The New York herald., 1921-01-02
FEDERAL RESERVE
REVIEW FOR YEAR
Holdings of Paper Secured by
Government War Obliga-
tions Decline Greatly.
STIMULUS TO INVESTORS
Gold Reserve Shows Little
Change as Compared With
Twelve Months Ago.

WASHINGTON, jan Holdings By
Federal Reserve banks OF paper secured
by Government war obligations declined
from nearly 1900 millions at the open
ing of the year to 1.l41 millions on De-
cember 81, said the annual review issued
tonight by the Federal Reserve Board.
"At the end of the year." it added. ''out
OF q total OF 2,7l0.l millions of dis
counted bills about ~ per cent. was
composed OF paper secured by United
States war obligations, against 67 per
cent. of a total Of 2.231.2 millions held
on the first Friday OF the year"
The gold reserve. according to the re-
view. shows little change at the end OF
the year. as compared with the condition
twelve months earlier. Although con-
siderable gold was exported to South
America and 10 the Orient early In the
year. II explained. gold shipments from
England In anticipation OF the maturity
of the Anglo-French bonds on October
Is were responsible IN a measure for
subsequent recovery, so that on Decem-
Der 80 the amount was only 3.3 millions
below the total shown on January 2.
Increases in Capitalization OF existing
member banks and accessionS OF new
members were responsible In part for an
increase In the paid In capital OF the
Federal Reserve banks during the year
from STA TO 99s millions. This corre-
eponded to an increase of more than All
millions IN capital and surplus OF men,
Der banks
Changes in the condition of the Fed
eral reserve banks during 1920. according
to the review. reflect 10 a large extent
the changes In the credit policy rig
mated about the last OF 1919.
Preferential rates on paper secured
by Liberty bonds and Victory notes"
the review continued, were abrogated
by some reserve banks and raised by
others to level more nearly approx
mating the rate level for ordinary COM
mercial paper In the case OF paper Sc
cured by Treasury certificates the rates
adopted were In most cases Identical
with the higher coupon rates fixed by
the Government. thus holding out no
tnducement to the member banks 10
carry these securities among their own
Investments and use them as collateral
for loans at the Federal reserve banks.
but rather providing a stimulus 10 place
them In the hands of ultimate inves-
tors. The results are seen in the grad
ual decrease OF the amounts OF war
paper held during the year by the re-
serve banks.
"Earlv in the year the Federal reserve
commercial paper, but the influence OF
me higher rates Is seen in retarding
the progress OF borrowings rather than
in restricting them. In fact. totai reo-
oral reserve bank holdings OF discounted
bills on December 80 OF 2.7l9.1 millions
,s 4s79 millions larger than at the De-
ginning OF the year.
"Holdings OF bills purchased In open
market show an almost uninterrupted
decline for the period under review
From a total OF 574.6 millions at the pc
ginning Of the year a decline 10 zoo .
y,,iIlions on December 80 Is shown, the
decrease of 31S.9 millions being due
largely to the increased demand for thls
class OF bills by savings banks. trust
companies, also corporate and individual
investors No appreciable changes are
shown in the amounts and classes oi
United States bonds held.
NET deposits aof the reserve DanKs
show a general downward tendency lot
the year. the December 30 total oi
I.eo4.2 millions being 1863 millions be-
low the corresponding total at the De-
ginning of the year. decreases In reserve
and net deposits reflecting reductions IN
demand deposits of member banks, espe-
cially during the latter part OF the year.
"Federal reserve note circulation, after
the usual contraction at the beginning
Of the wear when a return flow OF notes
issued during the holiday season occurs.
shows an almost uninterrupted expan-
sion from the minimum amount OF 2.S44
millions on January % to maximum
Of 3,404.9 millions on December 23. The
total Of 3.344.7 millions on December 80
marks a reduction of 60.2 millions ror
the week. but an expansion OF 345.7
millions from the beginning OF January:
note expansion rather than growth OF
deposits accompanying the Increase In
Ne borrowings OF member banks.
t"FederaI Reserve Bank circulation
shows a practically steady decline from
csc millions on January 2 to III millions
on MAY II. but since that date an In
crease of 2i7 millions on December 80 Is
noted. During the early part or the
rear the Federal Reserve Banks loSt
gold. largely through export to South
America and TO the Orient, and OH
March 26 total gold holdings were 1895
millions, marking a reduction OF 12S
millions from January 2.
"slnce that time. partly as the result
of gold shipments from England IN an
ticipation OF the maturity of the Anglo
French bond on October Is. there has
been an increase In gold reserves. the
total of 2,05s.3 millions on December 30
being only 3.3 millions below the total
shown on January q"