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L.MFEDERAL RESERVE BANK of KANSAS CITY FEB 1 8 1 9 5 7 RESEARCH LIBRARY BARKING AND MONETARY DEVELOPMENTS IN JANUARY 1Q57 Summary, Total loans and investments a t a l l commercial banks declined sharply in January reflecting reductions in loans, especially business and security, and in holdings of U, S, Government and other s e c u r i t i e s . Demand deposit and currency holdings of businesses and individuals may have declined s l i g h t l y more than seasonally. Member bank reserve positions eased f u r t h e r and average excess reserves exceeded average borrowings over the month. At the month-end, however, reserve positions tightened again. Bank c r e d i t . Preliminary estimates indicate that t o t a l loans and Investments a t a l l commercial banks declined about $2.3 b i l l i o n in January, much more than in other recent years and exceeded the substantial growth in December by $900 million, as shown in Table 1, Outstanding loans declined $2.0 b i l l i o n following an increase of $1.7 b i l l i o n in December, with business and security loans accounting f o r most of the reduction. Bank holdings of U. S. Government security holdings may have declined about $700 million in January a f t e r increasing $200 million in December. All commercial banks probably took a substantial part of the newly off6r©d $1#6 b i l l i o n tsx anticipation b i l l s on J&nuBiy 16 but prior and subsequent sales of Government securities more than o f f s e t these purchases. Holdings of other securities declined f u r t h e r in January. Last year in January, t o t a l credit declined about $800 million l e s s than t h i s year, and did not quite o f f s e t the December r i s e . Loans declined only half as much as in January 1957 while security holdings declined in comparable volume. The $1 b i l l i o n January reduction in business loans was larger than in January of any other year. In December 1956, however, business loans had increased $900 million and t h i s was probably the largest increase on record f o r that month a f t e r adjustment f o r loan r e c l a s s i f i c a t i o n included in 1955 data. Loan repayments by food processor# and trade concerns were larger than in any other year f o r which data are available, accounting f o r almost half of the t o t a l January reduction in business loans a t city banks, as shown in Table 2, Reductions in borrowing by commodity dealers appeared to be about average. In December, as in the entire second half of 1956, borrowing by food processors and commodity dealers had been considerably larger than in any other year except 1951. Reductions in borrowing by sales finance companies accounted f o r almost o n e - f i f t h of Not f o r publication L.4,3 - 2 - Table 1 Estimated Changes In Loans and Investments a t All Commercial BanVa (In b i l l i o n s of dollarsT Business Real estate Security Agricultural Consumer All other , 2/- - 1.1 1.1 - 0.2 0;5 + Oil - 0i4 - Oil + Oil - 0.1 - - + - ro Total loans (excluding interbank 0 Item Dec . 27, Jan . 1, July 1, July 1, Tear ending: 1956 1956 1956 1955 Jan. 30, Jan,. 2 5 , Jan. 30, Jan,. 25, Jan,. 30, [Jan. 25, 1957 1956 1957 1956 1957 1 19^6 1/ i6 Oil 0 Oil - + 1.8 + 6.1 + 7.1 + Oi.8 - 0.7 + li6 3/+ 3;8 1A l i l + 0.1 + 0.3 + li2 + 0.2 + 5i0 + 1.7 - 0i9 - Oil + li3 + 0.3 1/ - - - 1/ +11.1 3/+ 3/+ + + 6il 2,3 0i6 0i8 2.4 + 0.8 U. S, Government s e c u r i t i e s - 0.7 - 0.7 + 1.0 - 2.4 - 3,3 - 8.1 Other securities - 0.1 - 0.2 - 0.4 - 0,3 - 0.4 - 0,2 - 2.0 + 2,4 + 3.5 + 3.4 + 2.8 Total loans and investments (less interbank) . 