arfr_1924

ELEVENTH ANNUAL REPORTOF THE

FEDERAL RESERVEBOARD

COVERING OPERATIONS

FOR THE YEAR 1924

WASHINGTONGOVERNMENT PRINTING OFFICE

1925

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

CONTENTS

PagePART I. Report of the Federal Reserve Board, with exhibits 1-290PART II. Charts and statistical tables, arranged by Federal reserve

districts 291-449PART I.

TEXT OF REPORT:Industry and trade in 1924

w 1Growth of member bank credit 2Volume of Federal reserve bank credit 3Currency demand and the reserve banks 6Gold and Federal reserve bank credit 7Demand for gold and for dollar credits 9Discount and open-market policy in 1924 10Earnings, expenses, and volume of operations of Federal reserve banks 12Fiscal agency operations 17Building operations of Federal reserve banks 18Branches and agencies of Federal reserve banks 19Branch banking 19Changes in membership in Federal reserve system 21Banks on par list 22Bank suspensions 23Check clearing and collection 24Trust powers of national banks 27Administration of Clayton Act 29Legislation affecting the Federal reserve system 30Amendments to regulations of the Federal Reserve Board 30Meetings of the Federal Advisory Council 31Conferences held by the Federal Reserve Board 31Board's organization, staff, and expenditures 31

DISCOUNT AND OPEN-MARKET RATES:No. 1. Discount ratesChanges during 1923 and 1924 in Federal

reserve bank rates 33No. 2. Average rates charged by Federal reserve banks on bills dis-

counted 34No. 3. Average rates of earnings on discounted bills held by the Fed-

eral reserve banks 35No. 4. Open-market ratesChanges during 1923 and 1924 in mini-

mum authorized rates of Federal reserve banks on accept-ances bought in open market 36

No. 5. Average rates charged by Federal reserve banks on billsbought in open market 37

No. 6. Average rates of earnings on bills bought in open market andfrom other Federal reserve banks 38

No. 7. Average rates of earnings on bills discounted and on bills pur-chased by each Federal reserve bank, 1916-1924 39

No. 8. Average rates of earnings on United States securities held bythe Federal reserve banks 40

in


IV CONTENTS

DISCOUNT AND OPEN-MARKET RATESContinued Pag*No. 9. Average rates of earnings on total earning assets and on mu-

nicipal warrants, Federal intermediate credit bank deben-tures, and foreign loans on gold held by the Federal reservebanks 41

CONDITION OF FEDERAL RESERVE BANKS:No. 10. Earning assets of all Federal reserve banks combined, 1914r-

1924 _' 42No. 11. Reserves, deposits, and note circulation of all Federal reserve

banks combined, 1914-1924 45No. 12. Resources and liabilities of all Federal reserve banks com-

bined on the last day of each month, December, 1923-December, 1924 48

No. 13. Resources and liabilities of ail Federal reserve banks com-bined, by weeks, during 1924 50

No. 14. Cash reserves, deposits, Federal reserve note circulation, andreserve percentagesDaily averages for all Federal re-serve banks combined, by months, 1920-1924 54

No. 15. Earning assetsAverage daily holdings of all Federal reservebanks combined, by classes and months, 1920-1924 55

No. 16. Earning assetsAverage daily holdings of all classes com-bined, by banks and months 56

Discounted billsNo. 17. Average daily holdings of each Federal reserve bank, by

months 57No. 18. Holdings of each Federal reserve bank on December 31,

1924, by classes 58No. 19. Holdings of all Federal reserve banks combined at the

end of each month, by classes 58No. 20. Holdings of each Federal reserve bank on December 31,

1924, by maturities 59No. 21. Holdings of all Federal reserve banks combined on the

last report day of each month, by maturities 59No. 22. Holdings of bills secured by United States Government

obligations by each Federal reserve bank on De-cember 26, 1923, and December 31, 1924, by classes. _ 60

No. 23. Holdings of bills secured by United States Governmentobligations by all Federal reserve banks combinedon the last report date of each month, by classes 60

Bills bought in open market (bankers' and trade acceptances)No. 24. Average daily holdings of each Federal reserve bank,

by months 61No. 25. Holdings of bankers' acceptances by each Federal re-

serve bank on December 31, 1924, by classes of accept-ing institutions 62

No. 26. Holdings of bankers' acceptances by all Federal reservebanks combined at the end of each month during1924, by classes of accepting institutions 62

No. 27. Holdings of each Federal reserve bank on December 31,1924, by classes 63

No. 28. Holdings of all Federal reserve banks combined at theend of each month during 1924, by classes 63

No. 29. Holdings of each Federal reserve bank on December 31,1924, by maturities 64


CONTENTS

CONDITION OF FEDERAL RESERVE BANKSContinuedBills bought in open marketContinued Page

No. 30. Holdings of all Federal reserve banks combined at theend of each month, by maturities 64

United States securitiesNo. 31. Average daily holdings of each Federal reserve bank, by

months 66No. 32. Holdings of each Federal reserve bank on December 31,

1924, by classes 66FEDERAL RESERVE BANK NOTES:

No. 33. Received from and returned to the Comptroller of the Cur-rency and outstanding, by denominations, 1915-1924 67

FEDERAL RESERVE NOTES:No. 34. Federal reserve agents' accounts at the end of 1923 and 1924_ 68No. 35. Issued to Federal reserve banks by Federal reserve agents,

held by issuing banks, and in actual circulation; also goldand eligible paper held by agents as security for notesissued to banksMonthly figures for each Federal reservebank 70

No. 36. Issued and retired by each Federal reserve agent, by months 72No. 37. Issued and retired by all Federal reserve agents combined

and amounts outstanding, 1914-1924, by denominations. 74No.'38. Collateral (gold and eligible paper) pledged with Federal

reserve agents as security for Federal reserve notes issuedto Federal reserve banksWeekly figures for all Federalreserve banks combined 75

DISCOUNT AND OPEN-MARKET OPERATIONS:Total volumeAll classes

No. 39. For each Federal reserve bank during 1924, by classes. 76No. 40. For. all Federal reserve banks combined, by months

and classes 77No. 41. For each Federal reserve bank, by months 78

3ills discountedNo. 42. Volume discounted by each Federal reserve bank, by

months 79No. 43. Number of banks in each district accommodated

through discount operations, by months 80No. 44. Volume, by States, also number of member banks in

each State and number accommodated through dis-jount operations 81

No. 45. Volume discounted for national banks and for Statebank and trust company members 82

No. 46. Volume discounted by each Federal reserve bank, bymaturities and rates of discount charged 83

No. 47. Volume discounted by all Federal reserve banks com-bined, by months and by maturities and rates of dis-count charged 84

No. 48. Average maturity of bills discounted 85No. 49. Bills secured by United States Government obligations,

discounted by Federal reserve banks 86No. 50. Trade acceptances discounted 87No. 51. Bankers' acceptances discounted 87


VI CONTENTS

DISCOUNT AND OPEN-MAEKET OPERATIONSContinued PageBills bought in open marketBankers' and trade acceptances

No. 52. Purchased by each Federal reserve bank, by months 88No. 53. Purchased by each Federal reserve bank,'by classes 89No. 54. Purchased by all Federal reserve banks combined, by

months and classes 89No. 55. Purchased by each Federal reserve bank, by rates of

discount charged 90No. 56. Purchased by all Federal reserve banks combined, by

months and b}^ rates of discount charged 91No. 57. Average maturity of bills purchased _ 92No. 58. Purchased by each Federal reserve bank, by maturities. 93No. 59. Purchased by all Federal reserve banks combined, by

months and maturities 93United States securities

No. 60. Total volume of all classes purchased by each Federalreserve bank 94

No. 61. United States bonds and Victory notes purchased byFederal reserve banks 1 95

No. 62. United States Treasury notes purchased by Federalreserve banks 96

No. 63. United States certificates of indebtedness purchased byFederal reserve banks 97

No. 64. Special temporary certificates of indebtedness issued toFederal reserve banks by the Secretary of the Treas-ury 98

No. 65. Rediscounts and sales of bills and securities betweenFederal reserve banks 98

GOLD SETTLEMENT FUND:No. 66. Summary of transactions of each Federal reserve bank 100No. 67. Clearings and transfers of all Federal reserve banks com-

bined, by weeks during 1924 101FEDERAL RESERVE AGENTS' GOLD FUND:

No. 68. Summary of transactions of each Federal reserve agent 102CLEARING OPERATIONS:

No. 69. Operations of the Federal reserve clearing system 103No. 70. Number of member banks and of nonmember banks on par

list and not on par list in each State 105No. 71. Number of member banks and of nonmember banks on par

list and not on par list in each Federal reserve district. 106OPERATIONS OF BRANCHES:

No. 72. Volume of operations of each Federal reserve branch bank__ 108BANK PREMISES:

No. 73. Cost of bank premises of Federal reserve banks and branches. 110EARNINGS AND EXPENSES:

No. 74. Earnings and expenses of Federal reserve banks during 1924_ 112No. 75. Gross and net earnings of Federal reserve banks, 1914-1924. 114

RECEIPTS AND DISBURSEMENTS OF FEDERAL RESERVE BOARD:No. 76. Receipts and disbursements of the Federal Reserve Board

for 1924 117ASSETS AND LIABILITIES OF MEMBER AND NONMEMBER BANKS:

