The Committee appointed by you to investigate the desirability of the trust companies of Massachusetts joining the Federal Reserve system, after giving the matter very careful consideration, submit the following:

It is unquestioned that it is very desirable that all commercial banks in the United States should be drawn together into one unified system as only through such a system can the banking organization of the country be made as strong and flexible as it should be.

Re-Discounts

The most important feature in the Federal Reserve Act, in our opinion, is the re-discount privilege. The Act provides for the re-discounting, when indorsed by a member bank, of notes maturing within ninety days that originate from commercial transactions; also notes, drafts, etc., issued for agricultural purposes, or based on live stock, which mature within six months, may be re-discounted on approval by the Federal Reserve Board. Notes secured by stocks or bonds, or arising from investment transactions, are not eligible.

The limit of such notes and bills, bearing the signature or indorsement of any one person, firm or corporation, re-discounted for any one bank, shall not exceed 10 per cent. of the unimpaired capital and surplus of said bank, but this restriction does not apply to bills of exchange drawn in good faith against actually existing values.

The Act provides that no member bank shall act as a medium or agent of a non-member

bank in applying for or receiving discounts from a Federal Reserve bank under the provisions of this Act except by permission from the Federal Reserve Board. If this should be interpreted as prohibiting a member bank from re-discounting for a non-member bank, then the membership in the Federal Reserve Association would be of great advantage to a company doing a strictly commercial business. It is our feeling, however, that no such interpretation can be placed upon the same.

It has been felt that, because of the connection of the government with the Federal Reserve banks, the re-discounting operations with them would be surrounded with more or less formality and delay. We are given to understand that the re-discount operations are handled as promptly and with almost as little formality as with correspondent banks. It must be borne in mind, however, that the Federal Reserve banks cannot make loans on certificates of deposit, or against securities, as is common practice among the banks of Boston at the present time.

Acceptances

The Act also gives the member banks power to accept drafts. Any member may accept drafts or bills of exchange, maturing within six months, drawn upon it, arising from transactions involving the importation or exportation of merchandise, but no bank shall accept such bills exceeding an aggregate amount of onehalf of its paid-up capital and surplus.

While the Act limits the amount of such ac

ceptances, the Federal Reserve Board has ruled that by special permission the amount may be increased to the limit of a bank's paid-up capital and surplus.

This class of business is increasing very rapidly. The point has been made by members of the Federal Reserve system that acceptances made by banks in the system would command a broader market than those issued by a nonmember institution.

Foreign Branches

The right to establish foreign branches is also provided in Section 25 in the Act. This allows any member bank, having a capital and surplus of $1,000,000 or more, to establish, with the approval of the Federal Reserve Board, branches in foreign countries, but a specific amount of capital shall be set aside for the conduct of foreign business. The accounts in said branches must be kept entirely separate.

Transfer of Funds

The creation of exchange might prove a great advantage at certain times. For instance, a member's own check on the Federal Reserve bank in this district could be used for exchange on other reserve cities. That is, if New York exchange was very scarce or not obtainable, a member bank could send its own check on the Federal Reserve Bank of Boston to its New York correspondent, which check would be accepted by the New York correspondent, for immediate credit, thereby increasing a balance in that city. The reverse is also true. If a member bank wished to reduce its New York balance, its New York correspondnt could send its check on the Federal Reserve Bank of New York, which check would be accepted at par by the Federal Reserve Bank of Boston, thereby decreasing the member bank's New York balance, and increasing rts reserve with the Federal Reserve bank in this district.

Reserve Requirements

The Act provides for an apparent decrease in reserve requirements. A Boston trust company today is required to carry 20 per cent. reserve on demand deposits and no reserve on time deposits.

8 per cent. must be in cash

12 per cent. with National banks. Ultimately, under the Federal Reserve Act, a member bank in Boston must carry 5 per cent. on its time deposits

15 per cent. on demand deposits, divided as follows:

5-15 in cash.

6-15 with the Federal Reserve bank, and the balance either with the Federal Reserve bank, or in its own vaults.

