turity, or less, eligible for rediscount by Federal reserve banks, while commercial paper with a maturity longer than 90 days is ineligible for rediscount by Federal reserve banks.

What has been accomplished by this provision of the Federal reserve act is this: The six months' note of the farmer, given for any of the purposes described, is now among the most liquid of the assets of a national bank. Therefore, properly secured farm paper should be as much in demand as properly secured commercial paper, and the rate of interest on the one should not be relatively higher than the rate of interest on the other. Nor should there be any lack of available credit for the farmer under the Federal Reserve System, because the local banks may now lend to the farmer in excess of their cash resources by rediscounting or selling to the Federal reserve bank of their district eligible farm paper-thus constantly replenishing their resources and thereby enabling them to meet the legitimate demands that may be made upon them. It is by this means that we have secured, under the Federal reserve act, an elastic system of credit and currency which is automatically responsive to the needs of business and agriculture. As evidence of the value of this provision of the Federal reserve act, it is estimated that during the fiscal year ended June 30, 1916, about one-half of all the paper rediscounted by the member banks with the 12 Federal reserve banks of the country was agricultural paper.

The Federal reserve act also conferred upon national banks a power they had never before possessed, namely, to make loans on farm mortgages not exceeding five years in length. This makes it possible for the national banks of the United States to lend over $500,000,000 on such short-term farm mortgages. Reports to the Comptroller of the Currency show that on June 30, 1916, the national banks of the country had lent $45,737,000 to farmers on mortgages of this character.

While the Federal reserve act admirably met the needs of the farmer for short-time credits for the various purposes of agriculture and for farm mortgages not exceeding five-year maturities, it did not and could not provide for the long-time amortization farm loans which are so bady needed for the development of the farming industry of the country. Therefore it was that on July 17, 1916, the Federal farm loan law was enacted, establishing a bureau in the Treasury Department under the charge of the Federal Farm Loan Board. The act provides for a board of five members, of which the Secretary of the Treasury is a member ex officio and chairman, and the remaining four members are appointed by the President by and with the advice and consent of the Senate. The President appointed George W. Norris, of Philadelphia, Pa.; Herbert Quick, of Berkeley Springs, W. Va.; William S. A. Smith, of Sioux City, Iowa; and Charles E. Lobdell, of Great Bend, Kans., members of the board and designated

Mr. Norris as Farm Loan Commissioner for the period of one year. These gentlemen qualified and took office on August 6, 1916, and selected W. W. Flannagan, of Montclair, N. J., as secretary. Permanent quarters have been assigned to the board in the Treasury Department building.

The board is directed by the act to divide the country into 12 districts and to locate in each a Federal land bank. Each bank is to have a capital stock of $750,000. The stock is to be offered first to the public. The Government will subscribe all or any part of the stock which may not be taken by the public.

Soon after its organization the board commenced holding public hearings in the different States for the purpose of securing the fullest possible information to enable it to determine intelligently the boundaries of the 12 Federal land bank districts and the location of a Federal land bank in each district. At the time of writing this report (Nov. 11, 1916) hearings have been held in the following States:

These hearings will be continued until all parts of the United States have been visited by the board. A comprehensive and careful study of the farm loan needs of the country is being made, and it is expected that the board will be able to render its decision as to the boundaries of the districts and the locations of the banks, and to establish the banks themselves in the early part of the year 1917.

The Federal farm loan act creates a system under which the farmers of the country will be able to borrow money on farm mortgages at low rates of interest and on long time, namely, from 5 to 40 years, and by means of small annual installments to retire or repay the entire principal and interest within the period of the loan. Thus the Federal reserve act and the Federal farm loan act have covered the entire field of farm credits, the former by providing the shorttime loans needed by the farmer and the latter by furnishing the long-time amortization loans which are essential to the full and free'

development of agriculture, in so far as credit is necessary to such development.

The hearings already held by the Federal Farm Loan Board have shown conclusively the necessity for this form of long-time agricultural credit; they have shown that agricultural development and productivity have been hampered and restricted for lack of such credits; they have shown that the farmer has been the victim not alone of high but of extortionate rates of interest in almost every part of the country, and that he has been helpless in the face of these conditions; they have shown that the want of long-time farm credits at low rates of interest have constantly increased the evils of farm tenancy by making it difficult, if not impossible, for men of small means to become farm owners; they have shown that small farmers who want to borrow $1,000 or less on farm mortgages are unable to borrow on any terms, as there are few, if any, institutions or lenders who will take small loans of this character.

