it intended to preserve competition in cities 30, as against 7.2 per cent for August of the of more than 200,000 inhabitants between present year. Aggregate earnings were $478,member banks, private bankers, and other 748 and total current expenses $203,144, leavincorporated banks, and likewise intended to ing $275,604 as the net earnings of the system preserve competition between member banks, for the month. The banks' expenses are exregardless of their location, and State banks, clusive of $57,344, the expenses of the transit trust companies, or private bankers having departments, which are covered through servaggregate resources of more than $5,000,000. ice charges made to depositing member banks In this view the Board has interpreted the and other Federal Reserve Banks. Six banks term "private banker" to include partnerships earned net in excess of 6 per cent on their paidor individuals who are engaged in the banking in capital, while six banks earned less than business, as that term is generally understood, 6 but in excess of 4 per cent. including those partnerships and individuals who solicit or receive deposits subject to check, who do a foreign exchange, acceptance, loan, or discount business, or who purchase and sell and distribute issues of securities by which capital is furnished for business or public enterprises. The term "private banker" is thus interpreted not to include the ordinary stock, note, or commodity broker, unless a substantial proportion of his profits are derived from, or a substantial part of his business consists in, one or more of the banking activities described, while it is not interpreted to include partnerships or individuals using only their own funds in making loans or investments. No private banker whose partnership or firm assets aggregate more than $5,000,000 is eligible, under the terms of the Clayton Act, to serve as a director of any member bank, and no private banker, regardless of the amount of partnership or firm assets, is eligible to serve as a director, other officer, or employee of any member bank located in a city of more than 200,000 inhabitants, if such firm or partner ship is located in the same city. The Kern amendment to the Clayton Act does not authorize the Federal Reserve Board to grant permission to such private bankers to serve as officers or directors of a member bank even though it appears that they are not in substantial competition with such member bank. Net earnings of the Federal Reserve Banks during September were almost exactly 6 per cent on their aggregate paid-in capital of $55,381,000, the amount reported for September A total of $30,000,000 of 2 per cent bonds of the United States has been converted during the present year into $15,761,000 of 30-year 3 per cent bonds and $14,239,000 of 1-year 3 per cent Treasury notes. The total given represents the full amount available for conversion under section 18 of the Federal Reserve Act. Conversion operations were conducted by the Treasury on April 1, when a total of $10,290,600 was converted; on July 1, when a total of $9,574,200 was converted; and on October 1, when the available balance of $10,135,200 was converted. Not all the Federal Reserve Banks applied for the conversion of their allotted quota of bonds. The difference between the full allotments and the amounts applied for were distributed among those Federal Reserve Banks which desired to convert bonds in excess of their allotment. The application of Wisconsin bankers for permission to transfer from the Minneapolis to the Chicago district has been granted in so far as relates to Wisconsin, northern Michigan remaining as heretofore. This action disposes of the only appeals now pending before the Board for redistricting. The transfer order becomes effective on January 1, 1917, and results in shifting 52 banks with a total capital and surplus of about $7,632,900 to the Chicago district, thus making the total subscribed capital of the Chicago district $13,806,000, while that of Minneapolis is reduced to $4,736,000. Expansion and extension of the clearing system has gone on during the month with very satisfactory results. Continuous gains in the daily number of items and amounts cleared are indicated by the reports of clearing operations received from the Federal Reserve Banks for the period September 16 to October 15, 1916, the third month during which the new clearing system has been in operation. The average number of items handled was in excess of 200,000 and shows an increase of 54 per cent over the total handled during the first month and of 15 per cent over the number handled during the second month. The daily average amount cleared by the banks was not much below 100 millions, and shows an increase of about 65 per cent over the first month's total and of about 25 per cent over the second month's total. As the result of the larger number of items handled and the greater experience gained in the operation of the system, the cost per item handled is constantly decreasing. Some of the banks, accordingly, have been able to reduce the service charge per item from 1 to 14 cents. A number of important clearing houses have informed