The point has been made that, under our State laws, all kinds of cash would count as reserve, whereas with the member banks only gold, legal, silver certificates and coin are eligible. We are advised that the Federal Reserve Board has ruled that Federal Reserve notes and National bank notes may be included as reserve by a member trust company when the State law permits.

Careful analysis of the earnings of a trust company under both systems shows a loss under the Federal Reserve Act. This is due largely to the loss of interest on balances in the Federal Reserve Bank, to the requirement to carry 5 per cent. reserve on time deposits, and to the fact that up to the present time the Federal Reserve Bank has no adequate system for the collection of items other than checks on Federal Reserve cities.

As a result of this necessity, the trust company will be obliged to maintain a balance with its correspondent for the purpose of collecting such items, thus depleting its loaning power by the amount which it is obliged to keep with such correspondent.

Collections

In our opinion a very important question today is that of collections. With the proper development of this system, it would seem that the Federal Reserve banks should be able to offer collection facilities second to none. This question is receiving very careful consideration and the proper solving of it will do more than anything else toward strengthening the system and inducing non-members to join.

Limitation of Loans

The Act limits the amount of loans to any one person, company, firm or corporation to 10 per cent. of the bank's capital and surplus, whereas under our State laws the limit is 20 per cent. of a bank's capital and surplus. This is a distinct disadvantage to the country trust company and to many of the Boston companies.

Investment in Federal Reserve Bank

A member bank must invest 6 per cent. of its capital and surplus in stock of the Federal Reserve Bank. One-half of the required amount has already been paid in and the remainder is subject to call. There is a double liability on this stock. Dividends are at the rate of 6 per cent., when earned, and are cumulative, but up to the present time no dividends have been earned by the bank in this district. Should dividends be earned and paid, the result would be a good 6 per cent. investment.

Examinations

Attention has been called to the fact that the trust companies would be under the supervision of the present Comptroller of the Currency, whose methods have caused much criticism from the National banks.

In this connection, it is fair to state that, under the regulations set forth by the Federal Reserve Board, the Board has a right to accept examinations made by the State Banking Department, and examinations made by the Banking Department in this State have been accepted. We are also advised that the calls issued by the Comptroller of the Currency may be made on forms now used by our State Banking Department.

One of the most important rulings made by the Federal Reserve Board is that State banks and trust companies may withdraw from the system, if they so desire. This is a privilege which is not accorded to the National banks.

From the foregoing, we have come to the conclusion that most of the trust companies of Massachusetts cannot afford to become members of the Federal Reserve system at the present time. While there are many advantages which could be derived from such membership, we believe that, until proper collection facilities are developed, or modifications made in the reserve requirements, such membership will prove a burden.

On the other hand, we believe that trust companies should watch the development of the system very closely and co-operate in every way with the officers of the Federal Reserve banks in their efforts to develop an adequate collection system, and if it is found necessary, have the Federal Reserve Act modified so that the trust companies can join the system and reap its benefits without affecting their present earning capacity.

DETROIT, MICH.-Barnes Newberry, son of Truman H. Newberry, former Assistant Secretary of the Navy, has become connected with the bond department of the Union Trust Company of Detroit, Mich.

A Valuable Series of Lectures on Trust Company Work

One of the most interesting and instructive contributions to practical trust company literature is the compilation recently issued by the Philadelphia Chapter of the American Institute of Banking containing the lectures delivered during 1914-1915 by officers of various trust companies of Philadelphia on different phases of trust company work. The following is a list of the subjects covered by trust company officers:

"HISTORY, ORGANIZATION AND ADMINISTRATION," Emil Rosenberger, president Real Estate Title Insurance & Trust Company.

"INDIVIDUAL

TRUSTS," Thomas S. Gates, president Philadelphia Trust Company. "INDIVIDUAL TRUSTS," Jay Gates, vice-president Pennsylvania Company for Insurances on Lives and Granting Annuities.

