9,190 $34,785- New York.... §305,232 73,768 20,241 $53,527 $358,759 Philadelphia. 65,435 8,245 17,441 9,196 74,631 Cleveland 28,790 22,200 26,017 3,817 32,807 Richmond.... 23,106 18,406 17,085 1,321 21,785 Atlanta 22,957 5,497 4,431 1,066 21,891 Chicago 2,954 25,514 43,870 18,350 21,310 St. Louis..... 5,122 3,482 4,240 758 5,880 Minneapolis.. 5,457 4,577 8,641 4,064 9,521 Kansas City. 48,750 22,227.5 26,152.5 3,925 52,675 DDaa-llas. 32,117 7,749.5 7,567.5 182 31,935 San Francisco. 44,949 7,779 14,569 6,790 51,739 Total i 305,232 305,232 211,270 211,270 56. G 50,096 358,759 358,759 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.] Balance Gold. Transfsrs. Weekly settle M me a n r. t s 2 2 f , r 1 o 9 m 1 7 F . eb. 24,1917, to 1 M 91 a 7 r , . b 2 a 2 l , - Federai Beserve Bank: of— Fe 1 b 9 . 1 7 2 . 3, d W ra i w th n - . D i e te p d o . s- Debit. Credit. T d o e ta b l i t n s e . t d T e o b t i a ts l . c T re o d t i a t l s. ; T c o re ta d l i t n s e . t b f c a u u l n s o n c i s d n e e e i o a s n t f s. Boston ! $17,825 86,000 ' 81,000 887,139 §95,329 88,190 $21,015 "N ew Y" ork• 5533,776688 : §20,000 813,589 ! 250 i 840,188 282,101 241,913 20,241 Philadelphia 10,855 ! 4,300 j l',690 159,994 169,190 9,196 17,441 Cleveland 2°6*, 4-(3ta0n : 4,310 ! 50 76,815 80,632 3,817 28,017 Richmond.. 16,826 i 1,580 2,000 67,689 68,368 679 17,085 Atlanta 5,197 830 250 816 37,397 36,581 4,431 Chicago | 32,694 8,680 ; 1,500 14,089 i 134,308 138,575 4,267 43,870 St. Louis ' 1,802 200 I 1,880 500 ! 99,126 99,384 258 4,240 Minneapolis ; 4,457 120 23,369 27,433 4,064 8,64i Kansas City I 27,357.5 5,300 170 65,570 69,495 3,925 29,152.5 Dallas I 7,659.5 80 170 182 28,559 28,377 7,567.5 San Francisco ! 8,409 1,000 370 18,733 25,523 6,790 14,569 Total. 213,310 30,400 28,300 15,839 15,839 j 41,186 1,080,800 1,080,800 41,186 |211,270 Federal Reserve Agents9 Fund—Summary of transactions, Feb. 24, 1917, to Mar. 22, 1917, inclusive. [020 omitted.! Federal Preserve Agent at— i j 1 : F t B o e 1 a b c 9 la . r 1 e n 7 2 d . c 3 i e , t d W ra i w th n - . I I po D s e it - ed M Ba 1 a 9 l r a 1 . n 7 2 . c 2 e , s I I Federal Heserva Agent at— F M e 1 b 9 l . 1 7 2 . 3 , W (dra 1 w U n , . | i " D Do e sited. Philadelphia.. 812,130 §390 $4,150 $15,890 Minneapolis.. §3,250 8120 $3,130 Cleveland 4,000 4,000 Kansas Cifcv.-. 13,380 620 $4,900 17,660 Richmond 10,000 1,000 9,000 Dallas.....".... 9,330 450 8,880 Atlanta 13,450 430 400 13,420 San Francisco 15,380 370 15,010 Chicago 13,210 600 7,080 20,290 St. Louis G.430 380 •0.053: Total... 90,500 ; 4,360 j 21,130 IIS, 333 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

270 FEDERAL RESERVE BULLETIN. APRIL 1,1917. Uniform Accounts. ican Institute of Accountants with a view to remedying the condition. It has found that The following tentative proposal has been verified statements may be divided broadly submitted by the Federal Reserve Board for into—(a) Those in which the certificate is the consideration of banks, bankers, and based on an examination of the books without banking associations; of merchants, manu- personal superivsion of inventories and independent appraisal of all assets with the aid of facturers, and associations of manufacturers; technical appraisers, and (6) statements veriand of auditors, accountants, and associations fied with the personal supervision of invenof accountants: tories and independent appraisal of all assets. Through the courtesy of the Federal Trade The value of the two classes of audits and Commission the Federal Reserve Board has their relation to each other depends to a great been enabled to take advantage of a large extent upon the character and magnitude of amount of information and data which the the business involved. Trade Commission acquired in connection In some cases method (b) has advantages with the study of the statements made by over method (a). In other cases, notably those merchants, manufacturers, etc., as showing of large companies in which personal superthe condition of their business. Because this vision of inventories is arduous and perhaps matter was clearly of importance to banks impracticable and the value of an independent and bankers, and especially to the Federal appraisal of assets is liable to be considerably Reserve Banks which might be asked to redis- exaggerated, the reverse may be true. That count commercial paper based on borrowers' is to say, a verification based upon the books statements, the Federal Reserve Board has themselves without an appraisal may be and taken an active interest in the consideration of often is the safer method of procedure. It is the suggestions which have developed as a highly desirable gradually to educate the busiresult of the Trade Commission's investiga- ness world to the great importance of a comtion, and now submits in the form of a tenta- plete form of audit statement, although any tive statement certain proposals in regard to plan for immediate adoption intended to prosuggested standard forms of statements for duce practical results must recognize that unmerchants and manufacturers. der present practice probably more than 90 The problem naturally subdivides itself per cent of the statements certified by public into two parts. (1) The improvement in stan- accountants are what are called balance-sheet dardizjation of the forms of statements; (2) audits, such as are described in paragraph (a) the adoption of methods which will insure above referred to. greater care in compiling the statements and As a first step toward the standardization of the proper verification thereof. balance-sheet audits and to insure greater care In recent years bankers through their in compiling and verifying statements the Fedassociations and otherwise have made rapid eral Trade Commission requested the American progress in the direction of more uniform and Institute of Accountants to prepare a memocomplete forms of statements. Much has randum on balance-sheet audits. This memoalso been accomplished in the improvement of randum was duly prepared and approved by the quality of the statements rendered and the council of the institute representing in securing statements which do not depend accountants in all sections of the country. for their accuracy on the borrowers' statement After approval by the Federal Trade Comalone but are verified to a greater or less ex- mission the memorandum was placed before tent by independent scrutiny and audit. the Federal Reserve Board for consideration. The advantage of a statement certified by | The Federal Reserve Board, after conferences trustworthy public accountants over an un- with representatives of the Federal Trade verified statement is evident. At the present Commission and the American Institute of time, however, there is no uniformity as to Accountants, and a careful consideration of the the extent of verification in the case of state- memorandum in question, has accepted the ments put forward as having been verified. memorandum, given it a provisional or tenta- The Federal Trade Commission in the course tive indorsement, and submitted it to the of its investigation of business conditions has banks, bankers, and banking associations been strongly impressed with the lack of uni- throughout the countay for their consideration formity and has enlisted the aid of the Amer- and criticism. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 271 The recommendations in the memorandum nearly as possible the requirements and practice apply primarily to what are known as balance- of Federal Reserve Banks. sheet audits. This is an initial step which may easily be succeeded by future developments SPECIFIC INSTRUCTIONS AND SUGGESTIONS tending still further to establish uniformity RELATING TO THE SEPARATE HEADINGS. and covering more fully the field of financial statements. CASH. The cash on hand preferably should be GENERAL INSTRUCTIONS FOR A BALANCE SHEET counted after banking hours on the last day of AUDIT OF A MANUFACTURING OR A MER- the fiscal period to be covered by the audit, CHANDISING CONCERN. and the amount thereof, together with the cash stated to be in the bank, reconciled with that The scope of a balance sheet audit for a fiscal shown by the cashbook. The cash, bills reyear or other operating period of an industrial ceivable, and investments must be examined or mercantile corporation or firm comprises a on the same day, so as to make it impossible verification of the assets and liabilities, a genfor a treasurer to make up a shortage in one eral examination of the profit and loss account, asset by withdrawing negotiable funds temand, incidental thereto, an examination of the porarily from another. essential features of the accounting. In counting the cash on hand the auditor Trial balances of the general ledger, both at must see that all customers7 checks produced the beginning and end of the period under reto him as part of the cash balance have been view, should be prepared in comparative form duly entered in the cashbook prior to the close and checked with the ledger. The items in the of the period and should note the dates and trial balances should be traced into the balance descriptions of such checks, and also the dates sheets before the assets and liabilities are veriand descriptions of all advances made from fied, to prove, among other things, that no cash and not recorded on the books. Advances "contra" asset or liability has been omitted to employees should be strictly investigated, from the accounts, that the assets and liabiliand if any are secured by personal checks the ties have been grouped in the same manner at auditor should see that the checks are certified the beginning and end of the period, and also by the bank on which they are drawn before that the balance sheets are in accordance with the close of the audit. the books. The disposition of any general ledger assets and liabilities that may have been Certificates must be obtained, as of the evenscrapped, sold, written off, or liquidated during ing of the closing date, from the banks in which the period under review should be traced and cash is deposited, by or mailed directly to, the noted in the working papers. Furthermore, a auditor himself. The balances as shown by general scrutiny of the general ledger should be the certificates must be reconciled with those made to see that the accounts, if any, that have shown on either the cashbook, the checkbook been opened and closed during the year have no stubs, or bank registers, taking into considerabearing on the company's financial position at tion outstanding checks. the close of the fiscal period. In verifying the outstanding checks there is The auditor should obtain a copy each of the only one safe and satisfactory method of provbalance sheet at the beginning and the end of ing their accuracy, and that is to compare the the period to be audited, and should make a credit side of the cashbook from the last day comparison between them, so that a compre- of the fiscal period backward, item by item, hensive view may be had by him of the changes with the checks returned from the bank for in the figures during the period under review. such period as may be necessary to account for A statement of the disposition of the profits all current outstandings. Any old checks not should then be prepared from this comparative yet cashed by banks should be made the subbalance sheet as a further aid in impressing the ject of special inquiry. When this work is meaning of the figures upon the mind of the completed, a list of the outstanding checks so auditor. ascertained should be prepared, showing the The verification of assets and liabilities for dates of the checks and compared with the convenience will be considered in the order in actual checks returned from the bank at a later which the items appear in the form of balance date/and any not so returned should be spesheet attached hereto. This form of statement cially investigated. Special care is necessary to has been determined by the desire to meet as see that no checks for cash purposes are drawn 87199—17 6 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

272 FEDERAL RESERVE BULLETIN. APEIL 1,1917. at the close of the period and entered in the in the notes. If discounted the name of the next period. discounting bank should be noted and verifi- Where the currency and bank transactions cation obtained from the bank. are kept together in the cashbook and the The outstanding notes must be carefully auditor does not count the cash until a date examined with the notes-receivable book, and subsequent to the close of the fiscal year, he with the list prepared by or produced to the must, in addition to verifying the bank bal- auditor, the due dates and the dates of making ances as of the close of the year, verify them as the notes being carefully checked, and when of the date of the count of cash. This is abso- notes have been renewed the original dates lutely essential when it is considered that, should be recorded. When notes have been although the cash on hand, which forms only paid since the close of the fiscal year, the part of the balance, at the date of the count is cash should be traced into the books of the correct, it does not follow that the total cash company, and when they are in the hands is correct. of attorneys or bankers for collection certifi- When receipts are shown in the cash books cates should be obtained from the depositaries. as being deposited in the bank on the last day When notes receivable arc discounted by of the fiscal period, but are included in the banks the company has a liability therefor reconciliation statement on account of their not which should appear on the balance sheet. being paid into the bank until the next day, the Lists of discounted notes not matured at the auditor must obtain letters from the banks date of the audit should bo obtained from the acknowledging such deposits. banks as verification and their totals entered The deposits shown in the pass books should under 20a if the cash therefor is shown as an be checked in detail for the last two or three asset. days of the fiscal period from the books to prove The value of collateral, if any, held for that they were composed of bona fide checks, notes should be ascertained, as it frequently and that no check drawn by the company was happens that the notes are worth no more deposited in a bank without being credited to than the collateral. the bank on -which it was drawn prior to the Notes due by officials and employees must close of the fiscal period. always be stated separately from customers7 So that the auditor may satisfy himself that notes, as must also notes received for other deposits are promptly made in bank each day, than trade transactions. ancl that the same checks are paid into bank Notes due from affiliated concerns must as are received, it is advisable to call for a not be included as customers' notes, even number of deposit slips and compare them with though received as a result of trading transacthe receipts as shown by the cashbook for the tions. Affiliated companies' notes should be days in which the deposits are made. To make shown as a separate item of current assets or such verification absolute the deposit slips as other assets as the circumstances warrant. should be obtained from the banks. They may be fairly included in current assets if When the practice of a company is to pay all the debtor company has ample margin of quick of its cash receipts into bank, they should be assets over its liabilities, including such notes. compared and reconciled with the total de- The term "Quick assets7' is used here in the posits, as shown by,the bank books, and simi- sense in which it is used by Federal reserve larly the disbursements should be reconciled practice. "Current assets77 is used to comwith the total checks drawn. prise these assets and other assets which Outstanding checks not examined at a pre- | though current are excluded in determining vious audit on account of not having been re- the eligibility of the paper for Federal Reserve turned by the banks must be called for and purposes. traced into the cashbook at the beginning of i Optional.—The best verification of notes the current audit. receivable is an acknowledgment by the party named in each note as the payor on the due NOTES RECEIVABLE. date that the note is a bona fide obligation. Therefore if time permits, and the client does A list of notes receivable outstanding at the not object, it is advisable to obtain such end of the fiscal period should be prepared written confirmation for each note. The showing the dates the notes are made, the cus- auditor should personally mail the letters, tomers7 names, the date due, the amounts of inclosing stamped envelope for reply addressed the notes and the interest, if any, contained direct to himself. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

VRU, 1,1917. FEDEEAL BESEBVE BULLETIN. 273 ACCOUNTS RECEIVABLE. The auditor should satisfy himself that the bad debts written off have been duly authorized The bookkeepers of the accounts-receivable by responsible officials. ledgers should fte asked to draw off lists of the Accounts due from directors, officers, and open balances at the end of the fiscal period, employees must be stated in the balance sheet and distributions of the total columns should separately and not included as trade accounts. be shown on the lists according to the ago of This applies also to deposits as security, guarthe accounts, e. g., not yet due, less than 30 anties, and other extraordinary items not condays past due, more than 30 days past due. nected with sales. The accounts paid since the close of the fiscal Accounts duo from affiliated concerns must period should be noted in the lists before tak- not be included as customers' accounts, even ing up the matter of past due accounts with though arising as a result of trading transacthe credit department, as payment is the best tions. Affiliated companies' accounts should be proof that an account was good at the date of shown as a separate item of "current assets" the audit. or as "other assets," as the circumstances war- The totals of the lists of outstanding ac- rant. They may be fairly included as " current counts should agree with the controlling ac- assets" if the debtor company has ample marcount in the general ledger if separate ledgers gin of quick assets over its liabilities, includare kept. When credit balances appear on ing such accounts. customers' accounts they should be shown on Optional.—The best verification of an open the balance sheet as a separate item and not- balance is a confirmation by the customer; deducted from the total of debit balances; and therefore, if time permits and the client does debit balances on the accounts-payable ledgers not object, it is advisable to circularize the cusshould be treated in the same manner. tomers. The auditor should personally see The lists must be footed and compared in the circulars mailed after comparing them with detail with the customers' accounts in the the lists of outstanding accounts. The envelledgers. opes for replies sent with the circulars should. The composition of outstanding balances bo addressed direct to the auditor. should always be examined, as it frequently In largo concerns the system of accounting happens that while a customer may be making is generally so arranged that it would be almost regular payments on his account, old items impossible for accounts to be paid and not corare being carried forward which have been in rectly credited on the accounts-receivable loddispute for a considerable period of time. gers, but in small concerns, with imperfect Such items and accounts which are past duo "systems, such occurrences are quite possible, should bo taken up with the credit department so much so, in fact, that it is generally admitted or some responsible officer, and tho corre- that the risk of errors and omissions decreases spondence with the customers examined, so in direct proportion to an increase in bookthat the. auditor may form an opinion of tho keeping. worth of the accounts and satisfy himself that SKGi: U-IT1ES. the reserve for bad and doubtful accounts sot up by the company is sufficient. i Under this caption must bo listed securities Trade discounts (and also so-called cash dis-i in which surplus funds of tho company or firm counts, if exceeding 1 per cent) and freightsI have boon temporarily invested and which are allowed by the company should be inquired ! considered as available as "quick assets/5 i. e., into, and if they have been included in the I can bo turned into money in time of need. accounts receivable a reserve therefor should Where stocks or bonds represent control or a be set up in tho balance sheet. Also inquiries material interest in other enterprises the ownershould bo made regarding customers' claims ship of which carries more or less value to the for reductions in prices and for rebates and 1 holder outside of the return thereon the? allowances on account of defective materials, should be considered as fixed assets. so that it may be seen that a sufficient reserve A list of investments should be prepared has been established therefor. showing— Inquiry must be made as to whether any of The dates of purchases. the accounts receivable have been hypothe- Descriptions of the investments. cated or assigned, and the sum total of accounts Far value of the investments. so listed entered under 20b. The denomination of the shares. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

274 FEDERAL RESERVE BULLETIN. APRIL 1,1917. The number of shares or bonds owned. Investments in deeds and mortgages must The total capital stock of the various com- be supported by both the mortgages and insurpanies. ance policies, and, furthermore, it must be The amounts paid for the investments. shown that all assessed taxes on the property The interest and dividends received. have been duly paid, that the mortgages have The market values of the investments. been properly recorded, and that the insurance The surplus or deficit shown by the balance policies are correctly made out to the company. sheets of the companies where no market If any of the securities have been hypothequotations are available. cated the fact and amount (book value) must If hypothecated, with whom and for what be stated under 20d of the balance sheet. purpose. This "list must be compared with the ledger INVENTORIES. accounts concerned and the total of amounts paid according to the list must agree with the Under this caption must be included only balance of the investment account or accounts. stocks of goods owned and under control of the The securities must be examined by the owner. Stocks are often hypothecated and if auditor in person or he must secure confirma- this is the case the fact should be stated on the tion of their existence from those who hold them balance sheet. as collateral. Those in possession of the com- Inasmuch as the accuracy of the profit and paii}7' must be counted and examined as soon as loss account is absolutely dependent upon the possible after the audit starts, and all of them accuracy of the inventories of merchandise at must be submitted to him at one time. It is the beginning and end of the period under much more satisfactory to see the actual se- review, this part of the verification should recurities than to verify cash receipts and other ceive special attention. When a balance-sheet evidences therefor after the audit has progressed audit is being made for the first time, the some time. inventory at the beginning of the period should Certificates out for transfer must be verified receive as much attention as that at the end, by correspondence. and the auditor should take every precaution . Where the market values of securities are to satisfy himself that both inventories were less than the book values, save where the vari- taken on the same basis. ation is so small as to be trifling, a reserve for An acceptable program of audit for inventoloss in value on the balance sheet date must be ries is as follows: set up. (1) Secure the original stock sheets if they Care must be taken to see that the certificates are in existence and carefully test the typeare made out in favor of the company, or that written copies with them and with tickets, they are indorsed or accompanied by powers of cards, or other memoranda that show the attorney when they are in the names of indi- original count. viduals. (2) See that the sheets are certified to or Coupons on bonds must be examined to see initialed by the persons who took the stock, that they are intact subsequent to the latest made the calculations and footings, and fixed interest payment date. the prices, and satisfy yourself that they are The investment schedule must show that the dependable and responsible persons. Obtain total interest and dividends receivable by the a clear and detailed statement in writing as company have been duly accounted for; the in- to the method followed in taking stock and come from the investments shown in the profit pricing it; also a certificate from a responsible and loss account must be in accord with this head as to the accuracy of the inventory as a schedule. whole. When market quotations can not be obtained (3) A thorough test of the accuracy of the for investments, the balance sheets of the com- footings and extensions should be made, panies in which investments are held must be especially of all largo items. examined so that the auditor may form an idea (4) The inventories should be compared of their value. with the stores ledger, work in progress ledgers In verifying purchases of stock exchange and finished product records and stock records securities the brokers' advices must in all cases as to quantities, prices, and values, and any be examined in connection with the verifica- material discrepancy should be thoroughly tion of the purchase price. traced. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 275 (5) Where stock records are kept and no price of goods, but no other items should be physical inventory is taken at the time of the added except under unusual circumstances. audit, ascertain when the last physical inven- (12) As a check against obsolete or damaged tory was taken {and compare it with the book stock being carried in the inventory at an excesrecords. If no recent comparison is possible, sive valuation, the detailed records for stores, select a few book items of importance and per- supplies, work in progress, finished products, sonally compare with the actual stock on hand. and purchased stock in trade, should be ex- (6) Where no stock records are kept, a physi- amined and a list prepared of inactive stock cal inventory should be taken preferably under accounts, which should be discussed with the the general direction of the auditor. After the company's officials and satisfactory explanainventory is completed, he should apply the tions obtained. same tests to verify its accuracy as if the in- (13) The auditor should satisfy himself that ventory had been taken before his arrival upon inventories are stated at cost or market prices, the scone. whichever are the lower at the date of the (7) When the cost system of a company does balance sheet. No inventory must be passed not form a part of the financial accounting which has beem marked up to market prices scheme there is always a chance that orders and a profit assumed that is not and may never might be completed and billed, but not taken be realized. If the market is higher than cost out of the work in progress records. Espe- it is permissible to state that fact in a footnote cially is this the case when reliance is placed on tlie balance sheet. on such records to the extent that a physical (14) It may be found that inventories are inventory is not taken at the end of the period valued at the average prices of raw materials to verify the information shown therein. In and supplies on hand at the end of the period. these cases the sales for the month preceding In such cases the averages should be compared the close of the fiscal period should be carefully with the latest invoices in. order to verify the compared with the orders in progress as shown fact that they are not in excess of the latest by the inventory, to see that nothing that has prices, and also with the trade papers, when been shipped is included in the inventory in market prices are used, to see that they are not error. Cost systems which are not coordi- in excess of market values. nated with the financial accounts are unreliable (15) Make an independent inspection of the and frequently misleading. Special attention inventory sheets to determine whether or not should be called to every case in which the cost the quantities are reasonable, and whether they system is not adequately checked by the results accord in particular instances with the average of the financial accounting. consumption and average purchases over a (8) Ascertain that purchase invoices for all fixed period. Abnormally large quantities of stock included in the inventory have been stock on hand may be the legitimate result of entered on the books. Look for postdated shrewd foresight in buying in a low market, but invoices and give special attention to goods in may, on the other hand, arise from serious transit. errors in stock taking. (9) See that nothing is included in the in- (16) Always attempt to check the totals by ventory which is not owned but is on consign- the "gross profit test" and compare the perment from others. If goods consigned to centage of gross profit shown with that of preothers are included, see that cost prices are vious years. In a business where the average placed thereon, less a proper allowance for loss, gross profit remains fairly constant this test is damage, or expenses of possible subsequent a dependable one, because, if the rate of gross return. This does not include goods at profit is apparently not maintained and the disbranches, as the valuing of such stocks will be crepancy can not be satisfactorily accounted governed by the same principles as apply at for b}^ a rise or fall in the cost of production or the head office. of the selling price, the difference will usually (10) Ascertain that nothing is included which be due to errors in stock taking. has been sold and billed, and is simply awaiting (17) In verifying the prices at which the shipment. work in progress is included in the inventory, a (11) If duties, freight, insurance, and other general examination and test of the cost system direct charges have been added, test them to in force is the best means of doing this work ascertain that no error has been made. Duties satisfactorily. In a good cost system little and freight are legitimate additions to the cost difficulty will be found with the distribution of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

276 EEDEEAL EESEEVE BULLETIN, APHIL 1,1917. the raw materials, stores, and pay roll, but the has been charged to plant or property account distribution of factory overhead cost is one that is included therein. should receive careful consideration, the main (23) Partial deliveries received on account of points to be kept in view being: purchase contracts for material, etc., should be (a) That no selling expenses, interest charges, verified by certificates from the contractors, or administrative expenses are included in the both as to quantities and prices. factory overhead cost. (24) Advance payments on account of pur- (b) That the factory overhead cost is dis- chase contracts for future deliveries should tributed over the various departments, shops, never appear in an inventory, but be shown and commodities on a fair and equitable basis. on the balance sheet under a separate heading. (18) No profit should be included in the price (25) Trade discounts should be deducted of finished products or stock in trade. The from inventory prices, but it is not customary price list should be examined to see that the to deduct cash discounts. However, this may cost prices of stock are below the selling prices be done when it is the trade practice so to do. after allowing for trade discounts, and if they (26) While the inventory is being verified, are not a reserve should be set up on the balance the auditor should ascertain the aggregate sales sheet for this loss. If the company takes im- for the last year. If the turnover has "not been mediate steps to increase the selling price, how- rapid, it may be due to a poor stock of goods. ever, the amount of this reserve may be limited Some business men dislike to sell below cost and to the loss on goods which may have been sold would rather accumulate a big stock of old since the close of the period to the date of the goods than dispose of the old and unseasonable discovery. stock at a sacrifice. The usual outcome is that the stock becomes unwieldy and funds are (19) In the case of companies manufacturing lacking to purchase new goods. The inventory large contracts it is frequently found necessary and the gross sales may, therefore, have a to make partial shipments thereof. The quesdirect connection. tion then arises as to whether it is permissible to include the profits on these partial shipments (27) It may be well to reiterate that interest, in the profit and loss account. As a matter of selling expenses, and administrative expenses fact, it is evident that the actual cost can not form no part of the cost of production, and be known until the order is completed. It may therefore should not be included in the invenbe estimated that a profit will ultimately be tory in any shape. made, yet unforeseen conditions, such as strikes, delays in receiving material, etc., may COST OF FIXED PROPERTY. arise to increase the estimated cost. It is bet- In preparing the leading schedules for the ter not to include the profits on partial ship- accounts grouped under this heading, such as ments, but information of this character which real estate, buildings, plant, machinery, etc.. may have its influence in the decision of the the balances at the beginning of the period, the banker upon a proposed loan may properly be additions to or deductions from the accounts laid before him. Of course, an exception during the year, and the balances at the end of should be made in cases where the profit on the the period must be shown. partial shipments largely exceeds the selling The total of the balances at the beginning price of the balance of the order. of the period must agree with the cost of prop~ (20) The selling prices for contract work in erty figures given in the balance sheet at that progress should be ascertained from the con- date, and the balances at the end of the period tracts, and where it is apparent that there will with the amount shown in the balance sheet be a loss on the completed contract a due pro- that is being audited. The charges entering portion of the estimated loss should be charged into the additions must be verified in detail, and to the period under audit by setting up a reserve in this connection the following notes are of for losses on contracts in progress. value: (21) If a company has discontinued the (1) Authorizations for the expenditure made manufacture of any of its products during the during the year should be examined, and where year, the inventory- of such products should be the costs of the additions have overrun the carefully scrutinized and, if unsalable, the sums authorized, inquiries should be made in amount should be written off. regard thereto. The authorizations should (22) The inventory should be scrutinized to show the accounts to which the expenditures see that no machinery or other material that are chargeable, the amounts thereof, the ap- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1317. FEDERAL 2ESEKVJ-: BULLETIN 277 provals of the comptroller and manager, and bearing on the amount of available cash on descriptions of the jobs. When the authoriza- hand. tions are not specific as to the work done, the (8) When a company uses leasehold properactual additions should, if possible, be in- ties the leases should bo examined and notes spected. made of the periods covered, so that it may (2) The auditor should satisfy himself be- be seen that improvements, etc., on such propfore approving additions that they were made erties are written off over the periods covered with the object of increasing the earning ca- by the leases. pacity of the plant, and that they are not of (9) The auditor should satisfy himself that the nature of either renewals or improve- the reserves for depreciation of buildings, maments, and in this connection changes in the chirery, equipment, etc., arc adequate to reflect production and capacity of the plant should the deterioration in the value of the fixed propreceive consideration. erties. If in his opinion the reserves shown on (3) To verify the pay roll and store and the balance sheet are insufficient, ho should call supply charges to jobs, one or two pay roll dis- attention to the matter in his certificate. tribution reports should be examined in detail, (10) Care should bo taken to insure that and also one or two storehouse reports. In property destroyed by fire or otherwise premacases where large purchases have been made turely put out of service is correctly treated in from outside parties for capital construction the books. Any portion of the original charge work, the vouchers therefor should be exam- for such property which is not recoverable ined and the usual precautions taken to see through insurance, as salvage or otherwise, that they are properly approved for the re- and has not been provided for by the depreciaceipt of materials, prices, etc. tion scheme should be written off. (4) For purchases of real estate the title It is to be observed that the foregoing notes deeds should be examined, together with the are to be applied only to cost of properties vouchers, and it should be seen that the deeds incurred during the period under audit. In have been properly recorded. addition, information may usefully bo obtained (5) While it may be considered permissible on broader lines in regard to the composition to make a charge for factory overhead cost to of the real estate, building, and machinery additions to property such as, e. g., time of accounts, and showing what principal property superintendent and his clerical force employed is represented thereby and how the accounts on construction work, etc., it can not be deemed have been built up from year to year for a conservative business practice, inasmuch as the reasonable time past if not from the inception probabilities are that the overhead charges of of the business. The information derived a plant will not be decreased to any extent therefrom is valuable only in indicating the even though additions are not under way, and, progressive policy of the concern, the extent to therefore, the absorption of part of these which it reinvests undivided surplus in its plant, charges when additions are in progress, has the etc. Beyond these facts the banker who is effect of reducing the operating costs, as com- asked for ordinary discounts or short-term pared with months in which no construction loans is not interested; he looks more to the work is under way. quick assets for his security. (6) Construction work in progress at the end Optional.—When the loan is greater than of the fiscal period should be shown in the bal- the quick assets seem to justify the auditor ance sheet under the heading of fixed assets should suggest a reliable verification of the cost and not as part of the inventories. This is of property prior to the period under audit. important to bear in mind because construc- Such action may become necessary even to tion work is not an asset that can be quickly the extent of calling for an appraisement by turned into money, while everything in the disinterested outside experts. inventory is supposed to be realizable in cash within a reasonably short time, DEFERRED CHARGES TO OPERATIONS. (7) The auditor should inquire as to whether any installments are due on account of con- Under this heading in the balance sheet struction work in progress which is being car- are grouped such items as unexpired insurance, ried on by outside parties; and if so, the lia- bond discounts applicable to a future period, bilities for these installments should be included prepaid royalties, experimental charges, etc. in the balance sheet, as they may have a direct After the clerical accuracy of the deferred Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

