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( The article on the last p age describes how the F edera l R eserve S ystem is organized)
M O N TH LY R E V IE W
Of Credit and Business Conditions
In the Second Federal Reserve District
By
th e
Federal
Reserve
Agent,
Federal
Reserve
Bank,
New
York
N ew Y o r k , D ecem b er 1 , 1921
Credit Conditions
N the past thirty days there has been a further decline
in rates of interest on short-term paper, including
Treasury certificates, bankers acceptances, commercial
paper, and Stock Exchange call money. Lower interest
rates have been reflected in turn in higher bond prices and
a marked increase of activity in the bond market, for both
old and new issues. Various classes of new securities
have been readily sold at prices yielding smaller returns
to the investor than similar classes of securities have
yielded for m any months past.
I
Evidences of the advance toward easier conditions in
the money market appear in the following summary of the
decline in rates on short-time investments since a year a g o :
Prime 60 to 90-day bankers acceptances........
Longer-term Treasury certificates, yield at
market rates...................................................
Commercial paper, 4 to 6 months...................
Stock Exchange call money, monthly average
Rate
Nov., 1920
Rate
Nov., 1921
6H
iV s
6
8
8
verted instantly into cash. W h a t is true of acceptances
in this regard is equally true of Treasury certificates and
creates a much higher degree of stability in market rates
for both acceptances and Treasury certificates.
During recent months there has been growing up, side
by side with the Stock Exchange call loan market, an
other call loan market which has assumed considerable
proportions. This is the market for call money, lent
against the security of bankers acceptances and Treasury
certificates, round amounts of which must be carried by
dealers in their service of the market.
RATE
PRICE
4K
5
Th e same thing has been true of long-tim e bonds, the
prices of which ordinarily respond to changes in the market
price of money, thereby causing a larger or smaller return
to the investor who purchases them, according to whether
the current trend of money rates is up or down. T h e
diagram printed on this page shows that rates for Stock
Exchange call money tended downward before bond prices
began to rise. On the other hand, rates on bankers ac
ceptances and the prices of bonds have m oved simul
taneously upward or downward, as the case m ay be.
T h e more erratic movement of rates for Stock Exchange
call money arises largely from conditions which affect the
rates on bankers acceptances either not at all or to a much
smaller degree. T h e fluctuations of the rates on Stock
Exchange call loans are often closely bound up with the
exigencies of the stock market itself. M oreover, no such
loans are eligible for rediscount at Federal Reserve Banks.
Bankers acceptances, however, are eligible for discount or
purchase by the Reserve Banks, and m ay there be con
Average Monthly Bond Prices, Average Monthly Call Loan Renewal
Rate, and the Market Rate on Bankers Acceptances
T h e amount of bankers acceptances in the hands of the
dealers is frequently between $50,000,000 and $100,000,000, and their supplies of Treasury certificates often
2
MONTHLY REVIEW
amount to as much more. B y far the largest part of their
portfolios is carried on borrowed money. In order that
their business m ay be conducted with reasonable prospect
of profit, the rates for such loans must be related to the
rates which their securities earn, rather than be subject
to conditions prevailing on the stock market. I t was not
possible until recently to obtain money at such rates be
cause of the heavy credit demand. B u t with the easing
of that demand more and more money has become avail
able for loans on call, and for short periods, against the
security of bankers acceptances and Treasury certificates.
I t is also becoming recognized that such collateral is supe
rior to the stocks and bonds usually constituting the col
lateral for a Stock Exchange loan, which are subject to
heavy fluctuations in value, are without access to the
Reserve Bank for conversion into cash, and must await
the finding of a buyer. T h e rates in this new call money
market are lower and more stable than the rates for Stock
Exchange call money.
Savings Bank Deposits
T h e downward trend of deposits in representative
savings banks in the Second Federal Reserve district
during July and August, which was halted temporarily
in September, was resumed in October. In the period
between October 10 and Novem ber 10 nine banks in
N ew Y o rk C ity out of eleven reported declines as did^
also eight out of ten banks in representative cities of this
district outside of N ew Y o rk C ity.
Bill Market
Open market rates for bills m oved freely to lower levels
following the reduction in the Reserve B ank discount rate
and in line with the easier trend of all money rates.
D em and was maintained at the lower rates and some
increase of demand was noted not only from interior
banks but from N ew Y o rk banks and large corporations
also.
T h e market thus established is similar to the London
call loan market, where discount houses and bill brokers
carry their portfolios largely on call and short-time money
lent by the banks, and have recourse in times of stress to
the Bank of England.
Dealers’ bid rates were reduced from 4 ^ to 434* Their
selling rates were lowered in proportion and b y the end
of the m onth were 4 ^ per cent, for all maturities up to
four months as compared with
pefr cent, at the close
of October.
T h e lenders in this new call, loan market include not
only city banks and bankers, but out-of-tow n banks and
private individuals and corporations. Foreign banks,
through their N ew Y o rk agents, have also been large and
consistent lenders in this market, and other foreign-owned
funds are employed in it to an increasing degree. Foreign
lenders have recognized from the beginning the preferable
character of loans secured b y acceptances and Treasury
certificates.
Th e supply of new bankers bills in N ew Y o rk increased
somewhat early in the month as a result of several large
offerings of sugar bills. These offerings, coming when the
demand was particularly good, were quickly absorbed
by investors. Later in the month demand was most
active for bills which would mature before the end of the
year, and the supply of short bills was insufficient to meet
the demand. C otton, grain, and silk bills were next to
sugar bills in order of importance in the m onth’s new
offerings.
T h e lower rates of interest now prevailing in the various
money markets, reflecting the larger supply of funds now
available for loans, are also due in no small measure to
the competition of member banks, now out of debt to
their Reserve Banks, to em ploy their surplus funds in
these markets. T h e loans of the N ew Y o rk Reserve Bank
on N ovem ber 16 reached the lowest point since October,
1917, a reduction of 76 per cent, from maxim um . The
loans of Reserve Banks in some of the other districts
have been further reduced also, and the Reserve Banks
in agricultural districts which have been borrowers were
able to reduce their indebtedness during the month from
$43,787,000 to $19,663,000.
On N ovem ber 4 the N ew Y o rk Federal Reserve Bank
lowered its rate from 5 to 4 ^ per cent, on all classes of
paper, and reductions of from Y i Per cent, to 1 per cent,
were made at about the same tim e b y all other Reserve
Banks. T h e discount rates at present are:
4J/2 Per c e n t .. . .B oston , N ew York, Philadelphia.
5 per c e n t............ Cleveland, Chicago, St. Louis,
Kansas C ity, San Francisco.
5 l/ 2 Per c e n t .. . .Richm ond, A tlanta,
olis, Dallas.
M inneap
Commercial Paper
Following the reduction of discount rates at the Reserve
Banks early in N ovem ber, open market selling rates for
prime commercial paper declined 34 of one per cent, to a
range of 534 to 5J^> per cent., and occasional sales of
exceptionally high grade paper were made at 5 per cent.
