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The Board is authorized to grant permits to national banks, to exercise fiduciary powers in any case in which competing State corporations are permitted to exercise these powers, even though the laws of the State expressly or impliedly prohibit the exercise of such powers by a national bank. Indications are that a great many of the national banks will apply for and obtain these permits and will thus be enabled to afford additional facilities to their customers and to increase the scope of their operations.
During the year 1918, up to September 26, the Board had granted 89 original permits and 1 supplemental permit. It has granted since that time 49 original permits and 44 supplemental permits. Original permits issued during the year number 138, the total number of banks now holding original permits being 708.
A list of the banks to which permits have been granted appears in the appendix.
RESERVE AND CENTRAL RESERVE CITIES.
The Board is authorized and empowered by section 11 of the Federal Reserve Act to add to the number of cities classified as reserve and central reserve cities in which national banking associations are subject to special reserve requirements, and to reclassify existing reserve cities or to terminate their designation as such.
The law as amended by the act of June 21, 1917, requires all reserves of member banks to be carried with the Federal Reserve Banks of their respective districts. The requirement as to time deposits is the same with all classes of banks—3 per cent; while on demand deposits banks in central reserve cities are required to carry a reserve of 13 per cent, those in reserve cities 10 per cent, and banks in other towns and cities 7
per cent. It has been the policy of the Board in permitting the establishment of branch banks to classify cities in which the branches are located as reserve cities, and in accordance with this policy the Board has designated Jacksonville, Fla., El Paso, Tex., and Little Rock, Ark., as reserve cities. The other branches established during the year are in cities which were already classified as reserve cities.
BRANCHES OF FEDERAL RESERVE BANKS.
There were in operation at the close of the year 1917 six branches of Federal Reserve Banks, as follows:
Federal Reserve Bank of Atlanta,
During the year 1918, the following branches, which were authorized by the Board during the year 1917, were opened for business :
Federal Reserve Bank of Cleveland.
During the year covered by this report the Board authorized branches as follows:
Federal Reserve Bank of Atlanta.
These branches have all been in operation for several months, with the exception of that at Little Rock, which began business on Janu
ary 6, 1919.
While section 3 of the Federal Reserve Act as amended June 21, 1917, authorizes the Federal Reserve Board to “permit or require” any Federal Reserve Bank to establish branch banks within its district, it is the policy of the Board to have negotiations for branch banks originate between the community applying and the Federal Reserve Bank, and to review only such cases as may be referred to it after consideration by the directors of the Federal Reserve Banks.
All of the branches have proved a great convenience to the communities served, and have tended to arouse a greater local interest in the Federal Reserve System. Many of them have justified their existence from the standpoint of earnings, while others recently established have not yet had an opportunity of demonstrating their ability to sustain themselves. In some cases the establishment of branches has been followed by accession to membership of a number of State banks in the localities served, and the usefulness of the branches has been greatly increased as a result.
The by-laws governing the branches are approved by the Federal Reserve Board, and are uniform as far as recognition of the control and responsibility of the Federal Reserve Banks is concerned, but differ in some districts as to matters of administrative detail. In some cases the branch is empowered to make rediscounts for the member banks assigned to it, while in others the actual rediscounting operation is performed at the head office, the member banks being given credit at the branch as of the date on which the paper is tendered to the branch. In one case the earnings growing out of rediscounts are shown on the books of the branch, while in the other they appear only on the books of the Federal Reserve Bank; consequently a comparative statement of the earnings of the various branches can not be given.
Clearing operations and the collection of country checks are engaged in by the branch banks, and the head offices are relieved of a corresponding amount of detail work.
It is apparent, however, that too great a number of branches in any one district involving a division of the funds of the Federal Reserve Bank will tend to impair the effective control of the bank over its resources, and this fact, together with the expense involved in the operation of branch banks, will make it impossible to gratify the civic pride of many cities desiring branches.
