Under the present plan subscription by banks is purely voluntary, and of the nearly 8,000 National and State institutions in the system, not more than 2,600 so far have subscribed. It was designed by the clearing function to save millions of dollars in the cost of collecting checks drawn by member banks on each other. With the clearing system in full operation, many millions of dollars now kept by small banks in city institutions which clear for them would be transferred to federal reserve banks, thus strengthening the reserve system and reducing the likelihood of loans for speculative purposes.

Such competition between the reserve banks and local clearing houses will not put the latter in jeopardy.

Members of the board state that it has the power to compel member banks to join in the clearing plan in consonance with the law contained in the thirteenth paragraph of section 17 of the Federal Reserve Act. The statute requires every federal reserve bank to receive "on deposit at par" from member banks or reserve banks, checks and drafts drawn on its depositors which are bank members of its system.

COMPTROLLER OF THE CURRENCY APPROVES PAYMENT OF ADDITIONAL COMPENSATION TO EMPLOYEES

December 31, 1915, the Comptroller of the Currency issued the following letter to bank presidents:

TO THE PRESIDENT OR CASHIER:

December 31, 1915.

Inquiry is made of this office by National banks from time to time as to whether it is lawful for such banks to distribute at this season of the year additional compensation in the form of "bonuses" or Christmas presents to employees who receive stipulated salaries for the services they may have performed, and the question sometimes has been raised as to whether officers or directors have the right to make voluntary appropriations of this character from earnings belonging to stockholders without receiving the ratification or sanction of shareholders.

The records of National banks show that while the salaries paid to the principal officers of banks in some cities are large and are on a parity with, if not higher than, the salaries paid by other corporations,

yet the average salaries paid to the average bank officers are very moderate, while the salaries paid to bookkeepers, clerks and other employees are in many cases not only low but scanty.

This office cordially approves of the disposition shown by some banks to recognize in a practical manner the faithful and valuable services of their officers and employees by distributing to them at the Christmas season, out of the net earnings of the bank, a special bonus in the shape of a percentage on their yearly salaries. The money thus distributed should not be regarded as given without value received. Such recognition from the bank is calculated to encourage and stimulate officers and employees and to infuse in them new strength, courage and energy, which are likely to yield returns to the bank.

When National banks have been successful and have earned more than their dividend, there can be no objection to their giving due consideration each year at this season to the propriety of distributing to their officers and employees, especially the latter, a certain percentage on their current salaries, as an extra allowance for faithful services during the year, out of the year's earnings which remain after the payment of the usual dividends and before the balance of profits has been carried to the credit of surplus.

It is desirable, that this extra compensation, after being recommended or approved by the board of directors, should be submitted to the stockholders for their consideration, approval and ratification, before being actually distributed.

As the annual meetings of stockholders of all National banks throughout the United States are held each year early in the month of January, a convenient opportunity is thus afforded for receiving from the shareholders of all banks such consideration and approval.

You are requested to submit this letter to your board of directors at their next meeting.

FEDERAL REVENUES DEPOSITED ONLY IN THE FEDERAL
RESERVE BANKS

January 3, 1916, the Federal Reserve Bank of New York began acting as the fiscal agent of the Government under the designation made by the Secretary of the Treasury, November 24, 1915, effective from and after January 1, 1916.

The customs receipts for January 3, 1916, and those of the First, Second, Third and part of the Fourteenth Internal Revenue Districts, comprising all of the city of New York and some outside territory, were deposited in the reserve bank instead of in various banks that have heretofore

received them in rotation. Existing Government balances in fourteen banks in the city were withdrawn and deposited in the reserve bank. They aggregated about $1,000,000.

The reserve bank also began receiving on deposit from out-of-town members for immediate credit at par, but subject to final payment by the Treasurer of the United States, all Government warrants and checks drawn on the Treasurer of the United States. These include pay checks, pension payments and similar items.

Until further notice member banks in the city will collect such items through the sub-treasury as heretofore. When the facilities of the federal reserve bank for handling Government deposits have been further developed, city member banks will be notified that Government warrants and checks may be sent to the reserve bank through the clearing house, subject to final payment by the Treasurer of the United States.