The last week of the month 5 to 534 became the prevailing
rates.
There was a good demand from banks for the choicer
names, but these were in limited supply, and sales in con
sequence continued to be curtailed.
A s indicated in the following diagram there was a
further decline during October in the volume of paper
outstanding. Preliminary figures had indicated a slight
advance in September, but revised reports showed a small
decline. Failure of the supply of paper to increase
despite the lower rates, reflects the generally light demand
for money, and it is reported that new borrowing through
the commercial paper market is in considerable measure
for the purpose of paying off bank loans.
A n important change in market conditions, which has
been developing gradually, but which became more
marked in N ovem ber, was a shift to the large city banks
as the principal sources of demand for commercial paper.
In the previous year and a half country banks had been
3
FEDERAL RESERVE AGENT AT NEW YORK
the principal purchasers. T h e accumulation of funds in
N ew York and other large eastern cities resulted in an
active demand from an increasing number of large banks.
Th e bulk of paper offered continued to be sold in the
E ast, as the market west of the Mississippi and in the
South was generally reported comparatively quiet. On
the Pacific Coast, however, demand lately has increased
somewhat.
Railw ay stocks were also stronger late in October anjd
in N ovem ber, bu t the rise was not so rapid as in industrials,
and prices, on the average, did not equal those reached
around the first of October.
October trading was not heavy until the last w eek,
when sales were the largest since the Jube price decline.
For the entire month of October, sales were slightly over
13,000,000 shares, approximately the same as in Septem
ber. In N ovem ber trading was in larger volume.
MILLIONS OF
DOLLARS
United States Securities
Except for a slight reaction about the middle of the
month Liberty bond prices continued during Novem ber
the advance which has been going forward steadily since
September 1. T h e 4 % Victory notes touched par for the
first tim e since July, 1919.
T h e changes in prices since October 20 and from the
lowest points reached are shown in the following table.
Commercial Paper Outstanding—Thirty Dealers
Issue
Closing
Price
Nov. 19
Advance
Since
Oct. 20
Advance
Since
Low
Liberty 3j^s..
Liberty 1st 4s.
Liberty 2nd 4s
Liberty lst4)^s
Liberty 2d4}Js
Liberty 3d4J^s
Liberty4th4^s
Victory 4% s. .
Victory 3 % s ..
$95.20
94.88
94.66
95.10
94.76
96.34
94.88
99.92
99.90
$3.64
2.28
2.26
2.32
2.52
1.80
2.46
.52
.52
$9.20
11.88
13.26
11.10
13.66
10.74
12.88
5.22
5.26
Date
of
Low
June 2,
May 19,
May 20,
May 20,
May 20,
Dec. 20,
May 20,
May 20,
May 20,
’21
’20
’20
’20
’20
’20
’20
’20
’20
Stock Market Money Rates
During the period from October 20 to N ovem ber 20,
call money rates on the N ew Y o rk Stock Exchange
tended as in the previous m onth to work down to 4 or
4^2 per cent. Rates at 53^ or 6 per cent, ruled, however,
for a few days before the first of N ovem ber when firstof-the-m onth paym ents coincided with a maturity of
British Government 5 ^ per cent, notes, of which about
$50,000,000 were estimated to be outstanding. A
tendency, thereafter, for rates to decline was checked
temporarily by a considerable m ovem ent of funds to the
interior during the week ended N ovem ber 9, but in the
following week the return m ovem ent was toward N ew
Y o rk and rates became lower.
There was also increased activity in the tim e money
market. Funds were offered more freely, and rates de
clined x/ i of one per cent, to a range of 5 to 5^£ per cent.
Stock Market
In anticipation of and following the rescinding of the
railway strike order on October 27, stocks resumed the
advance that started late in August. T h e advance has
been continued in N ovem ber practically without inter
ruption and averages of industrial issues have risen ap
proximately 8 points to the highest levels since June,
and 12 to 15 points above the low point of the year reached
in August. T h e strength of investment stocks has been
noteworthy.
Sales of United States securities on the N ew York
Stock Exchange during October were $220,000,000 as
compared with $208,000,000 in September, and slightly
less in October, 1920. Trading continued active in
N ovem ber except for some slackening towards the middle
of the month.
Prices of outstanding Treasury certificates of indebted
ness continued to rise. During the m onth the yield on
some of the larger issues declined as much as J4 of one
per cent. E ven the issues of N ovem ber 1 which bore the
low rates of 4J^ and 4 j ^ per cent, sold at substantial
premiums by N ovem ber 20.
Bond Market
During m ost of October, bond prices m oved irregularly,
but in the last ten days of the month and early in N o v em
ber the market gained new strength, reflecting further
declines in money rates. Averages of the older high
grade corporation bonds rose approximately 2 points
to new high levels for the year, and approached closely
the highest levels of 1920. T h e more recently issued
high interest bearing issues were in equally strong demand.
A ctive buying of bonds, which has been stimulated by
the rising market, has greatly reduced dealers’ supplies,
and has tended likewise to direct funds more freely
toward less well-seasoned issues. D em and from the
individual investor continues to be the largest factor in
4
MONTHLY REVIEW
the market, but buying by banks, institutions, and cor
porations has also increased. There have recently been
more bank funds available for carrying bonds and N ew
Y o rk C ity banks report an increase in loans secured by
stocks and bonds.
A ctive foreign government bonds rose 2 to 3 points
or more above levels of a month ago, and prices of all the
new high interest bearing issues equaled or exceeded
original issue prices. A t present prices Queensland and
Swiss bonds offer the lowest yield of this group, about
6^2 per cent, or less, while m ost of the new European
issues yield IY 2 Per cent., except French bonds, which
have a somewhat higher yield. South American issues
yield approximately 8 per cent.
October sales of bonds, exclusive of United States
securities, on the N ew Y o rk Stock Exchange, totaled
$123,000,000, slightly less than were sold in September or
October last year. In the first two weeks of Novem ber,
trading was the m ost active of the year.
part to lower
in most cases
to N ovem ber
nearly double
year.
rates, and several large issues were sold,
bonds of public utility corporations. U p
23, issues of all classes reached a total
that in the corresponding period of last
Gold Movement
Gold imports during October amounted to $47,111,000,
about $19,000,000 less than during September and the
smallest m onthly total since June. T h e largest receipts
were from France, $18,518,000, and England, $9,892,000.
Exports amounting to $7,576,000 were the largest of any
month this year and were 36 per cent, of the total exports
since January. Exports were mainly to H on g K ong.
Source of imports and destination of exports were as
follow s:
IMPORTS
(000 omitted)
New Financing
Evidence of increasing breadth of demand for fixed
income securities appeared in N ovem ber in the heavy over
subscription of an issue of $50,000,000 6 per cent. 20-year
bonds of a public utility corporation. O f nearly 68,000
subscribers, more than 54,000 asked for bonds of $5,000
or less to a total of more than $126,000,000, and over
25,000 asked for bonds of $1,000 or less to a total of over
$ 22 , 000 , 000 . These bonds were offered on a
per
cent, basis, up to that time the lowest yield this year for
any issues of private concerns other than railroads. On
N ovem ber 2 1 , $ 20 , 000,000 one-year notes of another public
utility corporation were sold on close to a 6 per cent,
basis, compared with 8 per cent., on a similar issue of the
same corporation last December. Further evidence of
greater ease in the market appeared in an offering of a
block of preferred stock on less than a 7 per cent, basis.
