The Board has endeavored during the past year to develop a consistent discount policy graduating its rates according to the maturity and character of paper discounted or purchased in the open market. Beginning at the opening of the system with a comparatively high rate for ordinary commercial paper and with more or less variation between the different districts, the reserve banks have during the year steadily reduced the general level of discount rates and have worked rapidly and effectively toward uniformity for the entire country. It may not be practicable to maintain uniform rates throughout the twelve districts, but they should unquestionably bear a consistent relation one to another, while a very much greater adherence to uniformity than before the enactment of the Federal Reserve Act will undoubtedly be secured. For the different classes of paper during 1915 the maximum and minimum rates were as follows: These rates were not, of course, uniform throughout the whole system. The variation as between the districts was, however, not large. During the year 1916 the Board sums up the discount Trend situation as follows (Annual Report, p. 5): Except for a stiffening toward the close of the year, resulting in an increase of rates in some districts by one-half of 1%, the discount rates prevailing at federal reserve banks have been nearly stationary. There has been no occasion to establish new or special rates designed for the accommodation of particular industries or districts. . . . Not only the farmers but those engaged in all lines of business and industry, were during the year just closed unusually strong and independent from a financial standpoint; and partly because of this fact and partly by reason of the prevailing ease in the money market, the influence of the federal reserve banks upon rates was indirect and potential rather than dominant. during 1916 Rates early in 1917 The Board also pointed out that the official rates in European centers were uniformly above the 4% rate at the New York Reserve Bank. The discount rates in effect May 31, 1917, were as follows: Credit situation unusual Discrimination in favor of special forms of paper In considering the development of the discount rates under the Federal Reserve System down to the date of the above table several points must be borne in mind. The reduction of reserve requirements by the Reserve Act itself and the heavy importation of gold from abroad so eased the American credit situation that heavy surplus reserves accumulated. Furthermore, reserves even of the member banks were only incompletely centralized in the reserve banks while at the same time relatively few state banks had joined the system. Hence, except during the flurry in the call-money market toward the close of 1916, and during the "Liberty Bond" campaign in 1917, there had been comparatively little dependence on reserve banks by member banks, and, as the Board itself remarks in its report, the effect of the official rates was potential rather than dominant. To what extent the reserve banks will be able to dominate the credit situation further experience must determine. Another circumstance worthy of note in view of the controversy over single-name versus two-name paper is the discriminatory rate in favor of the trade acceptance. For all maturities the rates on this form of paper range below the rates for corresponding classes of eligible single-name paper. The equally favorable treatment of satisfactory commodity paper has already been of great benefit in the marketing of the staple crops. VII. VOLUME AND CHARACTER OF PAPER DEALINGS The commercial paper discounted by the federal reserve Commercial banks from November, 1914, to June, 1917, has been gradu- paper redisally increasing in volume, although it has represented a counted comparatively unimportant factor in the banking situation as a whole. The total amount of commercial paper discounted January-December, 1915, was $161,353,000. For the same period, 1916, the total was $207,870,500. Collateral loans to member banks were first provided for Collateral in September, 1916. During the remainder of the year the loans advances to member banks in this form totaled $39,026,050. Of this total, $29,892,400 was advanced during the month of December alone. Trade acceptances were discounted for the first time in Trade September, 1915. To the close of that year $1,958,800 in acceptances this form of paper came to the reserve portfolios. The total for 1916 was only $5,113,500. market purchases Commodity paper was also discounted for the first time Commodity in September, 1915. Up to the end of that year $10,315,100 paper of this form of paper had been acquired through discounting operations. During 1916 the total reached $16,813,500. The open-market purchases of commercial paper by the Open reserve banks have been confined to trade and bankers' acceptances. In the field of bankers' acceptances the great increase in American foreign trade and the substitution of the "dollar" for the "pound sterling" in financing this and other trade brought especially notable results. A complete analysis of the weekly development of the openmarket purchases of acceptances by the reserve banks is given monthly in the Federal Reserve Bulletin. The pur Bankers' acceptances Trade acceptances chases of bankers' acceptances by the reserve banks shows a steady increase. During 1915 the reserve banks bought $61,924,000 of this class of paper. During 1916 the purchases leaped to $369,582,700. On February 19, 1917, the reserve banks reported a holding of $123,679,000 in bankers' acceptances purchased in the open market. The acceptors of these bills were member banks, state banks, trust companies, and private banks. While the majority of the acceptances are by member banks the trust companies come second and private bankers third. On January 1, 1917, for example, out of a total of 121,154 bills, 66,803 had been accepted by member banks, 34,625 by trust companies, 18,224 by private bankers, and 1,502 by state banks. Purchases of trade acceptances in the open market were reported for the first time in February, 1916. The original purchases reported ran under a half-million dollars, but there has been a steady increase since that time. During 1915 the purchases totaled $2,921,000, but they increased during 1916 to $16,333,300. At the end of May, 1917, the trade acceptances held by the reserve banks amounted to more than $5,000,000. VIII. DISTRIBUTION OF DISCOUNTS AND PAPER PURCHASES The facilities provided by the Reserve System in connection with commercial paper have not been uniformly utilized in the several reserve districts. The following table shows the distribution among the reserve districts of the percentages of the different forms of paper rediscounted or purchased in the open market for the period indicated. In the last column there is shown also the number of member banks in each district which have availed themselves of the rediscount privileges: 1 Discount and Purchases of Commercial Paper, and Member 1,512.3 248 209 Atlanta Chicago St. Louis.. Minneapolis. Kansas City Dallas 9.0 6.4 21.4 20.3 24.7 | 22.7 16.9 6.7 68.17 44.6 .1 3.2 51.41 31.11 5,417.5 221 212 13.2 17.6 00.0 0.0 8.9 7.0 .00 .16 1,302.5 131 114 3.0 2.6 .96 9.12 2.8 5.4 8.56 12.25 1,056.0 197 174 .24 .12 2.2 3-5 .00 .81 115.8 274 189 $39,025.5 2073 1788 (Prepared from 1915 and 1916 Reports of Federal Reserve Board, and from Federal Reserve Bulletin for 1916.) 287.5 366 301 0.0 .9 000 169 76 |