and therefore for deposits of Government funds in national banks the department has maintained the policy of charging a uniform rate of interest of 2 per cent per annum.

Ten days after my announcement that I would deposit Government funds in the South, the Federal Reserve Board contributed greatly to the relief of the cotton situation, and the agricultural interests of the country generally, by the adoption and promulgation on September 3, 1915, of regulations concerning commodity paper. Under these regulations all national banks and State banks which are members of the Federal reserve system may lend money to farmers or others on notes secured by nonperishable staple agricultural products properly warehoused and insured, and if the member banks charge the farmer or borrower on such "commodity paper" a rate of interest, including commissions, not exceeding 6 per cent per annum, they may rediscount such notes with the Federal reserve bank of their district at an interest rate of 3 per cent per annum. This gives the member bank an opportunity to make loans on commodity paper at an interest rate not exceeding 6 per cent per annum and to rediscount or sell the same loan, if desired, to the Federal reserve bank in their respective districts at 3 per cent interest per annum, thus giving the borrower accommodations at a low rate of interest, the member bank a liberal margin of profit on such loans, and the Federal reserve bank a reasonable compensation for the use of the money.

If the member banks charge the borrower on commodity loans a higher rate of interest than 6 per cent per annum, including commissions, then such loans can not be rediscounted by the member bank with the Federal reserve bank at the low rate of 3 per cent per annum.

The beneficial purpose of these regulations is to put the member banks in position to extend accommodations to borrowers on nonperishable staple commodities, at the time when they are most needed, at 6 per cent interest or less, and to obtain from the Federal reserve banks, if necessary, the resources for such loans at the low rate of 3 per cent per annum.

These regulations do not apply to cotton alone, but cover as well all nonperishable staple commodities in all parts of the country, and like credit facilities are available to producers in all parts of the country.

I am happy to say that it has not been necessary up to the present time to deposit more than $5,000,000 in gold in each of the Federal reserve banks at Richmond, Atlanta, and Dallas, or a total of $15,000,000. As the deposits were chiefly made through the new gold settlement fund established by the Federal Reserve Board, but little

shipment of currency was necessary and the transaction was effected practically without cost to the Government-by bookkeeping transfers for the most part.

The policy thus adopted was of direct and marked benefit to the southern producer. Fear that cotton could not be financed on reasonable terms and for a reasonable length of time almost immediately disappeared, and I am led to believe, from the reports that have come to me from various quarters in the South, that these deposits of public funds, coupled with the adoption of the commodity paper regulations and the establishment of a 3 per cent discount rate for such paper by the Federal Reserve Board, relieved the cotton situation. As in the case of the cotton-loan fund of 1914, these beneficial results were obtained without the necessity of very extended loan operations. The combined commodity loans by reserve banks in the South up to the first week in November amounted to $3,548,293, practically all of this being concentrated in the banks of Richmond and Atlanta. The reserve banks were, however, enabled to advance money on cotton with much greater freedom and assurance than could have been possible had they not known that they could rely upon the Government for reasonable support in the event they reached the limit of their loanable funds, while the deposits placed with them made it practicable to ask and to secure the cooperation of the member banks in extending accommodations to borrowers on commodity paper at a rate of interest, including all commissions, not exceeding 6 per cent.

The satisfactory price of cotton, which was speedily established after the announcement that Government deposits would be placed in the southern reserve banks and the adoption of the commodity-paper regulations by the Federal Reserve Board, has caused the staple to move steadily to market and has saved the member banks and the reserve institutions from any strain on that score. In fact, the great improvement in the price of cotton of itself relieved the producers of the necessity of borrowing on cotton, because they have been able to dispose of their product at remunerative prices, and thus the Federal reserve banks and the member banks of the South were relieved from any great pressure for loans to carry the crop.

In this, as in many other respects, the benefits of the Federal reserve system have already been felt throughout the country, notwithstanding the fact that the system has been in existence but little more than one year.

GOVERNMENT DEPOSITS OFFERED TO FEDERAL RESERVE BANKS IN THE WEST AND NORTHWEST.

Following my announcement of August 23, from North Haven, Me., I issued a statement from the Treasury Department on September 3, 1915, in which I said:

The deposit of Government funds in the South to aid in moving the cotton crop is simply carrying out the policy adopted by the Treasury Department in 1913, when the first crop-moving deposits were made. In 1913 and 1914 Government deposits were made to assist in moving the grain crops in the West and Northwest, as well as the cotton crop in the South. This year the South is the only section of the country where Government deposits would appear to be helpful; but if it should develop that crop deposits are needed in any other section of the country the Treasury Department will be just as ready to extend assistance within the limit of its available resources to other sections of the country as it has been to the South.

In order to assure myself as to the needs of the great crop-producing States of the West and Northwest, on September 9, 1915, I addressed the following inquiry to each of the Federal reserve banks of Kansas City, Minneapolis, and St. Louis:

WASHINGTON, D. C., September 9, 1915.

