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TABLE 2.-Ratio of number and total resources of State banks and trust com

panies which have joined the Federal Reserve System to total State banks and trust companies reported as eligible for membership on the basis of capital requirements.

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2.1

Per cent. Per cent. Per cent. Per cent. Per cent. Per cent. Per cent. Per cent.

7.1 35.0 11.7 54.5 12. 2 55.0 12.7 55.6
12.4 62,1 17.7 71.1

18.5
69.4 23.0

70.7
3.1 30.7
6.2 32.8
6.2 32.8

7.8

36.8 29.7 4.3 35.7 4.9 36.5

7.9

39.8 2.7 9.8 3.9 13.5 3.9 13.4

5.0

18. 2 33.8 4.0 40.5 5.0 39.7

5.6

44.9
3.4 32.7
5.4 36.3

6.1
39.0
9.8

50.0
1.3 28.7
2.3 36.4
2.4 37.4

3.7

41.0 2.5 7.8 5.5 13.2 6.3 13.3

8.3

17.0 1.0 13.1 1.8 15.3 1.8 15.1

2.5

16.1 2.3 5.4 9.0 12.8 12. 2 15.0 18.1

22.4 2.3 6.5 5.4 8.4 7.1 12.5

9.0

13.8

Boston.
New York
Philadelphia
Cleveland.
Richmond
Atlanta.
Chicago.
St. Louis,
Minneapolis.
Kansas City.
Dallas.
San Francisco.

Total.

2. 7

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9.5

Boston.
New York
Philadelphia.
Cleveland
Richmond.
Atlanta........
Chicago.
St. Louis.
Minneapolis.
Kansas City.
Dallas.
San Francisco.

Total.

Per cent. Per cent. Per cent. Per cent. Per cent. Per cent. Per cent. Per cent. 14.2 58. 2 14.2 61.7 14.7 61.8 15.7

64.8 25.0 71.2 26.7 75.7 27.0 75.8 28.4

77. 2 8.6 37.3 8.9 42.5 10.9 45. 2 11.7

45.6
9.3
41.0

44.6
10.3 44.9 11.0

47.2
6.0
20.3

6.4
23.7
6.6 23.9

7.2

24.3
6.0 45. 2
6.4 52.9

6.6
53.3
7.2

53. 5
11.3
51.1 12.7 54.1 13.2

54.6
13.7

64.9
3.7
41.0

46.7
4.5 46.7

4.5

46.7 9.3 17.8 9.8 20.6 10.7 21.5 11.0

21.8 2.6 16.2 2.8 18.6 3.0 19.9

3.0

19.9 18.6 22.7 18.5 25. 3 20.8 27.5 21.0

27.5 9.2 13.8 10.4 15.4 10.6 15. 5

11.7

16.0
9. 2
49.2

9.9
53. 1 10.5 53.5 11.0

54.5

RATES OF EARNINGS FROM INVESTMENTS OF THE FEDERAL RESERVE BANKS.

The subjoined table shows the advancing tendency of rates at Federal Reserve Banks during the year. These rates are based upon actual discount and interest earnings and corresponding holdings of each class of productive assets. The apparent decrease in the average rate since July is due to the increased holdings of short-time paper secured by Government obligations on which the rate at most of the banks has been 4 per cent. The apparent decline in the rate of earnings on United States securities is due to the fact that during the early part of the year advances on United States bonds and Treasury certificates were reported in the statements of the banks as temporary investments in these securities, while since May transactions based upon these securities have been included in bills discounted.

Rates of earnings from investments of the Federal Rescrre Banks.

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In its previous reports the Board has called attention to the fact that the Federal Reserve Banks are not operated primarily for profit, and it seems proper to reiterate this statement at this time, although it may seem incongruous in view of the fact that the combined gross earnings of the 12 banks for the year 1918 amounted to $67,584,417, the net earnings being $55,446,979, or just ten times the dividends paid. The net earnings were at the rate of 72.6 per cent on an average aggregate capital for the year of $76,342,000.

A year ago six of the banks had paid all accumulated dividends, while two were 12 months in arrears, and four were 6 months behind. All accumulated dividends were paid by all banks on June 30, 1918, and on December 31 out of net earnings, after dividend requirements had been met, the 12 banks carried to their surplus accounts the sum of $21,605,901, and set aside as a reserve for franchise tax to be paid to the United States, as provided in section 7 of the Federal Reserve Act, the sum of $26,728,440. The law provides that after all expenses and dividend claims have been paid, all net earnings shall be paid to the United States as a franchise tax, except that onehalf of such net earnings shall be paid into a surplus fund until that fund shall amount to 40 per cent of the paid-in capital stock of the bank.

The Federal Reserve Bank of New York has now accumulated the maximum surplus permitted by law-40 per cent-while the percentage of surplus to capital of the other 11 banks is as follows:

Boston. Philadelphia Cleveland Richmond. Atlanta Chicago

Per cent.

22.9 17.2 19.6 28. 5 24. 3 29. 6

Per cent. St. Louis.

21.1 Minneapolis

24. 8 Kansas City-

33.1 Dallas

19.8 San Francisco--

26.4 The gross and net earnings and dividends paid by all the Federal Reserve Banks for the calendar year 1918, and the amount set aside in each case for franchise tax are shown in the following table: Gross and net earnings and dividend payments of the Federal Reserve Banks

during 1918; also amounts transferred to surplus fund and reserved for Government franchise tas.

