on November 28. The latter was the highest point reached during the year. It is estimated that if there had not been recourse to other Federal Reserve Banks the loans would have reached a high point of $232,000,000 on December 13. Schedules 6 and 7 and accompanying charts contain detailed figures covering all fluctuations.

TRADE ACCEPTANCES.

Very satisfactory progress has been made during the past year in the use of trade acceptances by the merchants in the New England district.

While it is difficult to procure accurate information as to the character of this development, the records of the Federal Reserve Bank show a large increase in the number and volume of trade acceptances that have been offered for rediscount by the member banks of the district. Trade acceptances have for the most part been received for rediscount from the out-of-town banks, the large Boston banks as a rule not being inclined to encourage their use. On the other hand, there has been a considerable increase in the different lines of trade which have found this character of financing attractive.

The bank has, as in the past, maintained a differential rate in favor of the trade acceptance as compared with the ordinary commercial bill.

BANKERS' ACCEPTANCES.

The past year has shown a marked growth, both in number and volume, of bankers' acceptances created by banks in this district. While it is not practicable to show the increase in volume of acceptances created by all the banks in the district, the increase in those of national banks is shown by Schedule 8.

Fully as important, however, is the satisfactory progress that has been made in creating a broader market, not only for the acceptances originating in this district, but also for those created by banks elsewhere in the country. To encourage this distribution, during the past year, the Federal Reserve Bank has maintained differential rates between indorsed and unindorsed bills and has discouraged the direct offering of bills by the accepting banks, taking such acceptances only as rediscounts and at the discount rate ruling for other commercial paper, while at the same time holding itself open to purchase the same bills at current rates, even though unindorsed, from brokers and other banks than the accepting banks.

A differential has also been maintained by the Federal Reserve Bank between indorsed and unindorsed bills, and on bills of varying maturities, encouraging the offering of short-time bills to the Federal Reserve Bank.

To encourage brokers to handle acceptances, the Federal Reserve Bank has made advances to them on acceptances with agreements to repurchase. These advances have been made on favorable terms, and this practice has also been adopted by several of the larger Boston banks. This policy has tended to distribute acceptances more freely, not only into the portfolios of large city banks, but also to out-oftown banks, both commercial and savings. The Massachusetts savings banks have taken advantage of the law passed last May which allows such investments.

Frequent conferences with officials of accepting banks have not only brought about a more satisfactory character of acceptance but have also been a benefit in developing a policy which has materially broadened their market.

It would appear desirable to have a policy adopted by Federal Reserve Banks with reference to bankers' acceptances, so that on the date of payment the proceeds would be available as reserve funds by the holding bank.

During the year the number of accepting national banks has increased from 32 to 40 and, as will be seen by Schedule 10, six additional banks have been given the special privilege of accepting up to 100 per cent of their capital and surplus.

UNITED STATES SECURITIES.

The holdings of United States securities have shown several changes during the year. Early in the year member banks, having purchased certificates of indebtedness and wishing to obtain funds for short periods, sold small amounts to this bank with their agreement to repurchase, but after a few months the practice was discontinued.

In connection with the handling of subscriptions to the first Liberty loan, there was allotted to this bank $2,600,000 of 34 per cent bonds in excess of the subscriptions received. On June 29, 1918, on vote of the directors of the bank, these were taken over from the Treasury Department and paid for. On July 8, $2,000,000 were sold to the War Finance Corporation. During the balance of the year, several sales were made until the bank had disposed of its entire holdings.

Several small amounts of Liberty loan bonds of different issues were taken over by the bank from one source or another, until at the end of the year our holdings, exclusive of bonds sold on the installment plan, amounted to about $8,000. There were also $529,000 conversion 3s remaining unsold from the conversion of 2 per cent bonds into 3 per cent bonds and one-year notes.

It has been the policy of the Government during the current year to pay its one-year notes on maturity instead of renewing, as it is

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privileged to do. Of the $1,416,000 United States notes held at the close of last year, $750,000 matured October 1, 1918, and were paid. As these had been pledged to secure Federal Reserve bank notes, a like amount of one-year 2 per cent certificates of indebtedness was purchased and pledged in their place. In addition there have been purchased $6,000,000 2 per cent certificates of indebtedness to be pledged against Federal Reserve bank note circulation, making the total amount of notes and certificates so pledged at the end of the year $7,416,000.

During December, anticipating withdrawals from Government depositaries, the Treasurer of the United States on several occasions sold to the Federal Reserve Bank one and two day 2 per cent certificates of indebtedness, the proceeds being credited to his account. The largest amount held at any one time was $18,000,000, the total so purchased being $67,000,000.

RESERVE POSITION.

Enlargement of the bank's activities has had the effect of causing marked fluctuations in its reserve position, as shown by Schedule 11 and accompanying charts.