278 FEDERAL RESERVE BULLETIN. APRIL 1,1917. charges has been verified the auditor should cern's books and approved in the minutes of a satisfy himself that they are properly carried company. forward to future operations. Inasmuch as a note is a negotiable instru- Wherever possible, documentary proof must ment, care must be taken to see that all of those be produced in support of the items car- recorded as paid during the year under audit ried forward, as,, for example, with unexpired have been properly discharged, and the caninsurance the policies must be examined to celed notes are the best evidence of this fact. verify the dates of expiration, the amounts cov- Careful attention should be given to the colered, and the proportion of the premiums car- lateral deposited for loans and statements as to ried forward; with royalties the agreements the existence of such collateral should be obmust be examined; with experimental charges tained from the holders thereof. Such hypoththe vouchers and particulars of the work done ecation of any of the concern's assets should be must be looked into, etc. accounted for on the balance sheet. The examination of the deferred charges will When practicable the auditor might suggest usually furnish the auditor with valuable in- to the client the advisability of drawing notes formation in regard to the accounts of the j payable on blanks bound in a book, like a check company, as, e. g.: j book, with a stub for each blank, the blank and (1) The verification of experimental chargesj the stub to bear identical numbers. The officarried forward will generally furnish infor- i cer, or officers, signing the notes could, in such mation as to the production and future policy I case, initial the stub as a certificate to the of the company. amounts, payees, and terms of the notes issued. (2) Royalty vouchers will generally fur- If this were done, the auditing of bills payable nish a check on the production of mines. would be greatly facilitated. (3) An examination of the insurance policies will show if the properties are mortgaged ACCOUNTS PAYABLE. or covered by lien, and thus be an additional verification of the liability for mortgages A list of balances due on open accounts must on real estate, buildings, etc., shown in the be prepared and carefully checked with the balance sheet. ledger accounts, care being taken to see that no (4) The assets covered by insurance will be open account on the ledger has been omitted ascertained and if any omissions are dis- from the list. It should be ascertained that the covered they should be mentioned. balances represent specific and recent items only. When any account does not appear regular a statement from the creditor should NOTES AND BILLS PAYABLE. be obtained. If there are many such accounts Under this caption appear notes payable and in dispute, and the;y amount to so large a sum drafts accepted. Schedules should be prepared as to affect appreciably the total of current under the subcaptions, and in columns headed: liabilities, the general causes for the disputes Date of making the notes or drafts. should be inquired into and note made of the Due dates. matter for the consideration of the banker. Names of creditors. In concerns with modern voucher systems Collateral hypothecated. accounts payable are easily verified, as all lia- Additional indorsers. bilities are then included in the books when Interest accrued to date of audit. incurred. Care should be taken, however, to Notations of renewals (as information of see that all goods received on the last day of the this nature furnishes a guide to the state fiscal period, as shown by the receiving records, of the concern's credit). and also all goods that were in transit and be- The schedule must bo compared with the longed to the concern on that date, are innotes-payable book and the total of the aggre- cluded as liabilities, and the corresponding gate must agree with the balance of the ledger assets included in the inventories. This test account of notes payable. is necessary, as an increase in the accounts Statements must be obtained from all banks payable may have a very important bearing and brokers with whom the concern does busi- on the financial position of the concern if the ness, showing all notes and drafts discounted or cash on hand is small. sold by them for the benefit of the concern. Monthly expenses outstanding can usually These statements when received must be be ascertained by a comparison of the expenses checked against the loans shown on the con- of the last month of the fiscal period with Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 279 previous months, and those of the year with the former periods. In many cases it is also adprevious year. The voucher record should, visable to obtain a certificate from the president however, be examined for the months subse- stating that all liabilities for legal claims, inquent to the close of the fiscal yc&T, in casefringements of patents, claims for damages, any expenses included therein are applicable to bank loans, etc., have been included, as he may the fiscal period under audit. be the only executive officer of the company to When a first-class voucher system is not in know the extent of such obligations. operation the auditor must take additional precautions to satisfy himself that all lia- CONTINGENT LIABILITIES. bilities are included in the accounts, among which may be mentioned: It is not enough that a balance sheet shows what must be paid; it should set forth with (1) Payments made in the months subseas much particularity as possible what may quent to the date of the fiscal period as shown have to be paid. It is the duty of an auditor by the cashbook, which should be carefully who makes a balance sheet audit to discover scrutinized to see that none of them is applica and report upon liabilities of every description, ble to the period under review. not only liquidated debts but possible debts. (2) The file of bills not vouchored or entered The following are the usual forms under which on the books should be examined to see that contingent liabilities will be found: , none of them belongs to the period under audit. (3) A careful perusal of the minutes of a Indorsements.—Inquiry oi the officers or company may further assist the auditor in de- parti]ers of the concern should bo made as to termining liabilities. whether any indorsement of outside paper has been made and as to any security received to When a company has large purchase conprotect the concern. Such inquiry should be tracts in force for future deliveries they should particularly strict if it is known that any of be examined, for if the contract prices are greater the officers or partners are interested in other than market prices, it might be necessary to set enterprises. Similar action should be taken up a reserve for this loss. Any debit balance in the matter of— due to advance payments on such contracts or to any other cause should be shown on the balance sheet under a separate heading. GUARANTIES. If the business under audit is one where there Unfulfilled contracts.—Contracts to accept the is any possibility of goods having been received delivery of goods contracted for before the on consignments, and part or all of such goods date of the balance sheet, may call for the having been sold without a liability therefor payment of large sums of money within a short having been shown in the books, the auditor time. In the case of raw materials for a must use all due diligence to cover the point manufacturer, this might be a perfectly legitifully. This may readily happen, as consign- mate reason for socking a temporary loan ment accounts are usually treated as memo- ponding production and sale, but for a merranda only. chant whose balance sheet shows a large stock If inquiry develops the fact that goods have of goods on hand, it might indicate a real been received on consignment, all records in liability impending with assets of a doubtful connection therewith should be called for. If character to offset it. In every audit, therethe goods have all been sold, the consignor's fore, the auditor should call for copies of all account should show the full amount due, and orders for future delivery, and if such orders if the debt is a current one, the amount will call for stock in excess of the current and reaappear among accounts payable due to trade sonable prospective demand, mention should creditors. Where only part of the goods have be made on the balance sheet and a report been sold the net proceeds due to the consignors submitted, the details depending on tho cir- ? should be shown on the balance sheet under the cumstances of each particular case. caption of "Accounts payable consignors.'7 Items other than those arising from the \s an additional precaution against the omis- specific hypothecation of current assets to be sion of liabilities a certificate should be ob- listed under item 20 should appear as a foottained from the proper officer or member of the note on the liability side of the balance sheet, concern stating that all outstanding liabilities the total amounts being stated for each subfor purchases and expenses have been included heading and such additional report made as in the accounts of the period under review or of will convey clear information to the banker. 87199—17 7 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

230 FEDEKAL RESERVE BULLETIN. APRIL 1,1917. ACCRUED LIABILITIES. was not so entered, provision should be made j for it unless the amount is likely to be trifling. Under this caption are grouped such items j Ample provision should be made for all comas interest, taxes, wages, etc., which have ac- jmissions eventually payable on sales which have crued to the end of the period under audit, but j been billed to customers. As commissions are are not due and pa3^able till a later date. The j frequently not payable to salesmen until the verification of such items can be accurately!sales have been collected from the customers, made from the books and records. Special accrued commissions are often omitted from the attention may be directed to the following: books. As they must, however, be paid out of Interest payable.—Many of the liabilities the proceeds of the sales on which the full profit . which appear on a balance sheet carry interest. has already been taken into the accounts, they Such items as bonds and notes payable are ob- jshould be set up as an accrued liability. vious, but the auditor should also consider the j Legal expense.—All concerns have more or possibility of accounts also bearing interest, as jless litigation. Before the books are closed the enough book accounts, when past due, do bear lawyers should be requested to send in a bill to interest to warrant inquiry being made. Loan date. If one is not found, the auditor should accounts of partners and officers of corpora- ascertain the amount, if any, probably due and tions almost invariably bear interest; also set it up as an accrued liability. judgments, overdue taxes, and other liens. Damages.—If the concern is insured against Taxes.—The amount of accrued State and liability for damages to employees or the public local taxes can bo ascertained from an exami- a proportion of the premiums paid in advance nation of the latest tax receipts; though in some j for the unexpired time covered by the insurance cases, as the period for which the taxes are paid will appear in "Deferred charges." But there is not shown on the face of the receipt, it may be may be claims or suits for other damages not necessary to make inquiries of the proper taxing j covered by insurance and where the auditor authorities as to the period covered. finds any evidence which leads him to suspect Under the Federal income tax law a tax of 2 there may be liability of this nature he should per cent is imposed upon the net profits of a cor- insist upon being informed of all the facts. He poration, which must be paid even if the cor- can then form an opinion as to the amount that poration is dissolved before the end of the year should be set up as an accrued liability, or if the during which the tax is imposed. As the tax is outcome is uncertain as a reserve against posspecifically based upon the net profits of a sible loss. particular period, although payable some months thereafter, the tax accrues throughout BONDED AND MORTGAGE DEB.T. the specified period, and if a net profit is disclosed upon the closing of the books at any A copy of the mortgages must be examined date during the year, a reserve of 2 per cent and the terms thereof noted. The amount of ,must be shown on the balance sheet as an ac- bonds registered, issued, and in treasury, rate crued tax. of interest, and duration of the bonds, should be Wages.—Where the date of the balance sheet shown on the face of the balance sheet. A does not coincide with the date to which the certificate should be obtained from the trust last pay roll of the period under audit has been company certifying the amount of bonds outcalculated, the amount accrued to the date of standing, etc., as verification of the liability the balance sheet must be ascertained and en- stated in the balance sheet. The interest on tered as a liability, unless such amount is the bonds outstanding, shown in the balance trifling. It will suffice to take the proportion sheet, should be calculated and reconciled with of a full week's pay roll (six days) without the interest on bonds, as shown in the profit and reference to possible daily "variations. loss account. Water rates, etc.—Where bills for such ex- Sinking-fund provisions in mortgages should penses as water, gas, etc., are not rendered be carefully noted and care should be taken to monthly, the auditor must enter the accrual see that they are provided for in the accounts of the proper proportion since the last bill as a of the company, and any default noted in the liability. balance sheet. Traveling expenses and commissions.—It is Bonds redeemed during the period or preimportant to note whether the accounts of all viously should be examined, to see that they traveling salesmen have been received and have been properly canceled, or, if they have entered before the books are closed. The been destroyed, a cremation certificate should auditor should secure a list, and if &ny report be obtained from, the trustees. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,191T. FEDERAL RESERVE BULLETIN". 281 Mortgages sometimes stipulate that the cur- obtain letters from them certifying to the capirent assets must be maintained at a certain tal stock outstanding. amount in excess of the current liabilities, and Where companies issue their own stock, the the auditor must give due consideration to stock registers and stock certificate books such matters and any other stipulation in should be examined and compared with the regard to the accounts, or any audit thereof, lists of outstanding stockholders. that may be referred to in the trust deed, and On the balance sheet each class, if more than see that they have been complied with. one, of stock must be stated, giving amount Mortgages.—As a mortgage derives its chief authorized, issued, and in treasury, if any. In value from the fact that upon registry it be- the case of companies with cumulative precomes a lien, the auditor should verify the ex- ferred stocks outstanding a note must be made istence of such an obligation by inspecting the in the balance sheet of the dividends accrued public records, not only with reference to such but not yet declared. as may be found on the company's books but If stock has been sold on the instalment also any that may still appear on the public plan, the auditor should ascertain that the records as unsatisfied. If the auditor lacks calls have been promptly met and whether any the necessary facilities for making a search it are in arrears. If special terms have been exwill be worth his while to arrange with a local tended to any stockholder, approval of the lawyer or title company whereby, for a small board of directors is necessary and the minutes fee, any mortgages or judgments entered should be examined accordingly. against the concern under audit will be re- If any stock has been sold during the period ported to him. under audit, the auditor should verify the In any event the auditor must verify the proceeds of the sales. amount as recorded in the account, the rate, the due date, and the property covered thereby. SURPLUS. It should be borne in mind that a payment The auditor should give consideration to the on account of a mortgage must be recorded or surplus at the beginning of the period. This the entire amount will remain as an encumitem represents the accumulated profits prior brance on the property. Therefore, if payto the beginning of the fiscal period under review, ments on account appear, the auditor should and should be compared with the surplus ascertain if they have been so recorded; if not shown on the balance sheet of the previous year, the fact should be noted on the balance sheet. and with the ledger account, to see that it cor- Judgments.—The same procedure should be responds, and if it does not, a reconciliation followed in verifying judgments as in verifying statement should be prepared giving full demortgages. As many business men consider tails of the differences. that the entry of an invoice is an admission of liability, and will not permit the entry of a PROFIT AND LOSS. claim which they propose to fight, it is sometimes difficult for an auditor to find any evi- The auditor should obtain the profit and loss dence of such liens. Even admitting the fact statement for three years, at least, including they may still refuse to allow the judgment to the period under audit, and after verifying be entered on the books as a liability in which them by comparison with the ledger account, case it is proper for the auditor to include it as prepare a statement in comparative form. a footnote on the balance sheet as a contingent This comparison will furnish valuable inforliability. mation to the banker as to the past progress of Unpaid interest.—When considering the mat- the concern under audit. ter of liens it should be noted that interest A satisfactory form of profit and loss acunpaid is a lion as well as unpaid principal, so count is annexed hereto, but any other form where the auditor finds evidence of interest on giving substantially similar information is liens being in default, he should add it to the acceptable. principal in each case. While it would be impracticable in an ordi- I nary balance sheet audit, and, at the same time, somewhat useless to make a detailed CAPITAL STOCK. check of all the transactions entering into the As a rule trust companies are the transfer composition of the profit and loss account, agents for the capital stock of large corporations there are certain main principles to be kept in and for verification purposes it is sufficient to view which are briefly outlined below: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

282 FEDERAL RESERVE BULLETIN. APRIL 1,1917. SALES. SELLING, GENERAL AND ADMINISTRATIVE EX- PENSES. Whenever it is possible, the quantities sold should be reconciled with the inventory on Under these general headings should be hand at the beginning of the period, plus the set down the expenses itemized to correspond production, or purchases, during the period, with the titles of the ledger accounts kept in less the inventory on hand at end of the period. each division. In checking the totals of each Where a good cost and accounting system is account with the statement for the period under in force, the sales records will very probably audit, special attention to credits in these acbe in good shape, but nevertheless, the auditor counts should be given to see that none have should satisfy himself from the shipping rec- been made for the sale of capital assets and for ords that the sales books were closed on the other items which should not appear in expense last day of the fiscal year, and that no goods accounts. The percentages of the totals of shipped after that date are included in the each division and of the aggregate total to net transactions. sales should be calculated for each year for When an audit is being made for the first i comparison. time, the auditor should satisfy himself that I the sales at the beginning of the period were j NET PROFIT ON SALES. recorded in accordance with the dates of shipments. Such verifications can be made con- ! This is obtained by deducting the aggregate veniently by a direct comparison of the ship- | total of the selling, general, and administrative ping memoranda with the invoices billed. | expenses from the gross profit on sales, and Allowances to customers for trade dis- | shows the net earnings of the concern on.its counts, outward freights, reductions in prices, i real business. Ratio to sales should be caletc., should be deducted from the sales in the culated for each year for comparison. profit and loss account, as the amount of net sales is the only figure of interest to the OTHER INCOME. bankers. Under this heading is embraced any income The future bookings at the close of the fiscal that may be derived from sources outside of year should be looked into, as a comparison of sales, such as income from investments, inorders on hand with corresponding periods of terest, discounts, etc. Schedules should be other years furnishes the bankers with an prepared of each item, and the auditor should idea of the concern's business outlook. satisfy himself of their accuracy and of the propriety of including them as income. COST OF SALES. The inventory at the beginning of the period, DEDUCTIONS FROM INCOME. plus purchases during the period, less inventory at the end of period, gives the cost of Under this heading are grouped such items sales. In a manufacturing concern the fac- as interest on bonded debt, interest on notes tory cost of production takes the place of pur- payable, etc. The same procedure of verificachases. These items will have already been tion as in the case of other income should be verified in auditing the balance sheet, but followed. nevertheless care should be taken to see that this heading has not been made a dumping NET INCOME—PROFIT AND LOSS. ground for charges which would be more Adding other income to gross income and properly embraced under the heading of spededucting deductions from income gives the cial charges. The composition of the items net income or profit and loss for the period, entering into the cost of sales should be traced which is the amount that should be carried to in totals into the cost ledgers or accounts. the surplus account. GROSS PROFIT ON SALES. SURPLUS ADDITIONS AND DEDUCTIONS. This is obtained by deducting the cost of sales from the net sales. The ratio of gross Items of unusual or extraordinary profit profits to net sales should be calculated and which do not belong strictly to the period compared. under audit, or can not be said to be the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 283 legitimate result of the ordinary transactions qualifications are fully covered by the footof the concern, should be entered here and notes on the balance sheet, the following form verified with the surplus account. Similarly, is proper: deductions should be treated. Also dividends I have audited the accounts of Blank & Co. for the declared should be entered in the surplus acperiod from to count and as an item, under this caption, and inasmuch as.it is the usual custom to declare I certify that the above balance sheet and statedividends "from net earnings and surplus.'' ment of profit and loss have been made in accordance with the plan suggested and advised by the Federal Reserve After adding special credits to and deducting Boaid and in my opinion set forth the financial condition special charges from the net income we have o£ the firm at and the results the total profit and loss for the whole period of its operations for the period. from all sources which, added to the surplus (Signed) A. B.C. balance at the beginning of the period, gives [Form for profit and loss account.] us the surplus at the end of the period, which should agree with the surplus us stated on the Comparative statement of profit and loss for three years balance sheet. ending 19 GENERAL. Year ending— These instructions cover audits of small or medium-sized concerns. In large concerns 19— 19— 19— having, for instance, tens of thousands of accounts or notes receivable, the detail proced- Gr oss sales. 3 ure suggested would be impracticable, and in- Less outward freight, allowances, and ternal check should make it unnecessary. In Net sales - - - - such cases only tests can be made, but the auditor must always be prepared to justify his • IJurohaso*s notdeparture from, a complete program by showing that the purposes sought to be accomplished thereby have been adequately effected Cost of sale? by his work. == Any extensive clerical work, such as prepa- ===== rations of lists of notes receivable, etc., should Selling expenses (itemized to correspond with ledger accounts kept) bo performed by the client's staff, so as to Total selling expense avoid unnecessary employment of professional General expenses (itemized to correstaff in merely clerical work and consequent spond with ledger accounts kept)... undue expense. Administrative expenses (itemized to FORM OF CERTIFICATE. correspond with ledger accounts kept) Total administrative expense The balance sheet and certificate should be = == == connected with the accounts in such a way as Total expenses to ensure that they shall be used only con- Net pro/it on Stilus .==•= | ! jointly. This rule applies also to any report Other income: Income from in vestments or memorandum containing any reservations Interest on notes receivable, etc as to the auditor's responsibility; any qualifica- Cross income tion as to the accounts, or any reference to Deductions from income: -•:__• facts materially affecting the financial posi- Interest on bonded debt In tores si on note pavable. . . tion of the concern. Total deductions The certificate should be as short and concise as possible, consistent with a correct statement Net income—profit and loss Add special credits to profit and loss.. of the facts, and if qualifications are necessary Deduct special charges to profit and Joss the auditor must state them in a clear and con- Profit and loss for period cise manner. Surplus beginning of period If the auditor is satisfied that his audit has been complete and conforms to the general "Dividends paid instructions of the Federal Reserve Board, Surplus ending of period. .. . and that the balance sheet and profit and loss statement are correct, or that any minor Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

284 FEDEBAL RESERVE BULLETIN. APRIL 1,1917. [Form of balance sheet.] ASSETS. LIABILITIES.. Cash: la. Cash on hand—currency and coin., Bills, notes, and accounts payable: 1b. Cash in bank Unsecured bills and notes— 2. Acceptances made for merchandise or raw material purchased Notes and accounts receivable: 4. Notes given for merchandise or raw 3. Notes receivable of customers on hand material purchased 6. Notes given to banks for money bor- (not past due) rowed 1 5. Notes receivable discounted or sold with 8. Notes sold through brokers indorsement or guaranty 10. Notes given for machinery, additions 7. Accounts receivable, customers (not to plant, etc ." 12. Notes due to stockholders, officers, past due) or employees 9. Notes receivable, customers, past due (cash value, $ ) Unsecured accounts— 11. Accounts receivable, customers, past 14. Accounts payable for purchases (not due (cash value, 3 ) yet due) Loss: 16. Accounts payabla for purchases 13. Provisions for bad debts.. (past due) 15. Provisions for discounts, 18. Accounts payable to stockholders, freights, allowances, etc oflicors, or employees Secured liabilities— 20a.. Notes receivable discounted or sold Inventories: with indorsement or guaranty 17. Raw material on hand (contra) 19. Goods in process 20b. Customers' accounts discounted or 21. Uncompleted contracts assigned (contra) Less payments on account 20c. Obligations secured by liens on inthereof ventories 20d. Obligations secured by securities de- 23. Finished goods on hand posited as collateral I 22. Accrued liabilities (interest, taxes, Other quick assets (describe fully): wages, etc ; Other current liabilities (describe fully): Total quick assets (excluding all investments). Total current liabilities Fixed liabilities:. Securities: 24. Mortgage on plant (duo date ).. 25. Securities readily marketable and salable 28. Mortgage on other real estate (due without impairing the business dato ........) 27. Notes given by oificers, stockholders, or 28. Chattel mortgage on machinery or equipemployees ment (due date ) 29. Accounts due from officers, stockholders, 30. Bonded debt (due date ) or employees 32. Other fixed liabilities (describe i'ully): Total current assets. Fixed assets: 31. Land used for plant Total liabilities. 33. Buildings used for plant 35. Machinery Not worth: 37. Tools and plant equipment 34. If a corporation— 39. Patterns and drawings (a) Preferred stock (less stock in -11. Oflice furniture and fixtures treasury) 43. Other fixed assets, if any (describe fully). (6) Common stock (loss stock in treasury) (c) Surplus and undivided profits -. Less— Less: (d) Book value of good 45. Reserves for depreciation. will (e) Deficit Total fixed assets... Deferred charges: 30. If an individual or partnership— 47. Prepaid expenses, interest, insurance, (a) Capital taxes, etc. (b) Undistributed profits or deficit. Ot her assets (49) Total assets. Total. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDESAL RESERVE BULLETIN. 285 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 country or members of the Federal Reserve Board ! bank al^J* has to keep more than 4 per cent which contain information believed to be of i^ ™j P%C e^ Oil hffd f ^ "loiiey his . .. - • -n i •• -n T> •• i j a-rSum(J'nt evidently, as already stated, relates general, interest to loaerai Eeserve Banss and , ^ balance. Tlloroly to tho rosc e bank member banks of the system.: j 2. As is shown in tho table printed on page Reserve Balances. ! 110 of the Federal Reserve Bulletin for Fcbru- (To an individual.) j ary. to which Mr. makes reference in I 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 the This 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, while be 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 total given 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 the Senate from committee, and winch entirely ! table referred to, is $1,332,000,000, while on relieves national hanks from the necessity of " the present basis it is $1,369,000,000, a reduccarrying 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 that ments. I think it will be admitted, entirely i much more than this has to be carried. Inapart from any legal requirements as to vault j deed, he shows that on September 2, 1916, the cash, that banks located in industrial centers i country banks actually did carry 5.37 per cent which have large pay rolls to take care of, must j in vault. If Mr. refers entirely to the necessarily carry "a larger proportion of vault; gold likely to be put into the Federal Reserve cash than those located"in towns whore there j Banks by the new amendments, as he seems are no large manufacturing establishments. It j to do when he calls attention to the estimate is usually the rule, however, that banks located j of 1200,000,000 given in the Senate report as in industrial towns have exceptional oppor- i likely to be added to the holdings of Reserve tunities 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 figures on savings was to be only 3 per cent, which is | of the table referred to are correct, it may be the figure that Mr. himself advocates. \ noted that these figures vary considerably from MARCH 9, 1917. I time to time, accordingly as deposits vary, and that the figures given in the table in the Federal (Memorandum.) Reserve Bulletin relate entirely to reserve 1. Mr. —?s request is that the change in \ money, whereas the figures given in the Senate : reserve requirements, if any, bo such as to callj report relate to gold. There is no such disfor 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 arguposits for country banks. This • evidently re- mont was designed to show that at the present lates only to the requirements for balance to be time country banks do actually carry in their carried with reserve banks and has no reference vaults more than 5 per cent of till money, so to the question of till money. The. amend- that computations regarding the effect of the ments reported by the Banking and Currency new amendments based upon the assumption Committee of the Senate would have provided that 5 per cent till money is sufficient- fall for reserves of 6 per cent of demand deposits short of the fact, and hence point to an increase Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