No. 77. All banks in United States: Resources and liabilities 120No. 78. All member banks: Resources and liabilities, 1924 121No. 79. National banks: Resources and liabilities, 1924 122


CONTENTS VII

ASSETS AND LIABILITIES OF MEMBER AND NONMEMBER BANKSCon. PageNo. 80. State bank and trust company members: Resources and

liabilities, 1924 123No. 81. All member banks in New York City: Resources and lia-

bilities, 1924 124No. 82. All member banks in Chicago: Resources and liabilities,

1924__ 125No. 83. All member banks in reserve cities: Resources and liabilities,

1924 126No. 84. All member banks outside of central reserve and reserve

cities (country banks): Resources and liabilities; 1924 127No. 85. All member banks: Principal resources and liabilities, 1914-

1924 128No. 86. National banks: Principal resources and liabilities, 1914-

1924 _ . . 130No. 87. State bank and trust company members: Principal resources

and liabilities, 1914-1924_^ 132No. 88. Reporting member banks in leading cities: Principal resources

and liabilities 134No. 89. State banks and trust companies: Member and eligible

nonmember banks on June 30, 1924, in each Federalreserve district 136

No. 90. State banks and trust companies: Member and eligiblenonmember banks on June 30, 1924, in each State 137

No. 91. State banks and trust companies: Nonmember banks eligi-ble for membership on the basis of capital stock require-ments for national banks and on the basis of the reducedrequirements of the agricultural credits act of 1923 138

No. 92. All member banks: Earnings and dividends, 1919-1924 141No. 93. Reporting member banks in Federal reserve bank cities:

Amounts due to and due from other banks 143No. 94. Membership in the Federal resources system: Changes in

number of banks and total resources for all districts com-bined 147

No. 95. Membership in the Federal reserve system: Changes innumber of banks, by districts 149

DEBITS TO INDIVIDUAL ACCOUNTS:No. 96. Debits to individual accounts as reported by banks in 141

principal citiesSummary by months and districts, 1919-1924 154

GOLD IMPORTS AND EXPORTS:No. 97. Gold imports into and exports from the United States, June

1, 1919-December 31, 1924, by periods and principalcountries 158

No. 98. Total imports of gold into and exports of gold from theUnited States, by countries, 1922, 1923, and 1924 159

No. 99. Gold imports into and exports from the United States, bymonths, during 1924 159

MONEY IN CIRCULATION:No. 100. Money in circulation outside the United States Treasury

and Federal reserve banks 160


CONTENTS

MONET RATES: PageNo. 101. Rates on prime commercial loans of 4 to 6 months maturity

in principal cities, by months during 1924____ 162PRODUCTION INDEXES:

No. 102. Index of production, employment, trade, wholesale prices,and foreign exchange 163

State banks and trust companies admitted to membership 166State bank membershipSummary classification according to capital

stock 191Fiduciary powers granted to national banks 193Banks granted authority to accept drafts and bills of exchange up to 100

per cent of capital and surplus 211Personnel and salaries:

Salaries of officers and employees of Federal Reserve Board 214Salaries of officers and employees of Federal reserve banks 216Salaries of national-bank examiners 220

Directory:Federal Reserve Board 223Federal Advisory Council 223Officers and directors of Federal reserve banks and branches 224

Court opinions:Opinion of United States District Court in Atlanta par clearance case. _ 231Decision of Supreme Court of the United States on right of national

banks in Missouri to exercise trust powers 234Decision of Supreme Court of Rhode Island on right of national

banks to exercise trust powers 237Bills to amend the Clayton Act, proposed 240Extract from World War adjusted compensation act 240Regulations of the Federal Reserve Board 241Recommendations of the Federal advisory council to the Federal Reserve

Board 276Description of Federal reserve districts 285

PART II

Charts showing cash reserves, holdings of earning assets, and Federalreserve note circulation of each Federal reserve bank, 1917-1924__ 292

Charts showing loans and investments and deposits of reporting memberbanks in each Federal reserve district, 1917-1924 305

Statistical tables, arranged by Federal reserve districts:District No. 1Boston 312District No. 2New York 323District No. 3Philadelphia 334District No. 4Cleveland 345District No. 5Richmond 357District No. 6Atlanta 369District No. 7Chicago 381District No. 8St. Louis 393District No. 9Minneapolis 403District No. 10Kansas City 414District No. 11Dallas - 427District No. 12San Francisco 438

Map of Federal reserve districts 450


PART I

REPORT OF THE FEDERAL RESERVE BOARDWITH EXHIBITS

3656925t-


THE FEDERAL RESERVE BOARD

DECEMBER 31, 1924

EX OFFICIO MEMBERS

A. W. MELLON,Secretary of the Treasury, Chairman.

J. W. MCINTOSH,Comptroller of the Currency.

D. R. CRISSINGER, Governor.EDMUND PLATT, Vice Governor.ADOLPH C. MILLER.CHARLES S. HAMLIN.GEORGE R. JAMES.EDWARD H. CUNNINGHAM.

WALTER L. EDDY, Secretary.J. C. NOELL, Assistant Secretary.J. F. HERSON,

Chief, Division of Examination andChief Federal Reserve Examiner.

WALTER WYATT, General Counsel.W. M. IMLAY, Fiscal Agent.

WALTER W. STEWART,Director, Division of Research and

Statistics.E. A. GOLDENWEISER,

Assistant Director, Division of Re-search and Statistics.

E. L. SMEAD,Chief, Division of Bank Operations.


ANNUAL REPORT OF THE FEDERAL RESERVE BOARD

WASHINGTON, February 20, 1925.SIR: In this, its eleventh annual report, the Federal Reserve Board

reviews the business and banking developments in 1924 as theyaffected the position of the Federal reserve banks and describes theoperations of the Federal reserve system during the year. Theboard, in its annual report for 1923, discussed in the light of theexperience of the Federal reserve system for the preceding ten yearscertain of the basic factors underlying the administration of Federalreserve bank credit. The present report indicates the manner in whichthe discount and open-market policies discussed more fully in lastyear's report have functioned under business and credit conditionsprevailing in 1924.

INDUSTRY AND TRADE IN 1924

Business and industry in 1924, taking the year as a whole, were lessactive than in 1923, when production and trade were in exceptionallylarge volume. The recession in industrial activity which began in thespring of 1923 continued, with a brief interruption at the turn of theyear, until the middle of 1924. Increased output in certain basicindustries early in 1924 resulted in a larger volume of production thancould be currently marketed at prevailing prices, with the consequencethat stocks accumulated, prices receded, production was sharply cur-tailed, and there was a decrease in employment at industrial estab-lishments. The volume of trade, however, continued at a high levelthroughout the period of industrial recession and, as distribution ofgoods to the consumer was in larger volume than current production,stocks of merchandise which had accumulated during the springmonths were gradually reduced and a renewed demand for materialswas reflected in a firmer tone in the commodity markets. This in-dustrial readjustment, together with an improvement in the positionof the farmer, was an important factor in bringing about a businessrecovery during the last quarter of the year. The farmer's income,particularly in certain sections of the wheat producing regions, waslarger in 1924 than in recent years, though the corn crop was short.In the aggregate, crop production was as large as in 1923 and pricesat the farm averaged considerably higher. Conditions in the livestockindustry, however, continued to be unfavorable. Wheat farmers inthis country benefited by the shortage of the world wheat crop andthe consequent larger export demand. Financing of agricultural ex-

1


2 ANNUAL REPORT OF THE FEDERAL RESERVE BOARD

ports as well as of exports of other raw materials in large volume wasfacilitated by the flotation in the United States of an unusually largeamount of foreign loans, which increased the buying power of foreignpurchasers in our markets. This improvement ifKhe European demandfor American products, the increase in the current income of the farmer,and a growth in business confidence were factors in bringing aboutthe increase in business activity during the closing months of the year.Between September and December industrial output and factoryemployment increased sharply from the low point reached in mid-summer, and this expansion in production in basic industries wassufficient to overcome the larger part of the previous decline. At theend of 1924, as a result of a readjustment in prices and the improve-ment in the world market for agricultural products, there was a betterbalance between industry and agriculture than at any time in morethan four years.

GROWTH OF MEMBER BANK CREDIT

In the banking and credit situation the principal development in1924 was a decline in money rates during the first half of the year,which carried those rates by midsummer to the lowest level in adecade. This ease in the money market was the result of an abun-dance of loanable funds at member banks and not of a decreaseduse of credit to finance current business. In fact, throughout mostof the year the volume of commercial borrowing at member banks inprincipal cities continued near the high level of the autumn of 1923,and after the seasonal advance in the latter part of 1924 was inlarger volume than at any time in more than three years. Thiscontinued demand for commercial credit during the period of slack-ened industrial activity may be accounted for in part by the fact thatthroughout this period the volume of trade and distribution wasmaintained at a high level. Decreased industrial activity, however,accompanied by lessened employment and smaller pay rolls, resultedin a diminished demand for hand-to-hand money, and as currencyreleased from circulation flowed into the member banks it increased thevolume of their funds available for lending. Further additions to thesupply of funds arose from gold imports, which during the first halfof the year were in larger volume than during 1923. Member banksused funds arising from these two sources to repay their borrow-ings at the Federal reserve banks, and the reduction during the earlypart of 1924 in the total of Federal reserve bank credit in use wasabout equivalent to the inflow of currency from domestic circulationand of gold received from abroad. When repayment to the reservebanks had brought the volume of borrowing by member banks to alow level, these banks used further additions to their funds as abasis for enlarging the volume of their outstanding credit, chiefly



through the purchase of investment securities and the making ofloans on stocks and bonds. The growth during the last seven monthsof 1924 in the total loans and investments of member banks in leadingcities was about $2,000,000,000, of which $900,000,000 represented anincrease in investments, $800,000,000 an increase in loans secured bystocks and bonds, and $300,000,000 an increase in commercial loans.

