Evening star., 1921-01-02
|LESSPApERB BASED.
| ON WAR SECURITIES
az Per Cent SO Secured at
Years End; 81 Per Cent
Last January.

Holdings of paper secured by gov
ernment war obligations declined
from nearly 1900 millions at the open
ing of the year to 1.141 millions on
December 81, said the annual review
issued last night by the Federal Re-
serve Board.
''At the end of the year" it added,
"out of a total of 2.719.1 millions of
discounted bills about AZ per cent was
composed of paper secured by United
States war obligations. against 81 per
cent Of a total of 2.231.2 millions held
on the first Friday of the 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. AL
though considerable gold was ex-
ported to South America and to the
orient early in the year, it explained.
gold shipments from England in an
ticipation of the maturity of the
bonds on October 10
were responsible bic in measure for a
subsequent recovery. so that on De-
cember 80 the amount was only 80
millions below the total shown on
January 2.
Paid-In Capital Grows.
Increases in capitalization of exist
ing member banks and acceSsions oil
new members were responsible in pari
for an increase in the paid-in capital
of the federal reserve banks during
the year from 87.4 to 99.8 millions
This corresponded to an increase OF
over All millions in capital and sur
plus of member banks.
Changes in the condition of the fed
eral reserve banks during 1920. ac-
cording to the review, reflect to a
large extent the changes in the credit
policy originated about the last oi
1919.
preferential rates on paper secured
by liberty bonds and victory notes
the review continued. were abro.
gated by some reserve banks and
raised by others to a level more near
ly approxfmaung the rate level fol
ordinary commercial paper. In the
case of paper secured by Treasury
certificates the rates adopted were ir
most cases identical with the higher
coupon rates fixed by the government
thus holding out no inducement tC
the member banks to carry these Sc
curities among their own invest
mentS and use tSem as collateral fol
loans at the federal reserve banks
but rather providing stimulus te
place them in the hands of ultimate
L .. i
the gradual decrease of the amount:
of war paper held during the year by
the reserve banks.
Rise in Discount Rates.
early in the year the federal re
serve banks raised their discount
rates on commercial paper, but the
| influence Of the higher rates is seer
| in retarding the progress of borrow
ings rather than in restricting them
| In fact, the amount of federal reserve
! bank holdings of discounted bills OF OF
lions, is 1879 millions larger than a
the beginning Of the year.
Holdings of bills purchased in opeI
market show an almost uninterrupted
decline for the period under review
From a total Of 574.6 millions at thu
beginning of the year, a decline <
1857 millions on December 80 1!
shown, the decrease Of 1888 million.
being due largely to the increased
demand for this class of bills by say
Iings banks, trust companies ana cor.
porate and individual investors. Nc
appreciabie changes are shown IN Tn.
amounts and classes Of United states
bonds held.
"Net deposits of the reserve banks
show a general downward tendency
for the year, the December 80 total OF
I,6042 millions being, 246.s millions
below the corresponding total at the
beginning of the year. decreases in
reserve and net deposits rejecting re-
ductions in demand deposits of mem
ber banks. especially during the lat
ter part of the year.
Note Circulation Expands.
Federal reserve note. circulation
after the usual contraction at the
beginning of the year, when a return
flow of notes issued during, the holi-
day season occurs. shows an almost
uninterrupted expansion from the
minimum amount of 2.844 millions on
January % to a maximum of 3,404.9
millions on December %. The total of
3,344.7 millions on December 80 marks
a reduction of co., millions for the
week, but an expansion of 345.7 mil
lions from the beginning of January,
note expansion rather than growth OF
deposits accompanying the increase
in the borrowings of member banks.
Federal reserve bank note circulation
shows a practically steady decline
from 259 millions on January to Ut
millions on May IA, but since that date
an increase to PIT millions on Decem-
Der 80 is noted.
During the early part Of the year
the federal reserve banks lost gold,
largely through export to South
America and to the orient, and on
March 26 total gold holdings were
1895 millions. marking a reduction
of 1913 millions from January 2. Since
that time. partly as a result of gold
shipments from England in anticipa-
fion of the maturity of the Anglo
French bonds on October Is. there has
been an increase in gold reserves, the
total of 2.0593 millions on Decem
Der 80 being only 33 millions below
rI,A Ton pv-xy .