The amount of gold held by the bank has varied widely but with a decided upward tendency. Banks in this district, both member and nonmember, have turned over their gold freely to the Boston Federal Reserve Bank, taking Federal Reserve notes in exchange.

Several conflicting factors account prominently for the reserve fluctuations: First, the increase in gold holdings mentioned above; second, the large increase in required reserves due to larger net deposits and increased note issues; third, the heavy rediscounts by member banks following Government withdrawals of funds on deposit with member and nonmember banks; fourth, the placing of call loans in New York City by banks holding large Government deposits and the consequent temporary losses by this bank of gold, through the settlement fund.

From the end of August until the close of the year there was a downward tendency in the reserve position of the bank, due to the expansion of the bank's loan account and to the increase in Federal Reserve notes outstanding. The former condition was brought about through large transfers by the Government to other Federal Reserve districts to meet its heavy payments, causing a loss of gold, and the latter was caused by increased need for circulation, requiring larger gold reserves.

MOVEMENT OF MEMBERSHIP.

The movement to convert national banks into nonmember trust companies, so prevalent in this district in the early days of the

Federal Reserve system, has entirely abated and several of the banks which gave up national bank charters to operate under State laws have made application and been admitted to membership in the Federal Reserve Bank of Boston during the year. The only bank to surrender its entire holdings of Federal Reserve Bank stock was the Yale National Bank, of New Haven, which consolidated with the First National Bank of New Haven.

Three new national banks have commenced business and 18 trust companies have been admitted to membership, making a net increase in members of 20. The total number of member banks at the end of 1918 was 423, holding 133,835 shares of stock, compared with 403 banks, holding 117,169 shares at the end of 1917.

RELATIONS WITH NATIONAL-BANK MEMBERS.

Continued progress has been made during the past year in developing a closer relationship between the Federal Reserve Bank and its members. The payment by the Federal Reserve Bank of shipping charges on currency, assumption of the cost of telegrams, and free collections of checks and other items have been appreciated by all member banks.

In order to maintain closer relations with those banks located in Vermont and New Hampshire, E. A. Davis, cashier of the National White River Bank, of Bethel, Vt., was procured to act as the representative of this bank in that section and to instruct the bank's members regarding the various facilities available for their use.

The fullest cooperation in the matter of placing Liberty loans and certificates of indebtedness has been secured both from members and nonmembers, and member banks have not hesitated to seek rediscounts when their needs demanded.

Applications for fiduciary powers were received from numerous national banks during the first part of the year, and with the amendments of the Federal Reserve Act in September, allowing an increased scope, many banks which had formerly been granted the limited powers allowed, applied for the additional powers now available. Schedules 16 and 17 show the banks given these special powers.

RELATIONS WITH STATE BANKS AND TRUST COMPANIES.

As in the case of the national banks, the activities of this bank as fiscal agent have brought it into closer touch with the trust companies during the year.

The larger banks have been favorably inclined toward the system and many have made application and been admitted to membership. During the year 18 trust companies became members, making over 65 per cent of the resources of eligible trust companies represented in the system.

Several reasons can be ascribed for the failure of others to become members, the principal ones being (1) The banking laws of several of the New England States are not such as to encourage membership in the reserve system; (2) the character of the business of many trust companies is more nearly that of savings banks than commercial banks, and as such membership is not particularly attractive either from the viewpoint of the bank or of the Federal Reserve system; (3) Some banks are waiting for neighboring banks to move first; (4) Many of the smaller banks have not as yet given the matter sufficient study to realize the possibilities to themselves as members.

Liberty loan operations have caused many nonmembers to borrow from the Federal Reserve Bank through members, and this has resulted in bringing them to appreciate more fully the services rendered by this bank to the community.

During the last few months much interest has been manifested in membership by medium-sized and small trust companies, and several applications have been received. Schedule 14 shows all member trust companies.

CREDIT DEPARTMENT AND BANK EXAMINATIONS.

The credit department, in so far as it pertains to commercial credits, has increased its scope but little during the year. Statements on all notes or trade acceptances of over $5,000 are required, but no attempt has been made to give the service of checking credits to member banks. Accepting banks and bankers have been investigated, and where their bills have been purchased unindorsed they have been required to furnish statements.

The nucleus of an examining department has been established and is working in conjunction with the credit department. Statements of condition of member banks are carefully analyzed and every attempt made to keep in close touch with their condition. State member banks are either examined annually by this bank's examining department, or a representative participates in the examination by the State authorities or public accountants, although in some cases the examinations of State banking departments have been accepted without participation.

DEPOSITS.

Member bank deposits with this bank have shown a steady increase throughout the year, having expanded from about $80,000,000 at the end of 1917 to an average of about $100,000,000 toward the end of 1918. This has been due to increase in membership by the admission of trust companies during the year and the increase which member banks in general have had in their own deposits, necessitating the carrying by them of larger reserves.