286 FEDEBAL RESERVE BULLETIN. APRIL 1,1917. in reserve rather than a reduction as applies to firm, or corporation. That limit, however, country banks. Accepting Mr. 's figures does not apply if "the bank is secured either as correct, we may yet decline to accept his by attached documents or by some other actual average figures for central reserve city banks, security growing out of the same transaction reserve city banks, and country banks, be- as the acceptance." I understand that }^our cause the Wo former classes have no direct construction of this provision is the current relation to the point he is arguing, which is the one; that is, that if documents which were atcondition of the country banks under the pro- tached at the timo of the acceptance are surposed amendments. What he does show is that rendered and no other actual security growing within the past two years the vault cash car- out of the same transaction is substituted, ried by country banks has varied from 5.37 then the 10 per cent limit will apply. The per cent to 5.75 per cent. What he neglects is accepting bank must remain secured" in the that under the proposed plan the requirements manner prescribed during the life of the acof the bill would permit him to use national ceptance in order to be "exempt from the 10 bank notes and Federal Reserve notes in place per cent limit. of reserve money which he has been carrying The only doubtful question is as to what heretofore. He could, from a study of his re- constitutes "some other actual security growquirements, ascertain the dates on which funds ing out of the same transaction as the acceptwould bo needed, and could have notes for- ance." Shipping documents accompanying a warded to him from his Federal Reserve Bank. bill of exchange are ordinarily surrendered In other words, the proposed plan would upon acceptance, and unless the accepting enable him to carry his vault-cash reserve very bank is given some other actual security in much more economically than at present. their* place the 10 per cent limit would apply The same, of course, is true of the other classes as soon as the original documents are surof banks of the country. rendered. If a warehouse receipt for the 4. It should, however, be admitted that goods is given upon the surrender of the shipnational banks located in places where there ping documents, the bank would undoubtedly are heavy pa}r-roll requirements need to keep be secured in the manner contemplated by the constantly available very much more than act, but if an ordinary trust 'receipt which 4 per cent or 5 per cent of vault cash, and enables the purchaser to obtain the goods for that in the case of some such banks the re- his own uso is substituted for those shipping quirements of the proposed amendments are documents the Board understands that the likely to be onerous. This would be true of 10 per cent limit would apply, inasmuch as such almost any requirement that could bo framed. a trust receipt would not constitute an "actual It does not moan that the banks as a whole are security>? within the meaning of the section unfavorably affected, but merely that in spo- quoted. The 10 per cent limit, however, radic cases the banks by reason of their special should not apply in any case where the acceptor necessities may be subjected to hardship. is secured by a trust receipt whose terms preclude the possibility of the goods coming into MARCH 8, 1917. the hands of or under the control of the purchaser, as where the goods are held by some Limitations Imposed by Section 13 of Act person, firm, or corporation, independent of the purchaser. (To a Federal Reserve Bank.) I wish to acknowledge receipt of your letter There is no doubt, therefore, that in any case of March 12, involving the construction of where shipping documents or warehouse rethat part of section 13, which reads as follows: ceipts are held by the acceptor the 10 per cent limit does not apply; so also in any case where "No member bank shall accept, whether in a the acceptor holds a trust receipt which does foreign or domestic transaction, for any one not enable the borrower to obtain the goods for person, company, firm, or corporation, to an his own use, the 10 per cent limit does not amount equal at any time in the aggregate apply; but in any case where the bank holds to more than 10 per cent of its paid-up and merely the ordinary trust receipt which gives unimpaired capital stock and surplus, unless it only a lien on the goods in the hands of the the bank is secured either by attached docu- purchaser or on their proceeds, the 10 per cent ments or by some other actual security, etc.'* limit should apply. This clause places a 10 per cent limit upon As you intimated in your letter, this question the amount of acceptances which any member of limiting the right of a member bank to accept bank might make for any one person, company, is separate and distinct from the limit imposed Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 287 by section 5200 discussed in the opinion of by the person negotiating them, and that recounsel on page 195 of the March Bulletin. newals are therefore subject to the limitations That opinion holds merely that a member bank of section 5200. may discount trade acceptances without refer- MARCH 21, 1917. ence to the 10 per cent limit, if they are drawn against actually existing values, but it should not be construed to imply that a member bank Trade Acceptances. might accept, without limit, domestic drafts (To a Federal Reserve Bank.) with shipping documents attached, if such In response to yours of the 5th instant, you shipping documents are to be surrendered are advised that in accordance with the opinion without the substitution of some other actual of counsel, approved by the Board, only those security growing out of the same transaction. Itrade acceptances which are drawn at the time MARCH 13, 1917. jof, or within a reasonable time after, the shipment or delivery of goods sold can be treated as bills of exchange drawn against actually (To an individual.) existing value. I beg to make the following reply to your A bill drawn for a balance due on open inquiries made to-day over the telephone: j account, of long standing, which is accepted A bank having a capital and surplus of j by the debtor, might constitute a trade accept- $288,000 may, under the National Bank Act, ance, but in order for it to be excepted from lend to a customer on his own obligation a sum the limitations imposed by section 13 of the not to exceed $28,800 (10 per cent of capital j Federal Reserve Act as a bill drawn against and surplus). The bank may, however, in! actually existing value it must have been addition to such loan, discount for the same drawn contemporaneously with, or within such customer (although he may have a direct line j a reasonable time after, the shipment of the of credit in bank up to the 10 per cent limit), | goods as to justify the assumption that the bills of exchange drawn against actually ox- | goods are in existence in the hands of the isting value, or commercial or business paper | drawee in their original form or in the form of actually owned by him. The bank may, thereproceeds of sale. fore, legally discount for the customer bills of exchange drawn by him for the purchase price As evidence of this fact Federal Reserve of commodities sold, and accepted by the Banks might reasonably require such trade drawee; or it may discount for the customer acceptances as are offered as "bills of exchange the note of the purchaser if actually owned by drawn against actually existing values" to him, without reference to the 10 per cent show the date of invoice, so that it may be limitations prescribed by section 5200. determined whether or not the account is one of long standing. A member bank acquiring such acceptances or notes may rediscount them with its Federal MARCH 12, 1917. Reserve Bank. There is no limitation upon the acceptances, but the notes would be subject StocSi Subscriptions. to the limitations prescribed by section 13 of the Federal Reserve Act; and the Federal (To a Federal Reserve Bank.) Reserve Bank can not discount paper bearing Your letter of March 5 has been received and the signature of the same borrower in an amount considered. You submit the following two greater than 10 per cent of the capital and sur- questions for the Board's consideration: plus of the member bank offering such paper. (1) Whether the Board has any objection to Bills of exchange drawn against actually ex- payments on account of stock subscription and isting value and accepted by the drawee within reserve deposits being received by your bank a reasonable time after the shipment of the from now member banks pending receipt of goods, may be rediscounted with the Federal advice of the Board's approval of the applica- Reserve Bank without reference to the limita- tions. tions imposed by section 13 of the Federal (2) Whothor a member bank should carry Reserve Act. I am informed by counsel for its required reserve with the Federal Reserve the Comptroller of the Currency that under Bank from the date its first deposits are rethe practice followed by his office bills or notes ceived by the Federal Reserve Bank even though which are renewed at maturity are not to be its application for stock has not been filed with treated as bills drawn against actually existing the Federal Reserve Bank or approved by the value or as commercial or business paper owned Federal Reserve Board. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

288 FEDERAL RESERVE BULLETIN. APRIL 1,1917. In reply you arc advised that the Board does attached as collateral security. The Board not feel that it would be consistent with its reg- holds that such notes will be eligible for redisulations or with the more conservative business count by Federal Reserve Banks at the 15 day principles to treat applicants for membership rate, or at the regular commercial paper rates in the "Federal Reserve System as members un- according to maturities. til their applications have been formally ap- MARCH 21, 1917. proved by the Board. Should you receive deposits or payment of stock subscription from an applicant and the Board should subse- (To Federal Reserve Agents.) quently decline to approve the application, The Board's attention has been called to the some complications might result. fact that office letter dated March 21, 1917, The Board will be glad in all cases to expej may have been construed to mean that memdite action on all applications as far as possible, i ber banks may purchase outright Government but, as stated, does not feel that any pay- | vouchers assigned by contractors or others ments should be accepted nor deposits received ! having claims represented by such vouchers from applicants until the applications have without taking the note of the claimant. It been approved by the Board. was not the intention of the Board, however, to MARCH 7, 1917. suggest such a course. Under section 3477, Revised Statutes, these claims are not assignable and in the ordinary sense would not coni stitute bankable security. In view of all the War Department Obligations. j circumstances, however, it was suggested that (To Federal Reserve Banks.) | notes with these vouchers attached might be The Board has been advised by the Secretary | rediscounted by member banks with a Federal of War that, owing to the failure of Congress at Reserve Bank. The notes would be eligible its last session to pass the general deficiency without security, and, notwithstanding section appropriation bill, no funds are available for 3477, it was the view of the Board that where the payment of many obligations which have contractors have amounts due them from the been contracted by the War Department, as Government which will be paid as soon as the evidenced by official "Public vouchers for pur- proper appropriations have been made by Conchases and services other than personal." No gross, banks might reasonably extend accomdoubt is entertained that Congress at the ap- modations to such contractors. proaching extra session will promptly enact The Government officers might refuse to recthis appropriation bill, so that the necessary ognize the assignment of a claim— monejr will be available. In the meanwhile | "But if those officers chose to make payment it is earnestly desired that holders of these j to the person whom the claimant, by formal vouchers be enabled to realize upon them at as power of attorney, has accredited to them as small a cost as possible, and you are requested authorized to receive payment, the claimant to send your member banks a copy of this letcan not be permitted to make his own disregard ter. The Board understands from the War of the statute the basis for impeaching the set- Department that each voucher will have a : tlement had with his agent/' (Bailev v. United rider attached as follows: I States, 109 U. S.) | ^ _ __ "This account is not payable at this date by | In other words, section 3477 was^passed in reason of the fact that no funds are now avail- ; order to protect the Government and to make able owing to the failure of Congress to pass it unnecessary for disbursing officers to deterthe general deficiency measure. This is the mine the merits of disputed claims. Under the original voucher, and payment will be made present circumstances it may reasonably be anwhen funds are available only on presentation ticipated that the Government officers will seek thereof. No other voucher will be issued covi to protect the banks which extend these accomering this transaction except on conclusive ! modations to those having contracts with the proof of the loss of the original." Government. It is expected that the neces- Your member banks in giving accommoda- sary appropriation will be made within a short tion to holders of Government claims as evi- time and that these loans can and will be denced by these vouchers, could take the note adjusted. of the firm or contractor with the voucher MARCH 31, 1917. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1.19rj. FEDEEAL EESEEVE BULLETIN. 289 LAW DEPARTMENT. The following opinions of counsel have been Springfield or New York would be a valid acauthorized for publication by the Board since ceptance in compliance with the terms of the the last edition of the Bulletin: original bill. Place of Payment of Acceptances. A more doubtful case would be that of a bill An acceptance to pay at a particular place different drawn by A. in Boston, on B, in Springfield, from the residence of the acceptor is a general acceptance, with no particular place of payment desigunless it expressly states that the bill is to be paid there nated. According to the rule in England and not elsewhere, and does not render the bill nonnego- prior to the passage of an act similar to sectiable. tion 140 of Negotiable Instruments Law, which FEBRUARY 27, 1917. was followed by some courts in this country, Slit: The question has been raised whether the implication in such case was that A inan acceptance to pay at a place different from tended the bill to be paid at the place of the residence of the acceptor is a qualified acdrawee—that is, at Springfield—and any ceptance and whether the bill is thereby renacceptance by B to pay the bill at any place dered nonnegotiable. outside of Springfield was considered a quali- The broad rule is that an acceptance must fied acceptance such as would release the assent without qualification to the order of the drawer and prior indorsers. drawer, but section 140 of the Negotiable Instruments Law provides that— The decisions of the American courts which adopted the English rule were rendered prior "An acceptance to pay at a particular place is a general acceptance, unless it expressly to the passage of the Negotiable Instruments states that the bill is to be paid there only and Law and, therefore, have no application to the not elsewhere.'7 present case unless it can be said that it was Under this section it would seem that the because of these decisions that it became necmere fact that an acceptance is made payable essary to incorporate section 140 in this law at a place other than the residence of the just as it became necessary, because of the acceptor is not such a qualification of the rule adopted by the courts in England to pass order of the drawer as to render the acceptance a statute similar in terms. nonnegotiable unless the acceptance is in such Section 140 of the Negotiable Instruments form as to make the bill payable only at a Law provides, however, that '' an acceptance place other than the place indicated by the to pay at a particular place is a general acdrawer. ceptance unless it expressly states that the hill It is, of course, clear that the drawer of is to be paid there only and not elsewhere.7' a bill may direct that the bill is to be paid at Consequently it is the opinion of this office a specified place, other than that of the resi- that an acceptance by B, in Springfield, to dence of the drawee, and an acceptance to pay pay the bill in New York is not a qualified at that other place is a valid general acceptance. acceptance unless it expressly states that the In other words, A, in Boston, may draw on B, bill is to be paid in New York only and not in Springfield, directing B to pay the bill in elsewhere. Now York and an acceptance by B, in Spring- It has been contended that the drawer and field, to pay at any place in New York would be all indorsers "would very likely be discharged7' a valid acceptance in compliance with the in the case of an acceptance to pay at a place terms of the bill as originally drawn. So also other than the residence of the drawee where there is no doubt that A, in Boston, may draw the drawer did not specify any particular place on B, in Springfield, directing B to pay the bill of payment. The force of the provisions of either in Springfield or in New York and an section 140 of the Negotiable Instruments Law acceptance by B, in Springfield, to pay either in was recognized, but it was suggested that sec- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

290 FEDERAL RESERVE BULLETIN. APRIL 1,1917. tions 124 and 125 apparently negatived those as the acceptor does not stipulate that the bill provisions. will be paid only at a particular place not It is to be observed that sections 124 and designated by the drawer and not elsewhere it 125 relate to the "alteration'7 of a negotiable is not a qualified acceptance; is not an alterainstrument, specifying that any material altera- tion within the meaning of section 125, and is tion without the assent of all parties avoids the therefore negotiable. instrument. Section 125 specifically provides Respectfully, that any alteration which changes the time or M. C. ELLIOTT, Counsel. place of payment or which adds a place of To Hon. W. P. G. HARDING, payment, where no place of payment is speci- Governor Federal Reserve Board. fied, is a material alteration. These sections manifestly refer to an unauthorized alteration of, or physical change in, Holding Over of Federal Reserve Bank Directors. the terms of an executed instrument by the A director of a Federal Reserve Bank has no authority holder or some one else, e. g., where the holder to continue to serve as such after the expiration of his changes the date or amount after the instru- term even though his successor has not been elected. ment has been executed. In the case under MARCH 23, 1917. consideration the acceptance of the drawee j SIR: This office has been asked for an constitutes an acknowledgment on his part j opinion on the question of whether a director that the drawer had authority to draw the draft of a Federal Reserve Bank may continue to or bill, and the terms of the acceptance are the serve after the expiration of his term of office terms under which the acceptor agrees to pay until his successor shall have been elected and such draft or bill at maturity. It is, therefore, qualified. a part of the execution of the instrument in The general rule established by the courts question and not an alteration of an executed appears to be that when a term of office has instrument. been definitely fixed or limited by law, the The acceptor may render a bill or draft non- official authority of the person appointed for negotiable as an acceptance if he imposes cer- such term ceases upon the expiration thereof. tain conditions or qualifications, but such an The authorities, however, are not agreed on acceptance is made non-negotiable by the the right of an officer to hold over pending the failure of the drawee to assent without qualifi- qualification of his successor. There arc two cation to the .order of the drawer and not be- distinct lines of cases on this point. In some cause of any alteration of a completed instru- jurisdictions it has been held that where the ment. When the instrument is complete as an appropriate authorities have failed to appoint acceptance—that is to say when it has been a successor, an officer can not hold over unless accepted by the drawee—it may be either a the law expressly authorizes him to do so. qualified or a general acceptance, and its (23 Am. & Eng. Enc. of Law, 2d ed., 412.) negotiability will depend upon whether it is In many other jurisdictions, however, it has qualified or general. A qualification imposed been held that an officer may hold over until by the drawee stipulating the terms under his successor is appointed and qualified, unless which he agrees to pay the order, should not, some restrictive words are used expressly or however, be confused with an alteration either implicdly prohibiting such holding over. of a bill or of an acceptance by an unauthorized Applying these alternative doctrines to the person. question under consideration, the situation is In the opinion of this office, sections 124 and as follows: 125 do not, therefore, have any application to First, there is no express provision of law the form of acceptance executed and do not authorizing a director of a Federal Reserve nullify section 140. In the present case, so long Bank to hold over until his successor has been Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 291 elected and qualified. Under the decisions quently elected, and accordingly the implied first referred to, therefore, which hold that an prohibition against the first directors holding officer can not hold over in the absence of ex- over should apply with equal force to those press authority, it is clear that a Federal Re- elected after that time. serve Bank director could not act as such after In this view, whether the rule adopted by the expiration of his term of office. some courts that an officer may not hold over Second, the courts generally agree that unless expressly authorized to do so, or whether where an officer is elected for one }Tear only he the more liberal view is adopted that officers can not hold over beyond the end of that year. may. hold over unless the statute fixing the Such a provision is necessarily construed to term of office prohibits it, it would seem that prohibit the right to hold over. (Keg. v. Dur- a Federal Reserve Bank director will have no ham, 10 Mod., 147; State v. Perkins, 139 authority to continue to serve after the expira- Mo., 106.) tion of his term and until the election of a The Federal Reserve Act provides that the successor. directors of classes A, B, and C, respectively, Respectfully, shall, at the first meeting of the board of M. C. ELLIOTT, Counsel. directors, designate one of the members of To Hon. W. P. G. HARDING, each class— Governor Federal Reserve Board. " whose term of office shall expire in one year from the 1st of January nearest to date of such meeting, one whose term of office shall expire Drafts Payable On or Before Certain Date. at the end of two years from said date, and one whose term of office shall expire at the end Drafts payable "ninety days from date or before on five of three years from said date. Thereafter days after demand (i. e., on five days' notice) by the holder every director of a Federal Reserve Bank hereof" are negotiable and eligible for discount with a chosen as hereinbefore provided shall hold Federal Reserve Bank. office for a term of three years." FEBRUARY 23, 1917. SIR : The question has been raised whether a It will be observed that in fixing the terms draft is negotiable and eligible for discount of office of the directors first selected or apwith a Federal Reserve Bank which is payable pointed, Congress specifically provides that " Ninety days from date or before on five days the term of office of such directors shall expire after demand by the holder hereof.'' at a fixed period—that is to say, one, two, or This language is understood to mean that three years from the 1st of January nearest to the draft is payable "ninety days from date or the date of meeting at which the terms are before on five days7 notice by the holder." allotted. In the opinion of this office, this Section 4 of the Negotiable Instruments Law language impliedly prohibits any of the direcprovides that: tors first elected or selected from holding over "An instrument is payable at a determinable after the date on which their terms definitely future time within the meaning of this act expire. which is expressed to be payable. * * * While the language used in fixing the term "(2) On or before a fixed or determinable of office of those subsequently elected is more future time specified therein,'7 etc. general, the act providing that such directors The effect of the language under considera- "shall hold office for a term of three years/7 it tion seems clearly to make the draft payable is reasonable to assume that Congress did not 90 days from date or at some date prior intend to make any distinction between the thereto, provided the holder has given five directors elected when the Federal Reserve days notice to the acceptor. In this view it Banks were first opened and those subse- would not be nonnegotiable. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

292 FEDERAL RESERVE BULLETIN. , 1917. To eliminate any possible ambiguity it is expenses actually incurred, or services actually suggested that the wording be changed so as to rendered, is one for the jury to determine upon substitute the word "notice" for the words all the facts in each individual case. (Do For- "after demand.7' rest v. Strong, 8 Conn., 513; Sanders v. Nichol- Respectfully, son, 111 Ga., 739; Massey, McKessom & Go, v. M. C. ELLIOTT, Counsel. McDowell, 20 N. C, 120.) To Hon. P. M. WARBURG, In the case of New England Mortgage Secur- Vice Governor Federal Reserve Board. ity Co. v. Gay (33 Fed., 636), the lender's agent charged $1,700 for a loan of S8,500 to the borrower, the lender being chargeable with notice of his act. The court, in instructing the Usurious Charges by National Banks. jury, said, on page 653: Where a national bank, in addition to charging interest "If the services were actually performed for at the highest legal rate, requires a borrower to give an the defendant at his request, if the commissions additional note, accept a certificate of deposit for a like were for specific services and actual expenses amount, and put up such certificate as additional collateral authorized by him, and if they were reasonable, to his entire loan the transaction appears to be usurious. they would not be usurious. If they wore not MARCH 12, 1917. performed for his benefit, at his request for SIR: There has been submitted to this office specific services and actual expenses authorized by him, and if they are unreasonable and for an opinion the following case: without meritorious consideration, you will be A man owes a national bank $14,000 on notes justified in finding that the charge Is a mere secured by good collateral. In order to prevent cloak for usury and the plaintiff forfeits the a suggested immediate demand of payment the amount of such excessive charges.'1 borrower is asked to give an additional note for The jury found the commission usurious. $3,000 and accept a certificate of deposit for the proceeds of this additional note and put said In the case presented for consideration it certificate up as collateral for his entire loan of does not appear that the bank claims to have $17,000. In other words, a borrower is paying rendered any services or to have incurred any the legal rate of 6 per cent on $17,000 and has expense in the matter. It has merely agreed the benefit of only $14,000. Is this usurious ? to extend, or at least not to demand payment of, This transaction on its face would appear to the loan on the condition that the customei be usurious, but I have been unable to find any borrows an additional 83,000 from the bank adjudicated case dealing with this precise ques- and hypothecates the certificate representing tion. There are cases holding that claims this $3,000 as security for his indebtedness to for services and expenses may be made the bank. a cloak for usury. In other words, banks In the absence of any proof of consideration charging excessive rates of interest have in other than the lending of the money in question, certain cases claimed that the consideration for a jury would no doubt find this to be a usurious the excess was services rendered or expenses transaction. incurred. (See in re Wilde's Sons, 133 Fed.^ Eespectfully, 562.) The courts have generailj held in cases M. C. ELLIOTT, Counsel. of this sort that whether the charge is a cloak To Hon. JOHN SKELTON WILLIAMS, to cover usury or is made in good faith for Comptroller of the C;./.''TV.<><??/, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

rnir. l, 1917. FEDEKAL EESEKVE BULLETIN. 293 SUMMARY OF BUSINESS CONDITIONS MAR. 23, 1917. District No. 1— District No. 2^ District No. 3— j District No. 4— District No. 5- District No. 0- Boston. Ncw York. Philadelphia. j Cleveland. Richmond. Atlanta. General business.. Unsettled: await- j Satisfactory; con- Good. Satisfactory "i Good Good, ing develop- : servatism" in merits. , some lines. Crops: Condition. J Average. Preparations delayed by bad weather. Outlook. Small supply of Fair., Encouraging Winter grains i grain on farms; poor; planting : prices high. delayed. Industries of the dis- Busy Active ' Very busy i Active Running full; pro- Labor* shortage; trict. duction limited orders plentiful. by scarcity of supplies and freight facilities. Construction, building, i Below last year.. .| Larger than a year Number of per- Some labor trou- Interference by Fair. and engineering. i ; ago. mits decreasing. bles in building badweather,but ii | trades. m de a m te a r n ia d l . s in good Foreign trade II Decreased j Contraction in im- Exports reached Congested at ports. Limited. ports and ex- new high record | I ! portt s. d during Febru- j i ary. " j j B ank clearings I Increased Increased. Far ahead of last ' Increased Slight increase Increasing. year. . I Money rates I Dull, but firm Market quiet aivi Rales have sof- i Unchanged... 4 to 0 per cent; in- Stationary. firm. tened somewhat. crea'sing d c mand for now crops. Kailroad, post office, About the same as Increased Gross receipts in- Slight increase >.Normal or higher.. Steady. and other receipts. last month. creasing; net j earnings de- j \ creasing. i Labor conditions .1 Well employed i Well employed at Fair ; Unsettled : Fully employed Growing labor ! high wage's. at good wages. ; shortage. Outlook Uncertain, pond- ; Favorable Good Favorable ; Favorable...." Fair. ; ing international I ; j developments. J ' RemarVs ; \ Business in large Improvement in General conditions I ' ; j l v ie o f l u in m t e ra : f s f o ic m c e o r n e - - ' : s tr i a tu n a s t p i o o r n t . a t i o n sat isfactory. ; : gestion; indica- : lions of active spring season, j District No. 7— District No. 8— District No. 9— District No. 10— DistrictNo.il— District No. 12— Chicago. St. Louis. Minneapolis. Kansas City. Dallas. San Francisco. General business.. Very active Good : Satisfactory;some j Good. caution account i i international : conditions. Crons: 'Condition , . | ; ' Improved : Very ircod : Omiook Good : Uncertain ; Fair 1 Promising : Favorable. Industries of the dis- Active ; Good : Active Busy.. : Active, though , Active, irict. hampered by ; transportation : problems. ; Construction, building, Slow ; Loss in St. Louis; . : Fine prospects Above normal for ! Slight increase. and engineering. • increase else- j I season. i where. foreign trade... j Decreased. Increase over 1910. Large and increas- ; iiiiz. Ban!,-, clearings.. Incrcasin g ; In crease D ecrease i Increased.. ; 14 per cent increase 30 per cent increase over March, 1916. Money rates Steady ; No change. About the same...j Steady Slight increase is Easy. • noted. Railroad, post office, j Post-office receipts i Post office gain in iLarge I Increased. Increase : Increasing. and oiher receipts.' • increasing. j St. Louis; slight " ! ! decrease eisci | where; railroad i L O a n b il o o r o k co nditions | ; i Goo d d o I i ! Pr i o n m cr i e s a in s g e. ; j ; V U e n r s y e t g tl o e o d d S E a n t c is o f u a r c a t g o i r n y g i A Fa b v o o v r e a b n l o e r mal : ; F F a a i v r o ly r a s b e l t e t . led. Remarks : Railroad situation • ' Underlying situa- Car shortage and I Business cqndi- j Early indications j unsatisfactory. ! j tion in district embargoes ham- j tions satisfac- ! give promise of ! i i s s o u t n h d o . ro F u ee g l h in ly g pering all lines. ! t a o g r e y f ; e l c t; a r a g s r h i o cu rt l - - • : u p n ro u d su uc a t l i ly o n larg o e f that good busi- tiiral conditions i foodstuffs, ness will con- promising; coltinue. lections all lines igood and condi- • tions sound. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