This rapid growth in the volume of member bank credit, whichbegan in June, was accompanied by a correspondingly rapid increasein demand deposits amounting to about $1,800,000,000. In thefinancial centers, where the growth of deposits was largest, the increaserepresented in part a growth of balances held for banks in the interior.This concentration of funds in the money centers, which usuallyoccurs during periods of declining business activity, contributed to theease in the central money markets and was one of the factors responsiblefor the low level of rates prevailing during July and August. Towardthe end of August, however, the demand for credit and currency inconnection with crop moving and the autumn trade, and the revivalof industrial activity, resulted in some return flow of funds to theinterior, and rates became firmer during the latter months of the year.Demand for currency reached its peak in December and, togetherwith the outward movement of gold during that month, led memberbanks to increase their borrowings at the reserve banks. The largegrowth in 1924 in the total of member bank credit in use is shown bya comparison of the condition of all member banks at the end of1923 and 1924.

ALL MEMBER BANKS

-

LoansInvestments

Total loans and investmentsDemand deposits ._ . .Bankers' balancesTime deposits . . . ._ .. . . .

[In millions of dollars]

End of

1923

19, 0527,686

26, 73816,0863,5128, 651

1924

20,1818,845

29, 02617, 7664,5489, 805

Increase

1 1291, 1592, 2881, 6801,036], 154

VOLUME OF FEDERAL RESERVE BANK CREDIT

In contrast with this growth in the loans and investments ofmember banks, the amount of Federal reserve bank credit outstand-ing was no larger at the end of 1924 than at the end of the previousyear. The demand for reserve bank credit, however, fluctuated muchmore widely during 1924 than in the two preceding years. Earningassets of the reserve banks after decreasing by $400,000,000 duringthe first five months of the year to $800,000,000the lowest levelsince 1917remained near that level for two months, and then



increased again by $450,000,000 to $1,250,000,000 at the end of theyear. The decline in the volume of reserve bank credit outstandingduring the first half of the year was due to a decrease in the amountof currency in circulation of $280,000,000 and to gold imports of$240,000,000. During the last five months of the year the increasein earning assets of the reserve banks reflected seasonal growthof $330,000,000 of money in circulation, and the further facts thatduring these months net gold imports were only $16,000,000 and thatduring December, for the first time since 1920, there was a net out-ward movement of gold. Thus in 1924 gold and currency movementsexerted their combined effect during tiie early part of the year towarda reduction in the use of reserve bank credit, and during the latter

MILLIONS OF DOLLARS MILLIONS OF DOLLARS

I EARNING ASSETS IOF FEDERAL RESERVE BANKS

1200

600

1200

600

1922 1923 1924-part of the year toward an increase in the demand for reserve bankcredit. In this respect the year 1924 differed from 1923, when agradual growth in currency demand was continuous throughout theyear, as were gold imports, with the consequence that the demandfor currency was currently met by member banks out of the balancescreated at the reserve banks through the deposit of imported gold,and the volume of reserve bank credit in use remained throughoutthe year at a relatively constant level.

Changes in the total volume of reserve bank credit outstandingand in its composition for the first seven and for the last five monthsof 1924 and for the year as a whole are shown in the following table,and the course of the different classes of earning assets during thepast three years is presented in the chart above.



EARNING ASSETS OF FEDERAL RESERVE BANKS

[In millions of dollars]

Dec. 31,1923

July 30,1924

Dec. 31,1924

Increase (+) or decrease ()

First 7months

1924

Last 5months

1924Year 1924

Total earning assets 1 J 1,211DiscountsAcceptancesUnited States securities _

723355133 I

825

294 I24 I

505 '

1,249

314387540

- 3 8 6

- 4 2 9- 3 3 1+372

+424+20

+363+35

+38-409+32

+407

1 Including other classes of earning assets, which on Dec. 31, 1924, aggregated $8,000,000.

During the first seven months of 1924 purchases of United StatesGovernment securities in the open market steadily increased andcarried the holdings of these securities by the reserve banks from$133,000,000 at the close of 1923 to over $505,000,000 at the end ofJuly. The funds thus placed in the market were used by memberbanks in the repayment of their borrowings and resulted further in areduction of the acceptance holdings of the reserve banks. Totalholdings of discounted and purchased bills, which at the beginning ofthe year were about $1,078,000,000, declined almost continuously to$318,000,000 at the end of July. During this period of open-marketpurchases in considerable volume, the total of reserve bank creditoutstanding, as measured by earning assets, declined by nearly$400,000,000, and at the same time there was a considerable changein its composition. The proportion of United States securities,which at the opening of the year constituted about 11 per cent oftotal earning assets, increased to 60 per cent at the end of July, whilethe proportion of discounts declined from 60 per cent to 36 per cent.The decline in total earning assets during this period, as has beenpointed out earlier, is accounted for by the inflow of gold and the de-creased demand for currency, and the fact that the volume of discountsand acceptances decreased to a larger extent than total earning assetswas due chiefly to the security purchases by the reserve banks.

During the last five months of the year there was relatively littlechange in the holdings of United States securities, and the volumeat the end of December was about the same as in the middle ofAugust. During this period, however, total earning assets of thereserve banks increased by over $400,000,000, largely in response toseasonal requirements. In December the growth was principally indiscounts, but for the period as a whole the larger part of the increasewas in holdings of acceptances, which increased after the middle ofAugust from $18,000,000 to $387,000,000 at the end of December.At the close of 1924 acceptance holdings of the Federal reserve bankswere larger than at any time since 1920 and constituted nearly one-



half of the total volume of outstanding acceptances. The unusuallyheavy exports of agricultural products during the autumn of the yearwere financed in considerable part through the use of acceptancecredit, and the total amount of credit extended in this form was largerin 1924 than at any time except during the last part of 1919. Thevolume of commodities financed through acceptance credit in 1924 wasin fact larger than in 1919, when measured in terms of physical volume,because in 1919, with prices at a much higher level, more credit wasrequired to finance the same physical quantity of goods. A largepart of the total acceptances purchased by the reserve banks aroseout of the financing of export and import trade with many countriescovering principally the exportation of cotton and grains, and theimportation of coffee, sugar, silk, hides, and wool. With this largevolume of acceptances in the market the seasonal tightening of moneyrates resulted during the last quarter of the year in heavy offeringsof bills to the reserve banks, with a consequent growth of acceptanceholdings by these banks. A table showing the principal assets andliabilities of the Federal reserve banks for every week in 1924 appearson pages 50-53.

CURRENCY DEMAND AND THE RESERVE BANKS

At the reserve banks, through the large amount of currency of allkinds paid in daily and the large volume withdrawn each day, thereis a continuous adjustment between the volume of money in circula-tion and the public's changing requirements for currency. Whilethe net outflow of currency from the reserve banks during the lastfive months of 1924 approximately equaled the net inflow during thefirst part of the year, and there was consequently little change inthe total volume of money in circulation, the amount of currencythat passed through the reserve banks during the year was in excessof $10,000,000,000, or more than twice the amount currently held bythe public. The amount held by the public, about $5,000,000,000,includes the vault cash in banks, the till money of the merchants, andthe cash in the pockets of individuals. Since cash in the vaults ofmember banks does not count as part of their legal reserves, they keepon hand only that amount of currency which experience has shown tobe necessary to meet the immediate demands of their depositors; thisamount in the aggregate is about $500,000,000, and represents 2 percent of their gross deposits. Mercantile establishments also limittheir holdings of cash to till-money requirements, and the amount ofmoney carried by individuals, though it fluctuates to some extentwith the volume of employment and earnings, is determined largelyby pocket-money requirements. In this country, where the bank-ing habit is general, where business concerns and individuals depositwith banks any excess of currency in their possession, and banks


ANNUAL REPORT OF THE FEDERAL RESERVE BOARD 7

in turn keep on hand only enough cash for immediate needs, anyoutstanding currency above actual requirements promptly flows tothe reserve banks, and any increased demand for currency is reflectedin withdrawals of cash from these banks. It is this responsivenessof the volume of currency in use to the public's requirements andthe promptness with which the net volume of inflow or outflow ofcurrency of all kinds at the reserve banks responds to changes in thedemand for cash that constitutes the elastic character of the cur-rency under the Federal reserve system.

