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FREDERIC H. CURTISS, Chairman and Federal Reserve Agent.


The past year, the second of the Nation's participation in the war, has produced marked changes in the character of the industrial and financial activities of the New England district.

As the year progressed the increasing demands of the Government for carrying on the war have by degrees taken precedence over those for civilian purposes, so that on November 11, at the time of the signing of the armistice, the energies and resources of this community were largely directed and subservient to the successful prosecution of the war.

During the year there have been placed in New England, througn the banks of the district, over $1,000,000,000 of Government securities—Treasury certificates, Liberty loans, and war-savings certificates, besides over $300,000,000 of Federal taxes collected. These loans and taxes have been financed where necessary through rediscounts with the Federal Reserve Bank of Boston. That these sums have been raised without undue financial disturbance, and that the loaning rates for money have been kept steady and not unduly high is an indication of the satisfactory operations of the Federal Reserve Bank and the Federal Reserve system.

Schedule 4 shows the fiscal operations of the Government during

the year.


The increased demands by member banks for rediscounts and loans to finance Government needs have brought large earnings to the Federal Reserve Bank. The net earnings for the year 1918 distributable, after making allowance for depreciation, amounted to $3,305,000.

Dividends at the rate of 6 per cent per annum were declared on June 6, 1918, and December 5, 1918, pavable to stockholding banks as of June 30, 1918, and December 31, 1918. These dividends amounted in the aggregate to $384,000. Of the surplus earnings one-half, or $1,460,500, was carried to the bank's surplus account, and an equal amount was set aside as a reserve for the payment of the franchise tax to the United States Government as required by the Federal Reserve Act.

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Schedules 1 and 2 show earnings in detail as compared with the

year 1917.

Schedule 3 shows a comparative statement of the condition of the bank on December 31, 1917, and December 31, 1918. The important changes in the balance sheet will be referred to under the proper headings in this report, the increase in most of the items clearly indicating the enlarged activities of the bank.


As the year 1918 advanced the pressure of the Government to meet war demands became increasingly heavy. Both business men and bankers were urged to give preference to industries essential to the prosecution of the war and to Government and other essential securities, and eventually the Government needs became so great that Federal control was necessary. Early in January the Capital Issues Committee assumed jurisdiction over the issue of new securities, and later, through the War Industries Board and other boards, labor and material were conserved for the Government's use.

Although Government regulations, price fixing, and constant demands for money have brought unusual burdens, banks and merchants have, with but few exceptions, made unprecedented profits. The competition for labor, skilled and unskilled, has also proved a serious problem and has forced wages to a plane hitherto unknown. Unrest and inefficiency of labor have been pronounced during this period, employees leaving one industry to go to another offering higher pay and refusing to remain steadily employed.

Money rates, during the year, both time and demand, for commercial needs, have remained practically steady at 6 per cent, being influenced by the rates charged by the Federal Reserve Bank. Rates on loans secured by Government bonds varied from 47 per cent to 5 per cent, being similarly influenced.

Immediately after the armistice, the Government began canceling many of its war contracts, and the manufacturer was brought face to face with the readjustment of his business to a peace basis. Peace, however, found domestic business quite generally in a satisfactory state, low inventories being prevalent with the manufacturer, wholesaler, and retailer. The large amount of raw material held by the Government, the uncertainty of the future trend of demand for raw material from foreign countries, together with the prevailing high prices both for labor and material, have resulted in a considerable slowing down of industrial activities, and are causing business to await future developments before going ahead.

The demand of the Government for money to settle its contracts and to support the large Army still in camps in this country and overseas is so great that the banks are being called upon continuously to subscribe to war loans and have been increasing their demands for rediscounts with the Federal Reserve Bank.

It is expected that after the first of the year 1919, with the accumulation of investment money, the banks of the district will have more money to lend, but unless there should be a heavy recession in general business not looked for at the present time rates are not expected to be materially lower until after the next Liberty loan.


The bulk of loan operations of the Federal Reserve Bank of Boston during the year 1918 was made up of borrowings on account of Government financing. As will be seen from the appended schedules,

. borrowings for commercial purposes have been comparatively small. Boston banks have become accustomed to borrow large amounts on notes secured by Government obligations for short periods, usually one day, whenever their reserve requirements necessitated temporary replenishing.

The total loans of the Federal Reserve Bank at the end of 1917, including notes and acceptances rediscounted with other Federal Reserve Banks or sold with this bank's indorsement, amounted to about $120,000,000. On February 12, 1918, this loan account had been reduced to about $62,000,000, and although later temporarily increased, further liquidation by member banks brought the loan account down on May 16 to about $58,000,000, which was the low point of the year. During the next few weeks the Federal Reserve Bank rediscounted for other Federal Reserve Banks, but these rediscounts never at one time exceeded $10,000,000.

From May 16 to the end of the year there was a steady increase in the bank's loans, a material expansion being shown between June 27 and July 11, when $148,000,000 of redeposits in connection with the Federal taxes were withdrawn from member banks. Although the high point reached at that period was somewhat reduced, from August 17 there was a steady increase in the bank's loan account, owing to the withdrawal of Government funds deposited in connection with the Liberty loan, reaching $157,000,000 on November 1, when rediscounts were resorted to with other Federal Reserve Banks. From that time to the end of the year this bank, in order to maintain its reserve more nearly on a parity with that of the Federal Reserve system, was obliged from time to time to rediscount member bank loans, or sell acceptances to other Federal Reserve Banks. Schedule 5 shows rediscounts with other Federal Reserve Banks.

The demands for accommodation from member banks, because of Government withdrawals, were very large during this period, the loans increasing to $165,000,000 on November 12, and to $168,000,000

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