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Form F. R. 131
BDARD DF GOVERNORS
or THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To________
F i l e s ____________________
From______ Mr. Coe___________________
#
Date
June 26.
1 9 LI
Sub ject
_______
After correspondence with Mrs. Hamlin (see letters of May 25
and June 4j 1941) the items attached hereto and listed below, because
of their possible confidential character, were taken from Volume 161
of Mr. Hamlin’s scrap book and placed in the Board’s files:
VOLUME 161
Page 23 - Letter to Governor Crissinger from I. L. Lenroot re specu
lation in New York Stock Market.
Page 29 - Deficiencies in Reserves of Member Banks for Month of
April 1926.
Page 47 - Earnings and Expenses of Federal Reserve Banks, May 1926.
Page 73 - Report of the Chairman to the Open Market Investment Committee.
Page 75 - Report on Foreign Accounts to members of Open Market Invest
ment Committee from G. L. Harrison.
Page 79 - Report of the Secretary of the Open Market Investment Com
mittee Meeting at Washington - June 21, 1926.
Page 83 - Minutes of Joint Meeting of the Open Market Investment Com
mittee and the Federal Reserve Board held in Washington, Monday,
June 21, 1926.
Page 142 - Memo to Mr. Hamlin from Mr. Goldenweiser re reserve de
posits of member banks.
Page 143 - Copy of letter to L. T. McFadden from Governor Crissinger
answering certain inquiries about F.R. note issues and reserves
against deposits.
Page 14S - Member banks borrowing continuously in excess of capital
and surplus during May 1926.
Page 150 - Memo to Mr. Hamlin from Mr. Smead discussing Mr. Goldenweiser’s
book on the Federal Reserve System.
Page 151 - Memo from Mr. Goldenweiser to Mr. Hamlin re Reserve Position
of Federal Reserve Banks on April 28, 1926.
Page 152 - Memo to Mr. Hamlin from Mr. Goldenweiser discussing prices
on New York Stock Exchange.
Page 153 - Schedule furnishing statistical figures requested by Mr.
Hamlin, prepared by Mr. Goldenweiser.
Page 155 - Memo to Mr. Hamlin from Mr. Goldenweiser furnishing state
ment about business and banking developments from 1920 to date.
UNITED
STATES
SENATE
November 23, 1925.
Honorable D. R. Crissinger,
Governor, Federal Reserve Board,
Treasury Department,
Washington, D. C.
My dear Mr. Crissinger:I have noted with growing anxiety the
steady increase of speculation in the country, more parti
cularly centered in the New York Stock Market, which has
for some time been engaged in positive gambling in securi
ties. I do not believe that this speculation has as yet
very considerably penetrated the commodity and production
activities of the country, but it is inevitable that the
infection of speculation unless checked will spread into
the industrial activities of the country. It then means
inflation, with inevitable collapse, which will bring the
greatest calamities upon our farmers, our workers, and le
gitimate business.
It appears to me that there is a parallel
TdLth the situation early in 1920 when the Board failed to
agree upon action until the situation became beyond control.
It further appears that most of the reserve banks throughout
the country have felt some alarm at the situation and have
raised their rates accordingly, but New York, which is the
real center of this speculation and inflation, has as yet
taken no action.
I have no thought to interfere in any way
with the functions of the Board, or even to make any inquiries
which may embarrass the Board, but as a supporter of the Sys
tem, I am deeply anxious for its success, and in order that
I may be prepared for such discussion as may $rise in the
Senate, I am* wondering if the Board would furnish me with
the following information:
1.
Does not the present cheap money induced by the
low discount rates indirectly stimulate speculation on
the New York Stock Exchange?
Volume 161
Page 23
C O P Y
2.
Has there "been any indication during the last
few months that the interior "banks are withholding liqui
dation of rediscounts and at the same time seeking the
higher return "by loans on the Hew York Stock Exchange?
Has the Board any way to determine if the "banks are
"borrowing from the Federal Reserve to make such loans?
3.
Has there "been any increase in discounts at the
Hew York Reserve Bank since the rate was last set?
4.
Has the Hew York Federal Reserve Bank made any at
tempt to reduce its rediscounts and has it reduced its
holdings of government "bonds as a check on the situation?
5.
Will the Board kindly supply me with such statisti
cal data as it may "be able showing what is the movement
of loans and investments, showing separately the movement
of investments, collateral loans and commercial loans as
at July, 1924, January, 1925, July 1925, and the latest
date for which anoroximate figures are available for all
"banks of the country on which the Board has information?
6.
Also figures showing the movement of federal reserve
investments for the same dates, showing separately the
items of open market investment and rediscounts secured
by government obligations, and discounts and accentances?
7.
Figures showing the movement of open market rates
on commercial paper and bankers accentances, also the rates
charged customers in the leading competitive banking cen
ters at the same dates as in the above questions.
Also
the rates of rediscount charged by the Federal Reserve
banks on rediscounts and acceptances purchased for the
same times.
8.
Does the Federal Reserve Board get any figures, and if
not, has it any estimates, as to the amount of time or call
money furnished to the Hew York Stock Market? If not, can
the Board furnish me with some estimate as to the volume of
such money at various periods since January, 1925.
In an article in the Hew York Times of the 21st
I observed some indication that there are understandings between
officials of the Federal Reserve Bank of Hew York and with offi-
cials of the Bank of England. I an, of course, aware of
the exchange guarantee entered into by the Federal Beserve
Banks, hut I would he glad to know what the character of such
other understandings or discussions is, if any such exist.
Ky anxiety over this situation is very great,
for, as you may remember, I was a member of the Joint Committee
that made an investigation of the Acts of the Board in the crisis
of 1920 and 1921, and I trust that there may arise no occasion
for adverse criticism of the Board in the present situation.
Very sincerely yours,
I. L. Lenroot
C
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P
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December 10, 1925,
My dear Senator:
I
want to thank you for your letter of November 23, requesting
certain information concerning the ralation of the Federal reserve
system to recent credit developments and to assure you of the Board*s
appreciation of the spirit which has prompted your inquiry.
It affords
the Board an opportunity to discuss with you frankly some of the more
important phases of the present hanking and credit situation.
In the first place, the Board agrees with you that at present
there are no indications that speculation, which has been active in
the security market, has been reflected in the commodity markets or in
trade and industry.
As you say in your letter, there is always a pos
sibility that speculative activity once under way may spread into com
modity markets and may influence conditions in manufacturing and mer
chandizing activity.
The recent course of commodity prices, however,
and the close adjustment between current production and distribution
of commodities give no evidence that existing business conditions are
affected by inflationary or speculative influences.
You Bay that there appears to you to be a parallel with the situ
ation of 1920 and it may be well to preface the replies to your questions
with some comparison between the situation in 1920 and present business
conditions.
C O P Y
Page 2.
The inflation in stocks and commodities which had taken place by
1919-1920 appears to have "been the result of world-wide conditions re
sulting from the great war.
of plant capacity.
Industrial activity had reached the limit
There was active conroetition "by manufacturers for raw
materials and labor.
There was a rapidly rising price level in all coun
tries and there was a consequent widespread speculation in commodities
based on the expectation of further price advances.
Added to all this,
there was in this country a breakdown in the transportation system which
nrevented the orderly marketing of commodities.
At the uresent time,
however, our conditions and world conditions are altogether different.
In this country business is active, but the distribution of commodities
is more prompt than it has ever been before.
There is no excessive ac
cumulation of stocks of raw materials or of merchandise and no competitive
bidding up of prices.
It seems, therefore, that the conditions which ex
isted in the earlier period - conditions which favored an almost unpre
cedented inflation here and in other countries - do not now exist.
Your statement that several of the reserve banks have raised their
discount rates "but Hew York, which is the real center of this speculation
and inflation, has as yet taken no action" makes it desirable to comment
briefly upon the Hew York stock market and its relation to the credit
situation.
While it is true that the stock market is located in Hew
York and is financed through the Hew York money market, nevertheless we
must not lose sight of the fact that it is national in its scope, that
C O P Y
Page 3.
people in all parts of the country "buy and sell securities in that market,
and that it is financed hy funds flowing into ITew York from all sections
of the United States.
In fact, only 40 per cent of the total funds is now
supplied "by ITew York City hanks, and their loans to the street are now ac
tually less than they were on the first of January.
The entire increase
in the Stock Exchange loan account in 1925, therefore, has been the result
of funds from the interior or from outside the ITew York hanks.
This fact
must he kept in mind in considering the renlies to your various specific
questions, for while stock exchange speculation is often associated in the
public mind with Wall Street, the fact remains that business and credit
conditions throughout the country have resulted in a flovf of funds to the
central money market.
Your specific questions are briefly discussed below in the order in
which you presented them, and if the answers are not sufficiently full
or clear the Board will be glad to supplement them.
1.
You refer in your first question to the present cheat) money induced
by low discount rates. Present money rates are considerably higher than
those prevailing in 1924.
Open-market rates on commercial paper and on
acceptances are now about 1 l/2 per cent above their level in the summer
of 1924 and the rate on call money, which at that time was about 2 per
cent, is now 5 per cent.
In the latter part of 1924 the large volume of
surplus funds available at low rates was doubtless a factor in the rise
of security prices.
But since the spring of 1925, while there has been
an increasing volume of bank funds available» the level of interest rates
C O P Y
Page 4.
has "been rising, and the further advances which have occurred in security
prices appear to have "been a reflection of the speculative anticipation of
large corporate earnings.
2.
You ask whether there has "been any indication that member "banks have
"borrowed at the reserve "banks for the purpose of lending at higher rates
on the Hew York stock exchange.
In general, it is not possible to deter
mine to what use a member bank puts the credit obtained from the reserve
bank.
Member banks generally borrow to make up deficiencies in their re
serve balances incurred as the net result of all of their operations, and
it is seldom possible to trace the connection between borrowings of a
member bank at the reserve bank and the specific transactions that gave
rise to the necessity for borrowing.
Isolated instances have come to the
attention of the Board where member banks arroarently have rediscounted
with the reserve banks in order to make loans on the Hew York stock ex
change, but when officers of the reserve banks have called the attention
of the borrowing member banks to this situation, these borrowings were
repaid.
In general, a member bank borrows at the reserve bank to meet
seasonal or other temporary requirements, and not in order to obtain
profit by relending.
Member bank borrowing for the purpose of making
9
a profit by lending at a higher rate on the Hew York stock exchange is
regarded with disfavor by the reserve banks and also generally by member
banks.
3.
Your third question is whether there has been any increase in the
volume of discounts at the Hew York reserve bank since the rate was ad
vanced from 3 to 3 l/2 per cent in February, 1925.
Total discounts at
C O P Y
Page 5.
the time the rate was increased were $225,000,000.
Following the increase
in the discount rate member banks in the He?/ York district repaid a large
part of their borrowings at the reserve bank, so that three months later
discounts at the Hew York reserve bank had declined to about $60,000,000.
During the last three months there has been the usual seasonal increase
in discount, and the present level is approximately that of last Febru
ary.
But, as was stated above, the loans of Hew York City banks to stock
exchange houses are now actually less than they were on January 1, 1925,
indicating that stock exchange activity has not been the cause of the
increased discounting at the Hew York bank.
In addition to this increase
in discounts, member banks and dealers in Hew York City have, as usual
at this season, obtained additional funds through the sale of acceptances
to the Hew York Reserve Bank, acting for itself and other reserve banks.
Since the beginning of September the volume of reserve bank credit thus
obtained has been about $80,000,000.
The growth in the reserve system1s holdings of acceptances during
September and October is seasonal in character, since the autumn is the
time of the year when a large increase occurs in the volume of bills
drawn for the purpose of financing the domestic marketing and the export
of agricultural products.
A statement of acceptances purchased by the
reserve banks, classified by commodities underlying the acceptances,
which will be shown in detail in the Board *s annual report for 1925,
indicates that a large proportion of these acceptances are drawn to
finance the marketing of cotton and grains.
C O P Y
Page 6.
4.
You ask in your letter whether the New York Federal Reserve Bank
has reduced its holdings of government bonds and has made any attempt
to reduce its discounts.
Between December, 1924 and
November, 1925 the
system's holdings of government securities were reduced by about $250,OQQjQOO, and the holdings of the New York Federal Reserve Bank by about
$110, 000,000.
This sale of government securities was one of the factors
accounting for the growth in discounts during the early part of 1925,
particularly at the Federal Reserve Bank of New York.
The increase in
the discount rate at the New York bank from 3 to 3 l/2 per cent in Feb
ruary had some effect, as has already been stated, in bringing about a
reduction of discounts at that bank.
5, 6, 7.
Your next three questions ask for information concerning
loans and investments of member banks and the reserve banks, and con
cerning prevailing money rates on certain dates.
These figures are
presented in the accompanying statement marked "A".
8.
The Board has no figures showing the total amount of credit used
by the New York stock exchange, but the reported street loans of a cer
tain number of banks in New York City both for themselves and their outof-town correspondents are available.
Governor Strong in his testimony
before the Joint Commission of Agricultural Inquiry in 1921 presented
these figures and they were published in Volume II of the hearings.
These are confidential figures voluntarily supplied by reporting banks
in New York City, and in view of their confidential character have not
been published for later dates.
These figures are brought down to date
C
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P
Y
Page 7.
for your own information in the attached chart marked "B". The chart ahows
that the total street loan account has increased rapidly since the autumn
of 1923 and that in 1925 there has been a slight decrease in the street
loans made hy Hew York hanks for their own account, so that the entire in
crease was in loans for account of correspondents, which have almost doubled
since the beginning of the year.
Thus it is evident that it was money from
banks outside of Hew. York that financed this year's expansion in stock ex
change activity.
This outside money is about 60 oer cent of the whole vol
ume so employed.
(These facts were taken into consideration in establishing
rates of discount at the various reserve banks.
In regard to the relationship between the He?/ York Federal reserve
bank and the Bank of England, there is no understanding between the two
banks other than the arrangement entered into at the time of Great Britain's
return to the gold standard, by v/hich the Federal reserve banks agreed to
place $200,000,000 gold at the disposal of the Bank of England if desired.
Up to the present time no part of this gold credit has been used.
IThile
it is the intention to exchange information freely and to avoid any un
necessary action which would be detrimental to the maintenance of a free
gold market, the Hew York Reserve Bank and the Bank of England are both
absolutely free and uncommitted as to ary action whatever relative to rates
or other credit operations recuired to deal with domestic needs.
There is
no understanding, formal or informal, beyond that expressed in the credit
itself.
I am sure you realize that the action of the Federal reserve banks in
C
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P
Y
Page 8.
granting the request of the Bank of England for this gold credit and thus
facilitating the return of Great Britain to a gold standard, was prompted
largely hy a conviction that in no other way could they contribute so ef
fectively towards stabilizing foreign markets for our produce and the means
of settlement therefor.
The fact is that the law placing an embargo on
the export of gold from Great Britain exnires December 31, 1925. Some
time during 1925 the British Government had to choose whether it would
resume gold payments on or before that date or whether before that date
it would go before Parliament and ask for a further extension of the gold
embargo.
If it had seemed necessary to make the latter decision the general
return to the gold standard not only in England but in Europe generally
would have been delayed, perhaps indefinitely, and the business of our
exporters would have been subjected for a further indefinite period to
those uncertainties and exchange fluctuations which had hampered it in
the preceding years.
Undoubtedly the credit of 100 million dollars ar
ranged for the British Government with Messrs. J. P. Morgan & Company,
and the agreement of the Federal reserve banks to place 200 million dollars
gold at the disposal of the Bank of England were essential elements in
justifying the British government in its decision to return to the gold
standard.
It should be clearly understood, however, that the Federal
reserve banks have undertaken no "exchange guarantee", as suggested in
your letter.
Any protection of the exchange will be undertaken by the
Bank of England and not by the Federal reserve banks.
They have merely
agreed to place gold at the disposal of the Bank, if desired.
Any amounts
used are to be repaid in gold at the end of two years, under a specific
C O P Y
Page 9.
undertaking by Parliament and the British Treasury that no obstacles will
he placed in the way of gold shipments by the Bank of England should they
be necessary to effect the repayment.