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815

The great expansion in the business of the banks, which has been reflected in their earnings, has made it necessary for them to make large additions to their working forces. The number of officers and employees in all departments at each of the Federal Reserve Banks at the close of the year was as follows: Boston 585 St. Louis

385 New York. 2, 657 Minneapolis

267 Philadelphia 422 Kansas City

480 Cleveland. 589 Dallas----

403 Richmond

254
San Francisco

531 Atlanta.

317 Chicago

Total.

7, 705 It is evident that the Federal Reserve Banks, in order to insure the proper conduct of their business and to protect the interests of the Government, the member banks, and the public, must employ men of exceptional experience and ability. Experience has shown that the larger member banks are disposed to draw upon the Federal Reserve Banks for men to fill high official positions, and in order to retain the services of officers who are constantly being tempted with outside offers at high salaries, it has become necessary to recognize this competition. While the Board has in no case approved salaries for Federal Reserve Bank officers as high as those paid officers of similar rank by the larger member banks in the various Federal Reserve cities, it has approved salaries approximating the average salaries paid by the larger local banks. In the case of junior officers, heads of divisions, and clerks, the Board has recognized from the outset that the compensation paid them must be in line with that paid by the larger member banks.

The Board does not believe that the Federal Reserve Banks should become training schools for future officers of member banks; it feels, on the contrary, that sufficient inducements should be offered by the Federal Reserve Banks to make service with them attractive as a

career.

BANKING QUARTERS.

All of the banks have found their quarters inadequate for housing their employees, and most of them have been obliged to rent space in other buildings. The vault facilities also have been found insufficient, and the banks have been obliged to have recourse to safe-deposit vaults owned by other institutions.

In the circumstances the banks have naturally directed their attention to the acquisition and ownership of permanent quarters. It has been found necessary in each case to secure a location near the financial center, convenient not only to the local member banks but to the post office and Subtreasury; but in the opinion of the Board all purchases have been made at reasonable figures, and in no case have maximum prices for the highest grade central property been paid.

The Federal Reserve Bank of Boston has purchased a conveniently located building at a cost of $1,000,000. The building is old and may be demolished to make way for a new one specially designed for the bank, but in the opinion of the Board the price paid represents a fair value of the lot alone.

The Federal Reserve Bank of New York has acquired a property close to the financial district at a cost of about $3,100,000, and will utilize the old buildings until it has completed its plans for a modern building to take their places.

The Federal Reserve Bank of Philadelphia has purchased the Penn Mutual Life Building on Chestnut Street at a cost of $600,000 and is now occupying it, having remodeled it to meet requirements.

The Federal Reserve Bank of Richmond purchased a lot two years ago which it has not yet improved, because of high cost of building during the war, and it has also purchased for the use of its branch in Baltimore, at a cost of $200,000, a building formerly occupied by one of the local banks, which is entirely adequate for the purposes

of the branch bank.

The Federal Reserve Bank of Atlanta is occupying a new building which was completed in August, the cost of the building and lot having been about $230,000.

The Federal Reserve Bank of Chicago has purchased for $2,936,000 a property in the financial district most suitably located. The building is not regarded as being of any value and will be torn down to make room for a new structure.

The Board has approved plans of the Federal Reserve Bank of St. Louis for the purchase of a building, to be remodeled for its occupancy.

The Federal Reserve Bank of Kansas City has purchased a lot for $500,000. The Federal Reserve Bank of Dallas, which purchased a building three years ago, has found its present quarters to be inadequate and has purchased a larger lot for the sum of $145,000, upon which it proposes to erect a suitable building, and it will dispose of the building and lot now owned and occupied by it.

The Federal Reserve Bank of San Francisco has acquired property near the financial center of the city at a cost of $405,000, and is now occupying a building to which additions will be made later on.

The Federal Reserve Banks of Cleveland and Minneapolis have not as yet purchased lots.

On December 14 the Board sent the following instructions to all Federal Reserve Banks, relating to the treatment of depreciation and extraordinary charges in closing the books at the end of the year.

In order that there may be uniformity of practice, the Federal Reserve Board has approved for Federal Reserve Banks the adoption of the following rules for the treatment of depreciation and extraordinary charges against earnings and profit and loss account at the closing of books December 31, 1918:

1. Cost of Federal Reserve and Federal Reserve bank notes.—Balance of account, as shown by books on December 31, to be charged to current expense account.

2. Furniture and equipment account.–Balance of account, as shown by books on December 31, to be charged to current expense account.

3. Cost of vaults.-(a) All expenditures made during the year 1918 for vaults and vault equipment to be charged to current expense account; (b) balance of account, as shown by books on December 31, 1917, to be charged to profit and loss account.

4. Alterations and improvements.-Charge against current expense account all expenditures made during the year 1918 in repairing, altering, or remodeling bank premises.

5. Bank premises.-(a) Where properties have been purchased with the intention of erecting new bank buildings, banks to be permitted to charge against profit and loss account an amount sufficient to cover the estimated value of buildings which will have to be razed, such estimated valuation of buildings to be submitted to the Federal Reserve Board for approval before depreciation allowance is determined.

(6) Where properties have been remodeled and are now used as permanent banking quarters by a Federal Reserve Bank, a reasonable depreciation charge will be permitted, but in no case shall it exceed 10 per cent of the estimated value of buildings on December 31, 1918.

(C) Where a Federal Reserve Bank has purchased, or may purchase, a site for a new building, it will be permitted to charge down the book value of

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