The elasticity of the currency is in no way affected by changesmade by the reserve banks in the relative amount of payments madein Federal reserve notes and in other forms of currency. In 1924the Federal reserve banks continued the practice, which had begunin the middle of 1922, of increasing the amount of gold certificatesin circulation, with the result that the volume of Federal reservenotes outstanding declined further during the year and an equalamount of gold certificates was substituted in their place in thecountry's circulation. As a consequence of this practice, the reservesof the reserve banks during the first part of the year did not increase tothe extent of gold imports during the period, and during the latter partof the year, when the demand for currency was increasing, this demandwas met by the reserve banks out of reserves as well as through anincreased issue of Federal reserve notes. As a result of this paymeiitof gold certificates into circulation, together with net gold exports of$30,000,000 in December, total reserves at the end of the year haddeclined to $3,000,000,000, the lowest figure for three years. Theextent to which gold certificates have been restored to circulation isindicated by the fact that during the three years since 1922, with netgold imports of about $800,000,000, there has been no net increasein the reserves of the reserve banks, and the volume of gold certificatesin circulation has increased by an amount equal to the gold imports.

GOLD AND FEDERAL RESERVE BANK CREDIT

In 1924, as in other recent years, the most important single influ-ence affecting the volume of Federal reserve bank credit in use wasthe continued inflow of gold. While net imports of gold in 1924 weresomewhat less than in 1923, they represented a continuation of amovement which has lasted for over four years, and since their effectupon the relative position of Federal reserve banks and memberbanks has been cumulative, their influence is clearer when consideredin perspective. Gold received from abroad is deposited by memberbanks with the reserve banks, and its immediate effect is to increasetheir reserve balances. The use made by member banks of theseadditions to their reserve balances depends upon the extent of thecurrency demand and upon the indebtedness of member banks at the


8 ANNUAL REPORT OF THE FEDERAL* RESERVE BOARDreserve banks at the time the gold is received. In 1921, whenliquidation was under way, balances arising out of the $667,000,000of net gold imports, as well as the currency returned from domesticcirculation were used to reduce indebtedness at the reserve banks.In 1922, when the volume of member bank borrowing was at a lowlevel and there was an increased demand for currency, the largerpart of the additions to reserve balances due to gold imports of$238,000,000 were used to meet the currency demand, though a partremained as a basis for the growth in deposit liabilities of memberbanks which occurred during the first half of the year. In 1923practically the entire amount of net gold imports of $294,000,000was used by member banks in lieu of additional borrowing at thereserve banks to meet demands for currency, and the earning assetsof the reserve banks remained practically unchanged. In 1924,though the volume of earning assets of the reserve banks and thevolume of money in circulation fluctuated considerably during theyear, at the end of the year they were both at about the same levelsas at the beginning, and the $258,000,000 of net gold imports arereflected in a growth of member bank balances. For the entirefour-year period the net gold imports arid the net decline in currencyin circulation have been reflected in a decrease of nearly $2,000,000,000in the earning assets of the Federal reserve banks and a growth of$3,000,000,000 in the loans and investments of member banks. Thisdivergence in the movement of Federal reserve bank credit andmember bank credit since 1920 is shown in the following table:

RESERVE BANK AND MEMBER BANK CREDIT, 1920-1924

[Amounts in millions of dollars]

Federal reserve banks:Total earning assetsMember bank reserve balances

All member banks:Total loans and investmentsDeposits on which reserves are computed.

Hatio of earning assets of reserve banks toloans and investments of member banks(per cent) -.

Ratio of reserve balances to deposits on whichreserves are computed (per cent)

End of

1920

3,2351,780

25,88817,616

12.5

10.0

1921

1,5241,753

23, 64416,816

6.4

10.5

1922

1,3261,934

25,76918,966

5.1

10.2

1923

1,2111,898

26,73819,505

4.5

9.7

1924

1,2492,220

29,02721, 985

4.3

10.1

Change

1920-1924

-1,986+440

+3,139+4,369

1923-24

+38+322

+2,289+2, 480

The large increase in the loans and investments of member banksand the decline in the earning assets of the reserve banks, shown inthe table, has reduced the ratio of Federal reserve bank credit tomember bank credit in use from 12.5 per cent in 1920 to 4.3 per centin 1924.# The ability of member banks to increase the volume of



their own outstanding credit and at the same time to decrease theiruse of reserve bank credit was due principally to the receipt duringthe four years of $1,500,000,000 of gold from abroad. While theproportion of the amount of reserve bank credit outstanding to loansand investments of member banks is only a fraction of what it wasin 1920, the ratio between reserve balances maintained by memberbanks at the reserve banks to member bank deposit liabilities, asshown by the table, has remained practically constant at about 10per cent, which represents on the average the minimum required bylaw. This constancy reflects the fact that member banks havecurrently utilized the full amount of credit that could be supportedby the increase of $440,000,000 in their reserve balances. Thus,notwithstanding the large addition to their balances, the memberbanks were obliged in the autumn of 1924 to increase their borrow-ings at the reserve banks in order to meet the seasonal demand forcurrency.

DEMAND FOR GOLD AND FOR DOLLAR CREDITS

A factor in the increased demand for reserve bank credit in thelatter part of 1924 was the demand for gold for export, most of whichwas withdrawn by certain European countries to be used in monetaryreconstruction. A large part of these exports went to Germanyand were made possible by the flotation of a loan under the Dawesplan for reparations. The progress made in the settlement of repara-tions and the restoration of sound monetary conditions in Europeresulted in increased confidence of American investors in Europeansecurities, and, together with the abundance of funds seeking invest-ment, facilitated the placing of a large volume of foreign loans in theUnited States. The volume of such flotations in 1924 was nearlythree times as large as in 1923 and larger than for any other yearsince the war. While a large part of these loans was used in thepurchase of goods in the United States, several countries used dollarcredits thus obtained in supporting the exchange value of theircurrencies. During 1924 the exchanges of three European countriesreturned to pre-war parity, several other countries adopted newmonetary units related to gold, and still other currencies weremaintained in a definite relationship to the dollar or to the poundsterling. In the closing months of the year there was a considerableimprovement in many leading European exchanges, particularly insterling exchange, which, after advancing from $4.31 in June to$4.73 at the end of December, was within 2}/% per cent of parity.To the extent that dollar credits created in the United States throughforeign borrowing wrere used to withdraw gold, they made it possibleto increase the actual gold reserves of foreign countries and to utilize



for monetary reconstruction a portion of the gold which during recentyears had come to this country as the result of disorganized condi-tions abroad. Gold received from abroad has been the principalfactor in bringing money rates in this country to a low level, and thedifference between rates here and abroad, at a time of increased con-fidence in the European financial situation, facilitated foreign borrow-ing and thus contributed to making dollar credits and gold availableto those countries which have undertaken to reestablish soundmonetary conditions. With the actual resumption of gold pay-ments in certain countries and the stabilization of currencies withreference to gold in many other countries, the year 1924 has beenone of definite progress toward the reestablishment of the inter-national gold standard.

DISCOUNT AND OPEN-MARKET POLICY IN 1924

Federal reserve credit policy in 1924, expressed both in changesof discount rates and in open-market operations, was determinedwith reference to the developments in trade, industry, and credit,which have been outlined in the preceding sections of this report.Discount rates at the Federal reserve banks, which had been uni-formly 43^ per cent at all the reserve banks since the early monthsof 1923, were reduced between May and the middle of October, 1924,to a level ranging at the different banks from 3 to 4 per cent. Thesereductions were made at a time of a recession in industrial activity,decreasing factory employment, slackened demand for commodities,and unusual ease in the money market. Money rates by the middleof the year, as the result of the less active demand for credit, and theabundance of funds arising out of the inflow of currency and of gold,had declined to the lowest level in a decade, and discount rates atthe reserve banks were adjusted to prevailing credit and businessconditions. Atthe Federal Reserve Bank of New York the discountrate was reduced on May 1 from 4J^ to 4 per cent, on June 12 to S}4per cent, and on August 8 to 3 per cent, and continued at that levelto the end of the year. At the Federal Reserve Banks of Boston,Philadelphia, Cleveland, and San Francisco the rates were reduced to3J^ per cent, and to 4 per cent at the other reserve banks. The ratesprevailing at the beginning and at the end of the year at each ofthe Federal reserve banks and the dates on which rate changeswere made are shown in. the following table:


ANNUAL REPORT OF THE FEDERAL RESERVE BOARD 1 1

CHANGES DURING 1924 IN FEDERAL RESERVE BANK DISCOUNT RATES

BostonN e w York

Phi lade lphia _

Cleveland _ _ _ _ _

R i c h m o n d . . _ . - . - - _A t l a n t aChicago . . __.St. LouisMinneapol is _ . _ . _ .Kansas C i tvDal las . - . _ _ _ . .San Francisco

In effectJan. 1,

1924

i AH

1i

Reduction

Date

June 12May 1June 12Aug. 8June 19June 26June 2Aug. 15June 14June 18June 14June 19Oct. 15July 1July 16June 10Aug. 25

Rate

3H4

3

4 2

44444

443H

In effectDec. 31,

1924

3H3

3H

. 4444444

1 Five per cent on 6 to 9 months agricultural and livestock paper.2 Four and one-half per cent on 91-day to 6-months, and 5 per cent on 6 to 9 months agricultural and live-

stock paper.1^ ,3 On all classes of paper.