While these replies cover the ©pacific inquiries in your letter, the
Board regards it as essential to an understanding of the present credit
situation to keep in mind the influence which the
continued inflow of
gold during recent years has had upon the growth in member bank credit.
Since the autumn of 1920 the addition to the gold stock of the United
States has been $1,500,000,000, and this inflow of gold, together with
the decrease in domestic currency requirements, has reduced the volume
of reserve bank credit outstanding from its peak of $3,400,000,000 in
November, 1920, to its present level of $1,300,000,000, a reduction for the
period of $2,100,000,000.
The Cold received from abroad has also furnished
a basis for a growth of member bank loans and investments of $4,300,000,000
above the level of 1920.
Broadly speaking, it was this imported gold that
liquidated the Federal reserve banks and brought about the growth in mem
ber bank credit.
During 1925 the return of many European countries to
the gold standard has changed the international situation in resnect to
gold.
Largely as the result of exoorts of gold to countries that were
reestablishing a gold basis for their currencies, this country's gold
stock has been reduced during the past year by about $150,000,000.
This
outward movement of gold during 1925 and the increased reserve require
ments of member banks against their larger deposits have been the
principal factors in the increased demand for reserve bank credit dur
ing the past year.
C O P Y
Page 10.
In the general business situation in this country during the past
year there has been a decided improvement, but in resnect to industrial
and agricultural conditions.
Industrial activity has greatly increased,
agriculture has made definite progress tov/ard a more comolete recovery,
- and the orices of agricultural commodities are now at about the same
relative level as prices of other commodities.
An important factor
both in the industrial and the agricultural activity has been the ex
- tension by investors in this country of loans to foreign countries in a
volume approximately $1,000,000,000 both in 1924 and 1925.
Hot only have
these foreign loans helped maintain a European market for American nroducts,
but they have been an important factor in the economic reconstruction of
Europe.
The larger part of the funds arising from these loans was ex
pended in the purchase of products of Auerican agriculture and industry,
but a portion was used directly for the nurpose of stabilizing the value
of foreign currencies in relation to gold.
Thus the lower level of interest
rates in this country compared to the high rates abroad has been a factor
not only in stimulating foreign demand for American goods but also in the
progress of monetary reconstruction in Europe.
Lower money rates have
also enabled American railroads, public utilities, and industrial concerns
to fund a considerable part of their borrowings and to convert them into
long-term obligations, and this has contributed to the soundness of the
business situation and has facilitated the putting of the industrial,
public utility, and railroad equroment of the country into better condition
than at any previous time.
It has been the capacity to produce and trans
port goods promptly and efficiently that has facilitated distribution of
C
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Page 11.
commodities without the accumulation of excessive inventories and has "been
an important factor in keeping prices at a relatively stable level.
In
this respect the present situation is in marked contrast to that of 1919
1920.
I
inquiry.
trust that this letter has covered in general the subjects of you
I am apending a list of the principal charts which the Board
consults as a means of keeping in touch with current economic developments.
These charts are available in my office, and if you wish to examine them
I should take pleasure in showing them to you.
And, generally, if there
is any further information that the Board could supply, I assure you that
it would be very hapoy to do so.
Yours very truly,
G o v e r n o r .
Hon. Irvine L. Lenroot,
United States Senate.
C O P Y
EXHIBIT
A
Statistical Data.
1.
Figures of loans and investments, "by classes, for about 725 weekly re
porting member banks in 101 leading cities for the dates requested in your
letter are given below:
Loans and Investments of Weekly Reporting IIember
Banks (In millions of dollars)
:Total
:loans and
:investments
Date
Weekly reporting member
banks in leading cities:
July 2 , 1924........
Jan. 7, 1925........
July 1, 1925........
ITov. 25, 1925 . . . .
17,056
18,661
18,892
19,364
.
Total
12,150
13,106
13,375
13,959
Loans
On
: Ail : Invest
:securities:other : raents
4,329
4,884
5,346
5,581
7,821
8,222
8,029
8,378
4,906
5,555
5,517
5,405
2.
The following table shows loans and investments for quarterly dates be
ginning June 30, 1924, for all banks in the country and for member banks.
Classification of loans is not available for these banks.
Loans and Investments of All Banks and of Member Banks
(In millions of dollars)
Date
June 30, 1924
Oct. 10, "
Dec. 31, «
April 6 , 1925
June 30, "
Sept. 28, «
Total loans and invest
ments
: All
All banks : member
: banks
45,402
49,095
27,262
28,451
29,027
29,285
29,702
30,369
Loans
: All
All banks : member
: banks
31,000
33,647
19,264
19,820
20,182
20,390
20,814
21,450
:
Investments
:
: All
: All banks: member
:
: banks
14,402
15,448
7,998
8,631
8,845
8,895
8,888
8,919
COPY
Page 2.
Exhibit A.
3.
Belov/ are shovm the reserve banks’ holdings of different classes of bills
and securities on spacified dates:
Holdings of Bills and Securities by Federal Reserve Banks
(In millions of dollars)
:
Bills
: Secured :
: by U. S. :
:Gov. obli-:
:nations
:
July
Jan.
July
Nov.
2 , 1924
7, 1925
1, 1925
25, 1925
142
147
269
346
: Purchase
discounted
•
Other
:
bills
: Total ••
;Acceptdiscount-:
:ances
ed
:
227
118
243
279
369
265
512
625
in the open
market
•
•
:U. S. se:curities
:Total bills
:aad secur:ities*
•
•
•
435
496
394
332
859
1 ,1 1 0
1,127
1,326
53
341
249
359
* Includes foreign loans on gold and small amounts of securities ether than
U. S. Securities.
4.
Honey Rates in the Hew York Market
*
Average for week ending
July 5, 1924
January 10, 1925
July 4, 1925
November 28, 1925
Prime
Prime Commercial Paper : Bankers’ Acceptances
(4-6 months)
:
(90 days)
2
3
3-5
- 4
4X —
45
Si
3i
4
5.
In the following table are shown the rates prevailing on "customers" prime
commercial paper", (4-6 months) as reported to the Board by banks in six leading
cities.
Money Rates in Certain Centers
•
• Phila- :
«
•
•
: Eoston : New York : del'ohia :
4rlr July, 1924
4-5
4-5
January, 1925
4
-45
4i
4
July, 1925
4-45
4-5
4-5
November, 1925 4 4 - 5
5
4j- 5
Cleve •
•
: Chicago
land
6
4 - 5|
5-6
4j - 5
55- 6
4 - 5
4| - 5!
55— 6
•
• San
: Francisco
.5
5 - 5jL .
5 - 6
45 - 55
COPY
Page 3.
Exhibit A.
6.
In the table below are shown the prevailing discount rates at the different
Federal Reserve Banks on the dates specified.
Discount Rates at Federal Reserve Banks
Federal
reserve bank
of
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
:
:
:
July 1,
1924
3|
4
4
■
4
4
4
4
4
41
4
4
4
:
:
Prevailing discount rates
July 1,
Js.n. 1,
:
1925
1925
:
4
Nov.
1925
4
Si
3
3?
5p
4
4
4
4
4
4
4
:
:
si
si
4
4
4
4
4
4
4
3ir
si
A
4
4
4
4
4
4
4
4
4
7.
The average rate at which acceptances were purchased by the Federal reserve
banks on the dates reouested are as follows: July, 1924, 2.35 per cent;
January, 1925, 3.01 per cent; July, 1925, 3.24 per cent; October, 1925, 3.43
per cent. The average rate for November is not yet available.
C
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EXHIBIT
B.
The chart is that referred to in the
your letter. The chart shows figures for
date of each month and the latest date is
cent weeks there has been some decline in
. EXHIBIT
answer to question 8 of
the last weekly report
^November 25, 1925. In re
street loans.
C.
Principal Charts Currently Used hy the Federal
Reserve Board
(These charts are on a weekly or monthly "basis, cover a series of
years, and "bring the information down to the latest available date.)
Banking. Credit, and Money Rates:
Volume of Reserve Bank" Credit
Federal Reserve Bank Liabilities and Reserves
Condition of Weekly Reporting Member Banks
Condition of Weekly Reporting Member Banks in Hew York City
Condition of All Member Banks
Bankers* Balances at Banks in Federal Reserve Bank Cities
Discounts of Member Banks at Reserve Banks, Classified by Groups of
Borrowing Banks.
Gold Imports and Exports
Reserve Bank Credit, Gold Stock, and Money in Circulation
Money Rates in the Hew York Market
Production. Employment. Trade, and Prices.!
Production in Basic Industries
Factory Employment
Factory Payroll
Wholesale Trade
Retail Trade and Stocks
Wholesale Prices in the United States
Security Prices
c
Principal Charts Currently Used by the Federal Reserve
Eoard
(These charts are on a weekly or monthly "basis, cover a series of years,
and "bring the information down to the latest available date.)
Banking. Credit, and Money Rates:
Volume of Reserve Bank Credit
Federal Reserve Bank Liabilities and Reserves
Condition of Weekly Reporting Member Eanks
Condition of Weekly Reporting Member Banks in New York City
Condition of All Member Banks
Banker*s Balances at Banks in Federal Reserve Bank Cities
Discounts of Member Banks at Reserve Eanks, Classified by Groups
of Borrowing Banks
Gold Imports and Exports
Reserve Bank Credit, Gold Stock, and Money in Circulation
Money Rates in the New York Market
Production. Employment. Trade, and Prices:
Production in Basic Industries
Factory Employment
Factory Payroll
Wholesale Trade
Retail Trade and Stocks
Wholesale Prices in the United States
Security Prices
C O P Y
UNITED STATES SENATE
December 14, 1925,
Honorable D. R. Crissinger,
President, Federal Reserve Board,
Treasury Department,
Washington, D. C.
My dear Governor
I have been away from the City, and on
my return find yours of the tenth instant.
I very greatly appreciate your writing
me so fully in reply to my letter of November 23rd.
I am giving the information that you send me very care
ful study, and I think it fully covers my inquiry.
Should I desire any supplemental infor
mation, I shall write you.
Concerning one phase of the situation,
I may desire to have a personal conference. I am very
gla.d to say that since writing you my fears have been
considerably allayed by the course of stock market
transactions, and I hone the tendency which existed
a few weeks ago will not reappear.
Very sincerely yours,
(s)
I. L. Lenroot.
COPY
UHITED
STATES
SEDATE
December 23* 1925.
Honorable D. R. Cirssinger,
Governor, Federal Reserve Board,
Treasury Department,
Washington, D. C.
My dear Governor Crissinger
I have now had more time to consider the Board’s letter
of the 11th instant, and especially the tables and charts annexed,
and I wish to avail myself of the courteous offer to supply far
ther information to me. The questions we are discussing are ob
viously of vast importance to the country as a whole, and I desire
to be in position for constructive help in the situation as it may
arise.
The Board's letter clears up many matters of importance.
I am, however, much disturbed over the continued expansion of specu
lation on the Hew York Stock Exchange which again shows strong re
currence. It appears to me that the speculative purchase of large
amounts of securities upon credit can not be otherwise than danger
ous because it absorbs the credits fund of the country; because of
the tendency of speculative fevers to extend into the commodities
and also because it must result in a relapse which will carry
losses into every part of the country.
Your assurance that this speculative activity is not due
to Hew York activities but originates over the whole country and
your evidence that this gigantic expension of credit upon which it
has been carried, itself originates from outside of Hew York, lends
gravity to the situation for its inevitable collapse would be ever
more dangerous to commerce and industry by virtue of its widespread
character. There can be no doubt from your statement that this
large movement in Hew York Stock Market has not been one of reallignment of values under new investment but one of sheer speculation
because your charts show that "street" loans have increased nearly
one billion dollars since this movement began and have now-reached
the gigantic total of nearly two billion seven hundred million, or
about 40<f> more than any amount hitherto known in our credit history.
Hor is it likely that this represents anything like all the credit
being used in this outbreak of speculation for obviously a considera
ble amount will be carried in credits outside of "street" loans, as
I understand that both individuals and corporations engage in "street
loans directly and that much credit is secured for speculation out
side these sources even.
C O P Y
-
2
-
I would "be glad to know if the Board considers that this
absorption of credit may have lifted the rates at which money is bring
ing in commerce and agriculture? Has it been the true economic origin
of the increase in interior reserve rates?
I believe we must all be concerned over this Question and
that we should make certain that the creation of the Federal Reserve Sys
tem is not a contributory to this expansion either directly or indirectly,
I notice that Mr. Roberts, of the national City Bank, in a recent article
considers that the working of the Federal Reserve System has been a con
tributory factor.
I also notice from the figures you furnish me that
during 1925 and still more going back to the middle of 1924 that there
has been a very considerable expansion in the bill and security holdings
of the Federal Reserve System. I have been struck by the fact that there
has been a marked increase in the last six months, parallelling the last
outburst of speculation in stocks. This has lead me to wonder whether
there is any connection between the credit released by the Federal Re
serve System and this great increase of credit absorbed in street loans
as indicated by your statement because advances from the Federal Reserve
are capable of great pyramiding. The figures given in your letter for
your reporting member banks show large increases in loans and investments
in these banks over those of any preceding six months in recent years.
The figures given, however, do not show hoy/ much of this increase in credit
is used for commerce, industry and agricultural purposes, such as are legi
timate for employment of the Federal Reserve credit.
I would be obliged, therefore, if you would help me to get a
better line upon the development of the last year and a half and particu
larly the last six months by giving me an analysis showing how much of the
loans of your reporting member banks are for commercial use.
Frankly, I am astonished at the increase in street loans. It
seems to me that your information as to the volume of these loans is of the
utmost importance to the country and if its amount and its increases were
known to the country it would in itself strongly tend to bring this orgy of
speculation to an end. I note that the board considers this information to
be confidential. I would like to have the Board’s opinion as to whether it
would not be advisable to secure this information officially and to pub
lish it regularly. The Federal Reserve Act, Section H, makes this possi
ble. It seems to me that not only would such publication act as a strong
deterrent to such expansion but its publication would relieve the Board of
a grave responsibility of holding information of so vast importance not ac
cessible to the country as a whole. I should like to have your opinion upon
this and as to whether we could provide additional authority to secure this
information regularly from all banks who are not members as well.
Very sincerely yours,
(a) I. L. Lenroot.
FEDERAL
RESERVE
Vol. 12
B U L L E T IN
JANUARY, 1926
REVIEW OF THE MONTH
Banking developments in 1925 reflect a
large increase in the volume of credit extended
by member banks to finance
1995
the year s unusually active busi
ness and the increased volume
of transactions in the security market. The
volume of member bank credit in use dur
ing 1925 was larger than in any previous
year, and the volume of reserve bank credit
outstanding was considerably above the level
of 1924 and approximately at the average level
of the two preceding years. With the in
creased demand for bank credit from industry
and finance the member banks maintained
their own investments in securities at the
high level reached the year before, when
abundance of funds bad caused these banks
greatly to increse their holdings of investments.
At the reserve banks the increase in the volume
of credit outstanding in December, 1925,
compared with the closing month of the year
before was due to the withdrawal of gold for
export, amounting to about $150,000,000 dur
ing the year, and to a comparatively small
increase in the reserve balances of member
banks from the high level reached at the end
of 1924. Domestic currency demand increased
somewhat during the year, owing to the active
condition of business, but this increased de
mand was met through the use of American
currency returned from abroad in sufficient
volume to meet the increase in domestic re
quirements. In general, the year may be
characterized from the point of view of banking
developments as one during which member
banks financed a larger volume of domestic
business out of their own resources and met a
demand for gold for export by obtaining addi
tional funds from the reserve banks.
