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7,500. Boston Clearing House checks have increased correspondingly.

The large increase in checks handled was brought about by two factors: First, the elimination on June 15 of the service charge for collection; second, by the New York Clearing House rule, which made it necessary for New York banks to collect all checks through the Federal Reserve Banks, if they were unable to collect them as expeditiously through their other correspondents. Previous to the elimination of the service charge, it was customary to make a per item charge sufficient to cover the actual cost of collection. This cost is now absorbed by the Federal Reserve Bank.

The collection system for time items, while not so well developed as that for check collections, has made considerable progress during the year. The elimination of the service charge on checks also applied to time collections and brought about an increase necessitating the enlargment of that department. All items are collected free except for the charge made to the Federal Reserve Bank by the collecting agent, and a charge of 15 cents on items returned unpaid. The time collection system, however, is far from satisfactory, and some uniform basis for collection charges should be agreed upon by the Federal Reserve Banks instead of leaving the charge subject to the pleasure of the collecting bank.

GOLD SETTLEMENT FUND.

Commencing in May, the Federal Reserve agent of Boston transferred to the gold settlement fund the entire amount of gold certificates held by him against Federal Reserve notes, and these are now held in Washington, subject to his order.

Schedule 12 shows the amounts cleared during the year, not including direct transfers caused by special transactions and which did not enter into clearing, such as transfers between the bank and the Federal Reserve agent of Boston.

BANKING QUARTERS.

One of the most serious problems which the large increase in the Federal Reserve Bank's activities has produced has been to secure adequate quarters in which to house its large force of clerks and to properly handle the immense volume of work that this increased activity has brought about.

At the beginning of the year the bank occupied about 16,000 square feet of working space, its quarters, besides the main banking room at 53 State Street, extending to 84 State Street and 131 State Street. These were later increased by renting a building at 20 Kilby Street, besides additional space in 53 and 84 State Street.

This has given the bank, at the end of the year, about 40,000 square feet of working floor space. Having banking quarters so poorly located has prevented economic and efficient handling of work and a permanent building was deemed vital.

After careful survey of the available sites, the board of directors voted to purchase the land and building at 95 Milk Street. This property, covering about 13,363 square feet of land, was purchased on June 27 for slightly over $1,000,000. The lot has a frontage of 63.51 feet on Post Office Square and of about 129 feet on Pearl Street, and is conveniently situated with respect to the financial section of Boston. It is proposed to tear down the present building and to erect at an early date a building which will accommodate all of the bank's activities.

In order that this subject might be given careful consideration and study, a building committee was appointed by the board of directors, consisting of E. R. Morse, chairman; Charles G. Washburn, Philip R. Allen, Charles A. Morss, governor; and Frederic H. Curtiss, Federal Reserve agent.

CONCLUSION.

Business and banking have not as yet had time to adjust themselves since the signing of the armistice. The impetus of war work is still felt in almost every trade, and the year has ended with most of the industries fairly active, and with a strong demand for money, the continued requirements of the Government for loans more than offsetting any liquidation of Government commitments on war contracts. As yet there is no marked oversupply of labor in the district. The readjustment of New England industries from a war to a peace basis will be no easy task, as this is largely an industrial community.

The raw material market will, no doubt, within a short time adjust itself, but the problem of labor is more difficult to solve. If the mills and manufacturers of New England are to be dependent upon domestic trade, there must be reasonable protection for them from foreign competition, and if on foreign trade, they must be in a position to compete against scales of wages prevailing in the industrial centers of other countries. Manufacturers must be able to transport goods and finance sales to foreign markets in a satisfactory manner, if they are to compete with foreign-made goods.

The large increase in our merchant marine, it is expected, will make it possible to transport goods economically in American bottoms, and the large banks in New England are organized and fitted to give satisfactory service in financing any foreign demand for goods manufactured in the district.

The readjustment of the industries of the district and the liquidation of the heavy loans now being carried by the banks through the financing of subscriptions to Government securities will require the most careful study and handling, both by the local bankers and by the officials of the Federal Reserve Bank.

EXHIBIT A.-Movement of principal earning assets of the Federal Reserve Bank of Boston during the calendar year 1918.

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EXHIBIT B.-Movement of cash reserves, net deposits, Federal reserve note liabilities and the reserve percentage of the Federal Reserve Bank of Boston during the calendar year 1918.

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