2/" 2.8 2/ An estimated $200 million of t h i s reduction r e f l e c t i n g declines in business loans and in valuation reserves probably occurred in the December 27-31 period. 3/ Level of business loans increased by, and r e a l e s t a t e loans decreased by, $300 million a t end of October 1955 t o correct c l a s s i f i c a t i o n e r r o r s , No back figures revised; most of the misclassification probably occurred during 1955. the reduction in business loans in January. The decline was somewhat less than in January l a s t year, but end of year borrowing also had been l e s s . Loans t o metals manufacturers, a f t e r declining in early January, increased during the l a t t e r part of the month, but a t monthend, were s t i l l somewhat below the pre-strike level of l a t e June, Most other business categories also reduced t h e i r borrowing in January. Outstanding loans of public u t i l i t i e s and petroleum concerns, however, rose f u r t h e r , following f a i r l y steady growth over most of 1956, Security loans declined $600 million in January, about twice as much as the year-end expansion. Beal e s t a t e loans probably increased moderately f u r t h e r a t banks outside leading c i t i e s but they declined considerably a t city banks, a f t e r showing l i t t l e change in other recent months. Agricultural loans increased s l i g h t l y in January, Not f o r publication lul«3 - 3 Table 2 Changes i ^ Commercial and Industrial^toans 1/ (in millions of dollars) Business of Borrower 1957 Tear ending FirAt f i v e weeks Feb. 1, Jon*30, 195U 1953 1952 1957 1956, 1955 1956 ZL -250 *13lt -1U£ - 63 - 3h - 87 Sales finance -190 -223 • 35 All other - t o t a l '" Metals and products Textiles, apparel and leather Petroleum, coal* etc* Other manufacturing and mining Public u t i l i t i e s Construction All other types of business -110 rjr tU TTT - 23 • 23 + 18 *h$ + 5 - 21 -111 Classified Unclassified Total change — 82 -111 - 6k-11*3 — 36-105 -117 +383 +329 +180 1 + ^rf+ Food processors CoERDdlty dealers Trade concerns Total iH; Tm -115 •126 -31*9 -193 +1,065 -3i J*60 •3,628 7C5F +5E9 +1,195 +2,810 + i*a + 27 -105 + 19 - — 18 + 59 +201 +822 +235 +566 • 11 - 12 - 3 5 - 16 + 9 - 1 5 + 15 - 78 - 13 - L - 31* +1*11 +7U9 - 1*9 +237 +503 +226 - 93 - 70 - 59 - 1 8 +296 +500 -772 -271 -333 +1*,32Z* -31*3 -819 -316 -185 -183 -106 J/-15U UA 30 -167 + 12 +h»362 - 71 + 99 + 82 - kl - 10 -1,032 -1*22 - 1 3/-U97 k - 27 -1*38 -321 h/-7h2 +l*,ll*0 5/6/+kt 1/ ?/ "* 3/ Prior to week ending January 11, 1956, included changes in agricultural loans* Five weeks are included in t h i s comparison whereas four weeks are included in comparisons in Table 1* CCC c e r t i f i c a t e s of i n t e r e s t , which are included in data, may have declined $85 million# U/ CCC c e r t i f i c a t e s of interest# which are included i n data, may have increased ~ $175 million* 5 / Includes increase of $318 million in October 1955 t o correct c l a s s i f i c a t i o n e r r o r s . No back figures revised. Most of the mlsclassification probably occurred in 1955* 6/ CCC c e r t i f i c a t e s of i n t e r e s t , which are included in data, may have declined about $735 million* NoteI Classified data are f o r a sample of about 210 banks reporting changes in t h e i r larger loans$ these banks hold over 90 per cent of t o t a l commercial and industrial loans of a l l weekly reporting banks and nearly 70 per cent of those of a l l commercial banks* Data are preliminary f o r week of January 30, 1957* Not f o r publication e L,4,3. - 4 - Over the past year, the $3.4 b i l l i o n increase in t o t a l bank credit a t a l l commercial banks was somewhat more in the year ending January 1956. Loan