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 » . 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 4 256 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. AruiL 1,1917. 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 258 FEDERAL RESERVE BULLETIN. AntiL 1, 1917. natural development of banking become inci- I As the demand deposits of such companies dental to this class of business. ! increased, the demand on their part for 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 260 FEDERAL RESERVE BULLETIN". APRIL 1,1917. with the theory that Congress intended that Reserve notes and of rediscounting commercial these banks should have in general powers paper. They may be designated as Governsimilar to those exercised by other banking ment depositories by the Secretary of the Treasinstitutions organized under State laws. The ury and enjoy practically all of the privileges of words quoted were not intended as a limita- Inational banks except the privilege of issuing tion upon the incidental powers appropriate to a ' circulating notes against the security of Govbanking business but were intended to confer j ernment bonds, and this is largely offset by the in broad outline the usual banking powers, j privilege of obtaining Federal Reserve notes. (Pattison v. Syracuse National Bank, 80 N. Y., With these faculties added to the advantages 82, 89.) already enjoyed by reason of the broader 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 262 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: 282 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