No. 1
In 1925, for the first tijne in five years, the
annual average of reserve bank credit in use
was larger than for the preceding year. The
average volume of bills and securities during
1925 was $1,140,000,000, compared with an
average of $950,000,000 in 1924. This higher
level of reserve bank credit was due to the
maintenance by member banks of a higher
average of reserve balances, in keeping with
the larger volume of their own deposit liabilities,
and to the change in the direction of gold
movements, which during the preceding four
years had been an important factor in reducing
the volume of reserve bank credit. Yearly
averages of reserve bank holdings of bills and
securities, which measure the total of reserve
bank credit in use, are shown below:
R
eserve
Bank
C
r e d it
O
u t s t a n d in g
[ Y early averages in millions of dollars]
Year
1920..................................................... ........... ...........
1921................................................................... ..........
1922.:............................................................. ............
1923....................................... .....................................
1924..............................................................................
1925......................................... ....................................
Bills and
securities Change
from
held by previous
reserve
year
banks
3,243
2,160
1,187
1,151
' 950
1,140
-1,083
-973
-3 6
-201
+190
While the increase in the average level of
reserve bank credit during 1925, after a con
tinuous decline for four years,
R e se rv e bank was caused by the larger volstock and g°Id ume reserve balances and by
gold withdrawals, the changes
from month to month during the year re
flected chiefly changes in the domestic demand
for currency. The chart shows for the years
1922 to 1925 month-to-month changes in the
volume of reserve bank credit, in the volume
of reserve bank credit combined with the
1
#
•
2
FEDERAL RESERVE BU LLETIN
country’s stock of gold, in the volume of
money in circulation, and in reserve balances
held by member banks with the reserve banks.
The figures on which the chart is based appear
on page 30 of this issue.
SCALE FOR 2 AND 4
MILLIONS OF DOLLARS
SCA LE FOR 1 AND 3
3000
2500
2000
1500
1000
1922
1923
192*1-
1925
50 0
The reserve bank figures are daily averages and the gold stock and money
in circulation figures are averages of figures for the first of two con
secutive months. The curves representing reserve bank credit and
member bank reserve balances are on a scale running from $500,000,000
to $3,000,000,000, and the curves of money in circulation and of reserve
bank credit plus gold stock on a scale running from $3,500,000,000 to
$6,000,000,000.
In the chart the curve representing reserve
bank credit shows changes from month to
month in the average volume of bills and
securities held by the reserve banks. To this
amount is added for every month the total of
gold stock in the country, and the combined
total is shown in the curve at the top of the
chart. Fluctuations in this curve, therefore,
represent monthly changes in the funds avail
able to member banks at the reserve banks
resulting from changes in the stock of gold and
from increases or decreases in the volume of
reserve bank credit. The reason for combining
the stock of gold and the volume of reserve
bank cffcdit into a single curve is that gold
received from abroad is immediately deposited
with the reserve banks and is first reflected in
an addition to the member bank reserve ac
counts, and that gold for export is obtained
by member banks from the reserve banks
Ja n u a r y , 1926
and is charged directly to the member banks’
balances. During the years of net gold
imports the gold added to the reserve balances
of member banks was either used to reduce
indebtedness at the reserve banks or to meet
a demand for currency, or remained in the
balances and so increased the lending power
of the member banks in the same way as
borrowing. To which of these various possible
uses the reserve bank funds arising from
the imported gold was put by member banks
has depended upon credit and currency con
ditions prevailing at the time. Changes in
the two factors that determine the domestic
demand for reserve bank credit are shown in
the curves representing money in circulation
and reserve balances of member banks. When
member banks are called upon to meet an in
creased demand for currency they are obliged
to use a corresponding amount of the funds
held to their credit at the reserve banks.
When, however, funds added to member banks’
balances through the deposit of imported gold
are not used in meeting a currency demand or
in repayment of borrowings at the reserve
banks, they remain on deposit as reserve
balances and form the basis of additional
lending power of the member banks.
The chart shows that in 1925 month-to
month fluctuations in reserve bank credit were
largely in response to changes in the demand
for currency, as changes in reserve balances were
relatively small, and that, while the volume of
reserve bank credit increased considerably dur
ing the year, the total reserve bank funds avail
able to member banks, as represented by the
curve for reserve bank credit plus gold, changed
but little. This is in contrast to the other
years shown on the chart, in each of which
gold imports were more than sufficient to offset
the decrease in reserve bank credit, and the
total of reserve bank funds, as shown in the
upper curve, increased. In 1922 this increase
was used both in meeting a growing demand
for currency and in supplying additional re
serves to member banks: in 1923 the increase
in currency demand arising from an increased
volume of domestic trade and employment,
#
J a n u a r y , 1926
FEDERAL RESERVE BULLETIN
together with a demand for American currency
from abroad, absorbed the entire growth in re
serve bank funds; and in 1924, with currency
demand showing only seasonal variations and
only a slight increase for the year, and with
the level of reserve bank credit about the same
at the end of the year as at the beginning, the
increase in reserve bank funds arising from
gold imports was added in large part to mem
ber bank reserve balances, and constituted the
basis of a rapid growth in member bank credit.
In 1925, with little change in the demand for
currency and with gold exports absorbing the
growth in reserve bank credit, there was little
change for the year in the volume of member
bank reserve balances. The maintenance of
these balances at the high level reached the
year before, however, required the continuous
use of a larger amount of reserve bank funds.
With only a slight increase during 1925 in
member bank balances at the reserve banks,
the total of member bank
Basis of growth credit increased considerably.
of member bank
Between October 10, 1924,
credit.
and September 28, 1925, the
latest date for wdiich a condition statement for
all member banks is available, loans and in
vestments of these banks increased by about
$2,000,000,000, or nearly 7 per cent, and
monthly figures for deposits indicate a further
growth in bank credit during the last quarter
of the year. This growth during 1925 in the
volume of credit extended by member banks,
without corresponding increase in their reserve
balances with the reserve banks, is explained
chiefly by changes in the character of the de
posits and their distribution among banks sub
ject to different legal reserve requirements.
Between October 10, 1924, and September 28,
1925, as is shown in the table below, time de
posits of member banks, against which only a 3
per cent reserve is required, increased by
$870,000,000, while net demand deposits,
which carry a much larger reserve require
ment, increased by only one-half this amount.
Furthermore, net demand deposits in central
reserve cities, where the required reserves are
3
13 per cent, declined by $226,000,000, and those
in banks outside of reserve cities, where only
a 7 per cent reserve is required, increased by
$435,000,000. The decrease in net demand
deposits at the financial centers reflected
largely the decline in balances carried by city
banks for their country correspondents, a de
cline which was due chiefly to the employment
by these country banks of their idle balances
in making loans on securities. As a conse
quence of these changes the reserve balances of
member banks in central reserve cities declined
by $35,000,000 during the period, while those
for banks in reserve cities increased by $17,
000,000, and those for country banks by
$43,000,000. The net result was an increase
of $26,000,000 in the total of member bank
reserves. As has been pointed out in earlier
reviews, the ratio of reserves of member banks
to deposits remains continuously at or near 10
per cent, when the calculation is based on the
net amount of deposits on which reserves are
computed, an amount in which time deposits
are reduced to a not demand deposit basis.
When reserve balances are related to the com
bined total of net demand and time deposits,
however, the two classes of deposits against
which reserves are required, a decline in the
ratio from 7.8 per cent to 7.5 per cent is shown
for the past year. While 7.5 per cent is the
average ratio of reserves to deposits for all
member banks, the ratio is 11.3 per cent for
banks in central reserve cities, 7.2 per cent
for banks in other reserve cities, and 5.3
per cent for country banks. This variation in
reserve ratios for the different classes of banks
indicates that in New York and Chicago, the
two central reserve cities, owing both to larger
reserve requirements against demand deposits
and the larger proportion of this class of de
posits, deposits of member banks are only
about nine times as large as reserves, while in
country banks, with smaller reserve require
ments and a larger proportion of time deposits,
total net demand and time deposits are nearly
twenty times as large as reserve balances.
4
FEDERAL RESERVE BU LLETIN
D e p o s it s
and
R eserv es of M em ber B anks
[In millions of dollars]
Oct. 10, Sept. 28,
1924
1925
Net demand deposits:
Total___ _____________________
In central reserve city banks__
In reserve city banks...................
In country banks..........................
Time deposits.____ _______ _______
Total net demand and time de
posits.......................................... .
Reserve balances........................................
Ratio of reserve balances to net demand
plus time deposits:
For all member banks_____ _____
For banks in central reserve cities..
For banks in reserve cities...............
For country banks_____________
Change
17,780
6,299
6,946
6,535
9,597
18,233
6,073
6,190
5,970
10,467
+453
-226
+244
+435
+870
27,377
2,122
28,700
2,147
+1,323
+26
7.8
11.5
7.6
5.4
7.5
11.3
7.2
5.3
Growth of time deposits has been a continuous
factor in the increase of deposit liabilities of
member banks since the organ
Growth of time
ization of the Federal reserve
deposits.
system, and the fact that they
have increased more rapidly than demand
deposits has been an influence toward decreas
ing the average ratio of reserves that member
banks have been required to carry against their
combined deposits. The volume of demand
deposits has fluctuated with changes in business
conditions, and after a rapid decline in 1921
and the early part of 1922 and a subsequent
recovery, their level in 1925 was considerably
higher than at the peak five years earlier.
Time deposits, on the other hand, increased
throughout the period of recession in 1921-22
and the later period of increased business
activity, and their level in September, 1925,
was $4,300,000,000 above that of November,
1920. While time deposits have increased at
banks in all classes of cities and while their rate
of growth in recent years has been even greater
at banks in financial centers than at country
banks, they constitute a much larger proportion
of total deposits in the smaller cities. In
September of the year just closed the propor
tion of time deposits to total deposits was 13
per cent in central reserve city banks, 33 per
cent in reserve city banks, and 46 per cent in
country banks.
Ja n u a r y , 1926
The large volume of time deposits at country
banks has been a source of additional lending
m
power for these banks. Not
and investments. bem§ sub3ect t0 Payment on
demand, time deposits are usu
ally considered by the banks as available for
use in the purchase of long-term investments.
The large volume of time deposits at the
member banks, and particularly at member
banks in smaller towns and in country districts,
indicates that these banks are not only com
mercial banks engaged in making loans to
finance the current operations of trade and
industry and in carrying the proceeds of
these loans as deposits payable on demand,
but are also to a considerable extent serving
their customers as savings banks and invest
ment institutions receiving time deposits and
investing them in Government and other
securities. The relation between time deposits
and investments for each of the different
classes of banks is brought out in the table:
T im e
D
and
I n vestm en ts of
B a n k s , S e p t e m b e r 28, 1925
e p o s it s
M em ber
[In millions of dollars]
Class of bank
All member banks.......................................... .
Member banks in—
Central reserve cities_____ _______________
Country banks........................................ ................
Time
deposits
Invest
ments
10,467
8,919
1,115
3,759
5,593
1,930
2,890
4,099
For all member banks combined, time de
posits on September 28, 1925, considerably
exceeded total investments, indicating that a
certain proportion of funds obtained through
time deposits has been used by member banks
in increasing their loan account. This has
been particularly true for country banks, whose
time deposits in 1925 exceeded their invest
ments by about $1,500,000,000, while in
central reserve cities the banks’ security hold
ings were larger than their time deposits.
J anuary, 1926
FEDERAL RESERVE BULLETIN
The proportion of the member banks’ funds
employed in different classes of loans and
Composition of investments also differs for the
m e m b e r bank different classes of banks. The
credit.
composition of member bank
earning assets, by classes of banks, at the close
of the last fiscal year is shown below:
5
drawal on demand whenever increased busi
ness activity in the interior of the country
causes a growth in local financial requirements.
Under these circumstances city banks employ
the funds received from the interior chiefly
in making demand or short-term loans on
securities. During 1924 and 1925, with loan
L o a n s a n d I n v e s t m e n t s o f M e m b e r B a n k s on able funds throughout the country in excess of
J u n e 30, 1925
local credit requirements, there has been a
fin millions of dollars]
rapid growth of collateral loans by member
banks.
Member banks in—
This review indicates that the most import
All
Country
member Central
banks
Other
ant
banking developments during the year
banks
reserve reserve
cities
cities
1925 have been a continuous growth of member
bank loans on securities, and a considerable
6,718
2,857
2,275
Loans on securities...................
1,586
14,081
2,651
5,191
6, 239 increase in the second half of the year in loans
7,825 for agricultural and commercial purposes.
20,799
5, 508
7, 466
Total loans......................
4,008
• 8,888
2,014
2,866
Investments...............................
Furthermore, owing to changes in the character
Total loans and invest-'
29,687
10,332
11,833 and geographic distribution of the deposits of
7, 522
Percentage distribution:
member banks, they were able to support the
22.6
38. 0
13.4
22.1
All other loans...................
47.4
35.2
50.2
52.7 increase in the total of their deposits without a
Total loans.................
70.1
73. 2
72.3
66.1 corresponding increase in their reserve balances.
Investments__________
29.9
26.8
27.7
33.9
At the. reserve banks the increase in the volume
Total loans and invest
100.0
ments____________
100.0
100.0
100.0 of credit outstanding reflected the influence of
gold exports, following upon four years of a
In central reserve and reserve city banks continuous inflow of gold from abroad.
loans constituted considerably more than 70
per cent of total earning assets of member
banks, and in country banks they were twoTREASURY FINANCE
thirds of the total. At member banks in the
financial centers, where the surplus funds December financing.
On December 7 the Treasurv announced an
of the country are largely employed, loans'on
securities are larger than all other loans, offering at par through the Federal reserve
banks of one-year 3 % per cent Treasury cer
while at country banks only 13 per cent of tificates, dated December 15, 1925, and ma
earning assets are employed in collateral loans. turing December 15, 1926. The offering was
Differences in banking practice may account for $450,000,000 or thereabouts, and it was
in part for the difference in the composition announced that the Treasury would accept in
of earning assets of banks in the financial payment for the new certificates outstanding
Treasury certificates and 4 % per cent Treas
centers and outside, but these differences also ury notes maturing December 15, 1925. Pre
reflect the fact that banks throughout the ferred allotment would be given to subscrip
country, after using a large part of their tions for which payments were tendered in
funds to meet the financial requirements of these certificates and notes, of which the
trade and industry in their own localities, place amount outstanding was approximately $480,
000,000. The offering; was intended with
the funds not required locally on deposit with balances on hand and December tax receipts
city correspondents. Funds thus placed at the to cover the cash requirements of the Treasury
disposal of city banks are subject to with- until March, when further financing will be
75164—26f-----2
6
l
FEDERAL RESERVE BU LLETIN
necessary. The same exemptions from taxation
were provided as have been provided for other
issues under the act of September 24, 1917,
and the new certificates will be accepted at
par in payment of income and profits taxes
payable at maturity of the certificates. Sub
scriptions for the new issue were closed at close
of business on December 9 and amounted to
$875,780,900. Subscriptions were allotted in
the amount of $452,749,000, of which $167,
210,700 represented allotments on subscrip
tions for which maturing Treasury notes and
certificates were tendered in payment. All
such subscriptions were allotted in full, allot
ments on other subscriptions being made on a
graduated scale—on subscriptions in amounts
not exceeding $100,000, 50 per cent but not less
than $500 on any one subscription, and on sub
scriptions in larger amounts, 30 per cent but
not less than $50,000 on any one subscription.
Subscriptions and allotments in the several
Federal reserve districts were as shown in the
table following:
Federal reserve district
Subscrip
tions
Allotments
T o ta l...........................................
$875,780,900
$452,749,000
Boston_________ ________ _____
New York..................
Philadelphia................................
Cleveland.................................
Richmond..............
Atlanta.....................
Chicago............................................
St. Louis.....................................
Minneapolis________:_______
Kansas City....................................
D allas..................................................
San Francisco..................................................
66.930.500
320,927,500
81.333.000
66.192.500
28.641.000
35.236.500
87.226.500
29.515.500
22,099, 500
17,292,400
33.015.500
87.370.500
30.055.000
171,995,000
44.997.000
29.165.000
12.830.500
17.744.500
44.404.000
16.988.500
14.219.500
12.040.000
17.622.500
40.687.500
In his annual report for the fiscal year 1925,
the Secretary of the Treasury notes that “ the
average rate of interest borne by certificates of
• indebtedness offered in the fiscal year 1925 was
only 2.9 per cent,” the average rates for earlier
fiscal years being: For 1921, 5.7 per cent; for
1922, 4.5 per cent; for 1923, 4.1 per cent; and
for 1924, 3.9 per cent. In June the Treasury
issued at par one-year certificates bearing
interest at 3 per cent, and in September, ninemonths certificates at 3 34 per cent.