D em and for State and municipal securities exceeded the
supply, despite the fact that offerings were in excep
tionally heavy volume. In consequence, prices rose;
so that issues of better grade were offered to yield about
4 % per cent., compared with 5 per cent, a month ago,
and 53^ per cent, two months ago. In the case of one
issue a new low on the m ovem ent of 4.20 per cent, was
reached.
N ew South American issues brought out in Novem ber
were $10,500,000 Chilean Government 8 per cent. 25year bonds, and $ 10 , 000,000 State of R io Grande de Sol,
United States of Brazil, 25-year 8 per cent, bonds, both
issues being sold at prices to yield a little over 8 per cent.
In addition, there was offered an issue of $22,779,300 6
per cent, bonds of the French cities of Marseilles, Lyons,
and Bordeaux, on a 7.65 per cent, basis, the first E uro
pean offering this year to net below 8 per cent. T h e
bonds were the unsold balance of an issue originally
offered here in 1919.
For October, the total of new corporation issues was
slightly more than $100,000,000, the smallest m onthly
total in more than two years, and less than a third as
large as the total in October last year. In N ovem ber,
however, financing became more active, probably due in
Country
First
Quarter
Second
Quarter
Third
Quarter
England....................
France.......................
Sweden......................
Canada......................
China & Hong Kong.
British India............
Netherlands..............
Germany...................
South America..........
$51,163
45,235
4,679
20,553
12,508
8,081
1,557
3
6,069
13,687
$51,087
28,103
37,941
4,535
6,804
9,065
14,159
4
6,175
24,534
$57,813
80,731
12,252
5,931
3,648
10,141
2,785
16,342
5,831
20,611
Total Imports. . . . $163,535 $182,407
Total
October Jan. 1Oct. 31
$9,892 $169,955
18,518 172,587
4,258
59,130
1,147
32,166
312
23,272
3,591
30,878
248
18,749
614
16,963
2,869
20,944
5,662
64,494
$216,085 $47,111 $609,138
EXPORTS
Hong Kong..............
Mexico......................
Sweden......................
$453
3,098
$744
920
$2,205
1,287
2,643
665
55
$5,762
45
$7,576
635
506
British India............
All Other...................
285
49
1
Total Exports. . . .
$4,471
$2,219
$6,856
645
1,124
$9,164
5,350
2,643
2,451
1,179
335
$21,122
Excess Imports__ $159,064 $180,188 $209,229 $39,535 $588,016
Gold imports during the first 10 days of N ovem ber
totaled $17,509,000, the bulk of which came from E n g
land and France. Exports were $242,000.
Foreign Exchange
Operations in the fdreign exchange market during the
past m onth have been limited in the main to actual
commercial transactions, and rate fluctuations in general
have been narrow. Continued scarcity of commercial
bills at a tim e when sterling was in demand for the pur
pose of effecting substantial transfers of funds to London
was a factor in an advance in the sterling rate from $3.95
to $4.00, the highest quotation in six m onths.
FEDERAL RESERVE AGENT AT NEW YORK
Continued weakness in German marks carried quota
tions to .33 of a cent on N ovem ber 7. H eav y offerings
were again reported for the account of the German
government in connection with reparations paym ents
while speculative operations continued large. Certain
N ew York banks have restricted their dealings in cur
rencies of Central European nations to actual commercial
transactions. Trading in Roum anian lei was practically
suspended due to reported governmental restrictions on
exchange transactions in that country.
Rates on Argentina and Brazil were slightly higher
following reports of better trade conditions. T h e N ew
Y o rk price for foreign bar silver lost a portion of the
advance recorded in October and exchange quotations
on India and China declined in about the same pro
portion.
T h e following table shows the changes that have oc
curred in the principal exchanges during the past month.
Country
England...............................
France.................................
Ita ly , ...................................
Germany..............................
Belgium...............................
Holland................................
Switzerland..........................
Spain....................................
Sweden (Stockholm)............
Argentina.............................
Brazil...................................
Japan (Yokohama)..............
China (Hong Kong)............
China (Shanghai)................
India....................................
Canada................................
Bar Silver in N. Y ...............
Nov. 19
Last
$3.9975
.0722
.0417
.0038
.0700
.3517
.1870
.1370
.2330
.3264
.1250
.4775
.5488
.7838
.2694
.9138
.6975
Change
from
Oct. 20
Per Cent.
Depreciation
from Par
+ .0500
17.9
62.6
78.4
98.4
63.7
12.5
3.1
29.0
13.1
23.1
61.5
4.2
-.0011
+ .0021
-.0 0 2 9
-.0022
+
+
+
+
+
+
.0125
.0059
.0051
.0025
.0080
.0008
0
-.0100
-.0 0 2 5
0
-.0 1 5 0
-.0 1 7 5
*
*
44.6
8.6
5
wheat, corn, rice, bacon, lard, and condensed milk, showed
decreases.
W h eat exports of 18,360,000 bushels were 40 per cent,
less than in September, and Novem ber shipments were
light. Foreign buying was slow until around N ovem ber
21, when there was some new demand.
T h e demand for manufactured and partly manufac
tured goods appears to be broadening slowly month by
month. T h e buying, as a rule, is not steady, but consists
of comparatively small orders for a variety of articles,
largely for filling in depleted stocks. There was a fair but
scattered buying in South America of cotton goods, and
an increased demand for steel, which accompanied reports
that German and Belgian sellers are no longer able to
make early deliveries. T h e Japanese steel demand was
less active.
Accom panying a strengthening in the domestic demand
for copper, the foreign demand likewise increased and
sales in October and N ovem ber were the largest this year.
Germany, France, Japan, and China were the chief buyers.
World Wholesale Prices
T h e Statist index number for prices in Great Britain,
which is shown in the accompanying diagram in com
parison with prices in three other countries, declined more
rapidly in October than in any other m onth this year.
This index is now only 13 points higher than the D epart
m ent of Labor index of wholesale prices in this country
and shows a greater percentage decline from the high point
reached in 1920. T h e D epartm ent of Labor index,
however, includes more quotations for finished articles,
prices of which have changed less rapidly than those of
raw materials. T h e declines of individual groups of
commodities making up the Statist index have been as
follows during the past month.
(1913 average = 100)
*Silver Exchange Basis.
Foreign Trade
October figures of foreign commerce of the United States
reported b y the D epartm ent of Commerce indicated a
slightly larger volume of exports and imports than in
September. Exports totalled $344,000,000, which was
$18,000,000 more than in September, but less than in
August. Imports were $188,000,000, slightly more than
in September, but likewise lower than in August. T h e
export balance of $156,000,000 was the largest, excepting
that for August, since February. Since the first of the
year exports have exceeded imports b y $1,835,000,000,
compared with $2,140,000,000 during the corresponding
period of 1920.
