United States. Federal Reserve Board.

Annual report of the Federal Reserve Board for the period ending ..., Volume 3 online

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corresponding improvement in the wearing quaUty and workmanship
of the notes.

It has been the practice of the Federal Reserve Agent's depart-
ment throughout the year to maintain in the vaults of the bank an
average amoimt of $5,000,000 in new and unissued Federal Reserve
notes of the denominations chiefly required by the banks of the dis-
trict, and to request shipments from the reserve supply held by the
Treasury Department in Washington to offset from time to time
issue of notes by the bank.

It was the practice during the fall and winter a year ago to gradu-
ally accumulate used notes in fit condition returned by the bank
to the Federal Reserve Agent, storing them against prospective
crop moving demands. This method has proven effective in guar-
anteeing an immediate and adequate supply of notes against all

The notes so held, together with all gold and collateral standing
against notes in circulation, are kept in a special vault compart-
ment, separate and distinct from the vault accommodations of the
bank, and subject to entry only by the Federal Reserve Agent, or
his representative. Methods for handling and protecting such funds
have been made the subject of special study and investigation, and
are believed to afford the fullest possible d^ree of protection.


Pursuant to law, a circular announcement of an election to fill
one vacancy each in class A and class B was issued to the 301 banks
composing group 1, on October 2. As a result thereof 132 banks

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qualified by selecting electors, and the electors in due process cast
121 ballots. For the vacancy occurring in class A, Mr. E. W. Decker,
of Minneapolis, received 118 votes and was declared reelected for a
second term of three years, beginning January 1 . In class B, Mr. F. R.
Bigelow, of St. Paul, received 119 votes and was declared reelected for
a second term of the same period, beginning at the same date.

On December 19 the chairman received official notification from Uie
Federal Reserve Board of the reappointment of Mr. John W. Black,
of Houghton, Mich., as class C director for a three-year term, begin-
ning January 1.

An increased interest was manifested as compared with the elec-
tion of one year before in which groups 2 and 3 participated, but the
ballots cast were far short of the total number of banks entitled to
vote, and many institutions did not avail themselves of the very
important rights enjoyed tmder the law in making their independent
nominations and casting their ballots.


It was with special satisfaction that the officers and board of di-
rectors, upon authorization of the Federal Reserve Board, were
permitted to annoimce the payment on December 30th of the first
dividend, at the rate of 6 per cent established by law, covering the
first eight months of operation of the bank, to all stockholders of
record on June 30, 1915. The disbursement so required amounted
to $57,720, and a substantial balance remaining after payment of the
dividend was transferred to profit and loss accoimt.

The coiuse of business during the year indicates that incident to
the increasing effectiveness of the service rendered by the bank
there is a corresponding improvement in its revenues, and that its
gradual development constantly adds to its ability to meet the obli-
gations imposed by laW.

The bank closes the year with a substantial increase of activity in
all departments, with closer and more effective touch with its mem-
bership, and with an increased confidence on the part of the general
pubUc. It appears to be clear that it is making rapid progress
toward efficient performance of the fimctions devolving upon it
imder the law, and toward a full degree of banking service to its
members and of service to the public at large that may be expected
of it.


The poUcy of the bank throughout the year has been to conduct
its operations carefully, economically, and efficiently. Wherever
possible, it has avoided incurring expense, beheving that its first
obligation was to liquidate the cost of oiganization and make pro-
vision for the wiping out of its fixtures and equipment account.
The cost of Federal Reserve notes has been charged off from month

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to month as the note circulation has expanded, and the expense inci-
dent to circulation in excess of $20;000;000 has thus been written off.

The results of careful adherence to this pohcy have been substantial
and are disclosed in the comparative general balance sheets of 1915
and 1916, which follow.

The satisfactory result of the year could hardly have been accom-
plished without the loyal and intelligent cooperation of the official
and clerical force of the bank. The staff at the end of the year
remains approximately the same as a year ago, the only exception
being the increase in the force employed in the transit department
incident to the rapid expansion of check clearing operations.

In aU the departments there has been keen interest in the success
of the bank's operations, and the officers and employees have
demonstrated a spirit which has been of the utmost value in solving
numerous problems presenting themselves from day to day, and
bringing about adjustments incident to the establishment of thor-
oughly efficient methods of work. In an institution only 26 months
old, established to have a practical usefulness in a new and imtried
field, the problem of organization and of the development of settled
and effective methods of ^work has been difficult. The bank closes
the year after having reached a high degree of operating efficiency.

In all departments there is ample evidence that the adjustments
involved in establishing settled poUcies and methods have been
satisfactorily accomplished.