Ja n u a b y , 1926
Amount of payment
Country
Total
Total................... $95,253,371.85
Great Britain...............
Belgium........................
Czechoslovakia............
Finland........................
Hungary.......................
Lithuania.................
P oland.........................
92,310,000.00
677,432.22
1,500,000.00
180,650.00
39,611.25
45,678.38
500,000.00
Principal
Interest
$26,057,018.00
$69,196,353.85
24,000,000.00
68,310,000.00
677,432. 22
1,500,000.00
47,000.00
10,018.00
500,000.00
133,650.00
29,593.25
45,678.38
NOTES
Agreement with Belgian National Bank.
On December 10 the Federal Reserve Bank
of New York, with the, approval of the Fed
eral Reserve Board, made an agreement with
the Belgian National Bank to stand ready to
purchase Belgian prime commercial bills, when
such purchases are desired. This agreement
with the Belgian central bank is in pursuance
of the system’s policy of cooperating with
foreign countries in the reestablishment of the
old standard. The statement issued by the
lew York Federal Reserve Bank follows:
f
As an aid to the plans which are in progress for im
proving the monetary position of Belgium, the Federal
Reserve Bank of New York, in association with other
Federal reserve banks, has indicated its readiness to
cooperate with the Belgian bank of issue, the Banque
Nationale de Belgique, if desired, by purchasing prime
commercial bills. It is understood th at offers of coop
eration have also been made by the Bank of England
and other European banks of issue.
Annual reports of Secretary of the Treasury and Comp
troller of the Currency.
The text of the annual reports of .the Secre
tary of the Treasury and of the Comptroller of
the Currency for the fiscal year ending June 30,
1925, were issued during December.
First annual report of the Agent General for Repara
tion Payments.
The first annual report of the agent general
for reparation payments, issued early in De
cember, reviews the progress of the reparations
program and of Germany’s economic recovery
under the Dawes plan. The report states:
“ The plan realized during the year its first
essential preliminary objects; that is to say, a
Payments received from foreign governments.
balanced budget and a stable currency. * * *
On December 15, payments in the amounts Side by side with the achievement of these two
given below were received from foreign coun objects, the output and distribution of goods,
tries on account of their funded indebtedness to according to available figures, have consider
the United States:
ably exceeded the experiences of the immediate-
r-
C O P Y
January 12, 1926.
My dear Senator:
I wish to acknowledge receipt of your letter of December 23, 1925,
and to assure you that the Board is glad to furnish you with the addi
tional information you desire. I personally should appreciate it if you
would come to my office where we could talk over the important problems
with which the reserve system has to deal and reach a fuller understand
ing than is possible by correspondence.
To the extent that an unhealthy speculation is responsible for an
advance in security prices, it is likely to carry these prices to a level
that cannot be maintained and to be followed by a recession that affects
general business confidences.
The effect on business of a downward turn in
the security market is, however, largely psychological and indirect. Busi
ness men are likely to interpret it as a forerunner of slackened business
activity and may, therefore, either curtail their operations or at least
pursue a more cautious policy in making forward commitments. The actual
losses resulting from the decline in security prices will fall upon in
vestors and particularly upon speculators, who having bought for a rise
may be compelled to sell at a sacrifice, rather than upon those engaged in
productive enterprises. The Board in its previous letter agreed with you
that there is always a possibility that speculation in the security market
will spread into commodity markets, but indicated that there was then no
evidence of speculative tendencies in these markets. Since then the move
ment of commodity prices has been generally downward.
In order to illustrate the trend of commodity prices in relation to
the physical volume of activity in recent years, two charts are attached,
Chart A showing the volume of building contracts awarded and the course of
prices of building materials, and Chart B the movement of prices of the
principal classes of building materials and of all commodities. The first
chart shows, that in the face of a very rapid growth in building construc
tion in recent years, prices of building materials have not only failed to
advance, but have slightly declined. The second chart shows the downward
movement of prices in the different classes of building materials since
1923 and the relative stability, with a recent decline, in the general price
level.
An additional set of three charts (C, D, and E) is also enclosed,
showing for the principal industries the physical volume of production and
the price of the products over a series of years. You will note that in
practically all of the industries there has been a decided increase in
production in recent years, while prices have either remained stationary or
have declined. The only marked exception is rubber, the price of which has
advanced very rapidly during the past year for reasons in no way connected
copy
Hon. I . L . Lenroot, - #2
with the domestic business or credit situation.
Growth in the volume of member bank loans on securities in the past
eighteen months has been at an extremely rapid rate and the Board shares
with you the feeling that such a rapid growth of security loans is not an
altogether desirable development in the banking situation. There has been
no evidence, however, of any scarcity of credit for productive enterprises
resulting from the growth of collateral loans on stocks and bonds. On the
contrary, it is partly in consequence of the relative absence of growth in
the local demand for bank credit to finance current operations that the
banks utilized their surplus funds, particularly in the latter part of 1924,
by making loans on securities. Since the middle of 1925 there has been a
considerable growth in loans for commercial purposes, as well as a further
increase in loans on securities at member banks in leading cities. A table
showing changes in the different classes of loans and investments of report
ing member banks for the last report date in each month during 1924 and 1925
is appended. Loans under the caption "All other loans" are for the most part
loans for agricultural and commercial purposes. There has been no shortage
of funds for any purpose, and though open-market rates on commercial paper
are higher than a year ago, they are still at a level below the average of
the past ten years.
The growth of security loans is not, in the Board's opinion, in itself
evidence of the speculative nature of the rise in security prices. To fi
nance the transactions in securities at higher prices requires a larger
volume of bank credit, and this would be true, whether the rise in prices
was speculative in character, or reflected a genuine increase in the values
represented by the securities, that is, a growth in corporate earning
capacity. It is true, nevertheless, that the abundance of funds in the money
market during the past two years has facilitated the expansion of security
loans and thus the marketing of securities on a rising price level. The fun
damental reason of the advance in security prices, however, has been that in
the judgment of a large body of investors and speculators, securities, in
view of the general business outlook, have been worth purchasing at a rising
level of prices.
The Eoard does not consider it to be a part of its functions
to pass upon the soundness of the investors' judgment in this matter.
As already indicated, the constantly growing demand for bank funds to
finance stock exchange operations has been a factor in the rise of openmarket money rates during the past year. Hates on commercial paper and
bankers' acceptances in the Hew York market have advanced by between 1 and
1 1/2 per cent since the summer of 1924, but this advance has been from the
lowest point in many years and has not carried the rates to a level as high
as that in 1923, when the volume of business activity was about the same as
at the present time. Furthermore, it is only onen-market rates in the
financial centers that have advanced during the year. Rates charged to cus
tomers by banks throughout the country on loans for current operations, which
constitute by far the largest use of bank credit, have remained practically
C O P Y
Hon. I . L . Lenroot, - #3
constant, and the cost of money to the majority of those engaged in
agriculture, trade,and industry has been no higher in 1925 than in 1924.
You wish to know whether the rise in open-market rates has been "the
true economic origin of the increase in interior reserve rates." It is
certainly true that the level of open-market rates has been one of the
factors considered by the reserve banks of Poston, Philadelphia, Cleveland,
and San Prancisco when they proposed to advance their rates from 3 l/2 to
4 per cent, the level prevailing at all the other reserve banks, outside of
Hew York, and by the Board when it approved these advances. The rates had
been reduced from 4 l/2 to 4 per cent during the summer of 1924, when rates
in the market had been abnormally low, and with the recovery of open-market
rates it became desirable to bring the reserve bank rates into better align
ment with the market. Other factors considered in those rate advances were
the growth of discounting by member banks in these districts, the rapid
growth of the member banks' own loans, and other local business and trade
conditions.
As was pointed out in the Board's earlier letter, member banks in Hew
York City were not increasing their loans in 1925, and their borrowings at
the reserve banks we re no longer at the seasonal peak in the autumn and
winter than in the early months of the year when reserve bank accommodation
is usually at a low point. In view of the fact that there was no evidence
of excessive borrowing at the Hew York bank in the autumn, it seemed un
desirable to exert the influence of the reserve bank rate toward a further
rise in the general level of money rates in the Hew York market. Such a
rise might have been an influence toward a renewal of the gold movement to
this country, which, as was pointed out before, has been the principal
cause of credit expansion in the previous four years. In view of the more
direct influence of the Hew York market on international financial movements,
these considerations have greater weight at the Hew York reserve bank than
at reserve banks in other districts. In the last weeks of 1925 loans by
banks in Hew York City increased rapidly and at the first meeting of the
Board of Directors of the Hew York reserve bank in 1926 the discount rate
was advanced from 3 l/2 to 4 per cent, making the level of rates uniform
for all the reserve banks.
In connection with your question, whether the Federal reserve system
has contributed to the growth of speculation in securities, the Board wishes
to submit a chart (Chart F) which shows changes in the volume of reserve
bank credit outstanding, including discounts for member banks and acceptances
and United States securities bought in the open market, compared with the
volume of money in circulation during the two years 1924 and 1925. This
chart brings out the fact that the principal factor influencing the volume
* of reserve bank credit in use is the demand for currency by the public. Com
parisons of the volume of reserve bank credit in midsummer and at the turn
C O P Y
Hon. I . L . Lenroot. - #4
of the year are misleading, "because the much larger demand for reserve
"bank credit in the autumn months reflects chiefly a seasonal demand for
currency, which is followed "by a rapid return flow of currency and a
consequent decrease in reserve "bank credit outstanding during the early
weeks of each year. While fulctuations in reserve "bank credit have
"been caused "by changes in the currency demand, the higher general level
of reserve "bank credit during the past year has "been due in part to the
withdrawal of gold for export and in part to the maintenance of reserve
"balances of member banks at a higher level than the year before owing to
the larger volume of their own deposit liabilities. A full discussion
of the factors influencing the volume of reserve bank credit appears
in the Federal Reserve Bulletin for this month, and a copy of the
article containing this discussion is attached.
The suggestion contained in your letter, that the Board undertake
to secure streetloan information officially and publish it regularly,
is one that has been under careful consideration by the Board since last
April on the recommendation of its Division of Research and Statistics.
The Division has worked out a plan for securing the figures in a form
that will most adequately serve the public interest and will at the
same time enlist the largest possible measure of voluntary cooperation
by the reporting banks. The Board has recently approved the Divisions
recommendation in the matter, and as soon as the reporting system can be
put into operation, the figures will be published regularly.
The earning assets of the system as of January 12th were as follows:
Discounts for member banks...... $517,302,000
Acceptances purchased in open market. . 333,957,000
U. S. Government securities, , , , , ,
367,076,000
Other bills and securities.....
10.158,000
T o t a l ..... $1,228,493,000
I
hope that this letter gives you the information you desire,
and I wish to thank you on behalf of the Board for the interest you have
shown in the problems with which the Federal reserve system has to deal.
Very truly yours,
(s) D. R. Crissinger,
Governor.
Hon. I. L. Lenroot,
United States Senate,
Washington, D. C.
C
0
P
Y
REP CRTING MEMBER BANKS IN LEADING CITIES
(In millions of dollars)
Last report
date in
: Loans on
: securi: ties
1934:
January
February
March
April
May
June
July
August
September
October
November
December
4,077
4,031
4,067
4,186
4,075
4,268
4,431
4,484
4,596
4,547
4,668
4,863
7,806
7,843
7,998
7,935
7,876
7,874
7,834
7,950
8,080
8,217
8,202
8,205
11,883
11,874
12,065
12,121
11,951
12,142
12,265
12,434
12,676
12,764
12,870
13,068
4,480
4,496
4,515
4,535
4,659
4,827
4,987
5,091
5,331
5,551
5,617
5,531
16,363
16,370
16,580
16,656
16,610
16,969
17,252
17,525
18,007
18,315
18,487
18,599
1925:
January
February
March
April
May
June
July
August
September
October
November
December
4,888
4,949
4,999
5,079
5,073
5,206
5,204
5,267
5,471
5,471
5,581
5,776
8,163
8,193
8,140
8,153
8,035
7,999
8,013
8,108
8,361
8,430
8,378
8,341
13,051
13,142
13,139
13,232
13,108
13,205
13,217
13,375
13,832
13,901
13,959
14,117
5,489
5,396
5,478
5,484
5,485
5,505
5,506
5,471
5,440
5,443
5,405
5,472
18,540
18,538
18,617
18,716
18,593
18,710
18,723
18,846
19,272
19,344
19,364
19,589
•
•
All other :
loans 1/:
:Total loans
:
Total
:
and
: investments investments
•
Total
Loans
1/ Largely for agricultural and commercial purposes
UITITED
O P
STATES
SEI7ATE
Y
Committee on Foreign Relations
January 14, 1926
Honorable D. R. Crissinger,
Governor, Federal Reserve Board,
Treasury Denartment,
Washington, D. C.
Uy
dear Governor:
I have yours of the 12th instant
with enclosure of charts, which, I will carefully
examine and just as soon as I get onnortunity shall
he glad to come up to the office and personally talk
with you about the situation.
As you know, I am in
charge of the World Court matter, which is just now
taking my entire time.
Very sincerely yours,
I. L. LEHROOT
t l H .
A
7
C0N F I DENTIAL
For use of Federal
Reserve Board only
DEFICIENCIES IN RESERVES OF MEMBER BANKS FOp <M0NTH OF APIRL, 1 9 2 6 *
___________ — ----— — — .
WUMBER OF BANKS3 ASSESSI3D
NUMBER OF BANKS PENALIZED
Federal
In
In
F.R.
other
bank : reand
serve
branch cities
cities
Reserve
^ppistrict
Boston
New York
Philadelphia
4
**
9
4
Member
Coun- ;Total
try
banks
5
**
46
50
**
**
79
171
78
**
**
Richmond
Atlanta
Chicago
10
3
l
4
158
3
6
4
Ka^Rs City
Dallas
San Francisco
22
**
70
1 72
185
85
99
72
1
68
10
77
5
-
69
63
988
Mar. '26 97
Apr. «25 98
FEDERAL RESERVE BOARD
DIVISION OF BANK-QJ
Jlffig 12,k 1 9 2 6 ,
w.
Volume"161
Page 29
(In thousands of dollars)
**
65
Minneapolis
—
29
104
4
9
l4
AVERAGE DAILY DEFICIENCIES
PENAL*]DIES IN IEXCESS 01
MAXIMUM RATE CHARGED#
ON WHICH PENALTIES WERE
M]iNIMUM RilTE#
ASSESSED
In
Banks
Banks
Banks
Banks
F. R.
In
Coun
in F.R. in
Coun
in F.R.
in
Coun
bank
other
try Total bank
other
try
bank
other
try
Total
and
re
banks
and
re
banks
and
re
banks
branch
serve
branch serve
branch
serve
25
90
10
St. Louis
f*
:
—4
Cleveland
7
banks
in
di s
trict
St.4982.
93
78
85
1,123
1,172 9,^25
3,950
1,046
5.937
1,048
3,716
q.9Uo
5.291
-1x117
U53.
>■793
^^^*Figures for country banks are for the calendar month I
Jfe^or central reserve and reserve city banks for
-IONS
four and five-week periods.
^Federal, reserve bank and branch cities are the only reserve cities in the district
P0713-!^ ra-tes are not applied by the FJljB Banks of New York
° t
■*
,
.
Atlanta bank has a maximum penalty rate of & ner
.
,
3
.
’
’
0U1S
and
Minneapolis,
*3^,
urn penalty rate of 6 por;*^, the eight remaining banks a maximum of 10 perthe
cent.
EARNINGS AID EXPENSES OF FEDEEAL RESERVE BANKS,
MAY, 1926.
