Announcement by the Federal Reserve Board. The Board has not been informed of the char The attention of the Federal Reserve Board has been called to the fact that a circular dated July 22, 1916, and signed by T. R. Dickson, as secretary of a conference of bankers held at St. Louis, contains the following paragraph: The administrative committee has decided to bring suit seeking to set aside the Federal Reserve Board's order of May 1 on the general grounds herein outlined. The committee understands upon good authority that the proposed suit is regarded by the Federal Reserve Board in an entirely friendly light. The order referred to is manifestly Circular No. 1, series of 1916, which relates to the collection and clearance of checks. acter or form of procedure it is proposed to adopt Use of Checks in France. The Board recognizes the right of any member bank to resort to the courts to test the constitutionality of any provision of the Federal ReAn interesting communication relating to the serve Act; to procure the court's interpretation more general use of bank checks in France is of any part of the Act, or to question the legal-contained in a report of Commercial Attaché ity of any regulation of the Board. Where C. W. A. Veditz, printed in the Daily Bulsuch a course is necessary to remove any doubt letin of Commerce Reports dated July 10, that may exist the counsel for the Board will 1916. cooperate as far as possible in expediting a hearing in order that the banks and the Board may have the benefit of a judicial determination of the question involved. The statement contained in the circular above referred to that the proposed suit is regarded by the Federal Reserve Board in an entirely friendly light might lead to the conclusion that the Board is in doubt as to its power to promulgate the regulation in question and, therefore, welcomes litigation designed to settle the question. The fact that such an impression may be created by the circular is evidenced by inquiries received from some of the banks as to the attitude of the Board. This statement is, therefore, misleading. The regulation in question was adopted after deliberate consideration and is intended to carry out one of the important purposes of the Act, namely, the substitution of one compact clearing system for the many independent collection organizations heretofore in force. An extract from the report is given below: The Banque de France is urging a more general use of checks in France, where to-day the checking system so well known in the United States is hardly used at all. Practically all transactions are settled by passing bank notes from hand to hand. This practice has led to the issuance of both small and large daily purchases, etc., there are the 5, 10, and 20 denominations of bank notes. For ordinary franc notes, and for large transactions there are the 1,000-franc notes. In a pamphlet of explanations just issued by the Banque de France the difficulties of the the risks of error in counting, the risks of loss present French system are well pointed outand of theft, and particularly the surcharging of the fiduciary circulation of the country by the fact that most everyone carries about in his pockets either a few thousand or a few hundred francs, representing for the whole of the country a sum well up in the billions of francs which is dead capital, unemployed. Then follows a full description of the use of checks as known in America-opening of the account, issuance of check books, correct form of checks, etc. One feature described in the pamphlet is somewhat different from the American method: In order to protect adequately the drawer of a check that is to be sent through the mails to another city, and therefore subject to special risk of loss, the drawer can trace across the face of the check two parallel lines (barres transcersales), by which sign, under the terms of the new law, the check can be made negotiable only at a bank, which bank becomes responsible for any payment to a wrongful holder. In this connection it is interesting to note that the French Minister of Finance announces that hereafter payment made by the French Government will be largely by check, and that arrangements will be introduced whereby private establishments can make payments to the Government by check. Purchase of Brokers' Paper. The subjoined suggestions for the purchase of brokers' paper are drafted by a hard-headed and experienced banker who has submitted them to the Board for its information. These suggestions are not promulgated by the Board as rules, but they are so evidently based upon common sense and experience that they may well be given a wide publicity: Don't be influenced by the "rate." Of two names of equal quality, of course take the one that nets the better rate, but never subordinate "quality" to "rate." Favor generally the concerns dealing in staples (such, for instance, as wholesale groceries, wholesale hardware, and wholesale dry goods) in preference to those dealing in