294 FEDERAL RESERVE BULLETIN. APRIL 1,1917. GENERAL BUSINESS CONDITIONS. There is given on the preceding page a sum- good in spite of the fact that prices are high, mary of business conditions in the United almost beyond precedent, and that retailers States by Federal Reserve districts. The re- are supposed to have considerable stock on ports are furnished by the Federal Reserve hand purchased at lower figures. Retail busi- Agents, who are the chairmen of the boards of ness is reported good. Leather holds firm, directors for the Reserve Banks of the several although not up to the high level reached some districts. Below are the detailed reports as of time ago. There is a wide variety of opinions approximately March 23: among buyers as to the value of skins, some cases having occurred where this difference DISTRICT NO. 1—BOSTON. amounted to as much as 20 per cent. Domestic and international problems of such Woolen and worsted mills continue busy, grave importance have been pending during the many having contracts for deliveries for a past month that in this district a general un- good while into the future. The National settled feeling pervades the commercial and Association of Wool Manufacturers in their financial atmosphere. The threatened rail- quarterly statement report a smaller percentroad strike caused a great deal of uneasiness age of idle woolen spinning spindles than at in every quarter. Now that it is settled, all any period in the last year and a half and the eyes are directed toward the international sit- percentage of idle worsted spinning spindles is uation. Pending the outcome of this, banks but little in excess of last fall and summer. are running unusually strong so as to be pre- Trading in wool is somewhat quieter than last pared to meet any emergency and to assist in month, although prices hold firm. Some dealfinancing any requirements of the Government. ers claim that wool is so scarce the world over Manufacturers in most lines are not anxious that notwithstanding the high price level of to accept new business until they know to this commodity, little reaction can be expected what extent, if any, their capacity will be re- from present prices under any circumstances. quired for Government work. However, mills There is considerable wool in Boston, but much and factories, for the most part, are very busy of this is supposed to be owned by mills to and report orders covering a considerable fu- cover orders already taken. ture period. A considerable improvement is noted in the Continued increases in prices of commodities cotton industry, there being more inquiries are causing retailers and consumers to antici- and sales the last week than for some time. pate their needs as far ahead as possible and Mills are running at capacity, and many are well this is reacting on the wholesaler and producer. sold ahead. A good demand for print cloths Raw materials of all kinds hold firm at or near is in evidence, and this has caused a slight inrecent high levels, while in some cases advances crease in prices. Quotations for nearly all are registered. classes of cotton goods have reacted somewhat Collections are reported to be good, and in from the top, but owing to the high cost of certain lines well ahead of last year. production and the ability to sell yarns at good The new season with manufacturers of boots prices these have not been reduced materially. and shoes is just opening and few concerns have The interest taken recently by buyers has had their salesmen out more than 10 days. served to make prices firm, and the outlook for Those who have begun to receive returns, how- the next six months is encouraging. ever, report satisfactory business. The con- The paper trade is particularly unsettled besensus of opinion is that the demand will be cause of the high cost of materials and the un- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 295 certainty of the news-print industry. Some The receipts of the Boston post office for mills are running on part time, feeling doubtful February, 1917, show a decrease of $16,939.21, as to the future. The demand for pulp wood or about 2\ per cent less than February, 1916. has stimulated farmers to an effort to cut off For the first 15 days of March, 1917, receipts from their land much wood which has hereto- were about 8 per cent, or $29,205.64 more fore been sold at a low price for firewood. than for the corresponding period last year. The money market is dull. Banks are ap- Boston & Maine Railroad reports net operparently accumulating money, but are not ad- ating income, after taxes, for January, 1917, as verse to running strong of reserve. The de- $987,780, as compared with $1,138,447 for mand is light, but the complicated situation the corresponding month of 1916. New York, tends to keep rates firm. Call money, 4 por New Haven & Hartford Railroad reports net cent; time money, 4-J- to 4J per cent for six operating income, after taxes, for January, months, 4-| to 4f per cent for a year. Town 1917, as $1,726,687, as compared with notes, 31 per cent upward for fall maturities. $1,420,462 for the same month last year. Bankers' acceptances, 3 per cent indorsed, 31 During the period in wThich a strike was per cent upward unindorsed. threatened, a very rigid embargo was put Loans and discounts on March 17, 1917, into effect on all lines in this district, but as amounted to $465,298,000, as compared with soon as a settlement was made this was lifted $472,293,000 last month and $409,061,000 on and the embargoes in force previously were March 18, 1916. Deposits on March 17, 1917, reestablished. The freight situation is now totaled $371,143,000, as compared with $366,- about the same as last month. 275,000 on February 17, 1917, and $342,502,000 DISTRICT NO. 2—NEW YORK. on March 18, 1916. The amount "due to banks77 on March 17 was $146,369,000, as com- Business in this district continues in large pared with $146,432,000 on February 17. The volume and there is every indication of an active excess reserve of these banks increased from spring season. The serious turn in our foreign $26,110,000 on February 17 to $40,293,000 on relations and the uncertainty of transportation March 17. conditions have produced a feeling of conserva- Exchanges of the Boston Clearing House for tism in many lines, but, reviewing the situation the week ending March 17, 1917, were $221,- as a whole, commercial and industrial transac* 114,491, compared with $219,789,796 for the tions are larger than at this time last year. The corresponding week last year and $199,304,087 feeling of hesitancy is most apparent in connecfor the week ending March 10, 1917. tion with future buying, and the general ten- Building and engineering operations in New dency seems to be against stocking up with high- England from January 1 to March 14, 1917, priced merchandise. In some branches, howamounted to $29,235,000, as compared with ever, supplies on hand are inadequate and for- $32,153,000 for the corresponding period of ward needs are so heavy that activity is un- 1916, the highest previous year on record. checked in spite of rapidly advancing prices. Exports from the port of Boston for Feb- A further rise has occurred in the general ruary, 1917, amounted to $22,390,613, as com- level of wholesale prices, and index numbers for pared with $24,193,104 for January, 1917 (the March 1 were 25 per cent higher than on the largest amount previously recorded), and same da}^ last year. The widest changes oc- $11,796,694 for February, 1916. cur in food products, especially potatoes and Imports amounted to $21,743,471, as com- other vegetables. There was also a notepared with $32,419,881 for January, 1917, and worthy advance in cereals and certain meats $28,581,611 for February, 1916, and provisions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

296 FEDERAL RESERVE BULLETIN. APRIL 1,1917. The congestion on thq railroads, which has In the hide and leather trade the outlook for seriously hampered nearly every branch of a heavy spring ousiness in the Middle West and industry, has been somewhat relieved and with West is very bright. In the East conditions the approach of milder weather decided are more uncertain, as buyers are apparently progress is expected. The settlement of the nervous concerning the foreign situation. threatened railroad strike has had a stimu- Manufacturers generally feel that the recent. lating effect in many directions. British embargo on importations of shoes and The past few weeks have brought an im- leather will not prove a serious handicap to provement in operating conditions in the iron exporters and that these articles will be classed and steel industry, and production in both pig as necessities and admitted under licenses. iron and finished steel has been increasing. The supply of grain which the farmers of The output of pig iron in February showed New York State had on hand on March 1 was a marked falling off, due largely to the serious substantially less than the amount held on the shortage of coke. Prices of iron and steel same date last year. A summary of the Govcontinue to rise under a heavy demand and ernment crop report for March estimating the strength of the market has been accentuated stocks of grain on farms in this State shows a by actual and prospective Government orders. decrease of 48 per cent in wheat, 62 per cent in Inquiries for finished steel, both foreign and corn, 5.7 per cent in oats, and 45 per cent in domestic, continue in large volume. The barley, compared with March 1, 1916. steel plate mills are overwhelmed with con- H The stock market has been quiet and steady tracts from shipbuilding interests. in the face of many disturbing developments, In mercantile lines there has been a slight and has recently displayed evidence of renewed lull during th6 past month, due mainly to the activity and strength. Transactions in bonds fact that it is between seasons in some branches. in February were on a restricted scale. There The volume of business, however, is large for were few offerings in new municipal issues and this period of the year and confidence remains corporation financing was light. a conspicuous feature. The call money market has been quiet, with The silk trade has experienced a slight falling rates practically stationary, the prevailing off in business, but the textile industries are range being 2 to 2J per cent. Time loans on very busy. The market for woolen goods has regular mixed collateral ruled at about 3f- to been affected by the prospect of Government 4 per cent for 60 to 90 days, and 4 to 4-| per cent orders for uniforms in case of war. Business for longer maturities. Trading in commercial in the cloak and suit line has been very active paper has been light, most business being with some difficulty experienced in obtaining transacted from 4 to 4J per cent. certain fabrics, and labor conditions have In foreign exchange, sterling yielded slightly caused considerable annoyance. In spite of during the month, but recovered, and francs these drawbacks, however, the trade has have remained steady. Lire declined to a new been prosperous and a record spring season low record of 7.87 on March 15. Marks and is anticipated. roubles were irregular, while guilders showed There has been no change in the past few slight recessions. months in the large volume of business in The statement of the New York Clearing heavy chemicals. The railroad congestion House dated March 17, 1917, shows loans, etc., has hampered manufacturers to some extent, $3,558,906,00.0, deposits $3,831,403,000, and but has not been a very serious difficulty in excess reserves $163,838,970. Since February 3 this quarter. Although sales in the drug trade loans have increased $47,000,000, deposits inare also very large, manufacturers are suffer- creased $57,000,000. excess reserves decreased ing from an insufficient supply of raw materials. $1,600,000. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1, 1917. FEDERAL RESERVE BULLETIN. 297 The following statistics have been obtained a month ago, Coke production is increasing from reliable sources: slightly. Spot prices are somewhat higher, but the contract prices are higher as the belief is February, 1917. Changes from general that there will be a shortage of coke for February, 1916. some time. As the result of special inquiries it is evident 'Bank clearings, New York City J 812,794,087,245 + 81,687,349,968 New York Stock Exchange— i that concerns which are consumers of coal to a Shares 13,608,769 4- 1,588,633 New York Stock Exchange— | considerable extent have been much hampered Bonds .....! $75,971,000 - 84,419,000 Pig iron production—tons ! 2,637,042 - '450,170 by the scarcity of coal. ITnfilled orders, United States Steel Corporation—tons I 11,576,697 3,007,731 Below is a table showing the result of in- Building Dermits, New York City.j S10,852,177 81,734,057 Postal receipts, New York City.... $2,697,455 $47,754 quiries made of representative concerns in this Merchandise exports at New York.' S223,464,135 81,470,805 Merchandise imports at New York. 897,834,888 85,249,647 district as to industrial and business conditions. New incovperar i o n s—E astern States...' 8283,815,000 $82,180,300 New 11 ii a rjci rig , 3213,872,600 389,681,700 Summary of replies. DISTRICT NO. 3—PHILADELPHIA. Outlook. Replies While less active than recently, the volume Industries reporting. re- Exof business transacted in most lines continues ceived. l c e e n l t - . Good.Fair. U t n ai c n e . r- Bad. on a large scale. Stimulated by the United States Government's inquiries and orders, Agricultural implements Automobiles and parts prices of many articles have been further ad- Builders supplies,rooQi]g,etc. Carpets, rugs, oilcloth vanced. Because of the uncertain foreign Cement, iime, etc Chemicals, fertilizers, drugs., situation, however, commitments are being un- soaps,etc Coal and coal mining dertaken with caution. Confectionery Cotton and cotton goods The very heavy demand for plates has been Dental supplies Department stores the feature of the steel situation and has Drygoods and notions DDyyeeiinngg aanndd ffiinniisshhiinngg brought about another advance in prices. Electriicl al andd gas apparatus. Flour, grain and grist mill Pig iron is higher, but there is great uncer- products Furniture tainty as to the course of prices. Old material Glass Groceries and food products. is in demand at higher prices. Hardware Hosiery and knit goods Buying is not active in the cotton yarn trade, Iron and steel Leather, hides, and glazed as most manufacturers have their needs covered kid...'. Locomotives, boilers, enby contracts for yarns for about three months gines, etc Lumber and mill work ahead, and are not anxious to make further Machinery, foundry products, machine tools,, etc... purchases at the present prices, which have Men's and women's wear Metals: Copper, brass, zinc been rising during the past month. and tin .' Musical instruments, pianos Business continues good among the local and talking machines Paints and coloring matter.. wool houses. Prices are firm but are not now Paper and paper products... Petroleum and refining carried forward by speculation as has been the Plumbers' supplies Pottery and pressed brick... case during the previous months. Railway cars and parts Rubber goods The transportation situation continues to be Shipbuilding Shoes the determining factor in the local coal market. Siik, laces, etc. Slaughtering and packing.., During the period when the railroad strike was Tobacco, cigars, etc Wire. impending extreme fluctuations occurred. Woolens and worsted Miscellaneous (adverfcising, Since the settlement no concessions have been hair,, hotels, ink, pens, made in prices, which, however, are much rope', toys, etc.) ., 20 steadier. Less labor trouble is reported than Total.. 332 185 43 ! Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

298 FEDERAL RESERVE BULLETIN. APRIL 1,1917. Summary of replies—Continued. Summary of replies—Continued. Industries reporting. d c u o A c m d r s r i p u y t e a n s p a c e t g o e s r t a i e o f r p o i . p x n a i n n r i - s - o t - b b A y e p c r i r o n e r o s i g f s y t i s i o t c n ? s u u g r t s b s A h c h e y o a r r a e r p i l n o t a p a d u b y e g i s o d o - e l r y u ? e I f s fi c y i o en u t r a la s b i o t r w a a s s? p t a I m h t r s l a o r l a r y o y g t d u e r o e r e r g u d e s i h r - - s t m i p m L a re e e n s n d i e g n n f t o t h w r d h o a e f i n - c d h . consumption in pro- of your prod- In Industries reporting. curing uct is reasonmate- Yes. No. Yes.No. raw ma- ably certain *•»•• rial! A a g y o e . ar th B e e f w or a e r. te a r n ia d ls to continue. supplies? Per Per cent. cent. Agricultural implements 18 Yes. No. Yes. No. Yes. No. One I Six Automobiles and parts .... 17 year.: months Builders supplies, roofiing, etc. 23 Carpets, rugs, oilcloth 19 Cement, lime, etc 29 41 Cement, lime, etc 5 Chemicals, fertilizers, drugs, soaps, etc. 22 36 Chemicals, fertilizers, Coal and coal mining 19 34 drugs, soaps, etc 13 Confectionery 15 18 Coal and coal mining 10 Cotton and cotton goods 26 51 Confectionery 3 Dental supplies 10 30 Cotton and cotton goods... 2 Department stores 14 26 Dental supplies Drygoods and notions 19 16 Department stores Dyeing and finishing 22 62 Drygoods and notions Electrical and gas apparatus 21 36 Dyeing and finishing Flour, grain and grist mill products... 20 62 Electrical and gas appara- Furniture 17 33 tus Glass 24 83 | Flour, grain and grist mill Groceries and food products 20 37 ! products Hardware 25. 62 j Furniture Hosiery and knit goods 17 58 I Glass.... L I L L r o u e o a c m n t o h b a m e n e o r r d , t a i h s v n t i e e d d s e e , l m s b i a o l n l i l d w e r g o s l r , a k e z n e g d i n k e id s, etc 3 2 2 1 8 4 0 6 3 7 5 76 7 3 9 ! • | | 6 2 H H G o a r u o r s c c d i t e e s w r r y i a e r s a e n a d n d k n f i o t o g d o o p d ro s. d . - .. Machinery, foundry products, machine Iron and steel tools, etc 58 9 Leather, hides and glazed Men's and women's wear 12 kid Metals: Copper, brass, zinc and tin... Locomotives, boilers, en- Musical instruments, pianos and talk- gines, etc ing machines 37 2 Lumber and mill work Paints and coloring matter 4 Machinery, foundry prod- Paper and paper products 10 ucts, machine tools, etc.. 11 Petroleum and refining 2 Men's and women's wear.. Plumbers' supplies Metals: Copper, brass, zinc Pottery and pressed brick and tin...;... Railway cars and parts Musical instruments, Rubber goods pianos and talking ma- Shipbuilding chines Shoes . . Paints and coloring matter.; Silk, laces, etc Paper and paper products.! Slaughtering and Petroleum and refining ; Tobacco, cigars, ei Plumbers' supplies ! Wire , Pottery and pressed brick.' Woolens and worsteds Railway cars and parts Miscellaneous (advertising, hair, hotels, Rubber goods ink, pens, toys, etc.) 19 11 Shipbuilding Shoes Total 121 149 205 137 192 158 Silk, laces etc i Slaughtering and packing. I Tobacco, cigars, etc i Wire....... : Is your Woolens and worsteds I progress Miscellaneous (advertising,1 materi- Length of hair, hotels, ink, pens, i Is your labor as ally re- time in which rope, toys, etc.) ; 8 10 12 11 5 efficient as it was? tarded present dethrough mand for and Total i 172 174 137 215 j 184151 207 ! 102 difficulty consumption in pro- of your prod- Industries reporting. curing uct is reasonraw ma- ably certain One deduction which may be drawn from the A year Before te a r n ia d ls to continue. replies received is that business men regard the ago. the war. supplies? situation with more confidence now than in September of last year, but with less optimism Yes.No. Yes. No. Yes. No. y O e n a e r. mo S n ix ths than in March, 1916. A greater percentage of concerns are now reporting the outlook as " ex- Agricultural implements.. Automobiles and parts cellent" or "good," and a smaller percentage Builders supplies, roofing, etc as "fair" or "uncertain," than was the case at Carpets, rugs, oilcloth the time of our last inquiry. A comparison of i Approximate average. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Amir, 1,1917. FEDERAL RESERVE BULLETIN. 299 the replies received to similar questions six anticipate the demand for their goods will conmonths and a year ago is as follows: tinue as at present for at least a year, and 102 for at least six months. March, Septem- March, 1917. ber, 1916. 1916. The value of building permits issued in Philadelphia during February was $4,042,115, com- Percentage of concerns reporting business- pared with $2,437,750 in the same month of Excellent or good G7 54 75 Fair 13 19 17 last year. This represents 815 operations, as Uncertain or bad 20 27 8 compared with 1,086 in February, 1916. The Number of concerns reporting outlook to be— 66 per cent increase in value is no doubt chiefly Excellent or good 237 157 244 Fair, uncertain, or bad 118 135 83 due to higher costs of materials, etc., and is not necessarily indicative of larger building oper- Production costs continue to increase, the ations. figures below showing that wages and the cost All previous records in the history of the port of materials are steadily rising: were broken by the exports from the port of Philadelphia during the month of February. Approximate in- They wore valued at $57,652,322, an increase crease in costs of production dur- of $47,851,310 over those for the same month ing past year. of last year, and $14,018,276 more than those for January, 1917. The value of imports for February was $9,041,989, compared with Per cent. Per cf.nt. $9,176,185, February, 1916, and $9,093,450, for Report of March, 1917 21 49 Report of September, 1916 18 43 January of this year. The largest gain in the Report of March, 1916 11 46 import trade was in the receipts of crude petro- Answers to the question, "Are your profits leum, which amounted to 4,872,000 gallons, as being cut by rising costs?" indicate that a larger against 2,544,024 gallons for February of 1916. proportion of concerns are now able to raise Bradstreet's report 51 failures in this district their selling price sufficiently to cover the in- during February, compared with 75 in January, creased production costs: 1917, and 95 in February of last year. R. G. Dun & Co. report 65 failures, with liabilities of Are your profits being cut by rising $470,444, during February, compared with 77 costs? and $1,702,861 in January, 1917, and 138 and Yes. 1 No. $1,237,250 in February of last year. The large volume of business is reflected in R R e e p p o o r r t t o o f f S M e a p r t c e h m , b 19 e 1 r, 7 1916 2 2 0 0 5 5 ! ! 1 8 3 4 7 the increased bank clearings, shown in the fol- Report of March, 1916 . 212 ' 97 lowing table: i Bank clearings. The transportation .situation is disturbing business concerns in this district. More than February— In- 75 per cent of the reporting concerns declare Clearings at— c o r r e a d s e e that their business is seriously hampered by 1917 1916 crease. inadequate railroad service, while nearly as l Per ct. large a proportion report that they are seri- Altoona S2.358,702 82,213,859 + 7 Chester , 4,835,466 5,055,358 — 4 ously hampered by lack of steamship facili- Harrisburg 7,632,855 7,059,464 + 8 Lancaster 8,563,756 7,479,304 +15 ties. The difficulty in the latter instance is Norristown 2,075,656 2,095,033 Philadelphia- 1,251,517,407 960,702,304 +30 due primarily to an actual shortage of available Reading 9,671,274 8,361,115 +16 Scranton 13.476,464 12,716,467 + 6 ships. Trenton 10)845,764 10,935,726 . ~ 1 It is interesting to note that a substantial W Wi i l l k m e i s n -B gt a o r n re .. . 1 7 2 , , 3 8 2 0 6 8 , , 6 3 6 3 9 9 9 6 , , 8 8 2 4 2 8 , , 3 8 2 9 7 9 + + 30 7 York 4,207,016 | 3,700,911 +14 majority of concerns report the prospects of business as good. Out of 362 replying, 207 Total. 1,335,319,368 I 1,036,990,767 +29 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

300 FEDEBAL KESEEVE BULLETIN. 1,1917. Bank clearings—Continued. can afford. There are indications that in some agricultural sections farming machinery First 2 months— In- will be used to a greater extent than heretocrease CJearings at— or de- fore, by which the effect of the labor scarcity 1917 1916 crease. will be modified. Per ct. Live stock.—The reports received from vari- A Ch lt e o s o te n r a $ 1 5 1 , , 1 0 9 5 3 8 , , 9 6 8 6 4 8 $ 9 4 , , 6 5 0 9 7 7 , , 2 8 8 40 5 - + 1 1 3 5 ous sections of the district indicate that the E L a a r n r c i a s s b t i e u r g 1 1 8 7 , , 3 0 6 6 2 5 , , 6 2 6 8 9 3 1 1 4 5 , , 9 3 6 4 3 0 , , 6 5 1 6 6 3 + + 1 2 4 0 surplus supply of live stock used for foods is at Norristown 4,547,205 4,787,627 — 4 most not greater than the average of preced- Philadelphia 2,649,208,582 1,975,601,495 +34 R Sc e r a a d n i t n o g n . . . 2 30 1 , , 3 6 7 7 8 0 , , 6 9 0 4 3 1 2 1 6 8 , , 1 1 6 6 8 3 , , 7 2 2 9 6 9 + + 1 1 6 9 ing years, and there has apparently been little Trenton 20,781,386 19,568,399 + 6 real effort to improve the situation. Wilmington 26,082,393 22,227,616 +17 W Yo i r lk k e s . -liarre 1 9 6 , , 1 5 4 1 4 7 , , 4 2 5 0 8 2 1 6 4 , , 9 3 7 3 4 8 , ,0 5 0 8 6 3 + + 1 3 5 1 Industries.—Since the middle of March the industries of the district have resumed their Total •• 2,830,011,374 2,132,339,055 +33 forward movement with energy, and the indi- The condition of the Philadelphia banks is cations are for continued aggressiveness. Pracabout the same as a month ago. Rates for tically all lines reporting show a strong demand for raw materials and manufactured products, paper are slightly lower. Invested funds of regardless of price, and there has been some the Federal Reserve Bank have decreased over evidence of making contracts, even at the $3,600,000 during the past month, largely due present abnormally high prices for 1918 deto the bank being out of the market for bankers7 acceptances. liveries. Iron and steel.—Pig iron, billets, plate, bar, DISTRICT NO. 4—CLEVELAND. rail, and sheet producers and manufacturers During March, especially for the week report very strong demand for all classes of ended March 17, there was a noticeable hesi- production with rising prices. The prosperity tancy and uncertainty in many lines of busi- and capacity of producers is apparently ness throughout district No. 4. The foreign limited only by insufficient transportation, relations of our Government and the trans- labor, and fuel supplies. A great many of the portation situation caused considerable unrest producers have indicated intentions of supplyin commerce and industry. Indications at this ing Government needs in advance of all their writing point to general relief from this feeling orders, and in some instances this condition and resumption of all activities to the fullest has rendered necessary the postponement of extent. private deliveries. It is entirely fair to say Agriculture.—Present indications are for a that the observations above made apply with fair yield only of the winter-wheat crop. From equal force to finished materials and other the Kentucky section the reports show that fabricated articles. the tobacco and hemp crops of last year were Coal and coke.—The producers are entirely marketed at greatly increased prices to theujiable to secure an adequate labor supply for farmer, and preparations are being made now the production of a sufficient amount of outfor increased production of these crops in theput to meet their demand. Reports show section. Specific inquiry throughout the dis-that in the Pennsylvania, Ohio, and Kentucky trict reveals a rather unsatisfactory condi- coal regions overtures have been made for tion regarding plans for increased production entire outputs of the mines at advanced of foodstuffs. The lack of sufficient or compe- prices. In some instances contracts have tent farm laborers is urged as the chief diffi- been made, and in others refused either 021 culty, due, of course, to the demand for labor account of conditions or in the hope of making in industry at wages higher than the farmer better arrangements, or, as noticeable in the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL l, 1917. FEDERAL BESEBVE BULLETIN. 301 Pennsylvania fields, producers have felt the jfuture operations. Housing facilities in manunecessity and desirability of maintaining a!facturing centers are reported as inadequate. percentage of output as free coal. j Unfavorable labor conditions in building Foundry coke.—Foundry coke has been very trades are reported from most localities. scarce, and prices have run wild. The fuel s a i t t u p a r t e i s o e n n t r e e a x l i l s y t in is g t i h n e i m nd o u s s t tr s i e a r l i o e u n s t er d p r r a i w se b s a c in k P is e s r u m e i d t . s Valuations. Increase c P i e n e n - r t this district. 1 F 9 e 1 b 7 . . , 1 F 9 e 1 b 6 . . , Feb., 1917. Feb., 1916. decrease. c c o r r r e e a a d s s e e e - . Oil.—A new field in the Irvine district in Kentucky is being developed, with very prom- Akron, Ohio 253 166 8435,575 S529,985 55 ising results. It is reported that strata of Cincinnati, Ohio 872 1,128 841,490 596,120 245,370 29 Cleveland, Ohio. 665 704 2,784,260 1,552,725 1,231,535 44 oil-bearing sands have been struck at shallow Dayton, Ohio... 378 49 1,932,090 99,749 1,832,041 95 Columbus, Ohio 97 163 223,655 314,225 90,570 140 depths, and extensive developments are in Erie, Pa 78 61 138,315 87,455 50,860 37 Pittsburgh, Pa.. 141 298 251,535 1,312,686 1,061,151 142 progress. Other fields in this district con- Toledo, Ohio.... 152 700,781 312,648 180 Youngstown, tinue to capacity of existing equipment, with Ohio". 75 43 255,420 85,665 169,755 high prices maintained. •Total 2,711 2,851 7,780,458 5,184,981 2,595.177 1 33.3 Glass, pottery, and clay products.—All of these 1 Decrease. industries have been affected by fuel and Money and investments.—A cursory examinatransportation problems, but the correspondtion of the published statements of banks under ents present a hopeful view for the future* the Comptroller's and State Banking Depart- In some localities where gas has been used ment's calls for reports of condition as of previously, it is reported that the use of coal March 5 indicates further gains in the deis contemplated. posit lines generally, though in some localities Rubber goods.—Akron reports continued acthe increase has been merely nominal. The tivity with increased production in all branches supply of loanable funds in banks is more than of the rubber industry. Laborers recently adequate for the needs of the respective localiemployed in the rubber goods factories are ties, and rates continue for the most part unsaid to be less efficient than former help, and changed. There was a lessened demand at demand higher wages. lower prices for investment securities during Mercantile business.—There is not much the first half of the month of March. change from the preceding months in commer- Bank clearings.—-Bank clearings maintain incial activities, unless it be a lessening of stocks creases over the corresponding period of the of goods by reason of inability to secure shippreceding year, as indicated below, in nine of ments; but collection conditions have become the principal cities: a little less favorable. Foodstuffs continue to advance in price, and there is in the cities evidence of decreasing Feb. 16 to Mar. 15, Per inclusive— cent surplus supplies, indicating perhaps further Increase or indecrease. crease advances. 1917 191(5 or decrease. Building operations.—The table following shows the comparison of building operations Akron, Ohio $23,114,000 $15,124,000 87,900,000 35 Cincinnati, Ohio 149.950,702 129,280,850 20,669,852 14 for February of this year and of last year. In Cleveland. Ohio 230', 711,100 144,0(55,228 86,645,771 37 Davton, Ohio 15,382; 030 31,849,256 3,532,754 23 Cleveland a lockout of building trades by Columbus, Ohio 36,957,200 42,198,100 i 5,240,900 U4 Erie, Pa..l: 6,506,079 5,023,012 1,483,667 23 employers has affected 20,000 workmen and Pittsburgh, Pa 304,998,557 243,029,422 61,969,135 20 Toledo, Ohio.. •41,807,793 34,455,002 7,352,701 18 practically stopped construction of buildings Youngstown, Ohio 12,201,597 9,193.730 3,009.. 800 25 of estimated value of over $15,000,000. This Total 821,029,(14 3 ! 634,213,602 187,412,939 22.8 condition will undoubtedly have its effect on Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