Total earnings of the Federal reserve hanks in
May were $80,000 less than in April, though earnings
were accrued for 1 day more in May. Earnings from
discounted hills fell off $80,000 and miscellaneous
earnings $9 0 ,0 0 0 , hut these reductions were partly
offset hy an increase of $90,000 in earnings on pur
chased hills and U. S. securities.
Current expenses in May amounted to $2,305*000 “
about $10,000 more than in May 1925* hut for the 5~nionth
period there was a reduction of $3^0,000 as compared
with the same period last year. Current expenses ex
clusive of the cost of currency were less during the
5-month period at all of the Federal reserve hanks ex
cept Boston, Philadelphia, Atlanta and St. Louis, the
declines ranging from $10,000 at Kansas City to
$112,000 at San Francisco. The increase in the case of
Philadelphia was $1*5,000, Boston $29,000, Atlanta
$1+2,000 ($26,000 at Jacksonville), and St. Louis
$1 3 ,000 .
After providing for all current expense and
dividend requirements, the Federal reserve hanks on
May 31 had a balance of nearly $U,700,000 available for
depreciation allowances, surplus, and franchise taxes,
as compared with $3,800,000 a month earlier and
$1,200,000 at the end of May last year. The balances
available ranged from $9^,000 at Minneapolis and
$21+3,000 at Richmond, to $675*000 in the case of
.
New York.
Volume l6 l - Page 47
St
.4985
Xet /3a
M r 0 Hamlin
n
C 0 E ? I D E N T I A L
Hot for publication
Federal
Reserve
Bank
From
dis
counted
bills
ioston
E a r n i n g s
From pur
From
chased bills
other
and U. S.
sources
securities
Total
$109,548
$13,259
$ 207,626
434,282
25.611
869,512
102,906
12,597
1 6 7 .1 1 7
15,733
49.749
8,o64
Atlanta
82,387
8,206
Chicago
253,831
St. Loui s
Cleveland
Richmond
Year
13
Current
ex
penses
2 9 0 ,u , 5
Current
net
earnings
Annual rate
of current net Current
net earn
earnings on
ings to
average
paid-in capital Kay 31
Per cent
5 .5 . ^ $6511.739
$ 166,216
$40,810
v 799
3 2 1 .7lc
10.7
* %yf
11.5
■s'* 1
Philadelphia
St. 4985
EARNINGS M D EXPENSES OF FEDERAL RiCSPJiyir BANKS
171.
jj
35<"m 59
"192&
Balance available for de
Dividends preciation allowances, sur
accrued plus, franchise tax, etc.
to
On May 31
On Apr. 30
May
31
$214,773
$1*39,966
$440,201
, 521.865
81*7,336
67l*,529
529,004
605,612
296,647
308,965
250,878
12.1
662,247
334,319
327,928
256,674
;
21-4 2 5 1
210,12.?
3x6,886
19 .3
39 4 , 69 s
150,723
21*3,975
174 ,9 50
> 2 , 631*
20.9
6 7 3 , 1*16
12 1,5 6 2
5 5 1 , 851*
4 8 9 ,04l
30.669
475,803
30 2 ,5 75
12.4
990,389
1*02,863
587,526
496,485
107,080
3,9 5 4
20 1,6 11
1 1 5 ,* 8°
19.3
1*2 5 .1 75
129,444
295.731
235,848
Minnbsc
107.6 29
14,218
1 4 5 , 4i6
88, f
5 6 ,773
21.2
173,379
78,971
94,408
53,368
Mhsas £
147,785
23,663
239,875
138,610
101,265
28.0
1*30,866
106 ,105
32 4 ,76 1
244,771
129. **67
3,327
166,200
100,744
65,456
17.9
35 9 ,15 9
107,203
251,956
207,979
207,656
12,977
381,118
211,630
16 9 ,488
23.8
781,692
207,1*81
5 7 4 ,2 1 1
446,687
2,304,647 1 , 4 5 9 . 0 7 1
3 ,243,713 2,298,413 1 , 545,306
3 ,409,371 2 , 294,916 1 , 114,455
i4 .o
7,673,237
2,997,427
4 ,6 7 5 ,8 1 0
1 5 .5
11.4
3 , 825,886
4,072,734
2,8 4 2 ,5 07
1 , 230 ,2 27
688,821
San Francisco
TOTAL:
May 1926
A
.n o c
Apr.
192 *
Apr. 1926
May 1925
160,485
1 - 9 ° 5 . 1^ 7
1 , 766,676
1 ,8 1 2 ,3 6 1
1 , 239,241
1 , 829,194
SPHERAL RESERVE BOARD
%
DIVISION OF BANK OPERATIONS
i
JUNE 15, 1926.
W.i
1 7 2 , 27 s
264,676
340,936
3 , 76 3,72 4
« >31
REPORT OF THE CHAIRMAN TO THE
OPEN MARKET INVESTMENT COMMITTEE
The report of the secretary gives the details of operations since
the last meeting*
As far as policy is concerned, the two principal problems
center around the changes in the money market due to the tax period, and the
policy of the committee for the coming few months in view of the general
credit situation*
Tax Period
The detail of gains and losses to the New York money market as a
result of tax period operations, together with the position of reserves of
the New York banks from day to day, are shown in the following table*
The
table indicates that the New Y0rk banks started the tax period with reserves
substantially under requirements, and as a consequence of this fact and of
rapid income tax collections, the surplus of funds on June 15 and 16 was
only temporary and by Friday, when the banks average up their reserves, the
situation was again at equilibrium*
As this week begins the prospects are that the banks in principal
centers will be steadily losing in their reserves through the accumulation of
Treasury balances at the Reserve Banks*
Just as the problem last week was
to prevent too great ease in funds, so the problem this week will be to prevent
too rapid a tightening; and the same may be true of next week, when semi-annual
settlements will coincide with requirements of currency over the July 4 holiday*
Various methods for offsetting a disturbance to the money market at this time
may well be considered*
Volume 161
-
Page 73
The situation may be met p artly by Treasury investment
- 2of part of its surplus#
It may be desirable also for the committee to make
temporary purchases for a few days, and authority should be secured for such
J
operations*
The General Situation#
At the time of the governors* conference there was some anticipation
of a recession in business*
Since that time there has been a reduction in
some lines of business activity*
considerably curtailed*
Production in various textile lines has been
Production of iron and steel has decreased slightly*
Building activity is not quite as intense and reports for May by the New York
State Department of Labor, and by the Philadelphia Reserve Bank for the Phila
delphia district, indicate a decline of about 2 per cent in factory employment*
Wholesale and retail trade have been a little unsatisfactory, but that may
largely be ascribed to the weather*
This about concludes the evidence of
recession, for, in general, business has continued at high speed above what we
may call normal activity*
Gar loadings are large; production is large in most
lines of industry; automobile output is exceptional; bank debits indicate a very
large measure of activity; and taking all the evidence together there has been
no such recession as was anticipated earlier in the year*
As far as credit is concerned, the country has continued to require
about the same volume of credit as in the spring and there has been no particular
seasonal reduction*
Industrial stock averages now within 6 to 8 points of February high,
and 10 points above March low; and rails are practically at the year’s high*
The recent rise appears to be stimulated by general belief that money will be
very cheap, and by apparent failure of expected business recession to materialize*
in the past few days the market has apparently been influenced by temporary
ease of money over tax period and some misunderstanding of effect on money of
Treasury1s not putting out new issue*
The rise in stock prices has been accompanied by an increaso of loss
than 100 million in brokers loans, which are still 700 million below the peak*
Stocks are being carried much more largely on loans direct to customers by banks
outside New York City*
These banks are lending 400 million less to brokers in
New York, but their total loans on stocks and bonds are as largo as at year*s
high point*
Thus the total amount of credit employed in carrying securities
has decreased much less than the brokers loan reports indicato and is only about
200 million below the high point*
The general situation may be summarized by saying that the picture is
not clear as to which direction business and credit are likely to take*
A
further expansion in business and in speculation is possible; on the other hand,
a continued recession in business is possible*
Under these conditions it
would seem wise for the Open Market Committee to maintain its holdings of securi
ties at 0275,000,000, or thereabouts, except for such temporary changes as may
be necessary in the next two weeks*
r
i
~ *
g a i n s and
:f,t
LOSSES TO NET7
-5 16 17 18
Gains
to the---------------market:
-------------------Treasury transactions;
Notes r adeemed (Net)
Interest paid
Checks and warrants cashed
Securities purchased
Commercial and agency, transact ions:
Securitios .aaa^yased for other Federals
Tr ansf orc a c k s set11 on ent s
Net C^in|2|^^^5rrency receipts
O p ' f o r e i g n accounts (Net)
110
29
3
12
3
5
4
0
° -J
1 A 0
0
0
0 , ...0
0
54
4
1
0
22
3
0
;es contracts, increase
is contracts, increase
es d ought fnr System*s account
I6
■ease in loans to New York City banks JO
0
Total gains
3 *37
3
0
0
1
__0
217
0
O';
0
0
JD
37
0
2
2
0'
0
1
6
0
0
0
0
0
0
0
0
0
/4
6
1
.o 15
0
4
5
20
_5 31
30 -68
Losses,; bv/market:
Treasury ‘transactions:
Income taxes collected
Custms and other receipts
Foreign debt payments (cash)
2
2
0
3
2
0
6 75
5 ' 6
4 .0
Commercial and agency transactions:
Transfers and check settlorients
Net coin and currency payments
Operations for foreign accounts - net Gold exports
0
1
1
0
1
0
2
0
0
0
0
0
Reserve bank transaction's:
0
6
Acceptances matured
,0
0
Acceptances, sales contracts, decrease
Securities sold from Systanfs account
10 40
Not decrease in loans to New York City banks 7 _6
23 60
Total losses
Net gain for day
Net loss for day
16
0
0
//
/
0 19
8
0
0
0
1 * 0
21
7
1
0
*4.
4
7
0
_0
58
5
0
0
_0
50
4
4
0 11
10
0
s
39
68 105
20
23
O
o
0
o
o
u
.0
(A
.
.-
</?
7
18
149
Reserve position of 23 leading New York City bank s:
595 569 537
Actual reserves at opening of business
604 569 558
Average reserves
602 599 599
Reserve requirements
18
2
0
68
28
680 648 599
589 601 600
603 603 603
Y 2 -
<0 ©«2~
Aux /S-fl
June 1 8 , 1 9 2 8 .
>■'
M
2o the L e t e n o f tuo
0?3B UIRS3J? IOT2S2ESS! <505832133.
d im e th e l a s t com plete report to th e Governors on th e fo r e ig n r e eeunte vfoleh v a i ssado a t th e C onference in i*arofe, th ere hoe hem
a
fu r th e r
in crease in the t o t a l m ount o f fo r e ig n nasties w ith u s , the aggregate
n
b ein g
m
£ 1 9 2 ,0 0 0 ,0 0 0 a s oonpared w ith £ 1 8 7 ,0 0 0 ,0 0 0 on l& reh 10 and {6 3 ,0 0 0 ,0 0 0 one year
ago.
2 »
Isp o rta n t c h u t e s in th e f o r o i n recou nts hare been a s fo llo w s *
Cl)
d ecreases o f £ 5 ,0 0 0 ,0 0 0 sod £ 2 3 ,0 0 0 ,0 0 ) in the M i l s h eld r e s p e c tiv e ly f o r
the n atio n al Bank o f Hungary and the B eiohabaak. and {2 ) im r e a s e s in the h o ld in ge o f Treasury s e c u r it ie s o f about £ 1 ,0 0 0 .0 0 0 f o r the agen t General fo r
E epareU on Paym ents, £ 5 ,0 0 0 ,0 0 0 f o r the Bank o f England and £ 4 ,0 0 0 ,0 0 0 f o r the
n a tio n a l Bank o f Hungary.
She g o ld h eld ussier rem ark fo r fo r e ig n banks has in creased
t
r
m
£ 3 2 ,0 0 0 ,0 0 0 to £ 5 2 ,0 0 0 ,0 0 0 , th is in oreu se bein g recounted f o r in the h o ld in g s
o f th e Eeiohabank.
With re sp e ct to the lo a n s on g o ld to th e Bank P o ls k t, the second
rcn re a l p eriod o f th ree so u th s expired on nay 2 5 .
Bus to th e resettlem en t in
Poland a t th at t i m , we th o u jit i t a d v isa b le to c a b le f o r fa r th e r assurances as
to th e s ta tu s o f the Back Polafci b e fo re o o n tla o ln g the c r e d it fo r another th ree
months and fix in g a r a te to be e f f e c t iv e fo r th a t p e r io d .
to our in q u iry was p ra o p tly received frees Poland and
m
A s a tis fa c to r y re p ly
reeo rd in g ly extended
the c r e d it f o r another th ree so u th s to m tu r e August 2 5 a t the s i s
Volume 161
Page 75.
r a t e , n aaely
t
z
1 8 . 1926.
You w i l l observe th a t th e m ou n t o f advances to the Batik Polofci o a t sta n d ii^ a t p resen t i s * 7 .6 0 0 ,0 0 0 . a d ecrease o f $ 1 ,3 0 0 ,0 0 0 sin c e liaroh 1 0 .
You w i l l r e c a ll th a t the agreement entered in to w ith the Batik: P & sid . on August
25.
1 9 2 5 . c a lle d to r
a
th roe months c r e d it w ith throe renew als so th a t the p resent
agreement e x p ire s a t th e end o f the e x is tin g renewed on August 2 5 . 1 9 2 6 .
A com parative statem ent o f the fo r e ig n accounts in d e t a il i s attached
h ereto f o r the l a f o m t i o a o f th e Cc o a l t t e e .
Besputy G overnor.
JBQetX
REPORT TO O PB. VARKET INVESTMENT COIflIITTKE
(Figures as of June 16, 1926.)
COMPARATIVE STATE? ENT OF FOREIGN ACCOUNTS
Report to
Governors' Conference
To-day
♦ 6,355,95**80
55,089,417*84
Total
Total
Total
Total
Balancee
Bills
Treasury Securities
Gold Earmarked
Sub Totals
Custodies not participated
TOTALS
........
6/16/26
Agent General for Reparation Payments
Bank of England
Bank of France
Bank of Japan
Bank Pol ski
Bank of the Republic of Colombia
Banque Nationals Suisse
Czechoslovak National Bank
De Javasche Bank
De Nederlandsche Bank
National Bank of Belgium
National Bank of Hungary
Reichsbank
Svoriges Riksbank
♦
TOTALS ..............
Ag»
♦
4,814,815.51
83,008,377.21
61,945,000.00
12. 400,OOP,00
♦182,168,192.72
5.431.312,24
♦187,599,504.96
72, 876,000.00
52,9M>.OM*9P
♦187,221,372.64
.So^.flOta
♦192,647,882.85
♦ 6,007,392*29
33,459,616.62
2,738,000.00
-JJJUI&P jPQ
♦57,119,268.91
^ 6.747.172.94
♦63,866,441.85
TREASURY SECURITIES
6/16/26
V10/26
BILLS
FREE BALANCES
VlQ/26
49,479.20
1,791,368.14
65.80
500,082.78
131,713.26
976,053.47
99,567.96
100,057.97
250,618.05
250,151.03
855.20
99,720.70
1,906,491.40
199,729.84
3/1Q/26_______
yi^6
M M 26
♦
31,186.14
1,348,510.98
65.80
500,340.11
124,365.99
1,482,517.43
99,722.61
100,159-68
250,181.45
249,981.37
841.68
100,005.63
379,049.26
147,837.38
♦
0
0
4,532,220.62
0
0
14,442,272.03
0
7,883,227.25
14,346,079.71
0
191,726.79
13,693,791.44
0
0
0
0
4,533,841.45
0
0
1 4 ,7 4 9 ,5 9 8 .1 9
0
7 ,7 4 7 ,6 1 8 .3 1
14,165,214.41
0
5,658,175.53
36,153,929.27
0
♦4,814,815.51
♦55,oe9,417.84
♦83,008,377.21
♦
♦
0
EARMARKED GOLD
6/16/26
3/10/2-6
6,165,000.00
50,250,000.00
0
0
0
♦ 4,945,000.00
45,000,000.00
0
0
0
0
0
1 ,50 0 ,0 0 0 .0 0
0
0
0
0
0
0
0
0
12,000,000.00
6,400,000.00
0
0
0
0
0
4 5 ,0 0 0 ,0 0 0 .0 0
0
0
0
0
0
1,000,000.00
6,400,000.00
0
0
0
0
0
2 5 ,000 ,0 0 0 .0 0
0
♦7 2 ,8 7 6 ,0 0 0 .0 0 ♦6 1 ,9 4 5 ,0 0 0 .0 0
♦5 2 ,900 ,0 0 0 .0 0
♦3 2 ,400 ,0 0 0 .0 0
0
0
0
*
0
4,461,000.00
0
12,000,000.00
0
♦
0
0
0
0
♦
0
FOREIGN LOANS ON GOLD
IL
Bar.k Pol ski
Gf^ernl
Bankers Acceptances
Treasury Securities
♦
0
1,143.50
Bk. of Japan
♦ 1,807.42
0
♦7,500,000.00
Banque
Natl .Suisse
♦
4,538.85
0
Rate
4-1/2*
Maturity Date
Aug.25, 1926
Gold Collateral
Amount
Held by
♦10,595,596.16
Bank of England.