specialties or luxuries. In manufacturing concerns also favor those producing staples as against those producing specialties, the sale of which depends on extensive advertising and solicitation. Avoid dealers in articles which become unseasonable or go out of style and which would be subject to unusual and severe shrinkage in case of trouble. Do not buy names which, on account of their small size, are not justified in selling through brokers. Endeavor to get names whose statements show in excess of 2 for 1 to debt. But take into consideration that in different lines of business this proportion will justifiably vary. Avoid names whose statement shows a large amount of "bills receivable" (unless the nature of the business is such that settlement is generally made by note), this condition indicating that customers are slow in settling. Where statements show "bills receivable," ascertain if the name is in the habit of discounting its "bills receivable." Be careful of the very large concerns in small towns and the small concerns in large cities, as in neither case can you get proper local bank "checking. Be careful of names whose business admits of speculation. In taking paper secured by warehouse receipts, see to it that the collateral is stored in public warehouses. In case statements are very old-10, 11, or 12 months don't buy (except the very highest class risks) unless the broker will furnish figures showing liabilities in detail at a recent date. Watch crop conditions and do not buy names located in or whose customers are made collections slow or the business hazardous. largely in districts where a crop failure has Do not buy more than $5,000 of any name except the very highest class risks. Insist on a 10-day option on every bill. Return paper invariably where anything unfavorable develops in the investigation. Do not renew notes without any additional investigation. Make a complete new investigation once a year. Let each name run off occasionally. Do not take any paper because of the broker's persistence. Devote the proper amount of time to the purchase of the note in the first instance and get all the data you want from the broker at the time of purchase. Also get financial statement at that time so as to avoid delays. Legitimate "receivables" indorsed by a name of good standing should be held in high esteem. The effect of a mortgage on the plant or real estate should be carefully considered, if one exists. Periodically look up trade references. Ascertain if the name gives personal indorsements at its local banks or secures such paper 53038-16- -2 by receivables or otherwise, in which event insist on the same security. Be careful in the case of names whose particular line of business is in a depressed condition, and if you buy, be assured that the name is strong enough to weather the depression. Insist that broker furnish copy of three last annual statements; compare very carefully as to sales, profits, dividends, and net worth. National Bank Deposits in the United States. Very interesting figures showing the number and increase of depositors in national banks in the United States have been gathered by the Comptroller of the Currency. The last figures covering the number of depositors in such banks were compiled six years ago. Those now given are made up from 7,538 banks, only 40 banks having failed to make a return. The number of depositors is 14,288,059, an increase of 6,597,591 over the number six years ago, which was 7,690,468. The increase is 86 per cent. The Southern States show 121 per cent increase, but the largest actual increase by geographical divisions is in the Middle Western States. The Pacific States increased 117 per cent, and the New England States 84 per cent. Pennsylvania has the largest number of national-bank depositors and New York is next. Of course, in preparing the statistics it has been impossible to allow for duplication among depositors in such cases; for example, as when an individual carries more than one deposit account, or when a local national bank redeposits some of the funds deposited with it in a larger bank in some central city. The figures shown can not, therefore, be taken as an absolute count of individual national-bank depositors, but they are at least fairly comparative. The following statement on the subject was given out by the Comptroller of the Currency: The figures show an unprecedented increase in the number of national bank depositors throughout the country. The total number on May 1, 1916, was 14,288,059, against 7,690,468 on June 30, 1910, the increase being 6,597,591, or 86 per cent. The largest actual increase, by geographical divisions, was shown in the Middle Western States, which give an increase of 1,773,370 depositors, although the Southern States lead in the largest percentage of increase. The number of depositors in the Southern States June 30, 1910, was 1,272,746. On May 1, 1916. this had been increased to 2,814,508, the increase being 1,541,762, or 121 per cent. The