302 FEDERAL RESERVE BULLETIN. APRIL 1,1917. Post-office receipts.—The postal receipts in general subjects of comment and more or less nine of the largest cities of the district for the anxiety, particularly as to their bearings on our month of February, as compared with the own business conditions. Manufacturing consame month last year, are as follows: cerns appear to have abundant orders, but inability to obtain supplies of raw material and Per restricted freight facilities are limiting produc- February, February, In o c r r e d a e s - e ce in nt tion. Ocean freight room is in restricted sup- 1917. 1916. decrease. crease ply and to be had only at almost prohibitive or decrease. rates. This condition is causing the continued accumulation of goods at the ports for export, Akron, Ohio 869,371 858,237 $11,133 16 Cincinnati, Ohio.. 244,932 258,231 U3,298 i 5 actual figures for exports necessarily indicat- Cleveland, Ohio... 339,387 309,550 29,837 Dayton, Ohio 61,812 63,615 11,802 ing a material decline. Columbus, Ohio... 102,539 99,432 3,107 E P r it i t e s , b P u a rgh, Pa.... 3 2 1 2 4 , , 9 9 5 5 4 8 3 2 3 1 7 , , 9 6 4 0 7 0 122 1 , ,0 6 0 4 6 1 17 5 Postal revenues, clearing-house returns, and Toledo, Ohio 90,483 94,416 13,932 14 railroad earnings continue on a normal basis, Youngstown, Ohio 25,587 24,983 603 2 and general trade is in good volume, collections Total 1,272,027 1,268,015 4,012 .003 keeping pace with sales. i Decrease. Actual building has been retarded by.bad Labor conditions.—Labor is fully employed weather, but many new buildings and extenin all lines, skilled and unskilled, except in the sions of various plants are in contemplation, building trades. There is a decided scarcity building materials continuing to be in good in farm hands and high-grade mechanics, and demand. there does not seem to be any hope of relief. The damage reported from the severe freeze There are indications of unrest in mining and something over a month ago proved to be exmilling centers, though general conditions are aggerated, as was indicated in last month's reprobably not less favorable than formerly. port. Only young berry plants were seriously The outlook for commerce and industry is damaged, there has been considerable replanting, good, and fair as regards agriculture; neces- and an increased production of strawberries sarily, the agricultural situation will affect un- in the district is anticipated. The present favorably the general conditions later. There high prices for potatoes are stimulating prohas recently been renewed effort to encourage duction of this crop, the acreage planted is farm production, and if this should instill limited only by seed and labor conditions, and a greater energy into the farmer the prospects sufficient crop may be reasonably anticipated. would be better. It does not seem that the This should materially reduce prices, with a movements for increased acreage or more good margin of profit left to the producers. scientific methods in farming have been organ- Manufacturers of fertilizers appear to have ized or developed to such an extent as to be practically sold out, leaving a considerable depromising of results before the planting season. mand unsatisfied. This, however, is not likely to lead to any hardship, but, on the contrary, DISTRICT NO. 5—RICHMOND. will induce conservatism in operations. There has been little or no change in condi- On February 27 Governor Seay issued to tions during the past month. Basic conditions member banks and others in the district a food continue sound, but bad weather has rather circular which has aroused general interest in accentuated the " between-seasons" quiet. the subject and, it is anticipated, will stimulate Everybody, however, seems to be busy, at least the production of food supplies in every line. in preparations for the full opening of spring Applications have been received from member activities. banks and others for over 25,000 of these circu- The uncertainties of our foreign situation and lars, for general distribution in the various secthe possibilities of a railroad strike have been tions and communities of the district. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 303 Money continues in abundant suppty for •many mills are receiving not to exceed 50 per legitimate business, adequate supplies are ap- Icent of ordinary car requirements and preventparontly. being kept at the chief centers of the •ed from shipping to many sections on account district, and the larger banks are in reasonably ; of embargoes. Following the period of enliquid condition. Demands from country forced idleness during bad winter months many banks arc, however, increasing, especially for'' southern mills will begin operations with the agricultural purposes. Offerings of bankers' ,betterment of railroad conditions. There is acceptances continue in considerable volume, considerable congestion of lumber at various especially for the purpose of carrying aceumu- !points, several thousand carloads being tied up lated exports at the ports. in the Mobile mill yards. General relief is expressed at the settlement Car shortages and embargoes are also seriof the railroad strike recently called. If, with !ously affecting the naval stores lines in conthe removal of anticipated trouble in this direc- junction with no movement of foreign shiption, the railroads can lift embargoes and sup- ' ments. With conditions improved, spring and ply sufficient cars promptly to move the summer demands are expected to be as heavy abundant offerings of freights, a healthy im~"as usual. petus will be lent to the already strong tide of | Figures for February show 114 failures in trade. : this district as compared with 157 in 1916. : The submarine menace has handicapped DISTRICT NO. 6—ATLANTA. jj shipment of iron to foreign customers, but do- The greatest handicap to further industrial jl mestic demand continues good, with pig-iron development and normal agricultural produc-;; prices ranging from $24 to $25. Producers have tion in the Sixth Federal Reserve District is 'I sold heavily and it is predicted that prices will the growing scarcity of labor. This shortage \• go over §30 by midsummer. is being felt by almost every industry and ap- jj Tennessee winter wheat suffered severely parontly there is no relief in sight. The ex-!! from the cold spells of February and March odus of southern negroes to northern rnanufac" i! owing to the fact that there was no snow on the taring centers has continued with a steady I ground. Winter grains have been practically flow during the winter months. Little of thisj a failure in the district, and it is not likely that labor has drifted back, and with the coming of | there will be any considerable decrease in cotspring weather a still larger movement is ex- ton acreage. Increased planting is expected in pected. The movement is general. Until re-." many parts of the district, which will be parcently it consisted largely of negro farm hands, tially offset in boll-weevil counties, where the but considerable complaint is now heard of loss planting will largely be peanuts, velvet beans, of labor by mining concerns and industrial and corn. The weather has been seasonable plants. Agricultural communities are already for marketing the balance of a full-average complaining of shortage of help for spring tobacco crop, with prices double that of prework. Labor agents are picturing to them vious season. bettor living conditions, with high wages and Preparation of soil and spring planting is conless restriction of personal liberty, in the north. siderably behind owing to unseasonable The freight embargoes and car shortages are an weather. Early planting is a strong factor in additional source of serious consideration. the boll-weevil fight and some fear is felt on The demand for yellow pine is strong and account of the unavoidable delay. Little values firm. Yard stocks are low and badly damage is reported on account of floods, as broken. Mill stocks are reported normal. planting had not begun. Production is below normal owing to transpor- The potato crop of Florida will mature tation conditions and the weather. A great within the next six weeks, and prospects are Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

304 FEDERAL RESERVE BULLETIN. APRIL 1,1917. bright for a large harvest. Keports from the Reserve Bank of Atlanta the money market is Florida east coast as to prospects of orange reported firm with seasonable demand. Actrees recovering from the cold-wave damage are tivity is noted in lumber, cement, and other encouraging. Estimates now place damage building materials notwithstanding many buildfrom freeze at not more than 25 per cent as ing projects are awaiting more favorable much as first reported. prices. Georgia peach growers were anticipating an The demand for sea food products conextra large crop prior to the freeze. Peaches in tinues in excess of the supply. This industry the territory north of Atlanta were heavily | promises to reduce the high cost of living and damaged and suffered to considerable extent in Iat the same time build up the Gulf coast. the territory south of Atlanta. The crop south j Increased acreage is assured throughout of Macon will be practically as large as last; the district, with diversification a decided season. Provided no further damage occurs | feature everywhere. One of the largest pack- Georgia expects to ship about 4,000 cars of ing houses of Chicago has just purchased the. peaches. The fruit crops in Alabama and plant of the Crescent City Slaughterhouse Co., Florida will also be reduced from like damage. of New Orleans, and will enlarge its capacity Little damage was done to the new tobacco- and operations, thereby creating a better plant beds, as only a very limited amount of seed market for cattle and giving added stimulus to had come up at the time of the freeze. the cattle raisers. Hog and cattle prices continue to advance. The commerce of the port of New Orleans There is a widespread activity in these lines, being largely with Latin America, lies outside which gives evidence of a "banner year" in di- | the prohibited war zones and there is conseversified farming. There is a scarcity of sheep quently no interruption. The field of endeavor and lambs in the district. In answer to in- is largo and lack of tonnage is the only obstacle quiry regarding hog and cattle raising, one of | at present. Owing to the largo trade with the our correspondents reports: ! countries to the south the port of New Orleans 1' This county has already shipped several j was not only able to retain its trade as heretocarloads of hogs, the first time in its history. fore but largely increase it. With the rest of the There is a rapid increase in hog growing and country reporting loss of imports, New Orleans cattle raising—diversified farming is entered is able to show an increase of over 50 ~pQT cent, into vigorously." I DISTRICT NO. 7—CHICAGO. Aiiother correspondent advises: "First time in the history of the county that our fanners The banks throughout District No. 7 are have a surplus of hogs and are shipping them well supplied with funds, as is evidenced by to market." their small borrowing requirements and the There is no considerable demand for money low rate for money. It is true that the past Interest rates are stationary. The producers month has seen a stiffening in the going intersold last season's crops at prices that de- est rate effective in the larger cities, where the creased the usual demand for money at this banking reserves approach more nearly the season of the year. A large amount of the legal requirements than is the case with fertilizer being used was paid for in cash. | country institutions. Despite the uncertain- Bank clearings and deposits are largely in Ities both at home and abroad, savings banks excess of this time last year. Collections Ireport increased deposits and an increase in show less activity during March, with the j the number of accounts on their books. The exception of Florida, where increased collec- investment situation is difficult to analyze, yet tions are reported. Purchases remain steady. it appears to be the consensus of opinion that In that part of the sixth district allotted investors are holding back and are in position to the New Orleans Branch of the Federal to enter the market with considerable capital Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

AritiL 1.1917. FEDEEAL EESEEVE BULLETIN". 305 should the general situation clear up or should struction on account of the high cost of matethere be an attractive offering of conservative rials and labor. Coal is selling at a somewhat securities. Bond houses are having a quiet lower price than prevailed during the past few business, with the city banks practically out months, but is substantially above normal. of the market and the ultimate consumer One of the largo mining concerns in our territaking but a small volume of securities. tory reports that their properties were oper- While it is early to estimate with any degree ated 75 per cent of capacity last month and of accuracy the prospects for winter wheat, that they were able to secure cars with less nevertheless, weather conditions have favored delay than heretofore, the crop over the greater part of this district, Maltsers are enjoying a prosperous business, and, unless a reversal of form occurs, it is be- with a strong demand for their product, and lieved that this district will produce more good collections. Distillers are satisfied with winter wheat than was the case last year. present conditions, but the action of various The grain markets have been very much dis- legislatures will .tend to cut down the wet terturbed because of the foreign situation, the ritory. It seems to be the general opinion submarine campaign, and the railroad dis- that the so-called "'bone-dry bill" will, if turbance. Fluctuations have been violent anything, benefit the legitimate distilleries. and shipping conditions have aggravated the In the dry-goods trade recent business has situation. Authorities believe that the under- boon of smaller volume than a year ago, and lying conditions are sound and that the re- a tendency toward conservative purchases is quirements of the foreign nations will main- evidenced by letters from wholesalers and tain prices at high levels for some time to retailers. Collections are fair, and concerns come, although it is natural to expect specu- transacting business with the country dislative Hurries based on transient conditions. tricts are better placed than those in the The manufacturing industries arc actively larger centers. This is attributed by some of engaged and report a good, demand, for their our friends to the wealth of the farming comproducts, with serious difficulty in making munities and the fact that in the centers the shipments and in securing the necessary raw high cost of foodstuffs has decreased the purmaterial. The transportation situation has chasing power of individuals whose salaries been a serious problem and still is the cause have not kept pace with the increased cost of for considerable thought to manufacturers and living. The furniture business is fairly good. distributors in this part of the country. More Lumbering concerns which have enjoyed a cars are available than was the case a month favorable winter are experiencing consideraago, yet the supply is inadequate and in some ble difficulty in the matter of transportation, cases has brought about the closing down of and the demand for the retail product is less plants in this district. The agricultural im- than a year ago in the larger centers, which plement concerns are finding a good demand may be due to the high cost of building. for their products at advanced prices, and the Grocers are generally selling a satisfactory volume of their output is satisfactory, al- volume of goods, and collections are fair. The though shipping difficulties are encountered money required to handle a grocery business both in the distribution of the finished article at this time is considerably more than normal, and in the purchase of the raw material. and collections, therefore, should be watched Automobile companies are confident of a with care. Consumers are substituting to a continuing demand and are expanding their considerable degree in an attempt to econoplants, although the more conservative are mise. Hardware is in excellent demand, with proceeding in this direction with caution. collections prompt over most of this district. The demand for building material is fair, Steel continues in strong demand, at high although there is a tendency to postpone con- prices, with great activity in wire products. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

306 FEDERAL RESERVE BULLETIN. APRIL 1, 1917. We understand that large tonnages have been general business from well-informed men in bought for shipment during 1918, and some this district range from "good" to "extraconcerns are trying to buy for 1919. Ship- ordinarily active." Comment of this characbuilding is active. ter covers practically every branch of industry. Leather has shown some falling off during the Department stores report a large and profitpast few weeks, and shoe manufacturers are able business with a demand for high grade buying very cautiously. There is a waiting merchandise of all classes. The buying power market, but prospects are considered favorable ^ of the public is extremely large and the inat least for the duration of the European war. creased cost of many articles, particularly Live stock in the Chicago market has regis- shoes and other leather goods, does not seem tered new high marks on light receipts of to have lessened the demand. Jobbing intercattle, and hog receipts have also decreased ests, especially dry goods, shoes, and woodenmaterially. ware, report satisfactory increases in ship- The output of piano companies has been ments, unusually heavy orders for future deinterfered with through inability to secure livery, and collections seem to be entirely satcertain lines of supplies, and manufacturers isfactory. Furniture manufacturers are rereport a falling off in new orders. They, how- ported to be sold up. Paper interests seem to ever, are busy on accumulated business, and be handicapped by slow deliveries. Electrical this, together with the present demands, is supply companies report sufficient orders on keeping the factories working full time. hand to insure capacity operations for some Jewelry concerns are receiving business in months. Wholesale drug houses and chemical excess of a • year ago and look forward to a manufacturers report a very satisfactory busicontinuation of favorable conditions. ness. Prices have continued to advance and it Clearings in Chicago for the first 21 days of appears that there is a scarcity in certain lines. March were 81,544,000,000, being §328,000,000 Climatic conditions in the past 30 days have more than for the corresponding 21 days in not been wholly favorable. Generally speak- March, 1916. Clearings reported by 20 cities ing the rainfall throughout the district was in the district outside of Chicago amounted considerably less than the normal in both Janto $288,000,000 for the first 15 days of March, uary and February of this year, and it is 1917, as compared with $207,000,000 for the feared that this may have a bad effect on the first 15 days of March, 1916. Deposits in eight coming crops, as sufficient subsoil moisture is central reserve city member banks in Chicago essential. As it is still early in the season, were $733,000,000 at the close of business sufficient rainfall from now on may improve March 20, 1917, and loans were $510,000,000. agricultural conditions materially. Deposits show a decrease of approximately There has been little change in the cotton $10,000,000 over last month, while loans have situation in the southern portions of the disremained at approximately the same figure as trict. A very large stock of cotton is carried last month. in Memphis; at this date approximately 355,000 bales as compared to 245,000 in 1916, DISTRICT NO. 8—ST. LOUIS. and 211,000 in 1915. The largest part of this Although the past month has been one ol stock is held in the hands of cotton factors who great uncertainty, it can not be said that this are holding for higher prices and all reports has had more than a healthy deterrent effect indicate that their position this year is exon the business activities in this district. On tremely strong. The movement from. Memthe whole business continues to be extremely phis is still handicapped by embargoes. Some active, but has not increased in the same ratio relief was afforded in the middle of March. as during the previous month. Comments on One correspondent reports that in his opinion Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1, 1917. FEDERAL RESERVE BULLETIN. 307 50,000 bales of cotton would be shipped from strike has removed this and freight conditions Memphis if the railroads were restored to a are now reported to be more nearly normal than normal working basis. at any time during the last month or two. The new crop conditions are of course still Freight embargoes on lines connecting with the uncertain. Planting has not begun and it Atlantic seaboard have been lifted in many appears that crop preparations in some sec- cases and the movement of freight is generally tions arc a little late. Reports on the acreage freer, although there are still some complaints vary considerably. It is estimated that there on account of delay. The freight movement will be a substantial increase in acreage in south and west is practically normal. eastern Arkansas but that the presence of the Index figures on the cost of living and comboll weevil in Mississippi will have a deterrent modity prices show further increases. It is effect. Spring plowing is reported well ad- reported that this increase has reduced convanced. There have been a number of heavy sumption in some lines. Eggs, potatoes, onions, freezes in the cotton belt, so that the ground is and cabbage are lower than a month ago. in excellent shape, and it is hoped that the High prices of provisions in general have shut severe winter weather will at least retard the off the demand and the provision business is northward movement of the boll weevil. A not as active as usual. The stock of canned correspondent writes as follows: fruits and vegetables is reported to be low. Postal receipts for February in Little Rock, From observation I would judge that the cotton acreage will possibly increase from 5 to 10 per cent on account Louisville, and Memphis show a slight decrease, of so much land having been made ready for cultivation while postal receipts at St. Louis show a slight during the past winter. I also think that there will be a increase as compared with February, 1916. material increase in both the corn and forage crops, and it Building permits for February, 1916, in Little seems to be the idea of each individual farmer to at least Rock and Memphis show a slight increase as raise enough of the food crop to supply the farm. compared with a year ago, while St. Louis shows The gross and net earnings of those railroads a loss in building permits for the same period. that serve this district for January and the A restraining influence is attributed to the gross railroad earnings for February are now scarcity and high price of material and of labor. available. Large increases in gross earnings The St. Louis National Stock Yards reports continue, and in fact these increases are so an increase in the receipts of cattle for February substantial that the net earnings are increased and a decrease in the receipts of hogs, sheep, in spite of the increased cost of railroad supplies and horses and mules. On March -20 hogs and operation, a reversal of the position show^n sold at East St. Louis at $15.40 a hundred, by the December figures. The gross earnings which is a new high record and compares with in February do not in many cases show the a high record of $12.65 a month ago. Foreign same proportion of increases as in January and Governments are still buying horses and mules this is attributed to the restrictions on moveat the National Stock Yards, but the United ment of grain and cotton. Within the last day States Government is not purchasing at present. or two the freight situation has materially im- The bond market is reported to be about proved. A car shortage in February is a very normal for this season of the year. The market unusual occurrence and in my February report received a set back early in February, but con- I stated that this shortage had hampered busiditions have improved somewhat from that ness activity. Owing to the efforts of the time, and the outlook is favorable. business interests throughout the district, con- Clearings for the principal cities in this disditions improved during the latter part of trict for the week ending March 10, 1917, the February, but the condition again became last figures available, show increases ranging serious with the announcement of the threat- | from 14.8 in Louisville to 51.4 in St. Louis. ened railroad strike. The settlement of the | Commercial paper is now quoted at 4 to 4J per Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

308 FEDEEAL RESERVE BULLETIN. AVIUL 1,1917. cent. The market has shown in the last week pers, have acted concertedly in trying to ima less active demand and smaller offerings. It prove the situation, but as compared with the is reported that firms have either completed first of the month it is not materially better. their financial arrangements or are awaiting Neither the possibility of war nor the possifuture developments. There has been little bility of a general railroad strike seemed to or no chancre in hank rates to customers. make a very serious impression upon the even course of both banking and commercial busi- DISTRICT NO. 9—MINNEAPOLIS. ness during the month, which is evidence of the Frequent heavy snowstorms during the first soundness of conditions generally throughout two-thirds of the month seriously interrupted the district. Leading business men and bankrailroad transportation, and placed heavy burers are of the opinion that the possibilities of dens upon all lines of distributing business. the immediate future have been accurately fore- For continuous cold and for the amount of cast in both banking and business circles, and snowfall, the winter has been the most severe that further developments need not necessarily the district has seen in 37 years. The total bring serious effects. snowfall at Minneapolis breaks all records for The farm outlook in the district is bright. this period, and amounts to more than 80 As a whole, the farmers realize that the condiinches. tions are very favorable, and that the outlook While this will be of great advantage in the is for an extremely profitable year, and they farming districts, it will likewise cause conarc paying close attention to the suggestion siderable trouble from high water, especially if that all possible efforts be made to increase warm spring weather comes on suddenly and the acreage planted. The agricultural disthe snow goes off rapidly. tricts face serious labor difficulties. Farm Local deliveries at urban centers were serihands will be scarce and wages high. This ously interfered with by the storms during the may have the effect of somewhat cutting down greater part of the month, and the coal situathe acreage that would otherwise be planted. tion was acute. The car congestion at termi- Except as interfered with by storms, retail nals was so great as to make it practically imtrade has been satisfactory during the month, possible to switch loaded cars to delivery and the same general conditions have applied tracks, and coal companies wore compelled to to wholesale business. put a 1-ton limit upon deliveries to house- The comptroller's call found the banks in holders. The car situation has been very bad, the district in a strong position. Rates and seriously interfered both with the milling showed some inclination toward firmness duroutput at Minneapolis and with the movement ing the first 10 days of the month and stiffened of freight of all kinds. Relief measures undera fraction, but sagged off again to the pretaken early in the month were very hopefully viously prevailing level, and are approxireceived by the grain and milling trade, but mately the same as a month ago. Savings broke down later and produced comparatively deposits have materially increased since the little effect. The principal milling concerns last call, and the demand has continued good, have lately been compelled to cut their produc- due partly to the railroad situation, which has tion to a limit proportionate to the number of compelled the larger concerns, especially in the "empties" they have been able to obtain for grain and milling trade, to borrow at a time outgoing shipments, and have resorted to the of the year when they are usually paying off movement of a considerable amount of flour their bank obligations. and mill stuffs to Duluth and Superior, where The consensus of opinion is that, war or no it has been warehoused in order to clear the war, conditions in the district are sound and mills and give them opportunity to go ahead. the outlook is good. The railroads, coal companies, grain trade Should a recession occur in price of the concerns, millers, and many of the larger ship- principal articles entering into the cost of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1, 1917. FEDERAL RESERVE BULLETIN. 309 living, the situation will be further improved. a falling off in excess of 30,000,000 bushels, Some break is already apparent in the price indicating that there will be an unusually small of potatoes, butter, eggs, and a few other surplus carried over into the new crop year. articles; but the scale of prices that the house- Live stock.—The highest ruling prices ever holder has to pay is uniformly high and bur- known for all classes of live stock were reached densome. on the markets in February. The lack of finish of the major portion of arrivals, how- DISTRICT NO. 10—KANSAS CITY. ever, would indicate that shipments were made The past month has witnessed events which at the expense of future supplies. Beef steers unquestionably would have, in less remarkable brought from $1.25 to $2.75, hogs §4.50 to times, proven serious obstacles to the continu- $4.80, and sheep from $3.35 to $4 per hundred ance of active conditions. The extension of pounds more than a year ago. During March an unusual winter drouth, the growing serious- there has been a further advance in market ness of matters affecting our foreign relations, prices generally. Beet-pulp cattle are now and the threatened nation-wide railroad strike, coming to market from Colorado. Hogs easily together with the burdensome cost of living and occupy the center of interest in this industry, high price of labor, have had surprisingly little the unheard-of price of $15 having been reached effect other than a slight tendency toward on the local market on March 9. There has further conservatism generally, and an evi- been a noticeable decrease in hog slaughtering dence of preparation for any eventuality. as compared with the same period last year. Nothing seems materially to impede increasing Increased activity is reported in the horse prosperity. • market, the daily purchases by inspectors Agriculture.—The prediction pi $2 wheat for the British Government recently being as was realized early in March, the highest price heavy as at any other time since the beginning ever paid on the local markets. Corn also of the war. broke all price records. This month also wit- Mining.—With silver, copper, lead and zinc nessed the breaking of a winter that has been selling at record prices, there is in creased unprecedentedly arid, rain and snow giving activity in the mining camps. Producers of temporary relief to practically all the winter- tungsten report a better demand from eastern wheat States, and the fields are taking on a steel mills. Mine operators are forcing pronew lease of life. Only the most favorable duction up to the maximum in order to take conditions, however, will bring about anything full advantage of the high prices. There has like a normal wheat crop, as there has undoubt- been some new copper production in northern edly been severe damage in some localities. and southern Colorado. Deep mining in' the Kansas has planted almost 9,000,000 acres, the Cripple Creek (Colo.) district is producing third largest in its history; Nebraska 3,650,000 better results than ever anticipated and the against 3,300,000 the year before, while the driving of many old shafts to new ore zones is area in Oklahoma is 3,230,000 as compared in prospect. Colorado authorities claim that with 2,780,000 a year ago. There was also a China's unexpected recent action in stopping slight expansion in acreage in Missouri. The exportation of silver will mean that many mines belated moisture will now permit the comple- will be opened to help supply the world market. tion of oats sowing and preparations for corn There has been a strong market for lead, and planting will go forward. The four weeks end- producers in the Missouri-Kansas-Oldahoma ing March 24 witnessed a large shrinkage in the district claim it is because of a large consumpgrain movement to the markets of the district, tion. while holdings of wheat on farms on March 1 Oil.—No material changes in prices have in the four principal wheat-producing States, been posted, but the prediction is freely made as compared with the same date last year, show that, by reason of reduced production and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