Under the Federal farm loan act these handicaps will be removed and long-time farm credits, ranging from 5 to 40 years, will be available throughout the country at low rates of interest, not exceeding 6 per cent, and these credits will be as accessible to the small farmer as to the big farmer and on equal terms. It seems quite probable that when the Federal land banks are in full operation loans may be made on properly secured farm mortgages, under the act, at not more than 4 per cent interest per annum, with an additional payment on account of the principal of not exceeding 1 per cent per annum. On this basis the farmer will be able to borrow money on properly secured farm mortgages at 5 per cent per annum, which will cover not only the interest on the loan but a 1 per cent annual amortization payment, and in 35 years completely extinguish the principal of his loan. It is impossible to estimate the beneficial effects this new system of farm credits will have upon the development of the farming industry, the prosperity of the farmer, and the general prosperity of the entire country.

The Federal Farm Loan Board will, under the provisions of the act, file in due season an annual report to the Congress.

(The text of the Federal farm loan act is attached as an exhibit to this report.)

BANKS.

The deposits of the 7,589 national banks of the United States on September 12, 1916, reached the unprecedented total of $11,362,341,000, and on the same date their actual cash holdings amounted to $845,185,000. The 12 Federal reserve banks held $329,253,000 in cash on November 12, 1915, which amount was largely increased during the year, being $414,148,000 on November 10, 1916.

The circulation of the national banks secured by the deposit of United States bonds with the Treasurer of the United States decreased from $722,754,924 to $679,650,913 during the year ended November 1, 1916. This decrease of $43,104,011 was due principally, if not exclusively, to the purchase of bonds available as security for circulation by the Federal reserve banks under the provisions of the Federal reserve act.

Bank clearings are one of the most sensitive and reliable indications of business conditions. The totals of clearings for the last six fiscal years are given in the following table:

GOVERNMENT FUNDS AND FEDERAL RESERVE BANKS.

By virtue of the authority of the Federal reserve act I designated the 12 Federal reserve banks Government depositaries and fiscal agents, effective January 1, 1916, and discontinued the nationalbank depositaries in the Federal reserve cities, except one or in some cases two in each city which were retained as depositaries for postoffice and court moneys. It is a question whether or not such post-office and court moneys constitute Government funds in the sense that the term is used in the Federal reserve act authorizing the deposit of public funds in the Federal reserve banks. Nearly $7,000,000 was deposited in these banks at the outset and the Government's balance with them increased until on July 8, 1916, the books of the Treasurer showed that the reserve banks held $114,930,023.03. A large part of this consisted of income-tax collections due June 30, but this balance has been reduced largely since that date in the normal course of the Government's operations.

CONVERSION OF UNITED STATES BONDS.

During the year $56,648,902.50 was received from national banks for retirement of circulation under the act of July 14, 1890, and was, in accordance with the provisions of that act, credited as public-debt receipts; retirement or redemption to the amount of $24,633,010.50 was made and was charged as public-debt disbursements. The large amount deposited for retirement was largely the result of purchases by the Federal reserve banks of 2 per cent United States bonds carrying the circulation privilege from the national banks under the provisions of the Federal reserve act. On February 28, 1916, I notified the Federal Reserve Board that under section 18 of the Federal

1 The European war commenced shortly after the beginning of this fiscal year.

reserve act I would issue to the Federal reserve banks 30-year 3 per cent gold bonds and 1-year 3 per cent gold notes, both without the circulation privilege, in exchange for an amount not exceeding $30,000,000 United States 2 per cent bonds so purchased, an obligation to be accepted from the Federal reserve banks binding them to purchase an equal amount of the 1-year notes for gold at maturity. The 1st days of January, April, July, and October were set as the conversion dates corresponding to the interest periods for the 2 per cent consols of 1930. I subsequently notified the Federal Reserve Board that the Federal reserve banks would be required to convert their securities in the relative amounts of the new issues indicated by the law, i. e., practically 50 per cent in the 1-year notes and 50 per cent in the 30-year bonds. The whole of the $30,000,000 has been converted, $15,761,000 3 per cent bonds and $14,239,000 1-year Treasury notes being issued in exchange therefor.

INTEREST ON GOVERNMENT DEPOSITS IN NATIONAL-BANK DEPOSITARIES.

During the year 1916 no deposits for crop-moving purposes were made, nor were they necessary in view of the large credit facilities provided by the Federal Reserve System, which has proven sufficient to meet the demands of agriculture and business. This accounts in part for the decrease in the amount of interest received from Government depositaries as compared with the previous year. Besides this the balances in the national-bank depositaries were reduced because of the transfer of funds to the Federal reserve banks. Nevertheless the interest collected on deposits of public funds for the fiscal year 1916 and covered into the Treasury as a miscellaneous receipt amounted to $791,671.45. The amount of interest received on public deposits for the past six fiscal years is as follows:

The increase in the amount of interest collected since 1913 is due to the fact that beginning with June of that year interest has been charged upon all public deposits, except those in Federal reserve banks, at the rate of 2 per cent per annum.

NEW COINAGE.

The designs for the subsidiary silver coins now in use were prepared over 25 years ago. During the fiscal year 1916 new designs