TOTAL CO?"'15SI0NS EARNED
From 3 /1 1 / 2 6 to 6/ 1 6 / 2 6 inclusive.
De NederDe Javasche 3k.
landsche Bk.
N.3,.of Hunrtary
♦
2,704•.77
0
♦ 4,571.63
0
♦
56.99
978.92
Reichsbank
♦ 6,201.78
0
Sveri g•8
Riksbank
♦
0
2,200 •34
Totals
$ 1 9 ,8 8 1 .4 4
4.322.76
1 24,204.20
FEDERAL RESERVE SANK OF
NEW YORK.
REPORT OF THE SECRETARY TO THE OPEN MARKET INVESTMENT
COMMITTEE MEETING AT WASHINGTON
JUNE 21, 1926
The activities of the Open Market Investment Committee since its last
meeting held in Washington on March 20, 1926, have been confined largely to
transactions in the System Special Investment Account.
Following the policy
outlined at that meeting and in line with the Committee*s recommendation that
"If developments in the money market indicate
any need for doing so, the amount of securities in the
System Account be increased to £300,000,000"
which was approved by the Federal Reserve Board on March 25, 1926, with the
stipulation by the latter that
"no purchases shall be made after April 15, 1926,
without further consideration,"
the Committee authorized the purchase from time to time of short-term Government
securities in the market as a result of which the holdings in this account aggre
gated £275,000,000 by April 15.
Transactions during the June 15 tax period con
sisted of the sale and redemption of securities aggregating £51,000,000 of which
£36,500,000 represented maturing obligations, and £14,500,000 sales of other
issues to foreign accounts to replace their June 15 maturities; also purchases •
in replacement of approximately £45,500,000, as a result of which the holdings
in the System Account at the present time aggregate £270,500,000.
Special allotments of System investments were made during the period
as follows: - on April 16, at the request of the Atlanta bank, their participa
tion in Government securities held in the System Special Investment Account
amounting to £15,998,500 was prorated to other reserve banks in exchange for
a like amount of bankers acceptances in order that the Atlanta bank might maintain
the proper gold reserve to deposit liability occasioned by large shipments of
Federal reserve notes to meet a temporary currency condition at their Havana
agency.
As the Atlanta bank has not yet been in a position to take back these
Volume 161 - Page 79
governments, the New York bank has from time to time replaced the bills which
matured through the sale to date from its portfolio of approximately §12>000,000.
The Federal Reserve Bank of New York also sold from its portfolio to the Federal
Reserve Bank of Minneapolis about §10,000,000 of bills on April 12 in order to be
of assistance in building up their declining earning assets.
The Federal Reserve Bank of St. Louis on March 31, 1926, requested that
they be relieved temporarily of participating in System purchases of bills and
securities.
In order to be of further assistance the Committee purchased from
the St. Louis bank from March 31 to June 1, bills aggregating $10,650,000 which
were redistributed to the other participating banks.
By June 7, however, their
improved position permitted them to resume their participation in both governments
and bills.
,
The United States Treasury found it unnecessary to make any offering
of Government securities on June 15 and similarly found it unnecessary to withdraw
any funds from its government depositaries.
The redemption of maturing obligations
however, resulted in a temporary surplus of funds in the market and the Committee
made temporary sales to various banks in New York during the period from June 12
to 18 of Government securities from the System Special Investment Account aggregat
ing $25,000,000.
The selling of these securities exerted a stabilizing influence
on the money market so that call rates did not go below 3 1/2jot
The heavy tax payments on and immediately following June 15 will result
in the Treasury accumulating substantial balances in the Federal reserve banks,
but this is to be taken care of in part by purchases of Third 4 1 / 4 Liberty
Loan Bonds.
Attached are the following exhibits:
"A”
Statement Showing Participation of Federal Reserve
Banks in System Special Investment Account and
Classifications of Issues Held in the Account by
Maturities.
3
"B"
Statement Showing Purchases of Bankers Acceptances
from January 4 to June 16, 1926, and Amount Each
Bank Has Received in Excess or Short of Its Pro Rata
Share*
"C"
Statement Showing Earning Asset Holdings of All
Reserve Banks June 16, 1926, as Compared with
Previous Week, Also Weekly Average from December
31, 1925, to June 16, 1926, as Compared with Corres
ponding Period of 1925*
MDH
Statement Showing Estimated Net Earnings Over
Expense and Dividend Requirements for year 1926,
of all Reserve Banks based on Figures Furnished
Committee as of May 31, 1926; Also Estimated
Charge-offs for Entire Year#
E x h ib it "A”
STATEMENT SHOWING PARTICIPATION BY FEDERAL RESERVE BANKS IN SYSTEM SPECIAL INVESTMENT
______ ACCOUNT AND CLASSIFICATION OF ISSUES HELD IN THE ACCOUNT BY MATURITIES______ _
Holdings
B ogton
Now York
Philadelphia
Cleveland
$ 11,856,500
71, 359,500
6, 654,000
17,855,000
Richmond
7,870,500
Atlanta
0
Chicago
35,482,000
St. Louis
18,563,000
Minneapolis
12,069,500
Kansas City
24,338,500
Dallas
24,977,000
San Francisco
39,474.500
Totals
0270,500,000
Holdings Bv Maturities
September 15, 1926
0 50,522,000
December
15, 1926
45,203,000
March
15, 1927
83,228,200
December
15, 1927
46,121,300
September 15, 1928
3rd L/L bonds
45,425,500
0270,500,000
E x h ib it "3"
PURCHASES OF BANKERS ACCEPTANCES FROM JANUARY 4 TO JUNE 16, 1926 AND AMOUNT
EACH BANK HAS RECEIVED IN EXCESS OR SHORT OF ITS PRO RATA SHARE
_________ UNDER APPORTIONMENT PLAN PUT INTO EFFECT JANUARY 4, 1926________
Bills
Acquired
(Net)
Bills Entitled
to Acquire
Bills Over
Pro Rata
Share
Bills Short
Pro Rata
Share
$ 51,505,000
$ 48,945,000
$2,560,000
$
163,615,000
165,606,000
0
1,991,000
Philadelphia
55,567,000
55,937,000
0
370,000
Cleveland
68,699,000
69,918,000
0
1,219,000
Richmond
35,667,000
35,817,000
0
150,000
Atlanta
33,133,000
32,451,000
682,000
0
Chicago
98,373,000
97,887,000
486,000
0
St* Louis
31,808,000
31,898,000
0
90,000
Minneapolis
28,854,000
28,824,000
30,000
0
Kansas City
41,822,000
41,953,000
Dallas
23,912,000
28,824,000
88,000
0
San Francisco
63*036.000
62 t931.000
105.000
0
$700,991,000
$700,991,000
$3,951,000
Boston
New York
Totals
0
0
131,000
$3,951,000
Those figures reflect purchases allotted on basis of regular percentages
but do not include inter-System sales from portfolio
EXHIBIT -C•TATBfDtT SHOKMO W I H C ASSET HOLDINGS Of ALL FTISPAL p flk V E BANKS JUKI 16, 1926 COL?APED WITH PPEVIOUS WEEK AND JUNE IT , 1926; ALSO WEEKLY AVERAGE OF EARNING
ASSETS FPQH m m
31«. 1926 TO JOKE 1 6 , 1926 AS COMPARED WITH COPPESPOMPmO PEPIOD 192S AND gfTIRI YEAR 1925____________________________
(000 Q aittsd)
•
B i ll s Dioeouatod
•
•
- Juas 9
• 16
1 st Chaags
B i l l s Purohaood
•
iifiSSL
Nsv York
Phi lads I dhi a
Cleveland
I$22,552
18,953
$114,013
67,066
H s .m
43,064
$43,+65
44,359
3,599-
- Juas 9
• u
Not Chan go
16 ,153
14,123
2 ,030-
Government S s e u r itis s - Juas 9
•
• It
18,465
21,808
3,343+
(Excluding 6ver* Nit Choi go ( draft s -fc e lu d ia g 4,061(toaporary salon)
Total Saraiag Aossto
"
*
•
- Juas 9
* 16
57,808
55,454
2,354Not Chnsxs (Board Bsport)
(Bxoludiag Over
* Not Chsago (d ra fts -Ia e lu d ia g 11,758(tsnporary salon
(Govt. S s s a r itls o )
Iwtkly Am rags of EaraUx Asosto
Doe. 21, 1925 to Juas 16, 1926
eorrospoadiag poriod 1925
Not Chaags
852*
Doe. 21, 1925 to Juas 16, 1926
l a t l r s ysar 1925
Nst Chaags
Ctwaarlioa of Earalax Asssts
Juas 16, 1926
Juas 1 7 , 1925
Nst Chaags
87,653
86,801
87,653
93,459
5,806-
55,454
67,550
12,096-
46,947-
65,898
44,070
21,828-
82,859
160,293
2,307-
13,108
14,755
1,647+
24,215
26,830
76,434+
2,615 +
12,971-
2,770-
266,072
272,484
85,617
87,362
594+
23,263
22,328
935-
Richmond
$46,013
45,438
575-
11,173
11,647
4740
$35,232
36,610
1,378+
24,919
27,939
3,020+
Chicago
St. Lsuis
Minneapolis
*46 . m
43,555
$24,593
22,912
$8,940
4,149
2,756-
31,676
32,267
591+
1,681-
4,987
6,432
1,445+
Kansas City
$20,117
18,637
1,791-
11,822
10,713
1,480-
12,625
12,768
1,109-
143+
Dallas
8SB Francises
$11,142
11,309
$33,114
27,278
167+
4,164+
10,792
10,974
23,405
25,143
182+
1,738+
2 iift l
$
448,163
393,330
54,833-
249,621
233,159
16,662-
38,554
48,907
9,925
8,286
3,847
1,849
10,353+
1,639-
1,998-
6,948+
6,261-
2,5 1 1 -
6,538-
8,606-
8,213-
63,927+
1,997-
911-
1 ,998-
4,7 7 3 -
4,546-
1 ,3 9 6 -
4,288-
6,297-
4,565-
+4 52,573-
106,481
116,397
67,556
65,768
65,594
67,398
60,535
67,483
139,673
144,333
30,114
23,853
60,055
53,520
20,720
18,209
39,789
33,251
39 ,251
33,811
72,859
64,948
35,564
26 ,958
57,792
49,504
52,721
44,508
109,820
107,447
418,308
482,235
1,128,578
1,119,426
7,412+
1,745+
9,916+
1,788-
1,804+
4,660+
6,535-
5,440-
7,911-
8,288-
2,373-
9,152-
81,993-
3,640-
2,434-
1,060-
1,804+
7,061-
4,820-
4 ,3 2 5 -
5,661-
5,979-
1,275+
* 125,652-
268,364
293,907
25,543-
268,364
287,132
18,769-
273,484
210,220
63,264+
91,082
81,640
9,442+
91,082
85,078
6,004+
87,362
79,064
8,298+
106 ,718
113,077
6,359-
106,718
113,904
7,186-
116,397
98,451
17,946+
58,675
49,349
9,326+
58,675
54,734
3,941+
65,768
68,221
2,453-
74+017
34,106
39,911+
74,017
56,548
17,469+
67,398
56,854
10,544+
149,378
132,452
16,926+
149,378
138,045
11,333+
144,333
126,526
17,807+
61,854
41,100
18,754+
61,854
55,936
5,918+
53,520
56,063
2,543-
35,520
32,434
3,086+
35,520
37,271
1,751-
33,811
40,552
66,634
48,122
52,902
39,036
18,712+
13,866 +
66,834
57,293
52,902
49,024
9,541+
64,948
53,546
6 ,741-
11,402+
SOMMARY POP SYSTEM
a st Chongs based
B i l l s discounted fa r m k
B i l l s puretasssd fo r veek
uovsmaent s e c u r itie s f o r vssk
Total saraiag aossto f o r vssk
Vsskly average of earning aossto Dee. 21, 1925 to Juas 16, 1926
sgaiast eorrospoadiag poriod 1925
Is s k ly average of saraiag aossto Dos. 21, 1925 to Jans 16, 1926
against s a t ir s year 1925
Comparison of sam iag asosto Jams 16, 1926 v ith Juno 17, 1925
$54,822
16,662
63,927+
9,152-
110,731
98,218
12,513+
110,731
109,866
3,878+
49,504
47,662
865+
107,447
102,487
1,842+
4,960+
1,163,728
1,052,242
111 ,486 +
1,163,728
1,138,291
25,437+
1,119,426
1,007,196
112,230+
Not Chongs Excluding Orore
d ra fts sad Iaslu d ia g Tsnporary
Salos O o n . 5 sc. Systsn Account
52,573
125,652-
111,486 ♦
25,437+
112,230+
* Thoss fig u rss o f not ehsngss ia Government o o c u r itio s aad t o t a l saraiag asosto exclude $141,500,000 tsnporary advances to Trsasury aid
iaeluds $25,000,000 Government s s e u r it is s sold tsn p o ra rily fro a Systsn Aeeount over tax p s ris d aid rspurehassd by Juas 18, 1926.
E x h ib it "D"
STATEMENT SHOTTING ESTIMATED NET EARNINGS OVER EXPENSE AND DIVIDEND REQUIRE
MENTS FOR YEAR 1926 OF ALL RESERVE BANKS BASED ON FIGURES FURNISHED
THS_ COMMITTEE AS OF MAY 31.1926; ALSO ESTIMATED CHARGE -OFFS FOR ENTIRE YEAR
Estimated Net Earn
ings in Excess of
Expenses and D iv i
dends (Excluding
Charge-offs)
December 31, 1926
(Based on Column l )
Net Earnings in
Excess of Expenses
and Dividends (Ex
cluding Charge-offs)
May 31, 1926
Boston
5
434,277
New York
644,154
Philadelphia
$ 1 ,0 4 2 ,00 0
0
132,047
1 ,5 4 6 ,0 0 0
455,000
308,965
742,000
38,000
Cleveland
326,000
782,000
372,000
Richmond
844,000
586,000
105,000
Atlanta
551,854
1,3 2 4 ,00 0
525,327
Chicago
568,904
1,365,000
660,197
S t, Louis
295,731
710,000
233,591
Minneapolis
128,189
308,000
95,946
Kansas City
322,281
773,000
166,024
D allas
251,309
603,000
41,296
San Francisco
575.000
1 ,3 8 0 ,0 0 0
725.000
54, 650,664
O i l ,161,000
03,549,428
Totals
.