THE POLICY OF ISSUING FEDERAL RESERVE NOTES OPEN TO

QUESTION

March 7, 1916, the circulation of all National banks as reported by themselves under the call of that date, was $695,000,000, which was $17,000,000 lower than on December 31, 1915. These are net figures, after deducting the amount of lawful money paid into the Treasury for the retirement of circulation. April 1, 1916, the public debt statement showed that the Treasury had assumed the redemption of $46,532,583 of outstanding bank notes.

It is claimed that the policy of the issuing by certain of the federal reserve banks of currency upon two per cent. Government bonds, is doubtful. It is asserted that this policy tends to inflation and a plethora of money obtains.

The policy is defended on the ground that to buy twos and not use the circulation privilege, or to convert the twos into threes and retain the latter, has the effect of invading the bank's rediscount capacity. Certainly it is wise to familiarize the public with this new form of currency in normal

times, when no disturbing question will be raised. The reserve banks should only purchase twos to the extent they are required by the statute.

It may be stated that the carrying of bonds without circulation issues unquestionably impairs to that extent the capacity of a reserve bank to take rediscounts. Moreover, issues of these bank notes may be used to acquire gold, which clearly would not weaken the bank or promote inflation. However, it seems that with so little demand upon the reserve banks for rediscounts as there is at the present time, there is nothing to be gained by issuing the new form of notes, and the policy of issuing them, as has been stated, may tend to inflation. Furthermore, by converting the twos into three per cent. notes and bonds a start is made toward their final elimination. Presumably the Treasury will take up the three per cent. notes and the three per cent. bonds can be sold when desirable.

The two per cent. bonds purchased by the reserve banks came from the National banks, and have been used for circulation purposes. The full amount of National bank circulation which may be retired in one month under the law is $9,000,000, and applications to cover this amount in April, 1916, were filed on the first day of the month. The full amounts were also covered in March and February, 1916.

FEDERAL RESERVE DISTRICT, BUT NOT BANK, SUBJECT TO CHANGE

April 17, 1916, the Federal Reserve Board announced the opinion rendered by the Attorney General on two questions referred to that official by the board, the first as to whether the board has power to change the location of a reserve bank, and the second as to whether or not the limit of $4,000,000 capital in a federal reserve district would preclude changing district boundaries when the amount of capital is thereby reduced below the statutory limit required for the organization of the reserve system.

The first is decided in the negative. The Attorney General states at length the reason why the limit named applies only to organization and does not continue as a limit after a district is once organized and boundary changes are made necessary by business conditions.

The opinion of that officer is exceptionally important as it constitutes a guide to the board in connection with different questions now pending before it. The major part of the opinion follows:

I find no more warrant in the act for the abandonment of one federal reserve city and the designation of a new one than I do for the abolition of a federal reserve district when once established.

The power to designate a new federal reserve city, or to change the location of a federal reserve bank, is not expressly conferred by the act on the Federal Reserve Board.

In my opinion there is no clear indication of an intent to confer on the Federal Reserve Board the power to change the location of federal reserve banks by the designation of new federal reserve cities. On the contrary, there are indications of an opposite intent.

The duty of designating federal reserve cities belonged to the Reserve Bank Organization Committee, as a part of the organization of the system, and the committee was required by the act to designate not less than eight nor more than twelve cities. This duty is named first among those imposed upon the Organization Committee, and it is imposed by the same provision of section 2, which required the committee to divide the United States into federal reserve districts. The same considerations that indicate an intention that the several districts should be permanent would also indicate that the designation of the cities was not to be made for temporary purposes, but was intended to be permanent, subject, of course, to change by Congress.

In my opinion, this coupling of the duty of determining the districts with the duty of designating the federal reserve cities within the several federal reserve districts, shows an intent on the part of Congress that the cities so designated are to constitute the fixed centres in the scheme or system of division, the duty of designating the cities being coördinate with the duty of forming districts around them.

The fact that the Federal Reserve Board, aside from the provision relating to the creating of new districts from time to time, was merely given the power to "readjust" suggests that there was to be some permanent characteristic or element in the districts created by the Organization Committee. If, however, in addition to the power which the Federal Reserve Board has of readjusting districts by changing their boundary lines, it also possessed the power to change the location of