T h e increased export total for October was due chiefly
to heavy shipments of cotton, which were 874,510 bales,
67 per cent, above September totals, and the heaviest
m onth’s shipments since late 1919 and early 1920. T h e
movement in the early weeks of N ovem ber was also
large but exporters reported that there was little new b u y
ing. Mineral oils and cotton seed oil were also shipped
more heavily in October than in the m onth previous, but
a number of other important commodities, including
Commodity Group
Vegetable Food....................
Animal Food........................
Sugar, Coffee and Tea.........
Textiles................................
Sundries...............................
T otal.............................
Index
Oct. 1
Index
Nov. 1
Per Cent.
Change
203
186
153
149
182
173
174
170
146
139
178
162
-1 4 .3
- 8.6
- 4.6
- 6.7
- 2.2
- 6.4
175.5
162.6
-
7.4
T h e greatest decline has been in vegetable foods, a
group which is heavily weighted with grains imported
from abroad. T h e decline in British wholesale prices
accompanies recent increases both in exports and im
ports, a slight reduction in note circulation and a recovery
of the pound sterling in exchange at N ew Y o rk to $4.00.
French prices have turned downward after a brief
upward movem ent, but Italian prices continue to rise.
T h e German price index compiled by the F ra n k fu rter
Z eitu n g shows a 35 per cent, increase during October,
accompanying a rapid expansion of Reichsbank notes
and falling exchange rates.
MONTHLY REVIEW
6
Domestic Wholesale Prices
I t is no longer possible to discover any uniform tendency
in the m ovem ent of world prices. A s the process of
adjustm ent goes forward the particular economic situa
tions in different countries rather than general world
wide tendencies appear to be the influences at work.
For the sixth successive m onth the index of wholesale
prices computed b y the United States D epartm ent of
Labor shows little change. T h e index number, based on
average prices for 1913 as 100 per cent., was 150 in October
as compared with 152 in September. T h e following table
shows the changes which took place in the different
comm odity groups making up the index.
PER CENT.
7 0 0 -------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
(1 9 1 3
average
V alue
C o m m o d ity G ro u p
of
I
=
1 00)
Per Cen t. Change
ndex
M a x i
m um
1920
S e p t.,
1921
O c t.,
1921
246
195
287
222
356
284
341
371
247
122
120
146
162
187
178
193
223
146
119
121
142
162
190
182
192
218
145
-5
-3
-5
-2
-4
-3
-4
-4
-4
.6
.9
.5
.0
.6
.9
.7
.2
.3
-2 .5
+ 0 .8
-2 .7
0 .0
+ 1 .6
+ 2 .2
-0 .5
-2 .2
-0 .7
272
152
150
-4 4 .9
-1 .3
F a r m P r o d u c ts .............
M e t a l s ..............................
C hem icals, e t c ..............
C lo th s a n d C lo t h in g ..
F u e l a n d L ig h t in g -----B u ild in g M a t e r ia l s . . .
H o u s e F u rn is h in g s . . .
M is c e lla n e o u s ................
A ll G r o u p s ............
S e p te m b e r
M a x im u m
to O c to b e r to O c to b e r
1
7
0
7
6
5
3
1
1
Cost of Living
01___________ ___________ ___________ ___________ ___________ ___________ ___________
1915
1916
1917
1918
!9i9
Wholesale Commodity Prices in Four Countries.
1913 = 100 per cent.)
1920
T h e cost of living index number for the United States
compiled b y the N ational Industrial Conference Board
advanced less than one-tenth of one per cent, in October.
1921
(Average Prices in
Indices of Wholesale Prices
1 913
average
=
100
unless otherwise noted
Per C’ent. Change D TJRING
Country
Latest Quotation
August
United States:
12 basic commodities*.................
Department of Labor..................
Dun’s ...........................................
Bradstreet’s.................................
Great Britain:
Economist....................................
Statist..........................................
20 basic commodities*.................
France.............................................
Ita ly ................................................
Japan...............................................
Canada............................................
Sweden f ...........................................
Australia!........................................
Norway............................................
Germany^.......................................
Denmark ||.......................................
*Computed by this bank.
to June, 1914, = 100.
109
150
135
123
(Nov. 19)
(Oct. Av.)
(Nov. 1)
(Nov. 1)
+
+
+
170
163
136
332
599
207
169
175
160
274
2725
2 02
(Nov. 1)
(Nov. 1)
(Nov. 19)
(Nov. 1)
(Nov. 1)
(Sept. Av.)
(Oct. 15)
(Oct. 15)
(Sept. Av.)
(Nov. 1)
(Nov. 1)
(Oct.
1)
+
+
+
+
+
+
-1
1 .3
2 .7
0 .7
0 .3
0 .4
1 .7
2 .4
0 .4
4 .2
1 .4
0 .9
6 .2
0 .6 * *
2 .8
3 .1
1 .8
f July 1, 1913 to June 30, 1914 = 100.
** Revised.
September
— 0 .2
0 .0
— 0 .4
+ 0 .9
+ 2 .2
— 3 .9
+ 2 .6
+ 3 .8 * *
+ 7 .1
+ 4 .0
— 1 .6
— 8 .1
0 .0
— 1 .8
+ 1 0 .9
— 9 .8
{ July, 1914 = 100.
October
+
+
+
—
—
—
—
+
Per Cent.
Decline
from High
Date of High
2 .6
1 .3
1 .1
1 .4
55
45
38
46
May
May
May
Feb.
17, 1920
1920
1, 1920
1, 1920
6 .8
7 .4
5 .3
3 .4
3 .3
45
48
60
43
11
36
36
53
32
37
0
50
Apr.
May
May
May
Dec.
Mar.
May
Dec.
Aug.
Oct.
Nov.
Nov.
1, 1920
1, 1920
2 1, 1920
1, 1920
1, 1920
1920
15, 1920
15, 1918
1920
1, 1920
1, 1921
1, 1920
— 1 .5
— 3 .8
— 2 .0
+ 3 4 .8
Middle of 1914 = 100.
||July, 1912
7
FEDERAL RESERVE AGENT AT NEW YORK
T h e index has shown only minor fluctuations since last
June. T h e figures for different items of the index on
N ovem ber 1 are as follows:
Per Cent.
Change
During
October
Group
November 1
Level
Per Cent.
Decline
from High
Food.......................................
Clothing.................................
Shelter....................................
Fuel and Light......................
Sundries.................................
153.0
160.0
169.0
180.0
180.0
30.1
44.4
6.3
0
0
0
+ 0 .6
0
Total...................................