Pacific States increased 592,689, or 117 per cent. The New England States show an increase of 388,923, or 84 per cent. The Western States increased 668,517, or 82 per cent, and the Eastern States show an increase of 1,629,651 depositors, or 68 per cent. Pennsylvania feads all the States in the number of national bank depositors, reporting 2,021,878, an increase since 1910 of 762,738, or 60 per cent. New York shows the next largest number, 1,199,471, an increase of 529,616, or 79 per cent. Illinois comes third, with 847,637 national bank depositors, an increase since 1910 of 376,910, or 80 per cent. Ohio ranks fourth in the number of national bank depositors, with 791,760, an increase of 321,076 since 1910, or 68 per cent. Texas comes next, with 658,774 depositors, an increase of 291,161, or 79 per cent. California follows, with 529,290 depositors, an increase of 294,729 since 1910, or 125 per cent. The State which showed the largest percentage of increase in the number of national bank depositors was Tennessee, the increase in six years being 251 per cent, or from 73,329 depositors in 1910 to 257,508 in 1916. South Carolina ranks next to Tennessee. The national bank depositors in South Carolina increased 217 per cent, or from 39,217 in 1910 to 124,423 in 1916. Oklahoma comes next to South Carolina, with an increase of 188 per cent, national bank depositors in Oklahoma increasing from 108,475 to 312,826 in the Idaho ranks next with 169 per cent, the increase period named. period named. In percentage of increase in the number of depositors being 52,487. The next largest percentage of increase is in Virginia, where the number of national bank depositors increased 155 per cent, or from 149,306 States, in the order named, show the next in 1910 to 381,662 in 1916. The following largest percentages of increase: North Carolina, 152 per cent; Oregon, 151 per cent; West Virginia, 146 per cent; Arkansas, 145 per cent; Alabama, 132 per cent; Florida, 127 per cent; Iowa, 125 per cent. Other States in which the number of national bank depositors more than doubled in the six years from 1910 to 1916 were: Montana, 123 per cent; Utah, 122 per cent; Connecticut, 114 per cent; South Dakota, 112 per cent; Georgia, 108 per cent; New Hampshire, 108 per cent; North Dakota, 107 per cent; Mississippi, 105 per cent; and Oregon, 105 per cent. The smallest percentage of increase shown in any State was in Delaware, where the increase was 1,393, or 5 per cent, the next smallest being Rhode Island, with an increase of 9,194, or 54 per cent. Of the 14,288,059 deposit accounts in the national banks of the United States, 305,699, or 2 per cent, are carried in the national banks of the central reserve cities of New York, Chicago, and St. Louis. One million seven hundred and seventy-eight thousand eight hundred and nine, or 12 per cent, are with the national banks in the other reserve cities of the country, while the country banks report 12,203,551 depositors, or over 85 per cent of the total number. Of the 14,288,059 deposit accounts, 9,494,289, or 66 per cent, are demand deposit accounts; 4,793,770, or 33.6 per cent, are time deposit accounts. Of the 9,494,289 demand deposit accounts, 1,498,945 draw interest; the remaining 7,995,244 demand depositors collect no interest. Of the 4,793,670 time depositors, all draw interest except 132,652. In the three central reserve cities, 78.9 per cent of all depositors are demand depositors. In the other reserve cities 66.6 per cent are demand depositors. In the country banks 66 per cent of the total deposit accounts are demand, the balance being on time. The total number of deposit accounts on June 23, 1915, as reported by all the State banks (exclusive of mutual and stock savings banks) and by all loan and trust companies throughout the United States was 15,814,446. It is therefore seen that the national banks now have nearly as many deposit accounts as all the State banks above mentioned and all the loan and trust companies in the United States combined in June, 1915, the time these figures were last compiled in regard to them. From the above report it appears that in the State of Pennsylvania there are 100 national bank accounts for every 414 of population; in Vermont, for each 483 of population; in Oregon, for each 450 of population; and in Minnesota and Iowa there are about 100 national bank accounts for each 480 of population. The New England States have 100 national bank accounts for each 830 of population; the Eastern States average 100 accounts for every 577 of population; the Southern States for each 991 of population; the Pacific States for each 579 of population; the Western States for each 574 of population. Throughout the entire United States there is an average of 100 national bank accounts for every 704 of population. The population statistics used in these calculations are the estimated figures of July 1, 1915. Commer al Failures in June. Commercial failures in Federal Reserve dis tricts during the month of