DEAR SIR: As you doubtless know, I have recently deposited Government funds in the Federal reserve banks at Richmond, Atlanta, and Dallas for the purpose of assisting in the moving and marketing of the cotton and other crops in that section of the country, and I have also announced my willingness to make deposits for like purposes in the Federal reserve banks in other sections of the country if they should be in need of such funds, or if they can be employed with advantage in the moving and marketing of the crops. Will you please advise me if the Federal Reserve Bank of Minneapolis is in need of Government deposits for the purpose of assisting in the moving and marketing of the crops in the ninth Federal reserve district? If so, please let me know the amount of deposits you will require and the date or dates when the same should be available.

Faithfully, yours,

(Signed)

W. G. MCADOO,

Secretary.

Following are the replies received from each of said banks:

FEDERAL RESERVE BANK OF MINNEAPOLIS,

September 13, 1915.

DEAR MR. SECRETARY: I am very appreciative of your offer of the 9th instant to place on deposit in this bank funds of the Government to be used in assisting the moving and marketing of the northwestern crops. At this time the Northwest is amply supplied with funds, and rates for money are very low. This bank has ample resources to meet the current demands upon it and still provide a very considerable reserve against any emergency that may arise before the crop has reached its markets. What proportion of our own resources we will be able to employ for this purpose is, I regret to say, still something of a question with us, and there would seem to be no purpose in requesting the deposit

of large funds of the General Government until there is a sufficient demand upon us to indicate the approach of a period when such aid can be profitably employed. Should such a period of heavy demand come upon us, affording an opportunity to effectively employ Government funds, there will undoubtedly be indications in advance that will permit me to advise you of the opportunity to utilize Government funds in such a way as to afford practical assistance to the agricultural interest of this district. In such an event, I shall be glad to take advantage of your kind offer and would, therefore, suggest that this subject be held open for determination at a later date and in accordance with such situation as may then develop.

DEAR SIR: We are in receipt of yours of the 9th instant, in which you offer to deposit Government funds with the Federal Reserve Bank of Kansas City. Beg to advise that I do not anticipate we will need the assistance of Government funds this season. Our district has been full of money, so to speak, and, while the demand is increasing now, I do not think it will reach the point where we will be unable to handle it with our own resources.

Thanking you for your kind offer and assuring you we will not hesitate to request a deposit of Government funds in case the necessity arises, I beg to remain,

Secretary of the Treasury, Washington, D. C. DEAR MR. SECRETARY: We greatly appreciate your letter of the 9th instant, asking if we will need Government funds for the purpose of assisting in the moving and marketing of the cotton and other crops in this section of the country.

At the present time this bank has in its possession all of the funds that there seems any possibility of it needing adequately to care for district No. 8. As you are aware, we have established a 3 per cent commodity rate, and there is no reason why the banks in this district should not obtain from this bank all of the funds necessary to meet local conditions.

If there should come any change in the situation indicating the possibility of pressure on this bank, I will promptly advise you.

Yours, sincerely,

It will be observed from these replies that each of the Federal reserve banks in these cities informed me that it had sufficient resources to meet all of the demands of its district, but that it would advise me if any need should arise for Government deposits. At the time of making this report I have not been informed by them of any such need.

Similar offers would have been made to other Federal reserve banks in the country, but it was evident from their statements that they were not in need of additional funds.

The commodity-paper regulations adopted by the Federal Reserve Board and the 3 per cent rate for commodity paper established by the Federal reserve banks of Minneapolis, Minn.; Kansas City, Mo.; St. Louis, Mo.; Dallas, Tex.; Atlanta, Ga., and Richmond, Va., have made it possible for producers and borrowers, upon nonperishable staple commodities, properly warehoused, in all of the great agricultural States of the country to obtain accommodations at rates of interest not exceeding 6 per cent. Of course such accommodations must be extended through the local national banks or State banks which have joined the Federal reserve system in the several districts. If the member banks have refused or failed to extend accommodations to borrowers on staple commodities, as they have had the opportunity and ample resources to do, then the responsibility rests absolutely and wholly upon the local banks.

FEDERAL RESERVE SYSTEM.

The operations of the Federal reserve system for the first year of its existence have been beneficial to the entire country.

The Federal reserve act is a piece of constructive legislation of the best quality, because it confers reciprocal benefits upon all elements of the community. It carries benefits for the banker, the farmer, the merchant, the manufacturer, the workingman, and everybody engaged in legitimate activities. The act is new and is not well understood by the people of the country, and the system is of such recent origin that its operations are likewise not well understood, but as time goes on the great borrowing community will realize how and in what manner the benefits of the act can be availed of through the member banks of the system, and the member banks will in turn be able to enlarge their legitimate and helpful operations in such a way that they will, I believe, prove not only more effective and potential factors than they have been in the past in building up their communities and their States, but they will have a greater earning power upon the larger volume of business they will now be able to do at lower rates of interest than they have had in the past on a smaller volume of business at higher rates of interest.