been steadily downward, recoveries being slight and temporary. The combined reserves of the banks on December 27 were 50.6 per cent, and excepting seasonal recoveries anticipated in January and February, 1919, further declines may be expected until the financial program of the Treasury has been finally completed.

Due to accessions to membership of State banks and to the following up by the Federal Reserve Banks of the Board's policy of concentrating gold and gold certificates in the vaults of the Federal Reserve Banks, the total gold reserves of the banks have shown an increase during the year of $102,554,000, having increased from $1,687,720,000 on January 4, 1918, to $2,090,274,000 on December 27. Of this increase approximately $200,000,000 is due to exchanges made with the Treasury of Federal Reserve notes for gold.

EFFECT OF WAR FINANCING UPON THE FEDERAL RESERVE BANKS.

The effect of two years of war financing upon the Federal Reserve System can best be shown by the following table, from which it will be seen that the enormous needs of the country, both for military and commercial purposes, have been provided for and that our surplus over minimum reserves required by law has been lowered only by $17,400,000 :

The table next subjoined, showing the combined resources and liabilities of the 12 Federal Reserve Banks, indicates the changes in the various items of resources and liabilities of the Federal Reserve System during the years 1917 and 1918. The figures of March 30, 1917, show the situation immediately before the entry of the United States into the war, and those of December 27 show the condition at the close of the year, while the figures for the intermediate dates show the changes directly attributable to the Liberty loan flotations.

The general expansion which has taken place during the year is reflected to a limited extent in the increase in member banks' reserve deposits of $138,088,000 from $1,449,230,000 on January 4 to $1,587,318,000 on December 27, but in a much greater degree in the volume of Federal Reserve notes in circulation, the amount of these notes in circulation on January 4 having been $1,251,205,000, against $2,685,244,000 on December 27, an increase of $1,134,039,000. Other deposits, including those of the United States and of foreign governments, increased between these dates $18,759,000, while the increase in net deposit and note liabilities during the year has been $1,540,703,000, as against an increase of gold reserves of $102,554,000.

In its report for the year 1917 the Board called attention to the changes in the reserve position of the Federal Reserve Banks during the year and pointed out the effect upon their reserves of the flotation of the two Liberty loans. After payments for subscriptions to the first Liberty loan were made there was a notable strengthening of the reserve position, but, as stated in the report, a similar recovery subsequent to the close of the second Liberty loan had not taken place up to December 31, 1917, which was commented upon as indicating that the process of distributing the second Liberty loan was still uncompleted. On January 4, 1918, the combined reserves of all the banks stood at 64.2 per cent. There was a gradual improvement in the reserve position until February 15 when the combined percentage was 67.7 per cent, which proved to be the highest for the year 1918.

Treasury certificates of indebtedness were sold in anticipation of the two Liberty loan issues of 1918, and also in anticipation of tax payments, and since February the tendency of reserve percentages has been steadily downward, recoveries being slight and temporary. The combined reserves of the banks on December 27 were 50.6 per cent, and excepting seasonal recoveries anticipated in January and February, 1919, further declines may be expected until the financial program of the Treasury has been finally completed.

Due to accessions to membership of State banks and to the following up by the Federal Reserve Banks of the Board's policy of concentrating gold and gold certificates in the vaults of the Federal Reserve Banks, the total gold reserves of the banks have shown an increase during the year of $402,554,000, having increased from $1,687,720,000 on January 4, 1918, to $2,090,274,000 on December 27. Of this increase approximately $200,000,000 is due to exchanges made with the Treasury of Federal Reserve notes for gold.

EFFECT OF WAR FINANCING UPON THE FEDERAL RESERVE BANKS.

The effect of two years of war financing upon the Federal Reserve System can best be shown by the following table, from which it will be seen that the enormous needs of the country, both for military and commercial purposes, have been provided for and that our surplus over minimum reserves required by law has been lowered only by $17,400,000:

(In millions of dollars.]

The table next subjoined, showing the combined resources and liabilities of the 12 Federal Reserve Banks, indicates the changes in the various items of resources and liabilities of the Federal Reserve System during the years 1917 and 1918. The figures of March 30, 1917, show the situation immediately before the entry of the United States into the war, and those of December 27 show the condition at the close of the year, while the figures for the intermediate dates show the changes directly attributable to the Liberty loan flotations.

Combined resources and liabilities of the Federal Reserve System.

(In thousands of dollars.)

Totalresources.

1, 256, 149

1,999,642

3, 104,784

3, 102,689

3,772, 495

5, 104, 244

5,251,990

LIABILITIES.