310 FEDERAL RESEEVE BULLETIN. L 1,1917. increased consumption, further increases must Railroad earnings.—Ninety-four railroads, soon arrive. When pipe-line facilities now including practically all those operating in this planned for Wyoming become available, that district, show an increase in gross earnings of State's activities will take on a more substan- almost eleven and one-half million dollars, or 29 tial character. Three new oil refineries are per cent, in January, 1917, over January, 1916, now being planned. In the older producing as evidenced by reports just at hand. The net sections of the Mid-Continent field deeper earnings of these same roads show an increase, drilling is receiving considerable attention, in the same period of almost six and one-half some important developments having occurred million dollars, or 66 per cent. This is a much at depths below the original producing forma- better exhibit than would have been deemed tion. The water situation, which was becom- possible considering the rise in operating cost. ing more' and more acute, causing a shut down Labor.—Labor conditions are quite satisfacin many instances, was relieved by the snow tory. In fact there may be said to be fewer eviand rainfall heretofore referred to. Many dences of unrest than for some time past. Emwells are on the waiting list pending an in- ployment at unusual wages is general. Some creased supply of casing and pipe, pipe mills uneasiness is expressed in the growing possirefusing to book any orders for delivery bility that help on the farms for the opening before August. Oklahoma showed an in- spring will be scarce. crease both in completed work and in new Wholesale and retail.—The flour mills of the work during the short month of February and district have been running at about twonow that the water situation is better, the thirds capacity. New sales are quiet, busimonth of March should show further activity. ness being limited largely to Central and West- Lumber.—Open weather and mild tempera- ern States by reason of railway embargoes. tures have stimulated the consumption of lum- A number of smaller mills and some of the ber and caused a proportionate increase in the large ones have discontinued operations from demand for yellow pine yard stock, especially this cause. from country yards. Prices have shown a General retail stores, with the opening of tendency to advance. Mills are apparently spring lines, report an excellent business, the experiencing difficulty in handling mixed or- prospects for volume surpassing last year. ders, as their stocks are badly broken. Retail Automobile dealers are swamped with ordealers are buying heavily and manufacturers ders, but deliveries are exceedingly difficult. with offices in this territory are loaded up with The winter's business is said to have been 50 ordovrs. Conditions seem favorable, but much per cent greater than ever before. An exwill naturally depend on wheat and corn pros- cellent spring business can only be interfered pects. One company controlling a large line of with by factory limitations and deliveries. country yards reports: 'i Our business thus far Some cases are reported of delivery of cars to this year is about 40 per cent in excess of last points of distribution under their own power. year's volume for the same period." Sash and There are said to be four times as many autodoor factories report actual orders as numerous mobiles in the State of Nebraska as there were now as they often are a month later, with the in 1913, this State standing second in number outlook for spring trade near the record. Lum- of cars in proportion to population. bermen interviewed lay stress upon the car There are hundreds of cars of implements situation, but are without exception optimistic for spring use yet to be moved into this terriover trade prospects. A local real estate comtory and the dealers are fearing they will be pany reports that by actual comparison the unable to take care of second-order business. cost of erecting a certain residence has increased Retailers are enjoying a fine business and farm- 43 per cent since October, 1915. ers are reported as buying a greater number Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Arnih 1, 1017. FEDERAL RESERVE BULLETIN. 311 and variety of implements than usual and !report good, but scarcely adequate, rains paying cash for their purchases. | during March, which have put an excellent Financial.—Banks continue in well-fortified jseason in the ground and have been of material position for any emergency. Short-time loans j benefit in early planting. The drought exof certain liquidity are in demand and rates jperienced in the southwestern part of the continue steady. The total clearings reported district has within the past few days been for February in 15 important cities indicate broken, and crop prospects, especially for garan average increase of 32.5 per cent over the den truck, are excellent. A very heavy insame month last year, each showing an in- crease in acreage in vegetables has been put crease, the lowest 9.9 per cent and the highest in, especially in the Rio Grande Valley. The 79.6 per cent. jdamage done by the cold weather to the truck Failures reported are 14 fewer in number for industry in the Southwest will be more than February than the same month last year, but offset by the excellent prices for the output, the liabilities aggregate a slight increase. and the returns will be satisfactory. The onion crop from the Laredo country will begin DISTRICT NO. 11—DALLAS. moving about April 1. Outstanding feature in the commercial The crop is said to be in very good condition activities throughout the district the past and the yield will be fully up to the average month has been the feeling of uncertainty The indications are that the price will be the over our international relations and domestic best for several seasons. According to the problems to be solved in the event the United Government crop report for February, the States become involved in the war. These acreage of onions in Texas will be about 12,000 discordant elements apparent in various lines acres, an increase of 17.9 per cent over 1916. have tended to cause disquiet and have created Last year's shipments were around 4,900 cars. an attitude of conservatism and caution. At the high prices now obtaining for onions, With the railroads already taxed to capacity the enormous returns from this commodity and the necessitj^ of placing restrictions on alone can be seen. The campaigns being made shipments to northern and eastern territory, for reduced acreage in cotton are having a good the possibilities of a general strike threatened to effect, and reports are that there will be a very add to the difficulties. Considering the effect small increase in this staple. It is too early to these unusual conditions naturally caused make an estimate as to what this increase will throughout the district, business has held up amount to. It is certain, however, that the remarkably well. acreage in general feed crops will be larger than Following a custom established some time ever before and the campaign for diversificaago in the larger cities of this section, style \tion and the raising of larger feed crops will unshows and exhibitions of a similar character |questionably bear fruit. during March brought an influx of buyers to j It is too early to make a prediction as to the the markets and were especially beneficial to ipeach and fruit crops of the district, although at retail trade. While there is a temporary lull: the present writing conditions for a good crop in mail-order business, attributable no doubt j are excellent. Reports indicate that on acto the unsettled conditions above mentioned, \ count of the dry summer and fall of last year this dullness, according to our advices, will be ]the fruit trees show little growth in buds, and of short duration. Retail merchants report one correspondent advises that an investigation that the car situation is extremely acute and : of the Elberta trees in east Texas the early part that it is next to impossible to got deliveries of j of March showed that from 25 to 50 per cent of seasonable merchandise. the buds were ruined hy cold weather. Other Agricultural conditions arc most favorable varieties of peaches, however, show less damage, in the district.. All sections of the district"and plums and apples are damaged little, if at all. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

312 FEDERAL RESERVE BULLETIN, APRIL 1,1917. Our member banks continue in a strong posi- bond market is steady and no special tion and are well prepared to meet any situation activity is noted. Demand is normal and that may develop as a result of our foreign prices are firm. There are a good many inaffairs. While figures are not obtainable from quiries for such securities. all of the banks of the district showing their Considering the high cost of lumber and other condition on the comptroller's call of March building materials, and the difficulties expe- 5, such statements as have come to hand indi- rienced in obtaining suitable supplies on cate a decrease in deposits over the December account of congestion in freight terminals, and 27 call. Demand with this bank is much more the unusually high prices of labor, building active than 30 days ago, with quite a substan- operations in the district are considerably tial increase in offerings of cattle paper. above normal. In nearly every large city in Figures of clearings obtained from Austin, this section building operations are active, Beaumont, Dallas, Fort Worth, Galveston, especially in Dallas, where, within the past Houston, and Shreveport show an increase of month, permits have been issued for construc- 15 per cent for February over the same month tion of buildings aggregating over a million of last year. The figures are as follows: 1917, dollars. Car shortages and embargoes have in $184,539,126; 1916, $160,668,648: increase, I some instances forced lumber mills and manu- $23,870,478. facturers of materials to withdraw from the With two exceptions the cities above men- | market as they are unable to secure sufficienttioned show good increases, Dallas showing equipment to handle their orders. The volan increase of 52 per cent. There were ume of business available is satisfactory if the handled in our district clearing house from manufacturers were in position to handle it. February 16 to March 15, 1917 (22 business Scarcity of bottoms is seriously affecting exdays), 279,215 items, aggregating $110,788,072, port business, and shipments by rail are not or a daily average of 12,691 items, amounting more than 75 per cent normal on account of to $5,035,821. This is an increase in both the embargoes. Local demand in the cities is number and amount over the preceding 30 good both for structural timbers and yard days. stuff, and prices are strong. This bank has, within the past 60 days, been Building permits issued in the principal cities called upon to make large shipments of gold of the district for February show a decrease in to banks located at border points for use in number, though a substantial increase in valtransactions with the customs-house officials uation. The figures are: 1917—Number, 924; of Mexico who decline to receive anything in valuation, $1,863,950. 1916—Number, 1,087; payment of duties except American gold. valuation, $1,377,172. These shipments are still being made in con- One of our correspondents, a large manufacsiderable volume. The Mexican Government turer of pressed brick, states that collections recently- issued a circular changing the rate at are below normal and slower than any month which American money would be accepted in last year; that the uneasiness over the war payment of taxes. This has created a heavy scare is having a serious effect on his business. demand for gold coin, and notwithstanding The element of uncertainty in our foreign the heavy payments made by banks at border affairs has affected wholesale lines, particularly points and the heavy importations by the dry goods. High prices for all classes of mer- Mexican Government and individuals, the coin chandise have caused conservative buying, and seems to be tightly held as fast as imported there is a disposition among the trade to guard into that country and the same is not being against carrying heavy stocks of high-priced returned. goods. However, one of the largest wholesale Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL BESERVE BULLETIN, 318 houses in the district reports that its sales are prices are sustained, which authorities generally fully 50 per cent heayier than a year ago, and believe, the future development of this very collections are in keeping with the increased vol- important industry will be assured. ume. Advices from various other wholesalers Commercial mortality in the district showed of merchandise are in line with this report. an appreciable decrease during the month of The grocery trade is satisfactory, and the February, as compared with the same month wholesale houses are showing a 50 per cent a year ago, and a gratifying improvement in increase in sales and collections over the same the number of failures and amount of liabilities period of 1916. The rising prices of staples, is noted. however? with a normal consumption, present a Coastwise and export shipments from the situation that is fraught with danger, especially port of Beaumont during the month of Februwith the country merchant, who is obliged to ary aggregated 63989 tons. From Galveston ; carry his customers until the crops are made, the value of exports for February was and distributors are endeavoring to discourage $16,034,533. the too liberal extension of credit. The unusu- High prices for all classes of live stock conally high prices, therefore, while enabling the tinue, and notwithstanding heavy receipts the wholesale grocery houses to show a handsome demand has been equal to the supply. There increase in sales, tend to promote an inflation is quite an active demand both for sheep and of credit to the consumer and develop a situa- cattle in New Mexico, and unless dry weather tion which would be hard to overcome if crops prevails there will be early shipments of one and are poor and returns from same below normal. two year old steers. At the present time rain The prosperous condition of the farmer the past is badly needed in New Mexico, as the ranges year enabled many country merchants to col- are getting short in that section. lect old obligations and "wipe the slate clean/' All the copper mining companies are running and this is a condition which the wholesalers to their full capacity, and prices for the output are anxious to see continued. are higher than ever before. The high prices The wholesale shoe trade shows a consider- for copper have created a demand for mining able gain in sales. However, it is reported that properties in Arizona which has resulted in the the high price of leather has restricted orders, small claim holder and prospector being unand dealers and the public are not buying usually prosperous. When it is noted that the heavily, but, as one Large manufacturer stated, Arizona district produces about ninety million pursuing a "hand-to-mouth policy"; that while pounds of copper per year, which brings from the gain in "dollars arid cents" is practically 19 to 30 cents per pound, the importance of double the same month last year, the number of that industry to the general business interests orders is curtailed. of the district is realized. With oil bringing the highest prices ever paid Employment of labor is above normal. The in the fields, there is considerable activity in transfer of unskilled men to the North and East the operations at the wells in Louisiana, south- still continues and is causing concern. Authorieast and northwest Texas. However, new ties state that unless there is some decrease in developments, both in the proven fields and this activity, there will be a general shortage of upon favorable "wild-cat" acreage, is greatly help for harvesting crops the coming season. delayed owing to the difficulties in obtaining No strikes or disturbances are in progress in adequate supplies of pipe and machinery and the district at this time, and employers in ; water for drilling operations. The outlook for many instances, have been forced to meet the the industry is bright for every factor—pro- soaring prices of foodstuffs and necessities by ducer, refiner, and distributor. If present an increase in wages. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

314 FEDERAL RESERVE BULLETIN. APRIL 1,1917. DISTRICT NO. 12—SAN FRANCISCO. conjunction of these various cycles this year, There is impressive evidence of the important and that the pack of all varieties will conseneed for the maximum possible production of quently be heavy, possibly as much as 9,000,000 foodstuffs during the current year, with the or 10,000,000 cases, compared with 7,121,000 certainty of extraordinary demand whether cases last year. the war continues or ends. No general esti- So far as can now be judged, the general mate can yet be reliably made as to production outlook is favorable for an exceptionally large in this district. The amount and chronological output of foodstuffs in this district this year. distribution of precipitation are vital factors. Important contracts for British account have Thus far there is a slight deficiency in Wash- been placed with Pacific coast yards for conington, Oregon, and California, offset by unusu- struction of ships. This industry centers ally heavy snows in the mountains, assuring the chiefly in Seattle and San Francisco, but Portsupply of water for irrigation upon which land, which a year ago had yards only for California agriculture, in particular, so largely building wooden ships, now has three for depends. In the vicinity of Yosemite Valle}^ building steel ships. This industry is expandthe snow is said to be the heaviest ever known. ing enormously and prices likewise. Contracts Three-fifths of the Utah wheat is fall planted. are said to have been placed by the United Last fall 9,000 acres more were planted than States Government for building two cruisers in any previous year. Idaho reports good at Seattle and two at San Francisco. prospects in the section where there was practi- Reports from about two-thirds of the mills cal failure last year. In California it is esti- indicate that in 1916 the lumber cut of this mated that barley acreage will be increased district increased 16.3 per cent over 1915, comfrom 650,000 to 800,000, and the crop from pared with an increase of 8.4 per cent for the 450,000 to 900,000 tons. Hops and alfalfa will rest of the country. This district produced 38 be considerably displaced for potatoes, beans, per cent of the total. Lack of transportation and sugar beets, and large increases are an- has greatly hampered this and practically all ticipated in these crops. In various sections other industries. considerable increases are reported of dairy In February the petroleum production of cattle and poultry. Conditions are favorable the California field averaged 262,528 barrels, for cattle and sheep, as green feed is now plenti- and the shipments 299,357 stored stocks de- ? ful. To some extent high prices have induced clining 1,031,960 barrels. sale of cattle which should have been kept in Copper production is still expanding, with the herds. Sheep shearing has begun. Sales of extraordinarily high prices, making an output wool at prices above 40 cents are common, with of enormous value. reports of 50 cents and 60 cents in some cases. Commerce with Alaska in 1916 was almost It is predicted that in California 100,000 $120,000,000, an increase of $37,000,000 over acres will be planted to rice, the market for 1915. Copper worth $35,000,000 and canned which is rapidly extending because of superior salmon worth $21,500,000 both exceeded the quality. value of the gold and silver output, aggregating Indications are for an exceptionally large $16,300,000. From 1867 to 1916, Alaska crop of deciduous fruits. Canned goods from produced sea and fur products valued at the last crop are practically all out of first $323,000,000 and minerals valued at hands, and prices are high. $345,000,000. The run of salmon is, according to fairly In the totals of exports and imports during well-known cycles, varying with different 1916 Seattle stood fourth of the United States varieties. It is claimed that there will be a ports with $360,527,000, Boston and Phila- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL lr 1917. FEDERAL KESEKVE BULLETIN. 315 delphia leading by $26,000,000 and 363,000,000, than for the corresponding month last year, respectively. San Francisco stood, ninth with Seattle leading with an increase of 50 per cent, $243,886,000. Gold imports and exports at followed by Salt Lake City with 35 per cent, Pacific coast ports, during 1916, were as and Los Angeles with 30 per cent. Building follows: permits show only slight gain. Southern California has had a record number I Imports. I Exports. of visitors this season, estimated at 130,000, remaining an average of 30 days, and spend- San Francisco ; 838,223*175 | $45,954,220 LosAngelcs ! 33,525 ! 50,000 ing on an average a total of over $1,000,000 Seattle ^....; 5,042,105 j 5,623,222 per day. Total j 43,898,805 I 51,627,442 Mercantile conditions are favorable, and in general the year promises to be one of pros- Clearings for 19 principal cities of this disperity for this entire district. trict during February were 32 per cent greater ( Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

316 FEDERAL RESERVE BULLETIN. APR::, 1,1917. DISCOUNT OPERATIONS OF THE FEDERAL RESERVE BANKS. Discount operations of the Federal Reserve than 1 per cent of the total amount of bills re- Banks for the month of February, 1917, aggre- discounted during the month. Nearly 80 per gated $22,408,604, compared with $18,326,286 cent of these small bills, mostly trade acceptfor January, 1917, and $7,664,600 for February, ances, were handled by the Philadelphia bank. 1916. Nearly 26 per cent of the total discounts About two-thirds of the paper, including colfor the month is credited to the Richmond lateral notes, discounted during the month was bank, 17.5 per cent to the Boston bank, and 15-day paper, i. e., paper maturing within 15 11.3 per cent to the Cleveland bank. A very days from the date of discount by the Federal large part of the discount business of the Rich- Reserve Banks; over 10 per cent was 30-day mond and Cleveland, as well as the New York paper; less than 14 per cent was 60-day paper, and Chicago banks, was made up of advances to and over 8 per cent was 90-day paper. Februmember banks on the latter's own notes secured ary discounts of agricultural and live stock paby commercial paper. per maturing after 90 days from date of redis- Of the total discounts for the month, count with the Federal Reserve Banks (six- $11,433,362 is represented by member banks7 month paper) totaled $471,254, compared with collateral notes, $856,078 by trade acceptances, $591,882 the month before, and $1,006,100 in and $814,106 by commodity paper. The total February, 1916. of these three classes of paper, nearly all dis- Discounted paper held on the last Friday of counted at preferential rates, was $13,103,546, the month aggregated about $20,267,000, as or about 60 per cent of the discounts for the against $15,711,000 at the end of January and month. Discounts of trade acceptances for $22,827,000 on the corresponding date in 1916. the month reported by seven banks were almost Of the total held about the end of February of 50 per cent larger than in January. About 48 the present year $4,631,229 were member per cent of this class of paper was handled by banks' collateral notes, $3,737,450 agricultural the Boston bank, the names of several large Ipaper, $1,358,808 live stock paper, and $10,539,textile manufacturers in Massachusetts ap- j717 industrial and commercial paper proper. pearing as drawers of trade acceptances on the |Over 80 per cent of the agricultural paper was Reserve Bank's discount schedules. Com- jheld by the Richmond, Atlanta, Chicago, and modity paper, nearly all based on cotton, was j Minneapolis banks, while over 88 per cent discounted by three banks, the total for the of the live-stock paper holdings is reported month showing a considerable decline as com- by the Minneapolis, Kansas City, and Dallas pared with the amount handled in January. banks. The aggregate number of bills, exclusive of Of the 7,625 member banks reported at the 86 collateral notes discounted by 11 Federal end of February, only 262, or 3.4 per cent, Reserve Banks, was 3,657. The average size availed themselves of discount privileges durof these bills was slightly in excess of $3,000, ing the month. The number of rediscounting compared with an average amount of $132,946 banks in the three southern Federal Reserve advanced on collateral notes. Of the total districts was 143, compared with 287 in Februamount of rediscounted paper 41.5 per cent is ary, 1916. The largest number of member represented by largest-size bills (of over $10,000 banks accommodated by any of the Federal each) and 31.4 per cent by medium-size bills Reserve Banks during the month—68—is (in denominations of over $1,000 to $5,000). jshown for the Richmond district, while the Small bills (in amounts up to $250) constituted smallest number—6—is given for the Cleveover one-quarter of the number, though less land district. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 317 Commercial paper discounted by each Federal Reserve Bank during February, 1917, distributed by sizes. NUMBER OF PIECES AND AMOUNTS. Over $100 Over $250 Over $500 i Over $1,000 Over $2,500 Over $5,000 Over To $100. to $250. ; to $500. to $1,000. I to $2,500. to $5,000. to $10,000. $10,000. Total. Banks. I Boston : 2 8108 13$2,518i 21j $8,681| 27$21, $47,030 75 $367,245 58 $571,832 8152.5,526,400 304 $31;,545,258 32.3 New York 5; 370 18 3,093! 29; 10,932! 20 16,326! 42,543 206,259 " 84,348 124,480 161 488,351 4.4 Philadelphia 489|15,190| 7311,866| 65 25,353| 64 53,1541 464,256 290,250 11 144,445 947 1,207,222 11.0 Cleveland 3 620 3,319| 7| 4,954! 18,126 34,324 200,000 13 381,000 642,343 5.8 Richmond "i2i*i,i4i! 70J13,8471166 67,139i 213jl63,064; 208 357,162 582,445 409,503 15 319,931 873 1,914,232 17.4 Atlanta (including New Orleans J 15 880l 43 7,623 14,6531 55 42,319i 112,477! 48 175,452 41 303,254, 13 254,012: 321 910,670! 8.3 Chicago. 8! 800| 23j 4,028 30; ll,916j 29 21,289! 35,891! 9 29,226i ' 23,770: i 126 126,920: 1.2 St. Louis 41 728 5,355i 11,782, 14,726! 13 50,239 16,0001 105,000! 203,8301 1.9 Minneapolis.... •--; ! 4 . 6890! 21,235 67,560: 62 293,611 225511,6 27 632,500 205 1,274,098 11.6 Kansas City... 31 2,9* )14,030 98; 33,670; 48 34,058 38,350; 8 25,559 291 148,577 1.4 Dallas , 10] 6761 48i 18,874! 54 92,003! 36 126,422 13 85,169 3 38,708 258 406,955 3.7 San Francisco. 4 1,540; 6 25,383* 10 33,854 16,414 1 2o,000j 39 106,7861 1.0 Total 57222,075! 541208,322; 571433,,084 5981,053,959' 572 2,388,892 257 25.,252,208 176 4,5511,,4477661J3,65710,975,24! Percent 0.2! ....: 1.9.... 3.9 9.61.... 20.5 Member banks' collat- 100.0 eral notes 18,500 12 113,856 7011,301,006, 8611,433, Member banks' collateral notes, trade acceptances, and commodity paper discounted during the month of February, 1917 and 1916 and the two months ending February, 1917 and 1916. Banks. Co n l o la te te s r . al a T c r c a e d p e t- m p C a o o p d m e it r - y . Total. Banks. j ; C n o o ll t a e t s e . ral a a T c n r c c a e e d p s e t . - | I | m p C o a o d p m i e t r y - . . I Total, Boston 3387,730 $410,173 $797,903 Minneapolis , $520,000 ' $520,000 New York 1,437,000 1,437,000 KansasCity ! 10,000 I ! 10,000 Philadelphia 475,000 "21,721 496,721 Dallas : 315,000 $13,465 j i 328,465 Cleveland 1,900,000 1,900,000 San Francisco , 14,985 I $13,569 j 28,554 Richmond 3,870,000 'l45,"962 | $551,076 4,507,038 Atlanta (including New Total, Feb., 1917 11,433,362 856,078 : * 814,106 13,103,546 Orleans branch) 242,356 227,392 I 249,461 719,209 Total, Feb., 1916 \ 246,100 ! 1,794,700 2,040,800 Chicago 1,911,276 1,911,276 Total, Jan.-Feb., 1917 20,950,691 1,430,542 ii2,378,759 24,759,992 St. Louis 365,000 22,380 j. 387,380 Total, Jan.-Feb., 1916! 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. A p g t a u r p i r c e e u r. l- p s L a to p iv c e e k r. i C n c p o d i a a m u p l s m a e t n r r e i , d r a - l 1 I j [ c M o b n l a e l o a n m t t e k e b s s r e . a ' r l ! i j Total. Banks. A p g t a u r p i r c e e u r. l- p s L a to p iv c e e k r. i C n c p o d i a a m u p l s a m e t n r r e i d . a r - l j | I l c M b o n a e l o l n m t a e k t b s e s . e r ' a r l Total. i Boston §2,889,195 $80,000 $2,969,195 St. Louis $107,603 $36,399 $292,022 $120,000 $556,024 New York $17,466 $6,496 835,504 1,207,000 2,066,466 Minneapolis 548,937 217,736 1,490,055 210,000 2,466,728 Philadelphia 53,043 901,295 350,000 1,304,338 KansasCity 242,816 243,296 12,983 10,000 509,095 Cleveland 35,935 2,968 273,838 1,650,000 1,962,741 Dallas 142,952 738,607 194,277 65,000 1,140,836 Richmond 737,477 3,560 2,624,399 345,000 3,710,436 San Francisco 118,790 2,392 43,312 164,494 Atlanta 1,152,507 76,989 905,909 83,500 2,218,905 Chicago 579,924 30,365 76,928 510,729 1.197,946 Total 3,737,450 1,358,808 10,539,717 14,631,229 20,267,204 I i j . Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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 two months ending February, 1917 and 1916. To 85,000. To 310,000. To J?25,000. To 850,000. To 5100,000. i Over 5100,000. Total. Acceptances bought in open market. © ; © i g ;« . o I I © 3 ! jjceat. § j Amount.; g •" Amount, i g Amouni. • g Amount.1 g j Amount, g Amount. g A;mount. • Si i ** • 5v ' : iv : i S i '£* ol! February, 1917: Bankers' acceptances 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 Trade accept- 39; 184,972| 122! 1,187,700; 7 87,288i 2; 78,541-! 2| 107,821! 172J * l?040,388[ 2.3 Total Feb., 1917 819!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 70,637,179! 100.0 Per cent '3.1! 9.0...... 31.7; 23.3: \ 21. t)| 11.3; 100.01...... Total Jan., 1917 390!l,023.210i 483; 1,700,009; 300 5,238,200! 152j 0,898,412; 48: 3,891,515 ll-! 1,859,768! 1,384 20,017,180| Total Jan.- i i : • i ! i 1 : Feb., 1917.. 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| Total Jan.- Feb.,1916.. 46l| 1,330,034! 379; 3,048,747; 413, 7,062,052 90 3,688,328 382,898,207! 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. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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 Board on dates specified, distributed by classes of accepting institutions. Bankers' acceptances. Trade acceptances Date. M ba em nk b s e . r c N o b m o er n p m t a r n e u i m s e t s - . N be b o r a n n m S k t e a s m . te - P b r a i n v k a s te . ! a b F n r o a d c r n i e a e c i g s h g . e e n n s - Total. b m ou o a p g r e h k n e t t i . n c T ep o t t a al n c a e c s - . 1915. $93,000 $93,000 $93,000 3,653,000 $7,820,000 $10,000 $110,000 11,593,000 11,593,000 5,038,000 8,189,000 10,000 110,000 13,347,000 13,347,000 5,242,000 4,516,000 10,000 192,000 9,960,000 9,960,000 4,342,000 5,267,000 161,000 9,770,000 9,770,000 5,350,000 5,407,000 ""26," 666' 352,000 11,129.000 11,129,000 6,087,000 6,305,000 20,000 472,000 12,884) 000 12,884,000 9,000,000 4,898,000 132,000 343,000 14,373,000 14,373,000 8,477,000 4,331,000 253,000 204,000 13,265,000 13,265,000 12.311,000 5,172,000 275,000 396,000 18,154,000 18,154,000 1916. Jan. 3.. 15,494,000 7,160,000 362,000 : 822,000 23,838,000 23,838,000 Feb. 7.. 15,681,000 7,876,000 336,000 j 1,456,000 I 25,349,000 $489,000 25,838,000 Mar.6.. 17,182,000 8,670,000 408,000 ;1,781,000 I 28,041,000 462,000 28,503,000 Apr. 3.. 21,000,000 13,573,000 I 473,000 I3,262,000 38,308,000 722,000 39,030,000 Mayl.. 24,875,000 15,400,000 585,000 !3,430,000 44,290,000 1,477,000 45,767,000 June 5.. 24.680,000 17,029,000 644,000 i 7,007,000 •49,360,000 2,208,000 51,568,000 July 3.. 32; 989,000 18,921,000 ! 471,000 !11,830,000 64,211,000 3,422,000 67,633,000 Aug. 7.. 39,695,000 19,060,000 ! 738,000: 13,940,000 73,433,000 4,225,000 77,658,000 Sept. 4. 41,413,000 20,356,000 726,000 12,491,000 74,986,000 3,673,000 78,659,000 Oct. 2.. 37,798,000 21,782,000 712,000 9,944,000 70,236,000 2,306,000 ,72,542,000 Nov. 6.. 37,770,000 29,474,000 1,014,000 i12,147,000 80,405,000 2,378,000 !82,783,000 Dec. 4.. 47,748,000 33,232,000 1,630,000 i16,069,000 98.679,000 4,487,000 !103,166,000 1917. Jan.1... 66,803,000 34,625,000 1,502,000 18,224,000 121,154,000 4,585,000 125,739,000 Jan.8... 60,066,000 32,467,000 1,325,000 16,915,000 110,773,000 4,249,000 115,022,000 Jan. 15.. 59,710,000 30,691,000 1,245,000 15,862,000 107,508,000 4,386,000 111,894,000 Jan. 22.. 56,334,000 26,286,000 1,146,000 14,119,000 97,885,000 4,102,000 101,987,000 Jan. 29.. 52,439,000 22,744,000 1,054,000 12,949,000 89,186,000 4,041,000 93,227,000 Feb. 5.. 50,361,000 23,511,000 972,000 13,775,000 $140,000 88,759,000 4,041,000 92,800,000 Feb. 12. 54,945,000 33,473,000 1,265,000 17,952,000 668,000 108,303,000 4,896,000 113,199,000 Feb. 19. 59,165,000 35,745,000 1,268,000 21,842,000 677,000 118,697,000 4,982,000 123,679,000 Feb. 26. 59,498,000 36,478,000 1,094,000 I20,389,000 677,000 118.136,000 5,068,000 123,204,000 Mar. 5.. 53,274,000 32,508,000 1,090,000 20.570,000 354,000 LOT;796.000 2,535,000 110,331,000 Mar. 12. 50,116,000 28,759,000 845,000 !19,592,000 379,000 9.9,591.000 2,276,000 101,867,000 Mar. 19. 46,157,000 24,165,000 735,000 i17.o96,000j ;;] 1,000 88,964', 000 1,825,000 90,789.000 Mar. 26. 43,457,000 22,515,000 045,000 .17', 504,000 i250,000 84,371,000 1,212,000 85,583;000 Amounts of paper discounted and acceptances and warrants bought by each Federal Reserve Bank during February. 1917, distributed by maturities. 15-day maturities. 30-day maturities. Federal Reserve Banks. Discounts. Warrants, Total. Discounts. A a c n c c e e p s t . - Warrants. Total. Boston ! ,11,882,783 81,882,783 $1,015,170 $59,GOO §1,074,770 New York I lj502,805 $370,595 1,873.400 22,354 1,684,878 1,707,232 Philadelphia i 1,149,757 158,027 1,3071784 205,267 1,821,861 2,027,128 Cleveland i 2,499,000 2.499,000 9,748 694,629 704,377 Richmond •: 3,985.444 645,000 4i630,444 373,112 2,924,975 3,298,087 Atlanta (including New Orleans branch) : 384^ 855 '384,855 181,112 74,703 255,815 Chicago j 1,926,449 105,556 2,032,005 23,962 512,811 536,773 St. Louis I 384,908 384,908 87,317 226,353 313,670 Minneapolis ! 577,600 577,600 396,500 94,080 490,580 KansasCity 10,000 j 54,000 64,000 15,050 151,524 166,574 Dallas. 316,500 j 25,000 341,500 "I43 257,211 273,354 San Francisco 25,931 10,608 36,539 43,003 52,269 Total ! 14,646,032 ! 16,014,818 2,355,001 8,545,628 10,900,629 Per cent j. ! 16.2 11.0 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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. 60-day maturities. 90-day maturities. Federal Reserve Banks. Dis- Accept- War- Dis- i Accept- Warcounts. ances. rants. Total. counts. ances. rants. Total. Boston S702,647 §316,350 SI, 018,997 $332,388 S4,827,669 §5,160,057 New York 184,002 4,412,313 4,596,315 211,842 13,324,529 $25,203 13,561,574 Philadelphia 234,028 3,095,418 3,329,446 88,294 4,933,580 25,203 5,047,077 Cleveland 7,490 1,953,512 1,961,002 26,105 3,387,154 25,203 3,438,462 Richmond 749,417 1,820,175 2,569,592 639,635 816,416 1,456,051 Atlanta (including New Orleans branch) 177,403 224,203 401,606 367,843 645,885 1,013,728 Chicago 43,704 2,592,851 2,636,555 19,696 3,490,242 S,203 3,535,141 St. Louis 84,994 1,947,159 2,032,153 10,811 2,363,362 15,203 2,399,375 Minneapolis 743,568 1,618,550 2,362,118 19,706 830,722 850,428 Kansas City. 23,452 1,388,061 1,411,513 20,515 1,091,284 25,203 1,137,002 Dallas 101,618 545,792 647,409 80,110 837,673 917,788 San Francisco , 34,705 1,523,896 1,558,601 32,344 1,911,116 1,943,460 Total. 3,087,028 21,438,280 24,525,307 1,849,289 38,459,632 151,218 40,460,139 Per cent 24.8 40.9 Over 90-day maturities. Totals. Per cent. Federal Reserve Banks. co D u is n - ts. Accept- r W an a t r s - . Total. co D u is n - ts. A a c n c c e e p s t . - r W an a t r s - . Total. co D u is n - ts. c A e c p - t- r W an a t r s - . Total. Boston $58,603 $126,977 $185,580 S3,932,988 $5,262,222 $126,977 89,322,187 42.2 56.4 1.4 100 New York $4,348 450,000 2,434,561 2,888,909 1,925,351 20,242,315 2,459,764 24,627,430 7.8 82.2 10.0 100 Philadelphia 4,876 50,000 54,876 1,682,222 10,058,886 25,203 11,766,311 14.3 85.4 .3 100 Cleveland 150,000 1,018,462 1,168,462 2,542,343 6,185,295 1,043,665 9,771,303 26.0 63.3 10.7 100 Richmond 36,624 15,000 51,624 5,784,232 6,206,566 15,000 12,005,798 48.2 51.7 .1 100, Atlanta (including New Orleans branch) 41,813 41,813 1,153,026 944,791 2,097,817 55.0 45.0 100 Chicago 24,385 963,456 987,841 2,038,196 6,701,460 988,659 9,728,315 20.9 68.9 10.2 100 St. Louis 800 116,250 527,335 644,385 568,830 4,653,124 552,538 5,774,492 9.8 80.6 100 Minneapolis 56,724 56,724 1,794,098 2,543,352 4,337,450 41.4 58.6 100 Kansas City 89,560 253,693 343,253 158,577 2,684,869 278,896 3,122,342 5.1 86.0 8.9 100 Dallas 207,584 361,960 569,544 721,955 1,665,676 361,960 2,749,591 26.2 60.6 13.2 100 San Francisco 4,540 4,540 106,786 3,488,623 3,595,409 3.0 97.0 100 Total. 471,254 824,853 5,701,444 6,997,551 22,408,604 70,637,179 5,852,662 98,898,445 Per cent 100.0 22.7 71.4 5.9 100 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.] 1 to 15 days. 16 to 30 days. 31 to 60 days. 61 to 90 days. Banks. c B o d e i u i d s l n - . ls t- b A o a c n u c c g e e h p s t t . - r n w M a p i n a c a u t l r i - s - - . Total. c B o d e u i i d s l n - l . s t- b A o a c n u c c g e e h p s t t . - r n w M a p i n a c a u t r l i - s - - . Total. c B o d e u i i s d l n - l . s t- b A o a c n u c c g e e h p s t t . - r n w a M p i n a a c u t r l i s - - - . Total. c B o d e u i i d s l n - . ls t- b A o a c n u c c g e e h p s t t . - r n w a M p i n a a c u t r l i - s - - . Total; Boston... 1,679 2,436 125 4,240 806 1,810 188 2,804 309 4,757 135 5,201 175 3,746 36 3,957 New York 1,581 6,157 18 7,756 101 7,864 317 8,282 223 11,963 45 12,231 161 7,400 175 7,736 Philadelphia 985 3,222 4,207 90 3 264 56 3,410 158 5,191 5 5,354 63 2,453 103 2,619 Cleveland 1,884 1,830 812 4,526 26 2,946 107 3,079 27 4,164 32 4,273 18 1,544 119 1,681 Richmond 1,157 2,134 3,291 760 1,446 2,206 1,309 2,385 3,694 426 716 1,142 Atlanta . 719 848 117 1,684 429 651 1 080 fi77 1,459 2 2,138 336 486 3 825 Chicago 724 2,037 114 2,875 114 2,843 80 3,037 ' 201 3,978 436 4,615 85 1,831 31 1,947 St. Louis 248 1,712 1,960 163 2,507 34 2,704 96 2,943 25 3,064 16 1,284 25 1,325 Minneapolis 1,026 2,681 3,722 241 1,015 323 1,579 768 2,548 3,316 207 696 903 Kansas City 86 838 15 924 80 1,885 6 1,971 107 1,388 30 1,525 92 839 25 956 Dallas. 206 429 635 166 528 mi 324 962 50 1,336 244 598 842 San Francisco... 37 2,259 2,337 26 3,164 37 3,227 33 3,645 101 3,779 15 484 499 41 Total 10,332 26,583 1,242 38,157 3,002 29,923 1,148 ! 34,073 4,232 45,383 911 50,526 1,838 22,077 517 24,432 Per cent 23.7 . . 21.1 31.3 15.1 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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. [In thousands of dollars, i. e., 000's omitted.] Over 90 days. Total, Percentages. Backs. c B o d e u i i d s l n - . ls t- b A a o c n u c c g e e h p s t t - . r w n a M p i n a a c u t r l i s - - - . Total. Am B c o o u il n u l t s n . t d e c i d P s e . - e n r t. Am A o c b u c o e n u p t. g ta h c n t P e c . e n e r s t - . Am M w ou a u n r n r t i . a c n i c p t P e s a e n . l r t. Amou T n o t t . al c . P e e n r t. c B o d e u i i d s l n - . ls t- b A o a c n u c c g e e h p s t t . - r w n a M p i n a c a u t i l i s - - - . Total. Boston . .. 127 127 2,969 14.7 12,749 10.3 611 3.6 16,329 10.1 18.2 78.1 3.7 100.0 New York..; 4,979 4,979 2,066 10.2 33,384 26.9 5,534 32.3 40,984 25.4 5.0 81.5 13.5 100.0 PhiladelDliia s 1,267 1,275 1,304 6.4 14,130 11.4 1,431 8.4 16,865 10.5 7.7 83.8 8.5 100.0 Cleveland .. . 8 1,842 1,850 1,963 9.7 10,484 8.5 2,962 17.3 15,409 9.6 12.7 68.1 19.2 100.0 Richmond 58 15 73 3,710 18.3 6,681 5.4 15 .1 10,408 6.4 35.7 64.2 .1 100.0 Atlanta 58 2 60 2,219 11.0 3,444 2.8 124 .7 5,787 3.6 38.4 59.5 2.1 100.0 Chicago 74 2,181 2,255 1,198 5.9 10,689 8.6 2,842 16.6 14,729 9.1 8.1 72.6 19.3 100.0 St Louis 33 1,043 1,076 556 2.7 8,446 6.8 1,127 6.6 10,129 6.3 5.5 83.4 11.1 100.0 Minneapolis... 225 177 402 2,467 12.2 6,940 5.6 515 3.0 9,922 6.1 24.9 69.9 5.2 100.0 Kansas City 144 431 575 509 2.5 4,950 4.0 492 2.9 5,951 3.7 8.5 83.2 8.3 100.0 Dallas 201 456 657 1,141 5.6 2,517 2.0 506 2.9 4,164 2.6 27.4 60.4 12.2 100.0 San Francisco 53 786 839 164 .8 9,552 7.7 965 5.6 10,681 6.6 1.6 89.4 9.0 100.0 Total 862 13,306 14,168 20,266 100.0 123,966 100.0 17,124 100.0 161,356 100.0 12.6 76.8 10.6 loo. a Percent 8.8 100.0 Total investment operations of each Federal Reserve Bank during the month of February, 1917. Bills bought in open market. Municipal warrants bought. Bills discounted Federal Reserve Bank. m b e a f m n o k r b s e . r B a a a c n n c c k e e p e s t r . - s' a a T c n r c c a e e d p s e t . - Total. City. State. All other. Total, Boston $3,932,988 $5,262,222 $5,262,222 $126,977 $126,977 New York 1,925,351 19,292,370 $949,945 20,242,315 2,459,764 2,459,764 Philadelphia 1,682,222 9,974,041 84,845 10,058,886 25,203 25,203 Cleveland 2,542,343 5,977,191 208,104 6,185,295 989,680 $53,985 1,043,665 Richmond 5,784,232 6,206,566 6,206,566 15,000 15,000 Atlanta 1,153,026 944,791 944,791 Chicago 2,038,196 6,511,715 189,745 6,701,460 988,659 St. Louis 568,830 4,653,124 4,653,124 552,538 552,538 Minneapolis 1,794,098 2,461,084 2,543,352 Kansas City 158,577 2,684,869 2,684,869 278,896 278,898 Dallas 721,955 1,665,676 1,665,676 361,960 361,960 San Francisco 106,786 3,357,142 131,481 Total, February, 1917 22,408,604 68,990,791 1,646,388 70,637,179 5,798,677 53,985 Total, February, 1916 7,664,600 11,894,800 522,000 12,416,800 10,419,200 $20,400 11,200 10,450,800 Total, January-February, 1917 40,734,890 1,887,527 91,254,359 13,000,585 2,040 580,537 13,583,162 Total, January-February, 1916 18,779,600 21,348,300 671,000 22,019,300 19,927,000 256,400 73,700 20,257,100 United States bonds and Treasury notes. Total investment operations. Federal Reserve Bank. 2 per cent. 3 per cent. 4 per cent. 1 n - o y t e e a s r . Total. Feb 19 r 1 u 7 a . r " y, Feb 19 r 1 u 6 a . ry, r 1 u F 9 e a 1 b r 7 - y . , r 1 u F 9 e a 1 b r 6 - y . , Per ct. Per ct. Boston $9,322,187 $4,388,800 9.4 11.0 New York $57,500 $57,500 24,684,930 10,442,100 24.8 26.1 Philadelphia... 11,766,311 1,948,800 11.8 4.9 Cleveland 9,771,303 2,036,500 9.8 5.1 Richmond 2,000 $456,000 458,000 12,463,798 4,341,000 12.5 10.8 Atlanta 2,097,817 1,797,900 2.1 4.5 Chicago 9,728,315 2,905,000 9.8 7.3 St. Louis 5,774,492 2,436,000 5.8 6.1 Minneapolis... 25,000 $200 $250 25,450 4,362,900 1,092,000 4.4 2.7 Kansas City... 3,122,342 5,255,950 3.1 13.1 Dallas 2,749,591 1,541,100 2.8 3.8 San Francisco . "60*666' 60,000 3,655,409 1,843,800 3.7 4.6 Total, February, 1917 144,500 200 250 456,000 600,950 99,499,395 100.0 Total, February, 1916 6,782,250 1,739,500 975,000 9,496,750 40,028,950 100.0 Total, January-February, 1917 2,514,650 61,440 250 456,000 3,032,340 148,604,751 Total, January-February, 1916..... 11,176,050 2,142,880 2,805,000 16,123,930 77,179,930 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

