Arizona republican., 1921-01-02
RESERVE BOARD ANNUAL REVIEW
 SHOWS DECLINE
 IN WAR PAPER
rorty-two Percent of Dis counted Bills Composed Of Paper Secured By U. 5. War Obligations
IRepublean A. P. Leased WIrel

lhcpuDllCdn As Fs Leased NFlfeN
 WASHINGTON. Jan. l. - Holdings by federal reserve banks of paper se- cured by government war obligatoins declined from nearly fifteen hundred millions at the opening Of the year to ll4l millions on December 3l. said the annual review issued tonight by the federal reserve board.
 At the end of the year" it added, out or a total of 2719 millions of discounted bills about forty two per cent was composed of paper secured by United States war obligations. against 67 per cent of a total of 2231.2 millions held on the first Friday of tho year"
 The gold reserve. according to the review, shows little change at the end of the year as compared with the con- dition twelve months earlier. Although considerable gold was exported to south America and to the orient early in the year. it explained, gold ship ments from England in anticipation of the maturity of the Anglo-French bonds on october 10 were responsible in a measure for a subsequent recov- cry. SO that on December 30 the amount was only 3.3 millions below the total shown on January 9.
 Increases in capitalization of exist ing member banks and accessions or new members were responsible in part for an increase in the paid-in capital of the federal reserve banks during the year from S7.4 to 99.S millions. This Corresponded Go an increase or over 4l1 millions in capital and surplus of
 Change in Credit Policy
 Changes in the c6ndition of the fed cral reserve banks during 1920 accord ing to the review. reflect to a large extent the changes in the credit policy originated about the last of 1919.
 Preferential rates on paper secured by Liberty bonds and Victory notes the review continued. "werc ahrogated by some reserve banks and raised by others to a level moro nearly approNi- mating the rate level for ordinary commercial paper. Tn the case or paper secured by treasury certificates the rates adopted were in most cases identical with the higher coupon rates fixed bv the government, thus holding out no inducement to the member banks Co carry these securities among their own investments and use them as collateral for loans at the federal reserve banks, but rather providing a stimulus to place them in the hands of ultimate investors. The results are seen in the gradual decrease of the amounts of war paper held Curing the year by the reserve ban-Ss.
 Early in the year the federal re- serve banks raised their discount rates on commercial paper but the influence of the higher rates is seen Tn retarding the progress of borrowings rather than in restricting them. In fact. t)ta! Ted eral reserve bank holdings Of dis counted bills on December 70 of a71Q1 millions is 4S7.9 millions larger than at the beginning of tine year.
 Holdings of bills. purchased Tn open market show an almost uninter- rupted decline for the period under re, view F'rOmaa total of 5l46 mlihonS a' the beginning of the year. a decline tC e55.7 millions on December 90 l: shown. the decrease of 31S.9 millions being due largely to the increased de mand for this class of bills by savings banks. trust companies, also corpo' rate and individual investors. No ap' preciable changes are snown Tn tn' amounts and classes of United state bonds held.
 Net Deposits Decrease
 Net deposits of the reserve bank show a general downward tendenc' for the year. the December 30 total O 1604.2 millions being 246.9 millions be low the corresponding total at the be ginning of the year. decreases in re serve and net deposits reflecting re Auctions in demand deposits of mem her banks. especially during the latte part of the year.
 Federal reserve note circulauor after the usual contraction at the be sriuniug of the year, when a retuU flow of notes issued during the hoh dav season occurs. shows an almos uninterrupted expansion from tn minimum amount of 2SA4 millions O January % to a maZtmum of 5lV4. millions on December @. The tota of g3447 millions on December rnarlxs a reduction Of 60.2 millions fo the week. but an expansion of 545 millions from the beginning or Janu erv. note expansion rather than growt of deposits accompanying the increas i'm the borrowings of member bank Federal reserve bank note circulauo shows a practically steady declr from 259 millions on January 2. to lI millions on May IA but since that dai an increase to PIT millions on DeceH her 30 is noted. During the early pa of the year the federal reserve bani lost gold largely through export
 Sotlth America and to the Orient an on March 26 total gold holdings wei 1eqg millions, marking reduction 1oe millions from January 2. Sin' that time. partly as the result or go sbinnents from England ln anuclp' tfon of the maturity of the Angl' Isrencb bonds on october b, there n. Lcen an increase in gold reserves u tctaI of 2O5q.3 millions on Decemp go heinz only S.3 millions below totaI shown on January -.
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