the Board of their intention to introduce changes in their rules in order to bring about closer cooperation and harmony in the work of the Federal Reserve Banks under the clearing regulation as at present applied. This, with the increase in the number of items handled at the several banks, affords satisfactory evidence of the gradual growth of the clearing and collection system in public favor. Several Federal Reserve Banks have developed plans of group insurance for their employees, a blanket policy covering each such employee up to the amount of his annual salary, not to exceed a specified figure, having been obtained from reliable insurance companies. The Board has approved such plans in the case of three banks, and is developing a similar plan for insurance of its own employees. The policies are in force only during the period for which the employee in question holds office. Discount rates during the month have remained practically stable, no changes of importance having been introduced at any of the banks. The Bank of Iota, La., has been admitted to membership in the Federal Reserve system. Bankers Trust Co.... Columbia Trust Co.. Broadway Trust Co... Central Trust Co..... Equitable Trust Co..... Farmers Loan & Trust Co. $9,333, 800 31, 083, 700 1,007, 100 1,054, 300 1, 000, 000 6,930, 800 4,728, 800 rates in excess of 5 per cent ruling in the in competition with European houses. It London market. (See Table A.) The total may be further expected that the opening of of acceptances held on October 20 by Federal foreign branches of strong American banks, Reserve Banks-83 million dollars-consti- in combination with dollar exchange, will tutes 43.5 per cent of their aggregate earning before long free American commerce from assets, as against 11.3 per cent represented dependence on foreign bankers and make by paper rediscounted for member banks. unnecessary to a large extent foreign aid and intervention in the settlement of our foreign trade balances. Feb. 24.. Jan. 27. Apr. 28. June 30.. Aug. 25. Oct. 27. Dec. 29. New York on dates specified. Date. 1915. London. New York. Per cent. 14 Per cent. 2 to 21 21 to 21 21 21 to 2 211 to 21 21 2% to 28 5 21 to 21 21% to 21 As may be seen from the attached Table B the Federal Reserve Banks began the purchase of acceptances based upon imports and exports at the end of February, 1915. During TABLE A.-Rates for 3 months' bank bills in London and the year 1915 the largest amount invested in this class of paper was in the neighborhood of 18 millions. The present year witnesses the steady growth of this class of investments from 23.8 millions in the beginning of the year to 78.6 millions in the beginning of September. The largest holdings-over 85 millions were recorded at about the end of July. The amount of acceptances bought by Federal Reserve Banks up to October 1 is nearly 300 million dollars, the monthly purchases for the past quarter averaging about 35 million dollars. It is clear that the rapid growth of the American acceptance business is due largely to the fact that the Federal Reserve Banks have provided a market for the purchase and sale of acceptances. From the attached Table B it may further be seen that, for the present year at least, the increase in the amount of non-member bank acceptances held by the Federal Reserve Banks has been greater than in the amount of member bank acceptances so held. TABLE B.-Acceptances held by the Federal Reserve Banks as shown by schedules on file on dates specified. Dates. February 22.. June 7... May 3.. August 2.. October 4... December 6. January 3.. February 7... April 3.. June 5.... August 7. 1915. 1916. September 4. October 2... TABLE C.-Imports and exports into and from the United The amount of American securities returned States during fiscal years 1912 to 1916, inclusive, by large by Europe can only be estimated very roughly, geographic divisions. European Payments to the United States. During the two fiscal years ending June 30, 1916, which cover most of the period since the outbreak of the European war, the United States exported merchandise to the amount of over $7,000,000,000, and imported less than $3,900,000,000, an excess of exports of over $3,100,000,000, to which should also be added further shipments made since June 30, the amounts of which are not yet available. To pay for this large quantity of goods European and other countries have been obliged to send us gold, American securities, and also to establish credits here by floating heavy issues of bonds. The Federal Reserve Board's statistical division has recently prepared some estimates of the magnitude of these various operations, and while many of the figures obtained are necessarily only approximate, it is believed that they are of sufficient interest to justify publication. Gold exports and imports, Aug. 1, 1914, to Oct. 13, 1916. [In thousands of dollars.] but indication of the extent of the movement may be had from the estimate prepared by Mr. L. F. Loree, president of the Delaware & Hudson Co., who places the amount of railroad securities returned between January 31, 1915, and July 31, 1916, at almost $1,300,000,000. Figures have also been