Schedule 19.-Honor roll of employees in the military or naval service of the United States-Continued.

Two of those named above died in the performance of their duty. William Fraser Behan, a cadet flyer, in training at Bay Shore, Long Island, was killed in the fall of a hydroplane, and Luther Oberlin Weaver was among those lost with the United States patrol boat Alcedo, which was sunk by an enemy submarine.

SCHEDULE 20.-Schedule showing when the proceeds of items will become available. Immediate credit:

New York (Manhattan); when received by 9. a. m.

Branch banks.

* Except banks in cities referred to in first column.

NOTE. Two day items we forward on Saturday will be available Tuesday.

Four day items we forward Thursday will be available Tuesday and those forwarded Friday and Saturday on Wednesday.

To obtain quickest availability of funds, sort and list checks in accordance with above time schedule, with a separate cash letter for each separate time group.

Banks desiring to send checks direct to other Reserve Banks or their branches will please secure from us the circulars showing the territory handled by the branches.

JUNE 1, 1918.

DISTRICT NO. 3-PHILADELPHIA.

R. L. AUSTIN, Chairman and Federal Reserve Agent.

INTRODUCTION.

The report of the Federal Reserve Bank of Philadelphia for the year 1918 shows a great increase in operations over the previous year, and reflects the effect of the war on financial operations. The ease with which this district absorbed its allotments of the great Government loans and financed the industries engaged in war work, was due to the greater availability of the credit resources of the country made effective through the Federal Reserve system.

The banks of the district cooperated with the Government in its financing of the war to the fullest extent possible by loaning freely to subscribers to Liberty bonds, which they were able to do through the rediscounting facilities of the Federal Reserve Bank.

RESULTS OF OPERATION.

A comparative statement of the condition of the Federal Reserve. Bank of Philadelphia is given in the appendix of this report (Schedule 1).

The resources of the bank more than doubled during the year and are eight times greater than the figures for the close of 1916. On December 31, 1914, less than two months after the bank opened for business, the resources amounted to $21,501,000.

Compared with December 31, 1917, figures at the end of 1918 indicate an increase of $12,068,480 in the gold holdings and an increase of $144,544,990 in the amount of Federal Reserve notes in circulation. The work of gathering in the gold in circulation throughout the district, which had been begun in the previous year, was continued, and the increase noted above is due largely to this work.

The paid-in capital increased $1,420,300 during the year. This was brought about principally by the admission of State banks and trust companies, having combined capital and surplus of $38,812,917. The item "Federal Reserve bank notes" appears in the statement for the first time. Further reference to it is made hereinafter.

Net earnings reached the large amount of $3,270,824, or 46 per cent. on the average paid-in capital stock for the year. After payment of

dividends of $366,383.14 covering the period from July 1, 1917, to June 30, 1918, and $216,825.56 covering the period from July 1, 1918, to December 31, 1918, there remained in the profit and loss account $2,608,343.91, one-half of which was placed to surplus account, the remainder, under the terms of the act, going to the Government as a franchise tax.

Schedules 2, 3, and 4 show profit and loss statement, monthly statement of earnings and expenses, and chart of earnings and expenses.

RESERVE POSITION.

While deposit liabilities of the bank have remained fairly steady, liabilities for Federal Reserve notes have increased from $97,325,755 to $241,870,745. The percentage of reserve against combined liabilities fell from 68.7 at the beginning of the year to 44.6 at the close. The lowest point reached was 39.6 per cent on November 22. During November and December, owing to continued demands for funds and the consequent decline in reserve, the bank found it necessary to strengthen its reserve position by rediscounting with other Federal Reserve Banks.

A chart showing the reserve position of the bank, and a table of its liabilities and reserve percentages, are given in the appendix of this report (Schedules 5 and 6).

DISCOUNT RATES.

The only changes in the discount rates during the year were made on April 8, when the 15-day rate for paper secured by Government obligations was increased from 3 to 4 per cent; the 16 to 90 day rate for such paper from 4 to 41 per cent; the 16 to 90 day rate for commercial paper from 41 to 4 per cent; and the 16 to 90 day rate for trade acceptances from 4 to 4 per cent.

It was considered inadvisable to increase further the discount rates, notwithstanding the heavy borrowings by member banks, resulting from the large subscriptions to Liberty bonds and United States certificates of indebtedness.

Changes in discount rates during calendar year 1918.

Discounts maturing within 15 days, including member banks' collateral

notes.

4

4

Paper, including member banks' collateral notes, secured by United States certificates of indebtedness, or Liberty loan bonds maturing within 15 days..

Paper maturing within 16 to 90 days..

Paper secured by United States certificates of indebtedness or Liberty foan bonds maturing within 16 to 90 days.

Agricultural and live-stock paper maturing after 90 days.

5

Trade acceptances maturing from 1 to 15 days.

4

Trade acceptances maturing from 16 to 90 days.

41

Bankers' acceptances purchased at the market rate, suhject to agreement.

INVESTMENTS.

The discount facilities of the bank were used extensively, loans increasing continually throughout the year. Total operations, exclusive of purchases of Government securities, amounted to $1,977,660,746, of which 77 per cent represented paper secured by obligations of the Government. The largest amount of borrowing at any one period occurred in connection with the issue of the fourth Liberty loan, earning assets increasing from $118,694,530 on September 28, the opening date of the campaign, to $209,449,707 on December 3.

There were practically no dealings in municipal warrants throughout the year.

Of the 660 member banks in the district, 457, located in 355 cities and towns, borrowed from the bank during the year. The heaviest transactions occurred on November 7, when total loan and investment operations amounted to $39,135,472. Total earnings from investments amounted to $4,230,955, compared with $987,057 the preceding year. The average rate of return from all classes of investments was 4.19 per cent, compared with 3.32 per cent in 1917, and 2.42 per cent in 1916.

A chart showing discount operations, and tables showing total operations, average holdings, earnings, and rate of earnings are given in the appendix of this report (Schedules 7 to 11).

The maturities of the bank's earning assets on the last Friday of the year are shown in Schedule 12.

It is difficult to estimate the probable time in which members can clear up all their "war paper" at the Reserve Bank. Not very much progress can be made until the Government has completed its war financing. If prior to the next bond issue considerable liquidation in business should take place, it would release funds for investment in United States certificates of indebtedness and possibly prevent material increase in the loans of the bank. In pursuance of the policy of banking institutions, loans not essential to the prosecution of the war were very largely curtailed, while loans for war purposes were greatly expanded, and it is the latter class of loans in which there is the possibility of considerable contraction owing to the cessation of the war.

In the meantime it should be the policy of the Federal Reserve Bank to use every effort to bring about as rapidly as possible the liquidation of war paper and at the same time do everything it can to encourage legitimate business by extending as far as possible necessary credit facilities.

100823°-1926