163.8
19.9
+ 0.06
1.2
10.0
Production of Basic Commodities
T h e available figures for October production of basic
commodities show more increases than decreases. A
number of the increases, however, reflect seasonal changes
and hence are not necessarily evidence of more active
business. T h e indices of production computed b y this
bank which make allowance for seasonal movements and
also for normal year-to-year growth show about as m any
increases as decreases in October. T h e figures are shown
in the following table as percentages of normal production.
Commodity Stocks on Hand
On N ovem ber 1 stocks of basic commodities for which
figures are available, were in m any cases considerably
lower than on October 1. Factors in these reductions,
were large Cuban holdings and active operations of sugar
refining plants, a somewhat more normal m ovem ent of
crops to market, and increased consumption of cement.
Th e corn supply has risen sharply as the large crop is
marketed. Corn and rye stocks are both affected by
prohibition. T h e somewhat larger supply of flour reflects
continued operation of mills at a rate above normal.
H eav y shipments of tin from the Straits Settlements
together with small consumption in Europe and America
are increasing the world’s visible supply.
T h e following table gives the available figures for
monthly stocks as percentages of normal stocks. N orm al
has been computed on the assumption of a rate of growth
from year to year directly continuing the growth during
preceding years, and seasonal variations corresponding
with those of previous years.
(Normal Stocks = 100)
Commodity
Sugar..................... , ...........
(Normal production = 100)
Commodity
Anthracite coal mined.. . .
Bituminous coal mined...
Pig iron production..........
Steel ingot production... .
Zinc production................
Lead production...............
Tin deliveries...................
Copper production...........
Gasoline production........
Petroleum production. . . .
Cement production..........
Cotton consumption........
Wool consumption...........
Wheat flour milled...........
Sugar meltings.................
Meat slaughtered.............
Av.
Jan.Mar.
103
64
58
58
52
66
31
67
103
100
79
62
70
89
85
90
June
93
67
31
31
50
64
31
15
89
107
84
71
109
103
81
101
July
94
61
26
26
40
63
30
13
84
106
89
64
97
148
84
88
Coffee..................................
Tobacco..............................
Wheat.................................
Aug.
92
63
28
36
38
71
64
16
85
108
89
75
107
126
106
113
Sept.
Oct
93
63
29
37
37
89
76
34
47
38
50
17*
82
96*
91
79
115
119
76
103
44
171
68
93f
91
76
124
111
114
93
^Revised.
■[■Preliminary.
T h e production of iron and steel has been increasing
steadily since July and preliminary N ovem ber figures
indicate greater activity than in October. Railroad
orders for cars, rails, and equipment are an important
factor in a larger demand. T h e index figure for bituminous
coal which is closely related to the steel industry and to
general manufacturing activity was higher in October
than in any other month this year.
Barley.................................
Rye......................................
Flour (in chief centers). . . .
Paper pulp, total................
Tin (world visible supply).
Cement, Portland..............
Lead, bonded.....................
Av.
Jan. 1- July 1 Aug. 1 Sept. 1 Oct. 1 Nov. 1
Mar. 1
68
104
95
113
60
251
93
90
143
116
113
116
91
426
64
145
97
115
39
437
284
220
99
75
158
131
97
185
45
157
95
52
164
93
145
766
208
310
248
79
144
139
98
181
140
727
222
353
599
106
126
133
89
207
61
140
72
40
113
65
126
520
161
146
452
123
107
137
109
461
371
96
402
131
121
88
165
168
68
Employment
Th e N ew Y o rk State Departm ent of Labor reported
a gain of
per cent, in factory em ployment in October
as compared with a 4 per cent, gain in September. T h e
outstanding gains in October occurred in industries
making iron and steel products, such as railroad car
building and repair shops, and railroad equipment
factories. Textile manufacturing showed moderate sea
sonal gains but there were seasonal declines in the clothing
industry.
The United States Bureau of Labor Statistics reported
an increase of 1.6 per cent, during October in the number
employed in 14 selected industries throughout the coun
try. T h e industries showing increases corresponded
closely with those in which increases were reported in
N ew Y o rk State.
8
MONTHLY REVIEW
Wages
Efforts of employers to reduce the wage factor in the
cost of operations resulted in two important strikes in
N ew Y o rk C ity . In the milk industry 12,000 employees
met a proposed wage reduction b y a demand for a five
dollar per week increase together with a two weeks’
vacation with pay and on N ovem ber 1 went on strike
to enforce their demands. The employers immediately
began to recruit new forces and announced their in
tention of placing the industry on an open-shop basis.
M ilk deliveries were seriously disturbed for some days,
b u t are gradually returning to normal volume.
O n N ovem ber 14, about 50,000 members of the Inter
national Ladies Garm ent Workers Union went on strike
following an announcement b y the manufacturers of
women’s clothing that the piece work system would be re
established on that date and the working week lengthened
from 44 to 48 hours. Several hundred smaller m anu
facturers have signed contracts with the union and are
resuming operations on the previous wage basis, but most
of the larger factories are shut. The strike occurs at a
season of the year when manufacturing reaches its lowest
point, as winter goods have been completed and work has
not y et started on spring and summer clothing. Four
strikes have occurred in this industry since 1916, each
lasting from two to four months.
O n N ovem ber 16, as part of a programme to reduce
freight rates 10 per cent, on agricultural products outside of
N ew England, the railroads announced their intention to
seek under the regulations of the Railroad Labor Board a
further reduction of wages.
Average weekly earnings in N ew Y o rk State factories
as reported b y the N ew Y o rk State D epartm ent of Labor
declined from $25.07 in September to $24.53 iii October.
Average earnings are now 93 per cent, higher than in
1914«
T h e accompanying diagram shows for selected industries
throughout the United States, which report to the D epart
m ent of Labor, the average weekly earnings of workers
in October as compared with the 1914 average and the
broken line shows the present level of the cost of living
index of the National Industrial Conference Board,
also compared with 1914.
N o t e .— T h is bank has prep a red in d e x num bers and
diagram s show ing the changes which have taken p lace since
1 9 H in w ages and em ploym en t in 14 * d ifferen t in d u stries
in N ew Y o rk State and in the U nited States as a whole.
The fig u res are too detailed to be presented in f u l l in the
R e v ie w , but are available f o r a n y who w ish them , in the
fo r m o f two b rief rep orts, on e on w ages and the other on
em ploym en t, w hich m a y be obtained by addressing the
Federal R eserve A g en t.
Efficiency of Labor
I t is frequently stated that workmen are now more
efficient than a year ago. In order to secure definite
figures this bank addressed letters to seventy-four rep
resentative employers in this district asking them for
any exact information which they might have concerning
the hourly output per person in their establishments in
1913, 1918, 1920 and 1921. Replies were received from
thirty-seven establishments.
Tw o-thirds of those replying sent figures or made
definite comm ent. T h e consensus of opinion supported
by the figures was that the output per worker is now
considerably greater than in 1920, but m any reported
that the present efficiency of the workman is somewhat
less than before the war. T h e returns made it clear that
output per worker has been greatly affected b y such
factors as the reorganization of plants, new machinery,
improvements in methods and processes, percentage of
capacity at which plants have been operating and changes
in the type of personnel due to the retention of more
efficient employees and the elimination of the less efficient.
T h e number of firms (7) submitting definite figures was
so small and the results were so greatly affected b y the
factors mentioned above that the returns cannot be re
garded as representative, but only as interesting ex
amples. T h e figures are given in the following table.
In order to place them upon a comm on basis they have
been converted into percentages, taking 1920 figures as
100. In a number of instances the figures given for an
industry represent averages of the figures for several
processes, and in others they are for a single process only.
D aily Output
oct .
1914MENS CLOTHING- |
BOOTS-SHOES
I
WOOLEN
1
CAR BUILDING’
I
SILK
I
CIGARS
I
ALL TEXTILES
I
PAPER
I
HOSIERY-UNDERWEAR!
COTTON FINISHINGl
COTTON MANUF'G I
LEATHER
I
AUTOMOBILES
I
IRON-STEEL
TOTAL
mt
COST OF
UVING
OCT. 19&1 EARNIN&S
1 277#
■228*
1222*
■208*
| 203*
■20196
■ 199*
1918-1919
iso
100
90
73
90
109
74
92
82
112
77
1920
Oct., 1921
100
100
100
100
100
100
100
110
122
121
98
119
*
99
100
*Plant operating at 50 per cent, of capacity,
142'*
210^
Average Weekly Earnings of Workers in Representative Establishments
in Different Industries Throughout the United States, and the Cost of
Living. (1914 Figures = 100 per cent.)
Automobile...........
Bricklaying..........
Cable.....................
Metal products. . . .
Shoes.....................
Woolen cloth.........
Pre-War
■193*
|163*>
■11609*
W orker
Industry
1253*
■ 2 3 0 *
■230*
per
Volume of Building
October building contract awards in N ew Y o r k State
and Northern N ew Jersey reported b y the F . W. D odge
C o. showed a decline of about 16 per cent, from the high
9
FEDERAL RESERVE AGENT AT NEW YORK
E5TIMATED PHYSICAL VOLUME
DOLLAR VALUE
OCT. 1920 SALES
OCT. 1920 SALES
OCT. 192,1 SALES
100%
111 1 % SHOES
DRV GOODS
■
SHOES
OCT. 1921 SALES
100%
111 %
|159X *
1 156 %
DRV GOODS
DRUGS
1 106 %
CLOTHING
CLOTHING
1105 5*
DRUGS
GROCERIES
GROCERIES
HARDWARE
HARDWARE
11 4 2 %
STATIONERY
STATIONERY
MACHINE TOOLS
MACHINE TOOLSl
Dollar Value of Sales and Estimated Physical Volume of Sales (Making Allowance for Price Changes) of Representative Wholesale Houses in the
Second District in October, 1921, Compared with Sales in October, 1920
figure reached in September, but were larger than the
awards of any other month since April, 1920. T h ey were
50 per cent, larger than in October, 1920. For the
twenty-seven north-eastern States awards showed a
reduction of 10 per cent, from September figures. Sea
sonal declines were reported from all but the N ew England
States where October awards were 35 per cent, larger
than those for September.
R a ilw a y
T r a ffic
Car loadings in the last two weeks of October, when
shippers were inclined to anticipate the effects of the
threatened railway strike, were less than 5 per cent,
below the high totals of the corresponding weeks of 1920
and were slightly above those for the corresponding weeks
of 1919. T h e following diagram compares freight car
loadings b y months in 1921 with the m onthly averages
for the three years 1918 to 1920. I t indicates that for
some months the 1921 figures have gradually been ap
proaching the averages for previous years.
THO USANDS
Wholesale Trade
Wholesale dealers in all lines, with the exception of dry
goods, represented in current returns to this bank, report
noteworthy increases in sales during October as compared
with sales in September and the increases in most cases are
greater than the normal seasonal gains. Clothing firms
have submitted data that show an increase of 44 per cent,
over the unusually small figures for September, an indi
cation of a late season in that industry.
The dollar value of sales in four lines shows an actual
increase over sales in October, 1920. W h en the decline
in prices is taken into consideration the volume of sales in
two other lines also appears to have been larger. The
greatest increases in sales occurred in those lines in which
purchases could be delayed temporarily but not for an
extended period— dry goods, shoes, and clothing. In
creases over last year’s figures in the sales of these com
modities m ay be ascribed to two factors: reluctance to
buy a year ago in the face of falling prices and the present
need of replenishing depleted stocks.
T h e accompanying diagrams show the dollar value of
October sales compared with sales in October, 1920, and a
similar comparison shows the approximate physical
volume of sales after due allowance has been made for the
decline in prices. Sales for October, 1920, are in each
case taken as 100 per cent.
T h e estimated decline in prices between October, 1920,
and October, 1921, and the percentage changes in sales
between different months are shown in the table that
follows.
Commodity
Dry Goods . . .
Freight Cars Loaded Each Month in 1921 Compared with the Monthly
Average 1918-1920
Clothing.........
Groceries........
Hardware. . . .
Stationery. . . .
Machine Tools
*Dollar value.
Per Cent.
Change
in Price
Oct., 1920
to
Oct., 1921
Per Cent.
Change
in Sales*
Oct., 1920
to
Oct., 1921
Per Cent.
Change
in Sales*
Oct., 1919
to
Oct., 1921
Per Cent.
Change
in Sales*
Sept., 1921
to
Oct., 1921
30
15
26
30
30
15
+ 2 2 .0
+ 11.2
+ 6.2
+ 5.3
- 1 9 .3
-2 2 .7
- 4 2 .2
-8 2 .3
-2 2 .9
-6 1 .4
- 7.7
+ 11.8
-2 4 .9
- 2 2 .5
-3 1 .6
-8 1 .9
- 3.7
+ 1.7
+ 2.7
+ 4 4 .3
+ 1 7 .3
+ 9.2
+ 0.9
+ 7 2 .7
22
20
MONTHLY REVIEW
10
Retail Trade
N
In October, for the first m onth this year, the dollar
value of sales of department stores reporting to this
bank was larger than in the corresponding m onth of 1920.
October sales b y 48 firms operating 62 stores were 2.8 per
cent, larger than in October, 1920. A gain of 4.4 per cent,
in the sales of stores in N ew Y o rk C ity and Brooklyn
offset small decreases reported in other cities, as shown in
the accompanying table.
T h e more favorable comparison with last year’s figures
than in previous months is partly accounted for b y the
fact that year-to-year comparisons now begin to be in
fluenced b y the rapid fall in prices in the later months of
1920. Sales in October, however, were nearly 50 per
cent, larger than sales in September, whereas the seasonal
increase in the two previous years, the only ones for
which figures are available, was in the neighborhood of
35 per cent. I t is possible that exceptionally mild weather
in September this year led to some postponement of
purchases of fall and winter goods.
W h en price changes are taken into consideration, it
seems probable th at the volume of merchandise sold in
October was between 15 and 25 per cent, larger than in
October last year. T h e number of individual sales re
ported b y 20 of the stores was 25 per cent, larger than
last year. Some indication of price changes is given by
the fact that the individual sale this October was $3.13
against $3.63 last October, 14 per cent, less, and that the
selling value of stocks was 16 per cent. less. B oth of
these figures are, of course, affected b y various elements,
but the price change is the dominating influence.
N ew Y o rk C ity merchants inform us that during the
first two weeks of N ovem ber sales have been good in all
departments of their stores. Large stores are preparing
for a holiday business as large as last year’s, when sales
were larger than ever before.
T h e following table compares October sales of mail
order houses and chain stores with those of department
stores, and the accompanying diagram makes a similar
comparison b y months over the past three years.
Sales
et
C
in
September
ctober
W
, 1921
it h
October
October
1920
1919
1921
Department stores................
Mail order houses.................
Chain stores (total)..............
Ten cent stores..................
Dry goods stores...............
Drug stores........................
Grocery stores...................
Cigar stores.......................
O
om pared
+ 4 9 .5
+
+ 2 1 .9
-1 3 .7
2 .8
-4 3 .8
+ 1 8 .0
+
0 .5
+ 2 0 .0
+ 2 5 .0
+
9 .2
+ 3 1 .5
+ 2 8 .1
+
0 .5
+ 4 7 .0
+
+
7 .2
3 .1
-
1 .0
+ 1 1 .9
+ 1 4 .8
-
3 .9
+
+
-
8 .6
+ 2 5 .2
7 .8
4 .4
PER
CEN T.
PER
CENT.
ZOO
1919
1920
1919
1921
1920
1921
Sales of Retail Stores Each Month. (Average Sales in 1919 = 100
per cent.)
Business of Department Stores
New York
and
Brooklyn
Per cent, change in net sales in October, 1 9 2 1 ,
compared with net sales in October, 1 9 2 0 .................
Per cent, change in number of transactions in
October, 1 9 2 1 , compared with number of transac
tions in October, 1 9 2 0 ...................................................................
Per cent, change in net sales from July 1 , 1 9 2 1 to
October 3 1 , 1 9 2 1 , as compared with same period
in 1 9 2 0 .........................................................................................................
Per cent, change in stocks (retail price) at close of
October, 1 9 2 1 , compared with stocks at close of
September, 1 9 2 1 ..................................................................................
Per cent, change in stocks (retail price) at close of
October, 1 9 2 1 , compared with stocks at close of
October, 1 9 2 0 .........................................................................................
Percentage of stocks (retail price) at close of July,
August, September, and October, 1 9 2 1 , to net
sales during same months......................................
Percentage of outstanding orders (cost) at close of
October, 1 9 2 1 , to total purchases during calendar
year 1 9 2 0 ....................................................................................................
+
4 .4
Buffalo
Newark
Rochester
1 .3
-
2 .1
+ 3 3 .5
+ 1 9 .9
+
5 .3
-
4 .9
-
4 .5
-
4 .7
-
2 .4
+
4 .3
+
4 .5
+
8 .1
+
0 .1
+
-
3 .8
Syracuse
-
6 .8
Elsewhere
in Second
Distiict
+
o .i
Apparel
Stores
+
5 .7
Entire
Second
District
+
2 .8
+ 2 0 .3
+ 1 9 .7
+ 2 4 .5
-1 0 .8
-
9 .4
-
0 .1
-
4 .8
+
2 .4
+
4 .6
+
8 .3
+
4 .8
-3 3 .5
-
5 .6
-1 3 .5
— 1 5 .2
-1 2 .9
-1 7 .2
3 8 2 .2
4 3 6 .3
3 9 2 .1
4 0 4 .3
4 3 1 .6
5 5 3 .5
2 6 2 .2
3 8 9 .6
5 .2
7 .0
5 .0
7 .2
4 .9
6 .3
9 .9
6 .0
-2 6 .7
-1 5 .5
11
FEDERAL RESERVE AGENT AT NEW YORK
#35 SUIT
-L A B O ^
Analysis of the Cost to the Consumer of a $5 Pair of Shoes, a $2 Shirt, and a $35 Suit of Clothes, Carried Through Three Processes: Preparing
Leather or Cloth from Raw Leather, Cotton, or Wool; Manufacture of the Article of Clothing; and Selling it at Retail. Direct Sale from Manu
facturer to Retailer is Assumed
Retail Prices vs. Wholesale Prices
During the past year comment has often been made
that retail prices have not fallen so rapidly as wholesale
prices. In view of the tremendous decline in the prices
of cotton, wool, silk, hides, and other raw materials, there
appears to have been an expectation that these declines
would be promptly reflected in the retail prices of articles
made from these materials. I t is not the purpose of this
article to discuss whether retailers in any particular cases
m ay have held up prices unduly but to point out that there
is an inherent reason why retail prices of manufactured
articles do not come down so fast as the prices of raw
materials. This reason is that the cost of the raw material
is but a small element in the cost of the finished article
as the consumer buys it. T h e retail price is made up very
largely of labor, rent, interest, transportation, etc., and
these cost elements change much less rapidly than prices
of raw materials.
The diagrams at the top of this page give a rough
analysis of the distribution of the cost to the consumer of a
pair of $5 shoes, a $2 shirt, and a $35 suit of clothes, with
a view to showing the major elements of cost in retail
prices.
Th e figures upon w hich these diagrams are based have
been furnished by a number of representative retailers,
manufacturers, and mills in this district as typical figures.
There are wide differences between different mills, manu
facturers, and retailers in the distribution of their costs;
and there are also considerable variations in the distri
bution of costs within single establishments at different
periods and with the use of different kinds of material.
T h e percentage of the total cost of the finished article
which goes into raw material fluctuates with the price
of raw cotton, wool, or leather. T h e capacity at which
the mill is operating has an important influence on the
amount of cost which is chargeable to overhead. T h e
diagrams therefore are presented simply as an approxima
tion to average figures.
The segments representing raw materials do not repre
sent the amount of the selling price which the farmer
received, but rather the price which the mill paid for its
raw material, which includes, in the case of wool for
example, transportation charges, cleaning charges, and the
overhead and profits of the middleman between the
farmer and the textile mill. I t has not been possible to
segregate all of the labor elements; some labor is included
in raw material and some is included in overhead. Th e
labor costs which are segregated are the costs directly
chargeable to labor in mill operations, manufacturing
operations, and retail selling.
T h e dollar figures upon which the percentages of the
diagrams are based are given in the following table
redistributed in a different manner so as to trace the
clothing through three processes.
$35 S u it
Process
$5 Shoes
$ 2 S h irt
$ 3 .9 8
3 .6 8
1 .4 9
.7 9
$ 1 .4 5
.2 9
.2 8
.1 8
$
.3 0
.2 3
.1 0
.0 6
T o t a l m a te r ia ls ............
$ 9 .9 4
$ 2 .2 0
$
.6 9
M a n u fa c tu r in g
M a t e r ia l s ..............................
L a b o r .....................................
O v e r h e a d .......... ...................
P r o f i t ......................................
$ 9 .9 4
6 .3 0
5 .3 8
1 .8 8
$ 2 .2 0
.7 2
.4 0
.2 8
$
.6 9
.3 5
.21
.1 3
T o t a l (w holesale pric e )
$ 2 3 .5 0
$ 3 .6 0
$ 1 .3 8
S elling
C ost of m e rc h a n d is e . . . .
L a b o r ( a l l ) ...........................
O v e r h e a d ..............................
N e t p r o f it .............................
$ 2 3 .5 0
5 .2 5
5 .0 3
1 .2 2
$ 3 .6 0
.6 3
.5 7
.2 0
$ 1 .3 8
.3 0
.2 4
.0 8
T
$ 3 5 .0 0
$ 5 .0 0
$ 2 .0 0
M i l l O p era tio n s o r T a n n in g
R a w m a te r ia ls ...................
L a b o r .....................................
O v e r h e a d .............................
o ta l
Se l l in g P r
ic e
..........
Business Failures
Commercial failures throughout the United States as
reported by D u n ’s were more numerous in October than
in any other m onth this year with the exception of Janu
ary. October is normally a m onth of many failures but
the increase this year has been somewhat greater than
normal. Liabilities were also larger than for several
months past. In the Second Federal Reserve D istrict the
increase in the number of failures in October was relativejy less than in the country as a whole, bu t liabilities
showed a larger relative increase.
H
o w
t h e
F e d e r a l
R e s e r v e
U R I N G the latter half of Novem ber in each year
each of the twelve Federal Reserve Banks con
ducts an election for two of its nine directors.
I t seems, therefore, an appropriate time to set forth briefly
the plan of organization of the Federal Reserve system,
which places upon the directors of the several Reserve
Banks the main responsibility for their control.
T h e Reserve Banks, from a legal standpoint, are private
corporations, owned by the National banks of the country
and b y such State banks and trust companies as have
become members of the Federal Reserve system. Their
net earnings, however, after the paym ent of 6 per cent,
dividends and such additions to surplus as are provided
b y law, pass into the Treasury of the United States for
certain restricted uses. T h ey also perform a number of
operations for the Government, such as those connected
with the sale and handling of Government bonds and notes,
and the furnishing of an elastic currency. B u t otherwise
the Reserve Banks have m any characteristics in comm on
with N ational banks. B oth are chartered by the Federal
Government under acts of Congress and are conducted
under the direction and control of their own boards of
directors. B oth issue currency which is redeemable on
demand at the Treasury D epartm ent in W ashington.
B oth are under Federal supervision— N ational banks
under the supervision of the Comptroller of the Currency
and Reserve Banks under the supervision of the Federal
Reserve Board. T h e supervision exercised by the Federal
Reserve Board, however, is of a different nature from that
which the Comptroller exercises over the N ational banks,
as will appear below.
D
R e se r v e B a n k D irectors
Th e composition of a Reserve B an k’s board of nine
directors recognizes the various elements of the country’s
population, which the Reserve Banks serve in their mani
fold daily operations. Six of the nine directors are elected
b y the member banks. Of these, three, known as Class A
directors, are representative of the member banks. T h ey
m ay be bank stockholders, bank directors or bank officers.
T h e other three, known as Class B directors, are repre
sentative of business in its broadest sense; they must be
engaged in commerce, agriculture or some other industrial
pursuit. T h ey m ay be bank stockholders, but not bank
directors or officers. Three other directors, making the
total of nine, are known as Class C directors, and represent
the Federal Reserve Board at W ashington by whom they
are appointed. T h ey must be residents of the district
and m ay not be bank stockholders, directors or officers.
One of them is chairman of the board of directors. H e is
also Federal Reserve Agent, and as such is the representa
tive at the Federal Reserve Bank of the Federal Reserve
Board.
For voting purposes the member banks are divided into
three groups, the largest banks in one group, the middlesized banks in a second group and the smallest in a third.
Each group votes for two directors, and no bank m ay vote
out of its group. This method of election, together with
the conditions of eligibility which the Federal Reserve
A c t imposes, makes the board of directors truly repre
sentative and also serves to prevent any one interest from
controlling the policies and action of a Reserve Bank to
the prejudice of any other interest. In a still broader
sense, it insures that the Reserve Banks shall be responsible
S y s t e m
is
O r g a n iz e d
to all the people of the country, in all of their capacities
and all of their activities, to producers and consumers
alike, subject only to the restrictions of law surrounding
their operation.
R e se r v e B a n k S er vic es
Specifically, the services which a Reserve B ank per
forms for the banks and through them for the people of
the country include the supply of credit to banks which
in turn enlarges their power to lend to their customers, the
collection of checks and notes through a nation-wide
organization, and the transfer of funds throughout the
country by telegraph without cost. Allied with these
services and that of furnishing an elastic currency are
m any others which result in the safer, more economical
and more rapid despatch of private business.
T h e conduct of these operations is in the hands of the
officers of the Reserve Banks, who are appointed b y the
boards of directors of the respective banks. T h e com
pensation of officers and employees is fixed b y the directors,
subject to the approval of the Federal Reserve Board.
T h e F ederal R
eserve
B oard
Th e Federal Reserve A c t gives to the Federal Reserve
Board at W ashington a power of “ general supervision”
over the Reserve Banks. I t does not give to the Federal
Reserve Board “ control” over the Reserve B anks; that
term is used in the A ct only to describe the duties of the
directors of a Reserve Bank. N or is the Federal Reserve
Board an operating body. T h e relations, however, be
tween the Reserve Banks and the Federal Reserve Board
are close. A s has been indicated above, three of the
directors of a Reserve Bank are appointed b y the Federal
Reserve Board. Thus, instead of the kind of supervision
exercised b y the Comptroller of the Currency over N ational
banks, which is largely critical and takes place after the
fact, the Federal Reserve Board through its representative s
on the boards of directors of the Reserve Banks has
a share in the development of policies before they bear
fruit in performance. T h e Federal Reserve Board, also,
has the right to suspend or remove any officer or director
of a Reserve Bank for cause; it has the right to review
and determine rates of discount established b y the directors
of a Reserve B an k ; it may require one Reserve Bank to
lend to another Reserve B an k; it has the power of examina
tion of Reserve Banks and to it must be reported in detail
their operations. B ut the Reserve Board has no power
to require a Reserve Bank to make or not to make loans
to any particular member bank; the actual lending is left
to the Reserve Banks themselves.
T w e l v e R eserve B an k s
W hen the Federal Reserve A c t was passed one of the
purposes of Congress was to establish a system which
within the restrictions of the law should meet the needs
both of the various sections of the country and of the
country as a whole. Consequently, the framework of
the system provides for twelve separate institutions, each
controlled b y its local board of directors, particularly
qualified b y local knowledge to serve a district’s local
needs, but all joined together through the Federal Reserve
Board for the flow of credit, from one district to another,
and for such purposes as require unity of policy and
practice.
@FedFRASER