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D. C. Wils, Chairman and Federal Reserve Agent.


Gross earnings of the Federal Reserve Bank of Cleveland during the year just past have amounted to $5,226,000, or more than $100,000 per week. The expenses, including expense of branches, this district's proportion of Federal Reserve Board expense, cost of Federal Reserve currency, and all items of equipment (which have been charged uniformly to current expense) have been a little less than $1,000,000. On June 1 a dividend was paid for the period beginning July 1, 1917, to date, thus completing the payment of all accumulated dividends, and the regular dividend was paid on December 31. After setting aside a reserve sufficient to meet all depreciation of assets, the sum of $1,776,000 was transferred to surplus account, and a like amount reserved for the payment of franchise tax provided for in the Federal Reserve Act.

Schedule 1, appended hereto, shows the balance sheet for December 31, 1918, with comparative figures for December 31, 1917.

Schedule 2 shows the principal charges and credits to profit and loss account for 1918 as compared with 1917.

Schedule 3 shows the gross earnings classified according to principal sources of revenue by months, together with the expenses and net earnings, and the same data appear in graphic form in chart 1.

Schedule 4 shows the daily average of earning assets divided into the principal sources of revenue, with the total earnings and the average rate on each principal class of investments, and also the rate of gross and net earnings to daily average capital for the years 1918 and 1917, respectively.

Schedule 5 shows the total volume of loans, discounts, and investments, divided into principal classifications, for the year 1918 as compared with 1917.


At the beginning of the year the transition of business from a peace to a war basis had not been accomplished, and it was not fully realized that all energies must, of necessity, be devoted to the production of war materials and the accessories necessary to the most intensive waging of war. The rapid growth of a genuine patriotic desire to cooperate in the policies agreed upon at Washington and the official embargoes and curtailment of supplies operated to hasten the readjustment, so that by April 1 the business of the district was on a war basis.

Despite shortage of transportation, coal shortage, closing orders, capital restrictions, weather unprecedented in its severity, and an epidemic which would have produced at least a partial paralysis even in normal times, the volume of business, gauged not only by the changing standard of money value, but in many instances by tonnage and number of articles, has exceeded all previous records. Exceptions were only in restricted lines and not of sufficient consequence to change the very satisfactory result.

This district, while noted for its manufactures, is probably exceeded by few others in the amount and value of its agricultural products. The crops have generally exceeded the average, the acreage has been large, farms are well stocked, and there has been an entire freedom from the epidemics to which stock is oftentimes subject. In view of the high prices, the farmer has been very prosperous.

Labor has been scarce and at times inclined to be exacting. The scarcity, which gave concern to employers and at times seemed as if it would be very serious, did not, however, obtain to such an extent as materially to decrease production. It was overcome largely by the employment of women and a proper distribution. In many lines wages reached record heights, and there was employment for every


There has been a continuous and strong demand for money, both investment and short time, with a slight easing of the latter in December by reason of the hesitation in business due to the signing of the armistice. The ruling rate of 6 per cent held firm till well along in the year, when with the approach of the fourth Liberty loan there were some advances, mainly in the rural districts.


While the Federal Reserve Bank of Cleveland has maintained a very strong reserve position during the entire year, this bank, with the others, has been called upon for a volume of rediscounts which presents a rather startling contrast to the figures for 1917. The number of applications handled during the present year was 5,714, as against 1,206 for 1917. The number of member banks accommodated is exactly twice the total number for the previous year. The total rediscounts and loans were in excess of $1,386,000,000, as against $212,000,000 for 1917. Of this amount, $988,000,000 were discounts of member banks' collateral notes secured by United

States securities, and $72,000,000 were rediscounts of notes to member banks secured by United States securities. This total of $1,060,000,000 is large in comparison with the $326,000,000 of rediscounts of commercial and agricultural paper. It must be borne in mind, however, that member banks prefer to use their own collateral notes secured by Liberty loan bonds or Treasury certificates of indebtedness, or to rediscount paper similarly secured, both on account of the simpler procedure and the lower rate, so that it is certain that the proportion borne by the one class of paper to the other on our books does not represent the true proportion of the two classes of demands upon the member banks.