growth was almost $4 b i l l i o n less but the reduction in holdings of U. S. Government and other securit i e s was $4*5 b i l l i o n l e s s . Business* r e a l e s t a t e , and consumer loans a l l increased less than in the previous year and security loans declined whereas they had increased e a r l i e r . Agricultural loans, however, declined only s l i g h t l y compared with large reductions in the year ending January 1956 r e f l e c t i n g principally redemptions of CCC c e r t i f i c a t e s of i n t e r e s t . Deposits and currency. Preliminary estimates indicate that demand deposits and currency held by businesses and individuels declined s l i g h t l y more than seasonally in January, as shown in Table 3* Demand deposits adjusted, however, appear t o have increased about $200 million on a seasonally adjusted basis whereas currency outside banks may have declined about $400 million. This was the largest January reduction in currency outside banks in the past ten years f o r which data are available; The growth in December, however, was also the largest f o r the month, l a s t year in January, there was no change in seasonally adjusted money supply, as increases in demand deposits o f f s e t declines in currency. At the end of January, the seasonally adjusted money supply was about 3/4 per cent higher than a year ago. In the previous twelve months, the increase had been 1,6 per cent, U. S. Government deposits declined $2:2 b i l l i o n in January, the largest reduction f o r that month since 1945. At the month-end, these deposits were a t an unusually low level f o r recent years. Time deposits increased f u r t h e r in January, but part of the r i s e reflected year-end interest payments. Over the past year, growth in time deposits a t banks and^in the Postal Savings System has totaled about *3.9 b i l l i o n , almost 85 per cent of the $4.6 b i l l i o n growth in t o t a l deposits and currency; In the year ending January 1956, time deposits Increased $3*0 b i l l i o n and accounted f o r s l i g h t l y over 80 per cent of the t o t a l $3.7 b i l l i o n growth. Total deposits and currency declined about $3,9 b i l l i o n in January 1957, largely r e f l e c t i n g the sharp reduction in commercial bank credit noted above and a $1,5 b i l l i o n reduction in Federal Reserve holdings of U. S. Government s e c u r i t i e s . Loan growth a t mutual savings banks and foreign transactions added somewhat t o t o t a l deposits and currency, however. Bank reserves. Member bank reserve positions eased somewhat f u r t h e r in January and banks moved from a position of small • net borrowed reserves to one of f r e e reserves, as shown in Table 4, Free reserves averaged $90 million in January compared with net borrowed reserves of $35 million in December, This was the f i r s t month that excess reserves exceeded borrowings since July 1955. Borrowings Not f o r publication L*lu3 - 5 - Table 3 Estimated Changes in Deposits and Currency (In b i l l i o n s of dollars) Dec. 27, Jan* 1, July 1 , July 1# 1956 1956 1956 1955 Jan* 30, Jan* 25, Jan* 30, Jan* 25, 19# 1957 1956 1957 Item Seasonally adjusted data DemanT deposits adjusted Currency outside banks Total Unadjusted data "demand deposits adjuste Currency outside banks Total ' Time deposits U» So Government deposits Total Hi V "%/ V 3/ ^3/ + 0*2 - O.k - 1.0 -1*1 + 0*1 - 2*2 ="379 + 0*2 - 0*2 IT - 1.0 -<6 + 0*1 — Otl IT * 5*o - 1*0 + 1.7 Factors affecting deposits (signs indicate e f f e c t on and~currency Banlc loans and investments other than U» S* Govt, sec* 3 / - 1*9 - 1.1 + 2 . 