322 FEDERAL RESERVE BULLETIN. APRIL 1,1917. 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. | d P el h p i h la ia - . C la le n v d e . - m R o ic n h d - . la A n t t - a. c C a h g i o - . Lo S u t. is. M ap i o n l n is e . - K C a i n t s y a . s Dallas. F c S i r s a a c n n o - . Total. Gold coin and certificates in vault: Mar. 2 12,944 162,508 25,145 14,303 5,389 6,020 28,872 9,488 11,548 7,808 7,110 13,028 304,163 Mar.9 13,920 190,403 24,791 13,982 5,420 5,966 25,722 9,145 11,599 7,778 7,312 14,146 330,184 Mar. 16 13,282 209,672 24,475 14,330 5,482 6,156 29,154 11,293 11,653 7,789 7,448 14,584 355,318 Mar. 23 13,977 200,084 26,101 17,380 5,603 6,147 28,201 12,935 11,711 7,757 7,604 13,236 350,736 Gold settlement fund: • Mar. 2 121,333 39,984 9,898 26,493 16,910 5,470 3,166 4,097 26,463 6,506 7,828 212,031 Mar.9 20,680 19,844 14,920 26,043 16,541 5,534 47,086 5,685 6,448 25,658 7,167 9,955 205,561 Mar.16 ! 18,653 16,347 13,936 29,826 16,645 5,026 45,653 5,111 6,486 24,072 7,719 12,187 201,661 Mar. 23 121,015 21,241 16,841 26,017 16,085 4,041 43,870 4,240 8,641 26,153 7,568 13,569 209,281 Gold redemption fund: Mar. 2..: ! 50 250 250 62 481 547 200 174 155 141 22 15 2,347 Mar.9 49 250 250 57 460 542 200 152 155 135 60 15 2,325 Mar.16 50 250 250 48 450 595 200 95 155 174 57 15 2,339 Mar. 23 , 50 250 250 35 425 620 200 259 155 177 83 15 2,519 Legal-tender notes, silver, etc.: Mar. 2 802 2,590 265 85 120 1,342 462 2,568 736 95 876 30 9,971 Mar.9 221 11,476 335 90 137 1,591 1,198 2,255 743 81 941 45 19,113 Mar.16 213 8,862 147 112 97 1,465 1,017 2,464 733 62 940 64 16,176 Mar. 23 288 3,985 240 102 101 1,439 679 2,003 705 52 1,013 58 10,665 Total reserve: Mar.2 35,129 205,332 35,558 40,943 22,900 13,379 73,417 15,396 16,536 34,507 14,514 20,901 528,512 Mar.9 34,870 221,973 40,296 40,172 22,558 13,633 74,206 17,237 18,945 33,652 15,480 24,161 557,183 Mar.16 32,198 235,131 38,808 44,316 22,674 13,242 76,024 18,963 19,027 32,097 16,164 26,850 575,494 Mar. 23 35,330 225,560 43,432 43,534 22,214 12,247 72,950 19,437 21,212 34,139 16,268 26,878 573,201 5 per cent redemption fund against Federal Reserve bank notes: Mar.2 300 ! 100 400 Mar.9.. j 300 i 100 400 Mar.16 j 300 | 100 400 Mar. 23 300 ! 100 400 Bills discounted—Members: Mar.2 2,812 874 1,177 1,657 3,639 | 2,197 1,614 602 i 2,475 468 1,126 199 18,840 Mar.9 2,534 785 1,542 2,062 3,388 ;2,139 1,786 534 1, 736 • 487 1,313 194 i 18,500 Mar.16 1,872 917 1,819 1,728 3,541 j1,980 1,381 495 I 1,402 i 447 1,440 212 17,234 Mar.23.... 1,743 1,387 j 2,240 4,067 2,034 1,970 798 j 1,093 I 447 1,533 273 18,473 Bills bought in open market: | Mar.2..... ,..- 11,459 30,690 13,305 j9,456 7,062 I3,349 9,720 7,651 j 6,480 !4,506 2,255 8,125 114,058 Mar.9 :.. 11,615 28,641 12,152 9,092 6.982 '3,315 9,067 7,150 6,739 ;4,229 2,144 7,734 108,860 M M a a r r . . 1 2 6 3......... 1 1 0 1, , 7 7 7 3 1 8 2 2 1 4 , , 4 9 0 6 0 0 1 10 1 , , 4 5 8 8 6 7 i I 6 7 , , 5 3 4 1 2 9 6 6, , 7 7 1 5 9 2 3 3 , , 6 6 5 7 5 7 9 7 , , 0 9 4 6 1 0 5 4, , 5 8 5 2 5 7 6 5 , , 0 1 7 7 1 0 • I J 2 3 , , 3 2 6 0 8 2 1 1 , , 6 9 3 7 6 5 5 5 , , 4 9 8 0 8 1 9 8 7 7 , , 0 7 0 9 2 8 United States bonds: Mar.2 71 4,985 442 I 50 5,961 2,203 1,409 ! 3,403 2,429 28,650 Mar.9 71 4,985 442 ! 50 5,962 2,203 1,434 ;8,147 3,403 2,429 29,126 Mar.16 81 4,985 442 i 50 5,961 2,203 1,454 i8,147 3,403 2,429 29,155 Mar.23 81 4,985 442 170 5,962 2,203 1,454 I8,147 3,403 2,429 29,275 1-year Treasury notes: Mar.2...., 1,606 726 i 1,999 1,820 1,969 ! 1,491 2,962 891 1,230 1,784 1,430 1,500 19,468 Mar.9 1,666 726 i 1,999 | 1,820 1,969 i 1,491 2,962 891 1,230 i 1,784 1,430 1,500 19,468 Mar.16 1,660 626 1,999 | 1,820 1,969 ! 1,491 2,962 891 1,230 ! 1,784 1,430 1,500 19,368 Mar. 23 .1,606 126 | 1,999 ! 1,820 1,969 i 1,491 2,912 891 1,230 I 1,784 1,430 1,500 18,818 Municipal warrants: Mar.2 486 5,534 1,434 ! 2,952 I 15 ; 2,728 1,127 499 ; 492 559 965 16,798 Mar.9 5,534 1,433 i 3,181 , 15 . 2,728 ]1,127 499 : 492 506 924 16,932 Mar.16 5,403 1,378 j 3,080 j 15 ! 2,698 I 1,094 177 486 506 887 16,029 Mar.23 5,199 1,378 ! 3,066 I 15 ! 2,648 j1,094 177 486 506 I 887 15,761 Federal Reserve notes, net: Mar.2 1,403 15,805 1,097 j. 2,465 i 20 I 2,305 23,095 Mar.9 1,269 14,258 851 . 2,171 | 2,059 20,608 Mar. 16 1,160 15,106 820 !. 3,208 j 1,697 21,991 Mar.23 1,335 13,287 878 I. 2,199 1 741 19,440 Due from other Federal Reserve Banks, net: Mar.2 2,559 2,354 I 2,444 398 2,172 ! 679 M23J 1,881 J 738 1 4,023 Mar.9 1,216 2,552 27 | 610 I 5,250 672 421 ! 2,058 i i 1,382 1 3,143 Mar. 16 3,041 2,148 394 2,917 91 2,490 .1 1,125 13,379 Mar.23 1,664 1,920 ""*255"! 2,479 j 396 316 1,950 i 1,6 J 1,768 Uncollected items: Mar.2 12,373 29,052 22,008 i 12,086 8,953 i 8,054 j 24,016 9,881 4,349 i 7,923 6,985 i 8,346 154,026 Mar.9 10,919 23,156 18,099 ! 9,734 8,232 i 7,098 19,961 I 8,750 4,547; 8,736| 5,885 1 5,294 130,411 Mar.16 15,402 29,840 22,666 | 11,194 8,868 8,287 23,008 I 9,524 6,295 i 9,862 1 5,707 5,323 155,976 Mar.23 13,787 j 29,605 18,514 ! 11,609 8,567 17,367 21,090 j 10,118 3,723 I 9,814 |. 5,067 6,496 145,757 1 Difference between net amounts due from and net amounts due to other Federal Reserve Banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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.] Boston. Y N o e r w k. d P el h p i h la ia - . C la le n v d e . - m K o ie n h d - . I i hi A n t t - a. Chi- San All other resources: Mar. 2 .. 94 317 458 250 I 117 I 2,178 387 j 1,523 Ill . 211 1,758: 417 : 7,821 Mar. 9 373 454 240 ! 145 ! 1,576 662 ! 982 103 : 249 1,039 517 0'. 401 Alar. 16 . 51 379 316 158 I 95 i 1,862 525 I S95 159 i 222 1,100 436 6,198 Mar. 23 9 400 168 .181 i 1,603 500 i 551- 142 ; 206 1,389 442 5,680 Total resources: Mar. 2 ... 67,981 288,401 78,293 77,690 45,097 ; 31,103 125,442 39,953 ; 34,212 59,769 i 32,150 15,925 915,691 Mar. 9 64,630 295,517 75,975 74,695 43,758 ! 29,919 124,755 39,546 :35,654 60,134 i 31,530 : 46,194 911,032 Mar. 16 07.459 312,443 78,573 44,356 ' 30,990[126,644 39,983 '35,815 i 59,037 I 31,825 ! 46,360 942,226 Mar. 23 66,570 296,545 77,364 76; 775 44,337 i 31,053 119,667 39,963 !36,151 ! 59,327 j 31,332 : 47,902 ' 917,901 LIABILITIES. [In thousands of dollars, i. e., 000's omitted.] Capital paid in: 'Mar.2 i $5,083 ISl 1,888 ; £5,259 80,085 ; S3,409 : $2,420 §6,999 $2, 794 82,412 I S3,089 . S2,6H6$3,911 i $56,045 Mar. 9 i 5- ,0"6 4 11.880 •• 55,226000 6,080 ; 3,404 i 2,418 6,999 2, 795 2,413 ! 3,089 2,696 3,924 j 56,028 Mar. 16 ! 5,068 11\ 880 : 5,260 6,089 . 3,405 1 2,418 6,999 2,795 2,413 ! 3,089 2,698 3.940 ! 56,054 Mar. 23 i 5,008 11,880 ; 5,260 0,090 '• 3,408 ! 2,4.14 6,999 2, 795 2,415 I 3,089 2,698 3.941 ! 56,057 Government deposits: | Mar. 2 : 1,240 2,507 ; 1,128 737 i 892 1,988 1,668 236 ! 732 I 351 926 i 1,757 I 14,162 Mar. 9 -148 4,382 i 914 499 : 399 1,312 1,055 1 -26 i 882 i 281. 1,001 ! 1,850 ! 12,401 Mar. 16 ! 1,408 7,476 ; 1,063 240 : 860 1,825 665 I 589 •• 895 ! 443 1,091 ! 2,039 : 18,594 Mar. 23 ' 1,224 i 7,375 | 1,378 2.38 • 1,308 2,210 912 I 317 : 888 ! 354 1,167 i 2,311 i 19,702 Due to members—reserve account: : Mar. 2 \ 53,280 |242,046 j 47,870 59,530 ! 25,441 i 19,700 97,765 j 27,188 27,629 ! 47,535 24,372 j 36,531 708,893 Mar. 9 • 51,193 [249,334 ! 48,983 58.613 25,793 • 19,565 101,898 1 27,594 28,380 ; 46,791 24,742 37,602 720,488 Mar. 16 !48.473 j260,551 i 47,328 59; 615 25,891 19,380 i 102,228 26,991 28,009 46,208 24,072 I 37,358 726,104 Mar. 23— i 49l 108 '247,615 19,207 58,993 ! 25,968 19,411 | 96,584 27,036 27,834 47,405 23,746 I 38,150 j 711,117 Collection items: I Mar.2 8,297 i 22,123 i 20,790 11,338 . 8,096 i 4,248 19,010 ! 7,226 ! 2,396 5,444 : 3,716 • 3,6-16 : 116,330 Mar; 9 ; 8,120 19•, 1-9' 8 "17; 145 9,497 I 7,255 ! 3,975 14,803 ! 6,825 ! 2,055 7,522 = 2,786 i 2,743 102,824 Mar. 16 ; 12,411 2_4__,9_9_0_ i 20,433 11,624 ! 7,260 4,713 16,752 ," 7,201 !2,566 i 7, 759 2,8*0 ! 2,955 : 121,550 Mar. 23 ! 1.1,074 ! "2~2 .5"7~7" : 18,100 11,434 " 7,868 ; 4,643 15,172 ! 7,223 i 2,433 i 7,227 2j 604 ' 3,429 113,784 Federal Iiesorv e notes, no t: Mar.2 ' 3,102 7,021 2,747 2,509 1,043 ' 3,350 : ; 19,772 Mar. 9 ! 2,787 6,907 i 2,649 2; 358 1,324 ' 2,451 311 = 18,787 Mar. 16 3,205 6,878 I 2,654 2,407 i 1,926 i 1,538 S36 : 19,444 Mar. 23 1, 103 5, 785 : 2,375 2,592 ! 2,555 1 1,252 763 : 16,725 .Due to other Federal Reserve banks, net: • Mar.2 ; 9,647 23S 440 ; Mar. 9 1 10,533 i 748 : Mar. 16 7,366 1,151 242 Mar. 23 0,913 1,819 351 All o M th a e r r . 2 liabilities: si 190 138 489 Mar. 9 101 .190 138 504 Mar. 16 180 : 133 68 480 Mar. 23 186 137 26 i 71 : 516 Total liabilities: Mar.2 07,981 |288,401 . 78,293 77,690 45,097 . 31,103 125,412 39,953 i 31,212 j 59,709 I 32.15045,925 !915,691 Mar. 9 64,630 1295,517 75,975 74,695 43,758 i 29,919 1124,755 39,540 35,054 ! 00,134 | 31^536 40,194 911,032 Mar. 16 07,459 !312,443 78,573 77,508 •14,356 30,990 i 126,644 39,983 3"5", 8"1"5" |' 59,03"7 I 31,*8"2546,360 ;942,220 Mar. 23 06,570 ii2296,5U> 77,304 70', 775 •14,337 31,053 1119,667 • 39,903 30,151 ii 59,327I ! 31,332 47.902 917,901 I 1 Overdrafts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