Statement of condition Dec. Sly 1926,


BiUs dJsootinted— members

Bankers' acoeptanoes

United States Donds and notes

State and municipal warrants

Aocmed interest on United States securities

Furniture and equipments (Including new vault and safes)

Organixatlon ei^ense

Cost of Federal Keser ve notes, unissued

Expenses paid In advance

Doe from other Federal Reserve Banks

Doe from banks and bankers, also deferred debits to members..
National bank notes and Federal Reserve notes, other banks. . .

Federal Reserve notes on hand

Other lawful money

GoW certificates and gokl coin

Gold in settlement fund


Dec. 31, 1918.








Capital 2,609,700.00

Profit and loss 44.541.27

Discount and interest unearned ! 36, 274. 45

Discount on United States bonds 22, 534. 74

Withheld for Federal hicome tax ! 176.25

Government deposits 886, 437. 51

Caahiflr's checks I 6,680.45

Due to other Federal Reserve Banks 4,347,156.58

Due to member banks 29,534,961.87

Gold with Federal Reserve Agent to retire outstanding Federal Reserve


Dec. 31,1915.

SI, 244, 615. 71





















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Profit and loss account — 1916,

Gross earnings Jan. 1, 1916, to Dec. 31, 1916 $238,108.08


Assessment for expenses Federal Reserve Board $8, 962. 07

Cost of new Federal Reserve notes issued during year 9, 866. 06

Operating expenses 79, 877. 70


Excess of earnings ovier current expenses 139, 402. 9b

Less the following items charged on :

Organization expense 32, 341. 71

Depreciation of furniture and fixtures 4, 800. 00

Dividend for period Nov. 2, 1914, to July 1, 1915 57, 719. 87


Balance carried forward 44, 541. 27

Gross earnings by months — 1915 and 1916.











17, 154. 86
20, 35a 25





27, 17a 94








Classification of earnings.



Bills discounted, member banks

Bankers' acceptances

United States bonds and notes

State and municipal warrants

Sundry profits including interest gd transfer drafts








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Ohables M. Sawyer, Chairman and Federal Heserve Agent.


The year has witnessed a greater redundancy of loanable funds in
the banks of this district than ever before. As a consequence, and
owing to the lack of requests by member banks to rediscount, the
investment operations of this bank have been confined largely to
open-market transactions, under the provisions of section 14 of the
Federal Reserve Act. This report will, however, show an earning
account in excess of expenses and current dividend requirements.
Statement attached hereto and designated Schedule A shows a com-
parative income, profit and loss account as of December 31, 1915
and 1916.

Out of the current earnings it has been possible to pay dividends
to June 30, 1915, as well as to charge off all organization expense^.
Surplus earnings now on hand indicate the further liquidation of
cumulative dividends at an early date. This favorable result,
attained during a period of lax demand for rediscounting, reason-
ably assures the ultimate payment of full dividend with the return
of normal conditions.

Schedule B- herewith is a comparative detailed statement as of the
close of business December 31, 1915 and 1916. The material increase
in the amount due to member banks has been due primarily to the
payment of reserve installments required on May 16 and November
16, 1916, and further to the amendment to the Federal Reserve Act
permitting member banks to carry with Federal Reserve Banks any
portion or all of the cash reserve previously required to be carried
in their vaults. The response *to the Board's circular setting forth
the desirability of a further concentration of gold in the Federal
Reserve Banks, through the privileges of this amendment, has been
highly gratifying.

The large increase in balances due to and from other Federal
Reserve Banks, as reflected by the comparative statements, is a
result of the interdistrict clearing operations. The amount due from
banks and bankers, shown in the statement of December 31, 1916,
represents nonmember items in process of collection, handled in


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accordance with the provisions of the new collection plan. Other
items in the comparative statement which show material vaiiation
are discussed in full under the proper heads elsewhere in this r^rt.


At no time in the history of the section embraced within the
boundaries of district No. 10 have general commercial conditions
been so active and satisfactory as during the current year. Whole-
salers, jobbers, and retailers have regularly reported unprecedented
and increasing sales, with collections far above the average. Manu-
facturing f acihties have been generally taxed to capacity. Building
permits and engineering activities were reported in increasing vol-
ume, while post-office receipts, bank clearings, and deposits have
gone forward by leaps and bounds, each succeeding month adding to
previous records. Mineral and oil industries have enjoyed record-
breaking prosperity.