5 =~T3 Commercial - 2*1 TT3 Mutual savings + 0*2 + 0.2 + I*U Bank holdings of U* S. Government s e c u r i t i e s : - 2.2 - 1*9 + 0*2 =13 Federal Reserve - 0.3 Commercial + 1.0 - 0*7 - 0*7 Mutual saving and other 2/ — O.5 Gold stock and foreign deposits at F* R* Banks + 0.3 + 0*14. 2/ Other f a c t o r s 5 / - 0*1 5 / - 0.9 • 1.1 1/ +1*1 Year ending* 1957 + 0*8 + 0*2 + lo8 * 0v3 + 0*8 + 0*2 + 1*9 + 0*3 T170 • 5.7 - 0.3 TJE + 1.3 - 3.0 1 1956 T-ny + 3.9 «• o»3 + 3.0 - l.U deposits and currency) + 7*2 + 5.8 + 1*3 + 9*1 + 6*7 + 2.5 - 2.8 — 2»lj - 0.3 U.L O,F - 3.3 0*7 + 0.6 - 0.8 1*0 +13«li +10 o 9 + 2.3 - 8,8 - 8*1 - O.5 2/ «* O n 9 f o r l a s t Wednesday except in case of June and December c a l l dates, when available* 2/ Less than $50 million. 3 / Changes between December 26# and December 31, 1956# are estimated as follows: Demand deposits adjusted, + $1*00 million; currency outside banks# no change; time deposits, + $200 million; and U* S* Government deposits, - $500 million. k f Total includes foreign loans on gold and holdings of bankers 1 acceptances a t the f e d e r a l Reserve; changes i n these items are generally r e l a t i v e l y small* In addition even i f there were no changes in these items, changes at commercial and mutual savings banks would not necessarily add exactly to t o t a l change, which i s "net", because of bookkeeping discrepancies among various banking records* $/ Differences in changes i n "other factors" in January 1957 and January 1956 presumably r e f l e c t in part the f a c t that the January 1956 change i s computed from December 31# 1955 data a f t e r year-end adjustments were completed; i n the December 29, 1955-January 25, 1956 period, the change in "other factors" was • $0.L b i l l i o n . Note; Data f o r January 1957 are estimates and subject t o change* Preliminary data f o r January w i l l be shown in the Board's statement, "Assets and L i a b i l i t i e s of All Banks in the United States" available at the end of February. Not f o r publication L.1*'^ - 6 Table t* Free Reserves (Excess reserves minus member bank borrowings; based on average of daily f i g u r e s ; in millions of dollars) Period 19$ht All member December 1*59 New York - Chicago feeserve City Country 50 «• 16 - 26 550 1955? March June September December 121 168 - 285 - 21*5 3 2 * 127 - 161 - 131* - 1*3 - lilt - 83 - 151 167 1*09 338 1*01* 377 365 338 1956* • • ~ - - 198 - 138 -171 - 167 «• 88 • 33 - 108 * 158 - 201* - 192 - 211* - 91 * - - 353 » 336 - 298 - 1*29 m 1*68 - 356 » - 83 103 256 262 153 Ill 1*8 72 93 lilt 11*0 86 - 3hh 382 296 21*6 193 203 379 310 319 321* 205 305 360 271* 380 358 393 31*1* - U1 - 1*1 - 177 350 251* 158 - 127 - 365 - 29 1 - 112 * 192 - 75 61* 67 95 - 99 - 150 - 323 • 1*18 1*57 371* 375 31*1 - 310 Ill 230 128 - 170 * 96 - 157 * 166 - 11*7 - 175 - 71 - 113 - 329 1*18 3U1 211* 336 278 338 365 63 *155 22l* 208 259 ~ 172 - 238 • 11*1* - 122 - 72 7 - 11* - 12 - 110 • - - 138 - 316 - 135 - 105 - 119 — 266 - 275 1*27 380 525 325 1*19 123 163 January February March April May June July August September October November December 1957* January Quarterly averages 19551 F i r s t " Second Third Fourth 1956s First Second Third Fourth 1956t Dec. 26 1957* Jan. 2 9 16 23 30 Feb. 6 255 266 1*08 533 5ol+ 195 139 339 213 195 15U 36 91 — 82 97 91* 19 27 17 15 - Note* Data f o r second half of January and February are preliminary# Not f o r publication # # ^ # # % w declined t o an average level of $400 million In January, the lowest In a year and a h a l f . Excess reserves, however, also declined somewhat. The e f f e c t i v e trading rate on Federal funds was frequently below the discount r a t e , whereas In other recent months i t had dropped below only