Estimated
Charge-offs
for Year
1926
COPY
MINUTES OF JOINT MEETING OF THE OPEN MARKET INVESTMENT COMMITTEE
AND THE FEDERAL RESERVE BOARD HELD IN WASHINGTON. MONDAY, JUNE 21. 1926
Present:
Vice Governor P latt
Mr. Hamlin
Mr. James
Members of the Board
Acting Chairman Case
Governor Harding
Governor Fancher
Governor McDougal
Governor Norris
Members of the Committee
Under Secretary of the Treasury Winston
Mr. Matteson, Secretary
Mr, Eddy
Mr# Goldenweisor
The meeting was called to order at 11 a* m. by Vice Governor Platt#
Messrs* Norris and Case entered at 1 1 :15 a , sw
Mr* Case reviewed b r ie fly the operations of the Committee since the
la s t meeting on March 20, 1926, the changes in the holdings of Government se
c u r itie s in the Special Account and the a c t iv it ie s over the June 15 tax period*
He stated that the principal occasion for ca llin g the meeting was the problem
of dealing with the money market situ ation over the end of June, when holiday
currency requirements would coincide with the accumulation of a Treasury balance
in the Reserve Banks and ’'window dressing” by member banks for th eir June 30
reports#
I t was also desired to discuss open market p olicy generally in the
lig h t of recent changes in the credit situation*
The Seoretary submitted and read his rep ort, also the report of the
Chairman and the report on foreign accounts, with accompanying statements and
data, a l l of which were duly accepted and ordered placed on f i l e .
Under Secretary Winston joined the meeting at th is point*
Mr# Winston stated that the Treasury would have surplus funds in the
Federal Reserve Banks th is month amounting to about $ 7 5 ,0 0 0 ,0 0 0 , a substantial
part of which i t was proposed to use in the purchase and redemption of Third
Volume 161 — Page 83
2
Liberty Loan Bonds and that he anticipated buying additional bonds for delivery
the f i r s t of July when the Treasury would receive $40,000,000 from the proceeds
of the recent sale of $60,000,000 Farm Loan Bonds#
There followed an extended discussion of the various reports, with
particular reference to the d e sir a b ility of a temporary purchase of Government
secu rities by the Committee to prevent any serious disturbance to the monoy
market over the end of the month, whereupon:
On motion of Mr. Hamlin, duly seconded and carried, i t was
VOTED that i t is expedient that the System holdings of
Government se cu ritie s should be maintained for the present at the
existing amount - approximately $275,000,000 - but with authority to
make temporary purchases or s a le s , within a range of $ 5 0 ,0 0 0 ,0 0 0 , as
may be deemed advisable by the Committee; any such purchases to be
liquidated within a reasonable time as market conditions warrant#
In connection with the report on foreign accounts, a recommendation
was made by the Federal Reserve Bank of Mew York that the reports to the Com
mittee be made as heretofore at each meeting but that the b rief reports to the
Committee at the end of each month be discontinued for the reason that a l l of
the information contained in these la tte r reports is included in the regular
monthly statements of free balances, investments and ear-marked gold made to
the governor of each bank#
I t was voted that th is change be approved#
On motion the meeting adjourned at 1 p# m»
(Signed)
W. B* Mattoson,
Secretary#
Subsequent to the adjournment of the meeting the members
of the Open Market Investment Committee conferred with regard to a
suggestion made by Governor McDougal of the Federal Reserve Bank of
Chicago that Federal Reserve Banks bo permitted to extend the re
purchase agreement practice with recognized dealers in Government
se cu ritie s so as to include Third Liberty Loan Bonds, which bonds
are now in the short-term area*
This recommendation was unanimously agreed to by the
members of the Committee with the understanding that it was to^be^
submitted by Mr* Case to the Federal Reserve Board for the la tte r s
approval#
K orn ; N o . l » t .
Office Corresp
aoAKo
To-------- .— Hr. Hamlin
■
Date_ A pril 27, 1926
Subject:__
'
* 00 *
___ _________ .
-
____1
Mr. Goldenweiser
f
/J
1—4496
' J '>
V
Total reserve deposits of member banks on November 4 , 1925 were
$ 2 ,2 4 6 ,0 0 0 ,0 0 0 .
Of this amount about $300,000,000 were reserves against
time deposits and the remainder was somewhat below v2 , 0 0 0 ,0 0 0 ,0 0 0 .
this amount a l i t t l e
Of
le ss than one-third or about $600,000,000 may be
estimated as representing reserves against deposits a risin g from security
loans and a l i t t l e more than two-thirds or about $ 1 ,4 0 0 ,0 0 0 ,0 0 0 as re
serves against deposits a risin g from commercial and agricu ltu ral loan s.
These estimates are based on the d istrib u tio n of the loans of a l l member
banks as reported in the June 30 c a l l .
the estimates are quite rough.
Volume 161
Page 142
I t is understood, of course, that
o o r t
7BDEUL SS3Z37X SOAHD
I M M iU to i'
l f -3
Jtey 1 2 , 1 9 2 6 ,
_
.
I wl*j> to scknowldd&e peur la t t e r o f May 10 con tain in g o b t a in i n q ^ ir ie a shewt aderol reserv e noto Issu es and reserv es a g a in st d e p o s its .
&
r a p ly la ^ I ahoald lik * t i n t to g iv e s p e c ific t t u m
to your f c u T n a t i o n s
jia toen to p resen t & b r i e f statem ent o f the method o f la m in g Federal reserve
n o te s , which ®ay h elp to throw fu rth ar lig h t on th e m ib je c t.
Torar l a s t q u e stio n , which we s h a ll answer f i r s t , 1st
*|*ust a 35 p er
M s t g o ld o r lftw fhl no ney reserve he h eld a g a in st ^deferred a v a ila b ilit y *
d e p o sits?
. D eferred a v a i la b ilit y item s are n ot considered a s a p a r t o f a re~
aorvo oank s d ep osit l i a b i l i t i e s fo r the reason th a t they rep resen t lta a s in
p rocess o f c o lle c t io n a g a in st whtoh a member hank can not drew*
Aa soon as
.th e s e Items a re c o lle c te d the masher banks are given c re d it fo r them In th e ir
a a p o a it accounts a ^ i a s t which the re se rv e hanks a re required to m in ta in a
mininun reserve o f 55 p er cen t*
Tour f i r s t qu estion 1st
*D©qs the fe d e ra l reserve hank m y In te r e s t
on a l l a e te s loaned to I t hy i t s agen t u n t i l retu rn ed , o r tp ld o r l& w fn l money
a p aid to tb « agent fo r redemption when returned**
3He fe d e ra l reserve hanks
do no pay in te r e s t on n o tes issu e d to than hy the fe d e r a l reserv e agen ts* B y
°f
S *?***1 RasMlrTa
in te r e s t to he c h a r g e d ^ n o tes
issu ed by tne ag<?nts to th e reserv e banks i s w ithin th e d is c r e tio n o f ths
;;
^ e r r s Board, and th e Board has never deemed i t d e s ir a b le U Impose
an_ b l! < i y
2* ? o tel ^ * 8aede,
Xnasmirti aa a l l su rp lu s earnings a r e turned
r' r
" ® Whited 3tetoB 'treasury in so y c a s e , the o n ly purpose o f a s p e c ia l
in te r e s t d iargs fo r fe d e ra l reserve n o tes issu e d to fe d e r a l reserv e hanks hy
Vy ^ T
*®a ld he to a c t a s a p a r tic u la r r e s tr a in t upon th e issu e
?*
Cdor&l reserve currency.
i t i s th e view o f the Board th a t r e s tr a in t upon
° f y* U r a l m t m * ■ * « • * * * » whether in toe fo m o f d ep o sit : c r e d it o r
o f fe d e r a l reserve n ote cu rren cy, can he a tta in e d th rou ^i changes in d iscount
r a te s and through ©peo-raaifce t o p e ra tio n s, and that those fo m t o f re s t r a in m e n
c o r r e c tly a d ju sted to c r e d it and b u sin ess co n d itio n s are adequate and e ffe c tiv e *
Tour second q u estion 1st
*Does th e fe d e r a l reserve honk m aintain a 40
p er cent gold reserve a g a in st those n o tes u n t il returned to th e a g e n t, o r g o ld
or law fu l noney su b stitu te d ?*
f h i l e a l l n o tes issu e d to the reserv e hank by
the agen t m e t be f u l l y covered b y e i l g t o U c o lla t e r a l, no reserv e ia required
9a^ 1 no* aB * * * * *
« • p aid o u t and thus put in to a c tu a l c ir c u la tio n
u / . e reserve banks.
A ^p ln st n o tes in a c tu a l c ir c u la tio n the fe d e r a l reserve
basics are requ ired by to e A ct to M aintain a go ld reserve o f not le s s than 40 p er
a sa t*
1
. , Tf a r ,? h,lr d ?n” tio “
" 0w » » > * • U «ukL ky » m o r a l r o s o r v . tank sod
returned to I t I 7 n o fe a r F o to ra l rosen rs tank fo r r e d a c t io n Us r s is s a e d axeont
a * « a o r ig in * ! lsa u * from l t a a «** tT *
T e s. Dtan * n o t* i s r i t s i M l to *
fe d e r a l reserve tonk vhoss n os* i t te a r s the d is p o s itio n mad* o f i t depends upon
*ne co n d itio n o f the note*
I f toe n ote i s f i t fb r c ir c u la tio n , i t i s added to th e
reserv e baafc«s supply o f n o tes on hand aa exp lain ed below* I f i t i s u n f i t , i t i s
p resen ted to toe fe d e ra l reserve agent fb r retirem ent*
Volume L6l - Page 1 4 3
_ ' \V
5
5 k ?***
p*»e»SS*r
to Ostein I t .
I f v.is
discounts hi# ante sta4
-a „t o»rr7 ia their S»al**, »
i f a f c « f ^ y fa* ****** te j
eotfi w ill M l&* the * • * « * ■ *
B0tq* ** Uto
*-'„
thereby reduced halo* 1*0*1 raqalresien »»
* * * id
e ^
S l^ e ^ * J T C S * to
than their « 3« l « M ! « " •
oon«id«rt*i» withdrawal of
baiBaes with th®
w ««n «
rT i !
<***•***■
_ \
t*as^= to replenish 14a gjyraicty «Oj>P-/»
«lf»
• f
-------- ,*«* the T t iw l »«•**•
..
.^
.,, tv.# f slK1 9f M i n i
^ssfSXJW V tho m « o i
«*.
s r a s - * * ’?
C S T i t - 'v ’ ^
p le ^ «d wUV tg*
W d
V J K J S f f S T S i . it
U 0> ^ j r ^ U f 8«a notes
s S i5 S " " Z S S w
..f-A
s
m
S
S t S
sF j
M r t f S t t m «* n » « ■ »
*>'
: rs * ■ w a v ® w t a g S t L
3$ br-mShss,
roasrn M t** ! ” * ^
srJ5K
“K,,T “ 15-“ ’Sr.’^T«™* if^ ~ 2 j2 S r "
ml
-n^4 been
1 wit Tar the federal roeam beak* tots S lre a to tto a .^ 'B 'vej
bold
rtthe
lsm
dw
treserve a~sntr a^slnet the notes iUWWd V * :"* . '
to »2 .ia ,C P 7 t2O0, or *150,035,000 In ereeso o f the 10* * « * * * • *
This collateral consisted of $1,414,141,000 to cold and .■,^ , < ^ 000 t o ^ i * ^ l »
paper, l . , . , paper dtocceatei for ~<«*«r banks on* secsgteases ^ h w o d to « •
"
i*.^rfit
In t>>« bt^aace sheet of the veferrs haiurf the 31,414,141,000
S T l J i r t ,^ n t t a r C S S the $40,892,000 of SOM hsld.by the
the r a t i o n f«na with tt» Halted States ? r «sa r e r . is
™ *r> £ % ^ te d
w m flKpit. -• .v- . • fO~**fc ysS.^ral wsetve nets®*"
w»f» lw » on iT
*y & m w m w
tf 5
«
*
»
2 hop® thMi this
-
«*
iMommMUm
satisiooioxlly
^
n w tw
Ysry troly ;rt3urs,
(Blcasd) 0 * Us Crissingor,
Oovwmor*
Hon. I. f. l!c?aAdm?.,
Chs.iT?raasn, Knilctog »nd O isrene/
House o f Eopresentatises,
Washiagton,
%
0.
clrc,lU /owr ir.«p.\iiPT«
^v
L u -
GGN n
DE NT I A L
for use of Federal
Reserve Board only
s.
Federal
Reserve
D istrict
on
New York
4
425,000
5 2 1 ,0 0 0
123
-
-
-
-
387
894
402
760
405,100,000
5 1 , 1 0 2 ,0 0 0
1 2 .6
-
310
861
^ 5 0 ,3 3 3 .coo
5 3 ,159,000
1 1 .8
215
295
590
2 0 2 , 5 3 3 ,0 0 0
4 8 ,8 9 1 , 000
24.1
-
215
492
1 6 4 , 5 3 3 ,0 0 0
35,9 5 5 ,0 0 0
2 1 .9
1 ,1 7 6 ,4 0 0 ,0 0 0 1 5 7 , 9 2 2 ,0 0 0
1 3 .4
Philadelphia
4
2 , 3 1 0 ,0 0 0
3 ,1 5 3 ,0 0 0
136
Cleveland
4
3 6 2 ,0 0 0
5 1 6 ,0 0 0
143
19
2 ,9 3 7 ,0 0 0
4 ,0 7 9 ,0 0 0
139
Atl anta
8
849,000
9 7 6 ,0 0 0
115
Chicago
38
2 ,4 3 9 ,0 0 0
4 ,2 6 9 ,0 0 0
175
8
5 2 1 ,0 0 0
1 , 6 2 6 ,0 0 0
312
527
1.372
5 5 2 , 2 3 3 ,0 0 0
4 9 , 5 2 5 ,0 0 0
9 .0
St. Louis
a
5 ,5 ^ 5 ,0 0 0
7 ,9 ^ 5 ,0 0 0
143
1
5 5 ,0 0 0
1 1 0 ,0 0 0
200
216
621
1 7 5 ,731* ,000
4 1 , 4 4 7 ,0 0 0
2 3 .6
>^|^peapoli s
11
4 4 3 , 000
634,000
143
-
123
810
1 04,767,000
4 ,8 8 5 ,0 0 0
4 .7
Kansas City
39
5 , 9 0 8 ,0 0 0
9 ,1 8 1 ,0 0 0
155
203
224
1 ,0 1 5
141,500,000
1 9 , 7 5 5 ,0 0 0
1 4 .0
3
2 7 6 ,0 0 0
38 b , 000
140
-
211
844
143,000,000
1 0 ,4 9 3 ,0 0 0
70
San Francisco
------- — ---------------- 13
TOTAL
iMay I 926
l 6b
Apr. 1926
140
May 1§25
200
1 , 7 1 7 ,0 0 0
2 , 3 1 0 ,0 0 0
135
2
3 8 b , 0 00
221
197
724
279,867.000
4 1 .7 7 1 .0 0 0
14.9
2 3 . 6 6 1 .0 0 0 34,641,000
2 4 .5 4 9 .0 0 0 34,5 8 8 ,0 0 0
2 3 .8 3 9 .0 0 0 3 9 ,128,000
•146
141
164
3 .0 4 6 .0 0 0 6 , 8 0 5 ,0 0 0
2 . 2 9 0 .0 0 0 4 ,8 0 2 ,0 0 0
3 ,9 2 2 ,0 0 0 1 2 , 5 1 6 ,0 0 0
223
12
209
3 ,282
3,155
3,209
9 ,4 0 0
9 ,4 1 0
9 .5 5 ^
4 .0 8 8 .5 6 7 .0 0 0 5 48,066,000
4 .0 7 1 .1 6 6 .0 0 0 5 7 1 ,6 73,000
3 ,8 5 1 ,b53 . 000 4 5 1 .2 75.000
1 3 .4
1 4 .0
Richmond
Dallas
.r
MEMBER BANKS BORROWING CONTINUOUSLY IN EXCESS OF CAPITAL AND SURPLUS LURING MAY, 1926,
St. 5012
ALSO BORROWINGS OF ALL MEMBER BANKS AT THE END OF THE MONTH
GROUP I - A ll banks borrowing
GROUP II - Banks in Group I
1
continuously in excess of capital
whose borrowings at tne end of month |
GROUP III - A ll member banks in d is t r ic t
and surplus ‘during; the month
were at le a st twice capital & surplus 1
j oap iBorrowings 0 “ May 31
| Capi(Borrowings on May 31 jAccommo- (
CapiIBorrowines
Mav 71
Num |
tal
Ratio to
Num- j
tal
Ratio to
| dated
| Total
tal
1
•
|Ratio
to
ber |
and
Amount
|capital &
ber |
and
| Amount
capital & | during | Num
and
| Amount
|capital &
| surplus
surplus
| surplus 1
surplus
| month j ber
surplus
1
1 STiml ns
---- ----- 1
2
$ 450,000
$ 6 7 1 ,0 0 0
149#
4 2 9 2 , 8 6 7 ,0 0 0 * 3 3 , 1 6 1 ,0 0 0
417
175
1 1 .3
FEDERAL RESERVE BOARD
DIVISION OF BANK OPERATIONS
JULY 7 , 1926.. :
Volume 161
—
Page 148
1 .