There are, unavoidably, some advantages enjoyed by member banks located in Federal Reserve or branch bank cities which are not shared by banks in other towns and cities, but the Board is endeavoring, as far as possible, to give equal facilities to all member banks, and has, therefore, authorized the Federal Reserve Banks to pay all charges on shipments of currency to or from member banks. A member bank, therefore, located at a distance from its Federal Reserve Bank, is thus put in as favorable a position with respect to currency transfers as a member bank located in the Federal Reserve city, with the exception of the time involved in transit.
CHECK CLEARING AND COLLECTION,
The member banks are availing themselves more and more of the clearing and collection facilities afforded by the Federal Reserve System. The daily average number of transit items handled by the reserve banks during the year 1917 was approximately 276,000, amounting to $190,000,000. For the 30-day period ended June 15, 1918, the daily average number of items handled was 485,600, an increase of over 80 per cent, amounting to $385,060,000, an increase of over 100 per cent. From October 15 to November 15, 1918, the daily average number of items handled was 828,000, an increase over June 15 of 70 per cent, amounting to $556,943,000, an increase of 45 per cent. On November 15, 1917, the number of member banks was 7,826, and the number of nonmember banks on the par list was 9,210, a total of 17,036. On December 15, 1918, the number of member banks was 8,612, and the number of nonmember banks on the par list was 10,409, a total of 19,021, showing an increase for the 12 months of 1,985 in the number of banks remitting at par.
Assuming the total number of banks in the United States to be about 29,000, the number clearing through the Federal Reserve col
lection system by districts is shown approximately in the following table:
It appears, therefore, that there are something over 10,000 banks which do not remit at par. Classifying these banks according to their deposits, the approximate total of nonremitting banks in each district appears as follows:
At a conference of Federal Reserve agents which was held in Washington on December 7, the conclusion was reached that every effort should be made to increase the number of banks on the par list. The banks and the public need a system that is able to collect all items. At the present time, although checks on two-thirds of the banks can be collected at par, and these banks represent perhaps 90 per cent of the banking resources of the country, the number of banks which will not remit at par, in which are included some of substantial size and located in important cities, is sufficiently large to make many banks hesitate to use the Federal Reserve collection system because of the number of items which can not be handled by the Federal Reserve Banks. Whenever the number of nonremitting banks can be reduced by one-half, or to five or six thousand, the collection system in many districts at least would be almost universally used and the Board could feel that the principle of par collections had been established beyond question. The par list has shown a steady growth, but a continuous effort will be made through correspondence and personal solicitation to make further substantial additions to it. The par collection system is not a local or selfish undertaking for the benefit of member banks, but is a national enterprise for the convenience of the public and the promotion of commerce, and concentrated and persistent efforts will be made to make the par list complete.
While the additions to the par list account in part for the large increase in the number of transit items handled, it is evident that the remarkable increase in the volume of transactions has been occasioned primarily by the greater use of the facilities of the system by all member banks. There have been only a few additions to the number of nonmember banks maintaining clearing accounts with the Federal Reserve Banks as permitted under section 13 of the act as amended June 21, 1917, and little, if any, of the increase shown is due to their cooperation.
The opinion of the Attorney General of the United States was asked as to the applicability to nonmember banks of the provision contained in the amendment to section 13 enacted in June, 1917, that member or nonmember banks “may make a reasonable charge to be determined and regulated by the Federal Reserve Board, but in no case to exceed 10 cents per $100 or fraction thereof, based on the total of checks and drafts presented at any one time for collection or payment of checks and drafts, and remission therefor by exchange or otherwise, but no such charges shall be made against the Federal Reserve Banks.” The Attorney General expressed the view that the limitations contained in section 13 do not apply to State banks not connected with the Federal Reserve System as members or depositors, but that checks on banks making exchange or collection charges should not be cleared or collected through Federal Reserve Banks. This opinion has restricted the operations of the Federal Reserve Banks to checks which can be collected without the payment of exchange to the bank acting as collecting agent.
At the close of the year 1917 the reserve banks were assessing upon member banks a service charge of from nine-tenths of 1 cent to 11 cents per item, the charge being made to cover cost of postage, stationery, and accounting. Early in 1918 this charge was modified by some of the banks taking 500 checks per month from each member bank free, all checks in excess of that number being subject to the service charge. On July 1 the service charge was abrogated entirely,