occasionally. On balance, a l l the easing in reserves in January occurred a t central reserve and reserve c i t y banks, while a t country banks, f r e e reserves remained about unchanged. Banks were under some reserve pressure around the turn cf the year when reserves absorbed through reductions in Reserve Bank f l o a t exceeded those supplied largely through currency inflows and reductions in Treasury deposits a t the Reserve Banks, Subsequently, however, an inflow of currency and reductions in'required reserves were o f f s e t only in part by System sales of U. S. Government securit i e s . Free reserves averaged $230 million over the three weeks ending January 23. In l a t e January and early February reserve positions tightened again largely r e f l e c t i n g declines•in Reserve Bank f l o a t and System sales of U. S, Government s e c u r i t i e s . Net borrowed reserves averaged over $200 million in the two weeks ending February 6. Over January, as shown in Table 5> more reserves were supplied t o banks through currency inflows, foreign transactions, reductions in Treasury deposits a t the Reserve Banks, and declines in required reserves than were absorbed through System sales of U, S, Government s e c u r i t i e s and declines in Reserve Bank f l o a t . By mid-January, Reserve Bank f l o a t had declined t o a level about the same as t h a t in mid-December p r i o r t o the sharp Christmas expansion. The post-Christmas currency inflow of $735 million was about $100 million larger than that in January 195^ and somewhat larger than in any other post-war year. In December 1956, however, the outflow of currency into circulation had exceeded that of any other year except 1952, On January 28, the Treasury purchased $300 million of gold from the International Monetary Fund which was s e l l i n g in order t o replenish i t s supply of d o l l a r s . However, u n t i l the dollars are needed t o meet withdrawals by member nations, the Fund is holding the proceeds in the form of non*interest bearing Treasury notes# The Treasury issued $300 million of gold c e r t i f i c a t e s t o the Federal Reserve System and increased i t s balances with the System by an equivalent amount. Thus the immediate e f f e c t of the t r a n s action was t o increase both gold stock and Treasury deposits by $300 million, with no e f f e c t on bank reserves. I t was anticipated that there would be no net increase in bank reserves from t h i s source u n t i l the notes are cashed and the dollars spent by foreign nations. Between December 31 and January 31, System holdings of U. S, Government s e c u r i t i e s declined $1,5 b i l l i o n , including about # $300 million previously acquired under repurchase agreements which were a l l r e t i r e d early in January. The reduction was about $300 million larger than the increase in the System p o r t f o l i o in the second half of 1956. Last year in January, System holdings had been reduced $1.3 b i l l i o n , and t h i s also s l i g h t l y exceeded second half ^ 1955 purchases, Wot f o r publication L,lu3 - 8 - Table 5 Changes in Member Bank Reserves^ with Relevant Factors (Monthly average of daily f i g u r e s ; in millions of dollars) Item July - January January Year ending Jen* 1957 1956 1957 1956 1957 1956 • 2U0 ~ 102 + 362 + U23 + 157 + 2k - 1ft — 86 • - U2 - 77 + it39 - - 55 + 212 • 130 + 15U Member bank reserve balances Total Excess reserves 1/ Required reserves %/ Federal Reserve loans and investments* U» S* Govt* s e c u r i t i e s Outright Repurchase agreements Acceptances Discounts and advances$ To member banks To others + 735 + 6lt5 - 501* - 570 - 120 - 510 + + + + + + + + + + + 