"AGENCY, ATTORNEY-IN-FACT AND MISCELLANEOUS FUNCTIONS," Claude A. Simpler, trust officer Land Title & Trust Company.

"CORPORATE TRUSTS," W. A. Obdyke, vicepresident Commercial Trust Company.

"BANKING AND OTHER FUNCTIONS," H. G. Brengle, vice-president Philadelphia Trust Company.

"BANKING AND SAFE DEPOSIT DEPARTMENT," Rowland Comly, president Logan Trust Com

pany.

"REAL ESTATE DEPARTMENT," Henry R. Robins, vice-president Real Estate Title Insurance & Trust Company.

"CARE AND INVESTMENT OF TRUST ASSETS," A. A. Jackson, vice-president Girard Trust Company.

"TRUST ACCOUNTING," Chas. Osborne, assistant trust officer Pennsylvania Company for Insurances on Lives and Granting Annuities.

"TITLE INSURANCE," Edward H. Bonsall, vicepresident Land Title & Trust Company.

A limited number of the books containing the complete series of lectures has been published and will be forwarded to those who are interested upon receipt of $1, postpaid. Application for copies should be made to Carl H. Chaffee, president, care First National Bank, Philadelphia.

SIMSBURY, CONN.-The Simsbury Bank & Trust Company has completed organization with W. W. Chandlers as president; Henry E. Elsworth, secretary and George E. Patterson,

treasurer.

VIGOROUS and united re-affirma

tion of real American principles and doctrine so that the whole world shall pay heed-that was the wholesome sentiment which called forth most cordial response at the sixth annual banquet of the Trust Companies of the United States. To have sensed the spirit which animated this gathering is to realize that the shadows gathered upon our horizon will be dispelled, and that American honor and rights will emerge triumphant and unsullied. Because of the grave problems which confront this country in the conduct of international affairs and in preserving the ideals of true democracy for which the nation's great builders fought, such assemblies of men of responsibility in business and financial affairs acquire added significance and value at this time. The gain is not only in the uttered words from the chairman's table but in a certain community of interest which rises above sordid motives.

Responsibility, whether in public office or in private business relations, gives nourishment to patriotic impulses. It is quite natural, therefore, that the men who guide the policies of trust companies and banks, which have custody of a large proportion of the tangible wealth of the nation, should have earnest thoughts for all that makes for national safety in dealing with confusing elements either in the international or domestic situation. That is the reason why such cordial approval was tendered Dr. Nicholas Murray Butler when he invoked the spirit and sayings of our great men of history and when Mr. Howard Elliott pleaded for fair-dealing and the creation of an enlightened public opinion in the solution of vital problems in our own economic affairs.

The capacity of the banquet hall at the Wal

dorf-Astoria was never so fully tested as on the recent occasion. The folds of "Old Glory" behind the speakers' table possessed a new meaning. Fully 700 officers of trust companies and banks with their guests were in attendance. Nearly every State in the Union was represented, and it is evidence of the growing interest and importance attached to this annual gathering that delegates came from the distant Pacific Coast and from the Southland in goodly numbers.

As president of the Trust Company Section of the American Bankers Association, the duties of toastmaster were gracefully performed by Mr. John H. Mason, vice-president of the Commercial Trust Company of Philadelphia. He introduced as the first speaker President Howard Elliott of the New York, New Haven & Hartford Railroad, who devoted himself to the subject of Federal valuation of railroads. He placed special stress upon the cost of conducting this valuation which was authorized by Congress in 1913, the expense of which, according to his estimate, will be from $45,000,000 to $75,000,000. Mr. Elliott emphasized the many problems which must enter into a true appraisement of the property value of the railroads.

Dr. Nicholas Murray Butler, president of Columbia University, was the next and last speaker. He addressed himself to the grave questions of national and international policy which require new interpretation because of neutral rights involved in the conduct of the European war. He made an appeal for unity of thought and sentiment which shall sustain the principles of democracy.

Before introducing Mr. Elliott, as the first speaker, Chairman Mason referred briefly to' the increasing influence and continued growth of the trust companies of the United States.