The relationship between the discount rate at the Federal ReserveBank of New York and the rates on commercial paper and on accept-ances for a period of three years is shown in the chart. After a

PER CENT

5 rr-

PER CENT

V iR ''r

MONEYIN NEWY

Commercial PaperRate /*

f ^L / F.R. Bank Discount Rat

1 K AcceptanceRateV

RATESORK CITY

iiiiiii i i i i

h

JJ1 _1 . j i i

1922 1923 1924-continuous decline from the high point of the autumn of 1923,money rates in the New York market in the summer of 1924 were ata considerably lower level than during the preceding period of low


1 2 ANNUAL REPORT OF THE FEDERAL RESERVE BOARD

money rates in the summer of 1922. Though rates on commercialpaper advanced in November and December, they were at the endof the year about 1 per cent lower than at the beginning and somewhatlower than in the middle of 1922. The rise in open-market rateson acceptances, which began in the middle of the year, togetherwith the considerable increase in the volume of acceptances offeredto the reserve banks, led to a gradual advance of the buying rate onacceptances at the New York Reserve Bank from 2 to 3 per cent, andin December the rate on 60 to 90 day bills was at the same level asthe discount rate.

Open-market operations in 1924, as in the two preceding yearsrplayed an important part in the general credit policy of the reservebanks. The purchase of United States Government securities bythe reserve banks placed funds in the market which were used by mem-ber banks, together with funds arising from other sources, to reducetheir indebtedness at the reserve banks. During the period whenreductions in discount rates decreased the cost of reserve bankcredit to member banks, security purchases, by facilitating the repay-ment of borrowings by member banks, were an influence in reduc-ing the amount of their indebtedness to the reserve banfis. Thisgeneral credit policy was the adjustment made by the reserve banksto the trend in business and credit. At the time when the open-market purchases were made there was a recession in industrial activ-ity, the attitude of the business community was hesitant, and therewas no evidence of the growth of speculation. Open-market purchasesduring this period served to build up a portfolio of securities and toincrease the proportion of outstanding reserve bank credit under thedirect control of the Federal reserve banks. By these purchases thereserve banks placed themselves in a position, through the subse-quent sale of securities in case it should become desirable, to causemember banks to discount and to bring a larger part of the out-standing reserve bank credit under the influence of the discountrate. Thus during 1924 both the discount and open-market policiespursued by the Federal reserve banks, taken as a whole, were ap-proved by the Federal Reserve Board with regard to the broaderaspects of the credit situation and "with a view of accommodatingcommerce and business," the basis provided in the Federal reserveact for discount policy and adopted by the board as the principle forthe conduct of open-market operations.

EARNINGS, EXPENSES, AND VOLUME OF OPERATIONS OF THE FEDERALRESERVE BANKS

Gross earnings of the Federal reserve bank^ in 1924 were $38,340,-000, or 25 per cent less than in 1923 and 1922, when they were about$50,000,000. The lower earnings resulted from a decline of about



one-fifth in the average daily holdings of earning assets, together with adecrease from 4.33 to 3.83 per cent in the annual rate of return. Earn-ings on bills discounted for member banks and on bills bought in openmarket declined from $42,300,000 in 1923 to $21,600,000 in 1924,while earnings on Government securities increased from $7,400,000in 1923 to $14,700,000 in 1924. Miscellaneous earnings, consistinglargely of profits on current purchases and sales of United Statessecurities, of income from rented space in bank buildings and ofpenalties for deficient reserves, were $1,975,000 in 1924, comparedwith $937,000 in 1923. Income from space rented was $436,000 in1924, profits on transactions in United States securities were $750,000,and penalties for deficient reserves $382,000. Average daily holdingsof each class of earning assets, earnings thereon, and annual rates ofearnings in 1924, compared with the two preceding years, are shownin the following table:

HOLDINGS OF E A R N I N G ASSETS, E A R N I N G S T H E R E F R O M , AND ANNUALR A T E S OF E A R N I N G S

[Amounts in thousands of dollars]

Daily average holdings:192219231924

Earnings:192219231924 .

Average rates of earnings (per cent):192219231924

Billsdis-

counted

Billsboughtin theopen

market

573,247 I 159,207738,114 i 226, 548374,834 i 172,428

26, 52332, 95615, 943

4.634.464.25 I

5,6299,3715,710

3.544.143.31

UnitedStates

Govern-ment

securities

454, 750185, 823401, 365

16, 6827,444

14, 712

3.674.013.67

Otherearningassets

6685

1,69044

615.404.503.61

Total

1,187, 2701,150, 570

950, 31748, 83849,77536,426

4.114.333.83

Current expenses in 1924, exclusive of those fiscal agency depart-ment expenses which are reimbursable by the Treasury Department,amounted to $28,432,000, a reduction from the 1923 total of about$1,340,000, or 4.5 per cent. Most of this reduction was in salariespaid to the clerical staff, which aggregated $13,289,000, as against$14,026,000 the year before, and in the cost of Federal reserve cur-rency, including redemption charges, which amounted to $1,433,000in 1924, as compared with $1,992,000 in 1923.

The Federal reserve banks in 1924 handled a larger volume ofoperations than during any previous year in rendering free servicesto member banks, such as the clearing and collection of checks, thecollection of other items, and the receipt and payment of cash,including such currency and coin operations as were formerly per-formed by sub treasuries. In the cash department, for instance,the number of bills received and counted aggregated 1,838,000,000,



compared with 1,^ 723,000,000 in 1923, an increase of 115,000,000pieces, and the number of coins received and counted was 2,187,000,-000, compared with 2,076,000,000 in 1923. Checks handled by thetransit departments of the Federal reserve banks also increasedmaterially, the number handled in 1924 (743,000,000) being about45,000,000 in excess of the number handled during the precedingyear. Thus, while the earnings of the Federal reserve banks havedeclined materially, the volume of free services rendered to memberbanks has continued to show substantial increases. On the otherhand, the number of notes discounted and of bills purchased in openmarket fell off from 961,000 in 1923 to 726,000 in 1924. Whilethe income of the banks is derived almost wholly from paper dis-counted for member banks and from acceptances and securitiesbought in the open market, operating expenses connected with thesediscount and open-market operations are very small when comparedwith operating expenses in the cash and transit departments.

Notwithstanding the increase in the volume of operations theFederal reserve banks, through increased efficiency, were able toreduce during the year the amount paid as clerical salaries. Thetotal number of employees of the Federal reserve banks at the endof 1924, excluding those in the fiscal agency departments, was9,964, compared with 10,704 at the end of 1923. The number ofemployees in the fiscal agency departments decreased from 957 atthe end of 1923 to 478 at the end of 1924. The volume of opera-tions in the principal departments of the Federal reserve banks duringthe past three years is shown in the following table:

VOLUME OF OPERATIONS IN PRINCIPAL DEPARTMENTS

1924 1923 1922

NUMBER OF PIECES HANDLEDBills discounted:

ApplicationsNotes discounted

Bills purchased in open market for own accountCurrency received and countedCoin received and counted _ _.Checks handledCollection items handled:

United States Government coupons paidAll other

United States securitiesissues, redemptions, andexchanges by fiscal agency department

Transfers of fundsEnvelopes received and dispatched

AMOUNTS HANDLEDBills discounted _Bills purchased in open market for own accountCurrency received and countedCoin received and counted..Checks handledCollection items handled:

United States Government coupons paidAllother

United States securitiesissues, redemptions, andexchanges by fiscal agency department

Transfers of funds

129,000583,000143,000

1, 838,279, 0002,186, 737,000

742, 878, 00050, 471,0006,113,000

16,097,0001, 503, 000

40,050,000

$15, 419,155,0002,172,142,000

10, 777, 306,000293, 924,000

219, 832,179, 000719, 784,000

5, 509,093,0006, 708,272,000

168,000782,000179,000

1, 722,877,0002,076,075,000

697, 502, 00064, 662,0005, 732.000

2 114,409,000

1, 413,00044,932,000

$38,379,926,0002, 547,010,000

10,306,411,000308,051,000

207, 719, 529,000761, 731,000

5, 900, 520,0008,433,891,000

98, 359,028,000 78,867,108,000

841,000142,000

1,424,849,0001,945,453,000

638, 634,00081,694,0004, 722,000

24, 753,0001,190,0000)