-
$400,000
-
2
-
3 1 0 ,0 0 0
-
-
-
3
-
1 , 5 8 5 ,OCO
-
17
27
1 7 5 ,0 0 0
$ 8 0 8 ,COO
-
6 6 5 ,0 0 0
-
-
3 , 2 1 0 ,0 0 0
-
202 $
319 ‘
•
1 1 .7
'
o rtn
X rt.
1 * E /'
131.
Office Correspor ence
f e d e r a l reserve
BOARD
Date
:;ay 8,. 1926.
\
T o ____ E ■ .
r.
'
Subject:__
Smead
The other day you asked me to give you an illustration hearing on
the statement on page 84 of Hr. Goldenv/eiser's book on the Federal Reserve
System, v/hich reads as follows : ,r,7hile an individual bank can increase its
lending power through borrowing from a reserve bank by only slightly more than
the amount it borrov/s, the lending power of the banking system increases by
approximately 10 times that amount.” The paragraph in which this sentence
appears brings out the fact that v/hile a bank need borrow only one dollar from
the Federal reserve bank to support any actual increase of :$10 v/hich has already
taken place in its deposit liabilities, it can not reverse the process and
increase its deposit liabilities by 10 times the amount of any substantial
addition to its reserve balance with the reserve bank v/hether obtained by
borrowing or otherwise. This is because the larger portion of deposits so
created would not long remain on deposit v/ith the borrowing bank but would be
paid out to depositors in other banks in settlement for goods purchased or
services rendered.
To illustrate let us assume that bank A has obtained an available
balance at its reserve bank of pi,000,000 by one of the following transactions:
(1) deposit of currency, including imported gold, (2) deposit of checks on other
banks in excess of the checks drawn on it and received from the reserve bank,
(3) sale of acceptances or United States securities to the reserve bank,
(4) sale of acceptances, commercial paper or securities in the open market,
(5) borrowing from the reserve ban]?:. If bank A utilized this available reserve
balance by extending loans to its customers for deposit credit, it would, of
course, be able to increase its deposits by Ten times the amount of the available
reserve, provided none of the deoosit credit so granted v/as withdrawn, v/hile if
the credits granted were all withdrawn, as for example to make a oayment in
another city, or to obtain currency, bank A would Lose the ;1,000,000 on deoosit
with its reserve bank and would have no increase in its ov/n deposits. The bank’s
actual experience would ordinarily fall somewhere between these two extremes and
would vary according to conditions.
In so far as bank A sustained a loss of
reserves through the withdrawal of deposits so created other banks v/ould gain
reserves correspondingly and would obviously in consequence, in the aggregate,
have the same basis for additional expansion of-deposits as bank a v/ould have
had if no withdrawal of deposits had occurred. The original balance of ^1,000,000
to the credit of bank A may therefore become widely diffused among many banks,
and these banks in the aggregate can expand their de oosits by ten times the
amount of this balance, if as has been assumed it is used solely as a reserve
against deposits.
In actual practice this would not be the case, however, as
some of the banks to v/hich the reserve credit v/as transferred v/ould use it to
liquidate indebtedness at the Federal reserve bank, some to obtain needed
currency,and others, of course, to support additional deoosit credits granted
to their customers.
Volume 161
Page 150
• F o r m N o . 131.
^Office Correspondence
To
Mr. Hamlin
rrom.
Mr. Goldenweiser
FEDERAL RESERVE
BOARD
I S,
1-Sy
1926
S ubjects
-
Supplementing m y memorandum on the e ffe c t of reestablish in g
the old act on reserve position o f the reserve banks, I want to
say that the volume o f Federal reserve notes outstanding on A pril
[8, 1926 was $ 2 ,0 0 1 ,0 0 0 ,0 9 0 and that the- t o t a l amount o f discounted
purchased paper was $715,0 0 0,0 0 0 , leaving $ 1 ,2 8 8 ,0 0 0 ,0 0 0 of
that would have to be covered by gold . Notes that would be
by gold under the o rigin al act would not be a l i a b i l i t y of
W M L eral reserve banks and, th erefore, the note l i a b i l i t y which
n i H . ,6 3 2 ,0 0 0 ,0 0 0 would be reduced to $374,0 0 0,0 0 0 .
Volume 161
Page 151
FEDERAL RESERVE
BOARD
Mr. Hamlin
Tne principal e ffe c t o f adopting the origin al provisions
about note issues would be to count the gold with the Federal
reserve agent as in reduction o f l i a b i l i t y on Federal reserve
notes by the Federal reserve banks and thus to reduce the reserve
o f the bank and th eir l i a b i l i t y on Federal reserve notes by that
amount.
The follow ing tab le shows the e f f e c t that the change
would have on the reserves, l i a b i l i t i e s , and reserve percentage
o f the reserve banks.
In making the calcu la tion i t was con
sidered that the entire amount o f discounted and purchased paper
was used as a basis fo r note issues and that gold was impounded
witn the agent only fo r the excess o f Federal reserve notes above
— gEEV£ POSITION OF FEDERAL RESERVE BANKS ON APRIL
o f d o lla rs)
Actual
As under
o rig in a l F.R. act
F o r m N o . 131.
•
FEDERAL RESERVE
Office CorrespoiWence
T o
“ *>
_______ Mr • Hamlin
From......... ...Hr.
\ ^
g . M
ay17>19g6
Subject:________________________ i___________ ,
Goldenweispr_______
nr3 ^ /* *
C
-—ws
. ^
(_)
i r>
■
:
This is in response to your request o f l,lay 15 that we v e r ify in a
general way a statement attributed to Governor Strong to the e f f e c t :
*
,
V
^
/
"That prices on the New York Stock Exchange during the recent speculative
boom were not far out o f lin e with prices before the w ar."
The records show that fo r the 50 $t^cks used by the New York Times
the average price at the peak of the market la s t February was about $158
per share, comparable with about $86 per share in September, 1912, which
was the highest figure during the four years 1911-1914.
According to th is
comparison, stocks were in February about 49 per cent higher than before the
war.
V
Wholesale prices fo r commodities in February were 55 per cent higher
than in 1913.
.
Governor Strong’ s statement, I understand, was intended to c a ll atten
tion to the fa c t that stock p rice s, r e la tiv e ly speaking, are no higher than
commodity p rice s, when comparison is made with prices prevailing before the
war.
I do not th ink that th is s ig n ifie s , however, that stock prices were on
a reasonable le v e l, since the proper measure of security prices I s the earn
ing power of corporations rather than the prevailing le v e l of commodity p rice s.
Volume 161
Page 1^2
- . o r w i M o . l.'Ji.
Office Correspt # ence
T o ___________ Mr* Hamlin
From__
FEDERAL RESERVE
BOARD
Subject:..
Mr* Goldenweiser
.....
'— ‘*406
I
am pleased to transmit herewith the attached statement
which gives the information requested in your memorandum of
May 4.
Volume 161
Page 153
DD
:
: Production
Prices
:(1919=100) (1915=100) :
:
Net gold :
U. S.
imports or : Discounts : secu rities Acceptances:
exports 1 / :
2/
:
2/ __ - 2 /
:
Total
earning
assets
:
:
?/ :
New York
discount
rate
1920:
June
Dec.
107
90
243
179
- $ 70,792,683
+ 165,769,748
2 ,4 6 1 ,02 2
2 ,7 3 0 ,3 6 0
347,445
539,140
401,184
244,001
3 ,2 0 9 ,6 5 0
3 ,3 13,502
7
7
1921:
June
Dec.
77
83
142
140
+539,252,155
-3 2 8 ,1 2 5 ,9 1 6
1 ,8 1 7 ,7 4 9
1 ,1 8 5 ,4 3 2
302,710
226,005
54,716
105,499
2,1 7 5 ,17 5
1 ,5 1 7 ,1 9 4
6
4 1 /2
94
+ 112,868,226
* 125,426,665
438,789
663,562
592,347
579,763
155,181
261,077
1 ,1 6 6 ,6 1 7
1 ,5 0 4 ,4 3 3
4
4
1922:
June
Dec.
116
150
156
1925:
June
Dec.
122
113)
153
151
-+ 109,640,912
-1 8 4 ,4 3 1 ,4 8 5
744,306
774,735
155,133
103,099
225,396
322,451
1 ,1 2 4 ,8 9 1
1 ,2 0 0 ,55 1
4 1 /2
4 1 /2
1924:
June
Dec.
94
117
145
157
+- 222,387,212
- 35,685,395
574,592
301,716'
415,970
554,587
51,125
356,613
842,963
1,2 2 0 ,70 6
3 1 /2
3
1925:
June
Dec.
110
121
157
156
- 150,269,955
- 15 ,9 0 3 ,5 3 7
437,621
690,896
345,707
558,412
264,589
367,864
1 ,0 6 0 ,6 6 7
1 ,4 2 8 ,7 5 2
5 1 /2
3 1 /2
370,754
254,409
1 ,1 5 5 ,7 3 9
5 1 /2
y- ‘/«
1926:
123 (Mar.) -£52' (Ear >77,016,625
y
2/
3/
537,005
T or the preceding six months; 1926, January to March.
Rep o r t d a ily average holdings (in thousands o f d o lla rs) fo r June and
December 1920-1925 and for A p ril, 1926.
In e ffe c t June 30 and December 51, 1920-1925 and on A pril 30, 1926.
s/
per cent
coU a*
./3
,
SUMABY OF BUSINESS AND CREDIT DEVELOPMENTS SINCE 1920
In the early part o f 1920 business expansion which had been rapid dur
ing and immediately follow ing the war, came to an end and there was clear
evidence o f an approaching turn in economic conditions.
The volume of pro
duction began to decline early in the year; transportation f a c i l i t i e s were
badly congested and there was evidence o f speculation and expansion along
unsound lin e s .
A fter May there was a
precipitous f a l l o f p rice s,
and while the t o t a l volume o f cred it continued to grow u n til the closing
months o f the year, there was a good deal of liq u id a tio n in some parts o f
the country.
During the larger part o f the year gold was leaving the
country in considerable amounts, being withdrawn by South American and
Oriental countries, and the reserves of the reserve banks were approaching
the le g a l minimum.
Discount rates were advanced at a l l o f the banks and in
many banks were as high as 7 per cen t.
The follow ing year, 1921, was a year of in d u stria l and business re
cession and credit liq u id a tio n ; prices continued to f a l l ra p id ly ; there was
a large importation o f gold and the volume o f reserve bank credit in use
was declining both as the r e su lt o f the return flow o f currency no longer
needed in circu la tio n and the deposit o f imported gold by member banks.
The
Federal reserve system throughout the year was gradually reducing discount
r a te s .
Toward the la t t e r part o f the year in d u stria l a c t iv it y began to show
signs of r e v iv a l.
Early in 1922 th is upturn became quite general throughout
the d iffe r e n t lin e s of business a c t iv ity and trade; production continued to
increase; prices began to recover from the low point reached in January, and
Page 2.
credit liq u id a tio n also came to a c lo se .
gold imports and W k
There was a large volume of
reserve bank credit in use declined fo r the year as
a whole, although i t showed considerable increase during the la s t h a lf of
the year.
Discount rates continued downward and at the end o f the year
they were 4 1 / 2 per cent in roost o f the banks and 4 per cent at New York,
Boston, and San Francisco.
The year 1925 began with evidences o f 'PBSy rapid business expansion;
prices >.rere advancing and the volume of commercial loans was a lso growing
considerably; there was some evidence of re v iv a l of speculative a c t iv ity
in commodity markets and in industry.
The expansion, however, did not con-
nnd a fte r the spring there was a d e fin ite checic followed by recession
botn in the volume of business a c t iv ity and in the movement of p r ic e s.
Mem
ber bank and reserve bank cred it remained f a i r l y constant throughout the
year, gold imports, 7/nich continued, were la rg e ly absorbed by the growing
demand fo r money in c ir c u la tio n .
Reserve bank p o licy during the year was
expressed by an advance of the rates in New York, Boston, and San Francisco
from 4 to 4 1 / 'd. per cent early in the year and a sale of Government securi
t ie s in large volume throughout the larger part o f the year.
This was the
f i r s t year in which open market p olicy was d e fin ite ly formulated and placed
under the supervision o f a committee o f governors in cooperation with the
Federal Reserve Board.
Industry and traoe in 1924 continued to decline and in the summer of
ts a t ^ear were at a r e la t iv e ly lovr le v e l.
was a large volume of gold imports.
Prices were a lso receding; there
With small demand fo r commercial credit
Page
3.
and an abundance of funds arising from gold imports, there was a concen
tration of bank funds in the financial centers, where they were used largely
for investment and for loans on securities.
This was the period during
which bank credit increased very rapidly, and particularly the credit used in
the purchase and carrying of securities.
------------------ --------------------------------------- -
7
"
In view of the inactive condition of
'
4
business and the low money rates, Federal reserve s-ysf&e?!! reduced iJJs rates
all along the line by a series of steps}and at the end of the year the rate
in New York as 3 per cent, and in the other banks varied between 3 l/2 and
4 per cent.
During the year the Federal reserve banks also purchased a con
siderable volume of securities with the view to maintaining some contact with
the market and having assets at their disposal that could be sold in case un
desirable speculative activity should develop.
The course of bueiness in 1925 was fairly parallel to that in 1924 with
the difference that the fluctuations *®re not as wide and that the level of
business at the beginning of the year was considerably higher than a year
earlier.
In the early part of the year there was a general recession^which
was arrested by the middle of the year and the last oart showed- a revival of
business.
Bank credit continued to grow rapidly and also continued to be
largely used for loans on securities.
In contrast to the year before, however,
the funds used were not so much funds of banks in the money markets as of the
banks in the interior of the country.
a considerable volume of gold exports.
tended generally downward.
For the first time since 1920 there was
After the spring of the year prices
Federal reserve policy during the year was ex
pressed by the sale of $250,000,000 of securities in the early months of the
year and by advances in discount r a te s .
The rate at the New York bank
was raised from 5 to 3 l / 2 per cent in February and at the Boston, P h ila -'
delphia, Cleveland, and San Francisco banks i t was raised from 5 l / 2 to 4
per cent in November.
A further rate advance in New York was contemplated
but was postponed u n til the turn o f the year, ch ie fly because i t was deemed
inadvisable to increase the cost of credit to commerce and industry, at the
time of the peak of the autumn demand fo r credit for marketing purposes.
It
was also considered that New York banks, were not increasing th e ir own a.oans
or th e ir borrowings at the reserve banks and that higher rates m the New YorK
___ 1.^4.
+.n -result in additional gold imports that would enable
loans without resorting to the reserve banks.
1926 trade and industry continued very a c tiv e ,
there was a continued recession in prices of commodities.
Gold was moving into
th is country, c h ie fly from Canada and money rates were ease.
The discount
rate of the Federal Reserve Bank of New York, which had been raised to 4 per
cent on January 8, was reduced to 3 l / 2 per cent on A pril 13.
@FedFRASER