duction 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 one. 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. DISCOUNT OPERATIONS. 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 features 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 the year. ACCEPTANCES. 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. 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. MOVEMENT OF MEMBERSHIP. Eight national banks in this district have gone out of existence during the year, of which two consolidated, two were absorbed by other national banks, one was absorbed by a State bank member of the Federal Reserve system, one was succeeded by a State bank which took over the national bank charter, and two were succeeded by State banks. There have been five new national bank members, of which one was the result of the consolidation above referred to. Fifty-three State banks and trust companies in this district were admitted to membership during the year. The net result was an increase in the membership of 50 banks, the total number of members on December 31, 1918, being 814. A tabular statement of the changes in membership is appended as Schedule 9. While the advantages of membership, both for eligible banks themselves, and for the strengthening of the general financial and economic situation as well as for patriotic considerations, have impressed themselves repeatedly upon nonmember banks during the year, it is of course necessary to secure personal contact in order to bring to a head applications for membership. The Federal Reserve Bank of Cleveland has persistently cultivated such contacts during the year, not only through the activities of the Federal Reserve agent and his assistant as well as other officers, but also through the work of the 30 "field agents" of the central Liberty loan committee who, in the intervals between Liberty loans and offerings of Treasury certificates, have been intensively schooled in the matters connected with membership in the system, and have secured a number of applications. (See Schedule 10.) RELATIONS WITH NATIONAL BANK MEMBERS. Naturally the very large majority of rediscount transactions have been for national bank members, although a considerable proportion of the total volume has been for State bank members, largely for carrying Government securities. About 80 per cent, however, of the total volume was for national banks. A list of the national banks which have been granted fiduciary powers under section 11 (k) of the Federal Reserve Act is appended as Schedule 11, which shows the powers granted in each case. The increasing cordiality of our relationship with national bank members makes it difficult to realize at times that a considerable degree of irritation, doubtless the result of the "enforced" membership rather than logical objection to the essentials of the Federal Reserve system, was to be seriously reckoned with during the early years of our work. While there are still rare cases of persistence of this feeling, the strength and capacity of the system have been dem onstrated so indubitably during the past year, and its aid has been so essential and so well rendered, that ungrudging appreciation is expressed by the vast majority of the original members of the system in this district as elsewhere. RELATIONS WITH STATE BANKS AND TRUST COMPANIES. The discount operations for State banks and trust companies, amounting to $270,000,000, or approximately 20 per cent of the total, have been, as above stated, very largely for carrying Liberty loan and Treasury certificate subscriptions. The total number of State bank members in the district is but 8 per cent of our membership, but this number includes the largest of such institutions. Some of these have, of course, expanded their commercial activities partly as a result of their membership, and in a few instances the State bank members have been notably active in the acceptance field, so that the open-market transactions have included considerable purchase of acceptances from such members. The Federal Reserve Bank of Cleveland has not yet participated in examinations of the State bank members, the examinations of the State departments being of a high grade and quite satisfactory. With the new year it is the intention to establish a small staff of examiners who will join with the State examiners at the time of making their examinations. FISCAL AGENCY OPERATIONS. An adequate account of the campaigns for the third and fourth Liberty loans and the sales of Treasury certificates is impossible in the space which can reasonably be occupied by this report. While the experience of each campaign has led to perfecting details of the scheme of organization, in the main the fundamentals of the organization have remained as for the earlier loans, an account of which appeared in last year's report, and the personnel has been changed but little, except that throughout the local committees there has been a constant increase in both number and efficiency of workers. Under the plan of allotment of Treasury certificates of indebtedness adopted by the Secretary of the Treasury, an organization was perfected in this district for the series offered in anticipation of the fourth Liberty loan under the direction of Mr. E. S. Burke, jr., a business man and capitalist of Cleveland, who devoted his energies unceasingly to the task. Under his direction the 30 field agents of the central Liberty loan committee covered the banks of the district outside of the principal centers with personal visits. The results are represented in the several tables marked Schedule 12, appended |