$22,082,887,0001,954,688,0008, 602,185,000

221, 871,000160, 472, 450,000

759,124,0004, 768, 971,000

14,135, 914,00070, 553,465,000

1 Data not available.

2 Large increase due to redemption of war-savings securities which matured Jan. 1, 1923.Digitized for FRASER

http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ANNUAL REPORT OF THE FEDERAL RESERVE BOARD 15As a consequence of the larger decline in gross earnings than in

current expenses, current net.earnings of the Federal reserve banksdeclined by more than one-half and amounted to $9,908,000 in 1924,as against $20,938,000 in 1923. As is shown in the profit and lossstatement, the Federal reserve banks charged their current netearnings with net deductions of $6,190,000, made up principally asfollows: Depreciation allowances on bank premises, $4,035,000;reserves for probable losses on paper held under discount for mem-ber banks, $1,067,000; and cost of furniture and equipment pur-chased during the year, $1,075,000. After these charges were made,net earnings available for dividends, surplus, and franchise taxesamounted to $3,718,000, as against $12,711,000 in 1923. Earningsof two of the reserve banksCleveland and Kansas Citywere notsufficient to cover current expenses, depreciation charges, reservesfor probable losses, etc., or any part of the dividends accrued duringthe year, while the earnings of four other banksBoston, New York,St. Louis, and San Franciscothough in excess of current expenses,depreciation allowances, reserves, etc., were not sufficient to meetfall dividend requirements. As a result these six banks withdrew$3,266,000 from their surplus accounts built up in previous years.Of the six Federal reserve banks that had earnings sufficient to covercurrent expenses, depreciation charges, reserves and dividends, onlyfour had an excess of earnings remaining after such charges. Ofthese, the Philadelphia, Kichmond, and Dallas banks, whose sub-scribed capital was in excess of their surplus accounts, transferredall of such excess earnings, aggregating $175,732, to surplus account,as is authorized by law, while the Minneapolis bank transferred$12,628 to surplus account and paid $113,646 to the United StatesGovernment as a franchise tax. Gross and net earnings of eachFederal reserve bank during the year, dividends paid to memberbanks, and amounts transferred to or withdrawn from surplus accountare shown in the following table :

FINANCIAL RESULTS OF OPERATION OF THE FEDERAL RESERVE BANKSDURING 1924

Federal reserve bank

Boston _ _New YorkPhiladelphiaCleveland .RichmondAtlanta .ChicagoSt. LouisMinneapolis . __Kansas CityDallas _San Francisco

Total

Grossearnings

$2,559,0168, 569,3502, 915,8463, 770, 6892,210,2401,907,1215,202,1691,688,1431,609,0702, 262, 9102,157, 9643,487, 931

38,340,449

Net earn-ings avail-

able fordividends,

surplus,and fran-chise tax

$470,422616,852747,092

i 473,153379,791272,656909,123203,937329,1021 253,182265,024250,516

3, 718,180

Dividendspaid

$477, 7981,796,530

615,135756,152351,251272,656909,123304,976202,828265, 697249, 789480,561

6,682,496

Surplus account

Trans-fers to

$131,95728, 540

12,62815,235

188,360

With-drawals

from

$7,3761,179,6781,229,305

101,039518,879230,045

3,266, 322

Franchisetax paidUnitedStates

Govern-ment

$113,646

113,6461 Deficit in earnings before payment of dividends.Digitized for FRASER

http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

16 ANNUAL REPORT OF THE FEDERAL RESERVE BOARDA comparison of gross and net earnings and the disposition made

of these earnings for the years 1920-1924 is shown in the table below:GROSS AND N E T EARNINGS OF FEDERAL RESERVE BANKS, 1920-1924

1920.1921.1922.1923.1924.

Earnings Disposition of net earnings

$181,296,711122,869,94050,498,69950, 708, 56638, 340,449

Net

$149, 294, 77482, 087,22516,497, 73612,711,286

3, 718,180

Dividends

$5, 654, 0186,119,6736, 307, 0356,552,7176, 682,496

j Franchise taxTransferred to ! paid to United

surplus ! StatesI Government

$82, 916, 01415,993, 086

i 659, 9042, 545, 513

2 3,077,962

$60, 724, 74259,974,46610, 850, 605

3, 613,056113,646

1 Withdrawn from surplus. On the basis of 1922 operations there was $2,740,158 transferred to sur-plus, but $3,400,062 was withdrawn in connection with an adjustment of franchise taxes paid inprevious years.2

Withdrawn from surplus.

The table brings out the fact that transfers to surplus, which werelarge in 1920, when the surplus at none of the banks was as large assubscribed capital, declined rapidly, and in 1924 there were netwithdrawals from surplus. The franchise tax paid to the UnitedStates Government also decreased with the decrease of net earningsand during 1924 was only $113,646, compared with about$60,000,000 in 1920 and 1921.

Owing to the substantially reduced earnings in 1924, theratio of current net earnings to average paid-in capital declinedto 8.9 per cent from 19.2 per cent in 1923. If current netearnings are related to paid-in capital and surplus combined,the ratio works out at 3 per cent in 1924, as compared with6.4 per cent in 1923. The highest rate of current net earnings onpaid-in capital and surplus in 1924, 7 per cent, was reported bythe Federal Reserve Bank of Dallas and the lowest ratio, 1.6 percent; by the Federal Reserve Bank of St. Louis. In 1923 the high-est ratio, 10.4 per cent, was reported for the Federal Reserve Bankof Atlanta and the lowest ratio, 4.7 per cent, by the Federal ReserveBank of Chicago. The table below shows current net earnings,daily average paid-in capital, and surplus of each Federal reservebank during 1924, and the ratios of current net earnings to paid-incapital and to paid-in capital and surplus for 1923 and 1924.Detailed figures of both earnings and expenses of each Federalreserve bank appear on pages 112-116.


ANNUAL REPORT-OF THE FEDERAL RESERVE BOARD 17RATIO OF CURRENT NET EARNINGS TO CAPITAL AND TO CAPITAL

AND SURPLUS COMBINED

Federal reserve bank

BostonNew YorkPhiladelphia-ClevelandRichmondAtlantaChicagoSt. LouisMinneapolis.. _Kansas C i t y -DallasSan Francisco.

Total_

Currentnet

earnings

Daily average

Paid-incapital Surplus

$585, 5152,218, 529

762, 0101,105,839

672,406660,109

1, 255, 733246, 795543, 903396, 823826, 302634, 547

9,908, 511

$7, 963, 30029,942,17310, 252, 25012, 602, 5335,854,1834, 544, 260

15,152, 050 !5,082,933 S3,380,467 !4,428,284 i4,163,1508, 009, 350 i

$16, 389, 56359,928,96719,927, 32923, 691,13811, 672,4838, 950, 30930, 425, 57510, 071, 7437,484, 2199,495, 5407, 577,16015, 301, 038

111,374,933 i 220,915,064

Ratio of current net earningsto average

Paid-in capital

Percent7.4 !7.47.48.811.514.58.34.916. 19.019.87.9

8.9

1923

Percent17.115.523.717.423.331.514.225.918.823.223.023.1

Paid-in capitaland surplus

Percent

2.42 52. 53.03.84.92.81.65.02.87.02.7

19.2 | 3.0

1923

Percent

5.65.18.15.97.8

10.44.78.86.17.68.37.8

6.4

FISCAL AGENCY OPERATIONSFiscal agency operations of the Federal reserve banks during 1924

included the sale and delivery of newly issued bonds and notes, theredemption of securities called for payment or matured, denomina-tional exchanges, interchanges of coupon and registered bonds, ex-changes of temporary for permanent bonds, conversions, transfers ofownership, purchases of securities in open market for Governmentaccount, maintenance of Government deposit accounts with desig-nated depositaries, and the custody of Government securities. Whilethe volume of transactions is smaller than during the war and the im-mediate post-war period, it is nevertheless still considerable, as maybe seen from the following table giving the number and amount of theprincipal transactions during 1924:

New securities issued _RedemptionsExchanges (securities received for exchange) _Treasury savings certificates issued or received for redemptionWar savings and thrift stamps redeemed, including redeemed stamps re-

ceived from post offices

Number ofitems

260,000579,000

4, 831,00056,000

10, 370,000

$1, 452,793,0002,458,222,0002, 738,126,000

13, 573, 000

45, 557, 000

In addition to the purely fiscal agency operations, the Federalreserve banks, acting as depositaries for the Treasury, pay Govern-ment checks, warrants, and coupons, collect checks and noncashitems for the accounf of the Treasury, withdraw Government depositsfrom depositary banks, transfer funds by telegraph, and carry on theformer subtreasury operations, comprising principally the replace-


1 8 ANNUAL REPORT OF THE FEDERAL RESERVE BOARD

ment, exchange, and redemption of United States paper currencyand coin. During 1924 the Federal reserve banks paid 50,471,000Government coupons amounting to $719,784,000 and 34,289,000checks and warrants drawn on the United States Treasurer amountingto $4,160,286,000. Coin received and counted aggregated 2,187,-000,000 pieces, amounting to $294,000,000. While some of this coinwould no doubt have been handled by the Federal reserve bankseven if the sub treasuries had not been discontinued, a large part ofthis work prior to 1921 was performed by the sub treasuries. OnDecember 31, 1924, the Federal reserve banks held $414,500,000 ofsecurities pledged by depositary institutions as collateral for Govern-ment deposits, which on that date amounted to $228,000,000, and inaddition $2,269,000,000 of securities were held in safekeeping forthe account of the Treasury.

During the war and until June 30, 1921, the Federal reserve bankswere reimbursed by the Treasury for practically all expenses incurredin the discharge of their fiscal agency functions, but at present theyreceive reimbursement for only those expenses incurred directly inconnection with the issue of new securities, all other operations beingconducted at the expense of the Federal reserve banks. Reimburs-able fiscal agency expenses of the Federal reserve banks during 1924were $444,000 and the amount of expenses absorbed was approxi-mately $868,000. These figures do not, however, include the costof handling Government coupons, checks, and warrants and otherdepositary operations, or the cost of handling coin.