Nearly $25,000,000 of trade acceptances were rediscounted for our member banks during the year, almost 8 per cent of the total of rediscounts of commercial, agricultural, and industrial paper. While this is but a beginning, the proportion is (somewhat to our gratification) larger in this bank than in any other of the Federal Reserve Banks, and is one of many indications that the trade acceptance system is growing in popularity, if not in proportion to its merits, at least so markedly as to indicate that it will come generally into vogue much sooner than could have been expected. One of the outstanding tures of the development of the trade acceptance system in this district and elsewhere has been the adoption of the system by a number of iron and coal producers. A meeting of the Lake Superior Iron Ore Association which will take place in the near future is expected to result in the further adoption of the system in connection with iron ore contracts by several if not all of the leaders in that great basic industry.

Schedule 6 is a tabular statement of the rediscount transactions of

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The open-market purchase of bills of exchange (chiefly bankers' acceptances) has been a feature of the year. A considerable number of banks of this district have adopted a progressive policy, both in making their own acceptances and in purchasing acceptances of other banks. Of our total purchases in 1918, of more than $175,000,000, nearly $52,000,000, or approximately 30 per cent, were purchased from member banks in district No.4. In view of the fact that this bank has, during most of the year, participated to the extent of 10 per cent in the open-market purchases of the Federal Reserve Bank of New York, this showing of the banks of this district is very creditable, particularly when it is added that no inconsiderable proportion of the bills shared by us with the New York bank likewise represents acceptances of member banks in this district. The great value of acceptances as a secondary reserve is beginning to be recognized, and the development of the market is such that the instant liquidity of such paper is beginning to be realized.

During the year the following banks have been granted permission to accept up to 100 per cent of their capital and surplus:

Union Commerce National Bank, Cleveland, Ohio.
Superior Savings & Trust Co., Cleveland, Ohio.
Bank of Pittsburgh, N. A., Pittsburgh, Pa.
First National Bank, Pittsburgh, Pa.
Pittsburgh Trust Co., Pittsburgh, Pa.

Mellon National Bank, Pittsburgh, Pa. The Federal Reserve Bank of Cleveland in its open-market purchases has consistently discriminated in favor of indorsed bills, which are always purchased at a lower rate than acceptances which have been discounted by the accepting bank. While it has seemed unwise to refuse absolutely the purchase of such acceptances, in view of the fact that th open market was not readily available to some accepting banks in the smaller cities of this district, as time goes on the development of the open market will doubtless permit this bank to do more than merely to discourage such transactions by a differential rate, without the hardship that such course would now work upon some of the accepting banks.

Early in December a conference of the accepting banks in the district was held at Cleveland, at which Mr. E. R. Kenzel, manager of investments of the Federal Reserve Bank of New York, outlined the general principles of open-market transactions.

Schedule 7 is a summary of the open-market transactions of the year.

In the early part of the year a number of transactions appearing on the books as purchases of United States Treasury certificates of indebtedness represented purchases made under a resale agreement, and took the place of member bank collateral loans. This practice was discontinued in April. Other similar transactions have consisted practically entirely of certificates maturing within 15 to 30 days of the date of our purchase.

Schedule 8 shows the total of the purchases of Government securities during the year.

RESERVE POSITION. The reserve position of the bank has been exceptionally strong during all of the year, the combined reserve against net deposit liabilities and Federal Reserve notes having dropped below 50 per cent on only two occasions despite the fact that frequent rediscounts have been made for other Federal Reserve Banks in whose districts loan demands had been relatively greater than in ours, and in several instances considerable blocks of bankers' bills have been purchased from other Federal Reserve Banks in lieu of rediscounts.

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