2k + + + + 378 73 191 103 + '+ + + + 299 195 2)2 37 16 - 303 + 55 + 21 - 130 98 109 290 73 58 67 237 102 186 168 137 123 + 17 + 27U + 29 - 673 "E2 - 231 - 13 - 705 + 570 - 211 + 2 + 20 + 71 + 5 * + + - 282 + 8 - - 363 + 25 + 1|06 - 63 *• 1*01 + 25 1 / Data f o r January 1957 are preliminary. Not f o r publication 17 + hho (signs :.ndicate taffect on reserves Pirinui'Dal f a c t o r s Currency in circulation Gold stock and foreign accounts Treasury operations Federal Reserve f l o a t Otbey faotore 60 32 -rm 51 39 317 11 + k9k « « • > - 9 - L,U;3 Loans and Investments at All Commercial Banks (In b i l l i o n s of dollars) Loans If* S* Other and Gov't* secur- Total i n v e s t - secur# i t i e s loans ments i t i e s Date 31 31 31 31 31 31 31 31 116*2 111.2 120.1 126*6 132.5 liil.5 115.5 155.7 1955* J a n . 2 6 155.5 153.8 152.1 15U.U 15U.5 15U.8 155.8 155*6 l56.lt 69.2 9.0 9.2 10.2 12.lt 13.3 llt.l 1U.7 16.3 37.9 lt2.lt 12,9 52.2 57.6 6U.0 67.U 70.lt 69.0 66.8 61.2 65.6 65.0 63.3 63.7 62.5 62.0 16.7 16*8 17.0 17.0 16.7 16.8 16.7 16.9 16.9 69.8 70.2 71.2 71.8 7.2,8 71.8 75.lt 76*2 77.5 158.1 62,9 16.8 78.lt Nov. 3 0 Dec* 31 158.2 160*3 61.1* 61*6 16.6 16.7 80*2 82*0 Jan* Feb. Mar. Apr* May June July Aug* 60.9 Oct. 31p Nov. 28p Dec. 26p Dec. 31e 158.3 157.1 158*5 158*7 158.U 159*3 158.3 159.8 160*7 161.3 162.6 16U.5 16U.3 59.2 58.6 58.2 57.3 56.6 56.2 57.2 57.0 57.L 58.1 58.3 58.3 16.5 16.6 16.6 16,6 16.U 16.5 16.3 16.U 16.5 16*3 16*3 16*2 16*2 80.9 81*2 83.3 83.9 8lt.7 86.2 85.8 86.3 87.2 87.6 88.3 90.0 1957* J a n . 3 0 e 161*7 57.6 16*1 88*0 191*7# D e c . 1948'$ Dec* 19U9s Dec* 1 9 5 0 ; Dec. 1 9 5 U Dec. 1952s D e c . 1953s Dec* 195k* D e c . Feb* 23 Mar. 3 0 Apr. 27 May 2 5 June 30 July 27 Aug. 3 1 Sept*28 Oct. 2 6 1956* 25 29 28 25 30 30 25p 29p Sept.26p l/ 62*6 67.0 62*0 61.5 63.3 63,U 69.0 89.8 Con- All Real SecuBusiness estate r i t y Farm sumer other 9.U 10.8 11.5 13.5 1U.6 15.7 16,7 18.lt 2.1 2.3 2*6 2*9 2.6 3.2 3.6 lt.5 1.7 2.9 3.1 2.9 3.U 3.9 5.0 5.2 3.8 U.8 5.8 7.U 7.5 9.U 10.9 10,9 2.9 3.1 3.U U.2 U.5 U.9 5.1 5.6 26*6 26.8 27.lt 27.6 28,0 28.9 29.1 29.9 30,5 , /30.8 - 31.1: 32.3 33.2 18.6 18.8 19.0 19.2 19.5 19.8 20.0 20.3 20.6 ,/20.8 2 20.5 U.O 5.2 5.2 U.9 U.U U.2 3.9 3,9 10.9 11.0 11.2 11.5 11.7 12.1 12.3 12.5 12.7 5.6 5.7 5.8 5.9 6,1 6,2 6,3 6*U 606 lt.lt U.o 12.9 6,5 20.7 20.8 U.5 5.0 U.3 U.5 13.0 13.2 6.5 6*5 32.7 32.9 3U.5 31.8 3U.8 36.1 35.8 36.lt 36.9 37.2 37.8 lt.6 U.U U.5 38.7 20.9 21,0 21*2 21.lt 21*6 21*8 21*9 22*1 22.3 22.U 22*5 22*6 22*6 U.3 U.3 U.2 U.2 13.3 13.3 13.5 13.7 13.9 1U.3 1U.U 1U.U 1U.5 1U.5 1U.5 1U.7 1U.7 37.7 22.6 3.7 U.3 1U.6 18,3 18,9 17,1 21*9 25.9 27.9 27.2 26,9 38.8 3.9 lt.l U.3 lt.3 U.5 lt.5 lt.2 It.2 U.5 U.5 U.U U.5 U.U U.3 U.U U.U U.U U.i U.3 U.U U.3 U.2 U.O U.2 U.o U.i U.o lt.l U.o 6.U 6.U 6*5 6.6 6.7 6,7 6,6 6.7 6.6 6.7 6.8 6.9 6,9 6.7 Level of business loans increased by, and r e a l estate loans decreased by $300 million at the end of October 1955 to correct c l a s s i f i c a t i o n e r r o r s . No back figures revised} most of the misclassification probably occurred during 1955. Note: Data exclude interbank loans* Total loans are a f t e r and types of loans before deductions f o r valuation reserves, Consumer and "other loans" are p a r t l y estimated f o r a l l dates* Other data are p a r t l y estimated on a l l but June and December dates* Data f o r December 31> 1956# and January 30, 1957# are estimates and subject t o change* Loan data f o r December 31, 1956 are based on preliminary member bank c a l l report data* Banking Section, Board of Governors http://fraser.stlouisfed.org/ Not f o r publication February 12, 1957 Federal Reserve Bank of St. Louis