BUILDING OPERATIONS OF FEDERAL RESERVE BANKS

Construction was begun in 1924 of a building for the Little Rockbranch of the Federal Reserve Bank of St. Louis and of an additionto the building occupied by the Louisville branch of that bank. Thebuilding for the Jacksonville branch was completed during the yearand construction on the New York and Minneapolis buildings,although not completed, progressed sufficiently so that the New Yorkbank was able to occupy its building in October and the Minneapolisbank to begin moving into its building in December. Work has alsoprogressed on the St. Louis building, and on the San Franciscobuilding which was occupied near the end of 1923.

Eleven of the Federal reserve banks, including Minneapolis, andten of the Federal reserve branch banks are now housed in their ownbuildings, while buildings are under construction for the other reservebank, St. Louis, and for the Little Rock branch. Building sites havealso been acquired for six other branches, two of which were acquiredin 1924, a site for the Birmingham branch by purchase and one forthe Omaha branch by exchange for a building purchased in 1920.Construction of buildings for the Denver and Omaha branches wasauthorized by the Federal Reserve Board in 1924. All Federal


ANNUAL REPORT OF THE FEDERAL RESERVE BOARD 19reserve bank branches, except those at Buffalo, Memphis, Seattle,Spokane, Los Angeles, and Portland, now have their own buildingsor building sites for such buildings. Tables showing the cost ofbuilding operations at each Federal reserve bank and branch areprinted on pages 110 and 111.

BRANCHES AND AGENCIES OF THE FEDERAL RESERVE BANKS

No additional branches or agencies of Federal reserve banks wereauthorized during the year, although the Federal Reserve Bank ofRichmond applied to the board for permission to establish a branchto serve the southwestern portion of the fifth Federal reserve district.This application, however, has not yet been acted on by the board.There has been no change in the character of business transactedby the existing branches and agencies.

Effective January 1, 1925, the board adopted revised rules andregulations with respect to the appointment of directors of Federalreserve branch banks. The new rules provide that each branch shallhave seven directors, appointments being made for designated terms.

As in the case of the parent banks, the volume of work handledby the branches and agencies in their principal operating depart-ments has continued to increase, as may be seen from the followingcomparison for 1923 and 1924:

Checks handled:Number of itemsAmount

Currency received and counted:Number of piecesAmount

Coin received and counted:Number of piecesAmount

1923

207,187,000$53,197,150,000

397, 973, 000$2, 415, 356, 000

353,158, 000 !$55,633,000 I

1924

222, 622,000$54, 763,840,000

433, 582, 000$2, 468,886,000

387, 200,000$60,199,000

Current expenses of the 23 branches and 3 agencies during 1924were $5,747,000, as compared with $5,730,000 in the year preced-ing. The average number of officers and employees was reducedfrom 2,557 in the last quarter of 1923 to 2,384 in the correspondingquarter of the year just closed.

BRANCH BANKING

In respect to branch banking the administrative policy of the boardhas been developed in its actions upon individual applications ofmember banks for permission to establish branches. Under that pro-vision of the Federal reserve act which authorizes it to prescribe con-ditions of admission to membership in the Federal reserve system,the board has generally required State banks and trust companies



applying for membership to agree that they will not establish anybranch, agency, or additional office except after applying for andreceiving the board's permission. During the past year the board hastaken occasion to give formal statement to the principles by whichit will be guided in acting upon such applications. These principlesare incorporated in the revised form of Regulation H.1

The board has announced further that the establishment of eachbranch must be separately approved, and that no blanket authoritywill be granted to any member bank to establish branches under acontemplated program of extension.

A survey of branch banking developments in the States has beenundertaken by the board during the year, and a preliminary state-ment of the results of this survey was published in the Federal ReserveBulletin for December, 1924. Reports to the board for June showthat 681 banks located in 29 Statesincluding 108 national, 191member State, and 382 nonmember instituitionswere operatinga total of 2,233 branches. Of these banks, 371 were operating onlybranches located in the home city of the parent bank and 310 wereoperating branches outside the home city. More than one-halfof the banks, 376 out of 681, were operating one branch only; 235were operating 2 to 4 branches, and 90 were operating 5 or morebranches. Of the branches reported, 1,463 were located in the homecity of the parent bank and 770 outside the home city. During thefirst six months of 1924 a total of 213 branches were established, ofwhich 154 were home-city and 59 were outside branches, and verynearly this proportion of home-city to outside branches is shownfor the 280 branches established during the calendar year 1923. Itmay be noted that comparatively few banks located in the largercities report outside branches, only 43 of the institutions reportingsuch branches being located in cities of 100,000 or more population,while a large majority of the banks operating only home-city branchesare located in these larger cities. Recent growth in the numberof home-city branches represents an effort on the part of bankslocated in the larger cities to extend their banking facilities to out-lying districts for the accommodation of their customers. Statebanking codes and administrative practice, as is well known, varyfrom State to Statefrom absolute prohibition of branch bankingin any form in some States to free authorization of the practiceon a state-wide basis in other States. Branch banking territorymay, of course, be either extended or diminished in the future bymodification of State banking codes or administrative practice. Dur-ing the past year Illinois by referendum vote approved a statute(enacted in 1923) prohibiting branch banking. Since, however, nobanks were operating branches in this State, the effect of the en-

1 See page 260.


ANNUAL REPORT OF THE FEDERAL RESERVE BOARD 2 1

actment is to provide specific legislative authority for an adminis-trative policy continuing present conditions. Two other States haveduring the year amended the branch banking provisions of theirlawsMaryland, by providing that a bank or trust company estab-lishing a home-city branch shall conform to the capital requirementfor a bank or trust company located in such city or town; andMississippi, by providing that the consent of the superintendent ofbanks (instead of the consent of a majority of State bank examiners)shall be obtained before a bank located in a city of 10,000 or morepopulation establishes a branch within the corporate limits of the city.CHANGES IN MEMBERSHIP IN FEDERAL RESERVE SYSTEM BETWEEN

DECEMBER 31, 1923, AND DECEMBER 31, 1924

On December 31, 1924, there were 9,587 member banks in activeoperation in the Federal reserve system, as indicated by the requiredreports of condition which were submitted by the banks as of thatdate. Of this number 8,043 were national banks and 1,544 wereState banks and trust companies, the number of both classes of banksbeing smaller than a year earlier. The reduction was 136 for nationalbanks and 51 for State banks, a total of 187. Despite the decline inthe number of banks, the total resources of both classes of memberbanks show increases for the year.

On December 31, 1924, the aggregate resources of all member bankswere $38,987,000,000, the resources of national banks amountingto $24,369,000,000 and those of State member banks to $14,618,-000,000. For the year resources of all member banks show anincrease of nearly $3,800,000,000, of which about $2,000,000,000was for national banks and $1,800,000,000 for member State banksand trust companies.

The decline in membership during the year was the net result of171 additions and 359 losses, omitting from these figures compen-sating changes between national and State members which affectedmembership in the two classes of banks without changing membershipin the system as a whole. These gains and losses to membershipare classified in the following table, by class of member banks.Tables showing changes in membership, by Federal reserve districts,during the period 1919-1924, appear on pages 147-153.



CHANGES IN ACTIVE MEMBERSHIP IN THE FEDERAL RESERVE SYSTEM,DECEMBER 31, 1923, TO DECEMBER 31, 1924

Member banks

Number

National State

Active membership Dec. 31,1923ADDITIONS TO MEMBERSHIP

Primary organization of national banksConversion of nonmember banks to national.Admission of State banksResumption, following suspension _Conversion within the system*

Total additions.LOSSES TO MEMBERSHIP

Merger of member banks _Absorption of member banks by nonmembers.Voluntary liquidation (terminal)Withdrawal.Suspension or insolvencyConversion within the system1 Others, losses . .

8,179

17

132

Total lossesNet change during the yearActive membership Dec. 31, 1924.

1,595

47

1 !268

- 1 3 68.043

- 5 11,544

Total

9,774

171

83513426

163

358- 1 8 79,587

Resources(inthousands)

$35,238,606

20,30821,34561,80510,863

114, 321

42,30451, 75266,879

146,892

1,347

309,1742+3, 748, 261

38, 986, 867

1 Compensating items, except for 1 member State bank which succeeded a national bank that did

not report on Dec. 31, 1924, and was therefore not counted among losses in 1924.2 Includes, in addition to increases classified above, those due to growth and reorganizations.

BANKS ON PAR LIST

The following table shows the number of banks on the par list,that is, of banks which have agreed to pay without deductions forcollection charges such checks drawn upon them as are presentedby the Federal reserve banks in connection with the operationof the Federal reserve clearing system. The table also shows thenumber of banks not on par list. The number of banks on the parlist on December 31, 1924, was 25,127, and included, in additionto the member banks, 15,445 nonmember banks. This total was1,494 below that for the end of December, 1923, and 3,657 belowthat for December 15, 1920, when the number of par collectingbanks was highest. The number of nonmember banks collecting atpar was smaller at the end of December this year than last in allexcept the Boston, New York, Philadelphia, Cleveland, and Atlantadistricts. It was larger than in December, 1920, only in the NewYork and Philadelphia districts.


