strength and staying power of the federal reserve banks. "Many of the largest state banks and trust companies are now becoming members, realizing that to win the war we must conserve all of the physical, financial, and moral resources of our country-that our finances must rest on the firmest possible foundation, and that they must be adequately and completely conserved so as to respond instantly to every legitimate demand. How can this necessary condition be brought about and be made permanently effective better than by the concentration of the banking strength of our country in the federal reserve system? "I believe that cooperation on the part of the banks is a patriotic duty at this time, and that membership in the federal reserve system is a distinct and significant evidence of patriotism." APPENDIX A COMBINED BALANCE SHEET OF TWELVE FEDERAL RESERVE BANKS, FEBRUARY 20, 1920, AND BRIEF EXPLANATIONS OF THE Total bills on hand... U. S. Government long-term securities9. All other earning assets1 11 Total earning assets. 1,525,203,000 833,321,000 532,703,000 2,890,227,000 26,838,000 268,610,000 0,000,000 3,185,675,000 Uncollected items and other deductions from gross deposits13. 11,144,000 .. 1,029,653,000 Five per cent redemption fund against fed eral reserve bank notes14 All other resources15, Total resources 12,724,000 3,851,000 Federal reserve notes in actual circulation22 2,977,124,000 Federal reserve bank notes in circulation, net liability 23 All other liabilities24 Total liabilities 240,858,000 34,404,000 6,278,487,000 1 This represents reserve money held in the vaults of federal reserve banks against deposits and federal reserve notes. See text, pp. 52, 58-60; and Act, sec. 16, par. 3. 2 This is a gold fund held in the United States treasury by the federal reserve board, in trust for the federal reserve banks, and the money it contains is transferred from one federal reserve bank to another or to or from the treasurer of the United States by means of debits and credits on books kept by the federal reserve board in Washington. Gold held in the fund to the credit of any federal reserve bank is counted as lawful reserve money against federal reserve notes or deposits. See text, pp. 75-76; and Act, sec. 2, 3d, and 4th pars. from last. 3 Federal reserve banks have established agencies in a number of foreign countries, and, as a matter of convenience as well as to avoid shipping risks and expenses, some of the federal reserve banks keep gold in the vaults of these foreign agencies. See text, p. 80; and Act, sec. 14, par. (e). This is gold deposited with federal reserve agents as collateral for the issue of federal reserve notes. See text, pp. 51-52; and Act, sec. 16, pars. 2-7. 5 The gold redemption fund here mentioned is a fund held by the treasurer of the United States for the redemption of federal reserve notes in gold on demand. It is made up of deposits of gold from each federal reserve bank. Each bank's deposit must be sufficient in the judgment of the Secretary of the Treasury for the redemption of such federal reserve notes of the bank as are likely to be presented at the treasury for redemption; but in no case can the fund be less than five per cent of the total amount of notes issued less the amount of gold held by the federal reserve agents as collateral security for notes. Gold in the redemption fund is counted as part of the legal reserve required against federal reserve notes. See text, pp. 51-52; and Act, sec. 16, par. 4. This item covers all kinds of money held by federal reserve banks except gold coin and gold certificates. 7 This represents advances made by federal reserve banks to member banks. It consists of short-time commercial bills, notes, and bank acceptances, which have been rediscounted for member banks, and of one to fifteen day loans made to member banks against their notes collateraled by United States government securities and by commercial paper. The Federal Reserve Bulletin of each month gives an analysis of the kinds and maturities of the paper held. See text, pp. 61-64; Act, sec. 13, pars. 2-6; and Regulation A issued by the federal reserve board, June 22, 1917, Federal Reserve Bulletin, July 1, 1917, pp. 539-541. 8 The kinds of open-market operations which federal reserve banks may carry on are described in section 14 of the Act. See also text, pp. 42-44; and Regulation B issued by the federal reserve board, June 22, 1917, Federal Reserve Bulletin July 1, 1917, PP. 541-542. These are United States government bonds, chiefly Liberty bonds, owned by federal reserve banks. 10 These are usually short-time treasury certificates of indebted ness. 11 This item usually consists largely of municipal warrants. 12 Nine of the twelve federal reserve banks own bank premises, but some of the banks are not yet occupying their own premises. 18 These are items in process of collection, chiefly under the federal reserve clearing and collection system. See text, pp. 19-23; Act, sec. 16, pars. 14-18; and Regulation J issued by federal reserve board, June 22, 1917, Federal Reserve Bulletin, July 1, 1917, pp. 549-550. 14 Federal reserve bank notes are bond-secured bank notes, issued by federal reserve banks, in place of bond-secured national bank notes and silver certificates retired. (See note 23 below.) Except for the fact that they are issued by federal reserve banks, they are essentially like national bank notes. As in the case of the latter, the law requires that, for the purpose of their redemption in Washington, a five per cent redemption fund be maintained by the issuing bank in the United States treasury. See text, pp. 50-51; Act, sec. 18, par. 6; Act of June 20, 1874, sec. 3; and Act of April 23, 1918, secs. 5-8 (Appendix E). 15 This represents the net debit balance on a variety of accounts, including profit and loss account, gross earnings account, expense account, depreciation account, suspense account, unearned discount account, and the like. 16 The law requires every member bank to subscribe to stock in the federal reserve bank of its district to the amount of six per cent of the member bank's paid-in capital and surplus. One half of this subscription has already been paid and the other half is subject to the call of the federal reserve board. This item in the balance sheet accordingly represents three per cent of the combined paid-in capital and surplus of all member banks. See text, p. 31; and Act, sec. 2, par. 3. 17 The law provides that member banks shall receive out of the earnings of their federal reserve bank an annual, six per cent, cumulative dividend on their paid-in capital stock, and that the balance of the net earnings shall be paid to the United States Government as a franchise tax, "except that one-half of such net earnings shall be paid into a surplus fund until it shall amount to forty per centum of the paid-in capital stock of such bank." See text, p. 59; and Act, sec. 7, par. 1. 18 The law authorizes the Secretary of the Treasury to use federal reserve banks as depositaries of public funds, except of certain specified trust funds. The Secretary began depositing public funds in federal reserve banks as early as September 4, 1915, and since that time has continually and extensively employed federal reserve banks as depositaries. See text, pp. 84-89; and Act, sec. 15; also Act of April 24, 1917, sec. 7; and Act of September 24, 1917, sec. 8. 19 Member banks are required by law to keep their entire legal reserves on deposit in the federal reserve bank of their district. See text, pp. 35-38; and Act, sec. 19. 20 These are liabilities of federal reserve banks to member banks and clearing-member banks arising out of the federal reserve clearing and collection system. They represent items in process of collection, the proceeds of which are not yet available to be drawn upon by the creditor banks. See text, pp. 70-75; and references cited in note 13 above. 21 This covers deposit credits of certain non-member banks in |