324 FEDERAL RESERVE BULLETIN. APRIL It 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. [In thousands of dollars, i. e., 000's omitted.] Boston. Y N o e r w k. I d P el h p i h la ia - . c C a h g i- o. Lo S u t. is. M ap i o n l n is c . - ! K C a i n ty s . as Dallas. F S r a a n n- Total. cisco. Federal Reserve notes received from agent, net: Mar.2 15,476 143,361 j 22,103 15,369 16,184 20,328 j 22,496 20,540 16,182 343,847 Mar. 9 15,460 150,500 23,433 17,323 16,146 20,184 i 22,711 21,048 16,169 355,263 Mar. 16 15,426 157,866 23,199 19,154 15,555 20,145 I 22,926 21,237 15,788 363,278 Mar. 23 16,144 161,742 24,750 20,988 15,125 20,113 . 23,327 21,404 15,762 372,244 Federal Reserve notes held by bank: Mar.2 1,403 15,805 958 2,465 1,338 2,057 523 270 i 2,305 Mar. 9 1,269 14,258 1,273 3,131 1,489 1,776 586 489 I 2,059 28,651 Mar. 16 1,160 ! 15,106 855 3,208 940 1,174 508 246 I 1,697 27,217 Mar. 23 1,335 j 13,287 j 1,947 2,199 755 545 742 545 ; 1,741 25,440 Federal Reserve notes in circulation: Mar.2... 14,073 1127,556 I 21,145 12,906 16,536 19,901 12,904 14,846 18,271 21,973 20,270 13,877 314,258 Mar. 9 14,191 (136,242 > 22,160 j 13,50616,326 20,136 14,192 14,657 18,408 22,125 20,559 14,110 326,612 Mar. 16 14,266 1142,760 | 22,344 13.458 16,245 19,956 15,946 14,615 18,971 22,418 20,991 141091 336,061 Mar. 23 14,809 |148,455 I 22,803 ! 14,529 16,047 19,969 18,789 14,370 19,568 22,585 20,859 14,021 346,804 Gold and lawful money deposited with or to credit of Federal Reserve Agent: Mar.2 15,476 |l43,361 18,043 14,003 9,515 17,154 15,369 12,337 17,228 18,623 20,290 ! 16,182 317,581 Mar. 9 15,460 1150,500 19,373 14,357 9,419 17,487 16,363 12,299 17,084 19,674 20,248 I 16,169 328,433 Mar. 16 15,426 157,866 19,139 14,278 9,367 17,302 19,154 12,208 17,045 20,880 20,155 ! 15,788 338,608 Mar. 23 16,144 161,742 21,400 15,407 10,262 17,594 20,988 11,778 17,013 21,333 20,096 i 15.762 349,519 Commercial paper delivered to Federal Reserve Agent: Mar.2 4,062 I 8,410 3,559 3,848 3,100 3,886 1,835 28,700 Mar. 9 8,863 3,573 9(50 3,848 3,100 3,157 2,086 29,686 Mar. 16 4,099 |. 8,195 3,373 3,352 3,100 2,153 1,917 26,189 Mar.23 3,390 j. 7,480 2,977 3,352 3,100 2,087 2,000 24,386 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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. [In thousands of dollars, i. e., 000's omitted.] | Boston. Y N o e r w k. d P el h p i h la ia - . C la le n v d e . - m R o ic n h d - . la A n t t - a, c C a h g i o - . j Lo S u t. i s, I M ap i o n l n is e . - K C a i n ty sa . s Dallas. F ci r s a c n o - . Total. Federal Reserve notes: Received from Comptroller- Mar. 2 33,880 259,400 37,520 23,860 29,500 36,380 18,720 22,540 32,000 28,720 35,320 18,560 576,400 Mar. 9 33,880 263,800 37,520 23,860 29,500 36,380 20,680 23,340 32,000 28,720 35,320 18,560 583,560 Mar. 16 33,880 275,480 37,520 23,860 29,500 36,380 22,520 23,340 32,000 29,720 35,720 18,560 598,480 Mar. 23 287,480 37,520 23,860 29,500 36,380 29,360 23,340 32,000 37,720 35,720 18,560 625,320 Returned to Comptroller- Mar. 2 8,844 61,719 7,177 4,757 8,480 j 4,630 1,851 3,316 1,152 2,736 6,144 2,378 113,184 Mar. 9 8,860 62,180 7,247 4,803 8,686 4,697 1,857 3,354 1,316 2,901 6,185 2,391 114,477 Mar. 16 9,094 62,414 7,481 4,882 8,829 4,942 1,866 3,445 1,355 3,171 6,607 2,772 116,858 Mar.-23 9,136 65,338 7,570 4,953 8,943 5,050 1,872 3,875 2,237 3,295 6,800 2,798 121,867 Chargeable to Federal Reserve Agent- Mar. 2.. 25,036 197,681 30,343 19,103 21,020 31,750 16,869 19,224 30,848 25,984 29,176 16,182 463,216 Mar. 9 25,020 201,620 30,273 19,057 20,814 31,683 18,823 19,986 30,684 25,819 29,135 16,169 469,083 Mar. 16 24,786 213,066 30,039 18,978 20,671 31,438 20,654 19,895 30,645 26,549 29,113 15,788 481,622 Mar. 23 24,744 222,142 29,950 18,907 20,557 31,330 27,488 19,465 29,763 34,425 28,920 15,762 503,453 In hands of Federal Reserve Agent- Mar. 2 9,500 54,320 8,240 5,100 3,900 11,065 1,500 3,040 10,520 3,488 8,636 119,369 Mar. 9 1 9,560 51,120 6,840 4,700 3,600 10,965 1,500 3,840 10,500 3,108 8,087 113,820 Mar. 16 f 9,360 55,200 6,840 4,700 3,600 10,805 1,500 4,340 10,500 3,623 7,876 118,344 Mar. 23 8,600 60,400 5,200 3,500 3,600 10,805 6,500 4,340 9,650 11,098 7,516 131,209 Issued to Federal Reserve Bank,! net— ' I Mar. 2 j 15,476 143,361 22,103 14,003 17,120 20,685 15,369 16,184 20,328 22,496 20,540 16,182 343,847 Mar. 9 i 15,460 150,500 23,433 14,357 17,214 20,718 17,323 16,146 20,184 22,711 21,048 16,169 355,263 Mar. 16 15,426 157,866 23,199 14,278 17,071 20,633 19,154 15,555 20,145 22,926 21,237 15,788 363,278 Mar. 23 16,144 161,742 24,750 15,407 16,957 20.525 20,988 15,125 20,113 23,327 21,404 15,762 372,244 Amounts held by Federal Reserve Agent: In reduction of liability on outstanding notes— Cold coin and certificates on hand- Mar. 2 14,650 136,946 3,730 13,233 2,960 5,165 13,030 4,370 10,110 204,194 Mar. 9 14,650 144,546 3,730 13,533 2,960 5,165 13,030 4,370 10,110 212,094 Mar. 16 14,650 152,144 3,730 13,513 2,897 5,165 13,030 3,370 10,110 218,609 Mar. 23 15,410 156,564 3,730 10,573 2,896 5,165 13,018 2,370 10,110 219,836 Credit balances— In gold redemption fund— i Mar.2 | 826 6,415 1,183 770 515 1,174 119 742 948 993 1,100 15,587 Mar. 9 1 810 5,954 1,313 419 1,107 113 i 704 924 944 1,058 789 14,959 Mar. 16 j 776 5,722 1,269 765 367 985 704 613 1,350 1,165 778 15,379 Mar.23....: I 734 5,178 1,180 834 262 878 563 1,303 1,106 752 14,353 With Federal Reserve ! Board— ; Mar.2 13, 130 9,000 13,020 15,250 6,430 3,250 13,260 9,080 15,380 97,800 Mar. 9 ! i 14,330 9,000 13,420 16,250 6,430 3,130 14,360 9,080 15,380 101,380 Mar. 16 : I 14,140 9,000 13,420 18,450 6,430 3,130 16,160 8,880 15,010 104,620 Mar.23 ! i 16,490 4,000 10,000 13,820 20,290 6,050 3,130 17/660 8,880 15,010 115,330 As security for outstanding notes— '• Commercial paper a— \ Mar.2 ! -j 4,060 7,605 3,531 3,847 3,100 3,873 250 26,266 Mar. 9 .1 4,060 7,795 3,231 960 3,847 3,100 3,037 800 26,830 Mar. 16 4,060 7,704 3,331 3,347 3,100 2,016 1,082 24,070 Mar.23 3,350 6,695 I2,931 3,347 3,100 1,994 1,308 22,725 Total— :• Mar.2 15,476 1143,361 22,103 14,003 17,120 20,685 15,369 ! 16,184 20,328 22,946 20,540 i 16,182 343,847 Mar. 9 15,460 ! 150,500 23,433 14,357 17,214 20,718 17,323 I 16,146 20,184 22,711 21,048 ; 16,169355,263 Mar. 16 ,15,426 1157,866 I 23.199 14,278 17,071 20,633 19,154 15,555 20,145 22,926 21,237 ! 15,788363,278 Mar.23 ' 16,144 :161, 742 ! 24', 750 15,407 16,957 20,525 20,988 !15,125 20,113 23,327 21,404 ; 15,762372,244 I a Actual amounts of paper delivered to the Federal Reserve Agents to secure circulation are shown in the note account of the Federal Reserve Basks on p. 324. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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. ! Average balances for the month of the several classes of earning assets. Banks. Bills dis- i Bills bought United States m co e u m n b te e d rs , . ; ! i m n a o r p k e e n t. b T o n r n o e d t a e s s s u . a r n y d M wa u r n r i a c n ip ts a . l Total. Boston $1,817,177 $13,057,843 SI,683,893 I $600,453 .$17,159,366 New York..., 1,085,390 32,050,538 790,996 I 5,121,005 39,647,929 Philadelphia.. 902,672 13,884,436 2,016,107 ! 1,432,016 18,235,231 Cleveland 1,264,443 9,877,174 6,821,510 i 2,670,188 20,633,315 Richmond.... 3,792,474 5,434,959 2,465,729 i 12,705 11,705,867 Atlanta., 2,242,595 3,493,056 1,543,843 i 123,558 7,403,052 Chicago 1,499,458 10,023,230 8,966,957 i 2,598,370 23,088,015 St. Louis 551,335 7,382,675 3,093,900 ! 1,019,434 12,047,344 Minneapolis... 2,216,400 6,766,000 2,656,100 ! 529,100 12,167,600 Kansas City... 509,328 4;130,159 9,480,850 j 414,169 14,534,506 Dallas 1,224,287 1,901,407 4,833,250 334,717 8,293,661 San Francisco. 194,481 9,863,426 3,920,179 ! 966,216 14,944,302 17,900,040 117,864,903 48,273,314 | 15,821,931 | 199,860,188 Earnings from- Calculated annual rates of earnings from— r United Banks. I I B c m i o b l u l e e s n r m s t d e . - i d s , - m i b n o B a o u r i k p l g l e e h s n t t . T b S re o a t a a n n s t d d e u s s ry p M a r l a u n w n t i s a c . r i - - Total. m c B o e il u m l n s b t d e e i d r s s , - . m i b n o B a o u r i k l p g l e e s h n t t . b T o U S n re d n t a a s i s t t e e u a s d n ry d p M a ra l u n n w t i s c a . i r - - Total. notes. notes. Per cent. Per cent. Per cent. Per cent. Percent. Boston ; So, 348 830,055 S3,911 : 81,411 340,725 3.84 3.00 3.03 3.06 3.10 New York 4,741 78,271 1,883 -: 12,103 96,998 3.66 3.19 3.00 3.08 3.19 Philadelphia | 2,700 31,614 4,693 i 3, .139 42,146 3.90 2.96 3.03 2.85 3.01 Cleveland • tf, 833 22,426 15,167 ! 6,246 47,472 3. 77 2.96 2.90 3.05 3.00 Richmond , 11,140 12,682 5,297 • 27 29,146 3.83 3.04 2.80 2.79 3.25 Atlanta c. .-...: 6,757 8,501 3,553 I 345 19,156 3.93 3.17 3.00 3.64 3.37 C St h . ic L a o g u o is... ! 1 4 ,6 ,9 9 7 4 4 2 1 1 7 , , 5 0 3 7 4 7 19,3 0 5 2 9 5 I 6 2 , , 2 3 5 8 3 4 5 27 2 , , 1 1 8 2 0 0 4 4 . . 0 3 0 2 3 2 . . 0 8 2 0 2 2 . . 5 5 4 9 3 3 . . 1 0 4 5 2 2. . 9 8 4 6 Minneapolis \ 7,417 15,225 693 1,186 29,521 4.36 2.93 2.79 2.92 3.16 Kansas City : 1,976 9,411 509 901 28,797 5.05 2.97 2.27 2.84 2.58 Dallas I 4,222 4,891 642 927 19,682 4.49 3.41 2.57 3.59 2.85 San Francisco | 704 21,648 277 2,231 31,860 4.73 2.86 2.23 3.01 2.78 I 55,306 273,335 99,009 i 37,153 464,803 I 4.02 3.02 2.67 3.06 3.0 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Apiur. 1,1917. FEDERAL BESEBVE BULLETIN. 327 DISCOUNT RATES. Discount rales of each Federal Reserve Bank in effect Apr. 1, 1917. Maturities. Discounts. Trade acceptances. : Com- Member modity banks' paper ! collat- I Agricul- matur- ! era! tural I ing loans. Within 16 to 30 d 3 a 1 y t s o , i 6 n 0 - d 6 a 1 y s t , o i n 9 - 0 j i a st n o d c k li ve- d ! ay T s o , i 3 n 0 - d : a 3 y 1 s , t o in 6 - 0 d • a • y s 6 , 1 i n to - 9 9 0 0 w d it a h y i s n I elusive. ; elusive. I I o p v a e p r e 9 r 0 e"lu s"iv e. ••• e-lu si•v e, e-lu s•ive. : " ivs. Boston 4 New York Philadelphia.. "31 Cleveland Richmond 31 Atlanta 31 Chicago St. Louis f Minneapolis 4 Kansas City... 4 D Sa a n ll a F s rancisco.. 3 3 4 7 1 , ! 3 3 1 1 NOTE.—Rate for bankers' acceptances, 2i to 4 per cent. GOLD IMPORTS AND EXPORTS. Gold imports and exports into and from the United States. [In thousands of dollars, i. e., 000's omitted.] Week ending— Total for Total corresince sponding Feb. 23, : Mar. 2, i Mar. 9, I Mar. 16, Jan. 1, period 1917. ! 1917. ! 1917. ! 1917. 1917. d 1 u 9 r 1 i 6 n . g Ore and base bullion 160 279 234 2,952 1.948 United States mint or assay office bars.. 6 776 Bullion, refined " 49," 567 "I 411 25,275 j 49,232 143,219 5,970 United States coin 1 51,006 94 Foreign coin 2,433 2,448 4,935 50,858 Total imports.. 49,727 ! 3,124 28,322 ! 54,401 248,041 28,814 EXPORTS. Domestic: Ore and base bullion 17 52 119 United States mint or assay office bars 851 i 2 1,200 ; 1 3,238 2,774 Bullion, refined 70 I 12 17 I 32 1,194 2,906 Coin 6,485 ; 4,764 j 1,891 i 3,450 42,519 12,659 Total 7,406 4,795 3,108 3,483 47,003 18,458 Foreign: Bullion, refined 31 1,438 Coin 1,197 453 36 322 3,823 10,860 Total r. 1,197 453 36 322 3,854 12,298 Total exports 8,603 5,248 3,144 3,805 50,857 30,756 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. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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. February, 1917. March, 1917. j ! Low. High. Low. | High. Low. High. Low. j High. London: ! 80-day bankers' bills dollars..' 4.71 4t..7 711£ 4.711 4.71| Sight drafts do.... 4.7/ 4.75 L75i 4.7580 4.7490 4.7555 Paris francs.. fi83| 584-i 585J Berlin dollars.. 75* 701 68 Petrograd do 29.25 30.75 28 29.10 27.60 28.60 Vienna do.... 11.03 13.40 10.60 11.10 11.05 11.50 Milan lire.. 695 666 764 708 787 763 Amsterdam dollars.. 40? 40| 40§ 40| 40ft 40? Copenhagen do j 27 27.80 27.30 27.55 27.45 29.60 Zurich francs..! 518 493 502 500 504 501£ Buenos Aires dollars..! 43.25 44.89 43.40 44.46 42.25 44.03 Rio de Janeiro do 23.10 23.63 22.97 23.46 22.90 23.18 Hongkong do 55.45 58 55.75 58 55.25 56.50 Shanghai do.... 87 89 85 89£ 81 86$ Yokohama do—! 50? 50| 51 51 51 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 329 GOLD' RESERVES AND NOTE CIRCULATION OF PRINCIPAL EUROPEAN BANKS OF ISSUE. As the result of the war, certain changes have The figures of gold reserves shown for the taken.place in the reserve position of the prin- Reichsbank and the Bank of France, it is cipal European banks of issue, owing largely to generally conceded, more nearly approximate the vast amounts of notes issued to meet the the total monetary gold stock of these coundemands of the Governments of the belliger- tries, though it has been stated repeatedly ent countries. The following tabulation, com- that the large addition to the gold reserve of piled from either original reports of the banks the Keichsbank is due parity to the transfer or official reports of the Governments, shows to its vaults of some of the gold held at the the amounts of gold reserve—i. e., amounts of outbreak of the war by the Austro-Hungarian gold coin and bullion held in vault, and of notes Bank. The fact is that the latter bank has pubissued by the central banks at the end of the lished no statement since July 23, 1914, when calendar years 1913 to 1916. its gold reserve was given as 1,237,879,000 It should be noted from the outset that the kronen ($251,289,437 nominal), compared with amounts of gold given as the gold reserves of 1,356,857,000 marks ($322,931,966 nominal) the central banks by no means represent the of gold reserve reported by the Reichsbank for total amounts of gold in Europe. These the same date. reserves do not include the gold held by the In the case of Italy the figures of reserve Government treasuries nor, as in the case of the and of note circulation relate to the Bank of United Kingdom and neutral countries, the Italy only. To the figures given should be considerable amounts of gold held by commer- added the gold reserves and note circulation cial and other banks, and the gold in actual of the Banco di Napoli and the Banco di circulation. There are but few reliable data as Sicilia, the other two Italian banks of issue. to the volume of gold outside the control of the Through the courtesy of its New York agency, Governments or central banks. we are able to give the following data for the The British Government reports a total of Bank of Naples: £28,500,000, or $138,695,250, nominal, of Bank note metallic cover, largely gold, against a total of End of— Gold reserve. circulation. £150,144,177 ($730,676,637 nominal) of cur- Lire. Lire. rency notes and certificates issued since August, 1913. 218,439,000 417,806 1914 242,991,000 518,306 1914, and outstanding about the end of 1916, 1916 212,715,000 797,732 and smaller amounts are undoubtedly held by other European exchequers. Moreover, the Italian treasury held on In addition, the Irish and Scotch banks November 30, 1916, 168,000,000 lire (32.4 report for the four weeks ending December 30, million dollars nominal) of metallic reserve, 1916, an average of £29,689,208 ($144,481,908 largely gold, against 1,293,000,000 lire of its nominal) of gold and silver held against an aver- own notes in circulation. age of £36,332,285 ($176,811,055nominal) of cir- In Belgium neither of the -two banks of issue, culation outstanding, compared with £11,380,- the National Bank of Belgium nor the Societe 813 ($55,384,726 nominal) of metallic reserve G6n6rale de Belgique, have any substantial against £16,237,861 ($79,021,551 nominal) of vault reserves, the former having removed its notes in circulation about the end of 1913. reserve to London prior to the occupation of These figures are exclusive of the small amounts Brussels by the German military forces, and of reserve and circulation of six private banks the latter having lost its vault reserve through and three joint-stock banks in England proper. its forcible removal to Berlin. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

330 FEDERAL RESERVE BULLETIN. APRIL 1,1917. An analysis of the reserve figures indicates of nearly 270 per cent. The rate of increase that the combined gold resources of the central would be considerably higher if the figures of hanks of the allied countries were at the end note circulation of the Austro-Hungarian Bank of 1916 practically as large as at the end of at the end of 1916 were known. Some idea of 1913, the losses shown for the Russian, French, the present volume of this circulation may be and Italian central banks being fully bal- had from the fact that on June 23, 1914, the anced by the gains in the metallic reserve total circulation of the Austro-Hungarian Bank (practically all gold) of the Bank of England. outstanding was 2,129,759,000 kronen (S432,- This transfer of reserves by the allies to London 341,000 nominal) and that since the outbreak proceeded on a much larger scale than is indi- of the war to June 30, 1916, the bank advanced cated by the reserve figures of the central banks to the Government a total of 6,424,900,000 of issue, the bulk of the gold "pooled" having kronen ($1,304,250,000 nominal), most likely been shipped oversea, largely to the United in the shape of bank notes. Moreover, as States. stated above, large additions to the national The gold reserve of the Reichsbank shows an currency have been made by the British, Gerincrease during the three years of over 115 per man, and Italian treasuries through the direct cent, though, as stated above, it is not known issues of their own notes. what portion of the increase is represented by Furthermore, as the result chiefly of the withdrawals from circulation, as the result of enormous credit operations of the Governments, voluntary offerings of gold coin and bullion the deposits of the principal European banks of in exchange for notes and what portion by issue show rates of increase about as large as, gold formerly owned by the Austro-Hungarian if not larger than, those shown above for their Bank. note circulation. The following exhibit gives Substantial gains, absolute as well as relathe deposit liabilities (in thousands of dollars) tive, are shown also for the gold reserves of the of the four leading European banks at the close central banks of the neutral countries in of the years 1913-1916: Europe, these gains being especially large in the case of the banks of Netherlands and Spain. The increases in the gold reserves of At end of— E B n a g n l k a n o d f . B R a u n s k s ia o , f j j B F a ra n n k: c e o . f Ro G ic o h r s m b a a n nk. I the three Scandinavian banks are much smaller, 1913 $347,193 §600,237 i $188,886 $188,763 as these banks for some time past, as the result 1914 754,249 500,177 i 549,762 418,144 1915 786,669 760,253 ! 444,532 561,445 of changes in the mint acts of their countries, 1916 870,339 1,216,852 | 439,120 1,086,281 have refused to receive at the legal rate bullion or foreign gold coin. The large increases in deposits shown are While the reported gold reserves of the made up chiefly of newT credits to the govern- European central banks show an increase dur- ments or to commercial banks. The latter treat ing the three years 1914-1916 of over 18 per these credits as reserve or cash, which, in turn, cent, their reported outstanding note circula- forms the basis of new deposit credits granted tion shows an increase for the same period to the customers of these banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

APRIL 1,1917. FEDERAL RESERVE BULLETIN. 331 Gold reserves and note circulation of 'principal European Gold reserves and note cirdulation of principal European banks of issue at the end of 1913,1914,1915, and 1916. banks of issue at the end of 1913, 1914, 1915, and 1916— Continued. [In millions of dollars.] (B) NOTE CIRCULATION. (A) GOLD RESERVES. I. ALLIED COUNTRIES. I. ALLIED COUNTRIES. Close of calendar years- I Close of calendar years- 1913 1914 1915 1916 1913 1914 1915 1916 I United Kingdom.. 144 176 172 193 ! Russia 859 1,475 2,732 4,425 United Kingdom 170 338 251 = 264i France 1,103 ! 1,927 2,569 3,219 Russia 781 800 830 758 Italy...: 341 j 417 587 748 France 679 799 968 ! 653 Belgium 203 ! 312 372 1372 Italy 214 216 208 174 Total. 2,650 : 4,307 , 6,432 8,957 Total 2,153 i 2,257 1,819 j II. CENTRAL EUROPE. II. CENTRAL EUROPE. Germany 617 1,201 I 1,646 I 1,917 Germany 278 ' 498 ! 582 600 Austria-ilungary.. 481 (*) (a) | () 252 , Austria-Hungary. III. NEUTRAL COUNTRIES. III. NEUTRAL COUNTRIES. Sweden 63 81 88 112 Sweden 29 ! 33 ' 49 Norway 29 36 43 67 Norway 10 ] 14 33 Denmark 41 55 59 3 72 Denmark 25 i 30 3 42 Netherlands. 134 198 232 305 Netherlands.. 87 ; 173 236 Switzerland.. 61 88 90 104 Switzerland.. 46 I 48 67 Spain 371 379 405 455 Spain 110 167 ! 241 Total.., 699 837 917 1,115 Total... 245 ! 307 465 i 668 1 Figures for 1915: no complete data available for 1916. 1 Including small amount of silver. 3 Figures for Sept. 30,1916. 2 No data. * No data." 3 Figures for Sept. 30, 1916. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

332 FEDERAL RESERVE BULLETIN. APRIL 1,1917. GOLD RESERVES OF PRINCIPAL EUROPEAN BANKS OF ISSUE AT END OF 19/3, IS/4,/9/5#/9/6. Z:ALim9 COUNTRIES. X- CENTRAL EUROPE. JTt NEUTRAL COUNTRIES. T •9, 30& aooo ITALY UNITED KiH6P0M_ -iOGQ ITALY UMTSPMNGPOM RUSSIA IOQo\ RUSSIA RUSSIA RUSSIA IOCO\ o FRANCE FRANCE- FRANCE FRANCE IBUh I3/S 13/6 JI: 10QQ iOOQ G I 6ERMANY | GERMAHT ! GERMANY I GSRMANY O re/3 I0!4> IBIS 'IK AW fOOO 0 I /5V6: t. SWEDEN:~2.NORM4Y.~ 3.DWEtAftK- - ^ NETHERLANDS. - J"W. J/TZERLANP. - £ ^£2LJ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Ami!. 1, 1917. FEDERAL BESEBVE BULLETIN. 333 NOTE CIRCULATION OF PRINCIPAL EUROPEAN BANKS OF ISSUE AT END OFIS/3,19I4-, ISIS^/916. I: ALLIED CQLWTRtSS. I: CENTRAL EUROPE. JT.- NEUTftAL COUNTRIES. 2OCQr £000 KXX> •Sz o J3JJ_3 (9J± (9J5 /. SWEDEN. -E Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

INDEX. ! Page. Acceptances, distribution of, by sizes, maturities, I Foreign exchange rates 328 etc * 319 I Foreign loans, investments in 236, 239 Accounting, uniform, tentative proposal submitted I Foreign securities, offerings of 237 by Board 270-284 | Gold imports 237 Business conditions throughout the several dis- ! Gold imports and exports, statement showing 327 tricts 293-315 j Gold settlement fund, transactions under 268, 269 Charts showing gold reserves and note circulation Harris, 13. D., vice president National City Bank of principal European banks 332, 333 of New York, address of, on trade acceptances-^.... 245 Clearing system, operation of 268 Informal rulings of the Board: Commercial failures during February 267 Reserve balances 285 Discount operations of Federal Reserve Banks... 316-318 Limitations imposed by section 5200, R. S 286 Discount rates: Trade acceptances 287 In effect 327 Stock subscriptions 287 Revision of 235, 241 War Department obligations 288 Earnings on investments of Federal Reserve Banks. 326 Law department: Federal Reserve Act, suit to test constitutionality Place of payment of acceptances 289 of section 11 (k),.argument of counsel before Su- Holding over of Federal Reserve Bank dipreme Court 254-266 rectors 290 Federal Reserve Agents' fund, summary of trans- Drafts payable on or before certain date 291 actions 269 Usurious charges by national banks 291 Federal Reserve Banks, investment operations of. 319-321 National-bank charters granted 266 Federal Reserve notes: Philippine National Bank designated as foreign Accounts of Federal Reserve Banks and agent 239 Agents 324, 325 Reserves, changes in 236 Shipment of unfit notes 237, 242 Resources and liabilities of Federal Reserve Banks. 322, 323 Federal Trade Commission, collaboration with Fed- Revenue act, reprint of 248-254 eral Reserve Board on accounting plan 270-284 Review of the month 235-239 Fiduciary powers: Trade acceptances, conference of National Credit Argument of counsel before Supreme Court in Men's Association on 243-247 case to test constitutionality of section ll(k). 254-266 Treasury certificates of indebtedness 240 Granted to national banks 267 Treman, R. II., address of, on trade acceptances 243 Foreign banks, gold reserves, and note circulation United States bonds, purchase and conversion of. 238, 240 of 329-331 Wills, D. C, address of, on trade acceptances 243 o Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis