Full text of Federal Reserve Bulletin : April 1917

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FEDERAL RESERVE
BULLETIN




ISSUED BY THE

FEDERAL RESERVE BOARD
AT WASHINGTON

APRIL, 1917

WASHINGTON
GOVERNMENT FEINTING OFFICE
1917

FEDERAL RESERVE BOARD.
EX OFFICIO MEMBERS.

Secretary of the Treasury,
Chairman.
JOHN SKELTON WILLIAMS,




'

W. P. G. HARDING, Governor.
P A U L M

WILLIAM G. MGADOO,

Comptroller of the Currency.

*W A R B U R G >

Vice

Governor.

FEEDERIC A DELANO.
ADOLPH 0 MILLER.
CHAELES S

_ „

'

HAMLIN

^T

'
o

H. PARKER WILLIS, Secretary.

SHERMAN ALLEN, ^ssisfan^ Secretary and Fiscal
Agent.
M. C. ELLIOTT, Counsel.




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

TABLE OF CONTENTS.
Page.

Review of the month
Investments in foreign loans
Treasury certificates of indebtedness
Purchase of United States bonds
"Hevision of discount-rate schedule
Shipment of unfit Federal Reserve notes
Conference on trade acceptances
The revenue act
Argument of counsel before Supreme Court in fiduciary case
New national-bank charters
Fiduciary powers granted
Commercial failures during February
Operation of the clearing system
Gold settlement fund
Uniform accounting by hank borrowers
Informal rulings of the Federal Reserve Board
Law department
Business conditions throughout the Federal Reserve districts
Discount operations of the Federal Reserve Banks
Acceptances
Resources and liabilities of the Federal Reserve Banks
Federal Reserve note accounts of Federal Reserve Banks and agents
Earnings on investments of Federal Reserve Banks
Discount rates in efleet
Gold imports and exports
Foreign exchange rates
Gold reserves and note circulation of principal European banks
Charts showing




IV

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235
239
240
240
241
242
243
248
254
266
267
267
268
268
270
285
289
293
316
319
322
324
326
327
327
328
329
332

FEDERAL RESERVE BULLETIN
APRIL 1, 1917.

VOL. 3
REVIEW OF THE MONTH.

Congress adjourned on March 4 without havinp taken any action on the

Proposed legislation

amendmonta

"t o

the
i

i

Federal
i

T

Kcserve Act which had boon
recommended by the Board and had been approved with modifications and reported by the
Committees on Banking and Currency of the
two Houses. In neither House was there debate on the subject matter of the amendments.
The failure to bring them to a vote was due to
the congestion of business and the differing
views of opposing groups as to the measures
which should be given precedence during the
last days of the short session. The President
has, however, summoned the new session of
Congress to meet on April 2, and it has been
agreed to make a fresh recommendation at
that time in the expectation that Congress will
resume consideration of the subject and take
action with respect to the proposed legislation.
The desirability of placing the member banks
as soon as possible upon their final reserve
basis has become increasingly evident, while
the urgency of the need for the changes
in the act has become more and more obvious, due to the further development of international difficulties and the expectation that
domestic financial and banking problems growing out of them will necessarily have to be provided for. Other considerations due to the
necessities which would in any event have
manifested themselves have likewise become
more and more urgent. Particularly is this
true of the collection situation. Experience is
making it plainer from day to day that the extension of the system upon equitable terms so
as to include more of the State banks and trust




No. 4

companies of the country will be facilitated hv
the adoption of the proposed legislation authorizing such State institutions to maintain balances with Federal Reserve Banks. It is confidently expected that discussion and action
upon the amendments proposed by the Board
will take place at an early date in the new
session of Congress.
It has been thought wise to bring about a
general revision and standardof disacountlrates! i z a t i o n o f discount rates in
view of the increase in the number and complexity of the rates previously
established, and accordingly the matter has
been taken up with the various Federal Reserve Banks, and a new schedule developed.
This schedule is as follows:
1. Paper maturing within 15 days, including
collateral notes.
2. Paper maturing within 16 to 60 days.
3. Paper maturing within 61 to 90 days.
4. Trade acceptances maturing within 60
days.
5. Trade acceptances maturing within 90
days.
6. Bankers' acceptances maturing within 90
days.
7. Commodity paper maturing within 90
days.
8. Agricultural paper maturing within 90 to
180 days.
It will be observed that whereas, under conditions existing on March 1, there were thirteen
classifications of paper of various kinds and
maturities, the number is now reduced to eight.
Minor changes have been made in the periods
for which paper runs, but no general or farreaching alterations of policy have been intro235

236

FEDEKAL RESERVE BULLETIN.

duced. The rates applied to paper at the various banks are substantially the same as those
previously charged for paper of the same varieties and maturities. Only in the case of bankers7 acceptances has there been a change, the
"spread" within which bankers' acceptances
may be taken having been changed from 2-4
per cent to 2-J-4 per cent. This, however, is
not an increase in effect, inasmuch as the provailing rate for bankers' acceptances is now
about 3 per cent. Practically all of the Federal
Reserve Banks have either adopted or will
shortly adopt the new schedule of rates, and
the result will be a much more complete and
thorough standardization than has existed in
the past. The rates themselves are likewise
tending more strongly toward a uniform basis.
On March 8 the Federal Reserve Board gave
to the press for publication on
Foreign loans fae following morning a stateas bank invest-* ,
.
-, •
ments.
ment, elsewhere reprinted in
this issue, further explaining
the position it had assumed with reference to
the purchase of foreign securities in this country. The statement was intended as an amplification and explanation of the statement
issued on November 28, 1916, under the head of
"Bank investments in foreign securities.77 In
the latter statement it was pointed out that
proposed issues of so-called short term notes
were not suitable as permanent investments
for banks, and could not be regarded in any
true sense of the term as short-term paper,
while the Board further noted that investors
should take pains to assure themselves of the
soundness of foreign issues that might be
offered to them. In the statement of March 9
the Board again reaffirms its original position,
but points out that misunderstanding has
apparently arisen with reference to the whole
subject, the statement having been interpreted
in some quarters as a caution against the taking
of any foreign securities either by the banks or
investors. The Board wished to make it clear
that it did not seek to create an unfavorable
attitude on the part of American investors
toward desirable foreign securities, and to




APRIL 1, 1917.

emphasize the point that American funds
available for investment may, with advantage
to the country's foreign trade and the domestic
economic situation, be employed in the purchase of such securities.
Clearing-house reports received during March
from principal eastern centers,
Changes in re- on the whole indicate a slight
serves.
improvement in the reserve situation of the larger banks.
Tims the reserve percentage of the 60 banks
forming the New York Clearing House Association, as gauged by the ratio of their total
reserves to their net demand deposits, from
22.9 per cent on February 17 and 24, went up to
23.7 per cent on March 17. It is notable that
the decline from 23 per cent on March 3 to
22.3 per cent on March 10 followed a week during which the outward gold movement was in
excess of the inward movement. The reserve
percentage of the trust companies in Greater
New York, as computed by the State Banking
Department, between February 17 and March
17, shows the following changes: February 17,
25.3 per cent; February 24 and March 3, 26.1
per cent; March 10, 27.2 per cent, and March
17, 27.6 per cent. On the other hand, the
reserve ratio for the State banks in Greater
New York, whose resources represent, however,
but a small proportion of the city's combined
banking resources, shows a decline during the
same period from 29.3 to 29.1 per cent.
Average excess reserves of the 41 national
banks and trust companies forming the Philadelphia Clearing House Association show a decline from $29,910,000 for the week ending
February 17 to $29,572,000 for the week ending March 17. Similar figures for the 10 national banks and the Old Colony Trust Co.,
constituting the Boston Clearing House Association, indicate a movement of excess reserves
more in harmony with the movement shown
for the New York Clearing House banks, the
published figures indicating an increase in excess reserves from $26,110,000 to $35,787,000
for the week ending February 24, and to
$37,079,000 for the week ending March 3, a

APRIL 1,1917.

FEDERAL RESERVE BULLETIN".

237

decline to $36,524,000 for the week ending
March 10, and a rise to $40,293,000 for the
week ending March 17.
The past month has seen a resumption of
offerings of foreign securities in
Security issues the United States; some progold. i m P ° r t S ° f tected by collateral, others not.
Prominent among the issues
which have been placed on this market during
March are the following:

Investment operations of the Federal Reserve Banks during March, as
indicated h
J t h e several classes
of earning assets held on March
2 and 23, were on a smaller
scale than during the immediately preceding
month. Liquidation (on a considerable scale)
of acceptances and of discounts account largely
for the decrease in total earning assets held by
the banks on March 23, as compared with like
Central Argentine Railway gold notes
$15,000,000 holdings on March 2.
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
Government
2,400,000 2 and 23, 1917:

Moreover, $100,000,000 of two-year 5i per
Mar. 2.
M a r . 23.
Bank.
Decrease.
cent convertible notes of the French Government are offered. These notes, dated April, Boston
$1,790,000
814,271,000 §512,481,000
9,276,000
31,564,000 22,288,000
1917, are secured by State, municipal, and New York
Philadelphia
2,609,000
14,482,000 11,873,000
8,782,000
2,331,000
Cleveland
11,113,000
corporate securities, issued in American and Richmond
10,701,000 10,786,000
185,000
5,689,000
5,546,000
Atlanta
U43,000
neutral countries.
11,334,000 li;011,000
Chicago
323,000
5,353,000
8.253,000
St. Louis
2,900,000
The large gold imports for the four-week Minneapolis
6.263,000
8; 955,000
2,692,000
2,815,000
4.974,000
2,159,000
Kansas
period ending March 16 came chiefly from Dallas City
3.169.000
3,381.000
212,000
5,761,000
8,324; 000
2,563,000
San Francisco
Canada and to a smaller extent via the Far
132,898,000 106,271,000
26,627,000
East. Gold imports were particularly heavy Total Total bills warrants
1,037,000
16,798,000 15.761,000
municipal
Total United States bonds and
for the weeks ending February 23 and March 16. Treasury notes
48,118,000 48,093,000
25,000
The country's stock of gold has increased by
Total investments on
hand
27,689,000
197,814,000 170,125,000
$114,774,000 between February 17 and March
16, 1917, the total gold imports for the four
i Increase.
weeks under discussion amounting to $135,The distribution of notes to subtreasuries and
574,000 and the total gold exports to $20,mints announced in the last
800,000. The net addition to the country's
issue of the Bulletin has been
stock of gold through net imports since August protecting note
successfully carried through,
1, 1914, is shown in the following exhibit:
issues.
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.
Imports.
Reserve notes—one the elimination of delay in
over
exports.
present methods of distribution at every point
$23,253
8104,972
a 881,719 where such delay could be avoided, the other
Aug. 1 to Dec. 31,1914
451,955
31,426
420,529
Jan. 1 to Dec. 31,1915
685,745
155,793
529,952 the careful safeguarding of the notes and the
Jan. 1 to Dec. 31,1916
50,857
197,184
248,041
Jan. 1 to Mar. 16,1917
protection of the conditions under which they
1,065,946 were released.
1,408,994
343,048
Total
When notes are issued only
occasionally and in limited amounts, and when
Excess of exports over imports.




238

PEDEBAL BESEBVE BULLETIN.

such issues are made by direct shipments from
Washington to designated persons under all of
the usual safeguards concerning the transmission of registered mail accompanied by insurance, practically every known requirement of
protection has been complied with. In sundry
cases, however, where under present conditions
a quick release of notes by telegraph from a
subtreasury is called for, there is possibility of
error. In order to guard against any sucfi
event new regulations, framed with a view to
the new conditions made, have been adopted
by the Board, the purpose being that already
explained. It is believed that what has thus
far been done in this direction has resulted in
maintaining the protection of the notes under
practically all conceivable conditions while at
the same time greatly expediting the process
of rendering the notes available when needed.
During the past month the question of using
the gold settlement fund as a
Use of gold set- means of making transfers for
tlement fund.
the benefit of individual banks
—that is to say, transfers originating with one member bank in the interest of
another member bank at a distance, has been
presented to the Board, but it has been decided
that for the present at least no such extension
shall be given to the fund. As things now
stand, the gold settlement fund is carefully protected, and it would seem that no possible loss
could be incurred under the plan of operation
in effect to-day. The suggested use of the
fund would be extremely serviceable in many
cases, but would involve the application of new
safeguards and the alteration of conditions
concerning its. management. From time to
time it has been suggested that the gold
settlement plan be extended by the establishment of an additional fund including all forms
of lawful money, but thus far nothing has been
done to bring such a modification into use,
due to a variety of considerations. It would
seem that the extension of the use of the fund
to cover transfers between banks in the w^a}'
already suggested should, if decided upon at
all, be simultaneous with the establishment of




APRIL 1,

1917.

the additional fund already spoken of. Preliminary to either of these changes it is believed
that there might well be an increase in the frequency of the settlement, possibly placing it
upon a daily instead of a weekly basis. The
general desire to extend the applicability of
the gold settlement fund and the great increase in the amount of the weekly clearings
and in the total of the fund itself testify
strongly to the success of the plan.
In accordance with the provisions of the
Federal Reserve Act, the reguco^/erston " S l a r quarterly allotment of bonds
bonds.
for conversion and purchase has
been made as of April 1, and in
consequence $10,877,500 of 2 per cent bonds
have been allotted to Federal reserve banks for
purchase by them under the terms of the law.
Only in one case—that of the Federal Reserve
Bank of San Francisco—did it appear that the
bank had purchased up to, or in excess of, its
proportion of $25,000,000—the theoretical
aggregate for the year—and only in that case,
therefore, was it necessary to relievo the reserve
bank of the obligation to purchase a pro rata
share of the bond offerings of member banks.
The total offerings, as above stated, were consequently apportioned on the basis of eleven
banks, each institution being assigned its pro
rata on that footing, the result being a distribution detailed elsewhere in this issue of the
Federal Reserve Bulletin. In making actual
assignments of specific lots of bonds, it was,
of course, necessary to designate specific bond
offerings to be taken over by specified reserve banks, and this was done, the designation being, however, so far as possible,
made from the offerings presented by member
banks in the district of the reserve bank to
which such bonds were allotted. Minor variations from the theoretical allotment of bonds
based on capital consequently occurred in the
case of most of the banks, they being asked to
take over slightly more than their actual allot
ment, or to accept slightly less, as the case
might be, in order to bring about an even
adjustment between offerings and assignments.

FEDERAL RESERVE BULLETIN.

APRIL 1,1917.

As the total of open market purchases of bonds
since the beginning of the year reported by the
several banks up to the close of business on
March 21, was $3,140,850, and as the total
offerings of member banks now allotted have
been $10,877,500, as already stated, the aggregate amount of bonds absorbed by the reserve
banks up to March 21 is shown to have been
$14,017,850, the difference between this figure
and $25,000,000 remaining for purchase or
allotment during the remainder of the year.
The Philippine National Bank has been
designated by the Federal ReThe Philippine

-n

bank.

I

* a

T?

serve Bank ot San Francisco
as its agent and correspondent
for the Philippine Islands, and similar action
is expected to be announced shortly by one or
more other Federal Reserve Banks. The basis
of the actual arrangement between the Federal
Reserve Bank of San Francisco and the Philippine National Bank includes the maintenance
of reciprocal accounts, the collection of drafts
and claims, and when desired, the purchase of
bills by either institution for the other or by
either from the other for its own account if
conditions favor and such business is mutually
deemed desirable. While the Philippine Islands are under the control of the United
States, they are to all intents and purposes
foreign territory, and the Philippine National
Bank is, therefore, designated as agent under
the provisions of section 14, relating to agencies in foreign countries. Business with the
Philippines, however, has this advantage over
other foreign business, that it eliminates all
danger of exchange fluctuations, the currency
of the islands being maintained on a gold basis
at a rate of two for one, the Government undertaking to sustain this parity between local
currency and American money.
Relations between the Philippine National
Bank and the Federal Reserve System are
those which adjust themselves readily and
directly to one of the essential functions of the
Federal Reserve System, that of facilitating
the growth of foreign trade. The Philippine
National Bank is vested with large powers by
the terms of its charter, being authorized to




87199—17

2

239

issue notes, make ordinary commercial loans,
buy paper, establish foreign branches, deal in
foreign exchange, and in general transact all
classes of legitimate banking business. It is
besides a designated depositary and fiscal agent
both of the insular government and of provincial and municipal governments in the
Philippine Islands,

Investments in Foreign Loans.
The following statement for the press was
issued by the Federal Reserve Board on
March 8:
From statements which have been published from time to time, both in the American
and foreign press, there appears to be a misunderstanding of the attitude of the Federal
Reserve Board with respect to investments in
foreign loans in the United States. On more
than one occasion the Board has endeavored
to remove this misunderstanding. So far from
objecting to the placing of foreign loans in the
American market, it regards them as a very
important, natural, and proper means of settling the balances created in our favor hv our
large export trade. There are times when such
loans should be encouraged as an essential
means of maintaining and protecting our foreign trade.
The Board has already stated that its announcement of November 28, 1916, did not
deal with the finances or the credit of any particular country, but only with banking principles which it seemed desirable to emphasize
under the conditions existing at that time.
The objection then made by the Board was to
the undue employment by our banks of their
funds in the purchase of foreign loans and not
to the merits of foreign loans as investments.
The Board was then, and is now, of the opinion
that the liquid condition of our banks should
not be impaired through undue or unwise use
of their resources for investment operations.
The position of the Board with respect to this
principle has not changed. It still takes the
view that foreign borrowings should appeal

240

FEDERAL EESERVE BULLETIN.

primarily to the investor and not involve the
use of banking resources beyond the limits of
sound practice. In view, however, of existing
conditions, especially as they affect our foreign
trade, the Board deems it desirable and in the
public interest to remove any misconception
that may be left in the minds of those who read
the statement issued on the 28th of November,
1916. Since that date the country's gold reserve has been further materially strengthened
and supplies a broad basis for additional credit.
The Board considers that banks may perform a
useful service in facilitating the distribution of
investments, and in carrying out this process
they may, with advantage, invest a reasonable
amount of their resources in foreign securities.
So long as this does not lead to an excessive
tying up of funds and does not interfere with
the liquid condition of the banks, there can not
be an}^ objection to this course.
The Board did not, of course, undertake to
give advice concerning any particular loan.
It desires, however, to make clear that it did
not seek to create an unfavorable attitude on
the part of American investors toward desirable
foreign securities, and to emphasize the point
that American funds available for investment
may, with advantage to the country's foreign
trade and the domestic economic situation, be
employed in the purchase of such securities.
Issue of Certificates.

In a statement to the press on March 28
the Secretary of the Treasury said:
In anticipation of the payment of the corporation and individual income taxes due in
June, 1917, I have determined to borrow at
this time on 90-day Treasury certificates of
indebtedness $50,000,000, with interest at 2
per cent per annum. Tnese certificates were
offered on the 27th of March to the 12 Federal
Reserve Banks, which are fiscal agents of the
Government. Before 3 o'clock to-day these
banks subscribed for more than the entire
issue.
This is extremely gratifying, and shows not
only a fine spirit on the part of the Reserve
Banks but is an additional demonstration of
the usefulness of the new Reserve System to




APRIL I,

1917.

the country. A statement of the allotments
to the subscribing banks will be given oufc as
soon as the details are completed.
It is possible that an additional issue of
$50,000,000 of these temporary certificates of
indebtedness may be issued before the end of
the present fiscal year. No statement can be
made about possible issues of Government
bonds until further developments in the
international situation.
The allotment was as follows:
Boston, $3,000,000; New York, $20,000,000; Philadelphia, $3,500,000; Cleveland, $3,500,000; Richmond,
$2,000,000; Atlanta, $1,500,000; Chicago, $5,000,000;
St. Louis, $2,500,000; Minneapolis, $2,000,000; Kansas
City, $2,500,000; Dallas, $2,000,000; San Francisco,
$2,500,000.

Purchase of Bonds from Member Banks.

On January 8 the Federal Reserve Board
sent out to member banks a letter, as follows:
The Federal Reserve Board has to-day determined, in the exercise of the discretion vested
in it under the provisions of section 18 of the
Federal Reserve Act, that it will not require
Federal Reserve Banks to purchase during the
year 1917 more than $15,000,000 of United
States bonds offered for sale by member banks
through the Treasurer of the United States.
It will require Federal Reserve Banks to purchase on April 1, 1917, the full amount of this
$15,000,000, or so much thereof as may be
offered for sale on or before March 21.
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
year, less the amount of bonds bearing the circulation privilege acquired in the open market
during that year. If, therefore, Federal Reserve Banks are desirous of giving member
banks an opportunity to sell the full amount of
$15,000,000 under the provisions of section 18,
they should refrain from investing in the open
market during the first quarter anything in
excess of the difference between $15,000^000
and $25,000,000.
Please bring this to the attention of your
executive committee.
Pursuant to the plan outlined in this letter,
the receipt of applications from member banks
for the sale of bonds was closed on March. 21,
and the Treasury Department at that time notified the Board of the aggregate amount of
such allotments received. This aggregate was

FEDEEAL RESERVE BULLETIN.

APRIL 1,1917.

241

$10,877,500. The Board then, as previously
announced, proceeded to the allotment of the
offerings upon the basis of the relative capitalization of the several reserve banks. Each
bank was requested to state the total amount
of its open-market purchases of bonds, which
turned out to be as follows:

Minor variations from these figures were
necessary in order to distribute the offerings
of bonds without breaking up denominations,
and the several banks were at once advised of
these minor variations above or below their
allotments. In general terms, however, no
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 accordance and accrued interest and for $1,732,000 of onewith telegrams from each Federal Reserve Bank.
year 3 per cent notes of certificates of inBoston
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,J
Atlanta
170,000
616',090.15.
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

70, 700
475,000
1, 795,000

Total

2: 665, 350

As it appeared that the Federal Reserve
Bank of San Francisco had purchased in the
open market an amount of bonds which represented slightly more than its proportionate
share of the total of $25,000,000 required to be
taken over during the year, it was omitted
from the allotment of bonds which had been
offered by member banks, and the proposed
allotment was computed upon the basis of 11
banks according to capitalization. The allotment was made as follows:
Amounts and percentages of paid-in capital of all Federal
Reserve Banks except San Francisco2; also proportions of
total offerings of 810,877,500 allottable to each of the 11
banks.
Bank.

Boston
New York
Philadelphia.
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis..
Kansas City - Dallas
Total
!

Amount
Paid-ir.
! Per cent of
allottable
•. capital, Mar.: ;otal paid-in
t
to each
Federal lie! 16, 1917.
j capital.
serve Bank.
I
$5, 068,000
11,880,000
5,260,000
lh089,000
3,405,000
2,418,000
999,000
795,000
413,000
089,000
3,698,000

9. 7248 i
22.7962 :
10.0933 |
11.6840
6.5338
4.6398 !
13.4302 i
5.3632 i
4.6302
5.9274
5.1771

SI, 057,800
2,479,700
1,097,900
1,270,900
710,700
504,700
1,460,900
583,400
503,600
644,800
563,100

52,114,000

100.0000 !

10,877,500

I;

2,

Purchases of bonds Avith circulation privilege by the Atlanta bank
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
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.




Revision of Discount Rate Schedules.

For some time past it has been noted that
the discount rate classifications of the Board
were growing in number and complexity and
the matter was recently placed in the hands of
a committee of the Federal Reserve Board for
investigation. The committee, after reviewing
the discount rates in effect at Federal Reserve
Banks, found that there was a considerable
lack of uniformity among them, while in some
cases the policy followed by one bank was
slightly opposed to that of others. A summary
of the situation showed that there were in
effect 13 different discount rates, as follows:
1.
2.
3.
4.
5-.
6.
7.
8.
9.
10.
11.
12.
13.

Collateral notes, 1 to 15 days.
Paper maturing within 10 days.
Paper maturing within 15 days.
Paper maturing between 11 and 30 days.
Paper maturing between 16 and 30 days,
Paper maturing between 31 and 60 days.
Paper maturing between 61 and 90 days.
Agricultural paper within 90 days.
Trade acceptances between 1 and 30 days.
Trade acceptances between 31 and 60 days.
Trade acceptances between 61 and 90 days.
Commodity paper within 90 days.
Bankers' acceptances.

The committee consequently recommended
that an attempt be made to simplify these
rates by suggesting to the various banks the
adoption in lieu thereof of eight standard
quotations, as follows:
1. Paper maturing within 15 days, including collateral
notes.

242
2.
3.
4.
5.
6.
7.
8.

FEDERAL RESERVE BULLETIN.

Paper maturing within 16 to 60 days.
Paper maturing within 61 to 90 days.
Trade acceptances maturing within 60 days.
Trade acceptances maturing within 90 days.
Bankers' acceptances maturing within 90 days.
Commodity paper maturing within 90 days.
Agricultural paper maturing within 90 to 180 days.

APRIL 1,1917

ton, Assistant Secretary of the Treasury, reading as follows:
"Referring to the recommendation of the
Federal Reserve Board to the effect that the
transportation charges on all Federal Reserve
notes, whether fit or unfit, sent to the Treasurer 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
Board's suggestion, and in some cases immedi- practice to has directed a change in department
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 reOn 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/'
change, for convenience of the Treasurer
advising them of the approval of the schedule |! Theorder to permit the proper adjustment of
in
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
named by Mr. Newton
cated may accordingly be regarded as practically I plan becomes effective. upon which the new
in force throughout the system. Little or no
Section IX of Department Circular No, 55-A
change in rates of importance was made at
j referred to by Assistant Secretary Newton,
any of the banks except the uniform action in
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 WASHINGTON.
increase only, inasmuch as the actual rate for ;
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, Federal I tion of gold coin, standard silver dollars, subReserve 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
Reserve notes, and Federal Reserve bank notes the amounts are large, orders should be for
original packages of 4,000
when shipped in "collect." A change in this same denomination; that is,notes each of the
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.
24. The Government has no contract for
veyed to Federal Reserve Banks under date of
carrying money or other securities, and shipMarch 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.




APRIL 1,

1917.

FEDERAL BESEBVE BULLETIN.

24S

j
testimony of those who are using it being
Conference on Trade Acceptances.
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
from a variety of angles. Extracts from the can not be bettered. There is a traditional
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 j necessity is upon them.
Federal Reserve Bank of New York, said in j "A recent canvass of the extent to which the
part:
' ! terms of payment are observed by manufacturers and jobbers in one line resulted in show" I t 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




244

FEDEKAL RESERVE BULLETIN,

'general financing and sales problem' and 'is
of interest to the banks only so far as they are
striving to better serve their commercial depositors/ Acknowledging that those first concerned are sellers and buyers of goods, it is,
nevertheless, a problem which vitally and fundamentally affects the business of banking,
and the writer above quoted proceeds to enumerate several important benefits to banking
that the general use of trade acceptances will
accomplish.
"Three of the most vital factors in the successful conduct of the business of banking are:
(1) Assurance of an elastic and responsive currency; (2) proper separation of investment and
commercial credit; (3) safety in making loans.
All three of these are favorably influenced
through the introduction and establishment of
settlements by trade acceptances, as compared with the open account system.
"(1) Elastic and responsive currency.—Federal Reserve notes and coin certificates eventually will be our only forms of currency. If
the amount of Federal Reserve notes be increased and diminished only by the supply of
instruments representing actual sales, it would
truly be responding to the real needs of commerce and industry with all fictitious elements
eliminated. Trade acceptances, superseding
single-name direct notes of borrowers, and
constituting the one class of paper to be hypothecated by Federal Reserve Banks with
their agents for the issue of Federal Reserve
notes, will mean that the amount of Federal
Reserve notes outstanding will depend on the
demands created by the business being done
in the country. This seems so obvious that
further explanation and enlargement appear
unnecessary.
" (2) Separation of investment and commercial
credit.—A noticeable weakness in the plan of
making advances to commercial customers on
their direct unsecured single-name notes is the
tendency to confuse fixed needs with current
requirements. A 60-day, 90-day, or fotir
months7 note, while ostensibly a liquid note to
be paid at maturity, may be dependent for
payment on the ability of the maker to obtain a
renewal, at least in part, through placing his
paper in other quarters. The necessity for
renewal is usually due to the fact that part of
the permanent financing is being carried in
short-time obligations. Persistent carrying of
fixed requirements in debts of short maturities
is always fatal. Bankers know how such a
course terminates, and use every means at
their command to discover when a customer is




APSIL 1, 1017.

getting into this danger zone. No method of
analyzing credit now available is so conclusive
as to the commercial character of any desired
loan as the evidence presented by a trade
acceptance. Every element of doubt except
the possibility of actual fraud is removed; and
a fraudulent trade acceptance is so dangerous
that the possibility is remote. Surely this is
worthwhile.
"There are two weak links in the creditchain set up by present banking methods:
"When a bank's customer borrows for a
stated time $5,000 to buy certain goods, the
bank must depend on the good faith of the
borrower to use the money borrowed for the
purpose stated. (Weakness No. 1.)
"Frequently the goods are received, sold,
and payment obtained before the note is matured. The proceeds remain in the hands of
the borrower for a time, therefore, with the
temptation to make another investment without the knowledge or consent of the lending
bank. (Weakness No. 2.)
"With universal giving and getting acceptances both these weaknesses will be eliminated, and when the buyer pays for his goods
all parties to the transaction are released and
paid at the same time, including the very much
interested banker who advanced the funds.
" (3) Increased safety in credits.—It was very
illuminating to me as a banker when I learned
how mercantile credit men rate the different
classes of credit information. The order of
their importance and value, I am informed, is
as follows: (1) Ledger information (preferably
through interchange bureaus); (2) property or
financial statement; (3) trade opinions; (4)
mercantile or attorneys7 reports; (5) bank replies. The banker should be flattered to find
that he ranks first, in the reverse order.
"Bank credit men rate their sources of information, I am told, as follows: (1) Property
or financial statement; 02) ledger information;
(3) bank replies; (4) trade opinions; (5) mercantile or attorneys' reports.
"One feature asserts itself in these lists.
Ledger information is the most important data
obtainable in order to determine intelligently
the value of a credit risk. Bankers usually have
to depend on second-hand sources in getting
ledger information. It is true that a bank is
enabled to obtain a fairly reliable line on a
customer's methods and financial habits by
experience and observation in handling his
business, and, if the borrower be not an active
customer of that particular bank, the information can. be obtained by inquiry. However,

R:I 1,1917.

FEDERAL RESERVE BULLETIN".

the items on his financial statement of 'Accounts receivable7 and 'Accounts payable'
are not very capable of scrutiny and continuous
observation by the banker. The ledger information a bank has on its customer is:
'Does he keep a satisfactory balance?'
1
Does he overcheck ?' c Does fi he meet his
notes promptly?7 The very important questions of whether the people to whom this
customer sells pay him promptly, and whether
he pays his own bills when due to the parties
from whom he buys, are not covered in a
bank's everyday ledger dealings with a depositor or borrower.
"The issuing and obtaining of trade acceptances do give the banker this line on its customers. The acceptances he issues instead of
accounts payable will be collected through the
bank, and the acceptances he carries instead
of accounts receivable will be deposited for
collection or discounted at the bank. Thus the
bank will know how promptly he pays and the
character of the houses he patronizes, and also
will know the class of customers who purchase
his goods and their methods of payment.
Trade acceptances automatically furnish that
highest class of credit data—namely, accurate
ledger information, enabling bankers to estimate more intelligently the responsibility of
of their borrowers.
"A fourth advantage which I have carefully
avoided mentioning, for reasons which need
not be elaborated, is, nevertheless, one that
should appeal to every ambitious banker as
well as to the ambitious business man.
" I t is indisputably true that Great Britain
does a vastly greater volume of business in
proportion to its fixed capital investment, and
with unquestioned safety, than does the United
States, and the principal reason is that English
business is transacted on the acceptance principle. It is therefore certain that we can vastly
increase our volume of business without proportionate increase in capital investment when
the regular method of payment for all goods
becomes the trade acceptance instead of cash
or open account.
Mr; Beverly D. Harris, vice president of the
National City Bank of New York, said in part:
"We have for long years operated under a
system in which the cash discount has been a
basic principle, and under business standards
growing out of this fundamental fact. It is
desirable as a basis of sound trade and credit
conditions that cash payments should be en-




245

couraged in the case of those who are in a position to pay cash for their purchases. Evidently
until very radical and universal changes are
effected in the matter of selling terms, cash
discounts and the long established customs and
ethics, as well as the practical machinery of
doing business, the financing of a very large
proportion of the commercial business of tne
country will continue to be done, as at present,
through the medium of single name paper.
There are unassailable elements of merit in a
properly adjusted system of cash discounts,
and in my opinion it would be unwise for the
present to make any effort to supplant single
name paper with trade acceptances, in the case
of those who borrow in this way for the purpose
of discounting their bills.
" Even if it were desirable—which I am very
much inclined to question—it is safe to say
there is no immediate prospect that single
name paper could be universally supplanted by
double name paper. It is obvious the merchant who can go to his bank and discount his
plain paper at rates ranging all the way, say,
from 3 to 6 per cent, as the case may be, will
continue to do so, when he can use the proceeds
to discount his bills and take advantage of a
cash discount out of all proportion to current
interest rates. Under the present sales system there is an abnormal and unwarranted
difference between the cash discount allowed
in trade and current interest rates for money.
This is an exorbitant, inconsistent, and unnecessary tax which merchants are offering to
pay to avoid tying up working capital in open
book accounts, and as it stands, is not so much
an element of strength as an admission of weakness in existing collecting methods, which the
general adoption of trade acceptances ought
to gradually correct. This constitutes one of
the principal sources of profit to firms who are
in a position to discount their bills, and strong
opposition may naturally be expected to changing it. It goes without saying that the selling
price on goods must be correspondingly increased to bear this burden, as well as the loss
and expense of doing business under a system
of this kind. The accumulated burden falls on
the ultimate consumer in the end, and is one
of the factors in the high cost of living in this
country. The attitude of the trade on this
matter, however, will probably be found to be
averse to any immediate radical changes in
methods, and my feeling is that the readjustment of the cash discount system can only
be accomplished, or partially accomplished,

246

FEDEBAL RESERVE BULLETIN.

through the process of time and a gradual readjustment in sales terms, possible only through
general cooperation.
"My feeling and conviction, after looking at
it from all angles, is, that for the present no
particular occasion exists to seek to change the
practices of those who discount their bills, in
putting out single-name paper. It is a question for the future to determine as to whether
it may at some time appear expedient and
desirable, in connection with the workings of
our Federal Reserve System, in the development of broad domestic and international
markets for commercial paper, to gradually
bring about, partially or wholly, the substitution of trade acceptances, in the operations of
firms of this character. Should this be accomplished it will come through a developed comprehension of the matter, not as of any individual necessity, but in the furtherance, completion, and rounding out, as a measure of
broad public policy, of a new system which
has been tried out successfully in its initial
stages, and which has established beyond peradventure that the trade acceptance system,
as a uniform system for the country at large to
operate under, would afford better safeguards,
more liquid and convertible assets, a more
sound, stable, and scientific basis for our credit
and currency system, less loose credit, less opportunity for inflated and falsified statements,
better collections, less losses, greater economy
of operation, and less capital to do a given
amount of business, and a far greater potentiality and stability in the general credit situation.
"The primary problem to which our efforts
should first be directed is that of putting the
country's mass of book credits into liquid and
negotiable form through the adoption of trade
acceptances in transactions with buyers who
do not discount their bills. An acceptance
verifies the account, puts unrnatured credit
into negotiable form, and is a strong lever on
the debtor to meet obligations promptly, for
the protection of his signature and his credit,
with many other advantages, too numerous to
mention, but which have been within the last
year convincingly presented through the efforts
of your association.
"As I view it, our daily experience is demonstrating that we can use to advantage three
distinct types of credit instruments, each serving its appointed function, without usurping
the functions of the other, i. e., single-name




APRIL 1,

1917.

paper, bank acceptances, and trade acceptances.
"A bank acceptance—which is nothing more
than single-name paper indorsed by one bank
and discounted by another—is invaluable to
the Federal Reserve System as a means of
standardizing credit in international and open
market transactions, through which the country's foreign exchanges and domestic money
markets may be stabilized and regulated. It
is especially useful in foreign transactions and
in domestic transactions between distant
points, particularly in carrying the heavy burdens of the country's products—cotton, grain,
and other commodities—on a large scale.
The exigencies of war conditions have given
immediate impetus to this form of financing,
and its great value is evidenced in the published statements of the banks of this city,
and of open market transactions of the Federal
Reserve Banks, indicating a continually increasing volume of banker's acceptances, running
in the last year into hundreds of millions of
dollars. While of the highest value and usefulness, however, in serving its appointed function, the bank acceptance does not strengthen
the credit situation in the same way that it is
strengthened by the trade acceptance. That
is to say, except where secured by commodities,
the banks accepting the paper have no further
security for their own protection, in so doing,
than the credit of the drawer, to whom they
are in the same attitude as lending directly on
his single-name paper, so far as security is
concerned, the difference being that they guarantee his obligation in the open market instead
of lending him their own funds.
"The third class—trade acceptances—when
developed as they should be, will strengthen
the general underlying situation in making book
credits liquid and available, and creating a large
volume of self-liquidating paper, arising from
actual transactions in consumable merchandise,
available for discount with the Federal Reserve
Banks, and not previously available. This will
have not only the advantage of two-name paper, but the added advantage of representing
actual transactions in commodities. A trade
acceptance is an order to pay. A note is a
promise to pay either a debt or a loan, and its
self-liquidating character is not prima facie.
"In the face of the fact that trade acceptances in the New York market, the operations
of the Federal Reserve Banks, and the banks
and money markets of the country in general,

EEDEEAL EESERVE BULLETIN.

APRIL 1,1917.

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
some cases to obtain trade acceptances are
bills.
"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,
in connection with many other advantages
and meeting their obligations promptly.
" 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
" I t 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 i pired 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

248

FEDERAL EESERVE BULLETIN.

The Revenue Act.

APRIL 1.1917.

TITLE II.—EXCESS PROFITS TAX.

SEC. 200. That when used in this title—
In view of the interest which the so-called
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, toThe term "United States' 7 means only the
States, the Territories of Alaska and Hawaii,
gether with the House report on the bill:
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
such fiscal year. The first taxable year shall
Be it enacted by the Senate and House of Representatives 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,
August twenty-ninth, including corporations and partnerships of the
purposes, a;
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 reSEC. 202. That for the purpose of this title,
imbursed lor any portion thereof so used.
actual capital invested means (1) actual cash




APRIL

lf

1917.

FEDERAL EESEBVE BULLETIN.

paid in, (2) the actual cash value, at the time
of payment, of assets other than cash paid in,
and (3) paid in or earned surplus and undivided profits used or employed in the business;
but does not include money or other property
borrowed by the corporation or partnership.
SEC. 203. That the tax herein imposed upon
corporations and partnerships shall be computed upon the basis of the net income shown
hj their income tax returns under Title I of
the act entitled "An act to increase the revenue, and for other purposes," approved September eighth, nineteen hundred and sixteen,
or under this title, and shall be assessed and
collected at the same time and in the same
manner as the income tax due under Title I of
such act of September eighth, nineteen hundred
and sixteen: Provided, That for the purpose of
this title a partnership shall have the same
privilege with reference to fixing its fiscal year
as is accorded corporations under section thirteen (a) of Title I of such act of September
eighth, nineteen hundred and sixteen: And
provided further. That where a corporation or
partnership makes return prior to March first,
nineteen hundred and eighteen, covering its
own fiscal year and includes therein any income
received during the calendar year ending December thirty-first, nineteen hundred and sixteen, the tax herein imposed shall be that proportion of the tax based upon such full fiscal
year which the time from January first, nineteen hundred and seventeen, to the end of such
fiscal year bears to the full fiscal year.
SEC. 204. That corporations exempt from tax
under the provisions of section eleven of Title I
of the act approved September eighth, nineteen
hundred and sixteen, and partnerships carrying
on or doing the same business shall be exempt
from the provisions of this title, and the tax
imposed by this title shall not attach to incomes of partnerships derived from agriculture
or from personal services.
SEC. 205. That every corporation having a
net income of $5,000 or more for the taxable
year making a return under Title I of such act
of September eighth, nineteen hundred and
sixteen, shall for the purposes of this title include in such return a detailed statement of the
actual capital invested.
Every partnership having a net income of
$5,000 or more for the taxable year shall render
a, correct return of the income of the partnership for the taxable year, setting forth specifically the actual capital invested and the gross
income for such year and the deductions hereinafter allowed. Such returns shall be rendered




249

at the same time and in the same manner and
form as is prescribed for income-tax returns
under Title I of such act of September eighth,
nineteen hundred and sixteen. In computing
net income of a partnership for the purposes
of this title there shall be allowed like deductions as are allowed to individuals in sections
five (a) and six (a) of such act of September
eighth, nineteen hundred and sixteen.
SEC. 206. That all administrative, special,
and general provisions of law, including the
laws in relation to the assessment, remission,
collection, and refund of internal-revenue taxes
not heretofore specifically repealed and not
inconsistent with the provisions of this title are
hereby extended and made applicable to all the
provisions of this title and to the tax herein
imposed, and all provisions of Title I of such
act of September eighth, nineteen hundred and
sixteen, relating to returns and payment of the
tax therein imposed, including penalties, are
hereby made applicable to the tax required by
this title.
SEC. 207. That the Commissioner of Internal
Revenue, with the approval of the Secretary
of the Treasury, shall make all necessary regulations for carrying out the provisions of this
title, and may require any corporation or partnership subject to the provisions of this title to
furnish him with such facts, data, and information as in his judgment are necessary to
collect the tax provided for in this title.
TITLE III.—ESTATE TAX.

SEC. 300. That section two hundred and one,
Title II, of the act entitled "An act to increase
the revenue, and for other purposes," approved
September eighth, nineteen hundred and sixteen, be, and the same is hereby, amended to
read as follows:
"SEC. 201. That a tax (hereinafter in this
title referred to as the tax), equal to the following percentages of the value of the net estate,
to be determined as provided in section two
hundred and three, is hereby imposed upon the
transfer of the net estate of every decedent
dying after the passage of this act, whether a
resident or nonresident of the United States:
" One and one-half per centum of the amount
of such net estate not in excess of $50,000;
" Three per centum of the amount by which
such net estate exceeds $50,000 and does not
exceed $150,000;
" Four and one-half per centum of the amount
by which such net estate exceeds $150,000 and
does not exceed $250,000;

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 j exceeding 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;
j appropriated, out of any money in the Treasury
"Nine per centum of the amount by which j not 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;
j And 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 specified in this section any portion of the bonds of
and does not exceed $3,000,000;
"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
act entitled "An act to provide revenue, equalnot exceed $4,000,000;
"Thirteen and one-half per centum of the ize duties, and encourage the industries of the
amount by which such net estate exceeds j United States, and for other purposes," ap$4,000,000 and does not exceed $5,000,000; proved August fifth, nineteen hundred and
nine: And provided further, That the issue of
and
" Fifteen per centum of the amount by which bonds under authority of this act and any
Panama Canal bonds hereafter issued under
such net estate exceeds $5,000,000."
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
7
the passage of this act shall be computed at the I United States, and for other purposes/ 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:
"SEC. 32. That the Secretary of the Treasper centum per annum; and such bonds shall
be 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




Antir. 1. 11)17.

251

FEDERAL RESERVE BULLETIN.

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- j 30, 1917, and the similar estimates for the
fiscal year ending June 30, 1918, will show an
thorized by this act.77
increase in the appropriations for national
defense during these two years amounting to
RETURNS OF DIVIDENDS.
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 diviItem.
dends, whether made in cash or its equivalent
1916
1917
18181
or in stock, including the names and addresses
of stockholders and the number of shares Appropriation bill:
$101,974,195.87 $267,596,530.10 $298,630,011.28
owned by each, in such form and manner as Army
149,661,864.88 313,300,555.84 379,151,701.07
may be prescribed by the Commissioner of Navy..."
6,060,216.90
56,999,481.21
Fortifications
25,747,550.00
Sundry civilInternal Revenue, with 77 approval of the
the
053,600.00
5,214,395.00
6,435,700.00
Arsenals
570,924.99
8,841,890.23
Military posts..
1,727,859.99
Secretary of the Treasury.
Supplemental estimates for Army
Approved, March 3, 1917.
27,500,000.00
and Navy
Total

258,920,802.64

613,586,890.93 2 777,564,784.39

HOUSE REPORT.
1 Estimates.
2
Does not include any estimate for the Mexican situation.
[64th Congress, 2d Session. House of Representatives. Report No.
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
JUNE 30, 1918.
report, to accompany H. R. 20573.]
The Committee on Ways and Means, to
whom was referred the bill (H. R. 20573) to
provide increased revenue to defray the expenses of the increased appropriations for the
Army and Navy and the extensions of fortifications, and for other purposes, having had the
same under consideration, report it back to
the House without amendment and recommend
that the bill do pass.
NECESSITY FOR THIS LEGISLATION.

This legislation is made necessary because
of the urgent need of funds with which to meet
the extraordinarily large appropriations for the
military and naval establishments and fortifications.
Taking the appropriations for the fiscal year
ending June 30, 1916, carried in the Army,
Navy, and fortifications appropriation bills,
together with the appropriations for arsenals




The regular annual estimates and the supplemental estimates of appropriations for the
fiscal year ending June 30, 1918, amount to
$1,711,000,000. In this total is included
$60,748,000 for the sinking fund, which is
merely
a
bookkeeping
account,
and
$325,355,820 for the Postal Service, which
takes care of itself. In estimating the necessary revenue to meet appropriations it is
therefore proper to deduct both of these estimates. The amount for which it is necessary
to provide revenue after deducting the aforementioned estimates is therefore $1,324,896,180.
During the fiscal year ending June 30, 1918?
the Secretary of the Treasury estimates that
because of the expenditures to meet authorizations under existing law the total disbursements will be $1,368,445,910, or $43,549,730
greater than the estimated appropriations after
deducting the estimates for the sinking fund
and the Postal Service.

252

FEDERAL RESERVE BULLETIN.

AraiL 1,1917.

The following statement shows the estimated disbursements for the fiscal year ending
June 30, 1918, the estimated revenue to be collected under existing law, the estimated excess
of disbursements over receipts, and the amount
necessary to be raised by bond issues or new
revenue legislation:

to meet current expenditures of the Government, and it believes that we should pay as we
go. Your committee, however, believes that
it is proper to issue bonds to meet expenditures
for permanent improvements, in the nature of
permanent investments, such as the construction 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 exEstimated 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
situation, should also be financed by bond
Emergency revenues and reissues, as is always done by this and other
ceipts from muninations under similar circumstances,
tion
manufacturers ' and estate
taxes
134,000,000
Income tax—
Corporation ... 133,000,000
Individual . . . I l l , 750,000
Miscellaneous
56,000,000
Panama Canal tolls.etc. 10,000,000
Deposits for postal savings bonds
2,000,000
Total

THE PROPOSED BILL,

1,001,750,000

Estimated excess disbursements over receipts
Deduct estimated balance in general fund,
June 30, 1917

366, 695, 910

Estimated deficit in general fund, June
30,1918
For necessary working balance in the
Treasury

302,389,939

Estimated amount necessary to be raised
by bond issues or new revenue legislation

64, 305, 971

100,000,000

402,389, 939

THE PROBLEM PRESENTED.

The question that immediately arises is, how
shall this money be raised? After carefully
considering the various available sources of
additional revenue, your committee recommends that the necessary funds to meet the
extraordinary appropriations for the Army and
Navy and fortifications be secured by additional internal taxation upon excess profits and
• by increasing the estate tax. Your committee
also recommends that the expenditures incident to the Mexican situation, the construction
of the armor-plate plant, the Alaskan railway,
and the purchase of the Danish West Indies be
met by the receipts from bonds. The amount
of Panama bonds unissued being insufficient,
your committee recommends that a new issue
of bonds similar to the Panama bonds bo authorized. In the opinion of your committee it
is an unwise and unsound policy to issue bonds




The proposed bill is divided into four separate parts called titles, viz, Title I, which specifies that the revenue collected under Title II of
this act and one-third of the receipts collected
under Title III. together with the additional
revenue collected under the act of September 8,
1916, to the extent of $175,000,000, shall constitute a special preparedness fund; Title II,
the excess profits tax; Title III, the amended
estate tax; and Title IV, miscellaneous, which
provides (1) for a bond issue, (2) for the issue of
additional certificates of indebtedness, and (3)
that the Commissioner of Internal Revenue
may have authority, within his discretion, to
require a corporation to state in its return to
whom it has paid dividends and the amount
thereof.
TITLE I.—SPECIAL PREPAREDNESS FUND,

This title provides that the receipts from the
excess profits tax and one-third of the receipts
from the estate tax provided in this bill, together with $175,000,000, the additional revenue collected from the taxes levied in the revenue act of September 8, 1916, shall be set aside
as a special preparedness fund to be used
toward defraying the expenses for the Army
and Navy and fortifications. It is provided,
however, that should there be no other money
available in. the Treasury to meet current obligations that the Secretary of the Treasury may
use this fund for other purposes, but any sums
so disbursed must be returned to this fund.
TITLE II,—EXCESS-PROFITS TAX,

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

APRIL 1,1917.

panies or associations, insurance companies,
and partnerships, which are in excess of
$5,000 and in excess of an amount equivalent to 8 per cent of the actual capital invested.
That is, before the tax attaches there is a flat
deduction of $5,000 from the total net profits
and a further deduction of 8 per cent on the
actual capital invested.
Section 202 of this title defines " actual capital invested" to mean (1) actual cash paid in,
(2) the actual cash value, at the time of payment, of assets other than cash paid in, and (3)
paid in or earned surplus and undivided profits
used or employed in the business. . Money borrowed through bonds or otherwise is not included in the actual capital invested.
This title also provides that the excess tax
upon corporations shall be computed upon the
corporation returns made in accordance with
the corporations'' income tax returns. It requires partnerships to make returns and gives
them the privilege of selecting their fiscal year,
giving them the same privilege as is now allowed to corporations. Corporations, jointstock companies or associations, and insurance companies exempt under section 11 of the
income tax, and partnerships carrying on or
doing the same business, and the income of
partnerships derived from agriculture or from
professional services, are exempt from the
excess-profits tax. The income derived from
the business of life, health, and accident insurance combined in one policy under the weekly
premium plan is also exempt from this tax.
The tax imposed upon corporations and
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
to be assessed and collected at the same time
and in the same manner as the income tax.
Every corporation having a net income of $5,000
or more is required to return a detailed statement of its actual capital invested. Partnerships are required to make a return of the income of the partnership for each taxable year
setting forth the actual cash invested and the
gross income for such year. In determining
the net income, partnerships will be allowed the
same deductions as are allowed individuals
under sections 5 (a) and 6 (a) of the incometax act.
It is estimated that the proposed tax upon
excess profits will yield during a 12-month period $226,000,000, distributed as follows: Upon
corporations $170,000,000 and upon partnerships, $56,000,000.'




253-•

FEDERAL RESERVE BULLETIN.

TITLE III.—ESTATE TAX.

This title increases the present estate-tax
rates 50 per cent. The proposed rates are as
follows:
1J per cent of the amount of the net estate
not in excess of $50,000.
3 per cent of the amount by which the net
estate exceeds $50,000 and does not
exceed $150,000.
4^- per cent of the amount by which the net
estate exceeds $150,000 and does not exceed $250,000.
6 per cent of the amount by which the net
estate exceeds $250,000 and does not
exceed $450,000.
1\ per cent of the amount by which the net
estate exceeds $450,000 and does not
exceed $1,000,000.
9 per cent of the amount by which the net
estate exceeds $1,000,000 and does not
exceed $2,000,000.
10 \ per cent of the amount by which the net
estate exceeds $2,000,000 and does not
exceed $3,000,000.
12 per cent of the amount by which the net
estate exceeds $3,000,000 and does not
exceed $4,000,000.
13 J per cent of the amount by which the net
estate exceeds $4,000,000 and does not
exceed $5,000,000.
15 per cent of the amount by which the net
estate exceeds $5,000,000.
It is estimated that the proposed increase in
the estate tax will yield during the first 12month period $22,000,000 additional revenue.
TITLE IV—MISCELLANEOUS.
BONDS.

This title gives the Secretary of the Treasury
authority to issue an additional $100,000,000
worth of bonds to meet public expenditures
on account of the Mexican situation, the construction of the armor-plate plant, the construction of the Alaskan railway, and the
Eurchase of the Danish West Indies, or to reixnurse the Treasury for such expenditures.
The Secretary of the Treasury at the present
time has authority to issue $222,000,000 worth
of Panama Canal bonds to reimburse the
Treasury.
The act commonly known as the " shipping
bill" authorizes the issuance of $50,000,000
worth of Panama Canal bonds, the proceeds
from which are to be used for the construction

254

FEDERAL RESERVE BULLETIN.

or purchase of ships. The act authorizing the
construction of the nitrate plant also authorizes the sale of $20,000,000 worth of Panama
Canal bonds and the use of the proceeds for the
construction of the nitrate plant. In addition
to meeting these extraordinary appropriations
by bonds, your committee recommends that the
disbursements incident to the Mexican situation and to the construction of the armor-plate
plant, the Alaskan railway, and the purchase
of the Danish West Indies, be met by the
issuance of bonds. Your committee therefore
recommends the following, bond issues:
Bond issues:
To meet the expenditures
incident to the Mexican
situation to June 30,
1917, estimated at
$162,418,000
Construction of Alaskan
railway
35,000,000
Armor-plate plant
11,000,000
Danish West Indies
25,000,000
Total
Bonds already authorized:
Shipping act
Nitrate plant

holders and the number of shares owned bj r
each. The purpose of this provision is merely
to enable the Commissioner of Internal Revenue
to check doubtful individual returns.
RECAPITULATION.

Estimated amount necessary to be raised by
bond issues and new revenue legislation.. $402,389,939
Bond issues to reimburse the Treasury:
For expenditures incident
to the Mexican situation to June 30, 1917... $162,418,000
For construction of Alaskan railway to June 30,
1918
21,838,292
For construction of armorplate plant
11,000,000
Total

195,256,292

| Estimated amount to be raised by taxation. 207,133,647
j Estimated additional receipts under proi posed bill:
Excess-profits tax
$226,000,000
Estate tax
22,000,000
$233,418,000

$50,000,000
20,000,000

APRIL 1,1917.

Total

248,000,000

Your committee believes that the margin of
$41,000,000 above shown, between the estiTotal
70,000,000 mated receipts under the proposed bill and the
Total proposed bond issue
303,418,000 estimated revenue required, is necessary in
order to be on the safe side. Allowance must be
Panama Canal bonds which can be issued at
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 SecreFiduciary 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 payments, stating whether the same are made in error, and by Mr. Henry M. Campbell, of
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.




APRIL 1,

FEDERAL RESERVE BULLETIN.

1917.

255

The brief prepared by counsel for the Board,
SPECIFICATION OF ERROR.
acting in conjunction with the Solicitor GenThe 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
Congress above mentioned [sec. Ilk] was and
STATEMENT OF THE CASE.
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 pre1
I. JURISDICTION.
scribe.'
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.,t 123, c. 343; Rov. the fugitive slave law was unconstitutional
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 grantThe 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

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FEDERAL RESERVE BULLETIN.

Federal Government, but no State can lawfully do an act which will suspend the machinery of the Federal Government. As stated by
the court in Tennessee v. Davis (100 U. S., 257,
262)—
"The General Government must cease to
exist whenever it loses the power of protecting
itself in the exercise of its constitutional
powers."
The principle of these cases would seem to
apply to an attempt by the State to enjoin
or restrain any Federal agency from the exercise of a right or the performance of a duty
arising under a Federal statute.
'•'The right of Congress to determine to what
extent a State court shall be permitted to
entertain actions against national banks and
how far these institutions shall be subject to
State control, is undeniable. National banks
are quasi-public institutions, and for the
purpose for which they are instituted are
national in their character, and, within constitutional limits, are subject to the control of
Congress and are not to be interfered with by
State legislative or judicial action, except
so far as the lawmaking power of the Government may permit." (Van Reed v. People's
National Bank, 198 II. S., 554, 557.)
Whether the Federal or State courts have
jurisdiction in quo warranto proceedings against
national banks was the subject of discussion
in the case of State ex rei Wilcox v. Curtis (35
Conn. 374), in which it was held that an information in the nature of a quo warranto would
not lie in a State court to try the right to the
office of director in a national bank.
II. CONSTITUTIONALITY OF SECTION 11 ( K ) OF
THE FEDERAL RESERVE ACT.
(1) Every intendment is in support of the constitutionality of the act. The courts invariably hold that an
act of Congress is constitutional unless its repugnancy
to the Constitution is clearly apparent. (Several cases
cited.)
(2) It is well settled that Congress has the power to
incorporate banking associations to be used as
instrumentalities of the Government in the conduct
of its fiscal affairs. (Numerous cases cited.)
(3) The power to create carries with it the power to
preserve. Congress may vest national banks with
any powers it deems necessary to preserve the national banking system or the corporate entity of
individual banks.
(a) The powers granted to such an association may be either public
or private in nature.

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




APRIL 1,1917.

gress creating the first bank of the United
States was before it. An effort was made at
that time to sustain the contention that while
Congress might have the power to incorporate
a bank to be used as an instrument of the
Government in the conduct of its fiscal affairs
it could not vest corporations so created with
the capacity to engage in private business, but
could only authorize the exercise of functions
to be performed for the Government. (Osborn
v. U. S. Bank, 9 Wheat., 738, 861; McCulloch
v. Maryland, 4 Wheat., 316, 401.)
It is clear that a banking corporation created
by Congress may be vested with powers of a
private nature to be used for its own advantage
as well as with the power to perform public
functions.
(b) Every banking association organized under Federal law since
1791 has been endowed with powers purely private in nature,
which powers have been exercised for its own advantage in legitimate competition with other corporations.

When the first Bank of the United. States was
organized (1791), powers of the most general
character were conferred upon it. It was
enacted (Feb. 25, 1791, 1 Stat., 191, 192, c. 10)
that a bank of the United States should be
established with a prescribed capital stock, the
subscribers to which were made a corporation,
with power to take personal property, to sell
and dispose of it, and to "put in execution such
by-laws, ordinances, and regulations as shall
seem necessary and convenient for the government of the said corporation, not being contrary to law, or to the constitution thereof,"
and "generally to do and execute all and singular acts, matters, and things which to them it
shall or may appertain to do/ ; subject to the
restrictions * prescribed by the act. Those
restrictions limited the real estate holdings of
the bank, prohibited the purchase of public
debts and trade in commodities, and limited
the amount of indebtedness which could be
incurred. The bank was thus clothed with
general powers to transact a banking business
subject to few restrictions.
The charter of the second United States
Bank (1816) was of a similar broad and comprehensive nature. (Act Apr. 10, 1816, 3 Stat.,
266, 269, c. 44.)
While the powers granted to national banks
by the act of 1864 were more restricted than
the powers granted to the first and second banks
of the United States, they were, nevertheless,
intended to enable such associations to engage
in the banking business to the same extent as
other banking corporations organized at that
time under State laws.

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FEDEBAL RESERVE BULLETIN.

257

(c) These powers, though private in nature, need not be even incidental to the conduct of the Government's fiscal affairs. It is
sufficient if they are necessary to the successful operation of the
bank. The character of the powers and the degree of their necessity
are matters «f legislative discretion.

tution, is settled beyond all dispute. (Cases
cited.)
• That the addition of the powers specified in
It is not essential that any particular power section 11 (k) does not constitute an unreasonvested in a national bank shall be incidental or able exercise of this discretion, will appear from
necessary to the conduct of the Government's I a consideration of the character of such powers.
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,
successful operation of the hank. (Osborn v. U.

in section 11 (k) are, in fact, exercised quite generally by corporations which also exercise commercial banking powers and are
similar in many respects to other corporate powers exercised by
commercial banks, including national banks.

S. Bank, supra.)
It is clear that Congress not only has authorWhile 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 asfiscalj trator was not regarded as a banking function
agents of the Government, as Government de- j nor 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 j this 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 j try. 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.
i rations, 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 i class 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.
It woud be difficult to define with any degree
of acting as a Government depository. Its
what constitutes ''recognized bankrevenue is earned from the use of its funds. It of accuracy 7
must, of necessity, derive its sustenance pri- ing powers/ 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 j powers 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 i powers 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 I doubt influenced Congress in determining to
be within the constitutional power of Congress, j extend 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




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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 shortThe 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 accordThe 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 CompIt 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
from $85,025,371 in 1875 to $4,216,017,244 in
these capacities.
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 reinvestWhile 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 conThat 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




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 fiduciary i 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 busiThe 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 11 1 a commercial banking and trust business.
(k) national banks are confined to trusteeships
In order to compete successfully
organized or
which result from the operation of law, while |; (f)operating under State banking laws,with corporationsmust be given
national banks
similar
enjoyed by
their competitors—trust companies and many ii powers substantiallytherefore io those unreasonable such StateofcorIt
not an
exercise
its
State banks—may voluntarily act in the capac- ! purations. for was
discretion
Congress to determine that the powers of national
banks should be enlarged by the addition of "those specified in
ity of fiduciaries and at the same time may com- . section 11 (k) of the Federal Reserve Act.
pete with national banks in the more limited
| When the act of 1864 became a law a national
Held of commercial banking.
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
provide for the formation of corporations with authority to exercise discounting and negotiating promissory notes,
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."
The genesis of the legislation creating
of every State in the Union authorize corporations 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




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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 corSince 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
by giving them rights and privileges somewhat
business, contained in bank charters.77
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 SepPrior to tho passage of the Federal Reserve tember 7K 1916 (39 Stat., 752), 'Congress has
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 interFederal 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




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
necessary
are necessary to the successful operation of the made bank note. by lack of uniformity and by instability of the
State
national banking system, it is respectfully
After the liquidation of the second bank of
submitted that there is no basis for the contention that this section is unconstitutional the United States in 1836 the fiscal affairs of the
Government were conducted without the aid of
and void.
It is to be noted that, notwithstanding this ! any banking institution organized under the
burden is upon defendants in error, they have ! laws of the United States until tho national
failed to present any evidence to indicate that banking system was created at the close of the
Congress abused its discretion in determining Civil War. Collections and disbursements of
that fiduciary powers were necessary adjuncts Government revenues during this period were
to the operations of national banks at the ; made in specie.
In the stress of the Civil War, when the Govpresent time.
ernment 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
supported by a cohesive banking system which should ! paper currency, consisting of United States
include a majority of the banks of the United States, notes and notes of some 1,400 State banks,
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 j under Federal supervision which were authorincidental to the public functions performed by 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 I of the United States as collateral security for
reserve notes, but also of establishing the sys- j the notes issued. Two of the main purposes
tern itself upon the broadest basis of member- I of 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, j it was of course impossible to bring about uniThis 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 initial failure of the system of national
the Federal Reserve Act will show the relation
of section 11 (k) to the new currency system. bank currency came from the fact that the




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FEDERAL RESERVE BULLETIN.

APRIL 1,

1917.

State banks continued to do the main banking
business of the country and to be the main
handlers of currency. The success of the system was expedited by the statute above referred to, which put the State banks out of
business as banks of issue and. thus left in circulation only those notes which were issued
and redeemed under appropriate safeguards.

In addition to these inherent defects the
constantly increasing activities of trust companies in the field of commercial banking had
proven a serious menace to the national banks.
From 1895 to 1907 there had been an enormous
and, as compared with the national banks, a
disproportionate growth in the commercial
banking business done by trust companies
t j
(b) Experience has demonstrated that while the national bank ac which were outside the national-bank system.
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- j sound commercial banking institutions of the
much as it was based on a nonelastic basis, i. e., j country 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 Federal Reserve Act
the varying demands for a proper circulating ! (c)while preserving uniformity is designed to remedy these defects
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.
creation of a
A second defect in the national banking sys- for (a) the notes, (6) for new basis of" issue of
circulating
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
in its own vaults or with some other bank in j reserve system.
Under the Federal Reserve Act the country
the large cities. The result of this system of
into 12
scattered reserves was that in times of financial is dividedeach districtdistricts. The national
banks of
are
stress and falling prices there were likely to | tribute a certain proportion compelled to conof
to
occur currency panics, which paralyzed the | form a strong Federal reserve their capital rebank, the
credit 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
House bill
(S". Repi. No. 133, pt. 1 63d Con<..
selfishly fearing for its own position, hoarded \ 1st sess.) without recommendation. of the committee wore? printed as
The views of the members
(pt. 2, pp. 7.
currency and at the very worst of times called parts 2 and 3 of the report. The report statesagreed'on the 8): funda" [Join sections of the committee, however,
great
loans, with the inevitable result of shaking: mentals of the 1 >ill—that is:
"First.
public confidence in the soundness of the j reserves ofOn the necessity for greater concentration of the banking
the country.
"Second. The volume
country's financial institutions. This was | "Third. The volume ofof such reserves. proposed banks.
the
demonstrated in the panic of 1907. 'It is need- j "Fourth. The mobilization capital of the
of such reserves.
"Fifth. The promotion of an open discount market.
less to describe in detail these currency panics | "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 " The chief purpose*of the banking* and currency * is to give stability
bill
banking structure and illustrated the worst to the commerce and industry of the United States, prevent financial
panics or financial stringencies: mate available effective commercial
defect of our currency and banking system.1
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.
" In order to accomplish these results there are certain great fundawas alive to these difficulties.
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:
'•First. The proper concentration of the bank reserves of the country
states:
" I n 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." * * *




FEDERAL RESERVE BULLETIN.

APRIL l, 1917.

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
and in insuring stability of the new currency system
munity), indorse it, and rediscount it with the currency by the act.
provided
Federal reserve bank.
It follows from this review that section
The Federal reserve bank may deposit this (k) is not an unrelated phrase, flung in 11
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
Act.
ecjual in amount to 100 per cent of the commer- the Federal Reserve powers Undoubtedly it
tends to enlarge the
of
cial paper deposited. These notes, which are banks, and tends to invade the the national
fields
acobligations of the United States, are a new tivity of the State trust companies. of 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,
a
currency
which is carried on under the supervision of factor in the creation of to new basis ofinvitation
issue. It is necessary
offset the
the Federal Reserve Board, a new basis of to State
trust companies to join the
currency is provided. These notes, instead of system. banks andcompanies become member
If trust
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
will become still
system, because the member bank can always powers than national banks, unless the powers
more dangerous competitors
transform its sound commercial paper into of national banks and trust companies are more
currency at the Federal reserve bank, it is excoordinated.
pected that the amount of currency out- nearlythe other hand, even if trust companies do
On
standing will, as in other countries, auto- not, 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.
are
order that
The volume of Federal reserve notes issued bankswith enlarged in companies they may compete
the trust
must necessarily depend upon the volume of outside of the Federal Reserve which remain
System,
commercial paper obtainable from member trust companies will continue their growththese
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 but- of 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 fur- in 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.
A successful and sound plan to regulate the
speculative institutions of the country should
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

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
Reserve Board is not
money and credit. The true purpose of sec- authority.to The Federalnational bank to exercise empowered
permit any
any
tion 11 (k) is to coordinate the powers of na- fiduciary 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, con- defendants 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 77
companies, the " depart- proper institution to act in the fiduciary
ment stores of finance.
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
granting nor the exercise of
protect their State banks against the compe- (6) Neither theinvolves any Invasion of thethe powers
in question
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
of these powers.
tions of trust companies.
In declaring section 11 (k) unconstitutional,
This is true of Illinois, Georgia, Idaho, and
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
way the rights of the States are supposed to be
have pointed out.
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
7
tionality of section 11 (k) as a part of a com- contravention of State or local law/ 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.
The administration of State laws is in no way
panics.




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:
" I t not being shown such added powers are
trustees, executors, or administrators within
its borders. Congress has merely vested in now necessary to the Tfurther success of such
national banks the capacity to act when purposes * * * w e 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 eviIt 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 speciStates, 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 j Comptroller 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 I amend 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 j provisions 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 j right of Congress to create national banks and
.national ba:.iks "if they were reasonably nccos- j to vest them with private powers. Unlike the
siiry to the efficiency of sach corporations ior • Illinois court, it holds that "undoubtedly, all




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
* * * is a commercial institution, a partform."
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 incorporation of a company of bankers ?•" (See
unconstitutional says:
"But in the reasoning of the judges, in the also Osborn v. U. S. Bank, 9 T\Tieat., 733,860.)
It would have been useless to concede the
opinions to which I have referred, I find, I
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.
By analogy, it is equally useless to concede
agency with the powers enumerated, it can
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.
In the last analysis, the question to be desion of the sovereignty of the State. * * *
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
national banks powers similar to those enjoyed
upon the offending agency."
by their competitors, the national system can
It thus appears that the sole justification for
concluding that Congress has abused its discre- be preserved and the banks composing this systion in granting to national banks the powers tem can continue to perform the public services
specified in section 11 (k) is an assumption on for which they were created. On the other
the part of the court that some natural connec- hand, if the legislative discretion of Congress is
tion exists between what it terms the business determined to be so limited that it can not coof banking and the fiscal operations of the Gov- ordinate the powers of national banks, State
ernment and that none exists between the busi- banks, and trust companies, it is inevitable that
ness of trust companies and the Government's sooner or later the national system will disfiscal operations. The court does not point : integrate and those who have embarked upon
out how any particular private power hereto- | the banking business will seek their charters
fore exercised by national banks has a closer from that sovereignty which offers the wider
relationship to the fiscal operations of the field of activity and the more certain source of
Government than the private powers in ques- revenue.
CONCLUSION.
tion.
It is an interesting fact that the reason asThe 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




267

FEDERAL BESEEVE BULLETIN.

APRIL 1,1917.

DISTRICT NO. 5.
national banks during the period from FebruTrustee, executor, administrator, and registrar of stocks
ary 24, 1917, to March 23, 1917, inclusive:
and bonds:
Banks.

New charters issued to
With capital of
Increase of capital approved for
With new capital of

12

National Bank of New Berne, New Bern, N. C.
DISTRICT NO. 6.

$1,150,000 Trustee, executor, administrator, and registrar of stocks
.. 20
and bonds:
Lowry National Bank, Atlanta, Ga.
1,519,990
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.
First National Bank, Council Bluffs, Iowa.
banks)
8
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.

DISTRICT NO. 10.
Total number of banks going into liquidaTrustee, 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
embraced in statement was
2,669,990 Trustee, executor, and administrator:
Citizens National Bank, Roswell, N. Mex.
Against this there was a reduction of capital
DISTRICT NO. 12.
owing to liquidations (other than for conTrustee, executor, administrator, and registrar of stocks
solidation with other national banks) and
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.

The applications of the following banks for
permission to act under section 11 (k) of the
Federal Reserve Act have been approved since
the issue of the March BULLETIN.
DISTRICT NO. 1.

Trustee, executor, administrator, and registrar of stocks
and bonds:
Home National Bank, Brockton, Mass.
DISTRICT NO. 2.

Trustee, executor, administrator, and registrar of stocks
and bonds:
Farmers National Bank, Sussex, N. J.
Second National Bank, Soinerville, N. J.
Registrar of stocks and bonds:
First-Bridgeport National Bank, Bridgeport, Conn.
Oneida Valley National Bank, Oneida, N. Y.
DISTRICT NO. 3.

Trustee, executor, administrator, and registrar of stocks
and bonds:
May town National Bank, Maytown, Pa.
West Branch National Bank,"Williamsport, Pa.
Trustee, executor, and administrator:
National Bank of Topton, Topton, Pa.




Commercial mortality in the United States
during the month of February not only showed
the customary falling off from the previous
month, but displayed a most gratifying improvement, both in number and amount of liabilities
as compared with the corresponding month for
several 3^ears past. The total number of failures in the past month reported by R. G. Dun
& Co. was 1,165, as against 1,540 in January,
1,688 in February last year, 2,278 the same
month two years ago, which was the maximum
for that month, and 1,505 for the corresponding period in 1914, while the liabilities were
$16,617,883 and §18,283,120, respectively, for
February and January this year, and $18,744,165 in February, 1916.
Separation of these statistics into Federal
districts reveals sharp contraction in number
in every instance, with the falling off especially
pronounced in the second, third, fifth, seventh,
and eighth districts. On the other hand, liabilities show gain over last year in three districts, an increase of approximately $567,000
appearing in the fourth, $122,000 in the tenth,

268

FEDERAL. RESE&VE BULLETIN.

and $1,709,000 in the twelfth. The remaining
districts, however, all report substantial improvement, notably the first, with a contraction
amounting to about $691,000; the third,
$767,000; the sixth, $1,226,000, and the eleventh, $694,000.
The number of commercial failures and liabilities in each district for the month of February, this year and last, are compared below:

A:»RIL 1, 1917.

GOLD SETTLEMENT FUND.

For the present, at least, payments from
credit balances of Federal Keserve Banks in
the Gold Settlement Fund will not be made
directly to member banks of the system or to
individuals. This question was raised early in.
March through the request of a Federal Reserve Bank that its account be charged with a
Liabiliti es.
Number
stated amount and payment made to a desigDistrict.
1917
1917
1916
1916
nated member bank. After consideration the
$657,828
99
137
51,348,200 Board voted not to authorize payments of this
No 1
\\Q 2
W8
204
3.891.882
4,194,990
138
'470,444
1,237,250 character.
65
No 3
90
J,461,654
894,500
1?7
No 4
....
58
139
934,923
1,138,600
No 5
There has been an increasingly large volume
114
157
1,098,938
2,224,850
No 6
141
1,871,188
2,253,800
No 7
185
of transactions between the Federal Reserve
130
90
770,043
976,075
No 8
62
51
375,790
527,670
No 9
Banks through the Gold Settlement Fund dur65
51
680,471
558,010
No 10
50
518,042
88
1,212,720 ing
No 11
March. The settlement of March 22
152
162
2,177,500
No. 12
3,886,680
amounted to $297,765,000, the largest weeklyI 688
1,165
16,617,883
18,744,165
Total
settlement yet made. An unusually large
Operation of the Clearing Plan.
number of transactions between Federal ReThe 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
March 22. They show obligations settled
preceding months:
Operations of the Federal Reserve deariny system, Febru- amounting to $1,080,800,000 by means of the
weekly settlement, and $15,839,000 by means
ary 16 to March 15, 1917.'
of transfers between the banks during the week.
. onmember
Changes in ownership in the fund amounted to
banks
I Average A verage Member
from
i number
5.12 per cent of the total obligations settled.
amount
banks
which
of items
in the
of daily
checks
handled
district. are col- Boston, Philadelphia, and San Francisco show
clearing.
claiiv.
lected
the largest increases.
at par.
37,565
Boston
43.565
New York
32,898
Philadelphia...
15,730
Cleveland
16.799
Richmond
13.359
Atlanta
19,872
Chicago
10.030
St. Louis
13^308
Minneapolis;
12,885
Kansas City...
12.891
Dallas
5.773
San Francisco..
Total, Feb. 10 to Mar. 15,
1917
'.. 231.475
Jan. 16 to Feb. 15,
220,421
1917
Dec. 16, 1916, to
241.933
Jan. 15,1917
Nov. 16 to Dec. 15,
236.033
1916
Oct. 16 to Nov. 15,
1916
! 227,489
Sept. 16 to Oct. 15. j
1916
:.. 204,89i
.'!
Aug. 16 to Sept. 15,1
1916
1 177.397
July 16 to Aug. 15,
133.113
1916




313,156,973
28,526,564
17,164,282
6,949,218
7,873,139
3,906,719
12,043.131
6,102:359
6:333.553
7,545.391
5,035:821
1,767,280

402
625
632
753
518
389
1.045
467
718
941
619
521

116.404,430

7,630

110,188.028

7? 630

121,814,589

7.622

125,603,732

7,627

!ll5;061.224

7,623

' 97,666,107

7,618

242 Amount of clearings and transfers, Federal Reserve Banks.
311
from Feb. 24, 1917, to Mar. 22, 1917, inclusive.
240
487
269
[000 omitted.)
394
1,445
'867
Total
Balances Transfers,
1,042
clearings. adjusted.
1.398
211
1,098 Settlement of—
Mar, 1,1917
S244.625
$17,903
8500
8.007
Mar. 8,1917
282,950
16,237
9,550
Mar. 15,1917
255,450
9,310
1.000
8,086
Mar. 22.1917
297, 765
18,376
i 733
8,130
Total
1,030,800
01 ,835
15, 833
2', 141,068
121 ,036
54, 643
Previously reported Tor 1917
8,065
Total since Jan. 1,1917
3, 221,80S
182 ,871
432
8,059 Total transfers Jan. 1.1917, to date
70,482
Total for 191(5, including transfers. 5, 833,966
7,459 Total for 1915, including transfers.
.1, 052,649
...

78,559,704

7,618

7,449

59,301.696

7,624

7,032

Total clearings and transfers, Mav 22,1915, to Mar.
22,1917.*...!

9, 97S, 953

269

FEDERAL •RESERVE BULLETIN".

APRIL 1,1917.

Changes in ownership of gold.
[000 omitted.]
Total to Feb. 23, !
1917.

Balance
to credit,
Feb. 23,
1917,
Balance
Decrease. Increase. plus net
Mar. 22,
1917.
deposits
of gold
since
that date, i

Federal iteserve Bank

Total changes from
May 20, 1915, to
Mar. 22,1917.2

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

Decrease, Increase. Decrease. Increase.

I

Boston
New York....
Philadelphia.
Cleveland
Richmond....
Atlanta
Chicago
St. L o u i s . . . . .
Minneapolis..
Kansas City.
DaDallas.
San Francisco.

325,595
§305,232
65,435
28,790
23,106
22,957
2,954
5,122
5,457
48,750
32,117
44,949

Total

i 305,232

305,232

811,825
73,768
8,245
22,200
18,406
5,497
25,514
3,482
4,577
22,227.5
7,749.5
7,779
211,270

§9,190

$21,015
20,241
17,441
26,017
17,085
4,431
43,870
4,240
8,641
26,152.5
7,567.5
14,569
211,270

$53,527

$358,759

9,196
3,817

1,321
1,066

74,631
32,807
21,785
21,891
21,310
5,880
9,521
52,675
31,935
51,739

18,350
758
4,064
3,925

182
6,790
50,096

56. G

$34,785-

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.]
Gold.

Federai Beserve Bank: of—

Boston
New York
"
"
•
Philadelphia
Cleveland
Richmond..
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total.

Balance
Feb. 23,
1917.

Withdrawn.

Transfsrs.

Deposited.

! $17,825 : 86,000 '
53,768
§20,000
53768
10,855 ! 4,300! j l',690
26,4(30 :
°* -tan
4,310
50
16,826
i 1,580
830
5,197
1,500
8,680 ;
| 32,694
1,880
200 I
' 1,802
120
; 4,457
170
5,300
I 27,357.5
170
80
I 7,659.5
370
1,000
! 8,409
213,310

30,400

Federal Reserve Agents9 Fund—Summary

28,300

Debit.

813,589 !
2,000
250

Credit.

Weekly settlements from Feb. 24,1917, to
Mar. 22,1917.
Total net
debits.

81,000
250 i 840,188

816

14,089 i
500 !
182

15,839

15,839 j

41,186

Total
debits.

Total
credits.

887,139
282,101
159,994
76,815
67,689
37,397
134,308
99,126
23,369
65,570
28,559
18,733

§95,329
241,913
169,190
80,632
68,368
36,581
138,575
99,384
27,433
69,495
28,377
25,523

1,080,800

Mar. 22,
1917, balance in
fund at
; Total net close of
credits. business.

1,080,800

88,190
9,196
3,817
679
4,267
258
4,064
3,925
6,790

$21,015
20,241
17,441
28,017
17,085
4,431
43,870
4,240
8,64i
29,152.5
7,567.5
14,569

41, 186 |211,270

of transactions, Feb. 24, 1917, to Mar. 22, 1917, inclusive.
[020 omitted.!

Federal Preserve Agent at—

Philadelphia..
Cleveland
Richmond
Atlanta
Chicago
St. Louis




i Balance
Balance s
:
to credit With- I DeI
j Feb. 23, drawn. I posited Mar. 22, I
1917.
1
1917.
812,130

§390

10,000
13,450
13,210
G.430

1,000
430
600
380

$4,150
4,000
400
7,080

$15,890
4,000
9,000
13,420
20,290
•0.053:

Federal Heserva Agent at—

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

M l

W1U,| De

Feb. 23, (drawn. iDosited.
1917.
"
§3,250
13,380
9,330
15,380

8120
620
450
370

$4,900

90,500 ; 4,360 j 21,130

$3,130
17,660
8,880
15,010
IIS, 333

270

FEDERAL RESERVE BULLETIN.

APRIL 1,1917.

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 indefacturers, and associations of manufacturers; pendent appraisal of all assets with the aid of
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.
The value of the two classes of audits and
Through the courtesy of the Federal Trade
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.
In some cases method (b) has advantages
Trade Commission acquired in connection
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 under present practice probably more than 90
merchants and manufacturers.
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 tentaThe 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.




Uniform Accounts.

FEDERAL RESERVE BULLETIN.

APRIL 1,1917.

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
CASH.
statements.
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 MERthe fiscal period to be covered by the audit,
CHANDISING CONCERN.
and the amount thereof, together with the cash
The scope of a balance sheet audit for a fiscal stated to be in the bank, reconciled with that
year or other operating period of an industrial shown by the cashbook. The cash, bills reor mercantile corporation or firm comprises a ceivable, and investments must be examined
verification of the assets and liabilities, a gen- on the same day, so as to make it impossible
eral examination of the profit and loss account, for a treasurer to make up a shortage in one
and, incidental thereto, an examination of the asset by withdrawing negotiable funds temporarily from another.
essential features of the accounting.
In counting the cash on 7hand the auditor
Trial balances of the general ledger, both at
the beginning and end of the period under re- must see that all customers checks produced
view, should be prepared in comparative form to him as part of the cash balance have been
and checked with the ledger. The items in the duly entered in the cashbook prior to the close
trial balances should be traced into the balance of the period and should note the dates and
sheets before the assets and liabilities are veri- descriptions of such checks, and also the dates
fied, to prove, among other things, that no and descriptions of all advances made from
"contra" asset or liability has been omitted cash and not recorded on the books. Advances
from the accounts, that the assets and liabili- to employees should be strictly investigated,
ties have been grouped in the same manner at and if any are secured by personal checks the
the beginning and end of the period, and also auditor should see that the checks are certified
that the balance sheets are in accordance with by the bank on which they are drawn before
the books. The disposition of any general the close of the audit.
Certificates must be obtained, as of the evenledger assets and liabilities that may have been
scrapped, 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.
In verifying the outstanding checks there is
the close of the fiscal period.
only one safe and satisfactory method of provThe auditor should obtain a copy each of the
balance 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
ascertained should be prepared, showing the
auditor.
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

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 verifiWhere 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 certifiWhen 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.
Notes due from affiliated concerns must
ancl that the same checks are paid into bank
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.
They may be fairly included in current assets if
should be obtained from the banks.
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.
The term "Quick assets7' is used here in the
compared and reconciled with the total deby
posits, as shown by,the bank books, and simi- sense in which it is used 77 Federal reserve
larly the disbursements should be reconciled practice. "Current assets is used to comprise these assets and other assets which
with the total checks drawn.
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
receivable is an acknowledgment by the party
the current audit.
named in each note as the payor on the due
date that the note is a bona fide obligation.
NOTES RECEIVABLE.
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.




VRU, 1,1917.

FEDEEAL BESEBVE BULLETIN.

273

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 warThe 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 freights I 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—
The dates of purchases.
Inquiry must be made as to whether any of
Descriptions of the investments.
the accounts receivable have been hypotheFar value of the investments.
cated or assigned, and the sum total of accounts
The denomination of the shares.
so listed entered under 20b.




ACCOUNTS RECEIVABLE.

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,
and the auditor should take every precaution
by correspondence.
. 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
traced.
tion of the purchase price.




APRIL 1,1917.

FEDERAL RESERVE BULLETIN.

(5) Where stock records are kept and no
physical inventory is taken at the time of the
audit, ascertain when the last physical inventory was taken {and compare it with the book
records. If no recent comparison is possible,
select a few book items of importance and personally compare with the actual stock on hand.
(6) Where no stock records are kept, a physical inventory should be taken preferably under
the general direction of the auditor. After the
inventory is completed, he should apply the
same tests to verify its accuracy as if the inventory had been taken before his arrival upon
the scone.
(7) When the cost system of a company does
not form a part of the financial accounting
scheme there is always a chance that orders
might be completed and billed, but not taken
out of the work in progress records. Especially is this the case when reliance is placed
on such records to the extent that a physical
inventory is not taken at the end of the period
to verify the information shown therein. In
these cases the sales for the month preceding
the close of the fiscal period should be carefully
compared with the orders in progress as shown
by the inventory, to see that nothing that has
been shipped is included in the inventory in
error. Cost systems which are not coordinated with the financial accounts are unreliable
and frequently misleading. Special attention
should be called to every case in which the cost
system is not adequately checked by the results
of the financial accounting.
(8) Ascertain that purchase invoices for all
stock included in the inventory have been
entered on the books. Look for postdated
invoices and give special attention to goods in
transit.
(9) See that nothing is included in the inventory which is not owned but is on consignment from others. If goods consigned to
others are included, see that cost prices are
placed thereon, less a proper allowance for loss,
damage, or expenses of possible subsequent
return. This does not include goods at
branches, as the valuing of such stocks will be
governed by the same principles as apply at
the head office.
(10) Ascertain that nothing is included which
has been sold and billed, and is simply awaiting
shipment.
(11) If duties, freight, insurance, and other
direct charges have been added, test them to
ascertain that no error has been made. Duties
and freight are legitimate additions to the cost




275

price of goods, but no other items should be
added except under unusual circumstances.
(12) As a check against obsolete or damaged
stock being carried in the inventory at an excessive valuation, the detailed records for stores,
supplies, work in progress, finished products,
and purchased stock in trade, should be examined and a list prepared of inactive stock
accounts, which should be discussed with the
company's officials and satisfactory explanations obtained.
(13) The auditor should satisfy himself that
inventories are stated at cost or market prices,
whichever are the lower at the date of the
balance sheet. No inventory must be passed
which has beem marked up to market prices
and a profit assumed that is not and may never
be realized. If the market is higher than cost
it is permissible to state that fact in a footnote
on tlie balance sheet.
(14) It may be found that inventories are
valued at the average prices of raw materials
and supplies on hand at the end of the period.
In such cases the averages should be compared
with the latest invoices in. order to verify the
fact that they are not in excess of the latest
prices, and also with the trade papers, when
market prices are used, to see that they are not
in excess of market values.
(15) Make an independent inspection of the
inventory sheets to determine whether or not
the quantities are reasonable, and whether they
accord in particular instances with the average
consumption and average purchases over a
fixed period. Abnormally large quantities of
stock on hand may be the legitimate result of
shrewd foresight in buying in a low market, but
may, on the other hand, arise from serious
errors in stock taking.
(16) Always attempt to check the totals by
the "gross profit test" and compare the percentage of gross profit shown with that of previous years. In a business where the average
gross profit remains fairly constant this test is
a dependable one, because, if the rate of gross
profit is apparently not maintained and the discrepancy can not be satisfactorily accounted
for b}^ a rise or fall in the cost of production or
of the selling price, the difference will usually
be due to errors in stock taking.
(17) In verifying the prices at which the
work in progress is included in the inventory, a
general examination and test of the cost system
in force is the best means of doing this work
satisfactorily. In a good cost system little
difficulty will be found with the distribution of

276

EEDEEAL EESEEVE BULLETIN,

the raw materials, stores, and pay roll, but the
distribution of factory overhead cost is one that
should receive careful consideration, the main
points to be kept in view being:
(a) That no selling expenses, interest charges,
or administrative expenses are included in the
factory overhead cost.
(b) That the factory overhead cost is distributed over the various departments, shops,
and commodities on a fair and equitable basis.
(18) No profit should be included in the price
of finished products or stock in trade. The
price list should be examined to see that the
cost prices of stock are below the selling prices
after allowing for trade discounts, and if they
are not a reserve should be set up on the balance
sheet for this loss. If the company takes immediate steps to increase the selling price, however, the amount of this reserve may be limited
to the loss on goods which may have been sold
since the close of the period to the date of the
discovery.
(19) In the case of companies manufacturing
large contracts it is frequently found necessary
to make partial shipments thereof. The question then arises as to whether it is permissible
to include the profits on these partial shipments
in the profit and loss account. As a matter of
fact, it is evident that the actual cost can not
be known until the order is completed. It may
be estimated that a profit will ultimately be
made, yet unforeseen conditions, such as
strikes, delays in receiving material, etc., may
arise to increase the estimated cost. It is better not to include the profits on partial shipments, but information of this character which
may have its influence in the decision of the
banker upon a proposed loan may properly be
laid before him. Of course, an exception
should be made in cases where the profit on the
partial shipments largely exceeds the selling
price of the balance of the order.
(20) The selling prices for contract work in
progress should be ascertained from the contracts, and where it is apparent that there will
be a loss on the completed contract a due proportion of the estimated loss should be charged
to the period under audit by setting up a reserve
for losses on contracts in progress.
(21) If a company has discontinued the
manufacture of any of its products during the
year, the inventory- of such products should be
carefully scrutinized and, if unsalable, the
amount should be written off.
(22) The inventory should be scrutinized to
see that no machinery or other material that




APHIL 1,1917.

has been charged to plant or property account
is included therein.
(23) Partial deliveries received on account of
purchase contracts for material, etc., should be
verified by certificates from the contractors,
both as to quantities and prices.
(24) Advance payments on account of purchase contracts for future deliveries should
never appear in an inventory, but be shown
on the balance sheet under a separate heading.
(25) Trade discounts should be deducted
from inventory prices, but it is not customary
to deduct cash discounts. However, this may
be done when it is the trade practice so to do.
(26) While the inventory is being verified,
the auditor should ascertain the aggregate sales
for the last year. If the turnover has"not been
rapid, it may be due to a poor stock of goods.
Some business men dislike to sell below cost and
would rather accumulate a big stock of old
goods than dispose of the old and unseasonable
stock at a sacrifice. The usual outcome is that
the stock becomes unwieldy and funds are
lacking to purchase new goods. The inventory
and the gross sales may, therefore, have a
direct connection.
(27) It may be well to reiterate that interest,
selling expenses, and administrative expenses
form no part of the cost of production, and
therefore should not be included in the inventory in any shape.
COST OF FIXED PROPERTY.

In preparing the leading schedules for the
accounts grouped under this heading, such as
real estate, buildings, plant, machinery, etc..
the balances at the beginning of the period, the
additions to or deductions from the accounts
during the year, and the balances at the end of
the period must be shown.
The total of the balances at the beginning
of the period must agree with the cost of prop~
erty figures given in the balance sheet at that
date, and the balances at the end of the period
with the amount shown in the balance sheet
that is being audited. The charges entering
into the additions must be verified in detail, and
in this connection the following notes are of
value:
(1) Authorizations for the expenditure made
during the year should be examined, and where
the costs of the additions have overrun the
sums authorized, inquiries should be made in
regard thereto. The authorizations should
show the accounts to which the expenditures
are chargeable, the amounts thereof, the ap-

APRIL 1,1317.

FEDERAL 2ESEKVJ-: BULLETIN

provals of the comptroller and manager, and
descriptions of the jobs. When the authorizations are not specific as to the work done, the
actual additions should, if possible, be inspected.
(2) The auditor should satisfy himself before approving additions that they were made
with the object of increasing the earning capacity of the plant, and that they are not of
the nature of either renewals or improvements, and in this connection changes in the
production and capacity of the plant should
receive consideration.
(3) To verify the pay roll and store and
supply charges to jobs, one or two pay roll distribution reports should be examined in detail,
and also one or two storehouse reports. In
cases where large purchases have been made
from outside parties for capital construction
work, the vouchers therefor should be examined and the usual precautions taken to see
that they are properly approved for the receipt of materials, prices, etc.
(4) For purchases of real estate the title
deeds should be examined, together with the
vouchers, and it should be seen that the deeds
have been properly recorded.
(5) While it may be considered permissible
to make a charge for factory overhead cost to
additions to property such as, e. g., time of
superintendent and his clerical force employed
on construction work, etc., it can not be deemed
conservative business practice, inasmuch as the
probabilities are that the overhead charges of
a plant will not be decreased to any extent
even though additions are not under way, and,
therefore, the absorption of part of these
charges when additions are in progress, has the
effect of reducing the operating costs, as compared with months in which no construction
work is under way.
(6) Construction work in progress at the end
of the fiscal period should be shown in the balance sheet under the heading of fixed assets
and not as part of the inventories. This is
important to bear in mind because construction work is not an asset that can be quickly
turned into money, while everything in the
inventory is supposed to be realizable in cash
within a reasonably short time,
(7) The auditor should inquire as to whether
any installments are due on account of construction work in progress which is being carried on by outside parties; and if so, the liabilities for these installments should be included
in the balance sheet, as they may have a direct




277

bearing on the amount of available cash on
hand.
(8) When a company uses leasehold properties the leases should bo examined and notes
made of the periods covered, so that it may
be seen that improvements, etc., on such properties are written off over the periods covered
by the leases.
(9) The auditor should satisfy himself that
the reserves for depreciation of buildings, machirery, equipment, etc., arc adequate to reflect
the deterioration in the value of the fixed properties. If in his opinion the reserves shown on
the balance sheet are insufficient, ho should call
attention to the matter in his certificate.
(10) Care should bo taken to insure that
property destroyed by fire or otherwise prematurely put out of service is correctly treated in
the books. Any portion of the original charge
for such property which is not recoverable
through insurance, as salvage or otherwise,
and has not been provided for by the depreciation scheme should be written off.
It is to be observed that the foregoing notes
are to be applied only to cost of properties
incurred during the period under audit. In
addition, information may usefully bo obtained
on broader lines in regard to the composition
of the real estate, building, and machinery
accounts, and showing what principal property
is represented thereby and how the accounts
have been built up from year to year for a
reasonable time past if not from the inception
of the business. The information derived
therefrom is valuable only in indicating the
progressive policy of the concern, the extent to
which it reinvests undivided surplus in its plant,
etc. Beyond these facts the banker who is
asked for ordinary discounts or short-term
loans is not interested; he looks more to the
quick assets for his security.
Optional.—When the loan is greater than
the quick assets seem to justify the auditor
should suggest a reliable verification of the cost
of property prior to the period under audit.
Such action may become necessary even to
the extent of calling for an appraisement by
disinterested outside experts.
DEFERRED CHARGES TO OPERATIONS.

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

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 instruWherever 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 covCareful 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 charges j 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
A list of balances due on open accounts must
verification of the liability for mortgages
on real estate, buildings, etc., shown in the be prepared and carefully checked with the
ledger accounts, care being taken to see that no
balance sheet.
(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
balances represent specific and recent items
covered they should be mentioned.
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 liaAdditional 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 beThe 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




FEDERAL RESERVE BULLETIN.

APRIL 1,1917.

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 case fringements of patents, claims for damages,
any expenses included therein are applicable to bank loans, etc., have been included, as he may
be the only executive officer of the company to
the fiscal period under audit.
When a first-class voucher system is not in know the extent of such obligations.
operation the auditor must take additional
CONTINGENT LIABILITIES.
precautions to satisfy himself that all liabilities are included in the accounts, among
It is not enough that a balance sheet shows
which may be mentioned:
what must be paid; it should set forth with
(1) Payments made in the months subsequent to the date of the fiscal period as shown as much particularity as possible what may
by the cashbook, which should be carefully have to be paid. It is the duty of an auditor
scrutinized to see that none of them is applica who makes a balance sheet audit to discover
and report upon liabilities of every description,
ble to the period under review.
(2) The file of bills not vouchored or entered not only liquidated debts but possible debts.
on the books should be examined to see that The following are the usual forms under which
none of them belongs to the period under audit. contingent liabilities will be found: ,
Indorsements.—Inquiry oi the officers or
(3) A careful perusal of the minutes of a
company may further assist the auditor in de- parti]ers of the concern should bo made as to
whether any indorsement of outside paper has
termining liabilities.
When a company has large purchase con- been made and as to any security received to
tracts in force for future deliveries they should protect the concern. Such inquiry should be
be examined, for if the contract prices are greater particularly strict if it is known that any of
than market prices, it might be necessary to set the officers or partners are interested in other
up a reserve for this loss. Any debit balance enterprises. Similar action should be taken
due to advance payments on such contracts or in the matter of—
to any other cause should be shown on the
GUARANTIES.
balance sheet under a separate heading.
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 cirshould 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

230

FEDEKAL RESERVE BULLETIN.

APRIL 1,1917.

was not so entered, provision should be made
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- j missions 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- j should 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 j less 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.
Sinking-fund provisions in mortgages should
Water rates, etc.—Where bills for such expenses 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
balance sheet.
liability.
Bonds redeemed during the period or preTraveling expenses and commissions.—It is
important 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.




ACCRUED LIABILITIES.

j

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 reIf 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,
SURPLUS.
the due date, and the property covered thereby.
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 encum- item represents the accumulated profits prior
brance on the property. Therefore, if pay- to the beginning of thefiscalperiod 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 corJudgments.—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 someThe auditor should obtain the profit and loss
times difficult for an auditor to find any evidence 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 information to the banker as to the past progress of
liability.
Unpaid interest.—When considering the mat- the concern under audit.
A satisfactory form of profit and loss acter of liens it should be noted that interest
unpaid 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.
While it would be impracticable in an ordiprincipal in each case.
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:




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FEDERAL RESERVE BULLETIN.

SALES.

APRIL 1,1917.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.

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
| expenses from the gross profit on sales, and
ping memoranda with the invoices billed.
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
OTHER INCOME.
sales is the only figure of interest to the
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
orders on hand with corresponding periods of sales, such as income from investments, inother years furnishes the bankers with an terest, discounts, etc. Schedules should be
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,
plus purchases during the period, less inventory at the end of period, gives the cost of
sales. In a manufacturing concern the factory cost of production takes the place of purchases. These items will have already been
verified in auditing the balance sheet, but
nevertheless care should be taken to see that
this heading has not been made a dumping
ground for charges which would be more
properly embraced under the heading of special charges. The composition of the items
entering into the cost of sales should be traced
in totals into the cost ledgers or accounts.

DEDUCTIONS FROM INCOME.

Under this heading are grouped such items
as interest on bonded debt, interest on notes
payable, etc. The same procedure of verification as in the case of other income should be
followed.
NET INCOME—PROFIT AND LOSS.

Adding other income to gross income and
deducting deductions from income gives the
net income or profit and loss for the period,
which is the amount that should be carried to
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




283

FEDERAL RESERVE BULLETIN.

APRIL 1,1917.

legitimate result of the ordinary transactions
of the concern, should be entered here and
verified with the surplus account. Similarly,
deductions should be treated. Also dividends
declared should be entered in the surplus account and as an item, under this caption,
inasmuch as.it is the usual custom to declare
dividends "from net earnings and surplus.''
After adding special credits to and deducting
special charges from the net income we have
the total profit and loss for the whole period
from all sources which, added to the surplus
balance at the beginning of the period, gives
us the surplus at the end of the period, which
should agree with the surplus us stated on the
balance sheet.

qualifications are fully covered by the footnotes on the balance sheet, the following form
is proper:
I have audited the accounts of Blank & Co. for the
period from
to
and
I certify that the above balance sheet and statement of profit and loss have been made in accordance with
the plan suggested and advised by the Federal Reserve
Boaid and in my opinion set forth the financial condition
o£ the firm at
and the results
of its operations for the period.
(Signed)
A. B.C.
[Form for profit and loss account.]

Comparative statement of profit and loss for
ending
19

three years

GENERAL.
Year ending—

These instructions cover audits of small or
medium-sized concerns. In large concerns
having, for instance, tens of thousands of accounts or notes receivable, the detail procedure suggested would be impracticable, and internal check should make it unnecessary. In
such cases only tests can be made, but the
auditor must always be prepared to justify his
departure from, a complete program by showing that the purposes sought to be accomplished thereby have been adequately effected
by his work.
Any extensive clerical work, such as preparations of lists of notes receivable, etc., should
bo performed by the client's staff, so as to
avoid unnecessary employment of professional
staff in merely clerical work and consequent
undue expense.
FORM OF CERTIFICATE.

The balance sheet and certificate should be
connected with the accounts in such a way as
to ensure that they shall be used only conjointly. This rule applies also to any report
or memorandum containing any reservations
as to the auditor's responsibility; any qualification as to the accounts, or any reference to
facts materially affecting the financial position of the concern.
The certificate should be as short and concise
as possible, consistent with a correct statement
of the facts, and if qualifications are necessary
the auditor must state them in a clear and concise manner.
If the auditor is satisfied that his audit has
been complete and conforms to the general
instructions of the Federal Reserve Board,
and that the balance sheet and profit and loss
statement are correct, or that any minor




19—

19—
3

Gr oss sales.
Less outward freight, allowances, and
Net sales

--

19—

--•

IJurohaso*s not-

Cost of sale?
=
Selling expenses (itemized to correspond
with ledger accounts kept)
Total selling expense
General expenses (itemized to correspond with ledger accounts kept)...
Administrative expenses (itemized to
correspond with ledger accounts kept)
Total administrative expense
= = =

Total expenses

|

-

. .

Total deductions
Net income—profit and loss
Add special credits to profit and loss..
Deduct special charges to profit and Joss
Profit and loss for period
Surplus beginning of period
"Dividends paid
Surplus ending of period. . . .

=

=
.

Net pro/it on Stilus
Other income:
Income from in vestments
Interest on notes receivable, etc
Cross income
Deductions from income:
Interest on bonded debt
In tores s on n o t e pavable.
i

=

=====

•

:

_

_

•

=

=

•

=

!

284

FEDEBAL RESERVE BULLETIN.

APRIL 1,1917.

[Form of balance sheet.]
LIABILITIES..

ASSETS.

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

Bills, notes, and accounts payable:
Unsecured bills and notes—
2. Acceptances made for merchandise
or raw material purchased
4. Notes given for merchandise or raw
material purchased
6. Notes given to banks for money borrowed
1
8. Notes sold through brokers
10. Notes given for machinery, additions
to plant, etc
."
12. Notes due to stockholders, officers,
or employees

Notes and accounts receivable:
3. Notes receivable of customers on hand
(not past due)
5. Notes receivable discounted or sold with
indorsement or guaranty
7. Accounts receivable, customers (not
past due)
9. Notes receivable, customers, past due
(cash value, $
)
11. Accounts receivable, customers, past
due (cash value, 3
)
Loss:
13. Provisions for bad debts..
15. Provisions for discounts,
freights, allowances, etc

Unsecured accounts—
14. Accounts payable for purchases (not
yet due)
16. Accounts payabla for purchases
(past due)
18. Accounts payable to stockholders,
oflicors, or employees

Inventories:
17. Raw material on hand
19. Goods in process
21. Uncompleted contracts
Less payments on account
thereof
23. Finished goods on hand
Other quick assets (describe fully):

Total quick assets (excluding all investments).
Securities:
25. Securities readily marketable and salable
without impairing the business
27. Notes given by oificers, stockholders, or
employees
29. Accounts due from officers, stockholders,
or employees

I

Secured liabilities—
20a.. Notes receivable discounted or sold
with indorsement or guaranty
(contra)
20b. Customers' accounts discounted or
assigned (contra)
20c. Obligations secured by liens on inventories
20d. Obligations secured by securities deposited as collateral
22. Accrued liabilities (interest, taxes,
wages, etc ;
Other current liabilities (describe fully):

Total current liabilities
Fixed liabilities:.
24. Mortgage on plant (duo date
)..
28. Mortgage on other real estate (due
dato . . . . . . . . )
28. Chattel mortgage on machinery or equipment (due date
)
30. Bonded debt (due date
)
32. Other fixed liabilities (describe i'ully):

Total current assets.
Fixed assets:
31. Land used for plant
33. Buildings used for plant
35. Machinery
37. Tools and plant equipment
39. Patterns and drawings
-11. Oflice furniture and fixtures
43. Other fixed assets, if any (describe fully).

Less:
45. Reserves for depreciation.
Total fixed assets...
Deferred charges:
47. Prepaid expenses, interest, insurance,
taxes, etc.
Ot her assets (49)
Total assets.




Total liabilities.
Not worth:
34. If a corporation—
(a) Preferred stock (less stock in
treasury)
(6) Common stock (loss stock in
treasury)
(c) Surplus and undivided profits - .
Less—
(d) Book value of good
will
(e) Deficit

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

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 ! b a n k a l ^ J * has to keep more than 4 per cent
which contain information believed to be of ji ^ r ™ jn P % C e ^ O i l hffd f ^ "loiiey his
...
- • -n i • -n
•
T •
> •
i a- S um(J ' t evidently, as already stated, relates
general, interest to l o a e r a i Eeserve Banss and , T l l o r o l y t o t h o r o s c ^ e b a n k balance.
member banks of the system.:
j 2. As is shown in tho table printed on 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, b u t 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. I t 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




286

FEDEBAL RESERVE BULLETIN.

in reserve rather than a reduction as applies to
country banks. Accepting Mr.
's figures
as correct, we may yet decline to accept his
average figures for central reserve city banks,
reserve city banks, and country banks, because the Wo former classes have no direct
relation to the point he is arguing, which is the
condition of the country banks under the proposed amendments. What he does show is that
within the past two years the vault cash carried by country banks has varied from 5.37
per cent to 5.75 per cent. What he neglects is
that under the proposed plan the requirements
of the bill would permit him to use national
bank notes and Federal Reserve notes in place
of reserve money which he has been carrying
heretofore. He could, from a study of his requirements, ascertain the dates on which funds
would bo needed, and could have notes forwarded to him from his Federal Reserve Bank.
In other words, the proposed plan would
enable him to carry his vault-cash reserve very
much more economically than at present.
The same, of course, is true of the other classes
of banks of the country.
4. It should, however, be admitted that
national banks located in places where there
are heavy pa}r-roll requirements need to keep
constantly available very much more than
4 per cent or 5 per cent of vault cash, and
that in the case of some such banks the requirements of the proposed amendments are
likely to be onerous. This would be true of
almost any requirement that could bo framed.
It does not moan that the banks as a whole are
unfavorably affected, but merely that in sporadic cases the banks by reason of their special
necessities may be subjected to hardship.
MARCH 8,

1917.

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

I wish to acknowledge receipt of your letter
of March 12, involving the construction of
that part of section 13, which reads as follows:
"No member bank shall accept, whether in a
foreign or domestic transaction, for any one
person, company, firm, or corporation, to an
amount equal at any time in the aggregate
to more than 10 per cent of its paid-up and
unimpaired capital stock and surplus, unless
the bank is secured either by attached documents or by some other actual security, etc.'*
This clause places a 10 per cent limit upon
the amount of acceptances which any member
bank might make for any one person, company,




APRIL 1,1917.

firm, or corporation. That limit, however,
does not apply if "the bank is secured either
by attached documents or by some other actual
security growing out of the same transaction
as the acceptance." I understand that }^our
construction of this provision is the current
one; that is, that if documents which were attached at the timo of the acceptance are surrendered and no other actual security growing
out of the same transaction is substituted,
then the 10 per cent limit will apply. The
accepting bank must remain secured" in the
manner prescribed during the life of the acceptance in order to be "exempt from the 10
per cent limit.
The only doubtful question is as to what
constitutes "some other actual security growing out of the same transaction as the acceptance." Shipping documents accompanying a
bill of exchange are ordinarily surrendered
upon acceptance, and unless the accepting
bank is given some other actual security in
their* place the 10 per cent limit would apply
as soon as the original documents are surrendered. If a warehouse receipt for the
goods is given upon the surrender of the shipping documents, the bank would undoubtedly
be secured in the manner contemplated by the
act, but if an ordinary trust 'receipt which
enables the purchaser to obtain the goods for
his own uso is substituted for those shipping
documents the Board understands that the
10 per cent limit would apply, inasmuch as such
a trust receipt would not constitute an "actual
security>? within the meaning of the section
quoted. The 10 per cent limit, however,
should not apply in any case where the acceptor
is secured by a trust receipt whose terms preclude the possibility of the goods coming into
the hands of or under the control of the purchaser, as where the goods are held by some
person, firm, or corporation, independent of
the purchaser.
There is no doubt, therefore, that in any case
where shipping documents or warehouse receipts are held by the acceptor the 10 per cent
limit does not apply; so also in any case where
the acceptor holds a trust receipt which does
not enable the borrower to obtain the goods for
his own use, the 10 per cent limit does not
apply; but in any case where the bank holds
merely the ordinary trust receipt which gives
it only a lien on the goods in the hands of the
purchaser or on their proceeds, the 10 per cent
limit should apply.
As you intimated in your letter, this question
of limiting the right of a member bank to accept
is separate and distinct from the limit imposed

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 referMARCH 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.
(To a Federal Reserve Bank.)
might accept, without limit, domestic drafts
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. I trade acceptances which are drawn at the time
MARCH 13, 1917.
j of, 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.)
I beg to make the following reply to your existing value.
inquiries made to-day over the telephone:
j A bill drawn for a balance due on open
A bank having a capital and surplus of j account, of long standing, which is accepted
$288,000 may, under the National Bank Act, by the debtor, might constitute a trade acceptlend to a customer on his own obligation a sum ance, but in order for it to be excepted from
not to exceed $28,800 (10 per cent of capital j the limitations imposed by section 13 of the
and surplus). The bank may, however, in! Federal Reserve Act as a bill drawn against
addition to such loan, discount for the same actually existing value it must have been
customer (although he may have a direct line j drawn contemporaneously with, or within such
of credit in bank up to the 10 per cent limit), | a reasonable time after, the shipment of the
bills of exchange drawn against actually ox- | goods as to justify the assumption that the
isting value, or commercial or business paper | goods are in existence in the hands of the
actually owned by him. The bank may, there- drawee in their original form or in the form of
fore, legally discount for the customer bills of proceeds of sale.
As evidence of this fact Federal Reserve
exchange drawn by him for the purchase price
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
determined whether or not the account is one
limitations prescribed by section 5200.
A member bank acquiring such acceptances of long standing.
MARCH 12, 1917.
or notes may rediscount them with its Federal
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
(To a Federal Reserve Bank.)
the Federal Reserve Act; and the Federal
Your letter of March 5 has been received and
Reserve Bank can not discount paper bearing
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:
(1) Whether the Board has any objection to
plus of the member bank offering such paper.
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 applicaReserve Bank without reference to the limita- tions.
(2) Whothor a member bank should carry
tions imposed by section 13 of the Federal
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.




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 apMARCH 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.
The Board will be glad in all cases to expe- fact that office letter dated March 21, 1917,
dite action on all applications as far as possible, j may have been construed to mean that membut, as stated, does not feel that any pay- i ber banks may purchase outright Government
ments should be accepted nor deposits received | vouchers assigned by contractors or others
from applicants until the applications have ! having claims represented by such vouchers
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 let- can not be permitted to make his own disregard
ter. The Board understands from the War of the statute the basis for impeaching the setDepartment 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 cov- i 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 necesYour 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.




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
original bill.
the last edition of the Bulletin:
A more doubtful case would be that of a bill
Place of Payment of Acceptances.
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 nonnegoprior 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
an acceptance to pay at a place different from the implication in such case was that A inthe residence of the acceptor is a qualified ac- tended the bill to be paid at the place of
ceptance and whether the bill is thereby ren- drawee—that is, at Springfield—and any
acceptance by B to pay the bill at any place
dered nonnegotiable.
outside of Springfield was considered a qualiThe broad rule is that an acceptance must
assent without qualification to the order of the fied acceptance such as would release the
drawer, but section 140 of the Negotiable In- drawer and prior indorsers.
The decisions of the American courts which
struments Law provides that—
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 7bill is to be paid there only and Law and, therefore, have no application to the
not elsewhere.'
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.
Section 140 of the Negotiable Instruments
nonnegotiable unless the acceptance is in such
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 acceptance unless it expressly states that the hill
drawer.
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.
It has been contended that the drawer and
Now York and an acceptance by B, in Springfield, 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-




290

FEDERAL RESERVE BULLETIN.

APRIL 1,1917.

tions 124 and 125 apparently negatived those as the acceptor does not stipulate that the bill
will be paid only at a particular place not
provisions.
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.
Respectfully,
instrument. Section 125 specifically provides
M. C. ELLIOTT, Counsel.
that any alteration which changes the time or
To Hon. W. P. G. HARDING,
place of payment or which adds a place of
Governor Federal Reserve Board.
payment, where no place of payment is specified, 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:
First, there is no express provision of law
125 do not, therefore, have any application to
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




APRIL 1,1917.

elected and qualified. Under the decisions
first referred to, therefore, which hold that an
officer can not hold over in the absence of express authority, it is clear that a Federal Reserve Bank director could not act as such after
the expiration of his term of office.
Second, the courts generally agree that
where an officer is elected for one }Tear only he
can not hold over beyond the end of that year.
Such a provision is necessarily construed to
prohibit the right to hold over. (Keg. v. Durham, 10 Mod., 147; State v. Perkins, 139
Mo., 106.)
The Federal Reserve Act provides that the
directors of classes A, B, and C, respectively,
shall, at the first meeting of the board of
directors, designate one of the members of
each class—
" 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
at the end of two years from said date, and
one whose term of office shall expire at the end
of three years from said date. Thereafter
every director of a Federal Reserve Bank
chosen as hereinbefore provided shall hold
office for a term of three years."
It will be observed that in fixing the terms
of office of the directors first selected or appointed, Congress specifically provides that
the term of office of such directors shall expire
at a fixed period—that is to say, one, two, or
three years from the 1st of January nearest to
the date of meeting at which the terms are
allotted. In the opinion of this office, this
language impliedly prohibits any of the directors first elected or selected from holding over
after the date on which their terms definitely
expire.
While the language used in fixing the term
of office of those subsequently elected is more
general, the act providing that such directors
"shall hold office for a term of three years/ 7 it
is reasonable to assume that Congress did not
intend to make any distinction between the
directors elected when the Federal Reserve
Banks were first opened and those subse-




291

FEDERAL RESERVE BULLETIN.

quently elected, and accordingly the implied
prohibition against the first directors holding
over should apply with equal force to those
elected after that time.
In this view, whether the rule adopted by
some courts that an officer may not hold over
unless expressly authorized to do so, or whether
the more liberal view is adopted that officers
may. hold over unless the statute fixing the
term of office prohibits it, it would seem that
a Federal Reserve Bank director will have no
authority to continue to serve after the expiration of his term and until the election of a
successor.
Respectfully,
M. C. ELLIOTT, Counsel.
To Hon. W. P. G. HARDING,

Governor Federal Reserve Board.
Drafts Payable On or Before Certain Date.
Drafts payable "ninety days from date or before on five
days after demand (i. e., on five days' notice) by the holder
hereof" are negotiable and eligible for discount with a
Federal Reserve Bank.
F E B R U A R Y 23,

1917.

SIR : The question has been raised whether a
draft is negotiable and eligible for discount
with a Federal Reserve Bank which is payable
" Ninety days from date or before on five days
after demand by the holder hereof.''
This language is understood to mean that
the draft is payable "ninety days from date or
before on five days7 notice by the holder."
Section 4 of the Negotiable Instruments Law
provides that:
"An instrument is payable at a determinable
future time within the meaning of this act
which is expressed to be payable. * * *
"(2) On or before a fixed or determinable
future time specified therein,'7 etc.
The effect of the language under consideration seems clearly to make the draft payable
90 days from date or at some date prior
thereto, provided the holder has given five
days notice to the acceptor. In this view it
would not be nonnegotiable.

292

FEDERAL RESERVE BULLETIN.

To eliminate any possible ambiguity it is
suggested that the wording be changed so as to
substitute the word "notice" for the words
"after demand. 7 '
Respectfully,
M. C. ELLIOTT, Counsel.
To Hon. P. M. WARBURG,
Vice Governor Federal Reserve Board.

Usurious Charges by National Banks.
Where a national bank, in addition to charging interest
at the highest legal rate, requires a borrower to give an
additional note, accept a certificate of deposit for a like
amount, and put up such certificate as additional collateral
to his entire loan the transaction appears to be usurious.
MARCH 12, 1917.

SIR: There has been submitted to this office
for an opinion the following case:
A man owes a national bank $14,000 on notes
secured by good collateral. In order to prevent
a suggested immediate demand of payment the
borrower is asked to give an additional note for
$3,000 and accept a certificate of deposit for the
proceeds of this additional note and put said
certificate up as collateral for his entire loan of
$17,000. In other words, a borrower is paying
the legal rate of 6 per cent on $17,000 and has
the benefit of only $14,000. Is this usurious ?
This transaction on its face would appear to
be usurious, but I have been unable to find any
adjudicated case dealing with this precise question. There are cases holding that claims
for services and expenses may be made
a cloak for usury. In other words, banks
charging excessive rates of interest have in
certain cases claimed that the consideration for
the excess was services rendered or expenses
incurred. (See in re Wilde's Sons, 133 Fed.^
562.) The courts have generailj held in cases
of this sort that whether the charge is a cloak
to cover usury or is made in good faith for




, 1917.

expenses actually incurred, or services actually
rendered, is one for the jury to determine upon
all the facts in each individual case. (Do Forrest v. Strong, 8 Conn., 513; Sanders v. Nicholson, 111 Ga., 739; Massey, McKessom & Go, v.
McDowell, 20 N. C, 120.)
In the case of New England Mortgage Security 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
jury, said, on page 653:
"If the services were actually performed for
the defendant at his request, if the commissions
were for specific services and actual expenses
authorized by him, and if they were reasonable,
they would not be usurious. If they wore not
performed for his benefit, at his request for
specific services and actual expenses authorized by him, and if they are unreasonable and
without meritorious consideration, you will be
justified in finding that the charge Is a mere
cloak for usury and the plaintiff forfeits the
amount of such excessive charges.'1
The jury found the commission usurious.
In the case presented for consideration it
does not appear that the bank claims to have
rendered any services or to have incurred any
expense in the matter. It has merely agreed
to extend, or at least not to demand payment of,
the loan on the condition that the customei
borrows an additional 83,000 from the bank
and hypothecates the certificate representing
this $3,000 as security for his indebtedness to
the bank.
In the absence of any proof of consideration
other than the lending of the money in question,
a jury would no doubt find this to be a usurious
transaction.
Eespectfully,
M. C. ELLIOTT, Counsel.
To Hon. JOHN SKELTON WILLIAMS,
Comptroller of the C;./.''TV.<><??/,

rnir. l, 1917.

293

FEDEKAL EESEKVE BULLETIN.

SUMMARY OF BUSINESS CONDITIONS MAR. 23, 1917.
District No. 1—
Boston.

District No. 2^
Ncw York.

District No. 3— j District No. 4—
Philadelphia. j
Cleveland.

Unsettled: await- :j Satisfactory; coning d e v e l o p servatism"
in
merits.
, some lines.

General business..
Crops:
Condition.

i

:

Industries of the district.

Busy

Small supply of
grain on farms;
prices high.
Active
'

Construction, building, i Below last year.. .| Larger than a year
;
and engineering.
i
ago.

i

|

II Decreased
I
!

j Contraction in imports and ext
d
ports.

i

B ank clearings

I Increased

Increased.

Money rates

I Dull, but firm

Market quiet aivi
firm.

Kailroad, post office,
and other receipts.
Labor conditions
Outlook
RemarVs

Increased

About the same as
last month.
.1 Well employed
;
j
;
'

i Well employed at
! high wage's.
Uncertain, pond- ; Favorable
ing international I
;
developments. J
'
\ Business in large
j volume: some re- :
;
lief in traffic con-':
gestion; indicalions of active
spring season, j
District No. 7—
Chicago.

District No. 8—
St. Louis.

Running full; production limited
by scarcity of
supplies
and
freight facilities.
Number of per- Some labor trou- Interference
by Fair.
mits decreasing.
bles in building
badweather,but
trades.
materials in good
demand.
Exports reached
Congested at ports. Limited.
new high record
|
during Februj
ary. "
j
j
Far ahead of last ' Increased
Slight increase
Increasing.
year.
.
I
Rales have sof- i Unchanged...
4 to 0 per cent; in- Stationary.
tened somewhat.
crea'sing
d cmand for now
crops.
Gross receipts in- Slight increase >. Normal or higher.. Steady.
creasing;
net
j
earnings
de- j
\
creasing.
i
:
Fair
; Unsettled
Fully employed Growing
at good wages. ; shortage.
Good
Favorable
Fair.
; Favorable...."
Improvement in
transport a t i o n
situation.

District No. 10—
Kansas City.

District No. 9—
Minneapolis.

DistrictNo.il—
Dallas.

Construction, building, Slow
and engineering.
foreign trade...
Ban!,-, clearings..

Incrcasin g

Money rates

Steady

Railroad, post office, j Post-office receipts
and oiher receipts.' • increasing.
!
i
;
Labor conditions
| Good
Onilook
i
do
Remarks
: Railroad situation
j unsatisfactory.




!

.: |

Uncertain
; Good

Good

;
;

: Active

' Improved
Fair
Busy..

:

; Loss in St. Louis; .
• increase else- j
i where.

Fine prospects

j Decreased.

; In crease

D ecrease

; No change.

About the same...j Steady

i Post office gain in i
j St. Louis; slight "
! decrease eisc| where; railroad i
! increase.
;
i
;
I Promising
j
•
'
!
j

Large

i

Unsettled
Very good
Underlying situation in district
is t h o r o u g h l y
sound. Feeling
that good business will continue.

labor

General conditions :I
sat isfactory.
;

:

i
Crons:
'Condition
,
Good
Omiook
Industries of the dis- Active
irict.

Winter g r a i n s
poor; planting
delayed.
Labor* shortage;
orders plentiful.

i Active

Very active

General business..

Good,

Preparations delayed by bad
weather.
Encouraging

Fair.,
Very busy

District No. 0Atlanta.

" Good
i

J Average.

Outlook.

Foreign trade

Satisfactory

Good.

District No. 5Richmond.

i Increased..
I Increased.

District No. 12—
San Francisco.

Satisfactory;some j Good.
caution account i
international :
conditions.

: Very ircod
1 Promising
:
Active, though
hampered by
transportation
problems.
Above normal for
I season.

::
;
:

Favorable.
, Active,

;
! Slight increase.

Increase over 1910. Large and increas; iiiiz.
; 14 per cent increase 30 per cent increase
over March, 1916.
Slight increase is Easy.
• noted.
:
Increase
Increasing.

Satisfactory
i Above normal
: Fairly settled.
Favorable
; Favorable.
Encouraging
Car shortage and I Business cqndi- !j Early indications
give promise of
embargoes ham- j tions satisfacpering all lines. ! tory; car short- • unusually large
age felt; agricul- : production
of
tiiral conditions i foodstuffs,
promising; collections all lines igood and condi- •
tions sound.

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 busiAgents, 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
among buyers as to the value of skins, some
approximately March 23:
cases having occurred where this difference
DISTRICT NO. 1—BOSTON.
amounted to as much as 20 per cent.
Woolen and worsted mills continue busy,
Domestic and international problems of such
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 conThe paper trade is particularly unsettled besensus of opinion is that the demand will be cause of the high cost of materials and the un-




APRIL 1,1917.

FEDERAL RESERVE BULLETIN.

certainty of the news-print industry. Some
mills are running on part time, feeling doubtful
as to the future. The demand for pulp wood
has stimulated farmers to an effort to cut off
from their land much wood which has heretofore been sold at a low price for firewood.
The money market is dull. Banks are apparently accumulating money, but are not adverse to running strong of reserve. The demand is light, but the complicated situation
tends to keep rates firm. Call money, 4 por
cent; time money, 4-J- to 4J per cent for six
months, 4-| to 4f per cent for a year. Town
notes, 31 per cent upward for fall maturities.
Bankers' acceptances, 3 per cent indorsed, 31
per cent upward unindorsed.
Loans and discounts on March 17, 1917,
amounted to $465,298,000, as compared with
$472,293,000 last month and $409,061,000 on
March 18, 1916. Deposits on March 17, 1917,
totaled $371,143,000, as compared with $366,275,000 on February 17, 1917, and $342,502,000
on March 18, 1916. The amount "due to
banks77 on March 17 was $146,369,000, as compared with $146,432,000 on February 17. The
excess reserve of these banks increased from
$26,110,000 on February 17 to $40,293,000 on
March 17.
Exchanges of the Boston Clearing House for
the week ending March 17, 1917, were $221,114,491, compared with $219,789,796 for the
corresponding week last year and $199,304,087
for the week ending March 10, 1917.
Building and engineering operations in New
England from January 1 to March 14, 1917,
amounted to $29,235,000, as compared with
$32,153,000 for the corresponding period of
1916, the highest previous year on record.
Exports from the port of Boston for February, 1917, amounted to $22,390,613, as compared with $24,193,104 for January, 1917 (the
largest amount previously recorded), and
$11,796,694 for February, 1916.
Imports amounted to $21,743,471, as compared with $32,419,881 for January, 1917, and
$28,581,611 for February, 1916,




295

The receipts of the Boston post office for
February, 1917, show a decrease of $16,939.21,
or about 2\ per cent less than February, 1916.
For the first 15 days of March, 1917, receipts
were about 8 per cent, or $29,205.64 more
than for the corresponding period last year.
Boston & Maine Railroad reports net operating income, after taxes, for January, 1917, as
$987,780, as compared with $1,138,447 for
the corresponding month of 1916. New York,
New Haven & Hartford Railroad reports net
operating income, after taxes, for January,
1917, as $1,726,687, as compared with
$1,420,462 for the same month last year.
During the period in wThich a strike was
threatened, a very rigid embargo was put
into effect on all lines in this district, but as
soon as a settlement was made this was lifted
and the embargoes in force previously were
reestablished. The freight situation is now
about the same as last month.
DISTRICT NO. 2—NEW YORK.
Business in this district continues in large
volume and there is every indication of an active
spring season. The serious turn in our foreign
relations and the uncertainty of transportation
conditions have produced a feeling of conservatism in many lines, but, reviewing the situation
as a whole, commercial and industrial transac*
tions are larger than at this time last year. The
feeling of hesitancy is most apparent in connection with future buying, and the general tendency seems to be against stocking up with highpriced merchandise. In some branches, however, supplies on hand are inadequate and forward needs are so heavy that activity is unchecked in spite of rapidly advancing prices.
A further rise has occurred in the general
level of wholesale prices, and index numbers for
March 1 were 25 per cent higher than on the
same da}^ last year. The widest changes occur in food products, especially potatoes and
other vegetables. There was also a noteworthy advance in cereals and certain meats
and provisions.

296

FEDERAL RESERVE BULLETIN.

The congestion on thq railroads, which has
seriously hampered nearly every branch of
industry, has been somewhat relieved and with
the approach of milder weather decided
progress is expected. The settlement of the
threatened railroad strike has had a stimulating effect in many directions.
The past few weeks have brought an improvement in operating conditions in the iron
and steel industry, and production in both pig
iron and finished steel has been increasing.
The output of pig iron in February showed
a marked falling off, due largely to the serious
shortage of coke. Prices of iron and steel
continue to rise under a heavy demand and
the strength of the market has been accentuated
by actual and prospective Government orders.
Inquiries for finished steel, both foreign and
domestic, continue in large volume. The
steel plate mills are overwhelmed with contracts from shipbuilding interests.
In mercantile lines there has been a slight
lull during th6 past month, due mainly to the
fact that it is between seasons in some branches.
The volume of business, however, is large for
this period of the year and confidence remains
a conspicuous feature.
The silk trade has experienced a slight falling
off in business, but the textile industries are
very busy. The market for woolen goods has
been affected by the prospect of Government
orders for uniforms in case of war. Business
in the cloak and suit line has been very active
with some difficulty experienced in obtaining
certain fabrics, and labor conditions have
caused considerable annoyance. In spite of
these drawbacks, however, the trade has
been prosperous and a record spring season
is anticipated.
There has been no change in the past few
months in the large volume of business in
heavy chemicals. The railroad congestion
has hampered manufacturers to some extent,
but has not been a very serious difficulty in
this quarter. Although sales in the drug trade
are also very large, manufacturers are suffering from an insufficient supply of raw materials.




APRIL 1,1917.

In the hide and leather trade the outlook for
a heavy spring ousiness in the Middle West and
West is very bright. In the East conditions
are more uncertain, as buyers are apparently
nervous concerning the foreign situation.
Manufacturers generally feel that the recent.
British embargo on importations of shoes and
leather will not prove a serious handicap to
exporters and that these articles will be classed
as necessities and admitted under licenses.
The supply of grain which the farmers of
New York State had on hand on March 1 was
substantially less than the amount held on the
same date last year. A summary of the Government crop report for March estimating
stocks of grain on farms in this State shows a
decrease of 48 per cent in wheat, 62 per cent in
corn, 5.7 per cent in oats, and 45 per cent in
barley, compared with March 1, 1916.
H The stock market has been quiet and steady
in the face of many disturbing developments,
and has recently displayed evidence of renewed
activity and strength. Transactions in bonds
in February were on a restricted scale. There
were few offerings in new municipal issues and
corporation financing was light.
The call money market has been quiet, with
rates practically stationary, the prevailing
range being 2 to 2J per cent. Time loans on
regular mixed collateral ruled at about 3f- to
4 per cent for 60 to 90 days, and 4 to 4-| per cent
for longer maturities. Trading in commercial
paper has been light, most business being
transacted from 4 to 4J per cent.
In foreign exchange, sterling yielded slightly
during the month, but recovered, and francs
have remained steady. Lire declined to a new
low record of 7.87 on March 15. Marks and
roubles were irregular, while guilders showed
slight recessions.
The statement of the New York Clearing
House dated March 17, 1917, shows loans, etc.,
$3,558,906,00.0, deposits $3,831,403,000, and
excess reserves $163,838,970. Since February 3
loans have increased $47,000,000, deposits increased $57,000,000. excess reserves decreased
$1,600,000.

297

FEDERAL RESERVE BULLETIN.

APRIL 1, 1917.

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
Changes
general that there will be a shortage of coke for
February, 1917. February, from
1916.
some time.
'Bank clearings, New York City J 812,794,087,245 + 81,687,349,968
As the result of special inquiries it is evident
New York Stock Exchange— i
Shares
13,608,769 41,588,633 that concerns which are consumers of coal to a
New York Stock Exchange— |
$75,971,000 Bonds
.....!
84,419,000 considerable extent have been much hampered
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 inBuilding Dermits, New York City.j
S10,852,177
81,734,057
Postal receipts, New York City....
$2,697,455
$47,754
Merchandise exports at New York.'
S223,464,135
81,470,805 quiries made of representative concerns in this
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 a s t e r n
States...'
New 1 ii a rjci rig
1

,

8283,815,000
3213,872,600

$82,180,300
389,681,700

Summary of replies.
Outlook.

DISTRICT NO. 3—PHILADELPHIA.

While less active than recently, the volume
of business transacted in most lines continues
on a large scale. Stimulated by the United
States Government's inquiries and orders,
prices of many articles have been further advanced. Because of the uncertain foreign
situation, however, commitments are being undertaken with caution.
The very heavy demand for plates has been
the feature of the steel situation and has
brought about another advance in prices.
Pig iron is higher, but there is great uncertainty as to the course of prices. Old material
is in demand at higher prices.
Buying is not active in the cotton yarn trade,
as most manufacturers have their needs covered
by contracts for yarns for about three months
ahead, and are not anxious to make further
purchases at the present prices, which have
been rising during the past month.
Business continues good among the local
wool houses. Prices are firm but are not now
carried forward by speculation as has been the
case during the previous months.
The transportation situation continues to be
the determining factor in the local coal market.
During the period when the railroad strike was
impending extreme fluctuations occurred.
Since the settlement no concessions have been
made in prices, which, however, are much
steadier. Less labor trouble is reported than




Industries reporting.

Agricultural implements
Automobiles and parts
Builders supplies,rooQi]g,etc.
Carpets, rugs, oilcloth
Cement, iime, etc
Chemicals, fertilizers, drugs.,
soaps,etc
Coal and coal mining
Confectionery
Cotton and cotton goods
Dental supplies
Department stores
Drygoods and notions
Dyeing and finishing
finishing
Electrical and gas apparatus.
i l
d
Flour, grain and grist mill
products
Furniture
Glass
Groceries and food products.
Hardware
Hosiery and knit goods
Iron and steel
Leather, hides, and glazed
kid...'.
Locomotives, boilers, engines, etc
Lumber and mill work
Machinery, foundry products, machine tools,, etc...
Men's and women's wear
Metals: Copper, brass, zinc
and tin
.'
Musical instruments, pianos
and talking machines
Paints and coloring matter..
Paper and paper products...
Petroleum and refining
Plumbers' supplies
Pottery and pressed brick...
Railway cars and parts
Rubber goods
Shipbuilding
Shoes
Siik, laces, etc.
Slaughtering and packing..,
Tobacco, cigars, etc
Wire.
Woolens and worsted
Miscellaneous (adverfcising,
hair,, hotels, ink, pens,
rope', toys, etc.)
.,
Total..

Replies
received.

Excel- Good. Fair.
lent.

20
332

185

43 !

Uncertain. Bad.

298

FEDERAL RESERVE BULLETIN.

Summary of replies—Continued.

Summary of replies—Continued.

Industries reporting.

ApproxiAre you
mate in- Are your seriously
crease in
profits
handicosts of pro- being cut capped
duction by rising by labor
during past
costs? shortage?
year.
In
mate- Yes. No. Yes. No.
*•»•• rial!

Agricultural implements
Automobiles and parts
....
Builders supplies, roofiing, etc.
Carpets, rugs, oilcloth
Cement, lime, etc
Chemicals, fertilizers, drugs, soaps, etc.
Coal and coal mining
Confectionery
Cotton and cotton goods
Dental supplies
Department stores
Drygoods and notions
Dyeing and finishing
Electrical and gas apparatus
Flour, grain and grist mill products...
Furniture
Glass
Groceries and food products
Hardware
Hosiery and knit goods
Iron and steel
Leather, hides and glazed kid
Locomotives, boilers, engines, etc
Lumber and mill work
Machinery, foundry products, machine
tools, etc
Men's and women's wear
Metals: Copper, brass, zinc and t i n . . .
Musical instruments, pianos and talking machines
Paints and coloring matter
Paper and paper products
Petroleum and refining
Plumbers' supplies
Pottery and pressed brick
Railway cars and parts
Rubber goods
Shipbuilding
Shoes
. .
Silk, laces, etc
Slaughtering and
Tobacco, cigars, ei
Wire
,
Woolens and worsteds
Miscellaneous (advertising, hair, hotels,
ink, pens, toys, etc.)
Total

Industries reporting.

Per Per
cent. cent.
18
17
23
19
29
41
22
36
19
34
15
18
26
51
10
30
14
26
19
16
22
62
21
36
20
62
17
33
24
83 |
20
37 !
25.
62 j
17
58 I
38
73 !
24
57 |
20
76 •
16
39 |

2

6

58

9

37

2
4
10
2

19

11
149

205

Is your
progress
materiIs your labor as
ally reefficient as it was? tarded
through
difficulty
in procuring
raw materials
A year
Before
and
ago.
the war. supplies?

Cement, lime, etc
Chemicals,
fertilizers,
drugs, soaps, etc
Coal and coal mining
Confectionery
Cotton and cotton goods...
Dental supplies
Department stores
Drygoods and notions
Dyeing and finishing
Electrical and gas apparatus
Flour, grain and grist mill
products
Furniture
Glass....
Groceries and food products
Hardware
Hosiery and knit goods....
Iron and steel
Leather, hides and glazed
kid
Locomotives, boilers, engines, etc
Lumber and mill work
Machinery, foundry products, machine tools, etc..
Men's and women's wear..
Metals: Copper, brass, zinc
and t i n . . . ; . . .
Musical
instruments,
pianos and talking machines
Paints and coloring matter.;
Paper and paper products.!
Petroleum and refining
;
Plumbers' supplies
!
Pottery and pressed brick.'
Railway cars and parts
Rubber goods
Shipbuilding
Shoes
i
137 192 158 Silk, laces etc
Slaughtering and packing. I
Tobacco, cigars, etc
i
Wire.......
:
Woolens and worsteds
I
1
Miscellaneous (advertising,
hair, hotels, ink, pens, i
Length of
rope, toys, etc.)
; 8 10
time in which
present deTotal
i 172 174
mand for and
consumption
of your product is reasonably certain
to continue.

Six
Yes. No. Yes. No. Yes. No. One
year. months
Agricultural implements..
Automobiles and parts
Builders supplies, roofing,
etc
Carpets, rugs, oilcloth
i Approximate average.




Industries reporting.

Is your
progress
materiLength of
Is your labor as
ally re- time in which
efficient as it was? tarded
present dethrough mand for and.
consumption
in pro- of your prodcuring uct is reasonraw ma- ably certain
terials to continue.
A year
Before
and
ago.
the war. supplies?
One
Six
Yes. No. Yes. No. Yes. No. year.:I months

12

121

APRIL 1,1917.

5

13
10
3
2

11

12

11

137 215 j 184 151

5
207 !

102

One deduction which may be drawn from the
replies received is that business men regard the
situation with more confidence now than in
September of last year, but with less optimism
than in March, 1916. A greater percentage of
concerns are now reporting the outlook as " excellent" or "good," and a smaller percentage
as "fair" or "uncertain," than was the case at
the time of our last inquiry. A comparison of

Amir, 1,1917.

299

FEDERAL RESERVE BULLETIN.

the replies received to similar questions six anticipate the demand for their goods will continue as at present for at least a year, and 102
months and a year ago is as follows:
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, comPercentage of concerns reporting businesspared with $2,437,750 in the same month of
G7
54
75
Excellent or good
13
19
17 last year.
Fair
This represents 815 operations, as
20
27
Uncertain or bad
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
244
237
157
Excellent or good
83 due to higher costs of materials, etc., and is not
Fair, uncertain, or bad
135
118
necessarily indicative of larger building operProduction 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 increase in costs of They wore valued at $57,652,322, an increase
production durof $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.
Report of March, 1917
21
49 $9,176,185, February, 1916, and $9,093,450, for
18
43
Report of September, 1916
The largest gain in the
11
Report of March, 1916
46 January of this year.
import trade was in the receipts of crude petroAnswers 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,
1917, and 95 in February of last year. R. G.
creased production costs:
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
Report of March, 1917
205 !
137
Report of September, 1916
205 !
84 the increased bank clearings, shown in the fol212 '
97
Report of March, 1916
.
lowing table:
i

The transportation .situation is disturbing
business concerns in this district. More than
75 per cent of the reporting concerns declare
that their business is seriously hampered by
inadequate railroad service, while nearly as
large a proportion report that they are seriously hampered by lack of steamship facilities. The difficulty in the latter instance is
due primarily to an actual shortage of available
ships.
It is interesting to note that a substantial
majority of concerns report the prospects of
business as good. Out of 362 replying, 207




Bank clearings.
February—

Increase
or decrease.

Clearings at—
1917

1916
l

Altoona
Chester
,
Harrisburg
Lancaster
Norristown
PhiladelphiaReading
Scranton
Trenton
Wilmington..
Wilkes-Barre.
York
Total.

S2.358,702
4,835,466
7,632,855
8,563,756
2,075,656
1,251,517,407
9,671,274
13.476,464
10)845,764
12,808,339
7,326,669
4,207,016 |

82,213,859
5,055,358
7,059,464
7,479,304
2,095,033
960,702,304
8,361,115
12,716,467
10,935,726
9,822,327
6,848,899
3,700,911

1,335,319,368 I 1,036,990,767

Per ct.
+ 7
— 4
+ 8
+15

.

+30
+16
+ 6
~ 1
+30
+ 7
+14
+29

300

FEDEBAL KESEEVE BULLETIN.

1,1917.

can afford. There are indications that in
some agricultural sections farming machinery
First 2 months—
Inwill be used to a greater extent than heretocrease
CJearings at—
or defore, by which the effect of the labor scarcity
1917
crease.
1916
will be modified.
Per ct.
Live stock.—The reports received from vari$5,193,984
-13
$4,597,840
Altoona
11,058,668
9,607,285
+15 ous sections of the district indicate that the
Chester
17,065,283
14,963,616
+14
Earrisbiug
18,362,669
15,340,563
+20 surplus supply of live stock used for foods is at
Lancaster
4,547,205
4,787,627
— 4
Norristown
2,649,208,582
1,975,601,495
+34 most not greater than the average of precedPhiladelphia
21,670,941
18,163,299
+19
Reading
.
. .
30,378,603
26,168,726
+16 ing years, and there has apparently been little
Scranton
20,781,386
19,568,399
+ 6
Trenton
26,082,393
22,227,616
+17 real effort to improve the situation.
Wilmington
16,517,202
14,338,006
+15
Wilkes-liarre
9,144,458
6,974,583
+31
York .
Industries.—Since the middle of March the
2,830,011,374 2,132,339,055
+33 industries of the district have resumed their
Total
•
•
forward movement with energy, and the indiThe 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
paper are slightly lower. Invested funds of for raw materials and manufactured products,
the Federal Reserve Bank have decreased over regardless of price, and there has been some
$3,600,000 during the past month, largely due evidence of making contracts, even at the
to the bank being out of the market for bank- present abnormally high prices for 1918 deliveries.
ers7 acceptances.
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
private deliveries. I t is entirely fair to say
extent.
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.
Coal and coke.—The producers are entirely
the tobacco and hemp crops of last year were
marketed at greatly increased prices to the ujiable 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 the put 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




Bank clearings—Continued.

APRIL l, 1917.

301

FEDERAL BESEBVE BULLETIN.

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
Permits
Per
situation really is the most serious drawback
Valuations.
issued.
cent
Increase
inat present existing in industrial enterprises in
crease
Feb., Feb., Feb., 1917. Feb., 1916. decrease. or dethis district.
1917. 1916.
crease.
Oil.—A new field in the Irvine district in
Kentucky is being developed, with very prom- Akron, Ohio
8435,575
166
253
S529,985
55
841,490
596,120
245,370
Ohio
29
ising results. It is reported that strata of Cincinnati, Ohio. 872 1,128 2,784,260 1,552,725 1,231,535
665
Cleveland,
704
44
99,749 1,832,041
Dayton, Ohio... 378
49 1,932,090
95
oil-bearing sands have been struck at shallow Columbus, Ohio 97 163 223,655 314,225 90,570 140
87,455
78
61
138,315
Erie, Pa
50,860
37
depths, and extensive developments are in Pittsburgh, Pa.. 141 298 251,535 1,312,686 1,061,151 142
Toledo, Ohio.... 152
700,781
312,648
180
progress. Other fields in this district con- Y o u n g s t o w n ,
75
85,665
43
255,420
169,755
tinue to capacity of existing equipment, with Ohio".
2,711 2,851 7,780,458 5,184,981 2,595.177 1 33.3
•Total
high prices maintained.
Glass, pottery, and clay products.—All of these

industries have been affected by fuel and
transportation problems, but the correspondents present a hopeful view for the future*
In some localities where gas has been used
previously, it is reported that the use of coal
is contemplated.
Rubber goods.—Akron reports continued activity with increased production in all branches
of the rubber industry. Laborers recently
employed in the rubber goods factories are
said to be less efficient than former help, and
demand higher wages.
Mercantile business.—There is not much
change from the preceding months in commercial activities, unless it be a lessening of stocks
of goods by reason of inability to secure shipments; but collection conditions have become
a little less favorable.
Foodstuffs continue to advance in price,
and there is in the cities evidence of decreasing
surplus supplies, indicating perhaps further
advances.
Building operations.—The table following
shows the comparison of building operations
for February of this year and of last year. In
Cleveland a lockout of building trades by
employers has affected 20,000 workmen and
practically stopped construction of buildings
of estimated value of over $15,000,000. This
condition will undoubtedly have its effect on




1

Decrease.

Money and investments.—A cursory examination of the published statements of banks under
the Comptroller's and State Banking Department's calls for reports of condition as of
March 5 indicates further gains in the deposit lines generally, though in some localities
the increase has been merely nominal. The
supply of loanable funds in banks is more than
adequate for the needs of the respective localities, and rates continue for the most part unchanged. There was a lessened demand at
lower prices for investment securities during
the first half of the month of March.
Bank clearings.—-Bank clearings maintain increases over the corresponding period of the
preceding year, as indicated below, in nine of
the principal cities:
Feb. 16 to Mar. 15,
inclusive—
Increase or
decrease.

Per
cent
increase
or decrease.

1917

Akron, Ohio
Cincinnati, Ohio
Cleveland. Ohio
Davton, Ohio
Columbus, Ohio
Erie, Pa..l:
Pittsburgh, Pa
Toledo, Ohio..
Youngstown, Ohio
Total

191(5

$23,114,000
149.950,702
230', 711,100
15,382; 030
36,957,200
6,506,079
304,998,557
•41,807,793
12,201,597

$15,124,000
129,280,850
144,0(55,228
31,849,256
42,198,100
5,023,012
243,029,422
34,455,002
9,193.730

87,900,000
20,669,852
86,645,771
3,532,754
i 5,240,900
1,483,667
61,969,135
7,352,701
3,009.. 800

35
14
37
23
U4
23
20
18
25

821,029,(14 3 ! 634,213,602

187,412,939

22.8

302

FEDERAL RESERVE BULLETIN.

Post-office receipts.—The postal receipts in
nine of the largest cities of the district for the
month of February, as compared with the
same month last year, are as follows:
February, February,

Per
Increase cent
in
or dedecrease. crease
or decrease.

1917.

Akron, Ohio
Cincinnati, Ohio..
Cleveland, Ohio...
Dayton, Ohio
Columbus, Ohio...
Erie, Pa
Pittsburgh, Pa....
Toledo, Ohio
Youngstown, Ohio
Total

1916.

869,371
244,932
339,387
61,812
102,539
22,954
314,958
90,483
25,587

858,237
258,231
309,550
63,615
99,432
21,947
337,600
94,416
24,983

$11,133
U3,298

1,272,027

1,268,015

4,012

16
i 5

29,837

11,802
3,107
1,006
122,641
13,932
603

5
17
14
2
.003

i Decrease.

Labor conditions.—Labor is fully employed
in all lines, skilled and unskilled, except in the
building trades. There is a decided scarcity
in farm hands and high-grade mechanics, and
there does not seem to be any hope of relief.
There are indications of unrest in mining and
milling centers, though general conditions are
probably not less favorable than formerly.
The outlook for commerce and industry is
good, and fair as regards agriculture; necessarily, the agricultural situation will affect unfavorably the general conditions later. There
has recently been renewed effort to encourage
farm production, and if this should instill
greater energy into the farmer the prospects
would be better. It does not seem that the
movements for increased acreage or more
scientific methods in farming have been organized or developed to such an extent as to be
promising of results before the planting season.
DISTRICT NO. 5—RICHMOND.
There has been little or no change in conditions during the past month. Basic conditions
continue sound, but bad weather has rather
accentuated the " between-seasons" quiet.
Everybody, however, seems to be busy, at least
in preparations for the full opening of spring
activities.
The uncertainties of our foreign situation and
the possibilities of a railroad strike have been




APRIL 1,1917.

general subjects of comment and more or less
anxiety, particularly as to their bearings on our
own business conditions. Manufacturing concerns appear to have abundant orders, but inability to obtain supplies of raw material and
restricted freight facilities are limiting production. Ocean freight room is in restricted supply and to be had only at almost prohibitive
rates. This condition is causing the continued
accumulation of goods at the ports for export,
actual figures for exports necessarily indicating a material decline.
Postal revenues, clearing-house returns, and
railroad earnings continue on a normal basis,
and general trade is in good volume, collections
keeping pace with sales.
Actual building has been retarded by.bad
weather, but many new buildings and extensions of various plants are in contemplation,
building materials continuing to be in good
demand.
The damage reported from the severe freeze
something over a month ago proved to be exaggerated, as was indicated in last month's report. Only young berry plants were seriously
damaged, there has been considerable replanting,
and an increased production of strawberries
in the district is anticipated. The present
high prices for potatoes are stimulating production of this crop, the acreage planted is
limited only by seed and labor conditions, and a
sufficient crop may be reasonably anticipated.
This should materially reduce prices, with a
good margin of profit left to the producers.
Manufacturers of fertilizers appear to have
practically sold out, leaving a considerable demand unsatisfied. This, however, is not likely
to lead to any hardship, but, on the contrary,
will induce conservatism in operations.
On February 27 Governor Seay issued to
member banks and others in the district a food
circular which has aroused general interest in
the subject and, it is anticipated, will stimulate
the production of food supplies in every line.
Applications have been received from member
banks and others for over 25,000 of these circulars, for general distribution in the various sections and communities of the district.

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- I cent 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
in the Mobile mill yards.
lated exports at the ports.
Car shortages and embargoes are also seriGeneral relief is expressed at the settlement
of 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 doThe 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- j 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" ! owing to the fact that there was no snow on the
i
taring centers has continued with a steady I ground. Winter grains have been practically
flow during the winter months. Little of this j 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 transporThe potato crop of Florida will mature
tation conditions and the weather. A great within the next six weeks, and prospects are




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
prices.
much as first reported.
The demand for sea food products conGeorgia peach growers were anticipating an
extra 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 I at 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 packGeorgia 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.
The commerce of the port of New Orleans
Hog and cattle prices continue to advance.
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
The banks throughout District No. 7 are
in the history of the county that our fanners
have a surplus of hogs and are shipping them well supplied with funds, as is evidenced by
their small borrowing requirements and the
to market."
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 uncertainBank clearings and deposits are largely in I ties both at home and abroad, savings banks
excess of this time last year. Collections I report 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




AritiL 1.1917.

FEDEEAL EESEEVE BULLETIN".

should the general situation clear up or should
there be an attractive offering of conservative
securities. Bond houses are having a quiet
business, with the city banks practically out
of the market and the ultimate consumer
taking but a small volume of securities.
While it is early to estimate with any degree
of accuracy the prospects for winter wheat,
nevertheless, weather conditions have favored
the crop over the greater part of this district,
and, unless a reversal of form occurs, it is believed that this district will produce more
winter wheat than was the case last year.
The grain markets have been very much disturbed because of the foreign situation, the
submarine campaign, and the railroad disturbance. Fluctuations have been violent
and shipping conditions have aggravated the
situation. Authorities believe that the underlying conditions are sound and that the requirements of the foreign nations will maintain prices at high levels for some time to
come, although it is natural to expect speculative Hurries based on transient conditions.
The manufacturing industries arc actively
engaged and report a good, demand, for their
products, with serious difficulty in making
shipments and in securing the necessary raw
material. The transportation situation has
been a serious problem and still is the cause
for considerable thought to manufacturers and
distributors in this part of the country. More
cars are available than was the case a month
ago, yet the supply is inadequate and in some
cases has brought about the closing down of
plants in this district. The agricultural implement concerns are finding a good demand
for their products at advanced prices, and the
volume of their output is satisfactory, although shipping difficulties are encountered
both in the distribution of the finished article
and in the purchase of the raw material.
Automobile companies are confident of a
continuing demand and are expanding their
plants, although the more conservative are
proceeding in this direction with caution.
The demand for building material is fair,
although there is a tendency to postpone con-




305

struction on account of the high cost of materials and labor. Coal is selling at a somewhat
lower price than prevailed during the past few
months, but is substantially above normal.
One of the largo mining concerns in our territory reports that their properties were operated 75 per cent of capacity last month and
that they were able to secure cars with less
delay than heretofore,
Maltsers are enjoying a prosperous business,
with a strong demand for their product, and
good collections. Distillers are satisfied with
present conditions, but the action of various
legislatures will .tend to cut down the wet territory. It seems to be the general opinion
that the so-called "'bone-dry bill" will, if
anything, benefit the legitimate distilleries.
In the dry-goods trade recent business has
boon of smaller volume than a year ago, and
a tendency toward conservative purchases is
evidenced by letters from wholesalers and
retailers. Collections are fair, and concerns
transacting business with the country districts are better placed than those in the
larger centers. This is attributed by some of
our friends to the wealth of the farming communities and the fact that in the centers the
high cost of foodstuffs has decreased the purchasing power of individuals whose salaries
have not kept pace with the increased cost of
living. The furniture business is fairly good.
Lumbering concerns which have enjoyed a
favorable winter are experiencing considerable difficulty in the matter of transportation,
and the demand for the retail product is less
than a year ago in the larger centers, which
may be due to the high cost of building.
Grocers are generally selling a satisfactory
volume of goods, and collections are fair. The
money required to handle a grocery business
at this time is considerably more than normal,
and collections, therefore, should be watched
with care. Consumers are substituting to a
considerable degree in an attempt to economise. Hardware is in excellent demand, with
collections prompt over most of this district.
Steel continues in strong demand, at high
prices, with great activity in wire products.

306

FEDERAL RESERVE BULLETIN.

We understand that large tonnages have been
bought for shipment during 1918, and some
concerns are trying to buy for 1919. Shipbuilding is active.
Leather has shown some falling off during the
past few weeks, and shoe manufacturers are
buying very cautiously. There is a waiting
market, but prospects are considered favorable ^
at least for the duration of the European war.
Live stock in the Chicago market has registered new high marks on light receipts of
cattle, and hog receipts have also decreased
materially.
The output of piano companies has been
interfered with through inability to secure
certain lines of supplies, and manufacturers
report a falling off in new orders. They, however, are busy on accumulated business, and
this, together with the present demands, is
keeping the factories working full time.
Jewelry concerns are receiving business in
excess of a • year ago and look forward to a
continuation of favorable conditions.
Clearings in Chicago for the first 21 days of
March were 81,544,000,000, being §328,000,000
more than for the corresponding 21 days in
March, 1916. Clearings reported by 20 cities
in the district outside of Chicago amounted
to $288,000,000 for the first 15 days of March,
1917, as compared with $207,000,000 for the
first 15 days of March, 1916. Deposits in eight
central reserve city member banks in Chicago
were $733,000,000 at the close of business
March 20, 1917, and loans were $510,000,000.
Deposits show a decrease of approximately
$10,000,000 over last month, while loans have
remained at approximately the same figure as
last month.
DISTRICT NO. 8—ST. LOUIS.
Although the past month has been one ol
great uncertainty, it can not be said that this
has had more than a healthy deterrent effect
on the business activities in this district. On
the whole business continues to be extremely
active, but has not increased in the same ratio
as during the previous month. Comments on




APRIL 1,

1917.

general business from well-informed men in
this district range from "good" to "extraordinarily active." Comment of this character covers practically every branch of industry.
Department stores report a large and profitable business with a demand for high grade
merchandise of all classes. The buying power
of the public is extremely large and the increased cost of many articles, particularly
shoes and other leather goods, does not seem
to have lessened the demand. Jobbing interests, especially dry goods, shoes, and woodenware, report satisfactory increases in shipments, unusually heavy orders for future delivery, and collections seem to be entirely satisfactory. Furniture manufacturers are reported to be sold up. Paper interests seem to
be handicapped by slow deliveries. Electrical
supply companies report sufficient orders on
hand to insure capacity operations for some
months. Wholesale drug houses and chemical
manufacturers report a very satisfactory business. Prices have continued to advance and it
appears that there is a scarcity in certain lines.
Climatic conditions in the past 30 days have
not been wholly favorable. Generally speaking the rainfall throughout the district was
considerably less than the normal in both January and February of this year, and it is
feared that this may have a bad effect on the
coming crops, as sufficient subsoil moisture is
essential. As it is still early in the season,
sufficient rainfall from now on may improve
agricultural conditions materially.
There has been little change in the cotton
situation in the southern portions of the district. A very large stock of cotton is carried
in Memphis; at this date approximately
355,000 bales as compared to 245,000 in 1916,
and 211,000 in 1915. The largest part of this
stock is held in the hands of cotton factors who
are holding for higher prices and all reports
indicate that their position this year is extremely strong. The movement from. Memphis is still handicapped by embargoes. Some
relief was afforded in the middle of March.
One correspondent reports that in his opinion

1, 1917.

FEDERAL RESERVE BULLETIN.

307

strike has removed this and freight conditions
are now reported to be more nearly normal than
at any time during the last month or two.
Freight embargoes on lines connecting with the
Atlantic seaboard have been lifted in many
cases and the movement of freight is generally
freer, although there are still some complaints
on account of delay. The freight movement
south and west is practically normal.
Index figures on the cost of living and commodity prices show further increases. It is
reported that this increase has reduced consumption in some lines. Eggs, potatoes, onions,
and cabbage are lower than a month ago.
High prices of provisions in general have shut
off the demand and the provision business is
not as active as usual. The stock of canned
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 move- at 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 imThe 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 conI stated that this shortage had hampered busi- ditions have improved somewhat from that
ness activity. Owing to the efforts of the time, and the outlook is favorable.
business interests throughout the district, conClearings 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

50,000 bales of cotton would be shipped from
Memphis if the railroads were restored to a
normal working basis.
The new crop conditions are of course still
uncertain. Planting has not begun and it
appears that crop preparations in some sections arc a little late. Reports on the acreage
vary considerably. It is estimated that there
will be a substantial increase in acreage in
eastern Arkansas but that the presence of the
boll weevil in Mississippi will have a deterrent
effect. Spring plowing is reported well advanced. There have been a number of heavy
freezes in the cotton belt, so that the ground is
in excellent shape, and it is hoped that the
severe winter weather will at least retard the
northward movement of the boll weevil. A
correspondent writes as follows:




308

FEDEEAL RESERVE BULLETIN.

cent. The market has shown in the last week
a less active demand and smaller offerings. It
is reported that firms have either completed
their financial arrangements or are awaiting
future developments. There has been little
or no chancre in hank rates to customers.
DISTRICT NO. 9—MINNEAPOLIS.

Frequent heavy snowstorms during the first
two-thirds of the month seriously interrupted
railroad transportation, and placed heavy burdens upon all lines of distributing business.
For continuous cold and for the amount of
snowfall, the winter has been the most severe
the district has seen in 37 years. The total
snowfall at Minneapolis breaks all records for
this period, and amounts to more than 80
inches.
While this will be of great advantage in the
farming districts, it will likewise cause considerable trouble from high water, especially if
warm spring weather comes on suddenly and
the snow goes off rapidly.
Local deliveries at urban centers were seriously interfered with by the storms during the
greater part of the month, and the coal situation was acute. The car congestion at terminals was so great as to make it practically impossible to switch loaded cars to delivery
tracks, and coal companies wore compelled to
put a 1-ton limit upon deliveries to householders. The car situation has been very bad,
and seriously interfered both with the milling
output at Minneapolis and with the movement
of freight of all kinds. Relief measures undertaken early in the month were very hopefully
received by the grain and milling trade, but
broke down later and produced comparatively
little effect. The principal milling concerns
have lately been compelled to cut their production to a limit proportionate to the number of
"empties" they have been able to obtain for
outgoing shipments, and have resorted to the
movement of a considerable amount of flour
and mill stuffs to Duluth and Superior, where
it has been warehoused in order to clear the
mills and give them opportunity to go ahead.
The railroads, coal companies, grain trade
concerns, millers, and many of the larger ship-




AVIUL 1,1917.

pers, have acted concertedly in trying to improve the situation, but as compared with the
first of the month it is not materially better.
Neither the possibility of war nor the possibility of a general railroad strike seemed to
make a very serious impression upon the even
course of both banking and commercial business during the month, which is evidence of the
soundness of conditions generally throughout
the district. Leading business men and bankers are of the opinion that the possibilities of
the immediate future have been accurately forecast in both banking and business circles, and
that further developments need not necessarily
bring serious effects.
The farm outlook in the district is bright.
As a whole, the farmers realize that the conditions are very favorable, and that the outlook
is for an extremely profitable year, and they
arc paying close attention to the suggestion
that all possible efforts be made to increase
the acreage planted. The agricultural districts face serious labor difficulties. Farm
hands will be scarce and wages high. This
may have the effect of somewhat cutting down
the acreage that would otherwise be planted.
Except as interfered with by storms, retail
trade has been satisfactory during the month,
and the same general conditions have applied
to wholesale business.
The comptroller's call found the banks in
the district in a strong position. Rates
showed some inclination toward firmness during the first 10 days of the month and stiffened
a fraction, but sagged off again to the previously prevailing level, and are approximately the same as a month ago. Savings
deposits have materially increased since the
last call, and the demand has continued good,
due partly to the railroad situation, which has
compelled the larger concerns, especially in the
grain and milling trade, to borrow at a time
of the year when they are usually paying off
their bank obligations.
The consensus of opinion is that, war or no
war, conditions in the district are sound and
the outlook is good.
Should a recession occur in price of the
principal articles entering into the cost of

APRIL 1, 1917.

FEDERAL RESERVE BULLETIN.

living, the situation will be further improved.
Some break is already apparent in the price
of potatoes, butter, eggs, and a few other
articles; but the scale of prices that the householder has to pay is uniformly high and burdensome.
DISTRICT NO. 10—KANSAS CITY.

The past month has witnessed events which
unquestionably would have, in less remarkable
times, proven serious obstacles to the continuance of active conditions. The extension of
an unusual winter drouth, the growing seriousness of matters affecting our foreign relations,
and the threatened nation-wide railroad strike,
together with the burdensome cost of living and
high price of labor, have had surprisingly little
effect other than a slight tendency toward
further conservatism generally, and an evidence of preparation for any eventuality.
Nothing seems materially to impede increasing
prosperity. •
Agriculture.—The prediction pi $2 wheat
was realized early in March, the highest price
ever paid on the local markets. Corn also
broke all price records. This month also witnessed the breaking of a winter that has been
unprecedentedly arid, rain and snow giving
temporary relief to practically all the winterwheat States, and the fields are taking on a
new lease of life. Only the most favorable
conditions, however, will bring about anything
like a normal wheat crop, as there has undoubtedly been severe damage in some localities.
Kansas has planted almost 9,000,000 acres, the
third largest in its history; Nebraska 3,650,000
against 3,300,000 the year before, while the
area in Oklahoma is 3,230,000 as compared
with 2,780,000 a year ago. There was also a
slight expansion in acreage in Missouri. The
belated moisture will now permit the completion of oats sowing and preparations for corn
planting will go forward. The four weeks ending March 24 witnessed a large shrinkage in the
grain movement to the markets of the district,
while holdings of wheat on farms on March 1
in the four principal wheat-producing States,
as compared with the same date last year, show




309

a falling off in excess of 30,000,000 bushels,
indicating that there will be an unusually small
surplus carried over into the new crop year.
Live stock.—The highest ruling prices ever
known for all classes of live stock were reached
on the markets in February. The lack of
finish of the major portion of arrivals, however, would indicate that shipments were made
at the expense of future supplies. Beef steers
brought from $1.25 to $2.75, hogs §4.50 to
$4.80, and sheep from $3.35 to $4 per hundred
pounds more than a year ago. During March
there has been a further advance in market
prices generally. Beet-pulp cattle are now
coming to market from Colorado. Hogs easily
occupy the center of interest in this industry,
the unheard-of price of $15 having been reached
on the local market on March 9. There has
been a noticeable decrease in hog slaughtering
as compared with the same period last year.
Increased activity is reported in the horse
market, the daily purchases by inspectors
for the British Government recently being as
heavy as at any other time since the beginning
of the war.
Mining.—With silver, copper, lead and zinc
selling at record prices, there is in creased
activity in the mining camps. Producers of
tungsten report a better demand from eastern
steel mills. Mine operators are forcing production up to the maximum in order to take
full advantage of the high prices. There has
been some new copper production in northern
and southern Colorado. Deep mining in' the
Cripple Creek (Colo.) district is producing
better results than ever anticipated and the
driving of many old shafts to new ore zones is
in prospect. Colorado authorities claim that
China's unexpected recent action in stopping
exportation of silver will mean that many mines
will be opened to help supply the world market.
There has been a strong market for lead, and
producers in the Missouri-Kansas-Oldahoma
district claim it is because of a large consumption.
Oil.—No material changes in prices have
been posted, but the prediction is freely made
that, by reason of reduced production and

310

FEDERAL RESEEVE BULLETIN.

increased consumption, further increases must
soon arrive. When pipe-line facilities now
planned for Wyoming become available, that
State's activities will take on a more substantial character. Three new oil refineries are
now being planned. In the older producing
sections of the Mid-Continent field deeper
drilling is receiving considerable attention,
some important developments having occurred
at depths below the original producing formation. The water situation, which was becoming more' and more acute, causing a shut down
in many instances, was relieved by the snow
and rainfall heretofore referred to. Many
wells are on the waiting list pending an increased supply of casing and pipe, pipe mills
refusing to book any orders for delivery
before August. Oklahoma showed an increase both in completed work and in new
work during the short month of February and
now that the water situation is better, the
month of March should show further activity.
Lumber.—Open weather and mild temperatures have stimulated the consumption of lumber and caused a proportionate increase in the
demand for yellow pine yard stock, especially
from country yards. Prices have shown a
tendency to advance. Mills are apparently
experiencing difficulty in handling mixed orders, as their stocks are badly broken. Retail
dealers are buying heavily and manufacturers
with offices in this territory are loaded up with
ordovrs. Conditions seem favorable, but much
will naturally depend on wheat and corn prospects. One company controlling a large line of
country yards reports: ' i Our business thus far
this year is about 40 per cent in excess of last
year's volume for the same period." Sash and
door factories report actual orders as numerous
now as they often are a month later, with the
outlook for spring trade near the record. Lumbermen interviewed lay stress upon the car
situation, but are without exception optimistic
over trade prospects. A local real estate company reports that by actual comparison the
cost of erecting a certain residence has increased
43 per cent since October, 1915.




L 1,1917.

Railroad earnings.—Ninety-four railroads,
including practically all those operating in this
district, show an increase in gross earnings of
almost eleven and one-half million dollars, or 29
per cent, in January, 1917, over January, 1916,
as evidenced by reports just at hand. The net
earnings of these same roads show an increase,
in the same period of almost six and one-half
million dollars, or 66 per cent. This is a much
better exhibit than would have been deemed
possible considering the rise in operating cost.
Labor.—Labor conditions are quite satisfactory. In fact there may be said to be fewer evidences of unrest than for some time past. Employment at unusual wages is general. Some
uneasiness is expressed in the growing possibility that help on the farms for the opening
spring will be scarce.
Wholesale and retail.—The flour mills of the
district have been running at about twothirds capacity. New sales are quiet, business being limited largely to Central and Western States by reason of railway embargoes.
A number of smaller mills and some of the
large ones have discontinued operations from
this cause.
General retail stores, with the opening of
spring lines, report an excellent business, the
prospects for volume surpassing last year.
Automobile dealers are swamped with orders, but deliveries are exceedingly difficult.
The winter's business is said to have been 50
per cent greater than ever before. An excellent spring business can only be interfered
with by factory limitations and deliveries.
Some cases are reported of delivery of cars to
points of distribution under their own power.
There are said to be four times as many automobiles in the State of Nebraska as there were
in 1913, this State standing second in number
of cars in proportion to population.
There are hundreds of cars of implements
for spring use yet to be moved into this territory and the dealers are fearing they will be
unable to take care of second-order business.
Retailers are enjoying a fine business and farmers are reported as buying a greater number

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 j season 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 j perienced 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.
j damage 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,
and the returns will be satisfactory. The
the liabilities aggregate a slight increase.
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
acreage in general feed crops will be larger than
remarkably well.
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 i peach 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.




312

FEDERAL RESERVE BULLETIN,

APRIL 1,1917.

Our member banks continue in a strong posibond 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 expe5, 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 construc15 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
stuff, and prices are strong.
days.
Building permits issued in the principal cities
This bank has, within the past 60 days, been
of the district for February show a decrease in
called upon to make large shipments of gold
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.
One of our correspondents, a large manufacThese shipments are still being made in considerable 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.
The element of uncertainty in our foreign
demand for gold coin, and notwithstanding
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 merMexican 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




APRIL 1,1917.

FEDERAL BESERVE BULLETIN,

houses in the district reports that its sales are
fully 50 per cent heayier than a year ago, and
collections are in keeping with the increased volume. Advices from various other wholesalers
of merchandise are in line with this report.
The grocery trade is satisfactory, and the
wholesale houses are showing a 50 per cent
increase in sales and collections over the same
period of 1916. The rising prices of staples,
however? with a normal consumption, present a
situation that is fraught with danger, especially
with the country merchant, who is obliged to
carry his customers until the crops are made,
and distributors are endeavoring to discourage
the too liberal extension of credit. The unusually high prices, therefore, while enabling the
wholesale grocery houses to show a handsome
increase in sales, tend to promote an inflation
of credit to the consumer and develop a situation which would be hard to overcome if crops
are poor and returns from same below normal.
The prosperous condition of the farmer the past
year enabled many country merchants to collect old obligations and "wipe the slate clean/'
and this is a condition which the wholesalers
are anxious to see continued.
The wholesale shoe trade shows a considerable gain in sales. However, it is reported that
the high price of leather has restricted orders,
and dealers and the public are not buying
heavily, but, as one Large manufacturer stated,
pursuing a "hand-to-mouth policy"; that while
the gain in "dollars arid cents" is practically
double the same month last year, the number of
orders is curtailed.
With oil bringing the highest prices ever paid
in the fields, there is considerable activity in
the operations at the wells in Louisiana, southeast and northwest Texas. However, new
developments, both in the proven fields and
upon favorable "wild-cat" acreage, is greatly
delayed owing to the difficulties in obtaining
adequate supplies of pipe and machinery and
water for drilling operations. The outlook for
the industry is bright for every factor—producer, refiner, and distributor. If present




318

prices are sustained, which authorities generally
believe, the future development of this very
important industry will be assured.
Commercial mortality in the district showed
an appreciable decrease during the month of
February, as compared with the same month
a year ago, and a gratifying improvement in
the number of failures and amount of liabilities
is noted.
Coastwise and export shipments from the
port of Beaumont during the month of February aggregated 63;989 tons. From Galveston
the value of exports for February was
$16,034,533.
High prices for all classes of live stock continue, and notwithstanding heavy receipts the
demand has been equal to the supply. There
is quite an active demand both for sheep and
cattle in New Mexico, and unless dry weather
prevails there will be early shipments of one and
two year old steers. At the present time rain
is badly needed in New Mexico, as the ranges
are getting short in that section.
All the copper mining companies are running
to their full capacity, and prices for the output
are higher than ever before. The high prices
for copper have created a demand for mining
properties in Arizona which has resulted in the
small claim holder and prospector being unusually prosperous. When it is noted that the
Arizona district produces about ninety million
pounds of copper per year, which brings from
19 to 30 cents per pound, the importance of
that industry to the general business interests
of the district is realized.
Employment of labor is above normal. The
transfer of unskilled men to the North and East
still continues and is causing concern. Authorities state that unless there is some decrease in
this activity, there will be a general shortage of
help for harvesting crops the coming season.
No strikes or disturbances are in progress in
the district at this time, and employers; in
many instances, have been forced to meet the
soaring prices of foodstuffs and necessities by
an increase in wages.

314

FEDERAL RESERVE BULLETIN.

DISTRICT NO. 12—SAN FRANCISCO.

There is impressive evidence of the important
need for the maximum possible production of
foodstuffs during the current year, with the
certainty of extraordinary demand whether
the war continues or ends. No general estimate can yet be reliably made as to production
in this district. The amount and chronological
distribution of precipitation are vital factors.
Thus far there is a slight deficiency in Washington, Oregon, and California, offset by unusually heavy snows in the mountains, assuring the
supply of water for irrigation upon which
California agriculture, in particular, so largely
depends. In the vicinity of Yosemite Valle}^
the snow is said to be the heaviest ever known.
Three-fifths of the Utah wheat is fall planted.
Last fall 9,000 acres more were planted than
in any previous year. Idaho reports good
prospects in the section where there was practical failure last year. In California it is estimated that barley acreage will be increased
from 650,000 to 800,000, and the crop from
450,000 to 900,000 tons. Hops and alfalfa will
be considerably displaced for potatoes, beans,
and sugar beets, and large increases are anticipated in these crops. In various sections
considerable increases are reported of dairy
cattle and poultry. Conditions are favorable
for cattle and sheep, as green feed is now plentiful. To some extent high prices have induced
sale of cattle which should have been kept in
the herds. Sheep shearing has begun. Sales of
wool at prices above 40 cents are common, with
reports of 50 cents and 60 cents in some cases.
It is predicted that in California 100,000
acres will be planted to rice, the market for
which is rapidly extending because of superior
quality.
Indications are for an exceptionally large
crop of deciduous fruits. Canned goods from
the last crop are practically all out of first
hands, and prices are high.
The run of salmon is, according to fairly
well-known cycles, varying with different
varieties. It is claimed that there will be a




APRIL 1,1917.

conjunction of these various cycles this year,
and that the pack of all varieties will consequently be heavy, possibly as much as 9,000,000
or 10,000,000 cases, compared with 7,121,000
cases last year.
So far as can now be judged, the general
outlook is favorable for an exceptionally large
output of foodstuffs in this district this year.
Important contracts for British account have
been placed with Pacific coast yards for construction of ships. This industry centers
chiefly in Seattle and San Francisco, but Portland, which a year ago had yards only for
building wooden ships, now has three for
building steel ships. This industry is expanding enormously and prices likewise. Contracts
are said to have been placed by the United
States Government for building two cruisers
at Seattle and two at San Francisco.
Reports from about two-thirds of the mills
indicate that in 1916 the lumber cut of this
district increased 16.3 per cent over 1915, compared with an increase of 8.4 per cent for the
rest of the country. This district produced 38
per cent of the total. Lack of transportation
has greatly hampered this and practically all
other industries.
In February the petroleum production of
the California field averaged 262,528 barrels,
and the shipments 299,357? stored stocks declining 1,031,960 barrels.
Copper production is still expanding, with
extraordinarily high prices, making an output
of enormous value.
Commerce with Alaska in 1916 was almost
$120,000,000, an increase of $37,000,000 over
1915. Copper worth $35,000,000 and canned
salmon worth $21,500,000 both exceeded the
value of the gold and silver output, aggregating
$16,300,000. From 1867 to 1916, Alaska
produced sea and fur products valued at
$323,000,000 and minerals valued
at
$345,000,000.
In the totals of exports and imports during
1916 Seattle stood fourth of the United States
ports with $360,527,000, Boston and Phila-

APRIL l r 1917.

FEDERAL KESEKVE BULLETIN.

delphia leading by $26,000,000 and 363,000,000,
respectively. San Francisco stood, ninth with
$243,886,000. Gold imports and exports at
Pacific coast ports, during 1916, were as
follows:

315

than for the corresponding month last year,
Seattle leading with an increase of 50 per cent,
followed by Salt Lake City with 35 per cent,
and Los Angeles with 30 per cent. Building
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 spendSan 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 prosClearings for 19 principal cities of this district during February were 32 per cent greater ( perity for this entire district.




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 reBanks 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 redisOf 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 disDiscounted 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 I paper, $1,358,808 live stock paper, and $10,539,textile manufacturers in Massachusetts ap- j 717 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- j held 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.




317

FEDERAL RESERVE BULLETIN.

APRIL 1,1917.

Commercial paper discounted by each Federal Reserve Bank during February, 1917, distributed by sizes.
NUMBER OF PIECES AND AMOUNTS.
To

Over $100 Over $250
to $250. ; to $500.

$100.

Over $500 i Over $1,000
to $1,000. I to $2,500.

Over $2,500
to $5,000.

Over
$10,000.

Over $5,000
to $10,000.

Total.

Banks.

I
Boston
:
New York
Philadelphia
Cleveland
Richmond
Atlanta (including
New O r l e a n s
Chicago.
St. Louis
Minneapolis....
Kansas City...
Dallas
,
San Francisco.

2 8108 13$2,518i 21j $8,681|
5; 370 18 3,093! 29; 10,932!
489|15,190| 7311,866| 65 25,353|
3 620
3,319|
"i2i*i,i4i! 70J13,8471 166 67,139i
15 880l 43 7,623
8! 800| 23j 4,028
41 728
!
4
.
)14,030
31 2,9*
10] 6761

• - - ;

57222,075!
Total
0.2!
Percent
Member banks' collateral notes

27$21,
$47,030
20 16,326!
42,543
64 53,1541
7| 4,954!
18,126
213jl63,064; 208 357,162

J 14,6531 55 42,319i
30 ll,916j 29 21,289!
;

11,782,
5,355i
21,235
6890!
98; 33,670; 48 34,058
48i 18,874! 54
4 1,540; 6

112,477!
35,891!
14,726!
67,560:
38,350;
92,003!
25,383*

75 $367,245
206,259
464,256
34,324

582,445
48
9
13
62
8
36
10

58 $571,832 8152. 5,526,400
"
84,348
124,480
290,250 11 144,445
200,000 13 381,000
409,503 15 319,931

175,452 41 303,254, 13
29,226i '
23,770:
16,0001
50,239
251,6
27
293,611
251
25,559
126,422 13 85,169 3
16,414 1
33,854

Collateral
notes.

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta (including New
Orleans branch)
Chicago
St. Louis

5,252,208 176 4,551,476J3,65710,975,24!
541208,322; 571433,,084 5981,053,959' 572 2,388,892 257 2.
1,4761
20.5
....:
1.9....
3.9
9.61....
18,500

Trade
accept-

Commodity
paper.

Total.

3387,730 $410,173
$797,903
1,437,000
1,437,000
475,000 "21,721
496,721
1,900,000
1,900,000
3,870,000 'l45,"962 | $551,076 4,507,038
242,356
1,911,276
365,000

32.3
4.4
11.0
5.8
17.4

254,012: 321 910,670! 8.3
126,920: 1.2
i 126
105,000!
203,8301 1.9
632,500 205 1,274,098 11.6
291 148,577 1.4
38,708 258 406,955 3.7
2o,000j 39
106,7861 1.0

12

113,856

7011,301,006,

Member banks' collateral notes, trade acceptances, and commodity paper discounted during the month
and 1916 and the two months ending February, 1917 and 1916.

Banks.

1,545,258
304 $3;
161 488,351
947 1,207,222
642,343
873 1,914,232

227,392 I 249,461
22,380 j .

719,209
1,911,276
387,380

Banks.

Minneapolis
KansasCity
Dallas
San Francisco

; Collateral
j notes.

8611,433,

of February, 1917

Trade I Com- I
accept- | modity.
ances. | paper.

, $520,000
'
!
10,000 I
!
: 315,000
$13,465 j
,
14,985 I

100.0

Total,

i
$13,569 j

$520,000
10,000
328,465
28,554

Total, Feb., 1917
11,433,362 856,078 !: * 814,106
Total, Feb., 1916
\
246,100 1,794,700
Total, Jan.-Feb., 1917 20,950,691 1,430,542 !ii2,378,759
Total, Jan.-Feb., 1916!
690,500 3,658,300 |

13,103,546
2,040,800
24,759,992
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.

Agriculture
paper.

Live
stock
paper.

Commer-1 Member j
cialand I banks' !
industrial [collateral i
paper, j notes.

Total.

Banks.

Commer-j Member
cialand | banks'
industrial l collateral
paper. I notes.

Agriculture
paper.

Live
stock
paper.

$107,603
548,937
242,816
142,952
118,790

$36,399 $292,022 $120,000
217,736 1,490,055 210,000
243,296
12,983
10,000
738,607 194,277
65,000
2,392
43,312

Total.

i

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago




$17,466
53,043
35,935
737,477
1,152,507
579,924

$6,496
2,968
3,560
76,989
30,365

§2,889,195 $80,000 $2,969,195
835,504 1,207,000 2,066,466
901,295 350,000 1,304,338
273,838 1,650,000 1,962,741
345,000 3,710,436
2,624,399
83,500 2,218,905
905,909
76,928 510,729 1.197,946

St. Louis
Minneapolis
KansasCity
Dallas
San Francisco
Total

$556,024
2,466,728
509,095
1,140,836
164,494

3,737,450 1,358,808 10,539,717 14,631,229 20,267,204
I
i
j
.

318

FEDERAL RESERVE

Distribution,

To 310,000.

To 85,000.
©

;

©

§

j Amount.;

g

Si

February, 1917:
B a n k e r s ' acceptances
Trade accept-

i

39;

184,972|

g
5v '

: iv

055^5,130,252! 1,241 $22,280,674:
122! 1,187,700;

7

Total Jan.Feb.,1916..

46l| 1,330,034!

379; 3,048,747;

.

87,288i

413, 7,062,052

i Over 5100,000.

o

I ©

Amount. 1

Amouni. • g
:

78,541-!

I

g

i S

399i$10,405,433
2;

during February, 191.7, and the two

To 5100,000.

; «

• Amount, i g
"

i ** •

780-81,990,667!

To 850,000.

T o J?25,000.

Total Feb.,
777, 6,324,018: 1,248 22,367,902.
819! 2,175.039'
1917
31.7;
Per cent
9.0......
'3.1!
Total Jan.,
483; 1,700,009; 300 5,238,200!
390! l,023.210i
1917
i
i
:
•
i
Total Jan.Feb., 1917.. l,209J 3,198,849' 1,260; 8,030,087j 1,54827,000,108:

2

APUIT. 1, 3 9.17.

by sizes, of bills bought in open market by all Federal Reserve Banks
months ending February, 1917 and 1916.

Acceptances bought
in open market.

1

BULLETIN,

j Amount,
i

2|

180il5,273,48l!
21. t)|
\

152j 0,898,412;

48: 3,891,515

i

Amount.

1

jceat.
j
!
g Amount. •
;

ol!

49 £8,012,105 3,302|§lii8,990.79lj 97.7

107,821!

401.'l0,483,974|
23.3 :
!

3

g
'£*

178#15,165,000j

Total.

172J * l?040,388[

49. 8,012,105: 3,474 70,637,179! 100.0
100.01......
11.3;
ll-! 1,859,768! 1,384 20,017,180|
:

553;23,382,386'

228!l9,104,990

00 9,871,873, 4,858J 91,254,359|

90 3,688,328

38 2,898,207!

15i 3,320,375 l,402J 21,940,3

Of the above total, bankers acceptances totaling.$62,272,593 were based on imports and exports and §0,718,198 on domestic traasactions.
All of t h e above transactions were drawn abroad on importers in the United States and indorsed by foreign banks.




2.3

Arnu. 1,1917.

319

FEDERAL RESERVE BULLETIN.

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.
Date.

1915.

Jan. 3 . .
Feb. 7..
Mar.6..
Apr. 3 . .
Mayl..
June 5..
July 3 . .
Aug. 7..
Sept. 4.
Oct. 2 . .
Nov. 6..
Dec. 4 . .
Jan.1...
Jan.8...
Jan. 15..
Jan. 22..
Jan. 29..
Feb. 5 . .
Feb. 12.
Feb. 19.
Feb. 26.
Mar. 5 . .
Mar. 12.
Mar. 19.
Mar. 26.

Amounts

1916.

Member
banks.

Nonmem- Nonmember State
ber trust
banks.
companies.

$93,000
3,653,000 $7,820,000
5,038,000 8,189,000
5,242,000 4,516,000
4,342,000 5,267,000
5,350,000 5,407,000
6,087,000 6,305,000
9,000,000 4,898,000
8,477,000 4,331,000
12.311,000 5,172,000

Private
banks.

$10,000
10,000
10,000

""26," 666'
20,000
132,000
253,000
275,000

Foreign
branches
and agen! cies.

$93,000
11,593,000
13,347,000
9,960,000
9,770,000
11,129.000
12,884) 000
14,373,000
13,265,000
18,154,000

$110,000
110,000
192,000
161,000
352,000
472,000
343,000
204,000
396,000

$93,000
11,593,000
13,347,000
9,960,000
9,770,000
11,129,000
12,884,000
14,373,000
13,265,000
18,154,000

15,494,000
15,681,000
17,182,000
21,000,000
24,875,000
24.680,000
32; 989,000
39,695,000
41,413,000
37,798,000
37,770,000
47,748,000

7,160,000
362,000 : 822,000
7,876,000
336,000 j 1,456,000 I
8,670,000
408,000 ; 1,781,000 I
13,573,000 I
473,000 I 3,262,000
15,400,000
585,000 ! 3,430,000
17,029,000
644,000 i 7,007,000
18,921,000 !
471,000: !11,830,000
19,060,000 !
738,000 13,940,000
20,356,000
726,000 12,491,000
21,782,000
712,000 9,944,000
29,474,000 1,014,000 i12,147,000
33,232,000 1,630,000 i16,069,000

23,838,000
25,349,000
28,041,000
38,308,000
44,290,000
•49,360,000
64,211,000
73,433,000
74,986,000
70,236,000
80,405,000
98.679,000

23,838,000
$489,000 25,838,000
462,000 28,503,000
722,000 39,030,000
1,477,000 45,767,000
2,208,000 51,568,000
3,422,000 67,633,000
4,225,000 77,658,000
3,673,000 78,659,000
2,306,000 , 72,542,000
2,378,000 ! 82,783,000
4,487,000 !103,166,000

66,803,000
60,066,000
59,710,000
56,334,000
52,439,000
50,361,000
54,945,000
59,165,000
59,498,000
53,274,000
50,116,000
46,157,000
43,457,000

34,625,000
32,467,000
30,691,000
26,286,000
22,744,000
23,511,000
33,473,000
35,745,000
36,478,000
32,508,000
28,759,000
24,165,000
22,515,000

121,154,000
110,773,000
107,508,000
97,885,000
89,186,000
88,759,000
108,303,000
118,697,000
118.136,000
LOT;796.000
9.9,591.000
88,964', 000
84,371,000

4,585,000
4,249,000
4,386,000
4,102,000
4,041,000
4,041,000
4,896,000
4,982,000
5,068,000
2,535,000
2,276,000
1,825,000
1,212,000

1917.

1,502,000
1,325,000
1,245,000
1,146,000
1,054,000
972,000
1,265,000
1,268,000
1,094,000
1,090,000
845,000
735,000
045,000

18,224,000
16,915,000
15,862,000
14,119,000
12,949,000
13,775,000
17,952,000
21,842,000
I20,389,000
20.570,000
!19,592,000j
i 17.o96,000
.17', 504,000

$140,000
668,000
677,000
677,000
354,000
379,000
;;] 1,000
i 250,000

125,739,000
115,022,000
111,894,000
101,987,000
93,227,000
92,800,000
113,199,000
123,679,000
123,204,000
110,331,000
101,867,000
90,789.000
85,583;000

of paper discounted and acceptances and warrants bought by each Federal Reserve Bank during February. 1917,
distributed by maturities.
30-day maturities.

15-day maturities.
Federal Reserve Banks.
Discounts.
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta (including New Orleans branch)
Chicago
St. Louis
Minneapolis
KansasCity
Dallas.
San Francisco
Total
Per cent




Total.

Trade acceptances Total acbought in ceptances.
open
market.

! ,11,882,783
I lj502,805
i 1,149,757
i 2,499,000
• 3,985.444
:
:
384^ 855
j 1,926,449
I
384,908
!
577,600
10,000 j
316,500 j
25,931
! 14,646,032 !
j.

Warrants,

Total.

Discounts.

Acceptances.

Warrants.

Total.

81,882,783 $1,015,170
22,354
1,873.400
205,267
1,3071784
9,748
2.499,000
373,112
4i630,444
181,112
'384,855
23,962
2,032,005
87,317
384,908
396,500
577,600
15,050
64,000
341,500
"I43
36,539

$370,595
158,027
645,000
105,556
54,000
25,000
10,608
!

$59,GOO
1,684,878
1,821,861
694,629
2,924,975
74,703
512,811
226,353
94,080
151,524
257,211
43,003

§1,074,770
1,707,232
2,027,128
704,377
3,298,087
255,815
536,773
313,670
490,580
166,574
273,354
52,269

16,014,818
16.2

8,545,628

10,900,629
11.0

2,355,001

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.
90-day maturities.

60-day maturities.
Federal Reserve Banks.

Discounts.
S702,647

184,002
234,028
7,490
749,417
177,403
43,704
84,994
743,568
23,452
101,618
34,705

§316,350
4,412,313
3,095,418
1,953,512
1,820,175
224,203
2,592,851
1,947,159
1,618,550
1,388,061
545,792
1,523,896

SI, 018,997
4,596,315
3,329,446
1,961,002
2,569,592
401,606
2,636,555
2,032,153
2,362,118
1,411,513
647,409
1,558,601

$332,388 S4,827,669
211,842 13,324,529
88,294 4,933,580
26,105 3,387,154
639,635
816,416
367,843
645,885
19,696 3,490,242
10,811 2,363,362
19,706
830,722
20,515
1,091,284
80,110
837,673
32,344 1,911,116

3,087,028

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta (including New Orleans branch)
Chicago
St. Louis
Minneapolis
Kansas City.
Dallas
San Francisco
,
Total.
Per cent

Acceptances.

21,438,280

24,525,307
24.8

1,849,289 38,459,632

Warrants.

Over 90-day maturities.
Federal Reserve Banks.

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta (including
Orleans branch)
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

$4,348
4,876
New

Total.
Per cent

Warrants.

DisAcceptcounts.

36,624

$58,603 $126,977
450,000 2,434,561
50,000
150,000 1,018,462
15,000

41,813
24,385
800 116,250
56,724
89,560
207,584
4,540
471,254

824,853

963,456
527,335
253,693
361,960
5,701,444

Disi Acceptcounts.
ances.

Total.

Totals.

Warrants.

S,203
15,203
25,203

Per cent.
AcDisWarcounts. cept- rants. Total.

$126,977
2,459,764
25,203
1,043,665
15,000

89,322,187
24,627,430
11,766,311
9,771,303
12,005,798

42.2
7.8
14.3
26.0
48.2

56.4
82.2
85.4
63.3
51.7

944,791
6,701,460
4,653,124
2,543,352
2,684,869
1,665,676
3,488,623

2,097,817
988,659 9,728,315
552,538 5,774,492
4,337,450
278,896 3,122,342
361,960 2,749,591
3,595,409

55.0
20.9
9.8
41.4
5.1
26.2
3.0

45.0
68.9
80.6
58.6
86.0
60.6
97.0

6,997,551 22,408,604 70,637,179

5,852,662 98,898,445
100.0

22.7

71.4

$185,580 S3,932,988 $5,262,222
2,888,909 1,925,351 20,242,315
54,876 1,682,222 10,058,886
1,168,462 2,542,343 6,185,295
51,624 5,784,232 6,206,566
41,813 1,153,026
987,841 2,038,196
644,385
568,830
56,724 1,794,098
343,253
158,577
569,544
721,955
4,540
106,786

40,460,139
40.9

151,218

Total.

Acceptances.

§5,160,057
13,561,574
5,047,077
3,438,462
1,456,051
1,013,728
3,535,141
2,399,375
850,428
1,137,002
917,788
1,943,460

$25,203
25,203
25,203

Warrants.

Discounts.

Total.

Total.

1.4
10.0
.3
10.7
.1
10.2
8.9
13.2

5.9

100
100
100
100
100,
100
100
100
100
100
100
100

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.]
16 to 30 days.

1 to 15 days.
Banks.

Boston...
New York
Philadelphia
Cleveland
Richmond
Atlanta .
Chicago
St. Louis
Minneapolis
Kansas City
Dallas.
San Francisco...
Total
Per cent




MuMuBills Accept- niciBills Accept- nicidisdisances
pal
pal
Total. count- ances
count- bought. wared. bought. wared.
rants.
rants.
1,679
1,581
985
1,884
1,157
719
724
248
1,026
86
206
37

2,436
6,157
3,222
1,830
2,134
848
2,037
1,712
2,681
838
429
2,259

10,332

26,583

125
18
812
117
114
15
41
1,242

4,240
7,756
4,207
4,526
3,291
1,684
2,875
1,960
3,722
924
635
2,337

806
101
90
26
760
429
114
163
241
80
166
26

1,810
7,864
3 264
2,946
1,446
651
2,843
2,507
1,015
1,885
528
3,164

38,157
23.7

3,002

29,923

61 to 90 days.

Municipal
warrants.

MuBills Accept- nicidisTotal. count- ances
pal
wared. bought. rants.

Bills AcceptdisTotal. count- ances
ed. bought.
2,804
309
8,282
223
3,410
158
3,079
27
2,206 1,309
1 080
fi77
3,037 ' 201
2,704
96
1,579
768
1,971
107
mi
324
33
3,227

4,757
11,963
5,191
4,164
2,385
1,459
3,978
2,943
2,548
1,388
962
3,645

5,201
12,231
5,354
4,273
3,694
2,138
2
4,615
436
25 3,064
3,316
1,525
30
1,336
50
3,779
101

175
161
63
18
426
336
85
16
207
92
244
15

3,746
7,400
2,453
1,544
716
486
1,831
1,284
696
839
598
484

36
175
103
119

1,148 ! 34,073 4,232
.
21.1

45,383

911

50,526
31.3

1,838

22,077

517

188
317
56
107
80
34
323
6
37
.

31 to 60 days.

135
45
5
32

3
31
25
25

Total;

3,957
7,736
2,619
1,681
1,142
825
1,947
1,325
903
956
842
499
24,432
15.1

821

FEDERAL RESERVE BULLETIN.

APRI:- 1, 1917.

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.]

Backs.

Bills disAcceptances
Municipal
Total.
MuMuwarrants.
counted.
bought.
Bills Accept- niciBills Accept- nicidisdisances
pal
ances
pal
Total.
count- bought. wai- Total.
count- bought. warPer
ed.
ed.
Amount. Per Amount. Per- Amount. Per Amount. cent.
rants.
rants.
cent.
cent.
cent.

Total
Percent

58
58
74
33
225
144
201
53

127
4,979
1,267
1,842
15
2
2,181
1,043
177
431
456
786

127
4,979
1,275
1,850
73
60
2,255
1,076
402
575
657
839

2,969
2,066
1,304
1,963
3,710
2,219
1,198
556
2,467
509
1,141
164

862

Boston . . .
New Y o r k . . ;
PhiladelDliia
Cleveland .. .
Richmond
Atlanta
Chicago
St Louis
Minneapolis...
Kansas City
Dallas
San Francisco

Percentages.

Total,

Over 90 days.

13,306

14,168
8.8

20,266

s
8

14.7
10.2
6.4
9.7
18.3
11.0
5.9
2.7
12.2
2.5
5.6
.8

12,749
33,384
14,130
10,484
6,681
3,444
10,689
8,446
6,940
4,950
2,517
9,552

10.3
26.9
11.4
8.5
5.4
2.8
8.6
6.8
5.6
4.0
2.0
7.7

611
5,534
1,431
2,962
15
124
2,842
1,127
515
492
506
965

100.0 123,966

100.0

17,124

16,329
40,984
16,865
15,409
10,408
5,787
14,729
10,129
9,922
5,951
4,164
10,681

10.1
25.4
10.5
9.6
6.4
3.6
9.1
6.3
6.1
3.7
2.6
6.6

18.2
5.0
7.7
12.7
35.7
38.4
8.1
5.5
24.9
8.5
27.4
1.6

78.1
81.5
83.8
68.1
64.2
59.5
72.6
83.4
69.9
83.2
60.4
89.4

3.7
13.5
8.5
19.2
.1
2.1
19.3
11.1
5.2
8.3
12.2
9.0

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

100.0 161,356
100.0

100.0

12.6

76.8

10.6

loo. a

3.6
32.3
8.4
17.3
.1
.7
16.6
6.6
3.0
2.9
2.9
5.6

Total investment operations of each Federal Reserve Bank during the month of February, 1917.

Federal Reserve Bank.

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total, February, 1917
Total, February, 1916
Total, January-February, 1917
Total, January-February, 1916

Bills bought in open market.

Bills
discounted
for
member
banks.

Bankers'
acceptances.

$3,932,988
1,925,351
1,682,222
2,542,343
5,784,232
1,153,026
2,038,196
568,830
1,794,098
158,577
721,955
106,786

$5,262,222
19,292,370
9,974,041
5,977,191
6,206,566
944,791
6,511,715
4,653,124
2,461,084
2,684,869
1,665,676
3,357,142

22,408,604 68,990,791
7,664,600 11,894,800
40,734,890
18,779,600 21,348,300

Trade
acceptances.

Municipal warrants bought.

Total.

$5,262,222
20,242,315
10,058,886
6,185,295
6,206,566
944,791
6,701,460
4,653,124
2,543,352
2,684,869
1,665,676

$949,945
84,845
208,104
189,745

City.

$126,977
2,459,764
25,203
989,680
15,000

1,646,388
522,000
1,887,527
671,000

2 per cent. 3 per cent. 4 per cent.




$126,977
2,459,764
25,203
1,043,665
15,000

$53,985

988,659
552,538

278,896
361,960

278,898
361,960

70,637,179 5,798,677
12,416,800 10,419,200
91,254,359 13,000,585
22,019,300 19,927,000

1-year
notes.

$57,500
$456,000

$200

200
1,739,500
61,440
2,142,880

250
975,000
250
2,805,000

"60*666'
456,000

10,450,800
13,583,162
20,257,100

February,
1916.

February,
1917.

$9,322,187
24,684,930
11,766,311
9,771,303
12,463,798
2,097,817
9,728,315
5,774,492
4,362,900
3,122,342
2,749,591
3,655,409

$4,388,800
10,442,100
1,948,800
2,036,500
4,341,000
1,797,900
2,905,000
2,436,000
1,092,000
5,255,950
1,541,100
1,843,800

Per ct. Per ct.
9.4
11.0
24.8
26.1
11.8
4.9
9.8
5.1
12.5
10.8
2.1
4.5
9.8
7.3
5.8
6.1
4.4
2.7
3.1
13.1
2.8
3.8
3.7
4.6

600,950 99,499,395
9,496,750
3,032,340 148,604,751
16,123,930

40,028,950

458,000

60,000

456,000

53,985
11,200
580,537
73,700

February,
1917. "

Total.

25,450

$250

$20,400
2,040
256,400

Total investment operations.

$57,500

2,000

144,500
Total, February, 1917
6,782,250
Total, February, 1916
2,514,650
Total, January-February, 1917
Total, January-February, 1916..... 11,176,050

Total,

131,481

Federal Reserve Bank.

25,000

All other.

552,538

United States bonds and Treasury notes.

Boston
New York
Philadelphia...
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis...
Kansas City...
Dallas
San Francisco .

State.

February,
1916.

100.0
77,179,930

100.0

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

Gold coin and certificates in vault:
12,944
Mar. 2
13,920
Mar.9
13,282
Mar. 16
13,977
Mar. 23
Gold settlement fund:
•
Mar. 2
1 21,333
20,680
Mar.9
Mar.16
! 18,653
Mar. 23
1 21,015
Gold redemption fund:
!
50
Mar. 2..:
49
Mar.9
50
Mar.16
50
Mar. 23
,
Legal-tender notes, silver, etc.:
802
Mar. 2
221
Mar.9
213
Mar.16
Mar. 23
288
Total reserve:
35,129
Mar.2
34,870
Mar.9
32,198
Mar.16
35,330
Mar. 23
5 per cent redemption fund against
Federal Reserve bank notes:
Mar.2
Mar.9..
j
Mar.16
j
Mar. 23
Bills discounted—Members:
2,812
Mar.2
2,534
Mar.9
1,872
Mar.16
1,743
Mar.23....
Bills bought in open market:
11,459
Mar.2.....
,..11,615
Mar.9
:..
11,771
Mar.16
Mar.23.........
10,738
United States bonds:
Mar.2
Mar.9
Mar.16
Mar.23
1-year Treasury notes:
1,606
Mar.2....,
1,666
Mar.9
1,660
Mar.16
.1,606
Mar. 23
Municipal warrants:
486
Mar.2
Mar.9
Mar.16
Mar.23
Federal Reserve notes, net:
1,403
Mar.2
1,269
Mar.9
1,160
Mar. 16
1,335
Mar.23
Due from other Federal Reserve
Banks, net:
2,559
Mar.2
1,216
Mar.9
3,041
Mar. 16
1,664
Mar.23
Uncollected items:
12,373
Mar.2
10,919
Mar.9
15,402
Mar.16
13,787
Mar.23
1
Difference between




mond.

Atlanta.

Chicago.

San
St.
Minne- Kansas
Louis. apolis. City. Dallas. Francisco.

Total.

Phila- Cleve-

Boston. |

delphia. land.

Rich-

162,508
190,403
209,672
200,084

25,145
24,791
24,475
26,101

14,303
13,982
14,330
17,380

5,389
5,420
5,482
5,603

6,020
5,966
6,156
6,147

28,872
25,722
29,154
28,201

9,488
9,145
11,293
12,935

11,548
11,599
11,653
11,711

7,808
7,778
7,789
7,757

7,110
7,312
7,448
7,604

13,028
14,146
14,584
13,236

304,163
330,184
355,318
350,736

39,984
19,844
16,347
21,241

9,898
14,920
13,936
16,841

26,493
26,043
29,826
26,017

16,910
16,541
16,645
16,085

5,470
5,534
5,026
4,041

47,086
45,653
43,870

3,166
5,685
5,111
4,240

4,097
6,448
6,486
8,641

26,463
25,658
24,072
26,153

6,506
7,167
7,719
7,568

7,828
9,955
12,187
13,569

212,031
205,561
201,661
209,281

250
250
250
250

250
250
250
250

62
57
48
35

481
460
450
425

547
542
595
620

200
200
200
200

174
152
95
259

155
155
155
155

141
135
174
177

22
60
57
83

15
15
15
15

2,347
2,325
2,339
2,519

2,590
11,476
8,862
3,985

265
335
147
240

85
90
112
102

120
137
97
101

1,342
1,591
1,465
1,439

462
1,198
1,017
679

2,568
2,255
2,464
2,003

736
743
733
705

95
81
62
52

876
941
940
1,013

30
45
64
58

9,971
19,113
16,176
10,665

205,332
221,973
235,131
225,560

35,558
40,296
38,808
43,432

40,943
40,172
44,316
43,534

22,900
22,558
22,674
22,214

13,379 73,417
13,633 74,206
13,242 76,024
12,247 72,950

15,396
17,237
18,963
19,437

16,536
18,945
19,027
21,212

34,507
33,652
32,097
34,139

14,514
15,480
16,164
16,268

20,901
24,161
26,850
26,878

528,512
557,183
575,494
573,201

300
300
300
300
874
785
917

1,177
1,542
1,819
1,387 j

30,690
28,641
24,960
21,400

13,305 j 9,456
12,152 9,092
11,587 I 7,319
10,486 i 6,542

71
71
81
81

4,985
4,985
4,985
4,985

5,534
5,534
5,403
5,199

1,434
1,433
1,378
1,378

!
i
j
!

9,720
9,067
7,960
9,041

7,651 j 6,480 ! 4,506
7,150 6,739 ; 4,229
5,827 6,071 • J 3,202
4,555 5,170 I 2,368

2,255
2,144
1,975
1,636

8,125
7,734
5,901
5,488

114,058
108,860
97,002
87,798

5,961
5,962
5,961
5,962

2,203
2,203
2,203
2,203

1,409
1,434
1,454
1,454

!
; 8,147
i 8,147
I 8,147

3,403
3,403
3,403
3,403

2,429
2,429
2,429
2,429

28,650
29,126
29,155
29,275

1,969
1,969
1,969
1,969

! 1,491
2,962
i 1,491
2,962
! 1,491
2,962
i 1,491 2,912

891
891
891
891

1,230 1,784
1,230 i 1,784
1,230 ! 1,784
1,230 I 1,784

1,430
1,430
1,430
1,430

1,500
1,500
1,500
1,500

19,468
19,468
19,368
18,818

I
,
j
I

15
15
15
15

559
506
506
506 I

965
924
887
887

16,798
16,932
16,029
15,761

20 I

2,305
2,059
1,697
1 741

23,095
20,608
21,991
19,440

;
.
!
!

1,097 j.
851 .
820 !.
878 I.

15,805
14,258
15,106
13,287
2,354 I

29,052
23,156
29,840
j 29,605

2,952
3,181
3,080
3,066

1,126
1,313
1,440
1,533

442 I
442 !
442 i
442

726 i 1,999
1,820
726 i 1,999 | 1,820
626
1,999 | 1,820
126 | 1,999 ! 1,820

22,008
18,099
22,666
18,514

i
!
|
!

2,444
2,552
2,148
1,920

400
400
400
400

100
100
100
100

468
487
447
447

3,639 | 2,197
3,388 ; 2,139
3,541 j 1,980
4,067 2,034
|
7,062 I 3,349
6.982 ' 3,315
6,752 3,677
6,719 3,655

1,657
2,062
1,728
2,240

!
i
|
!

50
50
50
170

1,614
1,786
1,381
1,970

602 i 2,475
534
1, 736 •
495 I 1,402 i
798 j 1,093 I

2,728 1,127
2,728 ] 1,127
2,698 I 1,094
2,648 j 1,094

499 ;
499 :
177
177

492
492
486
486

2,465 i
2,171 |
3,208 j
2,199

398 2,172 ! 679
610 I 5,250
672
394 2,917
91
""*255"! 2,479 j 396 316
27 |

12,086 8,953 i
9,734 8,232 i
11,194 8,868
11,609 8,567 1

M23J 1,881
421 ! 2,058
2,490
1,950 i

J
738
i i 1,382
.1 1,125
J 1,768

1,6

8,054 j 24,016 9,881 4,349 i 7,923
7,098 19,961 I 8,750 4,547; 8,736|
8,287 23,008 I 9,524 6,295 i 9,862 1
7,367 21,090 j 10,118 3,723 I 9,814 |.

199
194 i
212
273

6,985 i 8,346
5,885 1 5,294
5,707
5,323
5,067
6,496

net amounts due from and net amounts due to other Federal Reserve Banks.

18,840
18,500
17,234
18,473

1
1

4,023
3,143
13,379
154,026
130,411
155,976
145,757

328

FEDERAL RESERVE BULLETIN.

n, 1. 101.7.

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.]
New
Boston. York. Phila- Clevedelphia. land.

All other resources:
Mar. 2 . .
Mar. 9
Alar. 16 .
Mar. 23
Total resources:
Mar. 2 . . .
Mar. 9
Mar. 16
Mar. 23

94
51
9

317
373
379
400

458
454
316
168

67,981
64,630
07.459
66,570

288,401
295,517
312,443
296,545

78,293
75,975
78,573
77,364

Kieh- i Atmond. I hinta.

250 I
240 !
158 I
.181 i
77,690
74,695

117 I 2,178
145 ! 1,576
95 i 1,862
1,603

San

Chi-

417 :
517
436
442

7,821
0'. 401
6,198
5,680
915,691
911,032
942,226
917,901

j 1,523
!
982
I
S95
i
551-

45,097 ; 31,103 125,442
43,758 ! 29,919 124,755
44,356 ' 30,990 [126,644
44,337 i 31,053 119,667

76; 775

Ill .
103 :
159 i
142 ;

39,953 ; 34,212 59,769 i 32,150 15,925
39,546 :35,654 60,134 i 31,530 : 46,194
39,983 ' 35,815 i 59,037 I 31,825 ! 46,360
39,963 ! 36,151 ! 59,327 j 31,332 : 47,902 '

387
662
525
500

211
249
222
206

1,758:
1,039
1,100
1,389

LIABILITIES.
[In thousands of dollars, i. e., 000's omitted.]
Capital paid in:
'Mar.2
i
Mar. 9
i
Mar. 16
!
Mar. 23
i
Government deposits:
|
:
Mar. 2
Mar. 9
Mar. 16
!
Mar. 23
'
Due to members—reserve account: :
Mar. 2
\
Mar. 9
•
Mar. 16
!
Mar. 23—
i
Collection items:
I
Mar.2
Mar; 9
;
Mar. 16
;
!
Mar. 23
Federal Iiesorv e notes, no t:
Mar.2
'
!
Mar. 9
Mar. 16
Mar. 23
.Due to other Federal Reserve
banks, net:
•
;
Mar.2
Mar. 9
1
Mar. 16
Mar. 23
All other liabilities:
Mar.2
Mar. 9
Mar. 16
Mar. 23
Total liabilities:
Mar.2
Mar. 9
Mar. 16
Mar. 23




$5,083 ISl 1,888
5,064 11.880
- "
5,068 11\ 880
5,008 11,880
1,240
-148
1,408
1,224 i
53,280
51,193
48.473
49l 108

; £5,259
•• 5,200
5260
: 5,260
; 5,260

80,085
6,080
6,089
0,090

; S3,409
; 3,404
. 3,405
'• 3,408

: $2,420
i 2,418
1 2,418
! 2,4.14

2,507 ; 1,128
4,382 i
914
7,476 ; 1,063
7,375 | 1,378

737
499
240
2.38

i
892
:
399
:
860
• 1,308

1,988
1,312
1,825
2,210

|242,046 j 47,870
[249,334 ! 48,983
j260,551 i 47,328
'247,615
19,207

8,297 i 22,123 i 20,790
8,120 19,198 " 17; 145
• -'
12,411 24,990 i 20,433
______
1.1,074 ! "~ "~" : 18,100
22.577

11,338
9,497
11,624
11,434

07,981
64,630
07,459
06,570

190
.190
180
186

:

8,096 i 4,248
7,255 ! 3,975
7,260 4,713
7,868 ; 4,643
7,021
2,747
6,907 i 2,649
6,878 I 2,654
5, 785 : 2,375

19,010
14,803
16,752
15,172

!
!
"
,
!

708,893
720,488
726,104
711,117

7,226 !
6,825 !
7,201 !
7,223 i

2,396
5,444 :
7,522 =
2,055
2,566 i 7, 759
2,433 i 7,227

2,509
1,043 '
2; 358
1,324 '
2,407 i 1,926 i
2,592 ! 2,555 1

3,350
2,451
1,538
1,252

i
!
!
i

3,716
2,786
2,8*0
2j 604

•
i
!
'
:

311
S36
763
440

3,6-16
2,743
2,955
3,429

:
:

116,330
102,824
121,550
113,784

; 19,772
= 18,787
19,444
:
16,725
:

;

242
351

138
138
133
137

|288,401 . 78,293
1295,517 75,975
!312,443 78,573
i296,5U> 77,304
i2
I

27,629 ! 47,535 24,372 j 36,531
28,380 ; 46,791 24,742 37,602
28,009 46,208 24,072 I 37,358
27,834 47,405 23,746 I 38,150 j

I 351
i 281.
! 443
! 354

23S

9,647
10,533 i
748 :
7,366
1,151
0,913
1,819

si

.
I
!
"

14,162
12,401
18,594
19,702

732
882
895
888

926
1,001
1,091
1,167

i $56,045
j 56,028
! 56,054
! 56,057

1,757 I
1,850 !
2,039 :
2,311 i

1,668
236 !
1,055
1-26 i
665 I
589 ••
912 I
317 :

59,530 ! 25,441 i 19,700 97,765 j 27,188
58.613 2 5 , 7 9 3 • 19,565 101,898 1 27,594
59; 615 25,891 19,380 i 102,228
26,991
58,993 ! 25,968 19,411 | 96,584 27,036

3,102
2,787
3,205
1, 103

101

$2, 794 82,412 I S3,089 . S2,6H6 $3,911
2, 795 2,413 ! 3,089
2,696
3,924
2,795
2,413 ! 3,089
2,698
3.940
2, 795 2,415 I 3,089
2,698
3.941

§6,999
6,999
6,999
6,999

68
71 :

26 i
77,690
74,695
77,508
70', 775

489
504
480
516

45,097 . 31,103 125,412 39,953 i 31,212 j 59,709 I 32.150 45,925 !915,691
43,758 i 29,919 1124,755 39,540 35,054 ! 00,134 | 31^536 40,194 911,032
"" """ |
"
*
"
•14,356 30,990 i 126,644 39,983 35,815 ' 59,037 I 31,825 46,360 ;942,220
•14,337 31,053 1119,667 • 39,903 30,151 i 59,327 ! 31,332 47.902 917,901

1 Overdrafts.

i

I

324

FEDERAL RESERVE BULLETIN.

APRIL I t 1917.

FEDERAL RESERVE NOTES.
Federal Reserve note account of each Federal Reserve Bank at close of business on Fridays, Mar. 2 to Mar. 23, 1917.
[In thousands of dollars, i. e., 000's omitted.]
New I Phila-

Chicago.

San
St.
Minnc- Kansas
Louis. apolis. ! City. Dallas. Francisco.

143,361 j 22,103
150,500 23,433
157,866 23,199
161,742 24,750

15,369
17,323
19,154
20,988

16,184
16,146
15,555
15,125

20,328
20,184
20,145
20,113

958
1,403 15,805
1,269 14,258 1,273
1,160 ! 15,106
855
1,335 j 13,287 j 1,947

2,465
3,131
3,208
2,199

1,338
1,489

2,057
1,776
1,174
545

Boston. York. delphia.
Federal Reserve notes received
from agent, net:
Mar.2
Mar. 9
Mar. 16
Mar. 23
Federal Reserve notes held by
bank:
Mar.2
Mar. 9
Mar. 16
Mar. 23
Federal Reserve notes in circulation:
Mar.2...
Mar. 9
Mar. 16
Mar. 23
Gold and lawful money deposited
with or to credit of Federal Reserve Agent:
Mar.2
Mar. 9
Mar. 16
Mar. 23
Commercial paper delivered to
Federal Reserve Agent:
Mar.2
Mar. 9
Mar. 16
Mar.23




15,476
15,460
15,426
16,144

14,073
14,191
14,266
14,809

1127,556
(136,242
1142,760
|148,455

15,476
15,460
15,426
16,144

|l43,361
1150,500
157,866
161,742

I 21,145 12,906
> 22,160 j 13,506
| 22,344 13.458
I 22,803 ! 14,529

18,043
19,373
19,139
21,400

14,003
14,357
14,278
15,407

4,062 I
4,099 |
.
3,390 j.

940

755

j

22,496
i 22,711
I 22,926
. 23,327

20,540
21,048
21,237
21,404

523
586
508
742

270
489
246
545

Total.

16,182 343,847
16,169 355,263
15,788 363,278
15,762 372,244
i
I
I
;

2,305
2,059
1,697
1,741

28,651
27,217
25,440

16,536
16,326
16,245
16,047

19,901
20,136
19,956
19,969

12,904
14,192
15,946
18,789

14,846
14,657
14,615
14,370

18,271 21,973
18,408 22,125
18,971 22,418
19,568 22,585

20,270
20,559
20,991
20,859

13,877
14,110
141091
14,021

314,258
326,612
336,061
346,804

9,515
9,419
9,367
10,262

17,154
17,487
17,302
17,594

15,369
16,363
19,154

12,337
12,299
12,208
11,778

17,228 18,623
17,084 19,674
17,045 20,880
17,013 21,333

20,290
20,248
20,155
20,096

! 16,182
I 16,169
! 15,788
i 15.762

317,581
328,433
338,608
349,519

8,410
8,863
8,195
7,480

3,559
3,573
3,373
2,977

9(50

20,988

3,848
3,848
3,352
3,352

3,100
3,100
3,100
3,100

3,886
3,157
2,153
2,087

1,835
2,086
1,917
2,000

28,700
29,686
26,189
24,386

325

FEDERAL RESERVE BULLETIN.

APRIL l, 1917.

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.]
New
RichPhilaAt| Boston. York. delphia. Cleve- mond. lanta,
land.

Federal Reserve notes:
Received from ComptrollerMar. 2
Mar. 9

33,880
33,880
Mar. 16
33,880
Mar. 23
Returned to ComptrollerMar. 2
8,844
8,860
Mar. 9
9,094
Mar. 16
9,136
Mar.-23
Chargeable to Federal Reserve
AgentMar. 2..
25,036
Mar. 9
25,020
24,786
Mar. 16
24,744
Mar. 23
In hands of Federal Reserve
AgentMar. 2
9,500
Mar. 9
1 9,560
Mar. 16
f 9,360
Mar. 23
8,600
Issued to Federal Reserve Bank,!
net—
'I
Mar. 2
j 15,476
Mar. 9
i 15,460
Mar. 16
15,426
16,144
Mar. 23
Amounts held by Federal Reserve
Agent:
In reduction of liability on outstanding notes—
Cold coin and certificates
on h a n d Mar. 2
14,650
Mar. 9
14,650
Mar. 16
14,650
15,410
Mar. 23
Credit balances—
In gold redemption
fund—
i
Mar.2
|
826
810
Mar. 9
1
776
Mar. 16
j
734
Mar.23....:
I
With Federal Reserve !
Board—
;
Mar.2
Mar. 9
!
:
Mar. 16
!
Mar.23
As security for outstanding
notes—
'•
Commercial paper a—
\
Mar.2
!
Mar. 9
Mar. 16
Mar.23
Total—
:
•
15,476
Mar.2
15,460
Mar. 9
Mar. 16
, 15,426
Mar.23
' 16,144

259,400 37,520 23,860
263,800 37,520 23,860
275,480 37,520 23,860
287,480 37,520 23,860

36,380
36,380
36,380
36,380

18,720
20,680
22,520
29,360

22,540
23,340
23,340
23,340

32,000
32,000
32,000
32,000

8,480 j 4,630
8,686
4,697
8,829
4,942
8,943 5,050

1,851
1,857
1,866
1,872

3,316
3,354
3,445
3,875

1,152
1,316
1,355
2,237

31,750 16,869
31,683 18,823
31,438 20,654
31,330 27,488

19,224
19,986
19,895
19,465

29,500
29,500
29,500
29,500

7,177
7,247
7,481
7,570

4,757
4,803
4,882
4,953

197,681 30,343
201,620 30,273
213,066 30,039
222,142 29,950

19,103
19,057
18,978
18,907

21,020
20,814
20,671
20,557

61,719
62,180
62,414
65,338

ChiSt. I Minne- Kansas
Francago. j Louis, apolis. City. Dallas. cisco.

Total.

28,720 35,320
28,720 35,320
29,720 35,720
37,720 35,720

18,560
18,560
18,560
18,560

576,400
583,560
598,480
625,320

2,736
2,901
3,171
3,295

6,144
6,185
6,607
6,800

2,378
2,391
2,772
2,798

113,184
114,477
116,858
121,867

30,848
30,684
30,645
29,763

25,984
25,819
26,549
34,425

29,176
29,135
29,113
28,920

16,182 463,216
16,169 469,083
15,788 481,622
15,762 503,453

54,320
51,120
55,200
60,400

8,240
6,840
6,840
5,200

5,100
4,700
4,700
3,500

3,900
3,600
3,600
3,600

11,065
10,965
10,805
10,805

1,500
1,500
1,500
6,500

3,040
3,840
4,340
4,340

10,520
10,500
10,500
9,650

3,488
3,108
3,623
11,098

8,636
8,087
7,876
7,516

119,369
113,820
118,344
131,209

143,361
150,500
157,866
161,742

22,103
23,433
23,199
24,750

14,003
14,357
14,278
15,407

17,120
17,214
17,071
16,957

20,685
20,718
20,633
20.525

15,369
17,323
19,154
20,988

16,184
16,146
15,555
15,125

20,328
20,184
20,145
20,113

22,496
22,711
22,926
23,327

20,540
21,048
21,237
21,404

16,182 343,847
16,169 355,263
15,788 363,278
15,762 372,244

136,946
144,546
152,144
156,564

3,730
3,730
3,730
3,730

13,233
13,533
13,513
10,573

5,165
5,165
5,165
5,165

13,030
13,030
13,030
13,018

4,370
4,370
3,370
2,370

10,110
10,110
10,110
10,110

204,194
212,094
218,609
219,836

6,415
5,954
5,722
5,178

1,183
1,313
1,269
1,180

770

742
704
613
563

948
924

993
944
1,350
1,303

1,100
1,058
1,165
1,106

789
778
752

15,587
14,959
15,379
14,353

9,000 13,020 15,250
9,000 13,420 16,250
9,000 13,420 18,450
10,000 13,820 20,290

6,430
6,430
6,430
6,050

3,250
3,130
3,130
3,130

13,260
14,360
16,160
17/660

9,080
9,080
8,880
8,880

15,380
15,380
15,010
15,010

97,800
101,380
104,620
115,330

3,531
3,231
3,331
2,931

3,847
3,847
3,347
3,347

3,100
3,100
3,100
3,100

3,873
3,037
2,016
1,994

250
800
1,082
1,308

13, 130
i 14,330
I 14,140
i 16,490

-j

2,960
2,960
2,897
2,896

4,000

4,060

7,605
7,795
7,704
6,695 I

.1 4,060
4,060
3,350

1143,361 22,103
! 150,500 23,433
1157,866 I 23.199
:161, 742 ! 24', 750

1,174
1,107
985
878

515
419
367
262

765
834

14,003
14,357
14,278
15,407

17,120
17,214
17,071
16,957

I

119
113 i
704

960

20,685 15,369 ! 16,184
20,718 17,323 I 16,146
20,633 19,154 15,555
20,525 20,988 ! 15,125

26,266
26,830
24,070
22,725

20,328 22,946 20,540 i 16,182 343,847
20,184 22,711 21,048 ; 16,169 355,263
20,145 22,926 21,237 ! 15,788 363,278
20,113 23,327 21,404 ; 15,762 372,244

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.




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 discounted,
members.

Boston
New Y o r k . . . ,
Philadelphia..
Cleveland
Richmond....
Atlanta.,
Chicago
St. Louis
Minneapolis...
Kansas City...
Dallas
San Francisco.

i Bills bought United States
bonds and
! in open
Treasury
; market.
notes.

Municipal
warrants.

Total.

$1,817,177
1,085,390
902,672
1,264,443
3,792,474
2,242,595
1,499,458
551,335
2,216,400
509,328
1,224,287
194,481

$13,057,843
32,050,538
13,884,436
9,877,174
5,434,959
3,493,056
10,023,230
7,382,675
6,766,000
4;130,159
1,901,407
9,863,426

SI,683,893 I
790,996 I
2,016,107 !
6,821,510 i
2,465,729 i
1,543,843 i
8,966,957 i
3,093,900 !
2,656,100 !
9,480,850 j
4,833,250
3,920,179 !

$600,453
5,121,005
1,432,016
2,670,188
12,705
123,558
2,598,370
1,019,434
529,100
414,169
334,717
966,216

.$17,159,366
39,647,929
18,235,231
20,633,315
11,705,867
7,403,052
23,088,015
12,047,344
12,167,600
14,534,506
8,293,661
14,944,302

17,900,040

117,864,903

48,273,314 |

15,821,931 |

199,860,188

Earnings from-

r

United
I Bills disBills
States
MuniciI counted, bought
bonds pal warmemin open
and
bers.
market. Treasury rants.
notes.

Banks.

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. L o u i s . . .
Minneapolis
Kansas City
Dallas
San Francisco




Calculated annual rates of earnings from—

.

Bills discounted,
members.

Bills
United
bought
States
in open bonds and
market. Treasury
notes.

Municipal warrants.

Total.

Per cent.
3.84
3.66
3.90
3. 77
3.83
3.93
4.32
4.00
4.36
5.05
4.49
4.73

Per cent.
3.00
3.19
2.96
2.96
3.04
3.17
2.80
3.02
2.93
2.97
3.41
2.86

Per cent.
3.03
3.00
3.03
2.90
2.80
3.00
2.59
2.54
2.79
2.27
2.57
2.23

Per cent.
3.06
3.08
2.85
3.05
2.79
3.64
3.14
3.05
2.92
2.84
3.59
3.01

Per cent.
3.10
3.19
3.01
3.00
3.25
3.37
2.86
2.94
3.16
2.58
2.85
2.78

830,055
78,271
31,614
22,426
12,682
8,501
21,534
17,077
15,225
9,411
4,891
21,648

S3, 911 :
:
1, 883 4, 693 i

I
|

So, 348
4,741
2,700
tf, 833
11,140
6,757
4,974
1,694
7,417
1,976
4,222
704

15, 167
5, 297
3, 553
19, 359
025
693
509
642
277

81,411
12,103
3, .139
6,246
27
345
6,253
2,384
1,186
901
927
2,231

340,725
96,998
42,146
47,472
29,146
19,156
52,120
27,180
29,521
28,797
19,682
31,860

I

55,306

273,335

99,009 i

37,153

464,803 I

;

c

Total.

.-...:

|
•
,
!
\

:

!
•
I
I

4.02

3.02

2.67

3.06

3.0

Apiur. 1,1917.

327

FEDERAL BESEBVE BULLETIN.

DISCOUNT RATES.
Discount rales of each Federal Reserve Bank in effect Apr. 1, 1917.
Maturities.

Member
banks'
! collat! era!
loans.

Within

I

Boston
New York
Philadelphia..
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City...
Dallas
San Francisco..

Trade acceptances.

: Commodity
paper
maturI Agriculing
I
tural
16 to 30 31 to 60 61 to 90 i and live-! To 30 : 31 to 60 •• 61 to 90within
days, in- days, in- j stock days, in- days, in- days, in- 90 days
elusive. ; elusive. I paper elusive. • elusive, elusive. :
" "
- •
- •
I over 90
" ivs.
Discounts.

4

"31
31
31

f

4
4

4

31
31

31 !

37,

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—
Feb. 23,
1917.

Ore and base bullion
United States mint or assay office bars..
Bullion, refined
United States coin
Foreign coin

:

!

160

Mar. 2, i Mar. 9, I Mar. 16,
1917.

!

1917.

!

234

279

" 49," 567 "I

411
1
2,433

25,275 j
2,448

49,727 !

Total imports..

1917.

3,124

28,322 !

Total
since
Jan. 1,
1917.

Total for
corresponding
period
during
1916.

1.948
776
5,970
94

4,935

2,952
6
143,219
51,006
50,858

54,401

248,041

28,814

49,232

EXPORTS.

Domestic:
Ore and base bullion
United States mint or assay office bars
Bullion, refined
Coin

Total

r.

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.




1,200 ;
17 I
1,891 i

1
32
3,450

52
3,238
1,194
42,519

119
2,774
2,906
12,659

4,795

3,108

3,483

47,003

18,458

1,197

Total exports

17
2
12
4,764 j

7,406

Total
Foreign:
Bullion, refined
Coin

851 i
70 I
6,485 ;

453

36

322

31
3,823

1,438
10,860

1,197

453

36

322

3,854

12,298

8,603

5,248

3,144

3,805

50,857

30,756

328

FEDERAL RESERVE BULLETIN.

APRIL 1,1917,

FOREIGN EXCHANGE RATES.
Monthly ranges of exchange rates on leading foreign money centers, quoted in Neio York City during December, 1916, Janu*
ary, February, and March, 1917.
[In continuation of figures published in December, 1916, Bulletin.]
I December, 1916.

January, 1917.

February, 1917.

Low. | High.

Low.

March, 1917.

j
! Low.
London:
80-day bankers' bills
Sight drafts
Paris
Berlin
Petrograd
Vienna
Milan
Amsterdam
Copenhagen
Zurich
Buenos Aires
Rio de Janeiro
Hongkong
Shanghai
Yokohama




!
dollars..' 4.71
d o . . . . 4.7/
francs..
dollars..
do
29.25
d o . . . . 11.03
lire..
695
dollars..
40?
do
j
27
francs..!
518
dollars..! 43.25
do
23.10
do
55.45
do....
87
do—!
50?

High.

4.75
fi83|
75*
30.75
13.40
666
40|
27.80
493
44.89
23.63
58
89

t. 71£
4.71
L75i
28
10.60
764
40§
27.30
502
43.40
22.97
55.75
85
50|

High.

Low.

4.7580
584-i
701
29.10
11.10
708
40|
27.55
500
44.46
23.46
58
89£
51

4.711
4.7490
585J
68
27.60
11.05
787
40ft
27.45
504
42.25
22.90
55.25
81
51

j High.

4.71|
4.7555
28.60
11.50
763
40?
29.60
501£
44.03
23.18
56.50
86$
51

APRIL 1,1917.

329

FEDERAL RESERVE BULLETIN.

GOLD' RESERVES AND NOTE CIRCULATION OF PRINCIPAL EUROPEAN BANKS OF
ISSUE.
As the result of the war, certain changes have
taken.place in the reserve position of the principal European banks of issue, owing largely to
the vast amounts of notes issued to meet the
demands of the Governments of the belligerent countries. The following tabulation, compiled from either original reports of the banks
or official reports of the Governments, shows
the amounts of gold reserve—i. e., amounts of
gold coin and bullion held in vault, and of notes
issued by the central banks at the end of the
calendar years 1913 to 1916.
It should be noted from the outset that the
amounts of gold given as the gold reserves of
the central banks by no means represent the
total amounts of gold in Europe. These
reserves do not include the gold held by the
Government treasuries nor, as in the case of the
United Kingdom and neutral countries, the
considerable amounts of gold held by commercial and other banks, and the gold in actual
circulation. There are but few reliable data as
to the volume of gold outside the control of the
Governments or central banks.
The British Government reports a total of
£28,500,000, or $138,695,250, nominal, of
metallic cover, largely gold, against a total of
£150,144,177 ($730,676,637 nominal) of currency notes and certificates issued since August,
1914, and outstanding about the end of 1916,
and smaller amounts are undoubtedly held by
other European exchequers.
In addition, the Irish and Scotch banks
report for the four weeks ending December 30,
1916, an average of £29,689,208 ($144,481,908
nominal) of gold and silver held against an average of £36,332,285 ($176,811,055nominal) of circulation outstanding, compared with £11,380,813 ($55,384,726 nominal) of metallic reserve
against £16,237,861 ($79,021,551 nominal) of
notes in circulation about the end of 1913.
These figures are exclusive of the small amounts
of reserve and circulation of six private banks
and three joint-stock banks in England proper.




The figures of gold reserves shown for the
Reichsbank and the Bank of France, it is
generally conceded, more nearly approximate
the total monetary gold stock of these countries, though it has been stated repeatedly
that the large addition to the gold reserve of
the Keichsbank is due parity to the transfer
to its vaults of some of the gold held at the
outbreak of the war by the Austro-Hungarian
Bank. The fact is that the latter bank has published no statement since July 23, 1914, when
its gold reserve was given as 1,237,879,000
kronen ($251,289,437 nominal), compared with
1,356,857,000 marks ($322,931,966 nominal)
of gold reserve reported by the Reichsbank for
the same date.
In the case of Italy the figures of reserve
and of note circulation relate to the Bank of
Italy only. To the figures given should be
added the gold reserves and note circulation
of the Banco di Napoli and the Banco di
Sicilia, the other two Italian banks of issue.
Through the courtesy of its New York agency,
we are able to give the following data for the
Bank of Naples:
End of—

1913.
1914
1916

Gold reserve.
Lire.
218,439,000
242,991,000
212,715,000

Bank note
circulation.
Lire.
417,806
518,306
797,732

Moreover, the Italian treasury held on
November 30, 1916, 168,000,000 lire (32.4
million dollars nominal) of metallic reserve,
largely gold, against 1,293,000,000 lire of its
own notes in circulation.
In Belgium neither of the -two banks of issue,
the National Bank of Belgium nor the Societe
G6n6rale de Belgique, have any substantial
vault reserves, the former having removed its
reserve to London prior to the occupation of
Brussels by the German military forces, and
the latter having lost its vault reserve through
its forcible removal to Berlin.

330

FEDERAL RESERVE BULLETIN.

An analysis of the reserve figures indicates
that the combined gold resources of the central
hanks of the allied countries were at the end
of 1916 practically as large as at the end of
1913, the losses shown for the Russian, French,
and Italian central banks being fully balanced by the gains in the metallic reserve
(practically all gold) of the Bank of England.
This transfer of reserves by the allies to London
proceeded on a much larger scale than is indicated by the reserve figures of the central banks
of issue, the bulk of the gold "pooled" having
been shipped oversea, largely to the United
States.
The gold reserve of the Reichsbank shows an
increase during the three years of over 115 per
cent, though, as stated above, it is not known
what portion of the increase is represented by
withdrawals from circulation, as the result of
voluntary offerings of gold coin and bullion
in exchange for notes and what portion by
gold formerly owned by the Austro-Hungarian
Bank.
Substantial gains, absolute as well as relative, are shown also for the gold reserves of the
central banks of the neutral countries in
Europe, these gains being especially large in
the case of the banks of Netherlands and
Spain. The increases in the gold reserves of
the three Scandinavian banks are much smaller,
as these banks for some time past, as the result
of changes in the mint acts of their countries,
have refused to receive at the legal rate bullion
or foreign gold coin.
While the reported gold reserves of the
European central banks show an increase during the three years 1914-1916 of over 18 per
cent, their reported outstanding note circulation shows an increase for the same period




APRIL 1,1917.

of nearly 270 per cent. The rate of increase
would be considerably higher if the figures of
note circulation of the Austro-Hungarian Bank
at the end of 1916 were known. Some idea of
the present volume of this circulation may be
had from the fact that on June 23, 1914, the
total circulation of the Austro-Hungarian Bank
outstanding was 2,129,759,000 kronen (S432,341,000 nominal) and that since the outbreak
of the war to June 30, 1916, the bank advanced
to the Government a total of 6,424,900,000
kronen ($1,304,250,000 nominal), most likely
in the shape of bank notes. Moreover, as
stated above, large additions to the national
currency have been made by the British, German, and Italian treasuries through the direct
issues of their own notes.
Furthermore, as the result chiefly of the
enormous credit operations of the Governments,
the deposits of the principal European banks of
issue show rates of increase about as large as,
if not larger than, those shown above for their
note circulation. The following exhibit gives
the deposit liabilities (in thousands of dollars)
of the four leading European banks at the close
of the years 1913-1916:
At end of—
1913
1914
1915
1916

Bank of
England.
$347,193
754,249
786,669
870,339

Bank of j Bank: of
Russia, j France.

I

§600,237 i
500,177 !i
760,253
1,216,852 |

$188,886
549,762
444,532
439,120

Gorman
Roichsbank.
$188,763
418,144
561,445
1,086,281

The large increases in deposits shown are
made up chiefly of newT credits to the governments or to commercial banks. The latter treat
these credits as reserve or cash, which, in turn,
forms the basis of new deposit credits granted
to the customers of these banks.

APRIL 1,1917.

331

FEDERAL RESERVE BULLETIN.

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)

(A) GOLD R E S E R V E S .

N O T E CIRCULATION.

I. ALLIED COUNTRIES.

I. ALLIED COUNTRIES.
Close of calendar years-

I

Close of calendar years1913

1914

1913

United Kingdom
Russia
France
Italy
Total

338
800
799
216

170
781
679
214

2,153 i

1915
251 =
830
968 !
208
2,257

I United Kingdom..
! Russia

264 i France
758 Italy...:
653 Belgium
174
1,819

278 '
252 ,

498 !

1915

1916

Total.

144
859
1,103 !
341 j
203 !

176
1,475
1,927
417
312

172
2,732
2,569
587
372

2,650 :

4,307 ,

6,432

193
4,425

3,219
748
1372
8,957

j
II. CENTRAL EUROPE.

II. CENTRAL EUROPE.
Germany
Austria-Hungary.

1914

1916

582

600

Germany
Austria-ilungary..

617
481

1,201 I
(*)

1,646 I
(a)
|

1,917
()

III. N E U T R A L COUNTRIES.

III. NEUTRAL COUNTRIES.
Sweden
Norway
Denmark
Netherlands..
Switzerland..
Spain
Total...

29 ]!
10
25 i
87 ;
46 I
110

1
Including small amount of silver.
* No data."




3

49
33
3 42
236
67
241

307

245 !

33 '
14
30
173
48
167 !
465 i

Sweden
Norway
Denmark
Netherlands.
Switzerland..
Spain

63
29
41
134
61
371

81
36
55
198
88
379

88
43
59
232
90
405

112
67
3 72
305
104
455

Total..,

699

837

917

1,115

668

Figures for Sept. 30,1916.

1 Figures for 1915: no complete data available for 1916.
2 No data.
3
Figures for Sept. 30, 1916.

332




FEDERAL RESERVE BULLETIN.

APRIL 1,1917.

GOLD RESERVES OF PRINCIPAL EUROPEAN
BANKS OFISSUE AT END OF 19/3, IS/4,/9/5#/9/6.
Z:ALim9

COUNTRIES. X - CENTRAL EUROPE.

JTt NEUTRAL COUNTRIES.

T

•9,

30&
ITALY

aooo

ITALY

UMTSPMNGPOM

IOQo\

RUSSIA

RUSSIA

o

RUSSIA

RUSSIA
FRANCE

FRANCE-

FRANCE

-iOGQ

UNITED KiH6P0M_

I3/S

IBUh

IOCO\

FRANCE

13/6

JI:
iOOQ

10QQ

G

I 6ERMANY

re/3

|

! GERMANY

GERMAHT

I GSRMANY

O

IBIS

I0!4>

'IK
fOOO

0

I

AW
/5V6:
WAftK- - ^ NETHERLANDS. - J". J
t. SWEDEN:~2.NORM4Y.~ 3.DEt
W/TZERLANP. - £ ^ £ 2 L J

Ami!. 1, 1917.




FEDERAL BESEBVE

333

BULLETIN.

NOTE CIRCULATION OF PRINCIPAL EUROPEAN
BANKS OF ISSUE AT END OFIS/3,19I4-, ISIS^/916.
I: ALLIED CQLWTRtSS. I : CENTRAL EUROPE.

2OCQr

JT.- NEUTftAL COUNTRIES.

£000

KXX>
•Sz

J3J3
J_
/. SWEDEN. -E

(9J±

o

(9J5

INDEX.
!

Page.

I Foreign exchange rates
328
Acceptances, distribution of, by sizes, maturities,
236, 239
etc
*
319 I Foreign loans, investments in
I Foreign securities, offerings of
237
Accounting, uniform, tentative proposal submitted
237
by Board
270-284 | Gold imports
! Gold imports and exports, statement showing
327
Business conditions throughout the several districts
293-315 j Gold settlement fund, transactions under
268, 269
Harris, 13. D., vice president National City Bank
Charts showing gold reserves and note circulation
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:
Reserve balances
285
Commercial failures during February
267
Limitations imposed by section 5200, R. S
286
Discount operations of Federal Reserve Banks... 316-318
Discount rates:
Trade acceptances
287
Stock subscriptions
287
In effect
327
War Department obligations
288
Revision of
235, 241
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 SuHolding over of Federal Reserve Bank dipreme Court
254-266
rectors
290
Federal Reserve Agents' fund, summary of transDrafts 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 FedRevenue 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