published showing the return of 748,547 shares of United States Steel Corporation common stock between March 31, 1914, and September 30, 1916, and of 141,736 shares of preferred stock of the same company between June 30, 1914, and September 30, 1916. At market price of June 30, 1914, this stock would have represented a value of over $60,000,000, while at the market price of September 30, 1916, its value would be over $100,000,000. Even more striking, because of the indication they give of the altered position of the United States in international finance, are figures showing the amount of foreign loans and credits arranged in the United States. The obligations of foreign governments, bankers, and merchants now held here are estimated to amount to $1,931,000,000, distributed as follows: 1919. 1920. 1921. 419,322 1923. $30, 000, 000 103, 000, 000 260, 000, 000 300, 000, 000 500, 000, 000 294,049 Information lacking............. Total....... 200, 000, 000 5,000,000 229, 000, 000 1,627, 000, 000 EARNINGS AND EXPENSES OF THE FEDERAL RESERVE BANKS. Total earnings of the Federal Reserve Banks for the 9 months ending September 30, 1916, were $3,242,336.18, while total current expenses for the same period were $1,845,077.62. Of this total $130,754.54 represents the expenses incurred on account of the banks transit departments between July 15 and the end of September. This amount is returned to the Federal Reserve Banks through service charges assessed against member banks. Net earnings of the banks-i. e., total earnings minus the current expenses of the banks proper were $1,528,013.10, or at the rate of 3.7 per cent on an average paid-in capital of $55,002,000. All the banks earned in excess of their current expenses for the 9 months of the present year, 4 banks in excess of 5 per cent, and 6 banks in excess of 4 per cent. Current expenses shown include $1,375,518.72, the operating expenses of the banks proper; $151,308.27, the cost including amortization of Federal Reserve notes issued, returned, and retired; $4,810.94, the cost of Federal Reserve bank notes; $228,861.22, amortization of organization expenses; and $84,578.47, aggregate depreciation charges for the 9-month period. Combined gross earnings for the third quarter of the present year were about one-third in excess of the total earnings for the second quarter, the latter exceeding by about 40 per cent the total earnings for the first quarter of the present year. Of the total earnings for the 9 months, 24 per cent was from bills discounted for member banks; 24 per cent from United States bonds and notes; 28 per cent from bills bought in the open market; and 17 per cent from municipal warrants. The remainder, about 7 per cent, represents commissions earned on acceptances and warrants bought for other Federal Reserve Banks, profits from exchange operations and from the sale of United States bonds, and other smaller earnings. These percentages vary by banks and groups of banks. Thus, earnings from discounts constituted over 75 per cent of the total earnings of the 3 southern banks, and less than 4 per cent of the aggregate earnings of the 4 eastern banks. In the case of the 4 banks in the north and middle west, this proportion is about 23 per cent, while San Francisco's earnings bank's total earnings for the 9-month period. from discounts were about 10 per cent of the Over one-half of the total earnings of the 3 banks on the eastern seaboard was derived from acceptances, while over 40 per cent of the aggregate earnings of the Chicago and Kansas City banks came from United States securities. New York Federal Reserve Bank came from Nearly 28 per cent of the total earnings of the warrants, Cleveland, Chicago, Boston, and Philadelphia likewise reporting considerable amounts earned from this source. Of the total expenses of operation for the 9 tion to bank officers, and a slightly smaller promonths, about 27 per cent went as compensaportion as salaries to the clerical staff of the banks. The latter item shows a large increase for the third quarter, due no doubt to the increase of force made necessary by the installation of the new clearing system. The aggregate amount paid during the 9 months by the banks for the support of the Federal Reserve Board was $151,024.96, or over 10 per cent of the total expenses of operation of the banks. Rent for the 9 months' period totaled $120,543.34, or about 9 per cent of the total operating expenses, while other large specified items in the order of their importance were postage, printing and stationery, and directors fees. The total current expenses stated above are exclusive of $131,939.89 expended for additional furniture and equipment, and of $121,229.34 paid for the printing and shipping of Federal Reserve notes. About 44 per cent of the latter expenditure is reported by the New York Federal Reserve Bank. The expenses of the transit departments, partly estimated, are composed largely of operating expenses proper, and to a smaller extent of depreciation charges on account of furniture and equipment assigned to the new departments, on or about July 15 or purchased for the use of these departments since that date. |