June, as compiled by R. G. Dun & Co. for the Federal Reserve Bulletin, continue to be less in number and in respect to total liabilities than those for the corresponding month in 1915. Failures for June show a marked decrease in number and total liabilities than for the month of May. The total failures in June, 1916, were 1,227 and the liabilities aggregated $11,929,341. The figures, by districts, for June and of the three previous years are given below: with very little friction, and the number of banks, however, have begun sending out-ofchecks handled is increasing daily. town items. It will perhaps be interesting to the readers of the Bulletin to note some of the statements that have already been given out by the various Federal Reserve Banks. The following brief statements by officers of the New York, Chicago, and Philadelphia Federal Reserve Banks are therefore embodied. Statement by Mr. R. H. Treman, deputy governor of the Federal Reserve Bank of New York, under date of July 15, 1916: Federal Reserve Bank by arranging to increase Chicago banks are cooperating with the gradually their deposits of checks. It is now apparent that the collection system will be used by all classes of member banks, but principally by those in the reserve cities and collecting centers of the district. Statement by Mr. C. J. Rhoads, governor Federal Reserve Bank of Philadelphia, under date of July 24, 1916: The banks themselves have usually made The banks have usually made arrangements arrangements with each other for these collecwith each other for these collections, which in tions, which in many cases have not been many cases have not been entirely satisfactory. often been roundabout, thus necessitating a entirely satisfactory. The routes chosen have The routes chosen have often been roundabout, waste of time in collecting the items, and some thus necessitating a waste of time in collecting abuses have grown up in connection therewith, the items, and some abuses have grown up in so that these arrangements have never proconnection therewith, so that these arrange duced a simple, comprehensive, and scientific ments have never produced a simple, compre-plan, such as is now contemplated by the plan hensive, and scientific plan, such as is now contemplated by the plan inaugurated by the Fed-inaugurated by the Federal Reserve Board. eral Reserve Board. There will be less money tied up in the mails, and each community generally will probably benefit by the retention in the local banks of funds which have hitherto been transferred to the larger cities as a necessary incident to the existing collection arrangements. Statement by Mr. C. R. McKay, deputy governor Federal Reserve Bank of Chicago, under date of July 18, 1916: Under the new collection system, which was inaugurated simultaneously by the 12 Federal Reserve Banks on July 15, the Federal Reserve Bank of Chicago received from its members on Saturday, the first day of the operation of the new system, about 7,500 items, 3,500 of which were checks on Chicago banks. Indications are that member banks in the reserve cities and other collecting centers of this district will use the system actively, most of the items being received from these banks. Today a large volume is coming in from other Federal Reserve Banks in the adjoining districts, namely, St. Louis, Minneapolis, and Cleveland. There is also an increase in the number of items coming from out-of-town member banks, as many of them did not begin mailing their items until the 15th instant. Most of the items received from country banks are drawn on Chicago. Some of the country There will be less money tied up in the mails, benefit by the retention in the local banks of and each community generally will probably funds which have hitherto been transferred to the larger cities as a necessary incident to the existing collection arrangements. This new collection system is only one of many benefits which the operation of the Federal Reserve System will bring to the business interests of the country, and which will inevitably result in better and more scientific banking methods. The country has already benefited through the freedom from currency panics which the Federal Reserve Act has insured, and the greater stability in the supply and cost of credit which the system is bringing about. In order to bring about this needed reform, the national banks and the State banks, which are cooperating with the Federal Reserve System, are called upon to forego the income from "exchange" charges which they have been receiving for remitting for checks drawn upon themselves. This will result in a general revision of the relations between the banks and that class of depositors whose accounts have been carried at an actual loss to the bank. These depositors will undoubtedly be asked either to keep their balances sufficiently large to compensate the bank for the services rendered, or to pay the bank a reasonable, though nominal, sum for such services, so that the bank will not |