While agricultural production has not been as large as in previous
years, increased market prices have more than offset the shortage,
and farmers have prospered as never before. Labor conditions have
been satisfactory, except that a general shortage has existed in
almost every line. Voluntary wag^e increases have been common,
and such differences as have occurred between labor and employes
have been amicably adjusted through compromises. At livestock
markets high prices have prevailed, many records being broken in
receipts as well as in prices paid. Bank deposits have been unpre-
cedented, but the general lack of demand and low level of interest
rates have doubtless resulted in no greater profit to banks, if, indeed,
the profits have equaled those of preceding years. Railroad earn-
ings have been highly satisfactory when consideration is given to the
lack of cars, high cost of materials and supplies, and the general
increase in operating expenses. There has also been some diminution
in tonnage occasioned by smaller crops. The high levels reached in
prices of farm products have naturally been followed by an increase
in price of many necessities of life.


Schedule C herewith is a report of rediscotmts for member banks
during the year, distributed by States and maturities as of date of
discount, also the volume of business by months, record of the nature
of the paper discoimted, number and average amoimt of notes redis-
coimted, maximum and minimum amount held, and number and
amoimt of offerings rejected in whole or in part. It will be interest-
ing to note from this schedule that practically all of the requests to
rediscoimt came from points outside of the larger cities of the district,
the offerings consisting largely of agricultural and live-stock paper.

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As soon as the recent amendment to the Federal Reserve Act per-
mittmg member banks to obtain fmids from Federal Reserve Banks
against their own promissory notes became effective, a general letter
was addressed to the members of district No. 10, outlining the pro-
vision and annoimcing the rate approved for this form of credit. In-
asmuch as these notes are acceptable for only 15 days, and conditions
prevailing in this district have not made it necessary to seek tempo-
rary relief because of immediate need, no large voliime of this paper
has yet been offered. It is confidently believed that in periods of
imusual happenings, imcertainty, or stress, local or general, this priv-
ilege will be thoroughly appreciated and widely employed, especially
by the lai^er banking institutions. Natural conditions and usages
in this district make 15-day paper an unfamiliar credit transaction,
but, nevertheless, a sufficient niimber of these offerings have been
handled to indicate that at all times this form of credit will be re-
quested to some extent.

While the volume of trade acceptances handled up to date has
been small, yet an active interest is being manifested in this class of
paper by commercial and credit associations in this district, and this
interest has been stimulated in every way possible by the official
staff of this bank. It is also gratifying to note that a number of
member banks are encouraging this method of settlement of accounts.

Schedule D is a statement of bankers' acceptances purchased, num-
ber of items in this class, and classification by rates and maturities.

Schedule E reflects the number and amount of warrants purchased,
rates obtaining, classification by maturities, and subdivision of the
aggr^ate amount in municipal and State warrants.

The major portion of acceptances and municipal warrants were
purchased for our accoimt by the Federal Reserve Banks of Boston
and New York, the warrants consisting. of issues of eastern munici-
palities. It wiU be observed that in the purchase of acceptances by
far the larger amoimt has been based upon transactions involving the
importation and exportation of goods, although a small amoimt of
acceptances based upon domestic transactions have also been handled.
There is a growing interest in domestic acceptances, as authorized by
the amendment to section 13 of the Federal Reserve Act, and it is
anticipated that with the return of normal conditions the use of this
instrument will play a larger part in commercial transactions.

Schedule F gives a full and complete record of all transactions in
United States bonds, providing descriptions of the different issues
handled, the purchase prices, sales, the conversions of 2 per cent
bonds, and the amoimt of the several issues on hand at the close of
business December 31, 1916.

In the early part of the year the directors of this bank concluded
to purchase United States bonds to the extent of $10,000,000. Prac-

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tically all of such bonds were purchased which were offered for sale,
by the member banks in the district, either directly to this bank or
through the United States Treasurer, imder the provisions of section
18 of the act. In order to obtain protection for the loaning power of
this bank, the circulation privilege was exercised upon $8,000,000 of
bonds so purchased. It was not anticipated that this currency should
be put into use except in the event of imusual demands, and, with the
exception of $2,000,000, these notes were held m vault. The $2,000,-
000 were put into circulation for purposes of practical illustration and
to familiarize the banks and the public with this form of currency.
Following the successful consummation of this plan, the entire
amount placed in circulation was retired by a deposit of gold with the
United States Treasurer.

Schedule G is a recapitulation of investment transactions as de-
tailed in previous statements affecting these operations, and sup-
plies information as to the average holdings of the several classes,
with the total earnings thereon, and the average annual rates ob-
tained on each class of earning assets.

In Schedule H wiU be found the monthly changes in the reserve
position of this bank during the year, covering percentages carried,
required, and percentages in excess over requirements. The reserve
of this bank for the year has averaged in excess of 60 per cent.