ANNUAL REPORT OF THE FEDERAL RESERVE BOARD 23NUMBER OF MEMBER AND NONMEMBER BANKS ON PAR LIST AND NOT ON PAR

LIST, DECEMBER, 1924 AND 1923

Federal reservedistrict

BostonNew YorkPhiladelphia..ClevelandRichmondAtlanta .Chicago.St. LouisMinneapolisKansas City _..DallasSan Francisco

System

Member banks

Total

1924

420859743872624516

1,419628906

1,086838771

9,682

1923

424839725880631535

1,435630979

1,146863809

" 9, 896

National

1924

384714671753560383

1,059495802

1,051655586

8,113

1923

388695659762564389

1,064501861

1,108670611

8,272

State

1924

36145

7211964

13336013310435

183185

1,569

1923

3614466

11867

14637112911838

193198

1,624

Nonmember banks *

On par list

1924

234381519

1,075743383

3,9272,2251,4982,747

862851

15,445

1923

228360514

1,071865380

4,1052,3732,0852,858

958928

16, 725

Not on par list

1924

10715

1,10521833285320415357

3,647

1923

5637

1,1271142334451969544

2,896

1 Incorporated banks other than mutual savings banks.

BANK SUSPENSIONS

During 1924 there were 759 bank suspensions reported to theFederal reserve banks. Of this number 595, or nearly 80 per cent,were nonmember banks and the remaining 164 were member banks,129 of these being national banks and 35 State banks or trust com-panies. The capital and surplus of the suspended banks for whichinformation was available (all member banks and all but four ofthe nonmember banks) aggregated $41,704,000. The capital and sur-plus of closed nonmember banks amounted to $24,636,000, or 59 percent of the aggregate for all closed banks. The capital and surplusof the national banks amounted to $13,713,000 and that of the Statebanks and trust companies to $3,355,000. There were 39 banks,previously closed, which reopened during the year.

Although bank suspensions occurred in all except the Clevelanddistrict, there were only seven in the Boston, New York, and Phila-delphia districts combined as against 537 in the Chicago, Minneapolis,and Kansas City districts. The banks closed in the latter districtswere equivalent to more than 70 per cent of the total numberof suspensions and had capital and surplus amounting to 63 per centof the total for all closed banks, while those in the eastern districtsmentioned were less than 1 per cent of the total number and hadcapital and surplus of about 6 per cent of the total. The largestnumber of suspensions in any one district was 299 in the Minneapolisdistrict. Although figures for closed banks represent, so far ascould be determined, banks which were closed by order of super-visory authorities, it is not known how many of these institutionsmay ultimately prove to be solvent. Banking suspensions for

3656925t 3Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis


the year are shown, by districts and by class of bank, in the follow-ing table:

BANKS CLOSED DURING 19241

Federal reserve district

All districts _ _BostonNew York _PhiladelphiaCleveland __RichmondAtlantaChicagoSt. LouisMinneapolisKansas City .'. _DallasSan Francisco

All banks

759

1

3444

10455

2991345228

Capitaland

sands ofdollars)

41,704

2502,415

79

1,8172,6706,4612,600

12, 9256,8773,9081,702

Member banks

National(num-ber)

129

121

3461

50321910

State(num-ber)

35

19

102922

Non-memberbanks(num-ber) 2

595

5

30318852

2401003118

1 Includes all banks, incorporated and unincorporated, which were reported closed or insolvent during

the year.2 Includes 3 nonmember banks in the Chicago district and 1 in the Richmond district for which no

information regarding capital is available.

Suspensions were more numerous at the beginning of the yearthan during the summer and fall. During the first quarter of theyear there were 302 closed banks, nearly half the total number for theyear. Banks closed during 1924 are shown, by months, in the fol-lowing table:

BANKS CLOSED DURING 1924, BY MONTHS 1

Y e a r . . .

JanuaryFebruary . _MarchAprilMayJuneJulyAugustSeptember.OctoberNovember .December. .

1924

Allbanks

759

1369076718244502935374960

Member

National

129

23191999

1185

* 2888

State

35

1162

111

157

Non-member

595

1026555627332412333283645

1 Includes all banks, incorporated and unincorporated, which were reported closed or insolvent during

the year.CHECK CLEARING AND COLLECTION

Atlanta par clearance case.During the year a new par clearancesuit was instituted against the Federal Reserve Bank of Atlanta,the Federal reserve agent at Atlanta, and the Federal EeserveBoard. This suit differs from the former par clearance cases in



that it involves a national bank rather than a nonmember bank,and also raises certain questions dealing with check collection trans-actions which have not been adjudicated before. It is anticipatedthat a final decision in this case by the Supreme Court will go along way toward settling the par clearance controversy. A briefstatement of the case is given herewith.

On August 9 the Pascagoula National Bank of Moss Point, Miss.,filed a bill of complaint in the United States District Court for theNorthern District of Georgia against the Federal Reserve Bank ofAtlanta, Joseph A. Me Cord as Federal reserve agent, and the FederalReserve Board. In general, the bill charged the several defendantswith having ignored and violated various provisions of the Federalreserve act, and prayed for an injunction against the Federal ReserveBank of Atlanta which, if granted, would in effect

(1) Require the Federal Reserve Bank of Atlanta to give imme-diate credit and availability to the plaintiff for all its deposits ofchecks and drafts drawn on other member banks in the Atlantadistrict, no matter at what distance from Atlanta the drawee bankmay be;

(2) Permit the plaintiff to charge exchange on checks drawnupon it and presented for payment by or through the Federal reservebank; and

(3) Prohibit the Federal reserve bank from handling checks forany banks other than its own members and, for its own membersyany checks which are not payable within the Atlanta district.

The bill also asked that the Federal Reserve Board and Joseph A.Me Cord be enjoined from promulgating and enforcing the provisionsof the board's Regulation J, and further asked for an accounting andrecovery from the Federal reserve bank of the amounts of exchangecharges and interest of which the plaintiff alleged it had been illegallydeprived.

In response to this bill the Federal Reserve Board entered a specialappearance solely for the purpose of pleading its exemption from thesuit in the Northern District of Georgia and filed a motion to be dis-missed from the suit on the ground that it is not an inhabitant of theNorthern District of Georgia and, therefore, is not suable in thatdistrict without its consent, because of the provision of section 51of the Judicial Code that "no civil suit shall be brought in any dis-trict court against any person by any original process or proceedingin any other district than that whereof he is an inhabitant/7

On behalf of the Federal reserve bank and the Federal reserveagent, answers were filed showing cause why the relief prayed forin the bill should not be granted and also going into the merits ofthe case at some length.



Arguments on the board's motion to be' dismissed from the suitand on the plaintiff's prayer for a preliminary injunction were heardby the court on October 2 and 3; and, at the conclusion of the argu-ment, the court handed down an oral decision from the bench up-holding both of defendant's contentions. Subsequently, brief writtendecrees were signed dismissing the board from the litigation anddenying a preliminary injunction, but no written opinion was ren-dered by the court.

On December 15 the case was argued on its merits, and on Decem-ber 29 the court rendered a decision holding that there was nothingunlawful in any of the acts of defendants complained of and author-izing a decree dismissing the bill. The court's decision, therefore,was a complete victory for the Federal reserve system.

The opinion of the court, which is published on pages 231-234,holds in effect that:

(1) The Federal reserve banks are not required to give depositingmember banks immediate credit and availability for checks anddrafts drawn on other member banks in the Atlanta district and arejustified in refusing to permit the amount of said checks to be countedas reserves or to be withdrawn by check or otherwise until theyactually have been collected;

(2) Under the terms of the so-called "Hardwick amendment" tosection 13 of the Federal reserve act, member banks have not theright to make an "exchange charge" for remitting payment to aFederal reserve bank for checks drawn on themselves, although suchchecks are not the property of the Federal reserve bank but arehandled for collection.

(3) That, under the terms of section 13 of the Federal reserve act,the authority of a Federal reserve bank to collect checks is not limitedto checks sent to it by its own members and checks payable withinthe district of such Federal reserve bank; and, therefore, a Federalreserve bank may collect checks on its own member banks and non-member clearing banks which come to it from other districts, andmay handle checks payable on presentation sent to it by its memberbanks or nonmember clearing banks whether payable within its owndistrict or not; and

(4) That the provision in the "Hardwick amendment" which hasthe effect of requiring member banks to pay without deductionchecks drawn on them when presented by Federal reserve banks,whether paid over the counter or by the more convenient means ofchecks on their deposits elsewhere, does not deprive member banks ofproperty without due process of law and, therefore, is not contrary tothe fifth amendment to the Constitution.



The plaintiff has appealed the case directly to the Supreme Courtof the United States, on the ground that it involves the constitution-ality of an act of Congress.

Cleveland and San Francisco par clearance cases.The preliminaryaspects of the par clearance litigation affecting the Federal reservebanks of Cleveland and San Francisco are discussed in the board'sannual report for 1922, where it was noted, among other things, that theBrookings State Bank of Brookings, Oreg., following its suit for aninjunction against the Federal Reserve Bank of San Francisco, hadbrought an action for damages to compensate it for the loss allegedto have been occasioned it by the collection methods employed bythe reserve bank. This damage suit has not yet reached a hearingon the merits and no further action has been taken with regard to theinjunction proceedings.

In June, 1923, the Farmers & Merchants Bank of Catlettsburg,Ky., also followed its suit for injunction against the Federal ReserveBank of Cleveland by bringing an action at law for compensat

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