There have been no changes in the membership due to transf^s
from or to other districts within the year. The movement of mem-
bership within the district shows a small net decrease, as per Sched-
ule I, giving a record of the additions and withdrawals fix>m mem-
bership, together with the effect on the total capital stock of this
institution. The larger number of liquidations of national banks
has been by reason of conversions to the State system in Nebraska.
The controlling influence in such cases as have come to the attention
of the officers of this bank has not been dissatisfaction with the
national system nor with membership in the Federal Reserve Bank^
but because of the popularity of the Nebraska law guaranteeing

Relations existing between this bank and its members have become
more and more cordial with a growing appreciation of the fimctions
of the Federal Reserve Bank and its vital part in the national finan-
cial plan. An increasing familiarity with the provisions of the law
and the privileges thereunder has had a favorable effect. No effort
has been spared to make the f acihties of the greatest service to the
banks of the district. The pohcy has been as liberal as the condi-
tions and the law would permit.

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The dispatch with which discount operations may be effected
through the Federal Reserve Bank has thoroughly demonstrated to
those who have tested its faciUties tixitt the early criticism with re-
spect to cumbersome details was without foundation. This fact has
been fully demonstrated notwithstanding that the poHcy of the
executive committee, while liberal; has at no time sacrificed the
higher prerequisites of Uquid commercial paper. On the contrary,
the experience has been that this committee ia passing on offerings
has been able to exert an influence resulting ia a better knowledge
of what constitutes paper available for discount and to induce bank-
ers within the district to observe finer distinctions in credit exten-

In the main there seems to be manifested a thoroughly coopera-
tive spirit. The real difficulty encountered has been in bringing
about a viewpoint national in its scope, the natural tendency being
to consider the results of the operation of the Act from a purely
local standpoint.

At every opportimity State banks and trust companies have been
kept in touch with the purposes of the system, and it is believed that
these institutions are becoming more and more cognizant of the
accomplishments and possibilities of the Federal Reserve Act. Since
membership is entirely voluntary on their part, however, although
many of them have doubtless considered joining the system, but one
trust company and two State banks have thus far applied for atid
been granted membership in this institution. Some misapprehen-
sion doubtless still exists, but through correspondence, pubUc ad-
dresses, and personal association with our officers at conventions and
elsewhere, much progress has been made in creating a better under-
standing of the law and its purposes.

There is submitted herewith in Schedule J a showing of the aver-
age deposits of member banks with this bank, indicating excess and
deficient balances, for the period from January 1 to May 16, May
16 to July 15, July 15 to November 16, and from November 16 to
December 31, inclusive. These divisions are intended to exhibit the
volume of deposits prior to the call for installments of reserves due
May 16 and November 16, and prior to the inauguration of the gen-
eral clearing plan July 15 and subsequent thereto, because of the
changed conditions affecting reserve funds due to the provisions of
the new clearing plan. The figures given after July 15 deal only
with net balances and eliminate from consideration credits produced
by items in course of collection.

The schedule discloses that the average of deficient balances shghtly

exceeds the average of excess funds, with the result that the. aggregate

deposits of member banks have been less than the legal requirement.

This condition is not so marked since the inauguration of the general

75284**— 17 ^26

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clearing plaji; the provisions of which estabhsh a penalty for the
purpose of maintaining the required reserve balances. While this
penalty was not assessed withia the year 1916, the banks have been
fully informed on the subject, and penalties will be assessed b^in-
ning with the month of January, 1917.

There is further supplied in Schedule J a monthly record of the
average number of accounts overdrawn and the average amounts of
overdrafts. The amotmts involved have been inconsiderable in pro-
portion to the aggregate deposits, and have not been due to a ten-
dency to ignore requirements on the part of any particular member
bank, but have been the result of error, oversight, delayed mails, or
imperfect records, speedily adjusted in nearly every case. It be-
came necessary during the year, in a few instances, to carry small
amounts of overdue paper pendiug provision therefor by discounting
banks. This, however, was invariably occasioned by lack of proper
attention on the part of member banks, and the average amount was
proportionately small.

The cooperation of the Comptroller of the Currency has resulted in
copies of all statements of member banks, made upon official call,
being filed with our records, and these reports are at all times avail-
able for the use of the executive committee in passing upon offerings
for discount. Complete statistics are compiled from these reports
for ready reference. Prior to June 1, 1916, brief reviews of reports
of examination of member banks were secured from the chief na-
tional bank examiner, when found necessary. Since that date copies
of all reports of examinations made by the examiners attached to
that office have been furnished for the bank's credit files, so that at

Online LibraryUnited States. Federal Reserve BoardAnnual report of the Federal Reserve Board for the period ending ..., Volume 3 → online text (page 38 of 48)